SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- --- ACT OF 1934 For the fiscal year ended December 31, 1999
OR
- --- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from --------- to ---------
Commission Registrant, State of Incorporation, I.R.S. Employer
File Number Address and Telephone Number Identification No.
- ----------- ---------------------------- ------------------
1-6047 GPU, Inc. 13-5516989
(a Pennsylvania corporation)
300 Madison Avenue
Morristown, New Jersey 07962-1911
Telephone (973) 455-8200
1-3141 Jersey Central Power & Light Company 21-0485010
(a New Jersey corporation)
2800 Pottsville Pike
Reading, Pennsylvania 19640-0001
Telephone (610) 929-3601
1-446 Metropolitan Edison Company 23-0870160
(a Pennsylvania corporation)
2800 Pottsville Pike
Reading, Pennsylvania 19640-0001
Telephone (610) 929-3601
1-3522 Pennsylvania Electric Company 25-0718085
(a Pennsylvania corporation)
2800 Pottsville Pike
Reading, Pennsylvania 19640-0001
Telephone (610) 929-3601
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Registrant Title of each class which registered
- ------------------------ ------------------- --------------------
GPU, Inc. Common Stock, par value
$2.50 per share New York Stock Exchange
Jersey Central Power & First Mortgage Bonds:
Light Company 6 3/8% Series due 2003 New York Stock Exchange
7 1/8% Series due 2004 New York Stock Exchange
7 1/2% Series due 2023 New York Stock Exchange
6 3/4% Series due 2025 New York Stock Exchange
Name of each exchange
Registrant Title of each class which registered
- ------------------------ ------------------- --------------------
Jersey Central Power & Cumulative Preferred
Light Company (continued) Stock, $100 stated value
4% Series New York Stock Exchange
7.52% Series New York Stock Exchange
8.65% Series New York Stock Exchange
Monthly Income Preferred
Securities, 8.56%
Series A, $25 stated
value (a) New York Stock Exchange
Metropolitan Edison Trust Preferred
Company Securities, 7.35% Series A,
$25 stated value (b) New York Stock Exchange
Pennsylvania Electric Trust Preferred
Company Securities, 7.34% Series A,
$25 stated value (c) New York Stock Exchange
(a) Issued by JCP&L Capital, L.P., and unconditionally guaranteed by
Jersey Central Power & Light Company.
(b) Issued by Met-Ed Capital Trust, and represents a beneficial interest in
the trust equal to a cumulative preferred limited partnership interest in
Met-Ed Capital II, L.P.
(c) Issued by Penelec Capital Trust, and represents a beneficial interest in
the trust equal to a cumulative preferred limited partnership interest in
Penelec Capital II, L.P.
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether each registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of each registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the registrants' voting stock held by
non-affiliates based on the closing price of $25.00 on March 15, 2000 was:
Registrant Amount
------------------------------------ --------------
GPU, Inc. $3,024,666,325
The number of shares outstanding of each of the registrants' classes of
voting stock as of March 15, 2000 was as follows:
Shares
Registrant Title Outstanding
- ------------------------------------ ----------------------------- -----------
GPU, Inc. Common Stock, $2.50 par value 120,986,653
Jersey Central Power & Light Company Common Stock, $10 par value 15,371,270
Metropolitan Edison Company Common Stock, no par value 859,500
Pennsylvania Electric Company Common Stock, $20 par value 5,290,596
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for 2000 Annual Meeting of Stockholders of GPU, Inc.
(Part III)
- -----------------------------------------------------------------------------
This combined Form 10-K is separately filed by GPU, Inc., Jersey Central
Power & Light Company, Metropolitan Edison Company and Pennsylvania Electric
Company. Information contained herein relating to any individual registrant is
filed by such registrant on its own behalf. Each registrant makes no
representation as to information relating to the other registrants.
TABLE OF CONTENTS
Page
Number
------
Part I
Item 1. Business 1
Item 2. Properties 27
Item 3. Legal Proceedings 30
Item 4. Submission of Matters to a Vote of Security Holders 30
Part II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters 31
Item 6. Selected Financial Data 31
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 32
Item 7A. Quantitative and Qualitative Disclosures about
Market Risk 32
Item 8. Financial Statements and Supplementary Data 32
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 32
Part III
Item 10. Directors and Executive Officers of the Registrant 33
Item 11. Executive Compensation 36
Item 12. Security Ownership of Certain Beneficial Owners
and Management 42
Item 13. Certain Relationships and Related Transactions 43
Part IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 44
Signatures 58
PART I
------
ITEM 1. BUSINESS.
GPU, Inc., a Pennsylvania corporation, is a holding company registered
under the Public Utility Holding Company Act of 1935 (1935 Act). GPU, Inc. does
not directly operate any utility properties, but owns all the outstanding common
stock of three domestic electric utilities serving customers in New Jersey --
Jersey Central Power & Light Company (JCP&L) -- and Pennsylvania -- Metropolitan
Edison Company (Met-Ed) and Pennsylvania Electric Company (Penelec). The
customer service function, transmission and distribution operations and the
operations of the remaining non-nuclear generating facilities of these electric
utilities are conducting business under the name GPU Energy. JCP&L, Met-Ed and
Penelec considered together are referred to as the "GPU Energy companies." The
nuclear generation operations of GPU Energy are conducted by GPU Nuclear, Inc.
(GPUN). GPU Capital, Inc. and GPU Electric, Inc. and their subsidiaries own,
operate and fund the acquisition of electric and gas transmission and
distribution systems in foreign countries, and are referred to as "GPU
Electric." GPU International, Inc. and GPU Power, Inc. and their subsidiaries
develop, own and operate generation facilities in the United States and foreign
countries and are referred to as the "GPUI Group." Other subsidiaries of GPU,
Inc. include: GPU Advanced Resources, Inc. (GPU AR), which is involved in retail
energy sales; GPU Telcom Services, Inc. (GPU Telcom), which is engaged in
telecommunications-related businesses; and GPU Service, Inc. (GPUS), which
provides legal, accounting, financial and other services to the GPU companies.
All of these companies considered together are referred to as "GPU."
GPU is subject to regulation by the Securities and Exchange Commission
(SEC) under the 1935 Act. The GPU Energy companies' retail rates, conditions of
service, and issuance of securities are subject to regulation in the state in
which each utility operates - in New Jersey by the New Jersey Board of Public
Utilities (NJBPU) and in Pennsylvania by the Pennsylvania Public Utility
Commission (PaPUC). The Nuclear Regulatory Commission (NRC) regulates the
ownership and operation of nuclear generating stations. The GPU Energy companies
are also subject to wholesale rate and other regulation by the Federal Energy
Regulatory Commission (FERC) under the Federal Power Act. In addition, certain
foreign subsidiaries and affiliates are subject to rate and other regulation
(see REGULATION section).
Financial information with respect to the business segments of GPU is
provided in Note 13, Segment Information, of the Combined Notes to the
Consolidated Financial Statements.
This Form 10-K contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Statements made
that are not historical facts are forward-looking and, accordingly, involve
estimates, forecasts, assumptions, risks and uncertainties that could cause
actual results or outcomes to differ materially from those expressed in the
forward-looking statements. Although such forward-looking statements have been
based on reasonable assumptions, there is no assurance that the expected results
will be achieved.
Some of the factors that could cause actual results to differ materially
include, but are not limited to: the effects of regulatory decisions; changes in
law and other governmental actions and initiatives; the impact of
1
deregulation and increased competition in the industry; industry restructuring;
expected outcomes of legal proceedings; the completion of generation asset
divestiture; energy prices and availability; and uncertainties involved with
foreign operations including political risks and foreign currency fluctuations.
SIGNIFICANT DEVELOPMENTS
------------------------
Business Outlook
- ----------------
In 1999, GPU began implementing its strategy for building shareholder value
by focusing on its core business: energy infrastructure service. Part of GPU's
strategy has been to divest all of its generation assets. GPU has decided to
limit its exposure to fluctuating power prices, because it believes that, in a
deregulated environment, only very large generators with the resources to absorb
market risk could be successful in this arena. It was GPU's judgment that it did
not have sufficient size or resources to compete successfully as a major energy
supplier.
In March 1999, Penelec sold its 50% interest in the Homer City Station
(Homer City) to a subsidiary of Edison Mission Energy for approximately $900
million. This was followed by the sale of Penelec's 20% undivided ownership
interest in the Seneca Pumped Storage Facility to Cleveland Electric
Illuminating Company in July 1999 for $43 million, and finally, in November
1999, the sale of substantially all of the GPU Energy companies' remaining
fossil and hydroelectric generating assets to Sithe Energies (Sithe) for
approximately $1.6 billion. (In February 2000, Penelec agreed to sell its Deep
Creek Lake property to the State of Maryland for $17.6 million.)
Then, in December 1999, the GPU Energy companies completed the sale of the
Three Mile Island Unit 1 (TMI-1) nuclear generating station to AmerGen Energy
Company, LLC (AmerGen), a joint venture of PECO Energy and British Energy, for a
total purchase price of approximately $100 million. AmerGen has also agreed to
purchase JCP&L's Oyster Creek nuclear generating station (Oyster Creek), for
approximately $10 million.
With generation no longer a significant part of GPU's business, GPU will
now be able to focus more closely on its lower risk asset base by strengthening
the transmission and distribution core of its business. These assets, which
remain subject to regulation, are dependable sources of cash flow that GPU will
use to reduce outstanding debt, repurchase its common stock and pay common
dividends. To this end, in January 1999, the GPU, Inc. Board of Directors
authorized the repurchase of up to $350 million of common stock. Through
December 1999, 6.4 million shares of common stock, or approximately 5% of the
outstanding shares, have been repurchased since the start of the program at an
average price of $35.25 per share. GPU recognizes that the key to its future
success is the ability to effectively grow its infrastructure business. GPU also
sees the potential to expand its infrastructure business in other areas,
including telecommunications facilities and other energy service businesses.
2
In addition to divesting its generation assets, GPU plans to raise at least
$500 million in cash by reducing its ownership in non-core and underperforming
assets. Since the mid 1990s, GPU has been acquiring regulated businesses abroad.
GPU's electric and gas transmission businesses serve 4.6 million customers
worldwide; GPU Energy in the United States, Midlands Electricity plc (Midlands)
in the United Kingdom (UK), Emdersa in Argentina and GPU PowerNet and GPU GasNet
in Australia. In July 1999, GPU purchased from Cinergy Corp. the 50% interest in
Midlands which it did not already own.
In December 1999, GPU announced it would seek to sell its Australian
subsidiaries - GPU PowerNet, an electric transmission network, acquired in
October 1997 and GPU GasNet, a gas transmission pipeline, acquired in June 1999.
GPU Electric paid approximately $1.9 billion and $675 million for the
businesses, respectively.
The proposed Australian asset sale represents GPU's determination to
effectively redeploy its capital. GPU is committed to the sale of
under-performing assets in order to retire debt, repurchase common stock
(through the $350 million share repurchase program) and invest in higher growth
initiatives.
GPU's goal is to achieve a 5% annual growth in earnings per share and is
looking to invest in non-regulated growth areas that fit within its utility
services focus.
In December 1999, GPU, Inc. agreed to acquire MYR Group Inc. (MYR). MYR, an
infrastructure service company based near Chicago, is the fifth largest
specialty contractor in the United States. It builds and maintains power lines
for electric utilities, telecommunications companies and industrial and
commercial facilities. MYR also builds cellular towers for the wireless
communications market. GPU, Inc. has agreed to purchase MYR for approximately
$215 million, or $30.10 per MYR share, subject to the receipt of regulatory
approval, and expects MYR to act as a platform for future growth in the
non-regulated construction services area. Other non-regulated activities GPU has
targeted include telecommunications and related utility infrastructure services.
GPU is also seeking to improve customer service in domestic markets. In
1999, customer service showed a major opportunity for improvement following the
widespread power outages that occurred during the summer's heat storm. In
response, GPU Energy has, among other things, committed another $40-50 million
to improve the reliability of its service.
GPU has also initiated a program of planned cost reductions of $100 million
($55 million in 2000 and $45 million in 2001). The GPU Energy companies are
targeting reductions of $30 million in 2000 and an additional $40 million in
2001. In addition, Midlands plans to make cost reductions of $25 million in 2000
and $5 million in 2001.
Competitive Business Risks
- --------------------------
Currently, and increasingly in the future, the GPU Energy companies expect
they will be serving customers in markets where there will be capped rates for
varying periods and their ability to seek rate increases will be more limited.
In addition, inflation could adversely affect the GPU Energy
3
companies since these increased costs may not be recoverable under existing rate
caps. Although the GPU Energy companies have essentially exited the generation
business, they will continue to have the obligation to supply energy to
customers who do not choose an alternate supplier. This energy supply will
largely come from contracted and open market purchases. While management has
implemented an energy risk management program to address the market risks
associated with these purchases, there can be no assurance that the GPU Energy
companies will be able to supply electricity to customers at costs which they
will be able to recover.
GPU, Inc. has made significant investments in foreign businesses and
facilities through GPU Electric and the GPUI Group. At December 31, 1999, GPU's
investment in GPU Electric and the GPUI Group was $1.06 billion and $232
million, respectively. As of that date, GPU, Inc. had also guaranteed up to an
additional $1.04 billion and $30 million (including $9 million of guarantees
related to domestic operations) of GPU Electric and GPUI Group outstanding
obligations, respectively. Although management attempts to mitigate the risks of
investing in certain foreign countries by, among other things, securing
political risk insurance, GPU faces additional risks inherent to operating in
such locations, including foreign currency fluctuations. GPU uses derivative
instruments primarily to manage the risk of interest rate, foreign currency and
commodity price fluctuations. GPU does not intend to hold or issue derivative
instruments for trading purposes.
Restructuring Actions
- ---------------------
In May 1999, the NJBPU issued a Summary Order with respect to JCP&L's rate
unbundling, stranded cost and restructuring filings. The Summary Order provides
for, among other things, customer choice of electric generation supplier
beginning August 1, 1999 and full recovery of stranded costs. New Jersey
utilities began accepting customer selection of suppliers in October 1999. By
year-end, approximately 2.5% of the GPU Energy companies' New Jersey
non-residential customers and less than 1% of their residential customers had
selected an alternate supplier.
In 1996, Pennsylvania adopted the Customer Choice Act, which provided for
the restructuring of the electric utility industry. In 1998, the PaPUC issued
Restructuring Orders to Met-Ed and Penelec which, among other things, provide
for recovery of a substantial portion of what otherwise would have become
stranded costs, subject to the results of the generation divestitures. The
Restructuring Orders also gave all Pennsylvania customers the ability to choose
their electric generation supplier beginning January 1, 1999. By year-end,
approximately 18% (approximately 70% of the energy delivered) of the GPU Energy
companies' Pennsylvania non-residential customers and 5% of their residential
customers had selected an alternate supplier.
Domestic Energy Supply
- ----------------------
As a result of the NJBPU and the PaPUC's restructuring decisions, the GPU
Energy companies are required to supply electricity to customers who do not
choose an alternate supplier. Given that the GPU Energy companies have largely
divested their generation business, there will be increased market risks
associated with supplying that electricity, since the GPU Energy companies will
have to supply energy to non-shopping customers entirely from
4
contracted and open market purchases. While JCP&L is permitted to recover
reasonably and prudently incurred costs associated with providing basic
generation service to non-shopping customers, Met-Ed and Penelec are generally
unable to recover their energy costs in excess of established rate caps. While
management has implemented an energy risk management program, there can be no
assurance that the GPU Energy companies will be able to fully recover the costs
to supply electricity to customers who do not choose an alternate supplier.
Currently, the GPU Energy companies have 285 megawatts (MW) of generating
capacity remaining to meet customer needs. They also have contracts with
nonutility generators totaling 1,606 MW and JCP&L has agreements with other
utilities to provide for up to 584 MW of capacity and related energy. The GPU
Energy companies have agreed to purchase all of the capacity and energy from
TMI-1 through December 31, 2001 and from Oyster Creek (following its sale)
through March 31, 2003. In addition, the GPU Energy companies have the right to
call on the capacity of the Homer City Station (up to 942 MW) through May 31,
2001 and up to 4,117 MW of capacity from the generating stations sold to Sithe
through May 31, 2002 to satisfy the GPU Energy companies' installed capacity
obligations. The GPU Energy companies' remaining capacity and energy needs will
be met by short- to intermediate-term commitments (one month to three years)
during times of expected high energy price volatility and reliance on spot
market purchases during other periods.
As noted above, Met-Ed and Penelec's customers have been permitted to
choose their generation supplier since January 1, 1999. The PaPUC has approved a
competitive bid process to assign provider of last resort (PLR) service for 20%
of Met-Ed and Penelec's retail customers on June 1, 2000, 40% on June 1, 2001,
60% on June 1, 2002 and 80% on June 1, 2003, to licensed generation suppliers.
This alternative supply service is referred to as Competitive Default Service
(CDS). In 1999, Met-Ed and Penelec issued requests for bids to provide PLR
service for 20% of their customers, beginning in June 2000, as required by the
PaPUC. In February 2000, Met-Ed and Penelec announced that no bids were received
in response to their offer and, as a result, they would be increasing their
forward purchasing of electric power to accommodate the 20% of customers for
whom they will continue to be the default supplier. Met-Ed and Penelec are
developing a proposal for a comprehensive solution for default energy supply
service in Pennsylvania, which they plan to submit to the PaPUC.
JCP&L is required to provide basic generation service (BGS) to retail
customers who choose to remain with JCP&L as generation customers until July 31,
2002. Thereafter, BGS service will be bid out at the pre-established BGS rates.
Any payment received or required by JCP&L resulting from the bidding process
will be deferred for future refund or recovery. The specific details of the BGS
bidding process will be the subject of a future NJBPU proceeding.
INDUSTRY DEVELOPMENTS
---------------------
Electric utility customers have traditionally been served by vertically
integrated regulated monopolies. The electric utility industry is moving away
from a traditional rate regulated environment based on cost recovery to some
combination of a competitive marketplace and modified regulation. The enactment
of the Public Utility Regulatory Policies Act of 1978 (PURPA) facilitated the
entry of competitors into the electric generation business.
5
The Energy Policy Act of 1992 (EPAct) furthered competition among utilities and
non-utility generators (NUGs) in the wholesale electric generation market,
accelerating industry restructuring. The FERC has required utilities to provide
open access and comparable transmission service to third parties. Pennsylvania
and New Jersey have adopted comprehensive legislation providing for the
restructuring of the electric utility industry, and implementing orders have
been issued by the PaPUC and the NJBPU.
GPU has been active both on the federal and state levels in helping to
shape electric industry restructuring while seeking to protect the interests of
its shareholders and customers, and is attempting to assess the impact that
these industry changes will have on its financial condition and results of
operations.
THE GPU ENERGY COMPANIES
------------------------
The electric generation and transmission facilities of the GPU Energy
companies are physically interconnected and are operated as a single integrated
and coordinated system serving a population of approximately five million in New
Jersey and Pennsylvania. For the year 1999, the GPU Energy companies' revenues
were about equally divided between Pennsylvania customers and New Jersey
customers. During 1999, sales to customers by customer class were as follows:
% Operating Revenues % KWH Sales
---------------------------- --------------------------
Total JCP&L Met-Ed Penelec Total JCP&L Met-Ed Penelec
----- ----- ------ ------- ----- ----- ------ -------
Residential 47 46 55 46 36 42 36 28
Commercial 36 40 29 32 35 40 29 32
Industrial 15 13 15 18 27 17 34 36
Other* 2 1 1 4 2 1 1 4
--- --- --- --- --- --- --- ---
100 100 100 100 100 100 100 100
=== === === === === === === ===
* Rural electric cooperatives, municipalities, street and highway lighting,
and others.
The GPU Energy companies also make interchange and spot market sales of
electricity to other utilities. Revenues of JCP&L, Met-Ed and Penelec derived
from their largest single customers accounted for less than 1.5%, 1% and 1%,
respectively, of their electric operating revenues for the year and their 25
largest customers, in the aggregate, accounted for approximately 8%, 5% and 8%,
respectively, of such revenues.
The area served by the GPU Energy companies extends from the Atlantic Ocean
to Lake Erie, is generally comprised of small communities, rural and suburban
areas and includes a wide diversity of industrial enterprises, as well as
substantial farming areas. JCP&L provides retail service in northern, western
and east central New Jersey, having an estimated population of approximately 2.6
million. Met-Ed provides retail electric service in all or portions of 14
counties, in the eastern and south central parts of Pennsylvania, having an
estimated population of almost one million. Met-Ed also sells electricity at
wholesale to four municipalities having an estimated population of over 11,400.
Penelec provides retail and wholesale electric service within a territory
located in western, northern and south central Pennsylvania extending from the
Maryland state line northerly to the New York state line, with a population of
about 1.2 million, approximately 28% of which
6
is concentrated in 23 cities and boroughs, all with populations over 5,000.
Penelec also provides wholesale service to six municipalities in Pennsylvania,
five municipalities in New Jersey, and the Allegheny Electric Cooperative, Inc.,
which serves 13 rural electric cooperatives in Pennsylvania and one in New
Jersey. Penelec, as lessee of the property of the Waverly Electric Light & Power
Company, also serves a population of about 13,400 in Waverly, New York and
vicinity.
The GPU Energy companies' transmission facilities are physically
interconnected with neighboring nonaffiliated utilities in Pennsylvania, New
Jersey, Maryland, New York and Ohio. The interconnection facilities are used for
substantial capacity and energy interchange and purchased power transactions, as
well as emergency assistance. The GPU Energy companies are members of the PJM
Power Pool and the Mid-Atlantic Area Council, an organization providing
coordinated review of the planning by utilities in the PJM area. The PJM Power
Pool is a limited liability company governed by an independent board of managers
recognized by the FERC as an Independent System Operator. Also in 1997, the FERC
directed the GPU Energy companies to implement a single-system transmission
rate, effective April 1, 1998. The implementation of a single-system rate has
not affected total transmission revenues; however, it has increased the pricing
for transmission service in Met-Ed and Penelec's service territories and reduced
the pricing for transmission service in JCP&L's service territory.
The GPU Energy companies have requested the FERC to reconsider its ruling
requiring a single-system transmission rate. The Restructuring Orders for Met-Ed
and Penelec provide for a transmission and distribution rate cap exception to
recover the increase in the transmission rate from Met-Ed and Penelec's retail
customers in the event the FERC denies the request for reconsideration of the
single-system transmission rate. The FERC's ruling may also have the effect of
reducing JCP&L's transmission rates. There can be no assurance as to the outcome
of this matter.
Investments in FUCOS and EWGS
-----------------------------
GPU, Inc. has SEC authorization to finance investments in foreign utility
companies (FUCOs) and exempt wholesale generators (EWGs) up to an aggregate
amount equal to 100% of GPU's average consolidated retained earnings,
approximately $2.4 billion as of December 31, 1999. At December 31, 1999, GPU,
Inc. has remaining authorization to finance approximately $245 million of
additional investments in FUCOs and EWGs. GPU, Inc.'s investments in FUCOs and
EWGs are made through GPU Electric and the GPUI Group.
GPU Electric
------------
GPU Electric owns electric and gas transmission and distribution businesses
in England, Australia and Argentina. Through its ownership in Midlands, GPU
Electric also has ownership interests in operating generating facilities located
in foreign countries totaling 4,244 MW (of which GPU Electric's equity interest
represents 1,163 MW) of capacity. At December 31, 1999, GPU, Inc.'s aggregate
investment in GPU Electric was $1.06 billion. GPU, Inc. has also guaranteed up
to an additional $1.04 billion of outstanding GPU Electric obligations.
7
Midlands operated an electricity supply business within and outside its
regulated area until June 1999 when Midlands' then owners, GPU and Cinergy Corp.
sold the business, including obligations under Midlands' power purchase
agreements, for $300 million ($150 million for GPU's share) plus an adjustment
for working capital.
Midlands will continue to own and operate its network of power cables and
substations.
Midlands' primary business is the distribution of electricity across its
authorized area, which has an estimated population of approximately 5 million
residents and includes the area of Birmingham, parts of Staffordshire and the
rural areas of Gloucestershire, Shropshire and Hereford and Worcester. Although
historically industrial, the area's economy is less dominated by heavy
manufacturing and has seen increased growth in the commercial sector. Midlands
provides service connections to customers as well as for street lighting,
traffic lights and other installations from its main networks.
Midlands is also engaged in non-regulated activities, including electricity
generation, electrical contracting, metering services and related businesses.
Through its subsidiary Midlands Power International Limited (MPI), Midlands
has ownership interests in several generating stations, including a 40% equity
interest in the Uch Power Project in Pakistan. As with many other independent
power projects in Pakistan, the Uch Power Project has experienced difficulties
and delays; however, the plant is currently anticipated to begin commercial
operation in 2000. At this time, MPI does not intend to invest in any new
generation projects.
GPU GasNet owns and maintains the high pressure gas transmission pipeline
network, which serves a total consumption base of approximately 1.3 million
residential customers and approximately 40,000 industrial and commercial users
throughout Victoria. GPU GasNet's primary responsibility is to transport gas
from the Longford gas treatment plant in South East Victoria and from gas fields
in the Southwest to the major load centers in Victoria.
The transmission assets consist of two networks - the Principal System and
the smaller Western System which are connected by the Southwest pipeline. GPU
GasNet's major assets are steel and other pipelines, compressors, regulating and
injector stations, transfer meters and a liquefied natural gas storage facility.
GPU GasNet has recently completed a number of strategic construction projects to
expand and augment its system, improve security of supply and take advantage of
expected growth in gas consumption, including completion of a major
interconnection between the Victorian and New South Wales transmission systems.
GPU GasNet's business consists of three distinct segments: Gas
Transmission, which is regulated by tariff and represents approximately 84% of
total revenues; Excluded Services, such as custody transfer metering and LNG
services which are regulated but not subject to formula-based price controls and
which represent about 15% of total revenues; and Competitive Services, such as
engineering and construction services, which are unregulated but account for
less than 1% of total revenues.
8
GPU PowerNet owns and maintains the high voltage electricity transmission
system in Victoria covering an area of approximately 87,900 square miles and a
population of approximately 4.5 million. Its assets are comprised of overhead
transmission lines (ranging from 66KV to 500KV), underground cable, galvanized
steel towers and switchyards, terminal and transformer stations.
The primary function of GPU PowerNet is to transport electricity from power
stations to the major load centers in greater Melbourne as well as to the
neighboring state of New South Wales, and to large industrial users. VNSC
provides monitoring, remote control and operational coordination of the
transmission network.
Under the current Victorian regulatory regime, GPU PowerNet's operations
fall into three separate business segments: Prescribed Services, which are
subject to regulation under GPU PowerNet's tariff order; Excluded Services,
which are new transmission services not subject to revenue regulation, but
which, by law, must be provided on a "fair and reasonable" basis; and Other
Services, which represent all other business operations such as
telecommunication, asset management and technical services, and are not subject
to revenue regulation. Prescribed Services currently make up in excess of 95% of
GPU PowerNet's total revenues. This percentage is expected to decline over time,
however, with the growth in non-regulated business activities.
GPU Electric acquired Emdersa, an Argentine holding company in March 1999.
Emdersa's principal business operations consist of the distribution of
electricity through its three operating companies, Edesa, Edelar and Edesal.
These companies service approximately 335,000 customers in a 124,300 square mile
area in the three north western provinces of San Luis, La Rioja and Salta. The
customer base includes residential, commercial, industrial, public lighting and
irrigation customers.
Emdersa acquires electricity primarily from the Wholesale Electricity
Market. Each of Emdersa's three operating companies distributes electricity to
end users and operates on the basis of exclusive contracts to distribute
electricity, which have been granted by the respective provincial governments.
The operating companies' rates are embodied in and subject to specific tariff
structures which are in effect for five years and expire as follows: La Rioja in
June 2000; Salta in August 2001; and Edesal in March 2003.
GPUI GROUP
----------
The GPUI Group has ownership interests in six operating cogeneration plants
in the U.S. totaling 1,014 MW (of which the GPUI Group's equity interest
represents 496 MW) of capacity, and four operating generating facilities located
in foreign countries totaling 1,229 MW (of which the GPUI Group's equity
interest represents 424 MW) of capacity. At December 31, 1999, GPU, Inc.'s
aggregate investment in the GPUI Group was $232 million. GPU, Inc. has also
guaranteed up to an additional $29.9 million of outstanding GPUI Group
obligations.
In June 1998, Onondaga Cogeneration L.P. (Onondaga), a GPU International
subsidiary, and Niagara Mohawk Power Corporation (NIMO) renegotiated their
existing power purchase agreement and entered into a 10-year power put indexed
swap agreement.
9
The power put agreement gives Onondaga the right, but not the obligation,
to sell energy and capacity to NIMO at a proxy market price up to the specified
contract quantity.
Under the indexed swap agreement, Onondaga pays NIMO the market price of
energy and capacity and NIMO pays Onondaga a contract price which is fixed for
the first two years and then adjusted monthly, according to an indexing formula,
for the remaining term. At December 31, 1999 and 1998, the unamortized balance
of the swap contract was valued at $55.1 million and $62.4 million,
respectively, and was included in Other - Deferred Debits and Other assets on
the Consolidated Balance Sheets. This valuation was derived using the discounted
estimated cash flows related to payments expected to be received by Onondaga. A
corresponding amount was recorded in deferred revenue and will be recognized to
income over a period not to exceed 10 years.
Concurrent with the establishment of a competitive market for electricity
in New York (Power Exchange) and meeting specific trading volume criteria,
certain rights between Onondaga and NIMO expire under the power put agreement.
As a result, in 2000, GPU International expects to recognize in income all
proceeds from the renegotiated agreements, including the unamortized balance of
the deferred revenue from the indexed swap agreement, which will be largely
offset by an impairment of the Onondaga facility and a provision for
out-of-market gas transportation costs.
CAPITAL PROGRAMS
----------------
GPU Energy Companies
- --------------------
The GPU Energy companies' capital spending in 1999 was $291 million (JCP&L
$141 million; Met-Ed $66 million; Penelec $78 million; Other $6 million), and
was used primarily to expand and improve existing transmission and distribution
(T&D) facilities, for new customer connections and to implement an integrated
information system. In 2000, capital expenditures are estimated to be $349
million (JCP&L $178 million; Met-Ed $57 million; Penelec $82 million; Other $32
million), primarily for ongoing T&D system development.
GPU Electric
- ------------
GPU Electric's capital spending in 1999 was $129 million and was used
primarily for improvements to GPU PowerNet, Emdersa and Midlands' facilities.
Infrastructure-related capital expenditures are forecasted to be $213 million in
2000.
GPUI Group
- ----------
The GPUI Group's capital spending was $32 million in 1999 and was used
primarily for construction by one of the GPUI Group's South American
subsidiaries. Capital expenditures are forecasted to be $6 million in 2000.
10
FINANCING ARRANGEMENTS
----------------------
GPU, Inc.
- ---------
In January 1999, the GPU, Inc. Board of Directors authorized the
repurchase of up to $350 million of GPU, Inc. common stock. Through December
31, 1999, GPU, Inc. has repurchased 6.4 million shares of common stock at an
average price of $35.25 per share.
GPU has various credit facilities in place, the most significant of which
are discussed below. These credit facilities generally provide GPU bank loans at
negotiable market rates.
GPU, Inc. and the GPU Energy companies have available $450 million of
short-term borrowing facilities, which include a $250 million revolving credit
agreement and various bank lines of credit. In addition, GPU, Inc., JCP&L,
Met-Ed and Penelec can issue commercial paper in amounts of up to $100 million,
$150 million, $75 million and $100 million, respectively. From these sources,
GPU, Inc. has regulatory authority to have $250 million outstanding at any one
time. JCP&L, Met-Ed and Penelec are limited by their charters or SEC
authorization to $265 million, $150 million and $150 million, respectively, of
short-term debt outstanding at any one time.
GPU, Inc. has SEC approval to issue and sell up to $300 million of
unsecured debentures through 2001, the proceeds from which could be utilized to
repay short-term debt or to finance additional investments. Further significant
investments by GPU Electric and/or the GPUI Group, or otherwise, may require
GPU, Inc. to issue additional debt and/or common stock.
GPU Energy Companies
- --------------------
Met-Ed and Penelec have regulatory approval to issue through December 31,
2000 senior notes and preferred securities in aggregate amounts of $150 million
and $275 million, respectively, of which up to $25 million for each company may
consist of preferred securities. JCP&L has regulatory approval to issue through
December 31, 2000, senior notes in the aggregate amount of $300 million. Met-Ed
and JCP&L will be issuing secured senior notes (collateralized by first mortgage
bonds (FMBs) issued to the senior note trustee) until such time as more than 80%
of the outstanding FMBs are held by the senior note trustee. At that time, the
FMBs will be cancelled and the outstanding senior notes will become unsecured
obligations. Penelec's senior notes are unsecured.
Current plans call for the GPU Energy companies to issue senior notes
during the next three years to fund the redemption of maturing senior
securities, refinance outstanding senior securities and finance construction
activities. Following the initial issuance of senior notes, the GPU Energy
companies would not issue any additional FMBs other than as collateral for the
senior notes. The senior note indentures prohibit (subject to certain
exceptions) the GPU Energy companies from issuing any debt, which is senior to
the senior notes.
In August 1999, JCP&L filed a petition with the NJBPU requesting
authorization to issue transition bonds to securitize the recovery of bondable
stranded costs attributable to the projected net investment in Oyster Creek at
11
September 1, 2000. The petition also requests that the NJBPU Order provide for
the imposition and collection of a usage-based non-bypassable transition bond
charge (TBC) and for the transfer of the bondable transition property relating
to the TBC to another entity. JCP&L has amended its petition to include requests
to securitize the up-front decommissioning and outage payments it has agreed to
make under the Oyster Creek sale agreement.
The GPU Energy companies' bond indentures include provisions that limit the
amount of FMBs the companies may issue. The GPU Energy companies' interest
coverage ratios are currently in excess of indenture restrictions. JCP&L's
certificate of incorporation includes provisions that limit the amount of
preferred stock it may issue. JCP&L's preferred dividend coverage ratio is
currently in compliance with the charter restrictions.
In 1999, Met-Ed and Penelec redeemed all of their outstanding shares of
cumulative preferred stock for $12.5 million and $17.4 million, respectively.
Also in 1999, Met-Ed and Penelec redeemed all of their outstanding shares of
Subsidiary-obligated mandatorily redeemable preferred securities for $100
million and $105 million, respectively.
In 1999, JCP&L redeemed $30 million stated value of cumulative preferred
stock pursuant to mandatory and optional sinking fund provisions.
In 1999, Penelec redeemed $600 million of FMBs with proceeds from the sale
of its interest in Homer City and issued $350 million of unsecured senior notes,
the proceeds from which were used to redeem or repurchase other outstanding
securities, reduce short-term borrowings, fund its construction program and for
other corporate purposes.
In 1999, Met-Ed and Penelec each issued $100 million of trust preferred
securities, at 7.35% and 7.34%, respectively.
The GPU Energy companies' cost of capital and ability to obtain external
financing are affected by their security ratings, which are periodically
reviewed by the credit rating agencies. The GPU Energy companies' FMBs are
currently rated at an equivalent of "A" or higher by the major credit rating
agencies, while the preferred stock, mandatorily redeemable preferred securities
and trust preferred securities have been assigned an equivalent of "BBB+" or
higher. In addition, the GPU Energy companies' commercial paper is rated as
having high credit quality.
At December 31, 1999, Met-Ed and Penelec had retained earnings available
to pay common stock dividends of $10 million and $49 million, respectively, net
of amounts restricted under the companies' respective FMB indentures. In
addition, Met-Ed and Penelec had capital surplus of $400 million and $285
million, respectively, which would also be available to pay common dividends, to
the extent authorized by the SEC and as may be permitted under their respective
FMB indentures. Met-Ed and Penelec have requested SEC approval to utilize
amounts now accounted for as capital surplus to declare and pay common
dividends, from time to time through December 31, 2001, so long as their common
equity ratios and GPU, Inc.'s common equity ratio are not less than 30% of total
capitalization. At December 31, 1999, the common equity ratios of Met-Ed,
Penelec and GPU, Inc. were 43.7%, 44.4% and 30.2%, respectively.
12
Payments for maturing long-term debt were $83 million (JCP&L $3 million;
Met-Ed $30 million; Penelec $50 million) in 1999, and are expected to total $101
million (JCP&L $51 million; Met-Ed $50 million) in 2000 and $51 million for
JCP&L in 2001. Management estimates that a substantial portion of the GPU Energy
companies' 2000 capital outlays will be satisfied through internally generated
funds.
Met-Ed Capital Trust and Penelec Capital Trust
- ----------------------------------------------
Met-Ed Capital Trust (Met-Ed Trust) was created in May 1999 as a statutory
business trust under the laws of the State of Delaware solely for the purpose of
issuing trust preferred securities (Trust Preferred Securities) each
representing a 7.35% Cumulative Preferred Security (Met-Ed Partnership Preferred
Securities) of Met-Ed Capital II, L.P. Met-Ed Capital II, L.P. is the sponsor of
Met-Ed Trust. As of December 31, 1999, the assets of Met-Ed Trust consisted
solely of 4 million outstanding shares of Met-Ed Partnership Preferred
Securities with an aggregate stated liquidation amount of $100 million.
Distributions were made on the Trust Preferred Securities during 1999 in the
aggregate amount of $3,736,250. Expenses of Met-Ed Trust for 1999 were
approximately $15,000, all of which were paid by Met-Ed Preferred Capital II,
Inc., the general partner of Met-Ed Capital II, L.P. The Trust Preferred
Securities are issued in book-entry form only.
Penelec Capital Trust (Penelec Trust) was created in June 1999 as a
statutory business trust under the laws of the State of Delaware solely for the
purpose of issuing Trust Preferred Securities each representing a 7.34%
Cumulative Preferred Security (Penelec Partnership Preferred Securities) of
Penelec Capital II, L.P. Penelec Capital II, L.P. is the sponsor of Penelec
Trust. As of December 31, 1999, the assets of Penelec Trust consisted solely of
4 million outstanding shares of Penelec Partnership Preferred Securities with an
aggregate stated liquidation amount of $100 million. Distributions were made on
the Trust Preferred Securities during 1999 in the aggregate amount of
$3,364,167. Expenses of Penelec Trust for 1999 were approximately $15,000, all
of which were paid by Penelec Preferred Capital II, Inc., the general partner of
Penelec Capital II, L.P. The Trust Preferred Securities are issued in book-entry
form only.
GPU Electric
- ------------
GPU Capital has a $1 billion 364-day senior revolving credit agreement due
in December 2000 supporting the issuance of commercial paper for its $1 billion
commercial paper program established to fund GPU Electric acquisitions. GPU,
Inc. has guaranteed GPU Capital's obligations under this program. At December
31, 1999, $768 million was outstanding under the commercial paper program, of
which $370 million is included in long-term debt on the Consolidated Balance
Sheets since it is management's intent to reissue this amount of the commercial
paper on a long-term basis.
In 1999, GPU Capital sold $373 million of commercial paper to refinance
all its outstanding borrowings related to the 1996 acquisition of a 50% interest
in Midlands. In addition, in 1999, GPU Capital sold $50 million of commercial
paper to partially fund the acquisition of Cinergy's 50% ownership of Midlands.
The Emdersa and GPU GasNet acquisitions, in 1999, were also partially funded by
commercial paper sales of $323 million and $180 million, respectively.
13
Also in 1999, GPU Capital borrowed A$750 million (approximately US $495
million) under a senior credit facility to fund the acquisition of GPU GasNet
and (pound)245 million (approximately US $382 million) under a term loan to fund
its acquisition of the remaining 50% interest in Midlands.
GPU Australia Holdings, Inc. has $270 million available under its senior
revolving credit facility which expires in November 2002. This facility, in
combination with other GPU, Inc. credit facilities, serves as credit support for
GPU Australia Holdings' $350 million commercial paper program. GPU, Inc. has
guaranteed GPU Australia Holdings' obligations under this program. GPU Australia
Holdings has $182 million outstanding under its commercial paper program as of
December 31, 1999. In 1999, GPU Australia Holdings refinanced $350 million of
outstanding long-term debt associated with the GPU PowerNet acquisition.
Austran Holdings, Inc. (Austran), a wholly-owned indirect subsidiary of
GPU Electric, has a A$500 million (approximately US $328 million) commercial
paper program to refinance the maturing portion of the senior debt credit
facility used to finance the GPU PowerNet acquisition. GPU PowerNet has
guaranteed Austran's obligations under this program. As of December 31, 1999,
Austran had outstanding approximately A$420 million (approximately US $275
million) under this program.
In 1999, Austran refinanced A$220 million (approximately US $142 million)
of GPU PowerNet acquisition debt with proceeds from an Australian Dollar medium
term note issuance. In connection with this debt refinancing program, a loss of
A$20.3 million (approximately US $13.3 million) related to certain interest rate
swap positions was reflected in GPU's 1999 earnings. In addition, Austran issued
A$50 million (approximately US $32 million) of variable rate and A$120 million
(approximately US $77 million) of fixed rate medium term notes, proceeds of
which were used to refinance acquisition debt.
Midlands maintains a (pound)200 million (approximately US $323 million)
syndicated revolving credit facility with a bank for working capital purposes,
which matures May 2001. At December 31, 1999, (pound)87 million (approximately
US $140 million) was outstanding under this facility.
Payments for maturing long-term debt were $453 million in 1999, and are
expected to total $475 million in 2000 and $1 billion in 2001. Capital outlays
for 2000 will be satisfied through both internally generated funds and external
financings.
GPUI Group
- ----------
GPU International has a revolving credit agreement providing for
borrowings through December 2000 of up to $30 million outstanding at any one
time, of which up to $15 million may be utilized to provide letters of credit.
GPU, Inc. has guaranteed GPU International's obligations under this agreement.
At December 31, 1999, no borrowings or letters of credit were outstanding under
this facility.
Payments for maturing long-term debt were $28 million in 1999, and are
expected to total $5 million in 2000 and $7 million in 2001. Capital outlays for
2000 will be satisfied by means of internally generated funds and external
financings.
14
LIMITATIONS ON ISSUING ADDITIONAL SECURITIES
--------------------------------------------
The GPU Energy companies' FMB indentures and/or charters contain
provisions which limit the total amount of securities evidencing secured
indebtedness and/or unsecured indebtedness which the GPU Energy companies may
issue, the more restrictive of which are discussed below.
The GPU Energy companies' FMB indentures require that, for a period of any
twelve consecutive months out of the fifteen calendar months immediately
preceding the issuance of additional FMBs, net earnings (before income taxes,
with other income limited to 5% of operating income before income taxes for
JCP&L and Met-Ed and 10% for Penelec) available for interest on FMBs shall have
been at least twice the annual interest requirements on all FMBs to be
outstanding immediately after such issuance. They also restrict the ratio of the
principal amount of FMBs which may be issued to not more than 60% of available
bondable value of property additions, but in general, permit the GPU Energy
companies to issue additional FMBs against a like principal amount of previously
issued and retired FMBs.
Penelec issued $350 million of senior notes in 1999. It does not intend to
issue any additional FMBs under its Mortgage and Deed of Trust.
At December 31, 1999, net earnings requirements would have permitted JCP&L
and Met-Ed to issue $1.3 billion and $879 million, respectively, principal
amount of additional FMBs at an assumed 8% interest rate. However, JCP&L had
bondable value of property additions sufficient to permit it to issue only
approximately $370 million principal amount of additional FMBs, as well as issue
approximately $361 million of FMBs against retired FMBs. Met-Ed could issue
approximately $121 million of FMBs against retired FMBs.
In general, the FMB indentures permit the GPU Energy companies to direct
the trustee to utilize cash on deposit to purchase callable or maturing bonds
and to purchase bonds in the market at not more than 105% of their principal
amount, plus accrued interest.
Among other restrictions, JCP&L's charter provides that without the
consent of the holders of two-thirds of the outstanding preferred stock, no
additional shares of preferred stock may be issued unless, for a period of any
twelve consecutive months out of the fifteen calendar months immediately
preceding such issuance, the after-tax net earnings available for the payment of
interest on indebtedness shall have been at least one and one-half times the
aggregate of (a) the annual interest charges on indebtedness and (b) the annual
dividend requirements on all shares of preferred stock to be outstanding
immediately after such issuance. At December 31, 1999, these provisions would
have permitted JCP&L to issue $950 million stated value of cumulative preferred
stock at an assumed 8.5% dividend rate.
JCP&L's charter also provides that, without the consent of the holders of
a majority of the total voting power of JCP&L's outstanding preferred stock,
JCP&L may not issue or assume any securities representing short-term unsecured
indebtedness, except to refund certain outstanding unsecured securities issued
or assumed by JCP&L or to redeem all outstanding preferred stock, if immediately
thereafter the total principal amount of all outstanding unsecured debt
securities having an initial maturity of less than ten years
15
(or within three years of maturity for all unsecured indebtedness having
original maturities in excess of ten years) would exceed 10% of the aggregate of
(a) the total principal amount of all outstanding secured indebtedness issued or
assumed by JCP&L and (b) the capital and surplus of JCP&L. At December 31, 1999,
these restrictions would have permitted JCP&L to have approximately $265 million
of unsecured indebtedness outstanding.
JCP&L has obtained authorization from the SEC to incur short-term debt
(including indebtedness under the revolving credit agreement and commercial
paper program) up to its charter limitation.
In February 1999, Met-Ed and Penelec redeemed all their cumulative
preferred stock. As a result, their charters no longer restrict the amount of
preferred stock or unsecured indebtedness they may have outstanding. Met-Ed and
Penelec are each limited by SEC authorization to $150 million of short-term debt
outstanding at any one time.
REGULATION
----------
As a registered holding company, GPU, Inc. is subject to regulation by the
SEC under the 1935 Act. GPU is also subject to regulation under the 1935 Act
with respect to accounting, the issuance of securities, the acquisition and sale
of utility assets, securities or any other interest in any business, the
entering into, and performance of, service, sales and construction contracts,
and certain other matters. The SEC has determined that the electric facilities
of the GPU Energy companies constitute a single integrated public utility system
under the standards of the 1935 Act. The 1935 Act also limits the extent to
which GPU may engage in nonutility businesses or acquire additional utility
businesses. Each of the GPU Energy companies' retail rates, conditions of
service, issuance of securities and other matters are subject to regulation in
the state in which each operates - in New Jersey by the NJBPU and in
Pennsylvania by the PaPUC. Additionally, Penelec, as lessee, operates the
facilities serving the village of Waverly, New York. Penelec's retail rates for
New York customers, as well as Penelec's New York operations and property, are
subject to regulation by the New York Public Service Commission. With respect to
wholesale rates, the transmission of electric energy, accounting, the
construction and maintenance of hydroelectric projects and certain other
matters, the GPU Energy companies are subject to regulation by the FERC under
the Federal Power Act. The NRC regulates the ownership and operation of nuclear
generating stations and other related matters. See Electric Generation and
Environmental Matters for additional information.
Midlands' distribution operations are regulated under its Public
Electricity Supply License (PES License). Accordingly, income generated by the
distribution business is subject to a price cap regulatory framework, which
provides for an allowed increase in revenue based on increases in the volume of
electricity distributed. Under its PES License, Midlands provides distribution
services to virtually all electricity customers in its franchise area and, in
addition, is obliged to offer electricity supply services to these customers. In
June 1999, Midlands sold its supply business to National Power and National
Power assumed Midlands' supply obligation under the PES License. An agency
agreement with National Power serves as a backstop for the supply tariff
Midlands is allowed to charge its customers, since National Power has assumed
any risks of the costs of supplying power exceeding the tariff rates.
16
Midlands' distribution rates are determined in accordance with a formula
set by the Director General of Electricity Supply (DGES), which is ordinarily
reviewed every five years. The outcome of the most recent review will take
effect in April 2000.
GPU PowerNet is presently regulated by the Victorian Office of the
Regulator-General according to an incentive-based regulatory mechanism for the
period which subjects revenues for prescribed services to a cap. The revenue cap
changes annually in accordance with the consumer price index, less a so called X
factor set by the regulator (CPI-X). Effective January 1, 2001, regulatory
responsibility will be transferred to the Australian Competition and Consumer
Commission (ACCC). A revenue reset is scheduled to occur in 2002, with effect
from January 1, 2003.
GPU GasNet is presently regulated by the ACCC according to a similar
incentive-based regulatory mechanism. GPU GasNet's tariff order establishes an
initial tariff and a CPI-X formula, which adjusts that tariff annually through
December 31, 2002. The next regulatory review is scheduled for 2002, and will be
effective for five years commencing January 1, 2003.
Edesa, Edelar and Edesal operate under a specific tariff structure that
may be revised by the provincial regulators every five years in accordance with
the Regulatory Framework Law. In general, tariffs for electricity distribution
in Argentina are set in accordance with a model that takes four factors into
consideration: 1) the pass-through cost of electricity purchased, 2) the cost of
electricity losses, 3) distribution cost and 4) quality of service. The rate
structure allows distribution companies to retain the benefit of operational
efficiencies they are able to achieve until tariffs are reset.
Empresa Guaracachi S.A., the GPUI Group's electric generation company in
Bolivia, is subject to regulation under the Electricity Law of 1994. Twice each
year, the Superintendency of Electricity recalculates the prices that Empresa
Guaracachi S.A. and other electric generators may charge for capacity based upon
an estimated cost of constructing a new generating unit. In addition, energy
prices are recalculated semi-annually based upon a projected cost of generation,
including fuel and nonfuel variable operation and maintenance costs.
NUCLEAR FACILITIES
------------------
In December 1999, the GPU Energy companies sold TMI-1 to AmerGen for
approximately $100 million and AmerGen assumed all TMI-1 decommissioning
liabilities. In addition, JCP&L has agreed to sell Oyster Creek to AmerGen for
$10 million and reimbursement of the cost (estimated at $88 million) of the next
refueling outage. Three Mile Island Unit 2 (TMI-2), which was damaged during a
1979 accident, is jointly owned by JCP&L, Met-Ed and Penelec in the percentages
of 25%, 50% and 25%, respectively. JCP&L's net investment, including nuclear
fuel, in Oyster Creek in 1999 and 1998 was $10 million and $682 million,
respectively. The 1999 reduction in net investment reflects the impairment
write-down resulting from the proposed sale of the facility to AmerGen. JCP&L's
net investment in TMI-2 at December 31, 1999 and 1998 was $61 million and $66
million, respectively. JCP&L is collecting revenues for
17
TMI-2 on a basis which provides for the recovery of its remaining investment in
the plant by 2008. Met-Ed and Penelec's remaining investments in TMI-2 were
written off in 1998 after receiving the PaPUC's Restructuring Orders.
Oyster Creek
- ------------
The operating license for the Oyster Creek station, a 619 MW boiling water
reactor, expires in 2009. In October 1999, JCP&L agreed to sell Oyster Creek to
AmerGen. The sale is subject to the receipt of various federal and state
regulatory approvals. Highlights of the agreements are presented in the
Competitive Environment and Rate Matters section of Management's Discussion and
Analysis. For 1999, Oyster Creek operated at a 97% unit capability factor. Its
next refueling outage is scheduled to begin in the fall of 2000.
TMI-2
- -----
As a result of the 1979 TMI-2 accident, individual claims for alleged
personal injury (including claims for punitive damages), which are material in
amount, were asserted against GPU, Inc. and the GPU Energy companies.
Approximately 2,100 of such claims were filed in the US 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.
At the time of the TMI-2 accident, as provided for in the Price-Anderson
Act, the GPU Energy companies 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 up to an aggregate of $335 million in premium charges under such
plan, and (c) an indemnity agreement with the NRC for up to $85 million,
bringing their total financial protection up to an aggregate of $560 million.
Under the secondary level, the GPU Energy companies are subject to a
retrospective premium charge of up to $5 million per reactor, or a total of $15
million.
In 1995, the US Court of Appeals for the Third Circuit ruled that the
Price-Anderson Act provides coverage under its primary and secondary levels for
punitive as well as compensatory damages, but that punitive damages could not be
recovered against the Federal Government under the third level of financial
protection. In so doing, the Court of Appeals referred to the "finite fund" (the
$560 million of financial protection under the Price-Anderson Act) to which
plaintiffs must resort to get compensatory as well as punitive damages.
The Court of Appeals also ruled that the standard of care owed by the
defendants to a plaintiff was determined by the specific level of radiation
which was released into the environment, as measured at the site boundary,
rather than as measured at the specific site where the plaintiff was located at
the time of the accident (as the defendants proposed). The Court of Appeals also
held that each plaintiff still must demonstrate exposure to radiation released
during the TMI-2 accident and that such exposure had resulted in injuries. In
1996, the US Supreme Court denied petitions filed by GPU, Inc. and the GPU
Energy companies to review the Court of Appeals' rulings.
18
In 1996, the District Court granted a motion for summary judgment filed by
GPU, Inc. and the GPU Energy companies, and dismissed the ten initial "test
cases," which had been selected for a test case trial as well as all of the
remaining 2,100 pending claims. The Court ruled that there was no evidence which
created a genuine issue of material fact warranting submission of plaintiffs'
claims to a jury. The plaintiffs appealed the District Court's ruling to the
Court of Appeals for the Third Circuit. In November 1999, the Third Circuit
affirmed the District Court's dismissal of the ten "test cases," but set aside
the dismissal of the additional pending claims, remanding them to the District
Court for further proceedings. In remanding these claims, the Third Circuit held
that the District Court had erred in extending its summary judgment decision to
the other plaintiffs and imposing on these plaintiffs the District Court's
finding that radiation exposures below 10 rems were too speculative to establish
a causal link to cancer. The Court of Appeals stated that the non-test case
plaintiffs should be permitted to present their own individual evidence that
exposure to radiation from the accident caused their cancers.
GPU, Inc. and the GPU Energy companies believe that the Third Circuit has
misinterpreted the record before the District Court as it applies to the
non-test case plaintiffs, and in November 1999, filed petitions seeking a
rehearing and reconsideration of the Court's decision regarding the remaining
claims. The "test case" plaintiffs also requested a rehearing of the Court's
decision upholding the dismissal of their claims. In January 2000, the Court of
Appeals denied both petitions. The "test case" plaintiffs have stated that they
intend to seek, and GPU, Inc. and the GPU Energy companies are considering
whether to seek, Supreme Court review of the District Court's decision. There
can be no assurance as to the outcome of this litigation.
GPU, Inc. and the GPU Energy companies believe that any liability to which
they might be subject by reason of the TMI-2 accident will not exceed their
financial protection under the Price-Anderson Act.
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 US Department of Energy (DOE).
In 1995, a consultant to GPUN performed site-specific studies of TMI-2 and
Oyster Creek (updated in 1998), that considered various decommissioning methods
and estimated the cost of decommissioning the radiological portions and the cost
of removal of the nonradiological portions of each plant, using the prompt
removal/dismantlement method. GPUN management has reviewed the methodology and
assumptions used in these studies, is in agreement with them, and believes the
results are reasonable. Under NRC regulations, JCP&L is making periodic payments
to complete the funding for Oyster Creek retirement costs by the end of the
plant's license term of 2009. The TMI-2 funding completion date is 2014,
consistent with TMI-2's remaining in long-term storage. The NRC may require an
acceleration of the decommissioning funding for Oyster Creek if the pending sale
is not completed and the plant is retired early. The retirement cost estimates
under the 1995 site-specific studies, assuming decommissioning of TMI-2 and
Oyster Creek in 2014 and 2009, respectively, are as follows (in 1999 dollars):
19
(in millions)
Oyster
GPU TMI-2 Creek
- --- ----- -----
Radiological decommissioning $435 $591
Nonradiological cost of removal 34* 32
--- ---
Total $469 $623
=== ===
* Net of $12.6 million spent as of December 31, 1999.
Each of the GPU Energy companies is responsible for retirement costs in
proportion to its respective ownership percentage. The ultimate cost of retiring
the GPU Energy companies' nuclear facilities may be different from the cost
estimates contained in these site-specific studies. Also, the cost estimates
contained in these site-specific studies are significantly greater than the
decommissioning funding targets established by the NRC.
The 1995 Oyster Creek site-specific study was updated in 1998 in response
to the previously announced potential early closure of the plant in 2000. An
early shutdown would increase the retirement costs shown above to $632 million
($600 million for radiological decommissioning and $32 million for
nonradiological cost of removal). Both estimates include substantial spending
for an on-site dry storage facility for spent nuclear fuel and significant costs
for storing the fuel until the DOE complies with the Nuclear Waste Policy Act of
1982. For additional information, see OTHER COMMITMENTS AND CONTINGENCIES
section of Note 12, Commitments and Contingencies, of the Combined Notes to the
Consolidated Financial Statements.
The agreements to sell Oyster Creek to AmerGen provide, among other
things, that upon financial closing, JCP&L will transfer $430 million in
decommissioning trust funds to AmerGen, which will assume all liability for
decommissioning Oyster Creek.
The NJBPU has granted JCP&L annual revenues for Oyster Creek retirement
costs of $22.5 million based on the 1995 site-specific study. In August 2000,
the recovery of Oyster Creek retirement costs escalates to $34.4 million
annually if the plant is retired in 2000.
In the event JCP&L does not complete the pending sale of Oyster Creek,
management believes that any retirement costs, in excess of those currently
recognized for ratemaking purposes, should be recoverable from customers.
The estimated liabilities for TMI-2 future retirement costs (reflected as
Three Mile Island Unit 2 future costs on the Consolidated Balance Sheets) as of
December 31, 1999 and 1998 are $497 million (JCP&L $124 million; Met-Ed $249
million; Penelec $124 million) and $484 million (JCP&L $121 million; Met-Ed $242
million; Penelec $121 million), respectively. These amounts are based upon the
1995 site-specific study estimates (in 1999 and 1998 dollars, respectively)
discussed above and an estimate for remaining incremental monitored storage
costs of $27 million (JCP&L $7 million; Met-Ed $13 million; Penelec $7 million)
for 1999 and $29 million (JCP&L $7 million; Met-Ed $15 million; Penelec $7
million) for 1998, as a result of TMI-2's entering long-term monitored storage
in 1993.
20
Offsetting the $497 million liability at December 31, 1999 is $193 million
(JCP&L $14 million; Met-Ed $144 million; Penelec $35 million) which management
believes is probable of recovery from customers and included in Regulatory
assets, net on the Consolidated Balance Sheets, and $355 million (JCP&L $114
million; Met-Ed $144 million; Penelec $97 million) in trust funds for TMI-2 and
is included in Nuclear decommissioning trusts, at market on the Consolidated
Balance Sheets.
The NJBPU has granted JCP&L revenues for TMI-2 retirement costs based on
the 1995 site-specific estimates. In addition, JCP&L is recovering its share of
TMI-2 incremental monitored storage costs. The PaPUC Restructuring Orders
granted Met-Ed and Penelec recovery of TMI-2 decommissioning costs as part of
the competitive transition charge (CTC), but also allowed Met-Ed and Penelec to
defer as a regulatory asset those amounts that are above the level provided for
in the CTC.
At December 31, 1999, the accident-related portion of TMI-2 radiological
decommissioning costs is considered to be $77 million (JCP&L $19 million; Met-Ed
$39 million; Penelec $19 million), which is based on the 1995 site-specific
study estimates (in 1999 dollars).
JCP&L intends to seek recovery for any increases in TMI-2 retirement
costs, and Met-Ed and Penelec intend to seek recovery for any increases in the
nonaccident-related portion of such costs, but recognize that recovery cannot be
assured.
INSURANCE
---------
GPU 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 GPU 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 GPU.
The decontamination liability, premature decommissioning and property
damage insurance coverage for Oyster Creek totals $2.75 billion. In addition,
GPU has purchased property and decontamination insurance coverage for TMI-2
totaling $150 million. 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 GPU's liability to third parties for a
nuclear incident at Oyster Creek to approximately $9.5 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 Oyster Creek, could result in an assessment of up to
21
$88 million per incident, subject to an annual maximum payment of $10 million
per incident per reactor. Although TMI-2 is exempt from this assessment, the
plant is still covered by the provisions of the Price-Anderson Act. In addition
to the retrospective premiums payable under the Price-Anderson Act, the GPU
Energy companies are also subject to retrospective premium assessments of up to
$10.5 million for insurance policies currently in effect applicable to nuclear
operations and facilities. The GPU Energy companies are also subject to other
retrospective premium assessments related to policies applicable to TMI-1 prior
to the sale of the plant to AmerGen.
JCP&L has insurance coverage for incremental replacement power costs
should an accident-related outage at Oyster Creek occur. Coverage would commence
after a 12-week waiting period at $2.1 million per week for 52 weeks, decreasing
to 80% of such amount for the next 110 weeks.
ELECTRIC GENERATION AND ENVIRONMENTAL MATTERS
---------------------------------------------
Approximately 47% (JCP&L 59%; Met-Ed 33%; Penelec 53%) of the GPU Energy
companies' total energy requirements in 1999 were supplied by utility contracts,
NUG purchases, and interchange. The balance was provided by GPU Energy owned
generation. Substantially all of the GPU Energy companies' 2000 energy
requirements will be supplied by external sources.
In 1999, the GPU Energy companies completed the sales of TMI-1 and
substantially all of their fossil and hydroelectric generating stations. For
additional information, see Note 6, Accounting for Extraordinary and
Non-Recurring Items in the Combined Notes to Consolidated Financial Statements.
Nuclear fuel disposal: In accordance with the Nuclear Waste Policy Act of
---------------------
1982 (NWPA), the GPU Energy companies have entered into contracts with, and have
been paying fees to, the DOE for the future disposal of spent nuclear fuel in a
repository or interim storage facility. AmerGen has assumed all liability for
disposal costs related to spent fuel generated after its purchase of TMI-1 and
has agreed to assume this liability for Oyster Creek following its purchase of
that plant. In 1996, the DOE notified the GPU Energy companies and other
standard contract holders that it would be unable to begin acceptance of spent
nuclear fuel for disposal by 1998, as mandated by the NWPA. The DOE's inability
to accept spent nuclear fuel could have a material impact on GPU's results of
operations, as additional costs may be incurred to build and maintain interim
on-site storage at Oyster Creek. In June 1997, a consortium of electric
utilities, including GPUN, filed a license application with the NRC seeking
permission to build an interim storage facility for spent nuclear fuel in Utah.
The NRC is not expected to make a decision whether to approve construction of an
interim storage facility until late 2001. There can be no assurance as to the
outcome of these matters.
Environmental Matters
- ---------------------
GPU is subject to a broad range of federal, state and local environmental
and employee health and safety legislation and regulations. In addition, the GPU
Energy companies are subject to licensing of hydroelectric projects by the FERC
and of nuclear power projects by the NRC. Such licensing and other actions by
federal agencies with respect to GPU's domestic operations are also subject to
the National Environmental Policy Act.
22
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, ambient air quality, global warming,
electromagnetic fields, and storage and disposal of hazardous and/or toxic
wastes, GPU may be required to incur substantial additional costs to construct
new equipment, modify or replace existing and proposed equipment, remediate,
decommission or cleanup waste disposal and other sites currently or formerly
used by it, including formerly owned manufactured gas plants (MGP), coal mine
refuse piles and generation facilities.
GPU records liabilities (on an undiscounted basis) where it is probable
that a loss has been incurred and the amount of the loss can be reasonably
estimated, and adjusts these liabilities as required to reflect changes in
circumstances. At December 31, 1999, GPU has liabilities recorded on its balance
sheets for environmental matters, as follows:
Company Amount (in millions)
------- --------------------
JCP&L $56.2
Met-Ed 0.7
Penelec 8.3
GPUN 0.5
GPU, Inc. 3.5
----
Total $69.2
====
Under the agreements entered into for the purchase of the GPU Energy
companies' generating facilities, the buyers, in general, have agreed to assume
all on-site environmental liabilities other than up to $6 million of the
remediation costs associated with contaminants from certain coal mine refuse
piles at the Seward Station, which liability Penelec has retained. Penelec
expects recovery of these remediation costs in Phase II of its restructuring
proceeding and has recorded a corresponding regulatory asset at December 31,
1999.
Nuclear: Reference is made to the NUCLEAR FACILITIES section for
-------
information regarding the TMI-2 accident, its aftermath and the GPU Energy
companies' other nuclear facilities.
The GPU Energy companies have provided for future contributions to the
Decontamination and Decommissioning Fund for the cleanup of uranium enrichment
plants operated by the Federal Government. GPU's total liability at December 31,
1999 amounted to $25 million (JCP&L $15 million; Met-Ed $7 million; Penelec $3
million). JCP&L is recovering these costs from customers through its BGS and
market transition charge rates while Met-Ed and Penelec anticipate recovery in
Phase II of their restructuring proceedings which began in early 2000.
Air: With respect to air quality, the GPU-owned generating stations are
---
subject to certain state environmental regulations of the New Jersey Department
of Environmental Protection (NJDEP) and the Pennsylvania Department of
Environmental Protection (PaDEP). The stations are also subject to certain
federal environmental regulations of the Environmental Protection Agency (EPA).
One of the major sets of regulations that governs air quality is the Federal
Clean Air Act of 1970.
23
Electromagnetic Fields (EMF): There have been a number of studies
-----------------------------
regarding the possibility of adverse health effects from electric and power
frequency magnetic fields that are found everywhere there is electricity. While
some of the studies have indicated some association between exposure to magnetic
fields and cancer, other studies have indicated no such association. The studies
have not shown any causal relationship between exposure to magnetic fields and
cancer, or any other adverse health effects. In 1996, the National Research
Council of the National Academy of Sciences released a report which concluded
that, "Based on a comprehensive evaluation of published studies relating to the
effects of power-frequency electric and magnetic fields on cells, tissues and
organisms (including humans), ... the current body of evidence does not show
that exposure to these fields presents a human-health hazard. Specifically, no
conclusive and consistent evidence shows that exposure to residential electric
and magnetic fields produce cancer, adverse neurobehavioral effects, or
reproductive and developmental effects." In June 1999, the National Institutes
of Environmental Health Sciences issued a report on the health effects from
exposure to power-line electric and magnetic fields. The report notes that EMF
exposure would not be included as an agent "reasonably anticipated to be a human
carcinogen", but recommends that inexpensive and safe reductions in field
exposure levels should be encouraged, until stronger evidence provides that
there is no link between exposures and health effects.
Certain parties have alleged that exposure to electric and magnetic fields
associated with the operation of transmission and distribution facilities will
produce adverse impacts upon public health and safety and upon property values.
Furthermore, regulatory actions under consideration by the New Jersey Committee
on Radiation Protection, could, if enacted, establish a framework under which
the intensity of the fields produced by electric transmission and distribution
lines would be limited or otherwise regulated.
The GPU Energy companies cannot determine at this time what effect, if
any, this matter will have on their results of operations and financial
position.
Hazardous/Toxic Wastes: Under the Toxic Substances Control Act (TSCA), the
----------------------
EPA has adopted certain regulations governing the use, storage, testing,
inspection and disposal of electrical equipment that contain polychlorinated
biphenyls (PCBs). Such regulations permit the continued use and servicing of
certain electrical equipment (including transformers and capacitors) that
contain PCBs. GPU has met all requirements of the TSCA to allow the continued
use of equipment containing PCBs and has taken substantive voluntary actions to
reduce the amount of PCB-containing electrical equipment.
Prior to 1953, the GPU Energy companies owned and operated MGP sites in New
Jersey and Pennsylvania. Waste contamination associated with the operation and
dismantlement of these MGP sites is, or may be, present both on-site and
off-site. Claims have been asserted against the GPU Energy companies for the
cost of investigation and remediation of these sites. The amount of such
remediation costs and penalties may be significant and may not be covered by
insurance. JCP&L has entered into agreements with the NJDEP for the
investigation and remediation of 17 formerly owned MGP sites. JCP&L has also
entered into various cost-sharing agreements with other utilities for
24
most of the sites. As of December 31, 1999, JCP&L has spent approximately $36
million in connection with the cleanup of these sites. In addition, JCP&L has
recorded an estimated environmental liability of $52 million relating to
expected future costs of these sites (as well as two other properties). This
estimated liability is based upon ongoing site investigations and remediation
efforts, which generally involve capping the sites and pumping and treatment of
ground water. Moreover, the cost to clean up these sites could be materially in
excess of the $52 million due to significant uncertainties, including changes in
acceptable remediation methods and technologies. In addition, federal and state
law provides for payment by responsible parties for damage to natural resources.
In 1997, the NJBPU approved JCP&L's request to establish a Remediation
Adjustment Clause for the recovery of MGP remediation costs. As a result of the
NJBPU's Summary Order, effective August 1, 1999, the recovery of these costs was
transferred to the Societal Benefits Charge. At December 31, 1999, JCP&L had
recorded on its Consolidated Balance Sheet a regulatory asset of $44 million.
JCP&L is continuing to pursue reimbursement from its insurance carriers for
remediation costs already spent and for future estimated costs. In 1994, JCP&L
filed a complaint with the Superior Court of New Jersey against several of its
insurance carriers, relative to these MGP sites, and has settled with all but
one of those insurance companies.
In 1997, the EPA filed a complaint against GPU, Inc. in the US District
Court for the District of Delaware for enforcement of its Unilateral Order
(Order) issued against GPU, Inc. to clean up the former Dover Gas Light Company
(Dover) manufactured gas production site (Site) in Dover, Delaware. Dover was
part of the AGECO/AGECORP group of companies from 1929 until 1942; GPU, Inc.
emerged from the AGECO/AGECORP reorganization proceedings in 1946. All of
Dover's common stock, which was sold in 1942 to an unaffiliated entity, was
subsequently acquired by Chesapeake Utilities Corporation (Chesapeake), which
merged with Dover in 1960. Chesapeake is currently performing the cleanup at the
Site. According to the complaint, the EPA is seeking (1) enforcement of the
Order against GPU; (2) recovery of its past response costs, (3) a declaratory
judgment that GPU is liable for any remaining cleanup costs of the Site and (4)
statutory penalties for noncompliance with the Order. The EPA has stated that it
has incurred approximately $1 million of past response costs as of December 31,
1999. The EPA estimates the total Site cleanup costs at approximately $4.2
million. Consultants to Chesapeake have estimated the remaining remediation
groundwater costs at approximately $10.5 million. In accordance with its penalty
policy, and in discussions with GPU, the EPA has demanded penalties calculated
at a daily rate of $8,800, rather than the statutory maximum of $27,500 per day.
At December 31, 1999, if the statutory maximum is applied, the total amount of
penalties would be approximately $34 million. GPU believes that it has
meritorious defenses to the imposition of penalties, or that if a penalty is
assessed, it should be at a lower daily rate. Chesapeake has also sued GPU, Inc.
for contribution to the cleanup of the Dover Site. The United States District
Court for the District of Delaware has consolidated the case filed by Chesapeake
with the case filed by the EPA and discovery is proceeding. There can be no
assurance as to the outcome of these proceedings.
The Federal Resource Conservation and Recovery Act of 1976, the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
25
(CERCLA) and the Superfund Amendment and Reauthorization Act of 1986 authorize
the EPA to issue orders compelling responsible parties to take cleanup action at
any location that is determined to present an imminent and substantial danger to
the public or to the environment because of an actual or threatened release of
one or more hazardous substances. Pennsylvania and New Jersey have enacted
legislation giving similar authority to the PaDEP and the NJDEP, respectively.
In addition, federal and state law provides for payment by responsible parties
for damage to natural resources. Because of the nature of the GPU Energy
companies' business, various by-products and substances are produced and/or
handled that are classified as hazardous under one or more of these statutes.
GPU generally provides for the treatment, disposal or recycling of such
substances through licensed independent contractors, but these statutory
provisions also impose potential responsibility for certain cleanup costs on the
generators of the wastes. GPU has been formally notified by the EPA and state
environmental authorities that it is among the potentially responsible parties
(PRPs) who may be jointly and severally liable to pay for the costs associated
with the investigation and remediation at hazardous and/or toxic waste sites in
the following number of instances (in some cases, more than one company is named
for a given site):
JCP&L MET-ED PENELEC GPUN GPU, INC. TOTAL
----- ------ ------- ---- --------- -----
6 4 2 1 1 11
In addition, certain of the GPU companies have been requested to
participate in the remediation or supply information to the EPA and state
environmental authorities on several other sites for which they have not been
formally named as PRPs, although the EPA and state authorities may nevertheless
consider them as PRPs. Certain of the GPU companies have also been named in
lawsuits requesting damages (which are material in amount) for hazardous and/or
toxic substances allegedly released into the environment. As of December 31,
1999, a liability of approximately $6 million was recorded for 9 PRP sites where
it is probable that a loss has been incurred and the amount could be reasonably
estimated.
The ultimate cost of remediation of all these and other hazardous waste
sites 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 company involved.
FRANCHISES AND CONCESSIONS
--------------------------
JCP&L operates pursuant to franchises in the territory served by it and
has the right to occupy and use the public streets and ways of the state with
its poles, wires and equipment upon obtaining the consent in writing of the
owners of the soil, and also to occupy the public streets and ways underground
with its conduits, cables and equipment, where necessary, for its electric
operation. JCP&L has the requisite legal franchise for the operation of its
electric business within the State of New Jersey, including in incorporated
cities and towns where designations of new streets, public ways, etc., may be
obtained upon application to such municipalities. JCP&L holds a FERC license
expiring in 2013 authorizing it to operate and maintain the Yards Creek Station
in which JCP&L has a 50% ownership interest.
26
Met-Ed and Penelec have the necessary franchise rights to furnish electric
service in the various respective municipalities or territories in which each
company now supplies such services. These electric franchise rights, which are
generally nonexclusive rights, consist generally of (a) charter rights and (b)
certificates of public convenience issued by the PaPUC and/or "grandfather
rights". Such electric franchise rights are free from unduly burdensome
restrictions and unlimited as to time, except in a few relatively minor cases
and except as otherwise described below. The secondary franchise granted by the
Borough of Boyertown to Met-Ed contains a provision that the Borough shall have
the right at any time to purchase the electric system in the Borough at a
valuation to be fixed by appraisers. Met-Ed holds a FERC license expiring in
2014 for the continued operation and maintenance of the York Haven hydroelectric
project.
EMPLOYEE RELATIONS
------------------
GPU, Inc. and consolidated affiliates have approximately 10,800 employees
worldwide, of which 6,100 are employed in the US and 3,700 are employed in the
United Kingdom. The majority of the US workforce is employed by the GPU Energy
companies, of which approximately 4,000 are represented by unions for collective
bargaining purposes. In the United Kingdom, approximately 2,800 Midlands
employees are represented by unions; terms and conditions of the various
bargaining agreements are generally reviewed annually, on the first of April.
Approximately 225 GPU PowerNet and 70 GPU GasNet employees are covered by
Enterprise Agreements regarding their terms and conditions of employment. These
agreements generally extend for one year and in practice continue to apply until
replaced. JCP&L, Met-Ed and Penelec's collective bargaining agreements with the
International Brotherhood of Electrical Workers expire on October 31, 2002,
April 30, 2000 and May 14, 2002, respectively. Penelec's collective bargaining
agreement with the Utility Workers Union of America expires on June 30, 2001.
ITEM 2. PROPERTIES.
GPU Energy Companies' Generating Stations
- -----------------------------------------
At December 31, 1999, the generating stations of the GPU Energy companies
had an aggregate effective capability of 904,000 net kilowatts (KW), as follows:
Name of GPU Energy Year of Net KW
Station Company Installation (Summer)
------- ---------- ------------ --------
NUCLEAR:
Oyster Creek JCP&L 1969 619,000
GAS/OIL-FIRED:
Combustion
Turbines JCP&L 1989 66,000
HYDROELECTRIC:
York Haven Met-Ed 1905-1930 19,000
PUMPED STORAGE:(a)
Yards Creek JCP&L 1965 200,000
---------
TOTAL 904,000
=========
27
(a) Represents JCP&L's undivided interest in this station, which is a net user
rather than a net producer of electric energy.
Substantially all of the GPU Energy companies' properties are subject to
the lien of their respective FMB indentures.
The all-time peak loads of the GPU Energy companies are as follows:
(In KW)
Company Date Peak Load
-------- ------------- ---------
GPU Energy companies Jul. 06, 1999 10,075,000*
JCP&L Jul. 06, 1999 5,180,000
Met-Ed Jul. 19, 1999 2,384,000
Penelec Jan. 19, 1997 2,652,000
* System peak load.
GPU Electric Generating Facilities
- ----------------------------------
At December 31, 1999, GPU Electric had ownership interests in 5 operating
natural gas-fired power production facilities located internationally, with an
aggregate capability of 4,244,500 KW as follows:
Name of Year of Ownership
Facility Location Installation Total KW Interest (KW)
- -------- -------- ------------ ---------- -------------
Teesside England 1993 1,875,000 498,800
Redditch* England 1991 29,000 29,000
Hereford England 1980 15,000 15,000
Humber England 1997-1999 1,261,500 237,200
Marmara Turkey 1999 478,000 148,200
Uch Pakistan ** 586,000 234,400
--------- ---------
Total 4,244,500 1,162,600
========= =========
* Sold in January 2000.
** Expected to begin commercial operation in 2000.
GPUI Group Generating Facilities
- --------------------------------
At December 31, 1999, the GPUI Group had ownership interests in 10
operating natural gas-fired cogeneration and other nonutility power production
facilities located both domestically and internationally, with an aggregate
capability of 2,243,300 KW as follows:
Name of Year of Ownership
Facility Location Installation Total KW Interest (KW)
- -------- -------- ------------ ---------- -------------
U.S. Facilities
---------------
Mid Georgia GA 1998 300,000 150,000
Selkirk* NY 1992-94 350,000 69,600
Lake FL 1993 110,000 109,900
Pasco FL 1993 109,000 54,400
Onondaga NY 1993 80,000 80,000
PELP (Marcal) NJ 1989 65,000 32,500
--------- ---------
Total 1,014,000 496,400
--------- ---------
28
Foreign Facilities
------------------
Termobarran-
quilla Colombia 1972-98 890,000 254,500
Guaracachi Bolivia 1975-99 287,700 143,900
Aranjuez Bolivia 1974-94 36,900 18,500
Karachipampa Bolivia 1982 14,700 7,400
--------- ---------
Total 1,229,300 424,300
--------- ---------
Total capability 2,243,300 920,700
========= =========
* The GPUI Group does not have operating responsibility for this facility.
Transmission and Distribution System
- ------------------------------------
At December 31, 1999, the GPU Energy companies owned the following
transmission and distribution facilities:
JCP&L Met-Ed Penelec Total
----------- ---------- ---------- ----------
Transmission and Distribution
Substations 302 248 472 1,022
========== ========== ========== ==========
Aggregate Installed Transformer
Capacity of Substations
(in kilovoltamperes - KVA) 18,882,066 9,639,466 13,109,009 41,630,541
========== ========== ========== ==========
Transmission System (estimate):
- -------------------
Lines (In Circuit Miles):
500 KV 18 188 235 441
345 KV - - 149 149
230 KV 570 383 650 1,603
138 KV - 3 11 14
115 KV 232 385 1,330 1,947
69 KV, 46 KV and 34.5 KV 1,769 469 364 2,602
---------- ---------- ---------- ----------
Total 2,589 1,428 2,739 6,756
========== ========== ========== ==========
Distribution System (estimate):
- -------------------
Line Transformer Capacity (KVA) 10,348,078 6,176,550 7,031,077 23,555,705
========== ========== ========== ==========
Pole Miles of Overhead Lines 16,080 12,613 22,656 51,349
========== ========== ========== ==========
Trench Miles of Underground
Cable 7,311 2,287 2,013 11,611
========== ========== ========== ==========
Foreign Utility Companies
Electric Transmission and Distribution:
- --------------------------------------
In addition, Midlands, which provides service to 2.3 million customers in
a 5,135 square mile area in England, owns a total of 39,544 miles of overhead
and underground lines and has over 33,000 transformers mounted on
29
poles and over 13,800 ground mounted transformers. GPU PowerNet, which serves
all of Victoria, Australia covering an area of approximately 87,900 square miles
and a population of 4.5 million, owns a total of 4,062 miles of overhead and
underground lines. Emdersa, which owns three electric distribution companies
servicing three provinces in northwest Argentina with approximately 335,000
customers within 206,340 square miles, has over 7,000 transformers, and owns
6,238 and 55 miles of overhead and underground lines, respectively.
Gas Transmission:
- ----------------
GPU GasNet, a natural gas transmission business, encompasses 1,239 miles
of pipeline consisting of two separate networks, the Principal System and the
Western System, which supply all of the natural gas consumed in Victoria,
Australia. The two networks service approximately 1.3 million residential
customers and approximately 40,000 industrial and commercial customers
throughout Victoria.
ITEM 3. LEGAL PROCEEDINGS.
Reference is made to Significant Developments - Competitive Business
Risks; Restructuring Actions; and Domestic Energy Supply under Item 1 and to
Note 12, Commitments and Contingencies, of the Combined Notes to the
Consolidated Financial Statements contained in Item 8 for a description of
certain pending legal proceedings involving GPU.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
30
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
All of JCP&L, Met-Ed and Penelec's outstanding common stock is owned by
GPU, Inc. During 1999, JCP&L, Met-Ed and Penelec paid dividends on their common
stock to GPU, Inc. in the following amounts: JCP&L $335 million, Met-Ed $315
million and Penelec $460 million.
In general, the JCP&L, Met-Ed and Penelec FMB indentures restrict the
payment of dividends or distributions on or with respect to their common stock
to amounts credited to earned surplus since approximately the dates of the
indentures. At such dates, the GPU Energy companies had balances in their earned
surplus accounts (which would not be available for dividends or other
distributions) as follows: JCP&L - $1.7 million; Met-Ed - $3.4 million; and
Penelec - $10.1 million. Met-Ed and Penelec have requested authorization from
the SEC to declare and pay common dividends from amounts now accounted for as
capital surplus, subject to their FMB indentures and other conditions. See the
Financing Arrangements section in Item 1 for additional information.
Stock Trading
GPU, Inc. is listed as GPU on the New York Stock Exchange. On March
15, 2000, there were 34,986 registered holders of GPU, Inc. common stock.
Dividends
GPU, Inc. common stock dividend declaration dates are the first Thursdays
of December, April, June and October. Dividend payment dates fall on the last
Wednesday of February, May, August and November. Dividend declarations and
quarterly stock price ranges for 1999 and 1998 are set forth below.
Common Stock
------------
Dividends Declared Price Ranges*
- ------------------------- ----------------------------------------------
1999 1998
1999 1998 Quarter High/Low High/Low
----- ----- ------- ------------------ ------------------
April $.53 $.515 First $45 $37 1/4 $44 11/16 $38 11/16
June .53 .515 Second 44 5/8 36 1/2 44 7/16 36 1/2
October .53 .515 Third 42 9/16 32 43 5/16 35 3/16
December .53 .515 Fourth 34 13/16 28 3/4 47 3/16 41 3/8
* Based on New York Stock Exchange Composite Transactions as reported in the
Wall Street Journal.
ITEM 6. SELECTED FINANCIAL DATA.
See pages F-1 and F-2 for references to each registrant's Selected
Financial Data required by this item.
31
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
See pages F-1 and F-2 for references to each registrant's Management's
Discussion and Analysis of Financial Condition and Results of Operations
required by this item.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
See pages F-22 through F-24 for references to GPU, Inc.'s Quantitative and
Qualitative Disclosures About Market Risk required by this item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See pages F-1 and F-2 for references to each registrant's Financial
Statements and Quarterly Financial Data (unaudited) required by this item.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
32
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Identification of Directors
- ---------------------------
Information regarding GPU, Inc.'s directors is incorporated by reference
to the BOARD OF DIRECTORS section of GPU, Inc.'s Proxy Statement for the 2000
Annual Meeting of Stockholders. The current directors of JCP&L, Met-Ed and
Penelec, their ages, positions held and business experience during the past five
years are as follows:
Year First Elected
---------------------
Name Age Position JCP&L Met-Ed Penelec
- ---- --- -------- ----- ------ -------
JCP&L/Met-Ed/Penelec:
- --------------------
F. D. Hafer (a) 59 Chairman of the Board and 1996 1978 1994
Chief Executive Officer
R. L. Wise (b) 56 President 1999 1999 1999
M. P. O'Flynn (c) 54 Vice President - Finance 1999 1999 1999
and Rates and
Comptroller
C. B. Snyder (d) 54 Director 1997 1997 1997
JCP&L only:
- ----------
G. E. Persson (e) 67 Director 1983
S. C. Van Ness (f) 65 Director 1983
S. B. Wiley (g) 69 Director 1982
(a) Mr. Hafer is Chairman, Chief Executive Officer and President of GPU, Inc.
and GPUS (which he also serves as a director). He became President and
Chief Operating Officer of GPU and GPUS in July 1996 and was elected to the
additional positions of Chairman and Chief Executive Officer in May 1997.
He is also Chairman of the Board, Chief Executive Officer, and a director
of JCP&L, Met-Ed and Penelec (which do business as GPU Energy); Chairman of
the Board and a director of GPUN; Chairman, Chief Executive Officer and a
director of GPU AR; Chairman and a director of GPU Capital, Inc. (GPU
Capital); a director of GPU International, Inc. (GPUI), GPU Power, Inc.
(GPU Power), GPU Electric, Inc. (GPU Electric), Avon Energy Partners
Holdings (Avon), Midlands, GPU Telcom and Saxton Nuclear Experimental
Corporation (Saxton), all subsidiaries of GPU, Inc. He is President and
Chief Executive Officer of the GPU Foundation. Mr. Hafer, who has been
associated with the GPU companies since 1962, served as President of Met-Ed
from 1986 to 1996 and as President of Penelec from 1994 to 1996. Mr. Hafer
is also a director of the U.S. Chamber of Commerce and Utilities Mutual
Insurance Company, a director and past president of the Manufacturers
Association of Berks County and a director and past Chairman of the Board
of the Pennsylvania Electric Association. He is a director of the Reading
Hospital and Medical Center, a trustee of the Caron Foundation and
immediate past chairman and a member of the Board of Trustees of Drug-Free
Pennsylvania.
33
(b) Mr. Wise was elected President of JCP&L, Met-Ed and Penelec in 1999. Mr.
Wise is also President, Chief Executive Officer and a director of GPU
Telcom; and President-Operations Division and a director of GPUS,
President and a director of Waverly Electric Light and Power Company and
a director of GPUN and Saxton. Prior to assuming these positions he
served as President and a director of GPUI, GPU Power and GPU Electric
from December 1998 to October 1999. From June 1996 to November 1999,
Mr. Wise served as President and a director of GPU Generation, Inc.
Prior to that, Mr. Wise served as President and a director of Penelec
since 1986. He is also a director of US Bancorp Trust Company, US
Bancorp, Inc., U.S. National Bank of Johnstown, PA. and Utilities Mutual
Insurance Company.
(c) Mr. O'Flynn was elected Vice President - Finance and Rates and Comptroller
of JCP&L, Met-Ed and Penelec in 1999. From February 1997 to August 1999, he
served as a self-employed consultant in the energy field. Prior to that, he
held various positions with Columbia Energy from 1970 to 1997.
(d) Mrs. Snyder was elected Executive Vice President - Corporate Affairs of
GPUS in 1998. She is also a director of GPUS, GPU AR and Midlands.
Previously, she served as Senior Vice President - Corporate Affairs of
GPUS, Vice President - Public Affairs of JCP&L since 1996 and Vice
President - Public Affairs of Met-Ed and Penelec since 1994.
(e) Mrs. Persson has served in the N.J. Division of Consumer Affairs Elder
Fraud Investigation Unit since 1999. She previously served as liaison
(Special Assistant Director) between the N.J. Division of Consumer Affairs
and various state boards. Prior to 1995, she was owner and President of
Business Dynamics Associates of Red Bank, NJ. Mrs. Persson is a member of
the United States Small Business Administration National Advisory Board,
the New Jersey Small Business Advisory Council, the Board of Advisors of
Brookdale Community College and the Board of Advisors of Georgian Court
College.
(f) Mr. Van Ness is Of Counsel in the firm of Hubert, Van Ness, Gayri and
Goodell of Princeton, NJ since 1998. Prior to that he was affiliated with
the law firm of Pico, Mack, Kennedy, Jaffe, Perrella and Yoskin of Trenton,
NJ since 1990. He is also a director of The Prudential Insurance Company of
America.
(g) Mr. Wiley has been a partner in the law firm of Wiley, Malehorn and
Sirota of Morristown, NJ since 1973. He is also Chairman of First
Morris Bank of Morristown, NJ.
The directors of the GPU companies are elected at their respective annual
meetings of stockholders to serve until the next meeting of stockholders and
until their respective successors are duly elected and qualified. There are no
family relationships among the directors of the GPU companies.
Identification of Executive Officers
- ------------------------------------
The current executive officers of GPU, Inc., JCP&L, Met-Ed and Penelec,
their ages, positions held and business experience during the past five years
are as follows:
34
Year First
Name Age Position Elected
- ---- --- -------- ---------
GPU, Inc.:
- ---------
F. D. Hafer (a) 59 Chairman, President and Chief 1996
Executive Officer
R. L. Wise (b) 56 President, JCP&L, Met-Ed and Penelec 1999
I. H. Jolles (c) 61 Senior Vice President and General 1990
Counsel
B. L. Levy (d) 44 Senior Vice President and Chief 1998
Financial Officer and President,
GPU Capital, Inc.
P. E. Maricondo (e) 53 Vice President, Comptroller and 1998
Chief Accounting Officer
T. G. Howson (f) 51 Vice President and Treasurer 1994
S. L. Guibord (g) 51 Secretary 1999
T. G. Broughton (h) 54 President, GPUN 1996
C. B. Snyder (i) 54 Executive Vice President - 1997
Corporate Affairs, GPUS
Year First Elected
Name Age Position JCP&L Met-Ed Penelec
- ---- --- -------- ----- ------ -------
JCP&L/Met-Ed/Penelec:
- --------------------
F. D. Hafer (a) 59 Chairman and Chief 1996 1978 1994
Executive Officer
R. L. Wise (b) 56 President and Chief 1999 1999 1999
Operating Officer
I. H. Jolles (c) 61 Vice President and 1996 1996 1996
General Counsel
B. L. Levy (d) 44 Vice President and 1998 1998 1998
Chief Financial Officer
T. G. Howson (f) 51 Vice President 1994 1994 1994
and Treasurer
S. L. Guibord (g) 51 Secretary 1996 1996 1996
C. Brooks (j) 50 Vice President - Human and 1997 1997 1997
Technical Resources
C. A. Mascari (k) 52 Vice President - Power 1997 1997 1997
Services
M. P. O'Flynn (l) 54 Vice President - 1999 1999 1999
Finance and Rates
and Comptroller
M. B. Roche (m) 48 Vice President - 1999 2000 2000
Customer Services and
Sr. Vice President -
New Jersey Operations
R. S. Zechman (n) 56 Vice President - 1996 1990 1994
Engineering and Operations
(a) See Note (a) on page 33.
(b) See Note (b) on page 34.
(c) Mr. Jolles is also Executive Vice President, General Counsel and a director
of GPUS, General Counsel of GPUN and a director of GPUS, GPUI, GPU Power,
GPU Capital, GPU Electric and Midlands. He is also a director of Utilities
Mutual Insurance Company.
35
(d) Mr. Levy is also a director of GPUS, GPUI, GPU Power, GPU Capital, GPU
Electric, Avon and Midlands. Mr. Levy is also President of GPU Capital.
Prior to assuming his current position, Mr. Levy served as President,
Chief Executive Officer and director of GPUI since 1991.
(e) Mr. Maricondo was elected Vice President, Comptroller and Chief Accounting
Officer of GPU, Inc. and GPUS in 1998 and Vice President and Comptroller of
GPU Capital in 1999. Prior to that he served as Vice President - Internal
Auditing of GPUS since 1997 and as Vice President and Comptroller of GPUN
from 1993.
(f) Mr. Howson is also Vice President and Treasurer of GPUN, GPU AR, Saxton
and GPU Telcom.
(g) Mr. Guibord has also served as Corporate Compliance Auditing Director of
GPUS since 1994. Mr. Guibord also serves as Secretary of GPUS, GPUN,
GPU AR, GPU Telcom and Saxton.
(h) Mr. Broughton is also a director of GPUN. He previously served as Executive
Vice President of GPUN since 1995. Prior to that, he served as Vice
President - TMI of GPUN since 1991.
(i) See Note (d) on Page 34.
(j) Mr. Brooks previously served as Vice President - Collect and Disburse
Money of GPU Generation, Inc. since 1996. Prior to that, he was Vice
President - Materials and Services of GPUS since 1990.
(k) Mr. Mascari previously served as Vice President - System Planning of
GPUS since 1994.
(l) See Note (c) on page 34.
(m) Prior to assuming his current position, Mr. Roche served as Vice
President - Oyster Creek since June 1995.
(n) Mr. Zechman has also served as Vice President - Administrative Services
of Met-Ed since 1992.
The executive officers of the GPU companies are elected each year by their
respective Boards of Directors at the first meeting of the Board held following
the annual meeting of stockholders. Executive officers hold office until the
next meeting of directors following the annual meeting of stockholders and until
their respective successors are duly elected and qualified. There are no family
relationships among the executive officers.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item with respect to GPU, Inc. is
incorporated by reference to the EXECUTIVE COMPENSATION section of GPU, Inc.'s
Proxy Statement for the 2000 Annual Meeting of Stockholders. The following table
sets forth remuneration paid, as required by this Item, to the Chief Executive
Officer and the five other most highly compensated executive officers of JCP&L,
Met-Ed and Penelec for the year ended December 31, 1999.
36
The managements of JCP&L, Met-Ed and Penelec were combined in a 1996
reorganization. Accordingly, the amounts shown below represent the aggregate
remuneration paid to such executive officers by JCP&L, Met-Ed and Penelec during
1999, 1998 and 1997.
Remuneration of Executive Officers
- ----------------------------------
SUMMARY COMPENSATION TABLE
Long-Term Compensation
----------------------
Annual Compensation Awards Payouts
------------------- ------ -------
Other Securities
Name and Annual Underlying LTIP All Other
Principal Compens- Options Payouts Compens-
Position Year Salary($) Bonus($) ation($)(1) Granted(#) ($)(2) ation ($)
- -------- ---- --------- -------- ---------- ---------- -------- --------
F. D. Hafer
Chairman of the
Board and Chief
Executive Officer (3) (3) (3) (3) (3) (3) (3)
R. L. Wise
President (4) (4) (4) (4) (4) (4) (4)
R. S. Zechman 1999 170,000 120,000 - 1,400 21,043 22,083 (5)
Vice President - 1998 170,000 60,000 538 4,850 18,669 17,623
Engineering & Operations 1997 162,538 32,000 637 - 20,085 15,843
C. A. Mascari 1999 170,000 112,000 - 1,400 20,218 27,090 (6)
Vice President - 1998 170,000 50,000 - 4,850 21,002 20,762
Power Services 1997 156,228 32,000 - - 18,727 16,997
D. J. Howe 1999 170,000 95,000 - 1,400 - 18,604 (7)
Vice President - 1998 170,000 55,000 - 4,850 - 14,033
Customer Services 1997 162,308 32,000 - - - 11,524
<FN>
(1) Consists of earnings on "Long-Term Incentive Plan" ("LTIP") compensation
paid in the year the award vests.
(2) Consists of Performance Cash Incentive Awards paid on the 1992, 1993 and
1994 restricted stock awards, which have vested under the 1990 Stock Plan.
These amounts are designed to compensate recipients of restricted
stock/unit awards for the amount of federal and state income taxes that are
payable upon vesting of the restricted stock/unit awards. The restricted
units issued each year since 1995 under the 1990 Stock Plan are performance
based. The 1999 awards are shown in "Long-Term Incentive Plans - Awards in
Last Fiscal Year" table (the "LTIP table"). Dividend equivalents are earned
on the aggregate restricted units awarded under the 1990 Stock Plan and
reinvested in additional units.
The aggregate number and value (based on the stock price per share at
December 31, 1999) of unvested and deferred vested stock-equivalent
restricted units (including reinvested dividend equivalents) includes the
amounts shown on the LTIP table, and at the end of 1999 were:
</FN>
37
Aggregate Units Aggregate Value
--------------- ---------------
F. D. Hafer see note (3) see note (3)
R. L. Wise see note (4) see note (4)
R. S. Zechman 6,722 $199,980
C. A. Mascari 7,926 235,799
D. J. Howe 4,811 143,127
(3) Mr. Hafer was compensated by GPUS for his overall service on behalf of GPU
and accordingly was not compensated directly by the other subsidiary
companies for his services. Information with respect to Mr. Hafer's
compensation is included in the EXECUTIVE COMPENSATION section of GPU,
Inc.'s Proxy Statement for the 2000 Annual Meeting of Stockholders, which
is incorporated herein by reference.
(4) Information with respect to Mr. Wise's compensation is included in the
EXECUTIVE COMPENSATION section of GPU, Inc.'s Proxy Statement for the 2000
Annual Meeting of Stockholders, which is incorporated herein by reference.
(5) Consists of GPU's matching contributions under the Savings Plan ($6,400),
matching contributions under the non-qualified deferred compensation plan
($2,800), above-market interest accrued on the retirement portion of
deferred compensation ($351), and earnings on LTIP compensation not paid
in the current year ($12,532).
(6) Consists of GPU's matching contributions under the Savings Plan ($6,400),
matching contributions under the non-qualified deferred compensation plan
($2,400), above-market interest accrued on the retirement portion of
deferred compensation ($3,314), and earnings on LTIP compensation not paid
in the current year ($14,976).
(7) Consists of GPU's matching contributions under the Savings Plan ($6,400),
matching contributions under the non-qualified deferred compensation plan
($2,600), above-market interest accrued on the retirement portion of
deferred compensation ($901), and earnings on LTIP compensation not paid
in the current year ($8,703).
Option Grants In Last Fiscal Year
- ---------------------------------
The following table summarizes option grants made during 1999 to the Named
Executive Officers. All of these options were granted with an exercise price
equal to the fair market value of GPU stock on the date of grant.
38
Individual Grants
Number of
Securities % of Total
Underlying Options
Options Granted to
Grant Granted(1) Employees in Base Price Expiration Grant Date
Name Date (#) Fiscal Year ($/Sh) Date Present Value(2)
- --------------- -------- --------- ------------ ----------- ---------- ---------------
F. D. Hafer (3) (3) (3) (3) (3) (3)
R. L. Wise (4) (4) (4) (4) (4) (4)
R. S. Zechman 06/03/99 1,400 1.5% $42.9375 06/03/09 $9,240
C. A. Mascari 06/03/99 1,400 1.5% 42.9375 06/03/09 9,240
D. J. Howe 06/03/99 1,400 1.5% 42.9375 06/03/09 9,240
<FN>
(1) Options become exercisable in three equal annual installments beginning on
the first anniversary of the date of the grant. These grants will fully
vest upon termination of employment resulting from death or disability.
Options may be exercised after retirement in accordance with the terms of
the 1999 Stock Option Agreement. In the event of a change in control during
the option term, all options will immediately become exercisable.
(2) Options are valued using a Black-Scholes option pricing model, a
mathematical formula widely used to value options. The model as applied
used the applicable grant dates and the exercise prices shown on the table,
and the fair market value of Common Stock on the respective grant dates,
which was in each case the same as the exercise price. For the June 1999
grant, the model assumed (i) a risk-free rate of return of 6.14%, which
approximates the rate on 10-year U.S. Treasury zero coupon bonds on the
grant date; (ii) a stock price volatility of 20.21%, based on the average
historical volatility for the 36-month period ending on the grant date;
(iii) an average dividend yield of 5.42%, based on the average yield for a
36-month period; (iv) the exercise of all options on the final day of their
10-year terms; and (v) 3% discount for risk of forfeiture prior to the
options becoming exercisable. No discount from the theoretical value was
taken to reflect the restrictions on the transfer of the options and the
likelihood of the options being exercised in advance of the final day of
their terms.
(3) Information with respect to Mr. Hafer's options is included in the
EXECUTIVE COMPENSATION section of GPU, Inc.'s Proxy Statement for the 2000
Annual Meeting of Stockholders, which is incorporated herein by reference.
(4) Information with respect to Mr. Wise's options is included in the EXECUTIVE
COMPENSATION section of GPU, Inc.'s Proxy Statement for the 2000 Annual
Meeting of Stockholders, which is incorporated herein by reference.
</FN>
39
Aggregated Option Exercises In Last Fiscal Year And Fiscal Year-End Option Value
The following table summarizes the number and value of all unexercised
options held by the Named Executive Officers. In 1999, no options were exercised
by any Named Executive Officer.
Number of Securities Underlying Value of Unexercised
Unexercised Options at In-the-Money Options
Fiscal Year-End (#) at Fiscal Year-End ($)
-------------------------- --------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
F. D. Hafer (3) (3) (3) (3)
R. L. Wise (4) (4) (4) (4)
R. S. Zechman 1,617 4,633 0 0
C. A. Mascari 1,617 4,633 0 0
D. J. Howe 1,617 4,633 0 0
LONG-TERM INCENTIVE PLANS - AWARDS IN LAST FISCAL YEAR
------------------------------------------------------
This table shows the LTIP awards made to the Named Executive Officers for
the performance period January 1, 1999 through December 31, 2003.
Performance Estimated future payouts
Number of or other under non-stock price-
shares, period until based plans(1)
units or maturation Threshold Target Maximum
Name other rights or payout (#) (#) (#)
---- ------------- ------------- ----------- ---- ------
F. D. Hafer (2) (2) (2) (2) (2)
R. L. Wise (2) (2) (2) (2) (2)
R. S. Zechman 1,100 5 year vesting 550 1,100 2,200
C. A. Mascari 1,100 5 year vesting 550 1,100 2,200
D. J. Howe 1,100 5 year vesting 550 1,100 2,200
(1) The restricted units awarded in 1999 under the 1990 Stock Plan provide for
a performance adjustment to the aggregate number of units vesting for the
recipient, including the accumulated reinvested dividend equivalents, based
on the annualized GPU Total Shareholder Return (TSR) percentile ranking
against all companies in the Standard & Poor's Electric Utility Index for
the period between the award and vesting dates. With a 55th percentile
ranking, the performance adjustment would be 100% as reflected in the
"Target" column. In the event that the percentile ranking is below the 55th
percentile, the performance adjustment would be reduced in steps reaching
0% below the 40th percentile. The minimum payout or "Threshold" begins at
the 40th percentile, which results in a payout of 50% of target. A ranking
below the 40th percentile would result in no award. Should the TSR
percentile ranking exceed the 59th percentile, then the performance
adjustment would be increased in steps reaching 200% at the 90th percentile
as reflected in the "Maximum" column. Under the 1990 Stock Plan, regular
quarterly dividends are reinvested in additional units that are subject to
the vesting restrictions of the award. Actual payouts under the Plan would
be based on the aggregate number of units awarded and the units accumulated
through dividend reinvestment at the time the restrictions lapse.
40
(2) Information with respect to Mr. Hafer's and Mr. Wise's long-term incentive
plans is included in the EXECUTIVE COMPENSATION section of GPU, Inc.'s
Proxy Statement for the 2000 Annual Meeting of Stockholders, which is
incorporated herein by reference.
Proposed Remuneration of Executive Officers
- -------------------------------------------
None of the Named Executive Officers in the Summary Compensation Table has
an employment contract. The compensation of executive officers is determined
from time to time by the Personnel & Compensation Committee of the GPU, Inc.
Board of Directors.
Retirement Plans
- ----------------
The GPU companies' pension plans provide for pension benefits, payable for
life after retirement, based upon years of creditable service with the GPU
companies and the employee's career average compensation as defined below.
Federal law limits the amount of an employee's pension benefits that may be paid
from a qualified trust established pursuant to a qualified pension plan (such as
the GPU companies' plans). The GPU companies also have adopted non-qualified
plans providing that the portion of a participant's pension benefits which, by
reason of such limitations, cannot be paid from such a qualified trust shall be
paid directly on an unfunded basis by the participant's employer.
The following table illustrates the amount of aggregate annual pension from
funded and unfunded sources resulting from employer contributions to the
qualified trust and direct payments payable upon retirement in 2000 (computed on
a single life annuity basis) to persons in specified compensation and years of
service classifications:
ESTIMATED ANNUAL RETIREMENT BENEFITS (2) (3) (4)
BASED UPON CAREER AVERAGE COMPENSATION
(2000 Retirement)
Career
Average
Compen- Years of Service
sation(1) -------------------------------------------------------
15 20 25 30 35 40
--------- -------- -------- -------- -------- -------- ------
$ 50,000 $ 13,810 $18,413 $ 23,016 $27,620 $ 32,223 $ 36,585
100,000 28,810 38,413 48,016 57,620 67,223 76,185
150,000 43,810 58,413 73,016 87,620 102,223 115,785
200,000 58,810 78,413 98,016 117,620 137,223 155,385
250,000 73,810 98,413 123,016 147,620 172,223 194,985
300,000 88,810 118,413 148,016 177,620 207,223 234,585
350,000 103,810 138,413 173,016 207,620 242,223 274,185
400,000 118,810 158,413 198,016 237,620 277,223 313,785
450,000 133,810 178,413 223,016 267,620 312,223 353,385
500,000 148,810 198,413 248,016 297,620 347,223 392,985
550,000 163,810 218,413 273,016 327,620 382,223 432,585
600,000 178,810 238,413 298,016 357,620 417,223 472,185
650,000 193,810 258,413 323,016 387,620 452,223 511,785
700,000 208,810 278,413 348,016 417,620 487,223 551,385
750,000 223,810 298,413 373,016 447,620 522,223 590,985
800,000 238,810 318,413 398,016 477,620 557,223 630,585
41
(1) Career Average Compensation is the average annual compensation received
from January 1, 1984 to retirement and includes Salary and Bonus. The
career average compensation amounts for the following Named Executive
Officers differ by more than 10% from the three year average annual
compensation set forth in the Summary Compensation Table and are as
follows: Messrs. Hafer - $414,320; Wise - $304,694; Zechman - $139,754;
Mascari - $138,924; and Howe - $119,362.
(2) Years of Creditable Service at December 31, 1999: Messrs. Hafer - 37 years;
Wise - 36 years; Zechman - 30 years; Mascari - 26 years; and Howe - 23
years.
(3) Based on an assumed retirement at age 65 in 1999. To reduce the above
amounts to reflect a retirement benefit assuming a continual annuity to a
surviving spouse equal to 50% of the annuity payable at retirement,
multiply the above benefits by 90%. The estimated annual benefits are not
subject to any reduction for Social Security benefits or other offset
amounts.
(4) Annual retirement benefits under the basic pension per the above table
cannot exceed 55%, as defined in the pension plan, of the average
compensation during the highest paid 36 calendar months. As of December 31,
1999, none of the Named Executive Officers exceed the 55% limit.
Remuneration of JCP&L Directors
- -------------------------------
Nonemployee directors receive an annual retainer of $15,000, a fee of
$1,000 for each Board meeting attended, and a fee of $1,000 for each Committee
meeting attended.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item for GPU, Inc. is incorporated by
reference to the SECURITY OWNERSHIP section of GPU, Inc.'s Proxy Statement for
the 2000 Annual Meeting of Stockholders.
All of the outstanding shares of JCP&L (15,371,270), Met-Ed (859,500) and
Penelec (5,290,596) common stock are owned beneficially and of record by their
parent, GPU, Inc., 300 Madison Avenue, Morristown, NJ 07962.
The following table sets forth, as of February 1, 2000, the beneficial
ownership of equity securities (and stock-equivalent units) of each of the
directors and each of the executive officers named in the Summary Compensation
Table, and of all directors and executive officers of each of the respective GPU
Energy companies as a group. The shares of Common Stock owned by all directors
and executive officers as a group constitute less than 1% of the total shares
outstanding.
42
Amount and Nature of Beneficial Ownership
Shares(1) Stock-Equivalent
Name Title of Security Direct Indirect Units(2)
---- ------------------ ----- ------- -------
JCP&L/Met-Ed/Penelec:
F. D. Hafer GPU Common Stock 12,421 154 34,547
R. L. Wise GPU Common Stock 4,111 - 23,370
R. S. Zechman GPU Common Stock 1,914 - 6,722
C. A. Mascari GPU Common Stock - 6 7,926
D. J. Howe GPU Common Stock - 481 4,811
C. B. Snyder GPU Common Stock 955 - 7,726
JCP&L Only:
- -----------
G. E. Persson GPU Common Stock None
S. C. Van Ness GPU Common Stock None
S. B. Wiley GPU Common Stock None
All Directors and
Executive Officers
as a Group GPU Common Stock 43,095 3,442 142,530
(1) The number of shares owned and the nature of such ownership, not being
within the knowledge of GPU, have been furnished by each individual.
(2) Restricted units, which do not have voting rights, represent rights
(subject to vesting) to receive shares of Common Stock under the 1990 Stock
Plan for Employees of GPU, Inc. and Subsidiaries (the "1990 Stock Plan").
These amounts also include restricted units, which have vested under the
1990 Stock Plan, but which were deferred pursuant to that Plan by the
following officers: Mr. Wise - 6,765 units, Mr. Zechman - 689 units, and
Mr. Mascari - 2,001 units. See Summary Compensation Table above.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
GPU and its subsidiaries have business arrangements with organizations with
which certain GPU directors and certain owners of 5% or more of GPU stock are
affiliated. These arrangements are conducted in the ordinary course of business,
at arms-length, and on standard commercial terms and conditions.
43
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) See pages F-1 and F-2 for references to Financial Statements and
Financial Statement Schedules required by this item.
1. Exhibits:
3-A Articles of Incorporation of GPU, as amended through March 27,
1990 - Incorporated by reference to Exhibit 3-A, 1989 Annual
Report on Form 10-K, SEC File No. 1-6047.
3-A-1 Articles of Amendment to Articles of Incorporation of GPU
dated May 5, 1995 - Incorporated by reference to Exhibit A-4,
Certificate Pursuant to Rule 24, SEC File No. 70-8569.
3-A-2 Articles of Incorporation of GPU, Inc. as amended August 1,
1996 - Incorporated by reference to Exhibit 3-A-2, 1996
Annual Report on Form 10-K, SEC File No. 1-6047.
3-B By-Laws of GPU, Inc. as amended May 6, 1999.
3-C Restated Certificate of Incorporation of JCP&L, as amended -
Incorporated by reference to Exhibit 3-A, 1990 Annual Report
on Form 10-K, SEC File No. 1-3141.
3-C-1 Certificate of Amendment to Restated Certificate of
Incorporation of JCP&L, dated June 19, 1992 - Incorporated by
reference to Exhibit A-2(a), Certificate Pursuant to Rule 24,
SEC File No. 70-7949.
3-C-2 Certificate of Amendment to Restated Certificate of
Incorporation of JCP&L, dated June 19, 1992 - Incorporated by
reference to Exhibit A-2(a)(i), Certificate Pursuant to Rule
24, SEC File No. 70-7949.
3-D By-Laws of JCP&L, as amended - Incorporated by reference to
Exhibit 3-B, 1993 Annual Report on Form 10-K, SEC File No.
1-3141.
3-E Restated Articles of Incorporation of Met-Ed dated March 8,
1999.
3-F By-Laws of Met-Ed dated July 27, 1995, as amended -
Incorporated by reference to Exhibit 3-F, 1995 Annual Report
on Form 10-K, SEC File No. 1-446.
3-F-1 By-Laws of Met-Ed dated May 22, 1997 - Incorporated by
reference to Exhibit B-35 to GPU, Inc.'s Annual Report on Form
U5S, SEC File No. 30-126.
3-G Restated Articles of Incorporation of Penelec dated March 8,
1999.
44
3-H By-Laws of Penelec dated May 22 1997, as amended -
Incorporated by reference to Exhibit B-45, 1997 Annual Report
of GPU on Form U5S, SEC File No. 30-126.
4-A Indenture of JCP&L, dated March 1, 1946, between JCP&L and
United States Trust Company of New York, Successor Trustee,
as amended and supplemented by eight supplemental
indentures dated December 1, 1948 through June 1, 1960 -
Incorporated by reference to JCP&L's Instruments of
Indebtedness Nos. 1 to 7, inclusive, and 9 and 10 filed as
part of Amendment No. 1 to 1959 Annual Report of GPU on
Form U5S, SEC File Nos. 30-126 and 1-3292.
4-A-1 Ninth Supplemental Indenture of JCP&L, dated November 1, 1962
- Incorporated by reference to Exhibit 2-C, Registration No.
2-20732.
4-A-2 Tenth Supplemental Indenture of JCP&L, dated October 1, 1963 -
Incorporated by reference to Exhibit 2-C, Registration No.
2-21645.
4-A-3 Eleventh Supplemental Indenture of JCP&L, dated October 1,
1964 - Incorporated by reference to Exhibit 5-A-3,
Registration No. 2-59785.
4-A-4 Twelfth Supplemental Indenture of JCP&L, dated November 1,
1965 - Incorporated by reference to Exhibit 5-A-4,
Registration No. 2-59785.
4-A-5 Thirteenth Supplemental Indenture of JCP&L, dated August 1,
1966 - Incorporated by reference to Exhibit 4-C, Registration
No. 2-25124.
4-A-6 Fourteenth Supplemental Indenture of JCP&L, dated September 1,
1967 - Incorporated by reference to Exhibit 5-A-6,
Registration No. 2-59785.
4-A-7 Fifteenth Supplemental Indenture of JCP&L, dated October 1,
1968 - Incorporated by reference to Exhibit 5-A-7,
Registration No. 2-59785.
4-A-8 Sixteenth Supplemental Indenture of JCP&L, dated October 1,
1969 - Incorporated by reference to Exhibit 5-A-8,
Registration No. 2-59785.
4-A-9 Seventeenth Supplemental Indenture of JCP&L, dated June 1,
1970 - Incorporated by reference to Exhibit 5-A-9,
Registration No. 2-59785.
4-A-10 Eighteenth Supplemental Indenture of JCP&L, dated December 1,
1970 - Incorporated by reference to Exhibit 5-A-10,
Registration No. 2-59785.
4-A-11 Nineteenth Supplemental Indenture of JCP&L, dated February 1,
1971 - Incorporated by reference to Exhibit 5-A-11,
Registration No. 2-59785.
45
4-A-12 Twentieth Supplemental Indenture of JCP&L, dated November 1,
1971 - Incorporated by reference to Exhibit 5-A-12,
Registration No. 2-59875.
4-A-13 Twenty-first Supplemental Indenture of JCP&L, dated August 1,
1972 - Incorporated by reference to Exhibit 5-A-13,
Registration No. 2-59785.
4-A-14 Twenty-second Supplemental Indenture of JCP&L, dated August 1,
1973 - Incorporated by reference to Exhibit 5-A-14,
Registration No. 2-59785.
4-A-15 Twenty-third Supplemental Indenture of JCP&L, dated October 1,
1973 - Incorporated by reference to Exhibit 5-A-15,
Registration No. 2-59785.
4-A-16 Twenty-fourth Supplemental Indenture of JCP&L, dated December
1, 1973 - Incorporated by reference to Exhibit 5-A-16,
Registration No. 2-59785.
4-A-17 Twenty-fifth Supplemental Indenture of JCP&L, dated November
1, 1974 - Incorporated by reference to Exhibit 5-A-17,
Registration No. 2-59785.
4-A-18 Twenty-sixth Supplemental Indenture of JCP&L, dated March 1,
1975 - Incorporated by reference to Exhibit 5-A-18,
Registration No. 2-59785.
4-A-19 Twenty-seventh Supplemental Indenture of JCP&L, dated July 1,
1975 - Incorporated by reference to Exhibit 5-A-19,
Registration No. 2-59785.
4-A-20 Twenty-eighth Supplemental Indenture of JCP&L, dated October
1, 1975 - Incorporated by reference to Exhibit 5-A-20,
Registration No. 2-59785.
4-A-21 Twenty-ninth Supplemental Indenture of JCP&L, dated February
1, 1976 - Incorporated by reference to Exhibit 5-A-21,
Registration No. 2-59785.
4-A-22 Supplemental Indenture No. 29A of JCP&L, dated May 31, 1976
- Incorporated by reference to Exhibit 5-A-22, Registration
No. 2-59785.
4-A-23 Thirtieth Supplemental Indenture of JCP&L, dated June 1, 1976
- Incorporated by reference to Exhibit 5-A-23, Registration
No. 2-59785.
4-A-24 Thirty-first Supplemental Indenture of JCP&L, dated May 1,
1977 - Incorporated by reference to Exhibit 5-A-24,
Registration No. 2-59785.
4-A-25 Thirty-second Supplemental Indenture of JCP&L, dated January
20, 1978 - Incorporated by reference to Exhibit 5-A-25,
Registration No. 2-60438.
46
4-A-26 Thirty-third Supplemental Indenture of JCP&L, dated January 1,
1979 - Incorporated by reference to Exhibit A-20(b),
Certificate Pursuant to Rule 24, SEC File No. 70-6242.
4-A-27 Thirty-fourth Supplemental Indenture of JCP&L, dated June 1,
1979 - Incorporated by reference to Exhibit A-28, Certificate
Pursuant to Rule 24, SEC File No. 70-6290.
4-A-28 Thirty-sixth Supplemental Indenture of JCP&L, dated October 1,
1979 - Incorporated by reference to Exhibit A-30, Certificate
Pursuant to Rule 24, SEC File No. 70-6354.
4-A-29 Thirty-seventh Supplemental Indenture of JCP&L, dated
September 1, 1984 - Incorporated by reference to Exhibit
A-1(cc), Certificate Pursuant to Rule 24, SEC File No.
70-7001.
4-A-30 Thirty-eighth Supplemental Indenture of JCP&L, dated July 1,
1985 - Incorporated by reference to Exhibit A-1(dd),
Certificate Pursuant to Rule 24, SEC File No. 70-7109.
4-A-31 Thirty-ninth Supplemental Indenture of JCP&L, dated April 1,
1988 - Incorporated by reference to Exhibit A-1(a),
Certificate Pursuant to Rule 24, SEC File No. 70-7263.
4-A-32 Fortieth Supplemental Indenture of JCP&L, dated June 14, 1988
- Incorporated by reference to Exhibit A-1(ff), Certificate
Pursuant to Rule 24, SEC File No. 70-7603.
4-A-33 Forty-first Supplemental Indenture of JCP&L, dated April 1,
1989 - Incorporated by reference to Exhibit A-1(gg),
Certificate Pursuant to Rule 24, SEC File No. 70-7603.
4-A-34 Forty-second Supplemental Indenture of JCP&L, dated July 1,
1989 - Incorporated by reference to Exhibit A-1(hh),
Certificate Pursuant to Rule 24, SEC File No. 70-7603.
4-A-35 Forty-third Supplemental Indenture of JCP&L, dated March 1,
1991 - Incorporated by reference to Exhibit 4-A-35,
Registration No. 33-45314.
4-A-36 Forty-fourth Supplemental Indenture of JCP&L, dated March 1,
1992 - Incorporated by reference to Exhibit 4-A-36,
Registration No. 33-49405.
4-A-37 Forty-fifth Supplemental Indenture of JCP&L, dated October 1,
1992 - Incorporated by reference to Exhibit 4-A-37,
Registration No. 33-49405.
4-A-38 Forty-sixth Supplemental Indenture of JCP&L, dated April 1,
1993 - Incorporated by reference to Exhibit C-15, 1992 Annual
Report of GPU on Form U5S, SEC File No. 30-126.
4-A-39 Forty-seventh Supplemental Indenture of JCP&L, dated April 10,
1993 - Incorporated by reference to Exhibit C-16, 1992 Annual
Report of GPU on Form U5S, SEC File No. 30-126.
47
4-A-40 Forty-eighth Supplemental Indenture of JCP&L, dated April 15,
1993 - Incorporated by reference to Exhibit C-17, 1992 Annual
Report of GPU on Form U5S, SEC File No. 30-126.
4-A-41 Forty-ninth Supplemental Indenture of JCP&L, dated October 1,
1993 - Incorporated by reference to Exhibit C-18, 1993 Annual
Report of GPU on Form U5S, SEC File No. 30-126.
4-A-42 Fiftieth Supplemental Indenture of JCP&L, dated August 1, 1994
- Incorporated by reference to Exhibit C-19, 1994 Annual
Report of GPU on Form U5S, SEC File No. 30-126.
4-A-43 Fifty-first Supplemental Indenture of JCP&L, dated August 15,
1996 - Incorporated by reference to Exhibit 4-A-43, 1996
Annual Report on Form 10-K, SEC File No. 1-6047.
4-A-44 Fifty-second Supplemental Indenture of JCP&L dated July 1,
1999 - Incorporated by reference to Item 16 Exhibit 4-B-44
Registration No. 333-88783.
4-A-45 Fifty-third Supplemental Indenture of JCP&L dated November 1,
1999.
4-A-46 Subordinated Debenture Indenture of JCP&L dated May 1, 1995 -
Incorporated by reference to Exhibit A-8(a), Certificate
Pursuant to Rule 24, SEC File No. 70-8495.
4-B Indenture of Met-Ed, dated November 1, 1944 with United
States Trust Company of New York, Successor Trustee, as
amended and supplemented by fourteen supplemental
indentures dated February 1, 1947 through May 1, 1960 -
Incorporated by reference to Met-Ed's Instruments of
Indebtedness Nos. 1 to 14, inclusive and 16, filed as part
of Amendment No. 1 to 1959 Annual Report of GPU on Form
U5S, SEC File Nos. 30-126 and 1-3292.
4-B-1 Supplemental Indenture of Met-Ed, dated December 1, 1962 -
Incorporated by reference to Exhibit 2-E(1), Registration No.
2-59678.
4-B-2 Supplemental Indenture of Met-Ed, dated March 20, 1964 -
Incorporated by reference to Exhibit 2-E(2), Registration No.
2-59678.
4-B-3 Supplemental Indenture of Met-Ed, dated July 1, 1965 -
Incorporated by reference to Exhibit 2-E(3), Registration No.
2-59678.
4-B-4 Supplemental Indenture of Met-Ed, dated June 1, 1966 -
Incorporated by reference to Exhibit 2-B-4, Registration No.
2-24883.
4-B-5 Supplemental Indenture of Met-Ed, dated March 22, 1968 -
Incorporated by reference to Exhibit 4-C-5, Registration No.
2-29644.
4-B-6 Supplemental Indenture of Met-Ed, dated September 1, 1968 -
Incorporated by reference to Exhibit 2-E(6), Registration No.
2-59678.
48
4-B-7 Supplemental Indenture of Met-Ed, dated August 1, 1969 -
Incorporated by reference to Exhibit 2-E(7), Registration No.
2-59678.
4-B-8 Supplemental Indenture of Met-Ed, dated November 1, 1971 -
Incorporated by reference to Exhibit 2-E(8), Registration No.
2-59678.
4-B-9 Supplemental Indenture of Met-Ed, dated May 1, 1972 -
Incorporated by reference to Exhibit 2-E(9), Registration No.
2-59678.
4-B-10 Supplemental Indenture of Met-Ed, dated December 1, 1973 -
Incorporated by reference to Exhibit 2-E(10), Registration No.
2-59678.
4-B-11 Supplemental Indenture of Met-Ed, dated October 30, 1974 -
Incorporated by reference to Exhibit 2-E(11), Registration No.
2-59678.
4-B-12 Supplemental Indenture of Met-Ed, dated October 31, 1974 -
Incorporated by reference to Exhibit 2-E(12), Registration No.
2-59678.
4-B-13 Supplemental Indenture of Met-Ed, dated March 20, 1975 -
Incorporated by reference to Exhibit 2-E(13), Registration No.
2-59678.
4-B-14 Supplemental Indenture of Met-Ed, dated September 25, 1975 -
Incorporated by reference to Exhibit 2-E(15), Registration No.
2-59678.
4-B-15 Supplemental Indenture of Met-Ed, dated January 12, 1976 -
Incorporated by reference to Exhibit 2-E(16), Registration No.
2-59678.
4-B-16 Supplemental Indenture of Met-Ed, dated March 1, 1976 -
Incorporated by reference to Exhibit 2-E(17), Registration No.
2-59678.
4-B-17 Supplemental Indenture of Met-Ed, dated September 28, 1977 -
Incorporated by reference to Exhibit 2-E(18), Registration No.
2-62212.
4-B-18 Supplemental Indenture of Met-Ed, dated January 1, 1978 -
Incorporated by reference to Exhibit 2-E(19), Registration No.
2-62212.
4-B-19 Supplemental Indenture of Met-Ed, dated September 1, 1978 -
Incorporated by reference to Exhibit 4-A(19), Registration No.
33-48937.
4-B-20 Supplemental Indenture of Met-Ed, dated June 1, 1979 -
Incorporated by reference to Exhibit 4-A(20), Registration No.
33-48937.
4-B-21 Supplemental Indenture of Met-Ed, dated January 1, 1980 -
Incorporated by reference to Exhibit 4-A(21), Registration No.
33-48937.
49
4-B-22 Supplemental Indenture of Met-Ed, dated September 1, 1981 -
Incorporated by reference to Exhibit 4-A(22), Registration No.
33-48937.
4-B-23 Supplemental Indenture of Met-Ed, dated September 10, 1981 -
Incorporated by reference to Exhibit 4-A(23), Registration No.
33-48937.
4-B-24 Supplemental Indenture of Met-Ed, dated December 1, 1982 -
Incorporated by reference to Exhibit 4-A(24), Registration No.
33-48937.
4-B-25 Supplemental Indenture of Met-Ed, dated September 1, 1983 -
Incorporated by reference to Exhibit 4-A(25), Registration No.
33-48937.
4-B-26 Supplemental Indenture of Met-Ed, dated September 1, 1984 -
Incorporated by reference to Exhibit 4-A(26), Registration No.
33-48937.
4-B-27 Supplemental Indenture of Met-Ed, dated March 1, 1985 -
Incorporated by reference to Exhibit 4-A(27), Registration No.
33-48937.
4-B-28 Supplemental Indenture of Met-Ed, dated September 1, 1985 -
Incorporated by reference to Exhibit 4-A(28), Registration No.
33-48937.
4-B-29 Supplemental Indenture of Met-Ed, dated June 1, 1988 -
Incorporated by reference to Exhibit 4-A(29), Registration No.
33-48937.
4-B-30 Supplemental Indenture of Met-Ed, dated April 1, 1990 -
Incorporated by reference to Exhibit 4-A(30), Registration No.
33-48937.
4-B-31 Amendment dated May 22, 1990 to Supplemental Indenture of
Met-Ed, dated April 1, 1990 - Incorporated by reference to
Exhibit 4-A(31), Registration No. 33-48937.
4-B-32 Supplemental Indenture of Met-Ed, dated September 1, 1992 -
Incorporated by reference to Exhibit 4-A(32)(a), Registration
No. 33-48937.
4-B-33 Supplemental Indenture of Met-Ed, dated December 1, 1993 -
Incorporated by reference to Exhibit C-58, 1993 Annual Report
of GPU on Form U5S, SEC File No. 30-126.
4-B-34 Supplemental Indenture of Met-Ed dated July 15, 1995 -
Incorporated by reference to Exhibit 4-B-35, 1995 Annual
Report on Form 10-K, SEC File No. 1-446.
4-B-35 Supplemental Indenture of Met-Ed dated August 15, 1996 -
Incorporated by reference to Exhibit 4-B-35, 1996 Annual
Report on Form 10-K, SEC File No. 1-446.
50
4-B-36 Supplemental Indenture of Met-Ed dated May 1, 1997 -
Incorporated by reference to Exhibit 4-B-36, 1997 Annual
Report on Form 10-K, SEC File No. 1-446.
4-B-37 Indenture between Met-Ed and United States Trust Company of
New York dated May 1, 1999 - Incorporated by reference to
Exhibit A-11(a), Certificate Pursuant to Rule 24, SEC File No.
70-9329.
4-B-38 Supplemental Indenture between Met-Ed and United States Trust
Company of New York dated July 1, 1999.
4-C Mortgage and Deed of Trust of Penelec dated January 1, 1942
between Penelec and United States Trust Company of New
York, Successor Trustee, and indentures supplemental
thereto dated March 7, 1942 through May 1, 1960 -
Incorporated by reference to Penelec's Instruments of
Indebtedness Nos. 1-20, inclusive, filed as a part of
Amendment No. 1 to 1959 Annual Report of GPU on Form U5S,
SEC File Nos. 30-126 and 1-3292.
4-C-1 Supplemental Indentures to Mortgage and Deed of Trust of
Penelec dated May 1, 1961 through December 1, 1977 -
Incorporated by reference to Exhibit 2-D(1) to 2-D(19),
Registration No. 2-61502.
4-C-2 Supplemental Indenture of Penelec dated June 1, 1978 -
Incorporated by reference to Exhibit 4-A(2), Registration No.
33-49669.
4-C-3 Supplemental Indenture of Penelec dated June 1, 1979 -
Incorporated by reference to Exhibit 4-A(3), Registration No.
33-49669.
4-C-4 Supplemental Indenture of Penelec dated September 1, 1984 -
Incorporated by reference to Exhibit 4-A(4), Registration No.
33-49669.
4-C-5 Supplemental Indenture of Penelec dated December 1, 1985 -
Incorporated by reference to Exhibit 4-A(5), Registration No.
33-49669.
4-C-6 Supplemental Indenture of Penelec dated December 1, 1986 -
Incorporated by reference to Exhibit 4-A(6), Registration No.
33-49669.
4-C-7 Supplemental Indenture of Penelec dated May 1, 1989 -
Incorporated by reference to Exhibit 4-A(7), Registration No.
33-49669.
4-C-8 Supplemental Indenture of Penelec dated December 1,
1990-Incorporated by reference to Exhibit 4-A(8), Registration
No. 33-45312.
51
4-C-9 Supplemental Indenture of Penelec dated March 1, 1992 -
Incorporated by reference to Exhibit 4-A(9), Registration No.
33-45312.
4-C-10 Supplemental Indenture of Penelec, dated June 1, 1993 -
Incorporated by reference to Exhibit C-73, 1993 Annual Report
of GPU on Form U5S, SEC File No. 30-126.
4-C-11 Supplemental Indenture of Penelec dated November 1, 1995 -
Incorporated by reference to Exhibit 4-C-11, 1995 Annual
Report on Form 10-K, SEC File No. 1-3522.
4-C-12 Supplemental Indenture of Penelec dated August 15, 1996 -
Incorporated by reference to Exhibit 4-C-12, 1996 Annual
Report on Form 10-K, SEC File No. 1-3522.
4-C-13 Senior Note Indenture between Penelec and United States Trust
Company of New York dated April 1, 1999.
4-C-14 Indenture between Penelec and United States Trust Company of
New York dated June 1, 1999 - Incorporated by reference to
Exhibit A-11(a), Certificate Pursuant to Rule 24, SEC File No.
70-9327.
4-D Amended and Restated Limited Partnership Agreement of JCP&L
Capital, L.P., dated May 11, 1995 - Incorporated by
reference to Exhibit A-5(a), Certificate Pursuant to Rule
24, SEC File No. 70-8495.
4-E Action Creating Series A Preferred Securities of JCP&L
Capital, L.P., dated May 11, 1995 - Incorporated by
reference to Exhibit A-6(a), Certificate Pursuant to Rule
24, SEC File No. 70-8495.
4-F Payment and Guarantee Agreement of JCP&L, dated May 18, 1995 -
Incorporated by reference to Exhibit B-1(a), Certificate
Pursuant to Rule 24, SEC File No. 70-8495.
4-G Payment and Guarantee Agreement of Met-Ed, dated May 28, 1999
- Incorporated by reference to Exhibit B-1(a), Certificate
Pursuant to Rule 24, SEC No. 70-9329.
4-H Amendment No. 1 to Payment and Guarantee Agreement of
Met-Ed, dated November 23, 1999.
4-I Payment and Guarantee Agreement of Penelec, dated June 16,
1999 - Incorporated by reference to Exhibit B-1(a),
Certificate Pursuant to Rule 24, SEC File No. 70-9327.
4-J Amendment No. 1 to Payment and Guarantee Agreement of
Penelec, dated November 23, 1999.
4-K Form of Rights Agreement between GPU, Inc. and ChaseMellon
Shareholder Services, L.L.C. - Incorporated by reference to
Exhibit 4, June 30, 1998 Quarterly Report on Form 10-Q, SEC
File No. 1-6047.
52
10-A GPU System Companies Deferred Compensation Plan dated June 5,
1997 - Incorporated by reference to Exhibit 10-A, 1997 Annual
Report on Form 10-K, SEC File No. 1-6047, 1-3141, 1-446 and
1-3522.
10-B Employee Incentive Compensation Plan of JCP&L dated April 1,
1995 - Incorporated by reference to Exhibit 10-D, 1995 Annual
Report on Form 10-K, SEC File No. 1-3141.
10-C Employee Incentive Compensation Plan of Met-Ed dated April 1,
1995 - Incorporated by reference to Exhibit 10-E, 1995 Annual
Report on Form 10-K, SEC File No. 1-446.
10-D Employee Incentive Compensation Plan of Penelec dated April 1,
1995 - Incorporated by reference to Exhibit 10-F, 1995 Annual
Report on Form 10-K, SEC File No. 1-3522.
10-E Incentive Compensation Plan for Elected Officers of JCP&L
dated February 6, 1997 - Incorporated by reference to Exhibit
10-G, 1997 Annual Report on Form 10-K, SEC File No. 1-3141.
10-F Incentive Compensation Plan for Elected Officers of Met-Ed
dated February 6, 1997 - Incorporated by reference to Exhibit
10-H, 1997 Annual Report on Form 10-K, SEC File No. 1-446.
10-G Incentive Compensation Plan for Elected Officers of Penelec
dated February 6, 1997 - Incorporated by reference to Exhibit
10-I, 1997 Annual Report on Form 10-K, SEC File No. 1-3522.
10-H Deferred Remuneration Plan for Outside Directors of JCP&L
dated June 5, 1997 - Incorporated by reference to Exhibit
10-J, 1997 Annual Report on Form 10-K, SEC File No. 1-3141.
10-I JCP&L Supplemental and Excess Benefits Plan dated June 5, 1997
- Incorporated by reference to Exhibit 10-K, 1997 Annual
Report on Form 10-K, SEC File No. 1-3141.
10-J Met-Ed Supplemental and Excess Benefits Plan dated June 5,
1997 - Incorporated by reference to Exhibit 10-L, 1997 Annual
Report on Form 10-K, SEC File No. 1-446.
10-K Penelec Supplemental and Excess Benefits Plan dated June 5,
1997 - Incorporated by reference to Exhibit 10-M, 1997 Annual
Report on Form 10-K, SEC File No. 1-3522.
10-L Letter agreement dated August 7, 1997 relating to terms of
employment and pension benefits for I.H. Jolles - Incorporated
by reference to Exhibit 10-O, 1997 Annual Report on Form 10-K,
SEC File No. 1-6047.
10-M GPU, Inc. Restricted Stock Plan for Outside Directors dated
June 4, 1998 - Incorporated by reference to Exhibit 10-O, 1998
Annual Report on Form 10-K, SEC File No. 1-6047.
53
10-N Retirement Plan for Outside Directors of GPU, Inc. dated
June 5, 1997 - Incorporated by reference to Exhibit 10-R,
1997 Annual Report on Form 10-K, SEC File No. 1-6047.
10-O Deferred Remuneration Plan for Outside Directors of GPU,
Inc. dated October 8, 1997 - Incorporated by reference to
Exhibit 10-R, 1997 Annual Report on Form 10-S, SEC File No.
1-6047.
10-P Second Amended and Restated Nuclear Material Lease Agreement,
dated as of November 5, 1998, between Oyster Creek Fuel Corp.
and JCP&L - Incorporated by reference to Exhibit 10-S, 1998
Annual Report on Form 10-K, SEC File No. 1-3141.
10-Q Letter Agreement, dated as of November 5, 1998, from JCP&L
relating to Oyster Creek Nuclear Material Lease Agreement -
Incorporated by reference to Exhibit 10-S, 1998 Annual Report
on Form 10-K, SEC File No. 1-3141.
10-R Form of 1998 Stock Option Agreement under the 1990 Stock Plan
for Employees of GPU, Inc. and Subsidiaries - Incorporated by
reference to Exhibit 10-O, 1997 Annual Report on Form 10-K,
SEC File No. 1-6047.
10-S Form of 1998 Performance Units Agreement under the 1990 Stock
Plan for Employees of GPU, Inc. and Subsidiaries- Incorporated
by reference to Exhibit 10-O, 1997 Annual Report on Form 10-K,
SEC File No. 1-6047.
10-T Amended and Restated GPU System Companies Master Directors'
Benefits Protection Trust effective June 1, 1999.
10-U Amended and Restated GPU System Companies Master Executives'
Benefits Protection Trust effective June 1, 1999.
10-V GPU, Inc. 1990 Stock Plan for Employees of GPU, Inc. and
Subsidiaries as amended and restated to reflect amendments
through June 3, 1999.
10-W Form of 1999 Stock Option Agreement under the 1990 Stock Plan
for Employees of GPU, Inc. and Subsidiaries.
10-X Form of 1999 Performance Units Agreement under the 1990 Stock
Plan for Employees of GPU, Inc. and Subsidiaries.
10-Y Letter agreement dated February 23, 2000 relating to terms
and conditions of the supplemental pension for Robert L.
Wise.
10-Z Severance Protection Agreement for Thomas G. Broughton, dated
November 5, 1998 - Incorporated by reference to Exhibit C-26
to GPU, Inc.'s Annual Report on Form U5S for the year 1998,
SEC File No. 30-126.
54
10-AA Severance Protection Agreement for Fred D. Hafer, dated
November 5, 1998 - Incorporated by reference to Exhibit C-24
to GPU, Inc.'s Annual Report on Form U5S for the year 1998,
SEC File No. 30-126.
10-BB Severance Protection Agreement for Ira H. Jolles, dated
November 5, 1998- Incorporated by reference to Exhibit C-25 to
GPU, Inc.'s Annual Report on Form U5S for the year 1998, SEC
File No. 30-126.
10-CC Severance Protection Agreement for Bruce L. Levy, dated
December 16, 1998 - Incorporated by reference to Exhibit C-28
to GPU, Inc.'s Annual Report on Form U5S for the year 1998,
SEC File No. 30-126.
10-DD Severance Protection Agreement for Carole B. Snyder, dated
November 30, 1998 - Incorporated by reference to Exhibit C-27
to GPU, Inc.'s Annual Report on Form U5S for the year 1998,
SEC File No. 30-126.
10-EE Severance Protection Agreement for Robert L. Wise, as
amended and restated, dated February 23, 2000.
10-FF GPU Companies Supplemental Executive Retirement Plan, as
adopted effective July 1, 1999.
10-GG Oyster Creek Nuclear Generating Station Purchase and Sale
Agreement by and among GPU Nuclear, Inc. and JCP&L, as
sellers, and AmerGen Energy Company, LLC, as buyer, dated as
of October 15, 1999.
10-HH Agreement and Plan of Merger by and among GPU, Inc., MYR
Group Inc. and GPX Acquisition Corp. - Incorporated by
reference to Exhibit (c) (1) to GPU Inc.'s. Schedule 14D-1
Tender Offer Statement, SEC File No. 1-6047.
10-II Letter Agreement with Charles M. Brennan III and Byron D.
Nelson, dated December 21, 1999 - Incorporated by reference to
exhibit (c) (2) to GPU, Inc.'s Schedule 14D-1 Tender Offer
Statement, SEC File No. 1-6047.
10-JJ Forms of Estate Enhancement Program Agreements.
12 Statements Showing Computation of Ratio of Earnings to
Fixed Charges and Ratio of Earnings to Combined Fixed
Charges and Preferred Stock Dividends.
A - GPU, Inc. and Subsidiary Companies
B - JCP&L
C - Met-Ed
D - Penelec
21 Subsidiaries of the Registrants
A - JCP&L
B - Met-Ed
C - Penelec
55
23 Consent of Independent Accountants
A - GPU, Inc.
B - JCP&L
C - Met-Ed
D - Penelec
27 Financial Data Schedules
A - GPU, Inc. and Subsidiary Companies
B - JCP&L
C - Met-Ed
D - Penelec
56
(b) Reports on Form 8-K:
GPU, Inc.:
---------
Dated December 2, 1999, under Item 2 (Acquisition or
Disposition of Assets) and Item 5 (Other Events).
Dated December 22, 1999, under Item 5 (Other Events).
Dated December 27, 1999, under Item 2 (Acquisition or
Disposition of Assets).
Dated December 27, 1999, under Item 5 (Other Events).
Dated December 29, 1999, under Item 5 (Other Events).
Dated February 4, 2000, under Item 5 (Other Events).
Dated March 3, 2000, under Item 7 (Financial
Statements, Pro Forma Financial Information and
Exhibits).
Jersey Central Power & Light Company:
------------------------------------
Dated November 18, 1999, under Item 5 (Other Events).
Dated December 2, 1999, under Item 2 (Acquisition or
Disposition of Assets) and Item 5 (Other Events).
Dated December 27, 1999, under Item 2 (Acquisition or
Disposition of Assets).
Metropolitan Edison Company:
---------------------------
Dated December 2, 1999, under Item 2 (Acquisition or
Disposition of Assets) and Item 5 (Other Events).
Dated December 27, 1999, under Item 2 (Acquisition or
Disposition of Assets).
Dated February 4, 2000, under Item 5 (Other Events).
Pennsylvania Electric Company:
-----------------------------
Dated December 2, 1999, under Item 2 (Acquisition or
Disposition of Assets) and Item 5 (Other Events).
Dated December 27, 1999, under Item 2 (Acquisition or
Disposition of Assets).
Dated February 4, 2000, under Item 5 (Other Events).
57
GPU, INC.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
GPU, INC.
Dated: March 20, 2000 BY: /s/ F. D. Hafer
---------------
F. D. Hafer, Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature and Title Date
/s/ F. D. Hafer March 20, 2000
- ----------------------------------------------
F. D. Hafer, Chairman (Chief Executive
Officer) and President and Director
/s/ B. L. Levy March 20, 2000
- ----------------------------------------------
B. L. Levy, Senior Vice President
(Chief Financial Officer)
/s/ P. E. Maricondo March 20, 2000
- ----------------------------------------------
P. E. Maricondo, Vice President and
Comptroller (Chief Accounting Officer)
/s/ T. H. Black March 20, 2000
- ----------------------------------------------
T. H. Black, Director
/s/ T. B. Hagen March 20, 2000
- ----------------------------------------------
T. B. Hagen, Director
/s/ H. F. Henderson, Jr. March 20, 2000
- ----------------------------------------------
H. F. Henderson, Jr., Director
/s/ J. M. Pietruski March 20, 2000
- ----------------------------------------------
J. M. Pietruski, Director
/s/ C. A. Rein March 20, 2000
- ----------------------------------------------
C. A. Rein, Director
/s/ B. S. Townsend March 20, 2000
- ----------------------------------------------
B. S. Townsend, Director
/s/ C. A. H. Trost March 20, 2000
- ----------------------------------------------
C. A. H. Trost, Director
/s/ K. L. Wolfe March 20, 2000
- ----------------------------------------------
K. L. Wolfe, Director
/s/ P. K. Woolf March 20, 2000
- ----------------------------------------------
P. K. Woolf, Director
58
JERSEY CENTRAL POWER & LIGHT COMPANY
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized. The Signature of the
undersigned company shall be deemed to relate only to matters having reference
to such company and any subsidiaries thereof.
JERSEY CENTRAL POWER & LIGHT COMPANY
Dated: March 20, 2000 BY: /s/ R. L. Wise
--------------
R. L. Wise, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature and Title Date
/s/ F. D. Hafer March 20, 2000
- ----------------------------------------------
F. D. Hafer, Chairman
(Principal Executive Officer) and Director
/s/ R. L. Wise March 20, 2000
- ----------------------------------------------
R. L. Wise, President
(Principal Operating Officer) and Director
/s/ B. L. Levy March 20, 2000
- ----------------------------------------------
B. L. Levy, Vice President
(Principal Financial Officer)
/s/ M. P. O'Flynn March 20, 2000
- ----------------------------------------------
M. P. O'Flynn, Vice President-Finance
and Rates & Comptroller and Director
(Principal Accounting Officer)
/s/ C. B. Snyder March 20, 2000
- ----------------------------------------------
C. B. Snyder, Director
/s/ G. E. Persson March 20, 2000
- ----------------------------------------------
G. E. Persson, Director
/s/ S. C. Van Ness March 20, 2000
- ----------------------------------------------
S. C. Van Ness, Director
/s/ S. B. Wiley March 20, 2000
- ----------------------------------------------
S. B. Wiley, Director
59
METROPOLITAN EDISON COMPANY
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized. The Signature of the
undersigned company shall be deemed to relate only to matters having reference
to such company and any subsidiaries thereof.
METROPOLITAN EDISON COMPANY
Dated: March 20, 2000 BY: /s/ R. L. Wise
--------------
R. L. Wise, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature and Title Date
/s/ F. D. Hafer March 20, 2000
- ----------------------------------------------
F. D. Hafer, Chairman
(Principal Executive Officer) and Director
/s/ R. L. Wise March 20, 2000
- ----------------------------------------------
R. L. Wise, President
(Principal Operating Officer) and Director
/s/ B. L. Levy March 20, 2000
- ----------------------------------------------
B. L. Levy, Vice President
(Principal Financial Officer)
/s/ M. P. O'Flynn March 20, 2000
- ----------------------------------------------
M. P. O'Flynn, Vice President-Finance
and Rates & Comptroller and Director
(Principal Accounting Officer)
/s/ C. B. Snyder March 20, 2000
- ----------------------------------------------
C. B. Snyder, Director
60
PENNSYLVANIA ELECTRIC COMPANY
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized. The Signature of the
undersigned company shall be deemed to relate only to matters having reference
to such company and any subsidiaries thereof.
PENNSYLVANIA ELECTRIC COMPANY
Dated: March 20, 2000 BY: /s/ R. L. Wise
--------------
R. L. Wise, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature and Title Date
/s/ F. D. Hafer March 20, 2000
- ----------------------------------------------
F. D. Hafer, Chairman
(Principal Executive Officer) and Director
/s/ R. L. Wise March 20, 2000
- ----------------------------------------------
R. L. Wise, President
(Principal Operating Officer) and Director
/s/ B. L. Levy March 20, 2000
- ----------------------------------------------
B. L. Levy, Vice President
(Principal Financial Officer)
/s/ M. P. O'Flynn March 20, 2000
- ----------------------------------------------
M. P. O'Flynn, Vice President-Finance
and Rates & Comptroller and Director
(Principal Accounting Officer)
/s/ C. B. Snyder March 20, 2000
- ----------------------------------------------
C. B. Snyder, Director
61
INDEX TO SUPPLEMENTARY DATA, FINANCIAL STATEMENTS
-------------------------------------------------
AND FINANCIAL STATEMENT SCHEDULES
---------------------------------
GPU, INC. Page
--------- ----
Supplementary Data
- ------------------
GPU Energy Companies' Statistics F-3
Selected Financial Data F-4
Quarterly Financial Data F-5
Combined Management's Discussion and Analysis of
Financial Condition and Results of Operations F-6
Financial Statements
- --------------------
Report of Independent Accountants F-41
Consolidated Balance Sheets as of December 31, 1999 and 1998 F-42
Consolidated Statements of Income for the
Years Ended December 31, 1999, 1998 and 1997 F-44
Consolidated Statements of Comprehensive Income for the
Years Ended December 31, 1999, 1998 and 1997 F-45
Consolidated Statements of Retained Earnings for the
Years Ended December 31, 1999, 1998 and 1997 F-45
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1999, 1998 and 1997 F-46
Combined Notes to Consolidated Financial Statements F-47
Financial Statement Schedules
- -----------------------------
Schedule II - Valuation and Qualifying Accounts for the
Years 1997-1999 F-104
JERSEY CENTRAL POWER & LIGHT COMPANY
------------------------------------
Supplementary Data
- ------------------
Company Statistics F-105
Selected Financial Data F-106
Quarterly Financial Data F-107
Financial Statements
- --------------------
Report of Independent Accountants F-108
Consolidated Balance Sheets as of December 31, 1999 and 1998 F-109
Consolidated Statements of Income for the
Years Ended December 31, 1999, 1998 and 1997 F-111
Consolidated Statements of Comprehensive Income for the
Years Ended December 31, 1999, 1998 and 1997 F-112
Consolidated Statements of Retained Earnings for the
Years Ended December 31, 1999, 1998 and 1997 F-112
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1999, 1998 and 1997 F-113
Financial Statement Schedules
- -----------------------------
Schedule II - Valuation and Qualifying Accounts for the
Years 1997-1999 F-114
F-1
INDEX TO SUPPLEMENTARY DATA, FINANCIAL STATEMENTS
-------------------------------------------------
AND FINANCIAL STATEMENT SCHEDULES
---------------------------------
METROPOLITAN EDISON COMPANY
---------------------------
Supplementary Data
Company Statistics F-115
Selected Financial Data F-116
Quarterly Financial Data F-117
Financial Statements
Report of Independent Accountants F-118
Consolidated Balance Sheets as of December 31, 1999 and 1998 F-119
Consolidated Statements of Income for the
Years Ended December 31, 1999, 1998 and 1997 F-121
Consolidated Statements of Comprehensive Income for the
Years Ended December 31, 1999, 1998 and 1997 F-122
Consolidated Statements of Retained Earnings for the
Years Ended December 31, 1999, 1998 and 1997 F-122
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1999, 1998 and 1997 F-123
Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts for the
Years 1997-1999 F-124
PENNSYLVANIA ELECTRIC COMPANY
-----------------------------
Supplementary Data
Company Statistics F-125
Selected Financial Data F-126
Quarterly Financial Data F-127
Financial Statements
Report of Independent Accountants F-128
Consolidated Balance Sheets as of December 31, 1999 and 1998 F-129
Consolidated Statements of Income for the
Years Ended December 31, 1999, 1998 and 1997 F-131
Consolidated Statements of Comprehensive Income for the
Years Ended December 31, 1999, 1998 and 1997 F-132
Consolidated Statements of Retained Earnings for the
Years Ended December 31, 1999, 1998 and 1997 F-132
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1999, 1998 and 1997 F-133
Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts for the
Years 1997-1999 F-134
Schedules other than those listed above have been omitted since they are not
required, are inapplicable or the required information is presented in the
Financial Statements or Notes thereto.
F-2
GPU, Inc. and Subsidiary Companies
GPU ENERGY COMPANIES' STATISTICS
For The Years Ended December 31, 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------
Capacity at System Peak (in MW):
Company owned 5,765 6,751 6,740 6,680 6,637
Contracted 3,192 4,275 3,930 3,536 3,604
------ ------ ------ ------ -----
Total capacity (a) 8,957 11,026 10,670 10,216 10,241
====== ====== ====== ====== ======
Hourly Peak Load (in MW):
Summer peak 10,075 9,412 9,555 8,497 9,101
Winter peak 8,046 7,579 7,736 7,756 7,861
Reserve at system peak (%) (11.1) 17.0 11.7 20.2 12.5
Load factor (%) (b) 57.2 59.4 57.6 64.2 57.5
Sources of Energy (in thousands of MWH):
Coal 12,116 19,675 19,390 18,133 17,500
Nuclear 11,479 11,358 10,992 11,439 11,582
Gas, hydro & oil 736 888 800 812 1,019
------ ------ ------ ------ ------
Net generation 24,331 31,921 31,182 30,384 30,101
Utility purchases and interchange 11,047 8,782 9,004 8,795 10,297
Nonutility purchases 10,875 10,952 11,119 11,046 10,712
------ ------ ------ ------ ------
Total sources of energy 46,253 51,655 51,305 50,225 51,110
Energy from alternate suppliers 10,034 - - - -
Company use, line loss, etc. (4,783) (4,300) (5,437) (5,777) (5,357)
------ ------ ------ ------ ------
Total delivered MWH sales 51,504 47,355 45,868 44,448 45,753
====== ====== ====== ====== =======
Fuel Expense (in millions):
Coal $ 162 $ 263 $ 268 $263 $251
Nuclear 67 67 63 70 74
Gas & oil 31 32 40 38 38
----- ---- ---- --- ---
Total $ 260 $ 362 $ 371 $371 $363
===== ==== ==== === ====
Power Purchased and Interchanged (in millions):
Utility and interchange purchases $ 422 $ 311 $ 294 $ 267 $ 351
Nonutility purchases 783 788 759 730 671
Deferred nonutility costs (PA) (66) (17) (25) - -
Amortization of nonutility buyout costs 26 30 19 9 -
----- ----- ----- ----- ----
Total $1,165 $1,112 $1,047 $1,006 $1,022
===== ===== ===== ===== =====
Delivered MWH Sales (in thousands):
Residential 16,107 15,347 15,091 15,298 14,802
Commercial 15,431 14,778 14,281 14,017 13,544
Industrial 12,239 12,644 12,469 12,093 11,982
Other 811 996 1,110 1,105 1,143
------ ------ ------ ------ -------
Sales to customers 44,588 43,765 42,951 42,513 41,471
Sales to other utilities 6,916 3,590 2,917 1,935 4,282
------ ------ ------ ------ ------
Total 51,504 47,355 45,868 44,448 45,753
====== ====== ====== ====== ======
Operating Revenues (in millions):
Residential $1,618 $1,579 $1,617 $1,599 $1,542
Commercial 1,229 1,350 1,372 1,324 1,258
Industrial 498 795 833 803 780
Other 60 66 75 71 73
----- ----- ----- ----- -----
Sales to customers 3,405 3,790 3,897 3,797 3,653
Provision for rate refunds (56) (62) - - -
Sales to other utilities 233 132 77 57 101
----- ----- ----- ----- ------
Total electric energy sales 3,582 3,860 3,974 3,854 3,754
Other revenues 104 93 70 64 51
----- ----- ----- ----- ------
Total $3,686 $3,953 $4,044 $3,918 $3,805
===== ===== ===== ===== =====
Customers at Year-End (in thousands):
Total customers 2,063 2,041 2,021 1,997 1,976
Customers choosing alternate suppliers 72 - - - -
(a) Summer ratings at December 31, 1999 of owned and contracted capacity were
904 MW and 7,828 MW, respectively.
(b) The ratio of the average hourly load in kilowatts supplied during the year
to the peak load occurring during the year.
F-3
GPU, Inc. and Subsidiary Companies
SELECTED FINANCIAL DATA
For The Years Ended December 31, 1999(1) 1998(2) 1997(3) 1996(4) 1995(5)
- -------------------------------------------------------------------------------------------------------------
Common Stock Data
Earnings per common share before extraordinary item:
Basic $ 3.66 $ 3.03 $ 2.78 $ 2.48 $ 3.79
Diluted $ 3.66 $ 3.03 $ 2.77 $ 2.47 $ 3.79
Earnings per common share:
Basic $ 3.66 $ 2.83 $ 2.78 $ 2.48 $ 3.79
Diluted $ 3.66 $ 2.83 $ 2.77 $ 2.47 $ 3.79
Cash dividends paid per share $ 2.105 $ 2.045 $ 1.985 $ 1.925 $ 1.86
Book value per share $ 28.45 $ 27.01 $ 25.59 $ 25.21 $ 24.66
Closing market price per share $ 29 3/4 $44 3/16 $ 42 1/8 $ 33 5/8 $ 34
Common shares outstanding (in thousands):
Basic average 125,368 127,093 120,722 120,513 116,063
Diluted average 125,570 127,312 121,002 120,751 116,179
At year-end 121,806 127,996 120,833 120,611 120,423
Market price to book value at year-end 105% 164% 165% 133% 138%
Price/earnings ratio 8.1 15.6 15.2 13.6 9.0
Return on average common equity 13.0% 10.7% 10.7% 9.8% 16.0%
Financial Data (in millions)
Operating revenues $4,757.1 $4,248.8 $4,143.4 $3,970.7 $3,822.5
Other operation and maintenance expense 1,495.4 1,106.9 993.7 1,114.9 965.1
Income before extraordinary item 459.0 385.9 335.1 298.4 440.1
Net income 459.0 360.1 335.1 298.4 440.1
Net utility plant in service 7,836.5 6,565.1 7,100.5 5,942.4 5,862.4
Total assets 21,718.1 16,288.1 12,822.9 10,851.4 9,751.5
Long-term debt 5,850.6 3,825.6 4,326.0 3,177.0 2,567.9
Long-term capital lease obligations 2.2 2.6 3.3 6.6 11.7
Trust preferred securities 200.0 - - - -
Subsidiary-obligated mandatorily
redeemable preferred securities 125.0 330.0 330.0 330.0 330.0
Cumulative preferred stock with
mandatory redemption 73.2 86.5 91.5 114.0 134.0
Capital expenditures and
investments (includes acquisitions) 2,131.7 468.2 2,268.6 977.5 626.7
Employees 10,830 8,957 9,346 9,345 10,286
<FN>
(1) Results for 1999 include net gains of $36.1 million (after-tax), or $0.29
per share, as a result of the sales of substantially all the GPU Energy
companies' electric generating stations as well as a gain on the sale of the
Midlands supply business of $6.8 million (after-tax), or $0.05 per share.
Also in 1999, as a result of the NJBPU Restructuring Order, GPU recorded a
non-recurring charge of $68 million (after-tax), or $0.54 per share. For
additional information, see Note 7, Acquisitions.
(2) Results for 1998 include an extraordinary charge of $25.8 million
(after-tax), or $0.20 per share, as a result of the PaPUC's Restructuring
Orders on Met-Ed and Penelec's restructuring plans. Also in 1998, as a
result of the PaPUC Orders, GPU recorded a non-recurring charge of $40
million (after-tax), or $0.32 per share, related to the obligation to refund
1998 revenues; and for the establishment of a sustainable energy fund.
(3) Results for 1997 reflect a non-recurring charge of $109.3 million, or $0.90
per share, for a windfall profits tax imposed on privatized utilities,
including Midlands, by the Government of the United Kingdom.
(4) Results for 1996 reflect a non-recurring charge of $74.5 million
(after-tax), or $0.62 per share, for costs related to voluntary enhanced
retirement programs.
(5) Results for 1995 reflect the reversal of $104.9 million (after-tax), or
$0.91 per share, of certain future TMI-2 retirement costs written off in
1994. The reversal of this write-off resulted from a 1995 Pennsylvania
Supreme Court decision that overturned a 1994 lower court order, and
restored a 1993 PaPUC order allowing for the recovery of such costs.
Partially offsetting this increase was a non-recurring charge to income of
$8.4 million (after-tax), or $0.07 per share, of TMI-2 monitored storage
costs deemed not probable of recovery through ratemaking.
F-4
</FN>
GPU, Inc. and Subsidiary Companies
QUARTERLY FINANCIAL DATA (UNAUDITED)
First Quarter Second Quarter
------------------------- ----------------------
in thousands, except
per share data 1999 (1) 1998 1999(2) 1998 (3)
- --------------------------------------------------------------------------------------------
Operating revenues $1,068,703 $1,043,109 $892,700 $1,015,087
Operating income 298,633 259,634 132,027 215,622
Income before extraordinary item 190,719 133,780 47,262 79,937
Net income/(loss) 190,719 133,780 47,262 (195,173)
Basic earnings per share before
extraordinary item 1.49 1.07 0.39 0.62
Diluted earnings per share before
extraordinary item 1.49 1.07 0.38 0.62
Basic earnings/(loss) per share 1.49 1.07 0.39 (1.54)
Diluted earnings/(loss) per share 1.49 1.07 0.38 (1.54)
Third Quarter Fourth Quarter
----------------------- ------------------
in thousands, except
per share data 1999 1998 (4) 1999(5) 1998
- --------------------------------------------------------------------------------------------
Operating revenues $1,424,286 $1,168,779 $1,371,435 $1,021,817
Operating income 376,970 225,950 201,200 194,873
Income before extraordinary item 147,547 88,691 73,486 83,473
Net income 147,547 338,046 73,486 83,473
Basic earnings per share before
extraordinary item 1.18 0.69 0.60 0.65
Diluted earnings per share before
extraordinary item 1.18 0.69 0.60 0.65
Basic earnings per share 1.18 2.65 0.60 0.65
Diluted earnings per share 1.18 2.65 0.60 0.65
<FN>
(1) Results for the first quarter of 1999 include an increase of $27.8 million
after-tax, or $0.22 per share, for the gain on the sale of Penelec's Homer
City Station, related to wholesale operations.
(2) Results for the second quarter of 1999 include a reduction of $68 million
after-tax, or $0.54 per share, as a result of the NJBPU's Restructuring
Order on JCP&L, and an after-tax increase of $9.7 million, or $0.08 per
share, for the gain on the sale of the Midlands supply business.
(3) Results for the second quarter of 1998 were affected by an extraordinary
charge of $275.1 million after-tax, or $2.16 per share, as a result of the
Pennsylvania Public Utility Commission's (PaPUC) June 30, 1998 Restructuring
Orders on Met-Ed and Penelec's restructuring plans.
(4) In the third quarter of 1998, as a result of amended PaPUC Restructuring
Orders, GPU reversed $266.3 million after-tax, or $2.09 per share, of the
extraordinary charge taken in the second quarter, primarily related to
above-market nonutility generation costs; and recorded an additional
extraordinary charge of $17 million after-tax, or $0.13 per share, primarily
related to the write-off of FERC jurisdictional assets. Also in the third
quarter of 1998, as a result of the amended PaPUC Orders, GPU recorded a
non-recurring charge of $40 million after-tax, or $0.32 per share, related
to the obligation to refund 1998 revenues; and for the establishment of a
sustainable energy fund.
(5) Results for the fourth quarter of 1999 include an increase of $8.3 million
after-tax, or $0.07 per share, for the net gains on the sales of
substantially all of GPU Energy's remaining generating assets; and, as a
result of adjustments to the working capital estimate, a reduction of $2.9
million after-tax, or $0.03 per share, was taken against the previously
recorded gain on the sale of the Midlands supply business. In addition, the
aggregate effect on earnings of other fourth quarter 1999 adjustments was a
loss of approximately $23 million after-tax, or approximately $0.19 per
share.
F-5
</FN>
GPU, Inc. and Subsidiary Companies
COMBINED MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GPU, Inc. owns all the outstanding common stock of three domestic electric
utilities -- Jersey Central Power & Light Company (JCP&L), Metropolitan Edison
Company (Met-Ed) and Pennsylvania Electric Company (Penelec). The customer
service function, transmission and distribution operations and the operations of
the remaining non-nuclear generating facilities of these electric utilities are
conducting business under the name GPU Energy. JCP&L, Met-Ed and Penelec
considered together are referred to as the "GPU Energy companies." The nuclear
generation operations of GPU Energy are conducted by GPU Nuclear, Inc. (GPUN).
GPU Capital, Inc. and GPU Electric, Inc. and their subsidiaries own, operate and
fund the acquisition of electric and gas transmission and distribution systems
in foreign countries, and are referred to as "GPU Electric." GPU International,
Inc. and GPU Power, Inc. and their subsidiaries develop, own and operate
generation facilities in the United States and foreign countries and are
referred to as the "GPUI Group." Other subsidiaries of GPU, Inc. include GPU
Advanced Resources, Inc. (GPU AR), which is involved in retail energy sales; GPU
Telcom Services, Inc. (GPU Telcom), which is engaged in
telecommunications-related businesses; and GPU Service, Inc. (GPUS), which
provides legal, accounting, financial and other services to the GPU companies.
All of these companies considered together are referred to as "GPU."
The matters discussed in Management's Discussion and Analysis of Financial
Condition and Results of Operations contain certain forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
Statements made that are not historical facts are forward-looking and,
accordingly, involve estimates, forecasts, assumptions, risks and uncertainties
that could cause actual results or outcomes to differ materially from those
expressed in the forward-looking statements. Although such forward-looking
statements have been based on reasonable assumptions, there is no assurance that
the expected results will be achieved. Some of the factors that could cause
actual results to differ materially include, but are not limited to: the effects
of regulatory decisions; changes in law and other governmental actions and
initiatives; the impact of deregulation and increased competition in the
industry; industry restructuring; expected outcomes of legal proceedings; the
completion of generation asset divestiture; energy prices and availability; and
uncertainties involved with foreign operations including political risks and
foreign currency fluctuations.
GPU RESULTS OF OPERATIONS
-------------------------
EARNINGS PER SHARE CONTRIBUTION:
- --------------------------------
(on a diluted basis) 1999 1998 Change 1998 1997 Change
- -----------------------------------------------------------------------------
Operations:
GPU Energy companies * $ 3.51 $ 2.90 $ 0.61 $ 2.90 $ 3.21 $(0.31)
GPU Electric 0.38 0.44 (0.06) 0.44 0.75 (0.31)
GPUI Group 0.15 0.11 0.04 0.11 (0.13) 0.24
GPU AR (0.04) (0.01) (0.03) (0.01) (0.04) 0.03
GPU, Inc. (Corporate) (0.14) (0.09) (0.05) (0.09) (0.12) 0.03
----- ----- ----- ----- ----- -----
Total operations 3.86 3.35 0.51 3.35 3.67 (0.32)
Non-recurring items:
GPU Energy companies (0.25) (0.52) 0.27 (0.52) - (0.52
GPU Electric 0.05 - 0.05 - (0.90) 0.90
----- ----- ----- ----- ----- -----
Total $ 3.66 $ 2.83 $ 0.83 $ 2.83 $ 2.77 $ 0.06
===== ===== ===== ===== ===== =====
* Includes GPU Telcom
F-6
GPU's 1999 earnings were $459.0 million, or $3.66 per share, compared with
earnings of $360.1 million, or $2.83 per share, for 1998. GPU's return on
average common equity was 13.0% in 1999, compared to 10.7% in 1998. Both periods
reflect non-recurring items.
Excluding the following non-recurring items, earnings for 1999 would have
been $484.1 million, or $3.86 per share: the net gain of $36.1 million
after-tax, or $0.29 per share, for the sales of the GPU Energy companies'
generating facilities related to wholesale operations; the non-recurring charge
of $68 million after-tax, or $0.54 per share, resulting from a Summary
Restructuring Order (Summary Order) issued to JCP&L by the New Jersey Board of
Public Utilities (NJBPU); and the gain on the sale of the Midlands Electricity
plc (Midlands) supply business of $6.8 million after-tax, or $0.05 per share.
Excluding the effect of the Pennsylvania Public Utility Commission's (PaPUC)
rate actions, earnings for 1998 would have been $425.9 million, or $3.35 per
share. Return on average common equity for 1999 and 1998 on this basis would
have been 13.7% and 12.4%, respectively.
The $0.51 per share earnings increase in 1999 versus 1998, excluding
non-recurring items, was due to increased earnings from the GPU Energy companies
primarily as a result of higher sales to other utilities, lower operation and
maintenance (O&M) expense and lower depreciation expense. Also contributing to
the increase was higher profits from operations at Midlands. Partially
offsetting these increases were lower generation sales to customers by the GPU
Energy companies as a result of some customers choosing alternate suppliers; and
the absence of gains realized in 1998 on the sale of GPU Electric's interest in
Solaris Power (Solaris) and the sale of AllGas Energy stock.
In 1997, a non-recurring charge of $109.3 million, or $0.90 per share, was
taken for a windfall profits tax assessed on privatized utilities by the
Government of the United Kingdom. Excluding the impact of non-recurring items in
both years, GPU's earnings for 1998 would have been $425.9 million, compared to
$444.4 million in 1997, and earnings per share for 1998 would have been $3.35,
compared to $3.67 in 1997. Return on average common equity for 1998 and 1997 on
this basis would have been 12.4% and 14%, respectively.
The 1998 earnings per share decrease on this basis was due to lower income
from the GPU Energy companies, and increased shares outstanding due to the sale
of GPU, Inc. common stock in February 1998. The GPU Energy companies' earnings
reduction for the period was due to increased O&M expenses primarily related to
the implementation of a new company-wide computer software system and
restructuring costs related to staff reductions, partially offset by higher
electric sales. After adjusting for the related impacts of the windfall profits
tax, GPU Electric's income contribution increased for the year and partially
offset the GPU Energy companies' decrease.
OPERATING REVENUES:
- ------------------
Operating revenues increased $508.3 million to $4.8 billion in 1999, and
increased $105.4 million to $4.2 billion in 1998. The components of the changes
are as follows:
F-7
Changes (in millions)
--------------------------------
1999 1998
---- ----
GPU Energy companies:
Kilowatt-hour (KWH) revenues $(570.8) $ 30.9
Energy and restructuring-related
revenues 220.2 49.8
Obligation to refund revenues (58.6) (56.4)
Competitive transition charge
(CTC) revenues 138.7 -
GPU Telcom revenues (9.7) 16.1
Other revenues 12.7 (130.9)
----- ------
Total GPU Energy companies (267.5) (90.5)
GPU Electric 683.5 151.6
GPUI Group 18.6 34.7
GPU AR 73.7 9.6
----- -----
Total increase $ 508.3 $ 105.4
===== =====
GPU Energy companies
Kilowatt-hour revenues
- ----------------------
1999
The decrease was primarily due to lower generation-related revenues of
approximately $430 million as a result of some Pennsylvania customers choosing
another electric energy supplier and a decrease of approximately $325 million in
nonutility generation (NUG) revenues for Met-Ed and Penelec (which did not have
an impact on earnings since NUG-related revenues are now being collected through
the CTC effective January 1, 1999). Partially offsetting these decreases were
increased sales to other utilities of approximately $160 million, the absence of
an earnings cap adjustment (since JCP&L was not in an over earnings position in
1999) which reduced JCP&L's 1998 revenues and higher weather-related sales.
1998
The increase in KWH revenues was primarily due to an increase in
residential and commercial customer usage, partially offset by lower
weather-related sales to residential and commercial customers, and the absence
in 1998 of the step increase in unbilled revenue recorded by Met-Ed.
Energy and restructuring-related revenues (JCP&L only)
- ------------------------------------------------------
1999 and 1998
The 1999 increase was primarily due to a change in the estimate for
unbilled revenue and the inclusion of revenues, effective August 1, 1999, for
the recovery of stranded costs due to restructuring in New Jersey. Changes in
energy and restructuring-related revenues do not affect earnings as they are
offset by corresponding changes in expense. The 1998 increase was due primarily
to increased sales to other utilities and higher residential and commercial
customer sales.
Obligation to refund revenues to customers
- ------------------------------------------
1999
The decrease was primarily due to the NJBPU's Summary Order issued to JCP&L
which requires JCP&L to refund customers 5% from rates in effect as of April 30,
1997. As a result, JCP&L recorded a reduction to operating
F-8
revenues of $115 million. Partially offsetting the effect of the decrease was
the absence of rate reductions to operating revenues of $56.4 million, recorded
in 1998, as a result of PaPUC Restructuring Orders for Met-Ed and Penelec.
1998
In 1998, as a result of amended PaPUC Restructuring Orders, Met-Ed and
Penelec recorded reductions to operating revenues of $56.4 million to reflect
their obligation to make refunds to customers from 1998 revenues (2.5% for
Met-Ed customers and 3% for Penelec customers).
Competitive transition charge (CTC) revenues (Met-Ed and Penelec only)
- ----------------------------------------------------------------------
1999
CTC revenues represent Pennsylvania stranded cost recoveries permitted by
the PaPUC in accordance with Met-Ed and Penelec's final Restructuring Orders
effective January 1, 1999. Changes in CTC revenues generally do not affect
earnings as they are offset by corresponding changes in expense.
Other revenues
- --------------
1999
The increase was due primarily to increased transmission revenues at Met-Ed
and Penelec as a result of customer shopping in Pennsylvania.
1998
The 1998 decrease was primarily due to lower revenue taxes as a result of
New Jersey tax legislation that eliminated the gross receipts and franchise tax
on utility bills and replaced it with a sales tax, a corporate business tax and
a transitional energy facilities assessment, effective January 1, 1998. This
decrease did not have an impact on earnings.
GPU Electric
1999
The increase in revenues was primarily due to the inclusion of revenues
from: Midlands (of which the remaining 50% was acquired in July 1999), $503.9
million; Empresa Distribuidora Electrica Regional, S.A. (Emdersa) (acquired in
March 1999), $136 million; and GPU GasNet (acquired in June 1999), $31.3
million. For additional information, see Note 7, Acquisitions.
1998
The increase in revenues was due mainly to including the full year effect
of GPU PowerNet (acquired in November 1997).
GPUI Group
1999
The increase was primarily due to an increase in Empresa Guaracachi S.A.
(EGSA) energy and capacity revenues of $2.4 million, and the full year effect of
consolidating Onondaga Cogen, L.P. (Onondaga) of $11 million.
1998
The increase in revenues was due mainly to including the full year effect
of Lake Cogen, Ltd. (Lake), and the effect of including Onondaga beginning in
August 1998.
F-9
GPU AR
1999
The increase was primarily due to an increase in energy sales to customers
who chose GPU AR as their electric energy supplier as part of retail customer
choice in Pennsylvania. Some of GPU AR's customers are located in the GPU Energy
companies' service territories.
1998
GPU AR's 1998 revenues were derived from energy sales to customers who
chose it as their energy supplier as part of the retail access pilot program in
Pennsylvania.
OPERATING INCOME:
- ----------------
Operating income increased $112.8 million to $1.01 billion in 1999, and
increased $25.3 million to $896.1 million in 1998. The components of the changes
are as follows:
Changes (in millions)
--------------------------------
1999 1998
---- ----
GPU Energy companies $ (30.2) $ (74.7)
GPU Electric 143.9 90.4
GPUI Group 11.5 2.0
GPU AR (3.6) 3.8
GPU, Inc. (8.8) 3.8
----- -----
Total increase $ 112.8 $ 25.3
===== =====
GPU Energy companies
1999
The decrease was due to lower revenues as discussed above (see Operating
Revenues section for additional information). Also contributing to the decrease
was a pre-tax reserve of $25 million for Met-Ed and Penelec related to the
regulatory uncertainty of the full recoverability of stranded costs in Phase II
of the Pennsylvania restructuring proceedings. Partially offsetting this
decrease was lower O&M expenses primarily due to the sale of Penelec's interest
in the Homer City Station (Homer City), lower depreciation expense due to the
effect of the impairment write-down of the Oyster Creek (Oyster Creek) nuclear
generating station and Three Mile Island Unit 1 (TMI-1) nuclear generating
facility in 1999 and 1998, respectively; and the sale of Homer City.
1998
The decrease was due primarily to lower revenues as discussed above (see
Operating Revenues section for additional information). Also contributing to the
decrease was higher O&M expenses primarily due to the implementation of a new
company-wide computer software system, costs related to staff reductions and the
full year inclusion of O&M expenses for GPU Telcom. The decrease also included
additional amortization expense related to JCP&L's Final Settlement representing
the portion of JCP&L's return on equity which exceeded the maximum amount
allowed and must be applied against JCP&L's stranded cost pool.
F-10
GPU Electric
1999
The increase was due primarily to the consolidation of Midlands since the
acquisition of the remaining 50% ownership in 1999, and the inclusion of Emdersa
and GPU GasNet from their acquisition dates in 1999.
1998
The increase was due to higher revenues as discussed above, partially
offset by an increase in O&M expenses primarily due to the full year effect of
including GPU PowerNet.
GPUI Group
1999
The increase was primarily due to higher revenues as discussed above, and
the full year effect of consolidating Onondaga.
1998
The increase was primarily due to higher revenues as discussed above,
mostly offset by an increase in O&M expenses primarily due to the full year
effect of including Lake, as well as the effect of including Onondaga beginning
August 1998.
GPU AR
1999
The decrease was primarily due to increased prices for power purchases due
to the hot summer of 1999, partially offset by higher revenues as discussed
above.
1998
The increase was primarily due to higher revenues as discussed above,
partially offset by increased power purchases.
OTHER INCOME AND DEDUCTIONS:
- ---------------------------
Other income and deductions increased $54.5 million to $175.8 million in
1999, and increased $142.7 million to $121.3 million in 1998. The components of
the changes are as follows:
Changes (in millions)
--------------------------------
1999 1998
---- ----
GPU Energy companies $ 78.8 $(13.4)
GPU Electric (25.6) 114.4
GPUI Group 0.4 42.1
GPU AR 0.1 0.1
GPU, Inc. 0.8 (0.5)
---- -----
Total increase $ 54.5 $142.7
==== =====
GPU Energy companies
1999
The increase was primarily due to the recognition of net gains of $61.3
million pre-tax, as a result of the sale of substantially all the GPU Energy
companies' electric generating stations. Also contributing to the increase
F-11
was the absence of a charge for start-up payments for the establishment of an
environmental fund for Met-Ed and Penelec; and the absence of a charge to
terminate a contract with one of Met-Ed's wholesale customers, both in 1998.
1998
The decrease was primarily due to a charge taken by Met-Ed and Penelec for
start-up payments for the establishment of a sustainable energy fund as a result
of the PaPUC's Restructuring Orders; and a charge by Met-Ed for the Middletown
settlement.
GPU Electric
1999
The decrease was primarily due to a pre-tax loss of $8.5 million for the
write-down, to market value, of the investment in certain marketable securities
due to GPU Electric's pending sale of this investment; and the absence of a
pre-tax gain of $45 million realized in 1998 from the sale of Solaris.
Offsetting the decrease was the pre-tax gain on the sale of the Midlands supply
business of $10.5 million and increased earnings from Midlands' operations prior
to the acquisition from Cinergy of the remaining 50%. Also contributing to the
offset was the gain on the sale of the Enersis Group generation facility in
Portugal.
1998
The increase was primarily due to the absence of a $109.3 million charge
taken in 1997 for a windfall profits tax imposed on Midlands by the Government
of the United Kingdom. Also contributing to the increase was the pre-tax gain of
$45 million realized from GPU Electric's sale of its interest in Solaris.
GPUI Group
1999
In 1999, the GPUI Group sold its interests in two cogeneration projects and
its shares of Niagara Mohawk Power Corporation stock (that it received as part
of the 1998 master restructuring agreement for the Onondaga cogeneration
project) for a total pre-tax gain of $12 million. Offsetting this increase was
the recording of an impairment of $6.5 million, in 1999, related to the
investment in the Lake cogeneration project and the absence of a pre-tax gain
from the 1998 sale of a 50% interest in the Mid-Georgia cogeneration project of
$9.1 million, which is offset by $2.5 million of deferred revenues recognized in
income in 1999.
1998
The increase was due primarily to the pre-tax gain of $9.1 million realized
from the sale of half its interest in the Mid-Georgia cogeneration plant and
higher investment income of $21.5 million.
INTEREST CHARGES AND PREFERRED DIVIDENDS:
- ----------------------------------------
Interest charges and preferred dividends increased $93.3 million to $482.5
million in 1999, and increased $69.9 million to $389.2 million in 1998. The
components of the changes are as follows:
F-12
Changes (in millions)
--------------------------------
1999 1998
---- ----
GPU Energy companies $(21.1) $ (7.1)
GPU Electric 114.6 76.3
GPUI Group 1.5 (0.1)
GPU, Inc. (1.7) 0.8
---- -----
Total increase $ 93.3 $ 69.9
==== =====
GPU Energy companies
1999
The decrease was primarily due to the following: in 1999 Met-Ed and Penelec
redeemed all their company-obligated mandatorily redeemable preferred securities
and cumulative preferred stock (the redemption of preferred stock resulted in
losses of $0.5 million and $0.7 million, respectively, for Met-Ed and Penelec);
and Penelec redeemed $600 million of first mortgage bonds (FMBs). Also in 1999,
JCP&L redeemed $30 million of cumulative preferred stock (which resulted in a
loss of $0.8 million). Partially offsetting these decreases was increased
interest expense associated with Penelec's issuance of $350 million of senior
notes in 1999.
1998
In 1998, JCP&L redeemed $15 million stated value of cumulative preferred
stock.
GPU Electric
1999
The increase was primarily due to higher debt levels from the 1999
acquisitions of Emdersa, GPU GasNet and Midlands (the remaining 50%), which
resulted in additional interest expense of $8 million, $21.3 million and $66.8
million, respectively.
1998
The increase was due primarily to debt associated with the GPU PowerNet
acquisition in November 1997.
EXTRAORDINARY ITEM:
- ------------------
1998
The extraordinary loss was due to the impact of the PaPUC Restructuring
Orders received by Met-Ed and Penelec. For additional information, see Note 6,
Accounting for Extraordinary and Non-recurring Items.
JCP&L RESULTS OF OPERATIONS
---------------------------
JCP&L's earnings for 1999 were $162.9 million, compared to 1998 earnings of
$212.4 million. JCP&L's return on average common equity was 10.7% in 1999,
compared to 13.5% in 1998. The decrease was due to a non-recurring charge of $68
million after-tax, as a result of the NJBPU's Summary Order issued to JCP&L.
Excluding the non-recurring charge, earnings for 1999 would have been $230.9
million. The increase in earnings on this basis was due primarily to increased
sales to new customers, higher weather-related sales and a decrease in
depreciation expense.
F-13
Earnings in 1998 were $212.4 million, compared to 1997 earnings of $200.6
million. Contributing to this earnings increase were increased residential and
commercial customer sales, partially offset by increased operation and
maintenance expenses. JCP&L's return on average common equity was 13.5% in 1998,
compared to 13.1% in 1997.
OPERATING REVENUES:
- ------------------
Operating revenues decreased $51.4 million to $2.02 billion in 1999, and
decreased $24.3 million to $2.07 billion in 1998. The components of the changes
are as follows:
Changes (in millions)
-------------------------------
1999 1998
---- ----
KWH revenues $(156.3) $ 64.0
Energy and restructuring-related
revenues 220.2 48.2
Obligation to refund revenues (115.0) -
Other revenues (0.3) (136.5)
------ ------
Decrease in revenues $ (51.4) $ (24.3)
====== ======
KWH revenues
- -------------
1999
The decrease was primarily due to decreased customer usage and decreased
sales to other utilities of approximately $10 million. Partially offsetting the
decrease was the absence of an earnings cap adjustment (since JCP&L was not in
an over earnings position through July 1999) which reduced JCP&L's 1998
revenues; increased sales to new customers and higher weather-related sales.
1999 Delivered KWH Sales by Service Class
------------------------------------------
Residential 42%
Commercial 40%
Industrial/Other 18%
1998
The increase was due to higher residential and commercial customer usage
and an increase in new residential and commercial customer sales partially
offset by lower weather-related sales.
Energy and restructuring-related revenues
- -----------------------------------------
1999 and 1998
The 1999 increase was primarily due to a change in the estimate for
unbilled revenue and the inclusion of revenues, effective August 1, 1999, for
the recovery of stranded costs due to restructuring in New Jersey. Changes in
energy and restructuring-related revenues do not affect earnings as they are
offset by corresponding changes in expense. The 1998 increase was due primarily
to increased sales to other utilities and higher residential and commercial
customer sales.
Obligation to refund revenues to customers
- ------------------------------------------
1999
The decrease was due to the NJBPU's Summary Order issued to JCP&L which
requires JCP&L to refund customers 5% from rates in effect as of
F-14
April 30, 1997. As a result, JCP&L recorded a reduction to operating revenues of
$115 million.
Other revenues
- --------------
1998
The decrease was primarily due to lower revenue taxes as a result of New
Jersey tax legislation that eliminated the gross receipts and franchise tax on
utility bills and replaced it with a sales tax, a corporate business tax and a
transitional energy facilities assessment, effective January 1, 1998. This
decrease did not have an impact on earnings.
OPERATING INCOME:
- ----------------
Operating income decreased $96.3 million to $365.8 million in 1999, and
increased $26.5 million to $462.1 million in 1998.
1999
The decrease was due to the obligation to make refunds to customers and
lower KWH revenues as discussed above. Partially offsetting this decrease was
lower depreciation expense due to the effect of the impairment write-down of
Oyster Creek and TMI-1 in 1999 and 1998, respectively.
1998
The increase was due primarily to increased KWH revenues as discussed above
and lower reserve capacity expense. Partially offsetting the increase was higher
O&M expenses primarily due to the implementation of a new company-wide computer
software system and costs related to staff reductions. Furthermore, operating
income was reduced by additional amortization expense related to JCP&L's Final
Settlement representing the portion of JCP&L's return on equity which exceeded
the maximum amount allowed and must be applied against JCP&L's stranded cost
pool.
OTHER INCOME AND DEDUCTIONS:
- ---------------------------
Other income and deductions decreased $1.5 million to $12.5 million in
1999, and increased $12.1 million to $14.0 million in 1998.
1998
The increase was due primarily to the absence of the charges incurred in
1997 for the termination of a NUG contract and for a loss on the sale of fuel
oil from the Gilbert generating station.
INTEREST CHARGES AND PREFERRED DIVIDENDS:
- ----------------------------------------
Interest charges and preferred dividends decreased $4.2 million to $114.4
million in 1999, and decreased $6.1 million to $118.6 million in 1998.
1999
The decrease was primarily due to lower other interest expense (excludes
interest on debt). Also contributing to the decrease was the redemption of $30
million of cumulative preferred stock, which resulted in a loss of $0.8 million.
F-15
1998
The decrease was due to lower short-term debt levels and the redemption of
$15 million stated value of cumulative preferred stock.
MET-ED RESULTS OF OPERATIONS
----------------------------
Met-Ed's earnings for 1999 were $94.5 million, compared to 1998 earnings of
$50.4 million. Met-Ed's return on average common equity was 13.9% in 1999
compared to 7.5% in 1998. Excluding the net gain of $1.2 million after-tax for
the sales of Met-Ed's generating facilities related to wholesale operations,
earnings for 1999 would have been $93.3 million. Excluding the effect of the
PaPUC rate actions, earnings for 1998 would have been $76.4 million. The
increase in earnings on this basis was primarily due to increased sales to other
utilities, higher weather-related sales and a decrease in depreciation expense.
Earnings in 1998 were $50.4 million, compared to 1997 earnings of $93
million. Met-Ed's return on average common equity was 7.5% in 1998 compared to
12.9% in 1997. In 1998, a non-recurring charge of $26 million after-tax was
taken as a result of the PaPUC's Restructuring Order for Met-Ed. Also
contributing to the earnings decrease was increased operation and maintenance
expenses primarily related to the implementation of a new computer software
system and restructuring costs related to staff reductions.
OPERATING REVENUES:
- ------------------
Operating revenues decreased $16.8 million to $902.8 million in 1999, and
decreased $23.5 million to $919.6 million in 1998. The components of the changes
are as follows:
Changes (in millions)
-------------------------------
1999 1998
---- ----
KWH revenues $(152.0) $ (4.5)
Obligation to refund revenues 27.2 (27.2)
CTC revenues 90.0 -
Other revenues 18.0 8.2
------ -----
Decrease in revenues $ (16.8) $(23.5)
====== =====
KWH revenues
1999
The decrease was primarily due to lower generation-related revenues of
approximately $220 million as a result of some Pennsylvania customers choosing
another electric energy supplier and a decrease of approximately $155 million in
NUG revenues (which did not have an impact on earnings since NUG-related
revenues are now being collected through the CTC effective January 1, 1999).
Partially offsetting these decreases was increased sales to other utilities of
approximately $130 million and higher weather-related sales.
1999 Delivered KWH Sales by Service Class
-----------------------------------------
Residential 36%
Commercial 29%
Industrial/Other 35%
F-16
1998
The decrease was due to the absence in 1998 of the step increase in
unbilled revenue as a result of Met-Ed including its ECR in base rates,
amounting to $13 million, and lower weather-related sales. Partially offsetting
these decreases were increased sales to other utilities, an increase in new
commercial and residential customer sales and increased customer usage.
Obligation to refund revenues to customers
- ------------------------------------------
1999
The increase was due to the absence of rate refunds of $27.2 million,
recorded in 1998, as a result of the PaPUC Restructuring Order for Met-Ed.
1998
In 1998, as a result of the amended PaPUC Restructuring Order, Met-Ed
recorded a reduction to operating revenues of $27.2 million to reflect its
obligation to make refunds, of 2.5%, to customers from 1998 revenues.
CTC revenues
- ------------
1999
CTC revenues represent Pennsylvania stranded cost recoveries permitted by
the PaPUC in accordance with Met-Ed's final Restructuring Order effective
January 1, 1999. Changes in CTC revenues generally do not affect earnings as
they are offset by corresponding changes in expense.
Other revenues
- --------------
1999
The increase was due primarily to increased transmission revenues as a
result of customer shopping in Pennsylvania.
OPERATING INCOME:
- ----------------
Operating income increased $45.8 million to $213.2 million in 1999, and
decreased $47.0 million to $167.4 million in 1998.
1999
The increase was primarily due to increased sales to other utilities, the
absence of rate refunds of $27.2 million recorded in 1998 and lower depreciation
expense due to the effect of the impairment write-down of TMI-1 in 1998 and
lower O&M expenses. Partially offsetting this decrease was lower revenues due to
customer shopping and the recording of a pre-tax reserve of $18.7 million
related to the regulatory uncertainty of the full recoverability of stranded
costs in Phase II of the Pennsylvania restructuring proceedings.
1998
The decrease was primarily due to lower revenues as a result of rate
refunds of $27.2 million and higher O&M expenses due to increased costs from the
implementation of a new computer software system and increased costs related to
staff reductions. Also contributing to the decrease was higher depreciation and
amortization expense due to additions to plant in service and higher
depreciation rates.
F-17
OTHER INCOME AND DEDUCTIONS:
- ---------------------------
Other income and deductions increased $17.5 million to $4.1 million in
1999, and decreased $16.9 million to a net expense of $13.4 million in 1998.
1999
The increase was primarily due to the absence of a charge for start-up
payments for the establishment of an environmental fund; and the absence of a
charge to terminate a contract with Middletown, both in 1998. Also contributing
to the increase was the recognition of net gains of $2 million pre-tax, as a
result of the sale of substantially all of Met-Ed's electric generating
stations.
1998
The decrease was due primarily to a charge for start-up payments for the
establishment of an environmental fund per the PaPUC's Restructuring Order and a
charge for the Middletown settlement.
INTEREST CHARGES AND PREFERRED DIVIDENDS:
- -----------------------------------------
Interest charges and preferred dividends increased $2.1 million to $61.4
million in 1999, and increased $0.2 million to $59.3 million in 1998.
1999
The increase was due to the issuance of $100 million of trust preferred
securities. Partially offsetting the increase was a decrease in interest on debt
due to lower debt levels and lower preferred stock dividends due to the
redemption of all of Met-Ed's preferred stock, which resulted in a loss of $0.5
million.
EXTRAORDINARY ITEM:
- -------------------
1998
The extraordinary loss was due to the impact of the PaPUC Restructuring
Order received by Met-Ed. For additional information, see Note 6, Accounting for
Extraordinary and Non-recurring Items.
PENELEC RESULTS OF OPERATIONS
-----------------------------
Penelec's 1999 earnings were $151.6 million, compared to 1998 earnings of
$38.9 million. Penelec's return on average common equity was 26.6% in 1999
compared to 5% in 1998. Excluding the net gain of $34.9 million after-tax for
the sales of Penelec's generating facilities related to wholesale operations,
earnings for 1999 would have been $116.7 million. Excluding the effect of the
PaPUC rate actions, earnings for 1998 would have been $78.7 million. The
increase in earnings on this basis was primarily due to increased sales to other
utilities, higher weather-related sales and a decrease in depreciation expense.
F-18
Earnings in 1998 were $38.9 million, compared to 1997 earnings of $94.4
million. Penelec's return on average common equity was 5% in 1998 compared to
12.1% in 1997. In 1998, a non-recurring charge of $39.8 million after-tax was
taken as a result of the PaPUC's Restructuring Order for Penelec. Also
contributing to the earnings decrease was increased operation and maintenance
expenses primarily related to the implementation of a new computer software
system and restructuring costs related to staff reductions.
OPERATING REVENUES:
- -------------------
Operating revenues decreased $110.3 million to $922 million in 1999, and
decreased $20.7 million to $1.0 billion in 1998. The components of the changes
are as follows:
Changes (in millions)
--------------------------------
1999 1998
---- ----
KWH revenues $(203.3) $ 13.9
Obligation to refund revenues 29.2 (29.2)
CTC revenues 48.7 -
Other revenues 15.1 (5.4)
------ -----
Decrease in revenues $(110.3) $(20.7)
====== =====
KWH revenues
- ------------
1999
The decrease was primarily due to lower generation-related revenues of
approximately $210 million as a result of some Pennsylvania customers choosing
another electric energy supplier and a decrease of approximately $170 million in
NUG revenues (which did not have an impact on earnings since NUG-related
revenues are now being collected through the CTC effective January 1, 1999).
Partially offsetting these decreases was increased sales to other utilities of
approximately $40 million and higher weather-related sales.
1999 Delivered KWH Sales by Service Class
-----------------------------------------
Residential 28%
Commercial 32%
Industrial/Other 40%
1998
The increase was primarily due to increased sales to other utilities and
increased industrial customer usage offset by lower weather-related sales. The
revenue comparison was also affected by the absence in 1998 of the step increase
in unbilled revenue as a result of Penelec including its ECR in base rates,
amounting to $15 million.
Obligation to refund revenues to customers
- ------------------------------------------
1999
The increase was due to the absence of rate refunds of $29.2 million,
recorded in 1998, as a result of the PaPUC Restructuring Order for Penelec.
1998
In 1998, as a result of the amended PaPUC Restructuring Order, Penelec
recorded a reduction to operating revenues of $29.2 million to reflect its
obligation to make refunds, of 3%, to customers from 1998 revenues.
F-19
CTC revenues
- ------------
1999
CTC revenues represent Pennsylvania stranded cost recoveries permitted by
the PaPUC in accordance with Penelec's Restructuring Order effective January 1,
1999. Changes in CTC revenues generally do not affect earnings as they are
offset by corresponding changes in expense.
Other revenues
- --------------
1999
The increase was due primarily to increased transmission revenues as a
result of customer shopping in Pennsylvania.
OPERATING INCOME:
- ----------------
Operating income increased $20.8 million to $191.6 million in 1999, and
decreased $57.5 million to $170.8 million in 1998.
1999
The increase was primarily due to increased sales to other utilities, the
absence of rate refunds of $29.2 million recorded in 1998, lower O&M expenses
primarily due to the sale of Penelec's interest in Homer City, lower
depreciation expense due to the effect of the impairment write-down of TMI-1 in
1998 and the sale of Homer City. Partially offsetting this increase was lower
KWH revenues as discussed above and a pre-tax reserve of $6.3 million related to
the regulatory uncertainty of the full recoverability of stranded costs in Phase
II of the Pennsylvania restructuring proceedings.
1998
The decrease was due primarily to lower revenues as a result of rate
refunds of $29.2 million. Also contributing to the decrease was higher O&M
expenses primarily due to the implementation of a new company-wide computer
software system and costs related to staff reductions; and higher depreciation
and amortization expense due to additions to plant in service and higher
depreciation rates.
OTHER INCOME AND DEDUCTIONS:
- ---------------------------
Other income and deductions increased $65.7 million to $59.3 million in
1999, and decreased $8.9 million to a net expense of $6.4 million in 1998.
1999
The increase was primarily due to the recognition of net gains of $59.3
million pre-tax, as a result of the sale of substantially all of Penelec's
electric generating stations. Also contributing to the increase was the absence
of a charge for start-up payments for the establishment of an environmental fund
in 1998.
1998
The decrease was primarily due to a charge taken by Penelec for start-up
payments for the establishment of an environmental fund as a result of the
PaPUC's Restructuring Order.
F-20
INTEREST CHARGES AND PREFERRED DIVIDENDS:
- ----------------------------------------
Interest charges and preferred dividends decreased $18.9 million to $45
million in 1999, and decreased $1.2 million to $63.9 million in 1998.
1999
The decrease was primarily due to Penelec's redemption of all its
company-obligated mandatorily redeemable preferred securities and cumulative
preferred stock, which resulted in a loss of $0.7 million; and the redemption of
$600 million of FMBs. Partially offsetting the decrease was increased interest
expense associated with Penelec's issuance of $350 million of senior notes in
1999.
EXTRAORDINARY ITEM:
- ------------------
1998
The extraordinary loss was due to the impact of the PaPUC Restructuring
Order received by Penelec. For additional information, see Note 6, Accounting
for Extraordinary and Non-recurring Items.
INVESTMENTS IN FUCOs AND EWGs
------------------------------
GPU, Inc. has Securities and Exchange Commission (SEC) authorization to
finance investments in foreign utility companies (FUCOs) and exempt wholesale
generators (EWGs) up to an aggregate amount equal to 100% of GPU's average
consolidated retained earnings, or approximately $2.4 billion as of December 31,
1999. At December 31, 1999, GPU, Inc. has remaining authorization to finance
approximately $245 million of additional investments in FUCOs and EWGs. GPU,
Inc.'s investments in FUCOs and EWGs are made through GPU Electric and the GPUI
Group.
GPU ELECTRIC
------------
GPU Electric has ownership interests in electric and gas transmission and
distribution businesses in England, Australia and Argentina. Through its
ownership in Midlands, GPU Electric also has investments in operating generating
facilities located in foreign countries totaling 4,244 megawatts (MW) (of which
GPU Electric's equity interest represents 1,163 MW) of capacity. At December 31,
1999, GPU, Inc.'s aggregate investment in GPU Electric was $1.06 billion. GPU,
Inc. has also guaranteed up to an additional $1.04 billion of outstanding GPU
Electric obligations.
In July 1999, GPU Electric acquired Cinergy's 50% ownership interest in
Avon Energy Partners Holdings (Avon), which owns Midlands, for British Pound
452.5 million (approximately US $714 million). As a result of this transaction,
GPU Electric assumed debt of US $1 billion. GPU and Cinergy had jointly formed
Avon in 1996 to acquire Midlands, an English regional electric company serving
2.3 million customers.
In June 1999, National Power plc acquired all the assets and liabilities of
Midlands' supply business, including obligations under Midlands' power purchase
agreements, for $300 million ($150 million for GPU's share) plus an adjustment
for working capital. As a result, in 1999 GPU recorded an after-tax gain on the
sale of $6.8 million.
F-21
In June 1999, GPU Electric acquired Transmission Pipelines Australia (TPA),
a natural gas transmission business, from the State of Victoria, Australia for
A$1.025 billion (approximately US $675 million). TPA (which has since been
renamed GPU GasNet) was sold as part of Victoria's privatization of the natural
gas industry. The GPU GasNet system encompasses 1,105 miles of transmission
pipelines, and consists of two separate networks serving approximately 1.3
million residential customers and about 40,000 industrial and commercial
customers throughout Victoria.
In March 1999, GPU Electric acquired Emdersa for $375 million. Emdersa owns
three electric distribution companies that serve three provinces in northwest
Argentina. As a result of this transaction, GPU Electric assumed debt of US $76
million.
For additional information on GPU's acquisitions, see Note 7, Acquisitions.
GPU has initiated plans to raise at least US $500 million through the sale
of assets and use the proceeds to reduce debt, provide funding for additional
repurchases of its common stock and invest in growth initiatives. In December
1999, GPU announced that it would seek proposals to purchase at least 50% of
GPU's ownership in GPU PowerNet and GPU GasNet.
Management expects that future foreign acquisitions, if made, would likely
be small in size and would serve to expand capabilities to grow the
non-regulated businesses or to provide critical mass to the current portfolio of
holdings. For additional information, see COMPETITIVE ENVIRONMENT AND RATE
MATTERS section of Management's Discussion and Analysis.
GPUI GROUP
-----------
The GPUI Group has ownership interests in six operating cogeneration plants
in the US totaling 1,014 MW (of which the GPUI Group's equity interest
represents 496 MW) of capacity and four operating generating facilities located
in foreign countries totaling 1,229 MW (of which the GPUI Group's equity
interest represents 424 MW) of capacity. At December 31, 1999, GPU, Inc.'s
aggregate investment in the GPUI Group was $232 million. GPU, Inc. has also
guaranteed up to an additional $29.9 million of GPUI Group obligations.
PLANNED ACQUISITION OF MYR GROUP
----------------------------------
In December 1999, GPU, Inc. and MYR Group Inc. (MYR) entered into an
agreement under which GPU would acquire the utility infrastructure construction
firm for $215 million cash, or $30.10 per share of MYR common stock. Following
the transaction MYR would become a wholly-owned subsidiary of GPU, Inc. The
acquisition, which is subject to approval by the SEC and other conditions, is
expected to be completed by the first quarter of 2000. For additional
information, see Note 7, Acquisitions.
Market Risk Sensitive Instruments
----------------------------------
GPU Electric uses interest rate swap agreements to manage the risk of
increases in variable interest rates. All of the agreements effectively convert
variable rate debt, including commercial paper, to fixed rate debt. None of
these swap agreements are held for trading purposes. During 1999, GPU
F-22
PowerNet began a program of refinancing much of its floating rate bank
borrowings with fixed rate publicly issued debt. As a result, certain swaps
associated with the floating rate bank borrowings were marked to market. As of
December 31, 1999, most of these positions were terminated, which resulted in
swap breakage and mark to market costs of A$16.8 million (approximately US $10.9
million). The following summarizes the principal characteristics of swap
agreements in effect as of December 31, 1999:
(in thousands)
Fixed Variable
Notional Fair Termination Pay/Receive Interest Interest Rate
Amount Value(a) Date Characteristic Rate at 12/31/99
--------- -------- ------------- -------------- ------- --------
GPU PowerNet A$ 39,250 A$ 423 10/1/00 fixed/variable 4.75% 5.22%
A$ 26,000 A$ 270 10/1/00 fixed/variable 4.79% 5.22%
A$ 42,250 A$ 429 10/1/00 fixed/variable 4.81% 5.22%
A$ 26,000 A$ 281 10/3/00 fixed/variable 4.77% 5.15%
A$ 26,000 A$ 273 10/3/00 fixed/variable 4.80% 5.15%
A$ 212,000 A$ (383) 11/6/00 fixed/variable 6.14% 5.15-5.56%
A$ 481,250 A$ 2,835 11/6/02 fixed/variable 6.56% 5.15-5.56%
A$ 385,000 A$ 3,246 11/8/04 fixed/variable 6.82% 5.15-5.56%
A$ 14,172 A$ 98 11/6/07 fixed/variable 7.15% 5.22-5.41%
--------- ---------
A$1,251,922 A$ 7,472
--------- ---------
GPU GasNet A$ 112,500 A$ 194 6/2/00 fixed/variable 5.37% 5.56%
A$ 375,000 A$ 7,800 6/3/02 fixed/variable 5.90% 5.56%
A$ 225,000 A$ 10,248 6/2/06 fixed/variable 6.33% 5.56%
--------- ---------
A$ 712,500 A$ 18,242
========= ---------
British Pound
-------------
Midlands 65,000 545 9/11/01 fixed/variable 5.98% 5.98%
60,000 452 9/14/01 fixed/variable 6.02% 5.98%
-------- --------
125,000 997
========= =========
<FN>
Exchange rates at December 31, 1999 were as follows: A$1.5244/US$ and British
Pound 0.6191/US$.
(a) Represents the amount GPU Electric would (pay)/receive to terminate the
swap agreements as of December 31, 1999 (prior to their scheduled
termination dates).
The amount of debt obligations covered by swap agreements and the expected
variable interest rates of such debt, for each of the next five years, is as
follows:
</FN>
(in thousands) GPU PowerNet GPU GasNet Midlands
- -------------------------------------------------------------------------------------------------
Expected Expected Expected
Average Variable Average Variable Average Variable
Debt Interest Debt Interest Debt Interest
Year Covered Rates Covered Rates Covered Rates
- -------------------------------------------------------------------------------------------------
British Pound
-------------
2000 A$1,176,714 6.4-6.5% A$646,875 5.8-6.3% 125,000 7.15%
2001 A$ 880,423 7.2-7.5% A$600,000 7.2-7.5% 88,542 6.91%
2002 A$ 800,214 7.4-7.6% A$381,250 7.4-7.9% - -
2003 A$ 399,173 7.4-7.6% A$225,000 7.4-7.7% - -
2004 A$ 335,006 7.5-7.8% A$ 93,750 7.5-7.9% - -
F-23
The expected variable interest rates included above, for the years 2000
through 2004, were provided by the financial institutions with which the swap
agreements were executed, and were derived from their proprietary models based
upon recognized financial principles.
At December 31, 1999, these agreements covered approximately $1.3 billion
of debt, including commercial paper, and are scheduled to expire on various
dates through November 2007. For the year ended December 31, 1999, fixed rate
interest expense exceeded variable rate interest by approximately $20.7 million.
GPU Electric uses currency swap agreements to manage currency risk caused by
fluctuations in the US dollar exchange rate related to debt issued in the US by
Avon. These swap agreements effectively convert principal and interest payments
on this US dollar debt to fixed sterling principal and interest payments, and
expire on the maturity dates of the bonds. Interest expense is recorded based on
the fixed sterling interest rate. The following summarizes the characteristics
of the currency swap agreements as of December 31, 1999:
Fixed Fixed
Currency USD Sterling Sterling USD USD
Swap Notional Notional Termination Interest Interest Fair
Type Value Value Date Rate Rate Value(a)
- -------- --------- --------- ----------- -------- -------- --------
British Pound
- -------------
$ $350,000 212,122 12/11/02 7.66% 6.73% (2,838)
$ $100,000 60,606 12/11/07 7.75% 7.05% (4,776)
$ $150,000 90,909 12/11/07 7.70% 7.05% (7,604)
$ $250,000 153,374 03/04/08 6.94% 6.46% (14,036)
(a) Represents the amount GPU Electric would (pay)/receive to terminate the
swap agreements as of December 31, 1999 (prior to their scheduled
termination dates).
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Capital Expenditures and Investments*
- ------------------------------------
(in millions)
------------------------------------------
2000** 1999 1998 1997 1996 1995
---- ---- ---- ---- ---- ----
GPU Energy companies $349 $ 291 $328 $ 356 $404 $462
GPU Electric 213 1,809 59 1,800 516 -
GPUI Group 5 32 81 112 58 165
GPU, Inc. 215 - - - - -
----------------------------------------
Total $782 $2,132 $468 $2,268 $978 $627
=== ===== === ===== === ===
* Includes acquisitions, net of cash acquired.
** Estimate includes $215 million for the anticipated acquisition of MYR.
GPU Energy companies
The GPU Energy companies' capital spending was $291 million (JCP&L $141
million; Met-Ed $66 million; Penelec $78 million; Other $6 million) in 1999, and
was used primarily to expand and improve existing transmission and distribution
(T&D) facilities, for new customer connections and to implement an integrated
information system. In 2000, capital expenditures for the GPU Energy companies
are estimated to be $349 million (JCP&L $178 million; Met-Ed
F-24
$57 million; Penelec $82 million; Other $32 million), primarily for ongoing T&D
system development. Expenditures for maturing long-term debt were $83 million
(JCP&L $3 million; Met-Ed $30 million; Penelec $50 million) in 1999, and are
expected to total $101 million (JCP&L $51 million; Met-Ed $50 million) in 2000,
and $51 million (JCP&L $51 million) in 2001. Management estimates that a
substantial portion of the GPU Energy companies' 2000 capital outlays will be
satisfied through internally generated funds.
GPU Electric
GPU Electric's capital spending was $1.8 billion in 1999 and primarily
represents the cost of acquiring Emdersa, GPU GasNet and the remaining 50% of
Midlands, and also includes $128.6 million of improvements to GPU PowerNet,
Emdersa and Midlands' facilities. For 2000, infrastructure-related capital
expenditures are forecasted to be $213 million. In 1999, expenditures for
maturing long-term debt were $453 million, and are expected to total $475
million in 2000 and $1 billion in 2001. Capital outlays for 2000 will be
satisfied through both internally generated funds and external financings.
GPUI Group
The GPUI Group's capital spending was $32 million in 1999 and was used
primarily for construction activities at one of the GPUI Group's South American
investments. For 2000, capital expenditures are forecasted to be $6 million. In
1999, expenditures for maturing long-term debt were $28 million, and are
expected to total $5 million in 2000 and $7 million in 2001. Capital outlays for
2000 will be satisfied through both internally generated funds and external
financings.
Financing
- ---------
GPU, Inc.
In January 1999, the GPU, Inc. Board of Directors authorized the
repurchase of up to $350 million of GPU, Inc. common stock. Through December
31, 1999, GPU, Inc. has repurchased 6.4 million shares of common stock at an
average price of $35.25 per share.
GPU has various credit facilities in place, the most significant of which
are discussed below. These credit facilities generally provide GPU bank loans at
negotiable market rates.
GPU, Inc. and the GPU Energy companies have available $450 million of
short-term borrowing facilities, which include a $250 million revolving credit
agreement and various bank lines of credit. In addition, GPU, Inc., JCP&L,
Met-Ed and Penelec can issue commercial paper in amounts of up to $100 million,
$150 million, $75 million, and $100 million, respectively. From these sources,
GPU, Inc. has regulatory authority to have $250 million outstanding at any one
time. JCP&L, Met-Ed and Penelec are limited by their charters or SEC
authorization to $265 million, $150 million and $150 million, respectively, of
short-term debt outstanding at any one time.
GPU, Inc. has SEC approval to issue and sell up to $300 million of
unsecured debentures through 2001, the proceeds from which could be utilized to
repay short-term debt or to finance additional investments. Further significant
investments by GPU Electric and/or the GPUI Group, or otherwise, may require
GPU, Inc. to issue additional debt and/or common stock.
F-25
GPU Energy companies
Met-Ed and Penelec have regulatory approval to issue through December 31,
2000 senior notes and preferred securities in aggregate amounts of $150 million
and $275 million, respectively, of which up to $25 million for each company may
consist of preferred securities. JCP&L has regulatory approval to issue through
December 31, 2000, senior notes and preferred securities in the aggregate amount
of $300 million. Met-Ed and JCP&L will be issuing secured senior notes
(collateralized by FMBs issued to the senior note trustee) until such time as
more than 80% of the outstanding FMBs are held by the senior note trustee. At
that time, the FMBs will be cancelled and the outstanding senior notes will
become unsecured obligations. Penelec's senior notes are unsecured.
Current plans call for the GPU Energy companies to issue senior notes
during the next three years to fund the redemption of maturing senior
securities, refinance outstanding senior securities and finance construction
activities. Following the initial issuance of senior notes, the GPU Energy
companies would not issue any additional FMBs other than as collateral for the
senior notes. The senior note indentures prohibit (subject to certain
exceptions) the GPU Energy companies from issuing any debt which is senior to
the senior notes.
The GPU Energy companies' bond indentures include provisions that limit the
amount of FMBs the companies may issue. The GPU Energy companies' interest
coverage ratios are currently in excess of indenture restrictions. JCP&L's
certificate of incorporation includes provisions that limit the amount of
preferred stock it may issue. JCP&L's preferred dividend coverage ratio is
currently in compliance with the charter restrictions.
In 1999, Met-Ed and Penelec redeemed all of their outstanding shares of
cumulative preferred stock for $12.5 million and $17.4 million, respectively. As
a result, a reacquisition loss of $1.3 million was charged to income ($0.6
million and $0.7 million for Met-Ed and Penelec, respectively). Also in 1999,
Met-Ed and Penelec redeemed all of their outstanding shares of
Subsidiary-obligated mandatorily redeemable preferred securities for $100
million and $105 million, respectively.
In 1999, JCP&L redeemed $30 million stated value of cumulative preferred
stock pursuant to mandatory and optional sinking fund provisions. As a result, a
reacquisition loss of $0.8 million was charged to income.
In 1999, Penelec redeemed $600 million of FMBs with proceeds from the sale
of its interest in Homer City and issued $350 million of unsecured senior notes,
the proceeds from which were used to redeem or repurchase other outstanding
securities, reduce short-term borrowings, fund its construction program and for
other corporate purposes.
In 1999, Met-Ed and Penelec each issued $100 million of trust preferred
securities, at 7.35% and 7.34%, respectively.
GPU Electric
GPU Capital has a $1 billion 364-day senior revolving credit agreement due
in December 2000 supporting the issuance of commercial paper for its $1 billion
commercial paper program established to fund GPU Electric
F-26
acquisitions. GPU, Inc. has guaranteed GPU Capital's obligations under this
program. At December 31, 1999, $768 million was outstanding under the commercial
paper program, of which $370 million is included in long-term debt on the
Consolidated Balance Sheets since it is management's intent to reissue this
amount of the commercial paper on a long-term basis.
In 1999, GPU Capital sold $373 million of commercial paper to refinance all
its outstanding borrowings related to the 1996 acquisition of a 50% interest in
Midlands. In addition, in 1999, GPU Capital sold $50 million of commercial paper
to partially fund the acquisition of Cinergy's 50% ownership of Midlands. The
Emdersa and GPU GasNet acquisitions, in 1999, were also partially funded by
commercial paper sales of $323 million and $180 million, respectively.
Also in 1999, GPU Capital borrowed A$750 million (approximately US $495
million) under a senior credit facility to fund the acquisition of GPU GasNet
and British Pound 245 million (approximately US $382 million) under a term loan
to fund its acquisition of the remaining 50% interest in Midlands.
GPU Australia Holdings, Inc. has $270 million available under its senior
revolving credit facility due in November 2002. This facility, in combination
with other GPU, Inc. credit facilities, serves as credit support for GPU
Australia Holdings' $350 million commercial paper program. GPU, Inc. has
guaranteed GPU Australia Holdings' obligations under this program. GPU Australia
Holdings has $182 million outstanding under its commercial paper program as of
December 31, 1999. In 1999, GPU Australia Holdings refinanced $350 million of
outstanding long-term debt associated with the GPU PowerNet acquisition, with
$345 million of commercial paper under this program.
Austran Holdings, Inc. (Austran), a wholly-owned indirect subsidiary of GPU
Electric, has a A$500 million (approximately US $328 million) commercial paper
program to refinance the maturing portion of the senior debt credit facility
used to finance the GPU PowerNet acquisition. GPU PowerNet has guaranteed
Austran's obligations under this program. As of December 31, 1999, Austran had
outstanding approximately A$420 million (approximately US $275 million) under
this program.
In 1999, Austran refinanced A$220 million (approximately US $142 million)
of GPU PowerNet acquisition debt with proceeds from an Australian Dollar medium
term note issuance. In connection with this debt refinancing program, a loss of
A$20.3 million (approximately US $13.3 million) related to certain interest rate
swap positions was reflected in GPU's 1999 earnings. In addition, Austran issued
A$50 million (approximately US $32 million) of variable rate and A$120 million
(approximately US $77 million) of fixed rate medium term notes, proceeds of
which were used to refinance acquisition debt.
Midlands maintains a British Pound 200 million (approximately US $323
million) syndicated revolving credit facility with a bank for working capital
purposes, which matures May 2001. At December 31, 1999, British Pound 87 million
(approximately US $140 million) was outstanding under this facility.
GPUI Group
GPU International has a revolving credit agreement providing for borrowings
through December 2000 of up to $30 million outstanding at any one time, of which
up to $15 million may be utilized to provide letters of
F-27
credit. GPU, Inc. has guaranteed GPU International's obligations under this
agreement. At December 31, 1999, no borrowings or letters of credit were
outstanding under this facility.
Capitalization
Each of the GPU companies' target capitalization ratios is designed to
provide credit quality ratings that permit capital market access at reasonable
costs. The target capitalization ratios vary by subsidiary depending upon their
business and financial risk. GPU's actual capitalization ratios at December 31
for the years indicated, were as follows:
GPU, Inc. and Subsidiary Companies 1999 1998 1997
- ---------------------------------- ---- ---- ----
Common equity 30% 40% 35%
Preferred securities 4 6 6
Debt 66 54 59
--- --- ---
Total 100% 100% 100%
=== === ===
JCP&L
- -----
Common equity 50% 50% 50%
Preferred securities 8 8 9
Debt 42 42 41
--- --- ---
Total 100% 100% 100%
=== === ===
Met-Ed
- ------
Common equity 44% 47% 49%
Preferred securities 9 8 7
Debt 47 45 44
--- --- ---
Total 100% 100% 100%
=== === ===
Penelec
- -------
Common equity 44% 47% 47%
Preferred securities 10 7 7
Debt 46 46 46
--- --- ---
Total 100% 100% 100%
=== === ===
The increase in the debt ratio in 1999 resulted mainly from GPU Electric's
acquisitions of the following: the 50% of Midlands it did not already own; GPU
GasNet; and Emdersa. Since GPU Electric now owns 100% of Midlands and must
consolidate the entity, certain debt, which was previously excluded from its
balance sheet under the equity method of accounting, must now be included.
In 1999, the quarterly dividend on GPU, Inc.'s common stock was increased
by 2.9% to an annualized rate of $2.12 per share. GPU, Inc.'s dividend payout
rate in 1999 was 55% of earnings (excluding the non-recurring items). Management
will continue to review GPU, Inc.'s dividend policy to determine how to best
serve the long-term interests of shareholders.
At December 31, 1999, Met-Ed and Penelec had retained earnings available
to pay common stock dividends of $10 million and $49 million, respectively,
net of amounts restricted under the companies' respective FMB indentures. In
F-28
addition, Met-Ed and Penelec had capital surplus of $400 million and $285
million, respectively, which would also be available to pay common dividends, to
the extent authorized by the SEC. Met-Ed and Penelec have requested SEC approval
to declare and pay common dividends from their capital surplus, from time to
time through December 31, 2001, so long as their common equity ratios and GPU,
Inc.'s common equity ratio are not less than 30% of total capitalization. At
December 31, 1999, the common equity ratios of Met-Ed, Penelec and GPU, Inc.
were 43.7%, 44.4% and 30.2%, respectively.
Year 2000 Issue
- ---------------
GPU has been addressing the Year 2000 issue by undertaking comprehensive
reviews of its computers, software and equipment with embedded systems such as
microcontrollers (together, "Year 2000 Components"), and of its business
relationships with third parties, including key customers, lenders, trading
partners, vendors, suppliers and service providers. GPU's Year 2000 project has
not caused any material delay in the GPU information technology services group
performing other planned projects.
As of January 31, 2000, GPU believes that its Year 2000 program was
effective since no significant Year 2000 issues were identified. GPU will
continue to monitor its systems generally through March 31, 2000.
Costs
The GPU Energy companies expect to spend a total of $42.3 million (JCP&L
$18.7 million; Met-Ed $11.9 million; Penelec $11.7 million) on the Year 2000
issue, as summarized below: $8.1 million (JCP&L $2.7 million; Met-Ed $2.7
million; Penelec $2.7 million) represents the avoided costs of having to upgrade
certain legacy systems, which were replaced by a new integrated information
system; $7.4 million (JCP&L $3.4 million; Met-Ed $1.9 million; Penelec $2.1
million) represents what would have been spent in any event for maintenance and
cyclical replacement plans; $13.9 million (JCP&L $6.5 million; Met-Ed $3.7
million; Penelec $3.7 million) represents the reallocation of resources to the
Year 2000 project; and $12.9 million (JCP&L $6.1 million; Met-Ed $3.6 million;
Penelec $3.2 million) represents the incremental or out-of-pocket costs for the
Year 2000 project. The GPU Energy companies are funding these costs from their
operations.
Through December 31, 1999, the GPU Energy companies have spent a total of
approximately $41.8 million (JCP&L $18.4 million; Met-Ed $11.7 million; Penelec
$11.7 million) on the Year 2000 issue, of which $21.2 million (JCP&L $9.8
million; Met-Ed $5.8 million; Penelec $5.6 million) was spent in 1999.
GPU Electric expects to spend a total of $14 million on the Year 2000
issue. Through December 31, 1999, GPU Electric has spent a total of
approximately $13.1 million on the Year 2000 issue, of which $9.3 million was
spent in 1999.
The total cost associated with the GPUI Group and GPU AR achieving Year
2000 readiness was not material to GPU's business operations or financial
position.
F-29
Milestones
GPU established Inventory, Assessment, Remediation, Testing and Monitoring
of its mission-critical Year 2000 Components as the primary phases for its Year
2000 program. All stages of the Year 2000 program have been completed with the
exception of Monitoring, which will be completed by March 31, 2000.
Third Party Qualification
Due to the interdependence of computer systems and the reliance on other
organizations for materials, supplies or services, GPU contacted key customers,
lenders, trading partners, vendors, suppliers and service providers to assess
whether they adequately addressed the Year 2000 issue.
With respect to computer software and equipment with embedded systems, the
GPU Energy companies analyzed where they are dependent upon third parties and
identified several critical areas: (1) the Pennsylvania-New Jersey-Maryland
(PJM) Interconnection; (2) electric generation suppliers, such as cogeneration
operators and NUGs; (3) Electronic Data Interchange (EDI) with trading partners;
(4) Electronic Funds Transfer (EFT) with financial institutions; (5) vendors;
and (6) customers.
As of January 31, 2000, GPU believes that its planning concerning the Year
2000 readiness of critical third parties was effective. As of that date, no
significant Year 2000 issues have been identified.
Scenarios and Contingencies
As of January 31, 2000, GPU believes that its Year 2000 preparations were
effective relative to its mission-critical Year 2000 Components and has
established contingency plans to deal promptly with problems that may arise
during the monitoring phase of its Year 2000 program. GPU does not anticipate
any "most reasonably likely worst case Year 2000 scenarios" that would cause a
material adverse effect on its results of operations, liquidity or financial
condition.
COMPETITIVE ENVIRONMENT AND RATE MATTERS
----------------------------------------
GPU Business Plan
- -----------------
Currently, and increasingly in the future, the GPU Energy companies expect
they will have to serve customers in markets where there will be capped rates
for varying periods and their ability to seek rate increases will be more
limited. In addition, inflation could adversely affect GPU since these increased
costs may not be recoverable in an environment where there are capped rates.
Since the GPU Energy companies have, to a large extent, exited the generation
business, they will have to supply energy to customers who do not choose an
alternate supplier largely from contracted and open market purchases. Management
has identified and addressed market risks associated with these purchases
through implementation of an energy risk management program. However, there can
be no assurance that the GPU Energy companies will be able to supply electricity
to customers at costs which will be recoverable by the respective companies.
F-30
In October 1999, GPU initiated a program to enhance shareholder returns
through planned cost reductions of $100 million ($55 million in 2000 and $45
million in 2001) by increasing operating efficiency and by making investments of
$40 million to $50 million to improve the reliability of its domestic utility
operations.
The GPU Energy companies are targeting reductions of $30 million in 2000
and an additional $40 million in 2001. Cost reductions will be achieved by using
new tools from its enterprise resource planning system to eliminate significant
amounts of operational overhead expense and by improving the productivity of all
its operations. Midlands plans cost reductions of US $25 million in 2000 and US
$5 million in 2001. Cost reductions will be achieved by eliminating activities
not provided for in its new regulated rate level, which will take effect in the
Spring of 2000, and by realizing productivity benefits from its new systems and
organization. Furthermore, GPU plans to raise at least $500 million in cash from
its current investment portfolio by reducing GPU's ownership in non-core and
under-performing assets.
The GPU Energy Companies' Supply Plan
- -------------------------------------
As a result of the NJBPU and the PaPUC's restructuring orders, the GPU
Energy companies are required to provide generation service to customers who do
not choose an alternate supplier. (For additional information, see the Provider
of Last Resort and Basic Generation Service Provider sections below.) Given that
the GPU Energy companies have largely divested their generation business, there
will be increased market risks associated with providing generation service
since the GPU Energy companies will have to supply energy to non-shopping
customers from contracted and open market purchases. Under its order, JCP&L is
permitted to recover reasonably and prudently incurred costs associated with
providing basic generation service. The PaPUC's restructuring orders, however,
generally do not allow Met-Ed and Penelec to recover their energy costs in
excess of established rate caps which are in effect for varying periods. While
management has implemented an energy risk management program, there can be no
assurance that the GPU Energy companies will be able to supply electricity to
customers that do not choose an alternate supplier at costs which will be
recoverable by the respective companies.
Following the sales in 1999 of the GPU Energy companies' generating
facilities, GPU has 200 MW of capacity and related energy from Yards Creek
Pumped Storage Facility (Yards Creek) remaining to meet customer needs (see
Generation Asset Divestiture for a discussion of the pending sale of Oyster
Creek) and an additional 704 MW of nuclear, combustion turbine and hydroelectric
generation, the sales of which are pending. The GPU Energy companies also have
contracts with NUG facilities totaling 1,606 MW (JCP&L 928 MW; Met-Ed 273 MW;
Penelec 405 MW) and JCP&L has agreements with other utilities to provide for up
to 584 MW (reduced to 400 MW on January 1, 2000) of capacity and related energy.
The GPU Energy companies have agreed to purchase all of the capacity and energy
from TMI-1 through December 31, 2001 and from Oyster Creek (following its sale)
through March 31, 2003. In addition, the GPU Energy companies have the right to
call the capacity of the Homer City station (942 MW) through May 31, 2001 and
the capacity of the generating stations sold to Sithe Energies (Sithe)(4,117 MW)
through May 31, 2002. The GPU Energy companies' remaining capacity and energy
needs will be met by short- to intermediate-term commitments (one month to three
years) during times of expected high energy price volatility and reliance on
spot market purchases during other periods.
F-31
Provider of Last Resort
- -----------------------
Under the PaPUC Restructuring Orders, Met-Ed and Penelec customers have
been permitted to shop for their generation supplier since January 1, 1999. A
PaPUC approved competitive bid process was to assign provider of last resort
(PLR) service for 20% of Met-Ed and Penelec's retail customers on June 1, 2000,
40% on June 1, 2001, 60% on June 1, 2002, and 80% on June 1, 2003, to licensed
generation suppliers referred to as Competitive Default Service (CDS). Any
retail customers assigned to CDS may return to Met-Ed and Penelec as the default
PLR at no additional charge. Met-Ed and Penelec may meet any remaining PLR
obligation at rates not less than the lowest rate charged by the winning CDS
provider, but no higher than Met-Ed and Penelec's rate cap. In 1999, Met-Ed and
Penelec issued requests for bids to provide competitive bidding for default
energy supply service for 20% of their customers, beginning in June 2000, as
required by the PaPUC. In February 2000, GPU Energy announced that no bids were
received in response to its offer and, as a result, it would be increasing its
forward purchasing of electric power to accommodate the 20% of customers for
whom it will now continue to be the default supplier. GPU estimates that these
additional energy purchases will reduce its 2000 earnings per share by $0.04 to
$0.08, but expects to mitigate this impact through additional common stock
repurchases. GPU Energy is also developing a comprehensive solution for default
energy supply service in Pennsylvania, which it plans to submit to the PaPUC.
Management's best estimates for PLR load are based upon regional economic
data, normal weather (20 year average), forecasts of retail customer shopping,
and implementation of CDS. As of December 31, 1999 a hypothetical 10% increase
in the cost of energy not already under contract to serve the estimated PLR load
would result in an estimated $9 million decrease in pre-tax earnings during
2000.
Basic Generation Service Provider
- ---------------------------------
JCP&L is required to provide basic generation services (BGS) to retail
customers who choose to remain with JCP&L as generation customers for a
three-year period ending July 31, 2002. The responsibility for BGS thereafter
will be bid out. JCP&L's BGS rates are pre-determined for the period through
July 31, 2003. Bidders will bid for the right to provide BGS during the year
commencing August 1, 2002 at the pre-established BGS rates. Any payment received
or required by JCP&L resulting from the bidding process will be deferred for
future refund or recovery.
GPU Energy Supply Market Risk
- -----------------------------
The GPU Energy companies manage the risks associated with the purchases and
sales of electric energy and natural gas which result from its obligation to
provide electricity as PLR service in Pennsylvania and BGS in New Jersey. This
also involves managing the purchase and sale of installed capacity and ancillary
services to minimize business risk associated with its reliability obligation in
the PJM Interconnection, LLC (PJM).
The focus for the Pennsylvania operating companies is to avoid large
earnings volatility due to fixed price sales to Pennsylvania customers, while
cost stability for New Jersey customers is the goal for JCP&L to minimize
deferred balances for BGS. The GPU Energy companies will transact in
supply/hedging market instruments for hedging purposes only. Supply/risk
F-32
management transactions will be made based on the objective of decreasing both
price and volume uncertainty.
Market Risk - Electricity
- -------------------------
The GPU Energy companies electricity supply profile generally reflects a
shortage of economic on-peak electricity, resulting in a net short position
(load in excess of supply). Consequently, the GPU Energy companies are generally
at risk of rising prices for electricity and electricity-related commodities.
These risks may differ during some months of the year. To manage these risks,
the GPU Energy companies employ a portfolio approach primarily consisting of two
party forward purchases and options, but may also include NYMEX PJM electricity
futures and similar instruments as they become widely available. This portfolio
includes transactions of various durations ranging from one hour to greater than
one year.
The GPU Energy companies' electricity market risks can be price-related,
volume-related, or cost-related as follows:
- - Price-related risk refers to the price exposure associated with having to
purchase amounts of electricity, installed capacity, and ancillary services
for load requirements from the PJM interchange spot market. To the extent
the GPU Energy companies must rely on the PJM pool to satisfy load
requirements, financial exposure exists for the difference between the PJM
energy and installed capacity spot market prices and the rates paid by
customers.
- - Volume-related risk refers to the uncertainty associated with the amount of
load the GPU Energy companies are required to serve. Deregulation of the
electric utility industry has resulted in the ability of their customers to
purchase energy from other electric suppliers. This customer shopping,
combined with deviations in weather, which affects customer energy usage,
can affect the GPU Energy companies' position.
- - Cost recovery-related risk refers to the financial risk associated with the
potential prudency audits of the NJBPU that are part of JCP&L's deferred
energy clause. Cost recovery-related risk also refers to the prudency risk
associated with future NUG cost recovery under the restructuring orders
approved by the PaPUC and the NJBPU which require continued mitigation of
above market NUG costs.
Market Risk - Natural Gas
- -------------------------
As part of its NUG cost mitigation program, the GPU Energy companies manage
the natural gas requirements of certain NUGs that produce and sell energy to
JCP&L under long-term contracts. Under this obligation, the GPU Energy companies
must manage both natural gas volume and price risk in a manner that will satisfy
potential prudency audits of the NJBPU. Prudently incurred costs associated with
natural gas commodity and transportation for these NUGs are included in JCP&L's
deferred energy clause.
The GPU Energy companies employ a portfolio approach consisting of two
party forward purchases and NYMEX natural gas futures contracts. The GPU Energy
companies' natural gas market risks can be price-related, volume-related or cost
recovery-related as follows:
F-33
- - Price-related risk refers to the price exposure associated with having to
purchase volumes of natural gas for New Jersey NUG requirements from the
spot market.
- - Volume-related risk refers to the uncertainty associated with the amount of
natural gas required for the dispatchable NUGs.
- - Cost recovery-related risk refers to the financial risk associated with the
potential prudency audits of the NJBPU that are part of JCP&L's deferred
energy clause.
Generation Asset Divestiture
- ----------------------------
As discussed below, in 1999, the GPU Energy companies completed the sales
of TMI-1 and substantially all their fossil-fuel and hydroelectric generating
stations.
Penelec sold its 50% interest in Homer City to a subsidiary of Edison
Mission Energy for approximately $900 million. In addition, Penelec's 20%
undivided ownership interest in the Seneca Pumped Storage Facility was sold to
Cleveland Electric Illuminating Company for $43 million.
The GPU Energy companies completed the sales of substantially all their
remaining fossil fuel and hydroelectric generating facilities to Sithe for
approximately $1.6 billion (JCP&L $416 million; Met-Ed $641 million; Penelec
$558 million) (JCP&L's 50% interest in Yards Creek is not included in the sale
and the sales of the 66 MW Forked River combustion turbines and 19 MW York Haven
hydroelectric station were postponed). The GPU Energy companies have agreed to
assume up to $20 million (JCP&L $7 million; Met-Ed $9 million; Penelec $4
million) of employee severance costs for employees not hired by Sithe. The net
proceeds from the sales will be used to fund future stranded costs, invest in
the reliability of the GPU Energy companies' T&D network, reduce outstanding
debt, and repurchase GPU, Inc. common stock. For additional information, see
Note 6, Accounting for Extraordinary and Non-recurring items.
These sales have resulted in an after-tax gain of $37.2 million (Met-Ed
$1.4 million; Penelec $ $35.8 million), or $0.30 per share, during 1999 for the
portion of the gains related to wholesale operations and the deferral as a
regulatory liability of the remaining gain of $1.3 billion (Met-Ed $389.1
million; Penelec $938.3 million) pending Phase II of the Pennsylvania
restructuring proceeding and a separate review by the NJBPU.
The GPU Energy companies sold TMI-1 to AmerGen Energy Company, LLC
(AmerGen), a joint venture of PECO Energy and British Energy, for a total
purchase price of approximately $100 million. AmerGen will pay approximately $77
million of the purchase price which is allocable to nuclear fuel, in five annual
installments, beginning in December 2000, and is obligated to make certain
contingent payments to the GPU Energy companies of up to $80 million, depending
on the level of energy prices through 2010. The GPU Energy companies have
transferred $320 million to AmerGen for decommissioning, and AmerGen has assumed
all liability and obligation for decommissioning TMI-1. This sale did not have a
significant impact on 1999 earnings (a loss of $1.1 million, or $0.01 per share,
was recorded related to wholesale operations) since TMI-1 had been written down
to its fair market value in 1998. The majority of the amount written down and
the majority of the remaining loss
F-34
from the sale resulted in the deferral of $528.3 million (JCP&L $133.1 million;
Met-Ed $270.7 million; Penelec $124.5 million) as a regulatory asset and a
charge to 1998 income of $10 million.
In October 1999, JCP&L agreed to sell Oyster Creek to AmerGen for $10
million. As part of the terms of the transaction, AmerGen will assume full
responsibility for decommissioning the plant. JCP&L will transfer at closing
$430 million of decommissioning trust funds as well as funds for the station's
outage cost, including the fuel reload for the next refueling outage scheduled
for the Fall of 2000. AmerGen will repay these outage costs (estimated at $88
million) to JCP&L in nine equal annual installments without interest, beginning
one year after the closing. The sale is subject to various conditions including
the receipt of satisfactory federal and state regulatory approvals and favorable
rulings by the Internal Revenue Service.
Recent Regulatory Actions
- -------------------------
New Jersey Restructuring
In May 1999, the NJBPU issued a Summary Order with respect to JCP&L's rate
unbundling, stranded cost and restructuring filings. JCP&L is awaiting a more
detailed order from the NJBPU. This Summary Order provides for, among other
things, the following:
- customer choice of electric generation supplier for all consumers
beginning August 1, 1999 with utilities accepting customer selection of
suppliers in October 1999;
- a 5% rate reduction commencing August 1, 1999; additional reductions of
1% in 2000 and 2% in 2001; and an additional net 3% reduction in 2002
inclusive of a 5% rate refund from rates in effect as of April 30, 1997,
partially offset by a 2% increase in the Market Transition Charge (MTC).
The total rate reduction of 11% will remain in effect through July 2003;
- the removal from regulation of the costs associated with providing
electric generation service. JCP&L must provide BGS through July 31,
2002 to retail customers who do not choose an alternative generation
supplier, after which BGS will be bid out;
- the average shopping credits will range from 5.14 cents per KWH in 1999
to 5.40 cents in 2003;
- an average distribution rate of 3.35 cents per KWH;
- the ability to recover stranded costs;
- the ability to securitize approximately $400 million of stranded costs
associated with Oyster Creek (see below for additional information);
- effective August 1, 1999, JCP&L is no longer subject to an earnings
cap;
- the establishment of a non-bypassable societal benefits charge to
recover costs associated with nuclear plant decommissioning, demand-side
management, manufactured gas plant remediation, universal service fund
and consumer education; and
F-35
- the NJBPU will conduct an annual review and assessment of the
reasonableness and prudency of costs incurred by JCP&L in the
procurement of energy and capacity needed to serve BGS load as well as
of NUG and utility power purchase agreement stranded costs.
In addition, JCP&L will implement a non-bypassable MTC through which JCP&L will
collect:
- above-market costs associated with long-term NUG and utility power
purchase agreements;
- any under-recovered deferred costs as of August 1, 1999 resulting from
JCP&L's previous levelized energy adjustment clause;
- early retirement and severance-related costs of $130 million over 11
years should Oyster Creek be retired from service in 2000; and
- the amortization of Oyster Creek sunk costs, pending securitization.
In August 1999, JCP&L filed a petition with the NJBPU requesting
authorization to issue transition bonds to securitize the recovery of bondable
stranded costs attributable to the projected net investment in Oyster Creek at
September 1, 2000. The petition also requests that the NJBPU order provide for
the imposition and collection of a usage based non-bypassable transition bond
charge (TBC) and for the transfer of the bondable transition property relating
to the TBC to another entity. JCP&L has amended its petition to include the
up-front decommissioning and outage payments included in the Oyster Creek sale
agreement.
Pennsylvania Restructuring
In 1996, Pennsylvania adopted comprehensive legislation (Customer Choice
Act) which provides for the restructuring of the electric utility industry. In
October 1998, the PaPUC issued amended Restructuring Orders, approving
Settlement Agreements entered into by Met-Ed and Penelec. An appeal by one
intervenor in the restructuring proceedings is pending before the Pennsylvania
Supreme Court. There can be no assurance as to the outcome of this appeal.
The results of Met-Ed and Penelec's sale of their generating facilities
(see Generation Asset Divestiture section) will be addressed in Phase II of the
Pennsylvania restructuring proceeding, which is expected to begin in early 2000.
In 1999, Penelec deposited a portion of the proceeds from its generation asset
sale into a NUG Trust, which has a balance at December 31, 1999 of $266.7
million. To the extent Penelec incurs above-market NUG costs in excess of the
CTC revenues allocated for such costs Penelec may withdraw amounts from the
trust. There can be no assurance as to the outcome of these matters.
Federal Regulation
In November 1997, the Federal Energy Regulatory Commission (FERC) issued an
order to the PJM Power Pool which, among other things, directed the GPU Energy
companies to implement a single-system transmission rate, effective April 1,
1998. The implementation of the single-system rate has not affected
F-36
total transmission revenues; however, it has increased the pricing for
transmission service in Met-Ed and Penelec's service territories and reduced the
pricing for transmission service in JCP&L's service territory.
The GPU Energy companies have requested the FERC to reconsider its ruling
requiring a single-system transmission rate. The Restructuring Orders for Met-Ed
and Penelec provide for a transmission and distribution rate cap exception to
recover the increase in the transmission rate from Met-Ed and Penelec's retail
customers in the event the FERC denies the request for reconsideration of the
single-system transmission rate. The FERC's ruling may also have an effect on
JCP&L's distribution rates. There can be no assurance as to the outcome of this
matter.
Several bills have been introduced in Congress providing for a
comprehensive restructuring of the electric utility industry. These bills
proposed, among other things, retail choice for all utility customers, the
opportunity for utilities to recover their prudently incurred stranded costs in
varying degrees, and repeal of both the Public Utility Regulatory Policies Act
(PURPA) and the Public Utility Holding Company Act of 1935 (PUHCA).
In April 1999, the Clinton administration introduced the Comprehensive
Electricity Competition Act, which proposes a flexible mandate for customer
choice by January 1, 2003, reliability standards, environmental provisions, and
the repeal of both PURPA and PUHCA. The flexible mandate allows states to opt
out of the mandate if they believe consumers would be better served by an
alternative policy.
Nonutility Generation Agreements
- --------------------------------
Pursuant to the mandates of PURPA and state regulatory directives, the GPU
Energy companies have been required to enter into power purchase agreements with
NUGs for the purchase of energy and capacity which agreements have remaining
terms of up to 21 years. As of December 31, 1999, facilities covered by these
agreements having 1,606 MW (JCP&L 928 MW; Met-Ed 273 MW; Penelec 405 MW) of
capacity were in service.
The NJBPU Summary Order and PaPUC Restructuring Orders provide the GPU
Energy companies assurance of full recovery of their NUG costs (including
above-market NUG costs and certain buyout costs). Accordingly, the GPU Energy
companies have recorded a liability of $3.2 billion (JCP&L $1.6 billion; Met-Ed
$0.7 billion; Penelec $0.9 billion)on the Consolidated Balance Sheets for
above-market NUG costs which is fully offset by Regulatory assets, net. In
addition, JCP&L recorded a liability of $64 million for above-market utility
power purchase agreements with a corresponding offset to Regulatory assets, net,
since there is assurance of full recovery. The GPU Energy companies are
continuing efforts to reduce the above-market costs of these agreements and
will, where beneficial, attempt to renegotiate the prices of the agreements,
offer contract buyouts and attempt to convert must-run agreements to
dispatchable agreements. There can be no assurance as to the extent to which
these efforts will be successful. For additional information, see the
Competition and the Changing Regulatory Environment section of Note 12 of the
Notes to Consolidated Financial Statements.
In 1998, Met-Ed entered into a buyout agreement with Solar Turbines, Inc.
(Solar), contingent upon Met-Ed obtaining a final and non-appealable PaPUC order
allowing for full recovery of the buyout payment through retail rates.
F-37
In October 1999, Met-Ed paid Solar $51.3 million under an amended agreement
which obligates Solar to refund to Met-Ed these amounts if the PaPUC rescinds
its current approval of the buyout which was received as part of Met-Ed's
Restructuring Order.
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, ambient air quality, global warming,
electromagnetic fields, and storage and disposal of hazardous and/or toxic
wastes, GPU may be required to incur substantial additional costs to construct
new equipment, modify or replace existing and proposed equipment, remediate,
decommission or cleanup waste disposal and other sites currently or formerly
used by it, including formerly owned manufactured gas plants (MGP), coal mine
refuse piles and generation facilities.
GPU records environmental liabilities (on an undiscounted basis) where it
is probable that a loss has been incurred and the amount of the loss can be
reasonably estimated, and adjusts these liabilities as required to reflect
changes in circumstances. At December 31, 1999, the GPU Energy companies have
liabilities recorded on their balance sheets for environmental remediation
totaling $66 million (JCP&L $56 million; Met-Ed $1 million; Penelec $8 million;
Other $1 million).
For more information, see the Environmental Matters section of Note 12 of
the Notes to Consolidated Financial Statements.
LEGAL MATTERS - TMI-2 ACCIDENT CLAIMS
-------------------------------------
As a result of the 1979 TMI-2 accident, individual claims for alleged
personal injury (including claims for punitive damages), which are material in
amount, were asserted against GPU, Inc. and the GPU Energy companies.
Approximately 2,100 of such claims were filed in the US 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.
In 1996, the District Court granted a motion for summary judgment filed by
GPU, Inc. and the GPU Energy companies, and dismissed the ten initial "test
cases," which had been selected for a test case trial as well as all of the
remaining 2,100 pending claims. The Court ruled that there was no evidence which
created a genuine issue of material fact warranting submission of plaintiffs'
claims to a jury. The plaintiffs appealed the District Court's ruling to the
Court of Appeals for the Third Circuit. On November 2, 1999, the Third Circuit
affirmed the District Court's dismissal of the ten "test cases," but set aside
the dismissal of the additional pending claims, remanding them to the District
Court for further proceedings. In remanding these claims, the Third Circuit held
that the District Court had erred in extending its summary judgment decision to
the other plaintiffs and imposing on these plaintiffs the District Court's
finding that radiation exposures below 10 rems were too speculative to establish
a causal link to cancer. The Court of Appeals stated that the non-test case
plaintiffs should be permitted to present their own individual evidence that
exposure to radiation from the accident caused their cancers.
F-38
GPU, Inc. and the GPU Energy companies believe that the Third Circuit has
misinterpreted the record before the District Court, as it applies to the
non-test case plaintiffs and on November 16, 1999, filed petitions seeking a
rehearing and reconsideration of the Court's decision regarding these remaining
claims. The "test case" plaintiffs also requested a rehearing of the Court's
decision upholding the dismissal of their claims. In January 2000, the Court of
Appeals denied both petitions. The "test case" plaintiffs have stated that they
intend to seek Supreme Court review of the District Court's decision. There can
be no assurance as to the outcome of this litigation.
GPU, Inc. and the GPU Energy companies believe that any liability to which
they might be subject by reason of the TMI-2 accident will not exceed their
financial protection under the Price-Anderson Act.
ACCOUNTING MATTERS
------------------
Statement of Financial Accounting Standards No. 71 (FAS 71), "Accounting
for the Effects of Certain Types of Regulation," applies to regulated utilities
that have the ability to recover their costs through rates established by
regulators and charged to customers. In June 1997, the Financial Accounting
Standards Board's (FASB) Emerging Issues Task Force (EITF) (Issue 97-4)
concluded that utilities are no longer subject to FAS 71, for the relevant
portion of their business, when they know details of their individual transition
plans to a competitive electric generation marketplace. The EITF also concluded
that utilities can continue to carry previously recorded regulated assets, as
well as any newly established regulated assets (including those related to
generation), on their balance sheets if regulators have assured a regulated cash
flow stream to recover the cost of these assets.
On May 24, 1999, the NJBPU issued a Summary Order regarding JCP&L's
unbundling, stranded cost and restructuring filings which essentially
deregulated the electric generation portion of JCP&L's business. Accordingly, in
the second quarter of 1999, JCP&L discontinued the application of FAS 71 and
adopted the provisions of Statement of Financial Accounting Standards No. 101
(FAS 101), "Regulated Enterprises - Accounting for the Discontinuation of
Application of FASB Statement No. 71" and EITF Issue 97-4 with respect to its
electric generation operations. In 1998, Met-Ed and Penelec, in conjunction with
receiving their Restructuring Orders, discontinued the application of FAS 71 and
adopted the provisions of FAS 101 and EITF 97-4 for their generation operations.
The transmission and distribution portion of the GPU Energy companies'
operations continue to be subject to the provisions of FAS 71.
In accordance with the Statement of Financial Accounting Standards No. 121
(FAS 121), "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," impairment tests performed by the GPU
Energy companies on the net book values of their remaining generation facilities
determined that the net investment in Oyster Creek was impaired. As of December
31, 1999, this resulted in a write-down of $678 million to reflect Oyster
Creek's fair market value. The total impairment amount of Oyster Creek has been
reestablished as a regulatory asset since the Summary Order provides for its
recovery in the restructuring process.
F-39
Statement of Financial Accounting Standards No. 133 (FAS 133), "Accounting
for Derivative Instruments and Hedging Activities," establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. FAS 133
requires that companies recognize all derivatives as either assets or
liabilities on the balance sheet and measure those instruments at fair value.
GPU will be required to include its derivative transactions on its balance sheet
at fair value, and recognize the subsequent changes in fair value as either
gains or losses in earnings or report them as a component of other comprehensive
income, depending upon the intended use and designation of the derivative as a
hedge. FAS 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 2000. GPU will adopt FAS 133 in the first quarter of 2001 and is
in the process of evaluating the impact of the implementation of this statement.
GPU's use of derivative instruments is intended to manage the risk of interest
rate, foreign currency and commodity price fluctuations and may include such
transactions as electricity and natural gas forward and futures contracts,
foreign currency swaps, interest rate swaps and options. GPU does not intend to
hold or issue derivative instruments for trading purposes.
F-40
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of GPU, Inc.:
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of GPU,
Inc. and Subsidiary Companies at December 31, 1999 and 1998, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1999 in conformity with accounting principles generally
accepted in the United States. In addition, in our opinion, the financial
statement schedule listed in the accompanying index presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements. These financial statements
and financial statement schedule are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits. We conducted
our audits of these statements in accordance with auditing standards generally
accepted in the United States, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
February 10, 2000
F-41
GPU, Inc. and Subsidiary Companies
CONSOLIDATED BALANCE SHEETS
(in thousands)
December 31, 1999 1998
- -------------------------------------------------------------------------------------------
ASSETS
Utility Plant:
Transmission, distribution and general plant $11,240,218 $ 7,579,455
Generation plant 526,228 3,445,984
---------- -----------
Utility plant in service (Notes 6 & 7) 11,766,446 11,025,439
Accumulated depreciation (3,929,963) (4,460,341)
---------- ------------
Net utility plant in service (Note 1) 7,836,483 6,565,098
Construction work in progress 170,317 94,005
Other, net 18,128 145,792
---------- -----------
Net utility plant 8,024,928 6,804,895
---------- -----------
Other Property and Investments:
Equity investments 85,756 658,974
Goodwill, net (Note 1) 2,615,301 545,262
Nuclear decommissioning trusts, at market (Note 12) 636,284 716,274
Nuclear fuel disposal trust, at market 119,293 116,871
Other, net 837,415 262,562
---------- -----------
Total other property and investments 4,294,049 2,299,943
---------- -----------
Current Assets:
Cash and temporary cash investments 471,548 72,755
Special deposits 42,687 62,673
Accounts receivable:
Customers, net 445,745 286,278
Other 238,840 126,088
Unbilled revenues (Note 1) 152,263 144,076
Materials and supplies, at average cost or less:
Construction and maintenance 100,807 155,827
Fuel 208 42,697
Investments held for sale 26,946 48,473
Deferred income taxes (Note 8) 72,249 47,521
Prepayments 161,602 76,021
---------- -----------
Total current assets 1,712,895 1,062,409
---------- -----------
Deferred Debits and Other Assets:
Regulatory assets, net (Notes 1 & 12) 4,712,654 3,940,829
Deferred income taxes (Note 8) 2,528,393 2,004,278
Other 445,163 175,755
---------- -----------
Total deferred debits and other assets 7,686,210 6,120,862
---------- -----------
Total Assets $21,718,082 $16,288,109
========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
F-42
GPU, Inc. and Subsidiary Companies
CONSOLIDATED BALANCE SHEETS
(in thousands)
December 31, 1999 1998
- -------------------------------------------------------------------------------------------
LIABILITIES AND CAPITALIZATION
Capitalization:
Common stock $ 331,958 $ 331,958
Capital surplus 1,011,721 1,011,310
Retained earnings 2,426,350 2,230,425
Accumulated other comprehensive income/(loss) (6,341) (31,304)
---------- ----------
Total 3,763,688 3,542,389
Reacquired common stock, at cost (298,735) (77,741)
---------- ----------
Total common stockholders' equity (Note 5) 3,464,953 3,464,648
Cumulative preferred stock: (Note 4)
With mandatory redemption 73,167 86,500
Without mandatory redemption 12,649 66,478
Subsidiary-obligated mandatorily redeemable
preferred securities (Note 4) 125,000 330,000
Trust preferred securities (Note 4) 200,000 -
Long-term debt (Note 3) 5,850,596 3,825,584
---------- ----------
Total capitalization 9,726,365 7,773,210
---------- -----------
Current Liabilities:
Securities due within one year (Notes 3 & 4) 581,147 563,683
Notes payable (Note 2) 1,171,869 368,607
Bank overdraft (Note 1) 224,585 -
Obligations under capital leases (Note 11) 48,165 126,480
Accounts payable 489,075 394,815
Taxes accrued 309,509 92,339
Interest accrued 76,246 81,931
Deferred credits (Note 1) - 2,411
Other 732,110 377,594
---------- -----------
Total current liabilities 3,632,706 2,007,860
---------- -----------
Deferred Credits and Other Liabilities:
Deferred income taxes (Note 8) 3,563,078 3,044,947
Unamortized investment tax credits 61,364 114,308
Three Mile Island Unit 2 future costs (Note 12) 496,944 483,515
Power purchase contract loss liability (Note 12) 3,300,878 1,803,820
Other 936,747 1,060,449
---------- ----------
Total deferred credits and other liabilities 8,359,011 6,507,039
---------- -----------
Commitments and Contingencies (Note 12)
Total Liabilities and Capitalization $21,718,082 $16,288,109
========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
F-43
GPU, Inc. and Subsidiary Companies
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
For The Years Ended December 31, 1999 1998 1997
- -------------------------------------------------------------------------------------------------
Operating Revenues (Note 1) $4,757,124 $4,248,792 $4,143,379
---------- ---------- ----------
Operating Expenses:
Fuel 304,621 407,105 400,329
Power purchased and interchanged 1,253,228 1,122,841 1,046,906
Deferred costs, net (Note 1) (38,108) (25,542) 6,043
Other operation and maintenance (Note 9) 1,495,402 1,106,913 993,739
Depreciation and amortization (Note 1) 542,939 522,094 467,714
Taxes, other than income taxes (Note 9) 190,212 219,302 357,913
--------- ---------- ---------
Total operating expenses 3,748,294 3,352,713 3,272,644
--------- --------- ---------
Operating Income 1,008,830 896,079 870,735
--------- -------- --------
Other Income and Deductions:
Allowance for other funds used during construction 432 916 75
Equity in undistributed earnings of affiliates, net 89,746 72,012 (27,100)
Other income, net 85,616 48,366 5,585
--------- ------- --------
Total other income and deductions 175,794 121,294 (21,440)
--------- ------- ---------
Income Before Interest Charges
and Preferred Dividends 1,184,624 1,017,373 849,295
---------- ---------- --------
Interest Charges and Preferred Dividends:
Long-term debt and notes payable 432,368 345,172 275,296
Trust preferred securities 8,345 - -
Subsidiary-obligated mandatorily
redeemable preferred securities 24,627 28,888 28,888
Other interest 10,048 8,277 8,121
Allowance for borrowed funds used
during construction (3,897) (4,348) (5,508)
Preferred stock dividends of subsidiaries,
inclusive of $2,116 loss on reacquisitions in 1999 11,006 11,243 12,524
---------- ---------- --------
Total interest charges and preferred dividends 482,497 389,232 319,321
---------- ---------- ---------
Income Before Income Taxes and Minority Interest 702,127 628,141 529,974
Income taxes (Note 8) 239,623 240,089 193,536
Minority interest net income 3,490 2,171 1,337
---------- ---------- ----------
Income Before Extraordinary Item 459,014 385,881 335,101
Extraordinary item, net of income tax
benefit of $16,300 (Note 6) - (25,755) -
---------- ---------- ----------
Net Income $ 459,014 $360,126 $ 335,101
========== ======== ==========
Basic - Earnings Per Average Common Share
Before Extraordinary Item $ 3.66 $3.03 $ 2.78
Extraordinary Item - (0.20) -
---------- ---------- ----------
Earnings Per Average Common Share $ 3.66 $ 2.83 $ 2.78
========== ======== ==========
Average Common Shares Outstanding 125,368 127,093 120,722
========== ======== ==========
Diluted - Earnings Per Average Common Share
Before Extraordinary Item $ 3.66 $3.03 $ 2.77
---------- -------- ----------
Extraordinary Item - (0.20) -
---------- -------- ----------
Earnings Per Average Common Share $ 3.66 $ 2.83 $ 2.77
========== ======== ==========
Average Common Shares Outstanding 125,570 127,312 121,002
========== ======== ==========
Cash Dividends Paid Per Share $ 2.105 $ 2.045 $ 1.985
========== ======== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
F-44
GPU, Inc. and Subsidiary Companies
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
For The Years Ended December 31, 1999 1998 1997
- -----------------------------------------------------------------------------------------------
Net income $459,014 $360,126 $335,101
------- -------- --------
Other comprehensive income/(loss), net of tax: (Note 5)
Net unrealized gain on investments 5,838 8,987 6,374
Foreign currency translation 13,859 (9,461) (48,929)
Minimum pension liability 5,266 (1,534) (1,495)
------- -------- --------
Total other comprehensive income/(loss) 24,963 (2,008) (44,050)
------- -------- --------
Comprehensive income $483,977 $358,118 $291,051
======= ======= ========
GPU, Inc. and Subsidiary Companies
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(in thousands)
For The Years Ended December 31, 1999 1998 1997
- ------------------------------------------------------------------------------------------------
Balance at beginning of year $2,230,425 $2,140,712 $2,054,222
Net income 459,014 360,126 335,101
Cash dividends declared on common stock (263,089) (263,561) (241,517)
Other adjustments, net - (6,852) (7,094)
--------- ---------- -----------
Balance at end of year $2,426,350 $2,230,425 $2,140,712
========= ========= ===========
The accompanying notes are an integral part of the consolidated financial
statements.
F-45
GPU, Inc. and Subsidiary Companies
GPU, Inc. and Subsidiary Companies
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For The Years Ended December 31, 1999 1998 1997
- --------------------------------------------------------------------------------------------------
Operating Activities:
Net income $ 459,014 $360,126 $ 335,101
Extraordinary item (net of income tax
benefit of $16,300) - 25,755 -
--------- ---------- ---------
Income before extraordinary item 459,014 385,881 335,101
Adjustments to reconcile income to cash provided:
Depreciation and amortization 568,832 552,795 487,962
Amortization of property under capital leases 47,584 49,913 50,108
NJBPU/PaPUC restructuring rate orders 115,000 68,500 -
Gain on sale of investments, net (64,019) (43,548) -
Equity in undistributed (earnings)/losses of
affiliates, net of distributions received (62,170) (44,621) 69,862
Deferred income taxes and investment tax
credits, net (717,768) (165,860) (29,248)
Deferred costs, net (37,841) (24,482) 8,193
Changes in working capital:
Receivables (84,282) 91,285 (76,178)
Materials and supplies 81,297 704 4,803
Special deposits and prepayments 42,247 (18,514) 28,371
Payables and accrued liabilities (22,972) (18,645) 49,025
Nonutility generation contract buyout costs (94,034) (54,018) (56,550)
Other, net (79,636) 13,476 (27,186)
--------- ---------- ---------
Net cash provided by operating activities 151,252 792,866 844,263
--------- --------- ---------
Investing Activities:
Acquisitions, net of cash acquired (1,670,739) - (1,798,338)
Capital expenditures and investments (460,952) (468,223) (470,299)
Proceeds from sale of investments 2,581,151 160,244 -
Contributions to nonutility generation trusts (266,701) - -
Contributions to decommissioning trusts (168,657) (51,039) (40,283)
Other, net 61,560 (37,876) 34,500
--------- ---------- ---------
Net cash provided/(required)
by investing activities 75,662 (396,894) (2,274,420)
--------- ---------- ---------
Financing Activities:
Issuance of long-term debt 1,787,094 749,724 1,893,219
Retirement of long-term debt (1,883,850) (1,036,110) (184,015)
Increase/(Decrease) in notes payable, net 882,352 (62,292) 87,667
Issuance of trust preferred securities 193,070 - -
Redemption of subsidiary-obligated mandatorily
redeemable preferred securities (205,383) - -
Redemption of preferred stock of subsidiaries (60,944) (15,000) (20,000)
Capital lease principal payments (51,040) (50,663) (49,560)
Issuance of common stock - 269,448 -
Reacquisition of common stock (225,821) - -
Dividends paid on common stock (264,448) (258,058) (239,597)
--------- ---------- ---------
Net cash provided/(required)
by financing activities 171,030 (402,951) 1,487,714
--------- ---------- ---------
Effect of exchange rate changes on cash 849 (5,365) (4,062)
--------- ---------- ---------
Net increase/(decrease) in cash and temporary cash
investments from above activities 398,793 (12,344) 53,495
Cash and temporary cash investments, beginning of year 72,755 85,099 31,604
--------- ---------- ----------
Cash and temporary cash investments, end of year $ 471,548 $ 72,755 $ 85,099
========= ========== ==========
Supplemental Disclosure:
Interest and preferred dividends paid $ 459,496 $ 370,303 $ 307,064
========= ========== ==========
Income taxes paid $ 702,355 $ 333,994 $ 229,373
========= ========== ===========
New capital lease obligations incurred $ 37,662 $ 37,793 $ 41,898
========= ========== ==========
Common stock dividends declared but not paid $ 64,557 $ 65,917 $ 60,414
========= ========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
F-46
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GPU, Inc. owns all the outstanding common stock of three domestic electric
utilities -- Jersey Central Power & Light Company (JCP&L), Metropolitan Edison
Company (Met-Ed) and Pennsylvania Electric Company (Penelec). The customer
service function, transmission and distribution operations and the operations of
the remaining non-nuclear generating facilities of these electric utilities are
conducting business under the name GPU Energy. JCP&L, Met-Ed and Penelec
considered together are referred to as the "GPU Energy companies." The nuclear
generation operations of GPU Energy are conducted by GPU Nuclear, Inc. (GPUN).
GPU Capital, Inc. and GPU Electric, Inc. and their subsidiaries own, operate and
fund the acquisition of electric and gas transmission and distribution systems
in foreign countries, and are referred to as "GPU Electric." GPU International,
Inc. and GPU Power, Inc. and their subsidiaries develop, own and operate
generation facilities in the United States and foreign countries and are
referred to as the "GPUI Group." Other subsidiaries of GPU, Inc. include GPU
Advanced Resources, Inc. (GPU AR), which is involved in retail energy sales; GPU
Telcom Services, Inc. (GPU Telcom), which is engaged in
telecommunications-related businesses; and GPU Service, Inc. (GPUS), which
provides legal, accounting, financial and other services to the GPU companies.
All of these companies considered together are referred to as "GPU."
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and revenues and expenses during the reporting period. Actual
results could differ from those estimates.
SYSTEM OF ACCOUNTS
------------------
Certain reclassifications of prior years' data have been made to conform
with the current presentation. The GPU Energy companies' accounting records are
maintained in accordance with the Uniform System of Accounts prescribed by the
Federal Energy Regulatory Commission (FERC) and adopted by the Pennsylvania
Public Utility Commission (PaPUC) and the New Jersey Board of Public Utilities
(NJBPU). GPU's accounting records also comply with the Securities and Exchange
Commission's (SEC) rules and regulations.
CONSOLIDATION
-------------
The GPU consolidated financial statements include the accounts of its
wholly-owned subsidiaries and any affiliates in which it has a controlling
financial interest (generally evidenced by a greater than 50% ownership
interest). All significant intercompany transactions and accounts are eliminated
in consolidation. GPU also uses the equity method of accounting for investments
in affiliates in which it has the ability to exercise significant influence.
F-47
Effective in the third quarter of 1999, GPU began accounting for its
Midlands Electricity plc (Midlands) investment as a consolidated entity due to
GPU's purchase from Cinergy Corp. (Cinergy) of the remaining 50% ownership
interest in Midlands which GPU did not own. As a result of this change, GPU's
remaining equity investments are no longer presented in the Notes to
Consolidated Financial Statements since these investments as of December 31,
1999 are considered immaterial to GPU's results of operations and financial
condition.
REGULATORY ACCOUNTING
---------------------
Statement of Financial Accounting Standards No. 71 (FAS 71), "Accounting
for the Effects of Certain Types of Regulation," applies to regulated utilities
that have the ability to recover their costs through rates established by
regulators and charged to customers. The GPU Energy companies' transmission and
distribution operations are currently accounted for under the provisions of FAS
71. In accordance with FAS 71, GPU has deferred certain costs pursuant to
actions of the NJBPU and PaPUC and is recovering or expects to recover such
costs in regulated rates charged to customers. Regulatory assets and liabilities
are reflected net in the Deferred Debits and Other Assets section of the
Consolidated Balance Sheets. For additional information about regulatory assets
and liabilities, see Note 12, Commitments and Contingencies.
With the receipt of the NJBPU Summary Restructuring Order (Summary Order)
in 1999 and the PaPUC Restructuring Orders (Restructuring Orders) in 1998, GPU
determined that the GPU Energy companies' electric generation operations no
longer met the criteria for the continued application of FAS 71, and therefore
adopted, for that portion of its business, the provisions of Statement of
Financial Accounting Standards No. 101 (FAS 101), "Regulated Enterprises -
Accounting for the Discontinuation of Application of FASB Statement No. 71" and
Emerging Issues Task Force Issue 97-4 (EITF)(Issue 97-4), Deregulation of the
Pricing of Electricity - Issues Related to the Application of FASB Statement No.
71 "Accounting for the Effects of Certain Types of Regulation" and No. 101
"Regulated Enterprises - Accounting for the Discontinuation of Application of
FASB Statement No. 71."
CURRENCY TRANSLATION
--------------------
In accordance with Statement of Financial Accounting Standards No. 52 (FAS
52), "Foreign Currency Translation," balance sheet accounts of foreign
operations are translated from foreign currencies into US dollars at year-end
rates, while income statement accounts are translated at the average month-end
exchange rates for the relevant period. The resulting translation adjustments
are included in Accumulated other comprehensive income/(loss), net of deferred
taxes, on the Consolidated Balance Sheets. Gains and losses resulting from
foreign currency transactions are included in Net Income.
REVENUES
--------
GPU recognizes operating revenues for services rendered to the end of the
relevant accounting period. GPU Electric and the GPU Energy companies' electric
operating revenues also include an estimate for unbilled revenues.
F-48
DEFERRED COSTS
--------------
JCP&L recovers its prudently incurred generation-related costs through a
Market Transition Charge (MTC) and Basic Generation Service (BGS) charge, and
defers any differences between actual costs and amounts recovered from customers
through rates. Met-Ed and Penelec use deferred accounting for the above-market
portion of nonutility generation (NUG) costs which are collected through the
Competitive Transition Charge (CTC).
UTILITY PLANT
-------------
At December 31, 1999 and 1998, the GPU Energy companies' generation plants
are valued at the lower of cost or market. All other utility plant and additions
are valued at cost. The assets of acquired companies are carried at their fair
value as of the acquisition date, less accumulated depreciation.
DEPRECIATION
------------
GPU generally provides for depreciation at annual rates determined and
revised periodically, on the basis of studies, to be sufficient to depreciate
the original cost of depreciable property over estimated remaining service
lives, which are generally longer than those employed for tax purposes. These
rates, on an aggregate composite basis, resulted in annual rates as follows:
GPU JCP&L Met-Ed Penelec
--- ----- ------ -------
1999 2.96% 2.94% 3.01% 2.81%
1998 3.43% 3.65% 3.53% 3.25%
1997 3.34% 3.60% 3.39% 3.08%
GPU GasNet uses the volumetric depreciation method to amortize the cost of its
gas pipeline.
AMORTIZATION POLICIES
---------------------
Accounting for TMI-2 and Forked River Investments:
- -------------------------------------------------
At December 31, 1999, $61 million is included in Regulatory assets, net on
the Consolidated Balance Sheets for JCP&L's investment in Three Mile Island Unit
2 (TMI-2). JCP&L is collecting annual revenues for the amortization of TMI-2 of
$9.6 million. This level of revenue will be sufficient to recover the remaining
investment by 2008. Met-Ed and Penelec have collected all of their TMI-2
investment attributable to retail customers. At December 31, 1999, $56 million
is included in Regulatory assets, net on the Consolidated Balance Sheets for
JCP&L's Forked River project. JCP&L is collecting annual revenues for the
amortization of this project of $11.2 million, which will be sufficient to
recover its remaining investment by 2006. Because JCP&L has not been provided
revenues for a return on the unamortized balances of the damaged TMI-2 facility
and the cancelled Forked River project, these investments are being carried at
their discounted present values.
Nuclear Fuel:
- ------------
The GPU Energy companies amortize nuclear fuel on a unit-of-production
basis. Rates are determined and periodically revised to amortize the cost of the
fuel over its useful life.
F-49
At December 31, 1999 and 1998, the liability of the GPU Energy companies
for future contributions to the Federal Decontamination and Decommissioning Fund
for the cleanup of uranium enrichment plants operated by the Federal Government
amounted to $25 million (JCP&L $15 million; Met-Ed $7 million; Penelec $3
million) and $28 million (JCP&L $18 million; Met-Ed $7 million; Penelec $3
million), respectively, and was primarily reflected in Deferred Credits and
Other Liabilities-Other. Annual contributions, which began in 1993, are being
made over a 15-year period. JCP&L is recovering these costs from customers
through its BGS and MTC rates while Met-Ed and Penelec anticipate recovery in
Phase II of their restructuring proceedings which are expected to begin in early
2000.
Goodwill:
- --------
Goodwill, resulting from GPU's purchase of various businesses, is recorded
on the Consolidated Balance Sheets and amortized to expense, on a straight-line
basis, over its useful life not to exceed 40 years. Goodwill amortization
expense amounted to $51.6 million, $14 million and $2.8 million for the years
ended December 31, 1999, 1998 and 1997, respectively. In addition, GPU's
investments accounted for under the equity method or cost method include
goodwill (net of amortization) totaling $21 million and $18.5 million as of
December 31, 1999 and 1998, respectively, which is amortized on a straight-line
basis over 20 years. Amortization expense on this goodwill (which is reflected
on the Consolidated Statements of Income in Other Income and Deductions)
amounted to $1.9 million, $1.6 million and $3.6 million for the years ended
December 31, 1999, 1998 and 1997, respectively. GPU periodically reviews
undiscounted projections of future cash flows from operations to assess whether
any potential intangible impairment exists on its goodwill. For additional
information of goodwill resulting from acquisitions, see Note 7, Acquisitions.
NUCLEAR FUEL DISPOSAL FEE
-------------------------
The GPU Energy companies are providing for estimated future disposal costs
for spent nuclear fuel at the Oyster Creek nuclear generating station (Oyster
Creek) and Three Mile Island Unit 1 (TMI-1) in accordance with the Nuclear Waste
Policy Act of 1982. The GPU Energy companies entered into contracts in 1983 with
the US Department of Energy (DOE) for the disposal of spent nuclear fuel. The
total liability under these contracts, including interest, at December 31, 1999,
all of which relates to spent nuclear fuel from nuclear generation through April
1983, amounted to $198 million (JCP&L $148 million; Met-Ed $33 million; Penelec
$17 million), and is reflected in Deferred Credits and Other Liabilities -
Other. As the actual liability is substantially in excess of the amount
recovered to date from ratepayers, the GPU Energy companies have reflected such
excess in Regulatory assets, net. The distribution rates presently charged to
customers provide for the collection of these costs, plus interest, over a
remaining period of seven years for JCP&L. Met-Ed and Penelec are recovering
these costs through their respective CTC.
The GPU Energy companies' current rates provide for the recovery of costs
for spent nuclear fuel disposal costs resulting from nuclear generation
subsequent to April 1983. The GPU Energy companies are making quarterly payments
to the DOE based on one mill per kilowatt-hour. These remittances have ceased
for TMI-1 and will cease for Oyster Creek when that facility is
F-50
sold. For a discussion of the DOE's current inability to begin acceptance of
spent nuclear fuel from the GPU Energy companies and other standard contract
holders, see Note 12, Commitments and Contingencies.
INCOME TAXES
------------
GPU files a consolidated federal income tax return. All participants are
jointly and severally liable for the full amount of any tax, including penalties
and interest, which may be assessed against the group.
Deferred income taxes, which result primarily from purchase accounting
adjustments, liberalized depreciation methods, deferred costs, decommissioning
funds and discounted Forked River and TMI-2 investments, reflect the impact of
temporary differences between the amounts of assets and liabilities recognized
for financial reporting purposes and the amounts recognized for tax purposes.
Investment tax credits (ITC) are amortized over the estimated service lives of
the related facilities.
CARRYING AMOUNTS OF FINANCIAL INSTRUMENTS
-----------------------------------------
The carrying amounts of Temporary cash investments, Special deposits,
Securities due within one year and Notes payable on the Consolidated Balance
Sheets approximate fair value due to the short period to maturity. The carrying
amounts of the Nuclear decommissioning trusts and Nuclear fuel disposal trust,
whose assets are invested in cash equivalents and debt and equity securities,
also approximate fair value.
DERIVATIVE INSTRUMENTS
----------------------
GPU's use of derivative instruments is intended primarily to manage the
risk of interest rate, foreign currency and commodity price fluctuations. GPU
does not intend to hold or issue derivative instruments for trading purposes.
Commodity Derivatives:
- ---------------------
The GPU Energy companies use futures contracts to manage the risk of
fluctuations in the market price of electricity and natural gas. These contracts
qualify for hedge accounting treatment under current accounting rules since
price movements of the commodity derivatives are highly correlated with the
underlying hedged commodities and the transactions are designated as hedges at
inception. Accordingly, under the deferral method of accounting, gains and
losses related to commodity derivatives are recognized in Power purchased and
interchanged in the Consolidated Statements of Income when the hedged
transaction closes or if the commodity derivative is no longer sufficiently
correlated. Prior to income or loss recognition, deferred gains and losses
relating to these transactions are recorded in Current Assets or Current
Liabilities in the Consolidated Balance Sheets.
Interest Rate Swap Agreements:
- -----------------------------
GPU Electric uses interest rate swap agreements to manage the risk of
increases in variable interest rates. At December 31, 1999, these agreements
covered approximately $1.3 billion of debt, including commercial paper, and were
scheduled to expire on various dates through November 2007. Differences between
amounts paid and received under interest rate swaps are recorded as
F-51
adjustments to the interest expense of the underlying debt since the swaps are
related to specific assets, liabilities or anticipated transactions. All of the
agreements effectively convert variable rate debt, including commercial paper,
to fixed rate debt. For the year ended December 31, 1999, fixed rate interest
expense incurred in connection with the swap agreements exceeded the variable
rate interest expense that would have been incurred had the swaps not been in
place by approximately $20.7 million.
Currency Swap Agreements:
- ------------------------
GPU Electric uses currency swap agreements to manage currency risk caused
by fluctuations in the US dollar exchange rate related to debt issued in the US
by Avon Energy Partners Holdings (Avon). These swap agreements effectively
convert principal and interest payments on this US dollar debt to fixed sterling
principal and interest payments, and expire on the maturity dates of the bonds.
Interest expense is recorded based on the fixed sterling interest rate. At
December 31, 1999, these currency swap agreements covered British Pound 517
million (US $850 million) of debt. Interest expense would have been British
Pound 16.6 million (US $26.9 million) as compared to British Pound 18.2 million
(US $29.5 million) for the year ended December 31, 1999 had these agreements not
been in place.
Indexed Swap Agreement:
- ----------------------
As part of an amended power purchase agreement with Niagara Mohawk Power
Corporation (NIMO), Onondaga Cogeneration L.P. (Onondaga), a GPU International
subsidiary, entered into a 10-year indexed swap agreement in 1998 which is
intended to provide Onondaga a fixed revenue stream. At December 31, 1999 and
1998, the indexed swap agreement is valued at $55.1 million and $62.4 million,
respectively and is included in Other - Deferred Debits and Other Assets on the
Consolidated Balance Sheets. This valuation was derived using the discounted
estimated cash flows related to payments expected to be received by Onondaga.
The indexed swap is being amortized to expense over the life of the swap
agreement. As a result of the anticipated expiration of a related power put
agreement between Onondaga and NIMO, GPU International expects to recognize in
income the unamortized balance of the indexed swap agreement, mostly offset by a
plant impairment, resulting in a slight gain in 2000.
ENVIRONMENTAL LIABILITIES
-------------------------
GPU may be subject to loss contingencies resulting from environmental laws
and regulations, which include obligations to mitigate the effects on the
environment of the disposal or release of certain hazardous wastes and
substances at various sites. GPU records liabilities (on an undiscounted basis)
for hazardous waste sites where it is probable that a loss has been incurred and
the amount of the loss can be reasonably estimated and adjusts these liabilities
as required to reflect changes in circumstances.
STATEMENTS OF CASH FLOWS
------------------------
For the purpose of the consolidated statements of cash flows, temporary
investments include all unrestricted liquid assets, such as cash deposits and
debt securities, with maturities generally of three months or less. Cash flows
are reported using the US dollar equivalent of the functional
F-52
currencies in effect at the time of the cash transaction. The effect of
exchange rate changes on cash balances held in foreign currencies are reported
as a separate line item on the Consolidated Statements of Cash Flows.
Avon and Midlands have a formal agreement with a United Kingdom bank, under
which they maintain available cash balances in a number of subsidiary bank
accounts and an overdraft in the main Midlands operating account. The overdraft
balance was $224.6 million as of December 31, 1999, while total cash at Midlands
was $274.6 million. Since Midlands manages the overdraft balance in such a way
that it does not exceed the available cash balances in the other associated
accounts, no interest or fees are paid under this arrangement. In effect,
Midlands uses the overdraft facility to utilize the available cash in the other
bank accounts. The overdraft position and the offsetting cash balances subject
to this arrangement are shown on the Consolidated Balance Sheets in Bank
overdraft and Cash and temporary cash investments, respectively.
2. SHORT-TERM BORROWING ARRANGEMENTS
At December 31, 1999 and 1998, short-term debt outstanding consisted of the
following:
1999 1998
---- ----
Balance Weighted Balance Weighted
Company Facility Outstanding Avg. Rate Outstanding Avg. Rate
- ------- -------- ------------- --------- ----------- ---------
(in millions) (in millions)
GPU, Inc. Bank Loans $ 123 7 % $ 69 7 %
JCP&L Bank Loans - - 53 6.3
Commercial Paper - - 69 6.2
Met-Ed Bank Loans - - 17 6.1
Commercial Paper - - 63 6.4
Penelec Bank Loans - - 32 5.9
Commercial Paper 54 6.9 54 6.1
GPUI Bank Loans - - 12 6.2
GPU Electric Bank Loans 147 6.1 - -
Commercial Paper 848 6.5 - -
----- ---
Total $1,172 $369
===== ===
GPU's weighted average interest rate on the short-term borrowings was 6.5%
and 6.4% at December 31, 1999 and 1998, respectively.
GPU has various credit facilities in place, the most significant of which
are discussed below. These credit facilities generally provide GPU bank loans at
negotiable market rates. In addition, commitment fees or facility fees are
determined by market rates at the time the facility is put in place, and can
change based on the borrower's current bond rating.
GPU, Inc. and GPU Energy companies
GPU, Inc. and the GPU Energy companies have available $450 million of
short-term borrowing facilities, which includes a $250 million revolving
credit agreement and various bank lines of credit. In addition, GPU, Inc.,
JCP&L, Met-Ed and Penelec can issue commercial paper in amounts of up to $100
million, $150 million, $75 million, and $100 million, respectively. From
F-53
these sources, GPU, Inc. has regulatory authority to have $250 million
outstanding at any one time. JCP&L, Met-Ed and Penelec are limited by their
charters or SEC authorization to $265 million, $150 million and $150 million,
respectively, of short-term debt outstanding at any one time. As of December 31,
1999, GPU, Inc. and the GPU Energy companies had $123.5 million and $53.6
million, respectively, of short-term debt outstanding.
GPU Electric
GPU Capital has a $1 billion 364-day senior revolving credit agreement due
in December 2000 supporting the issuance of commercial paper for its $1 billion
commercial paper program established to fund GPU Electric acquisitions. GPU,
Inc. has guaranteed GPU Capital's obligations under this program. At December
31, 1999, $768 million was outstanding under the commercial paper program, of
which $370 million is included in long-term debt on the Consolidated Balance
Sheets since it is management's intent to reissue this amount of the commercial
paper on a long-term basis. For additional information, see Note 3 Long-Term
Debt.
GPU Australia Holdings, Inc. has $270 million available under its senior
revolving credit facility due in November 2002. This facility, in combination
with other GPU, Inc. credit facilities, serves as credit support for GPU
Australia Holdings' $350 million commercial paper program. GPU, Inc. has
guaranteed GPU Australia Holdings' obligations under this program. At December
31, 1999, $182 million was outstanding under the commercial paper program.
Austran Holdings, Inc. (Austran), a wholly-owned indirect subsidiary of GPU
Electric, has a A$500 million (approximately US $328 million) commercial paper
program to refinance the maturing portion of the senior debt credit facility
used to finance the PowerNet Victoria (GPU PowerNet) acquisition. GPU PowerNet
has guaranteed Austran's obligations under this program. At December 31, 1999,
A$420 million (approximately US $275 million) was outstanding under this
program.
Midlands maintains a (pound)200 million (approximately US $323 million)
syndicated revolving credit facility with a bank for working capital purposes,
which matures May 2001. At December 31, 1999, (pound)87 million (approximately
US $140 million) was outstanding under this facility.
GPUI Group
GPU International has a revolving credit agreement providing for borrowings
through December 2000 of up to $30 million outstanding at any one time, of which
up to $15 million may be utilized to provide letters of credit. GPU, Inc. has
guaranteed GPU International's obligations under this agreement. At December 31,
1999, no borrowings or letters of credit were outstanding under this facility.
3. LONG-TERM DEBT
At December 31, 1999 and 1998, long-term debt outstanding consisted of the
following:
F-54
GPU, Inc. and Subsidiary companies (in millions)
-----------------------------------
Total Due
Interest Debt Within
1999 Maturities Rates Outstanding One Year
---- ---------- ----- ----------- --------
GPU Energy companies & GPUS:
First mortgage bonds(a) 2000-2027 5.35-9.48% $1,783 (1) $ 90
Senior notes 2004-2019 5.75-6.63% 350 -
Other long-term debt 2000-2039 6.76-7.69% 34 -
GPU Electric:
Bank loans 2000-2014 4.16-13% 2,483 475
Bonds 2002-2008 7.38-7.46% 1,092 -
Commercial paper/Medium
term notes 2000-2002 6.3 -7.65% 633 (2) -
GPUI Group 2000-2022 4.5 -7% 46 5
----- -----
Total $6,421 $ 570
===== ====
(1) Amount is less unamortized net discount of $4.6 million.
(2) Amount includes $370 million of commercial paper, which is included in
long-term debt on the Consolidated Balance Sheets since it is management's
intent to reissue this amount on a long-term basis.
1998 (in millions)
- ----
First mortgage bonds(a) $2,418
Amounts due within one year (80)
Unamortized net discount (3)
-----
Total GPU Energy companies 2,335
Other long-term debt:
GPU Electric (excludes amounts due within one year of $453) 1,434
GPUI Group (excludes amounts due within one year of $28) 23
Other 34
-----
Total $3,826
======
JCP&L
- -----
First Mortgage Bonds - Series as noted (a): (in thousands)
1999 1998
---- ----
6.04% due 2000 $ 40,000 $ 40,000
6.45% due 2001 40,000 40,000
9% due 2002 50,000 50,000
6.375% due 2003 150,000 150,000
7.125% due 2004 160,000 160,000
6.78% due 2005 50,000 50,000
8.25% due 2006 50,000 50,000
6.85% due 2006 40,000 40,000
7.90% due 2007 40,000 40,000
7.125% due 2009 6,300 6,300
7.10% due 2015 12,200 12,200
9.20% due 2021 50,000 50,000
8.55% due 2022 30,000 30,000
8.82% due 2022 12,000 12,000
8.85% due 2022 38,000 38,000
8.32% due 2022 40,000 40,000
7.98% due 2023 40,000 40,000
7.5% due 2023 125,000 125,000
8.45% due 2025 50,000 50,000
6.75% due 2025 150,000 150,000
--------- ---------
Subtotal 1,173,500 1,173,500
Amounts due within one year (40,000) -
Unamortized net discount (2,752) (2,992)
--------- ---------
Total 1,130,748 1,170,508
Other long-term debt
(excludes amounts due within one year
of $13 for 1999 and $12 for 1998) 3,012 3,024
--------- ---------
Total long-term debt $1,133,760 $1,173,532
========= =========
F-55
Met-Ed
- ------
First Mortgage Bonds - Series as noted (a): (in thousands)
1999 1998
---- ----
7.05% due 1999 $ - $ 30,000
6.2% due 2000 30,000 30,000
9.48% due 2000 20,000 20,000
8.05% due 2002 30,000 30,000
6.6% due 2003 20,000 20,000
7.22% due 2003 40,000 40,000
9.1% due 2003 30,000 30,000
6.34% due 2004 40,000 40,000
6.77% due 2005 30,000 30,000
7.35% due 2005 20,000 20,000
6.36% due 2006 17,000 17,000
6.40% due 2006 33,000 33,000
6.00% due 2008 8,700 8,700
6.1% due 2021 28,500 28,500
8.6% due 2022 30,000 30,000
8.8% due 2022 30,000 30,000
6.97% due 2023 30,000 30,000
7.65% due 2023 30,000 30,000
8.15% due 2023 60,000 60,000
5.95% due 2027 13,690 13,690
------- -------
Subtotal 540,890 570,890
Amounts due within one year (50,000) (30,000)
Unamortized net discount (31) (35)
------- -------
Total 490,859 540,855
Other long-term debt
(excludes amounts due within one year
of $25 for 1999 and $24 for 1998) 6,024 6,049
------- -------
Total long-term debt $ 496,883 $ 546,904
======= =======
F-56
Penelec
- -------
First Mortgage Bonds - Series as noted (a): (in thousands)
1999 1998
---- ----
5.99% due 1999 $ - $ 50,000
6.15% due 2000 - 30,000
6.8% due 2001 - 20,000
8.70% due 2001 - 30,000
7.40% due 2002 - 10,000
7.43% due 2002 - 30,000
7.92% due 2002 - 10,000
7.40% due 2003 - 10,000
6.60% due 2003 - 30,000
7.02% due 2003 - 20,000
7.48% due 2004 - 40,000
6.10% due 2004 - 30,000
6.7% due 2005 - 30,000
6.35% due 2006 - 40,000
8.05% due 2006 - 10,000
6.125% due 2007 4,110 4,110
6.55% due 2009 - 50,000
5.35% due 2010 12,310 12,310
5.35% due 2010 12,000 12,000
5.80% due 2020 20,000 20,000
8.33% due 2022 - 20,000
7.49% due 2023 - 30,000
8.38% due 2024 - 40,000
8.61% due 2025 - 30,000
7.53% due 2025 - 40,000
6.05% due 2025 25,000 25,000
------- -------
Subtotal 73,420 673,420
Amounts due within one year - (50,000)
Unamortized net discount (1,791) (11)
------- -------
Total 71,629 623,409
Senior Notes - Series as noted:
5.75% due 2004 125,000 -
6.125% due 2009 100,000 -
6.625% due 2019 125,000 -
------- -------
Total 350,000 -
Other long-term debt
(excludes amounts due within one year
of $13 for 1999 and $12 for 1998) 3,012 3,025
------- -------
Total long-term debt $ 424,641 $ 626,434
======= =======
(a) Substantially all of the utility plant owned by the GPU Energy companies is
subject to the liens of their respective mortgages.
For the years 2000, 2001, 2002, 2003 and 2004, GPU has long-term debt
maturities as follows:
F-57
(in millions)
Company 2000 2001 2002 2003 2004
- ------- ---- ---- ---- ---- ----
JCP&L $ 40 $ 40 $ 50 $150 $160
Met-Ed 50 - 30 90 40
Penelec - - - - 125
GPU Electric 475 1,007 1,074 14 12
GPUI Group 5 7 7 6 6
GPUS - 22 - - -
--- ----- ----- --- ---
Total $570 $1,076 $1,161 $260 $343
=== ===== ===== === ===
The fair value of long-term debt is estimated based on the quoted market
prices for the same or similar issues or on the current rates offered to GPU for
debt of the same remaining maturities and credit qualities. The estimated fair
value of GPU's long-term debt, including amounts due within one year, as of
December 31, 1999 and 1998 is as follows:
(in millions)
----------------------------------------------
1999 1998
----------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ----- ------- -----
JCP&L $1,174 $1,139 $1,174 $1,245
Met-Ed 547 532 577 614
Penelec 424 392 676 718
GPU Electric 4,208 4,186 - -
GPUI Group 46 41 1,938 1,856
GPUS 22 22 22 22
----- ----- ----- -----
Total $6,421 $6,312 $4,387 $4,455
===== ===== ===== =====
At December 31, 1999, GPU Electric had long-term debt outstanding of
approximately $470 million, which was guaranteed by GPU, Inc. The guaranteed
amount consisted of $370 million under the GPU Capital $1 billion commercial
paper program and up to $100 million under the British Pound 245 million credit
facility used to partially fund GPU's acquisition of Cinergy's 50% interest in
Midlands.
4. PREFERRED SECURITIES
Cumulative Preferred Stock:
- --------------------------
At December 31, 1999 and 1998, the following issues of cumulative preferred
stock were outstanding:
GPU, Inc. and Subsidiary Companies
(in thousands)
1999 1998
---- ----
Cumulative preferred stock (a):
With mandatory redemption (c)(d) $ 84,000 $ 89,000
Amounts due within one year (e) (10,833) ( 2,500)
------- -------
Total cumulative preferred stock
with mandatory redemption $ 73,167 $ 86,500
======= =======
Cumulative preferred stock (a):
Without mandatory redemption (b)(d)(f) $ 12,500 $ 65,996
Premium on cumulative preferred stock 149 482
------- -------
Total cumulative preferred stock
without mandatory redemption $ 12,649 $ 66,478
======= =======
F-58
JCP&L
- -----
Cumulative preferred stock, without par value, 15,600,000 shares authorized,
965,000 and 1,265,000 shares issued and outstanding in 1999 and 1998,
respectively. (a)
(in thousands)
1999 1998
---- ----
Cumulative preferred stock - without mandatory redemption (b)(d):
4% Series, 125,000 shares,
callable at $106.50 a share $ 12,500 $ 12,500
7.88% Series E, 250,000 shares,
callable at $103.65 a share - 25,000
------ ------
Subtotal 12,500 37,500
Premium on cumulative preferred stock 149 241
------ ------
Total cumulative preferred stock -
without mandatory redemption $ 12,649 $ 37,741
====== ======
Cumulative preferred stock - with mandatory redemption (c)(d)(e):
8.65% Series J, 500,000 shares $ 50,000 $ 50,000
7.52% Series K,
340,000 shares at 12/31/99
390,000 shares at 12/31/98 34,000 39,000
------ -------
Subtotal 84,000 89,000
Amounts due within one year (e) (10,833) (2,500)
------ -------
Total cumulative preferred stock -
with mandatory redemption $ 73,167 $ 86,500
====== =======
Met-Ed
- ------
Cumulative preferred stock, without par value, 10,000,000 shares authorized,
119,475 shares issued and outstanding in 1998, without mandatory redemption. All
cumulative preferred stock issued and outstanding was redeemed February 1999.
(a)(b)(f)
(in thousands)
1999 1998
---- ----
3.90% Series, 64,384 shares,
callable at $105.625 a share $ - $ 6,438
4.35% Series, 22,517 shares,
callable at $104.25 a share - 2,252
3.85% Series, 9,252 shares,
callable at $104.00 a share - 925
3.80% Series, 7,982 shares,
callable at $104.70 a share - 798
4.45% Series, 15,340 shares,
callable at $104.25 a share - 1,534
------ ------
Subtotal - 11,947
Premium on cumulative preferred stock - 109
------ ------
Total cumulative preferred stock $ - $12,056
====== ======
F-59
Penelec
- -------
Cumulative preferred stock, without par value, 11,435,000 shares authorized,
165,485 shares issued and outstanding in 1998, without mandatory redemption. All
cumulative preferred stock issued and outstanding was redeemed February 1999.
(a)(b)(f)
(in thousands)
1999 1998
---- ----
4.40% Series B, 29,678 shares,
callable at $108.25 per share $ - $ 2,968
3.70% Series C, 49,568 shares,
callable at $105.00 per share - 4,957
4.05% Series D, 28,219 shares,
callable at $104.53 per share - 2,822
4.70% Series E, 14,103 shares,
callable at $105.25 per share - 1,410
4.50% Series F, 17,081 shares,
callable at $104.27 per share - 1,708
4.60% Series G, 26,836 shares,
callable at $104.25 per share - 2,684
------ ------
Subtotal - 16,549
Premium on cumulative preferred stock - 132
------ ------
Total cumulative preferred stock $ - $16,681
====== ======
(a) At December 31, 1999 and 1998, the GPU Energy companies were authorized to
issue 37,035,000 of cumulative preferred stock. If dividends on any of the
cumulative preferred stock of JCP&L are in arrears for four quarters, the
holders of cumulative preferred stock, voting as a class, are entitled to
elect a majority of the Board of Directors until all dividends in arrears
have been paid. If JCP&L has failed to pay dividends in full on any
outstanding shares of cumulative preferred stock, thereafter and until
dividends in full on all such shares of cumulative preferred stock have
been paid, or declared and set apart for payment, for all past quarterly
dividend periods, JCP&L shall not redeem any cumulative preferred stock
unless all the shares of cumulative preferred stock outstanding are
redeemed and shall not purchase or otherwise acquire for value any shares
of cumulative preferred stock except in accordance with an offer (which may
vary with respect to shares of different series) made to all holders of
share of cumulative preferred stock.
(b) The outstanding shares of preferred stock without mandatory redemption are
callable at various prices above their stated values. At December 31, 1999,
JCP&L could call the 4% Series for $13.3 million.
(c) The 7.52% and 8.65% Series are callable at various prices above their
stated values beginning in 2002 and 2000, respectively. The 7.52% Series is
to be redeemed ratably over twenty years, beginning in 1998. The 8.65%
Series is to be redeemed ratably over six years beginning in 2000.
(d) During 1999, JCP&L redeemed all of its outstanding shares of 7.88%
cumulative preferred stock with a stated value of $25 million and $5
million stated value of its 7.52% cumulative preferred stock pursuant to
mandatory and optional sinking fund provisions. As a result, a
F-60
reacquisition loss of $0.8 million was charged to income. During 1998,
JCP&L redeemed $5 million stated value of its 7.52% cumulative preferred
stock and $10 million stated value of its 8.48% cumulative preferred stock
pursuant to mandatory and optional sinking fund provisions. JCP&L's total
redemption cost for 1999 and 1998 was $30.9 million and $15 million,
respectively.
(e) The shares with mandatory redemption have redemption requirements of $10.8
million for each year of the next five years. The fair value of the
preferred stock with mandatory redemption, including amounts due within one
year, based on market price quotations at December 31, 1999 and 1998, was
$86.5 million and $94.7 million, respectively.
(f) In 1999, Met-Ed and Penelec redeemed all of their outstanding shares of
cumulative preferred stock for $12.5 million and $17.4 million,
respectively. As a result, a reacquisition loss of $1.3 million (Met-Ed
$0.6 million; Penelec $0.7 million) was charged to income.
Subsidiary-Obligated Mandatorily Redeemable Preferred Securities:
- ----------------------------------------------------------------
JCP&L Capital, L.P., Met-Ed Capital, L.P. and Penelec Capital, L.P. are
special-purpose partnerships in which a subsidiary of JCP&L, Met-Ed and Penelec,
respectively, is the sole general partner. In 1995, JCP&L Capital, L.P. issued
$125 million at 8.56% (5 million shares at $25 per share) of mandatorily
redeemable preferred securities (MIPS) and in 1994, Met-Ed Capital, L.P. and
Penelec Capital, L.P. issued $100 million at 9% (4 million shares at $25 per
share) and $105 million at 8.75% (4.2 million shares at $25 per share),
respectively, of MIPS. The proceeds were loaned to JCP&L, Met-Ed and Penelec,
respectively, which, in turn, issued their deferrable interest subordinated
debentures to the partnerships. In 1999, Met-Ed and Penelec redeemed all of
their outstanding shares of MIPS for $100 million and $105 million,
respectively. At December 31, 1999, JCP&L's outstanding shares of MIPS had a
fair value of $120.6 million.
The MIPS of JCP&L Capital, L.P. mature in 2044 and are redeemable at the
option of JCP&L beginning in May of 2000 at 100% of their principal amount, or
earlier under certain limited circumstances, including the loss of the federal
tax deduction for interest paid on the subordinated debentures. JCP&L has fully
and unconditionally guaranteed payment of distributions, to the extent there is
sufficient cash on hand to permit such payments and legally available funds, and
payments on liquidation or redemption of its Preferred Securities. Distributions
on the MIPS (and interest on the subordinated debentures) may be deferred for up
to 60 months, but JCP&L, may not pay dividends on, or redeem or acquire, any of
its cumulative preferred or common stock until deferred payments on its
subordinated debentures are paid in full.
Trust Preferred Securities:
- --------------------------
In 1999, $100 million of trust preferred securities were issued on behalf
of each of Met-Ed and Penelec at 7.35% and 7.34%, respectively. The trust
preferred securities were issued by Met-Ed Capital Trust and Penelec Capital
Trust and represent a beneficial interest in the trust equal to a cumulative
preferred limited partnership interest in Met-Ed Capital II, L.P. and Penelec
Capital II, L.P. The preferred securities are the sole assets of the trust
F-61
and the only revenues of the trust will be distributions on the trust
preferred securities. Each trust security has entitled the holder to receive
quarterly cash distributions. Met-Ed and Penelec unconditionally guaranteed
the payments by Met-Ed Capital II, L.P. and Penelec Capital II, L.P.,
respectively.
The fair value of the Met-Ed and Penelec trust preferred securities at
December 31, 1999 was $81 million and $80.8 million, respectively.
5. STOCKHOLDERS' EQUITY
The following table presents information relating to the common stock
($2.50 par value) of GPU, Inc.:
1999 1998 1997
---- ---- ----
Authorized shares 350,000,000 350,000,000 350,000,000
Issued shares 132,783,338 132,783,338 125,783,338
Reacquired shares 10,977,798 4,787,657 4,950,727
Outstanding shares 121,805,540 127,995,681 120,832,611
Outstanding restricted units 283,602 268,360 247,955
Outstanding stock options 394,750 335,950 -
In 1999, GPU, Inc. reacquired 6.4 million shares of common stock at a total
cost of $225.8 million.
At December 31, 1999 and 1998, the following issues of common stock were
outstanding:
(in thousands)
GPU, Inc. 1999 1998
- --------- ---- ----
Common stock, par value $2.50 per share $331,958 $331,958
======= =======
JCP&L
- -----
Common stock, par value $10 per share,
16,000,000 shares authorized, 15,371,270
shares issued and outstanding $153,713 $153,713
======= =======
Met-Ed
- ------
Common stock, no par value, 900,000 shares
authorized, 859,500 shares issued
and outstanding $ 66,273 $ 66,273
====== ======
Penelec
- -------
Common stock, par value $20 per share,
5,400,000 shares authorized, 5,290,596
shares issued and outstanding $105,812 $105,812
======= =======
Pursuant to the 1990 Employee Stock Plan (as restated to reflect amendments
through June 3, 1999), awards may be granted in the form of incentive stock
options, nonqualified stock options, restricted shares of common stock,
restricted units and stock appreciation rights, which may accompany options. In
1999, 1998 and 1997, GPU, Inc. issued restricted units
F-62
to officers representing rights to receive shares of common stock, on a
one-for-one basis, at the end of the restriction period. The number of shares
eventually issued will depend upon the degree to which GPU's performance goals
have been met for the restriction period and could range from 0% to 200% of the
originally awarded units plus additional units resulting from reinvested
dividend equivalents. In 1999, GPU, Inc. granted stock options to its officers
to purchase 90,600, 1,000 and 1,000 shares at $42.9375, $34.50 and $34.6875 per
share, respectively. In 1998, GPU, Inc. granted stock options to its officers to
purchase 305,950 and 30,000 shares at $36.625 per share and $44.25 per share,
respectively. All options have an exercise price equal to the fair market value
of GPU, Inc. common stock on the grant date. Options are exercisable in
accordance with the terms set forth in the Stock Option Agreement. In 1999 and
1998, no options were exercised.
Since 1997, pursuant to the Deferred Stock Unit Plan for Outside Directors,
restricted units were issued to outside directors representing rights to receive
shares of GPU, Inc. common stock, on a one-for-one basis. All restricted units
are considered common stock equivalents and, accordingly, are reflected in the
computation of diluted earnings per share shown on the Consolidated Statements
of Income. The restricted units accrue dividend equivalents on a quarterly
basis, which are reinvested in additional restricted units.
In 1999, 1998 and 1997, through the above-mentioned plans, officers and
outside directors were awarded 56,994, 53,260 and 64,941 restricted units,
respectively. In 1999, 1998 and 1997, also through those plans, GPU, Inc. issued
a total of 20,215, 20,611 and 54,491 shares of common stock, respectively, from
previously reacquired shares.
In 1996, GPU adopted the disclosure requirements of Statement of Financial
Accounting Standards No. 123 (FAS 123), "Accounting for Stock-Based
Compensation," which establishes a fair value-based method of accounting for
employee stock-based compensation. As permitted by FAS 123 GPU continues to
follow the intrinsic value method set forth in APB Opinion No. 25, "Accounting
for Stock Issued to Employees" and disclose the pro forma effects on net income
(loss) had the fair value of the options been expensed. The pro forma effects on
net income resulting from the application of the fair value-based method of
accounting defined in FAS 123 are immaterial.
Accumulated Other Comprehensive Income/(Loss):
- ----------------------------------------------
In 1997, GPU adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income." At December 31, 1999 and 1998, GPU
had on the Consolidated Balance Sheets the following amounts in Accumulated
other comprehensive income/(loss):
GPU, Inc. and Subsidiary Companies
- ----------------------------------
(in thousands)
1999 1998
---- ----
Net unrealized gains on investments $ 34,183 $ 28,345
Foreign currency translation (40,518) (54,377)
Minimum pension liability (6) (5,272)
------ ------
Accumulated other comprehensive income/(loss) $( 6,341) $(31,304)
====== ======
F-63
JCP&L 1999 1998
----- ------ ------
Net unrealized gain on investments $ 7 $ -
Minimum pension liability - (425)
------ -----
Accumulated other comprehensive income/(loss) $ 7 $ (425)
====== =====
Met-Ed
- -------
Net unrealized gain on investments $ 21,369 $ 17,054
Minimum pension liability (6) (534)
------ ------
Accumulated other comprehensive income $ 21,363 $ 16,520
====== ======
Penelec
- -------
Net unrealized gain on investments $ 10,619 $ 8,518
Minimum pension liability - (165)
------ ------
Accumulated other comprehensive income $ 10,619 $ 8,353
====== ======
The components of the change in accumulated other comprehensive
income/(loss), and the related tax effects, for the years 1999, 1998 and 1997
are as follows:
GPU, Inc. and Subsidiary Companies
- ----------------------------------
(in thousands)
Amount Income Tax Amount
Before (Expense) Net of
Taxes Benefit Taxes
------- --------- -------
1999
- ----
Net unrealized gains on investments $12,516 $( 4,680) $ 7,836
Adjustment for amounts included in income ( 1,998) - ( 1,998)
------ ------- ------
Net change in accumulated other
comprehensive income 10,518 ( 4,680) 5,838
------ ------- ------
Foreign currency translation adjustments 19,735 ( 6,907) 12,828
Adjustment for amounts included in income 1,586 (555) 1,031
------ ------- ------
Net change in accumulated other
comprehensive income 21,321 ( 7,462) 13,859
------ ------- ------
Minimum pension liability 8,957 ( 3,691) 5,266
------ ------- ------
Total change in accumulated other
comprehensive income/(loss) $40,796 $(15,833) $24,963
====== ======= ======
1998
- ----
Net unrealized gains on investments $ 13,235 $( 4,248) $ 8,987
------ ------ ------
Foreign currency translation adjustments (23,295) 8,233 (15,062)
Adjustment for amounts included in income 8,737 ( 3,136) 5,601
------ ------ ------
Net change in accumulated other
comprehensive income/(loss) (14,558) 5,097 ( 9,461)
------ ------ ------
Minimum pension liability ( 2,605) 1,071 ( 1,534)
------ ------ ------
Total change in accumulated other
comprehensive income/(loss) $( 3,928) $ 1,920 $( 2,008)
====== ====== ======
1997
- ----
Net unrealized gains on investments $ 10,895 $( 4,521) $ 6,374
Foreign currency translation adjustments (73,115) 24,186 (48,929)
Minimum pension liability ( 2,541) 1,046 ( 1,495)
------ ------ ------
Total change in accumulated other
comprehensive income/(loss) $(64,761) $ 20,711 $(44,050)
====== ====== ======
F-64
(in thousands)
JCP&L Amount Income Tax Amount
- ----- Before (Expense) Net of
1999 Taxes Benefit Taxes
---- ------ ------- -------
Net unrealized gain on investments $ 7 $ - $ 7
Minimum pension liability 718 (293) 425
---- ---- ----
Total change in accumulated
other comprehensive income/(loss) $ 725 $ (293) $ 432
==== ===== ====
1998
----
Net unrealized gain on investments $ - $ - $ -
Minimum pension liability (718) 293 (425)
---- ---- ----
Total change in accumulated
other comprehensive income/(loss) $ (718) $ 293 $ (425)
==== ==== ====
Met-Ed
- ------
1999
----
Net unrealized gain on investments $ 7,388 $(3,073) 4,315
Minimum pension liability 901 (373) 528
----- ----- ------
Total change in accumulated
other comprehensive income/(loss) $ 8,289 $(3,446) $ 4,843
===== ===== =====
1998
- ----
Net unrealized gain on investments $ 6,990 $(2,842) $ 4,148
Minimum pension liability (196) 81 (115)
----- ----- -----
Total change in accumulated
other comprehensive income/(loss) $ 6,794 $(2,761) $ 4,033
===== ===== =====
1997
----
Net unrealized gain on investments $ 7,263 $(3,014) $ 4,249
Minimum pension liability (267) 110 (157)
----- ----- -----
Total change in accumulated
other comprehensive income/(loss) $ 6,996 $(2,904) $ 4,092
===== ===== =====
Penelec
1999
----
Net unrealized gain on investments$ 3,708 (1,607) $ 2,101
Minimum pension liability 282 (117) 165
----- ---- -----
Total change in accumulated
other comprehensive income/(loss) $ 3,990 $(1,724) $ 2,266
===== ===== =====
1998
----
Net unrealized gain on investments $ 3,471 $(1,406) $ 2,064
Minimum pension liability (73) 30 (43)
----- ----- -----
Total change in accumulated
other comprehensive income/(loss) $ 3,397 $(1,376) $ 2,021
===== ===== =====
1997
Net unrealized gain on investments $ 3,632 $(1,507) $ 2,125
Minimum pension liability (209) 87 (122)
----- ----- -----
Total change in accumulated
other comprehensive income/(loss) $ 3,423 $(1,420) $ 2,003
===== ===== =====
F-65
6. ACCOUNTING FOR EXTRAORDINARY AND NON-RECURRING ITEMS
JCP&L Restructuring Write-off:
- -----------------------------
In 1999, the NJBPU issued a Summary Order regarding JCP&L's unbundling,
stranded cost and restructuring filings. Accordingly, in 1999 JCP&L discontinued
the application of FAS 71 and adopted the provisions of FAS 101 and EITF 97-4
with respect to its electric generation operations. The transmission and
distribution operations of JCP&L continue to be subject to the provisions of FAS
71.
In 1999, JCP&L recorded a reduction in operating revenues of $115 million
relating to the Summary Order which resulted in an after-tax charge to earnings
of $68 million, or $0.54 per share. This reduction reflects JCP&L's obligation
to refund to customers 5% from rates in effect as of April 30, 1997. The refund
will be made to customers from August 1, 2002 through July 31, 2003.
Since JCP&L is no longer subject to FAS 71 for the generation portion of
its business, GPU performed an impairment test on Oyster Creek in accordance
with Statement of Financial Accounting Standards No. 121 (FAS 121) "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." This test determined that JCP&L's net investment in Oyster Creek, including
plant, nuclear fuel and materials and supplies inventories, was impaired. This
investment was written down by a total of $678 million (pre-tax) in 1999 to
reflect the plant's fair market value. This impairment, which was recorded as an
extraordinary deduction, was reversed and reestablished as a regulatory asset
since the Summary Order provides for rate recovery.
Generation Asset Divestiture:
- ----------------------------
As discussed below, in 1999, the GPU Energy companies completed the sales of
TMI-1 and substantially all of their fossil-fuel and hydroelectric stations.
The GPU Energy companies sold TMI-1 to AmerGen Energy Company, LLC
(AmerGen), a joint venture of PECO Energy and British Energy, for a total
purchase price of approximately $100 million. The sale did not have a
significant impact on 1999 earnings since TMI-1 had been written down to its
fair market value in 1998. The majority of the amount written down and the
majority of the remaining loss from the sale resulted in the deferral of $528.3
million (JCP&L $133.1 million; Met-Ed $270.7 million; Penelec $124.5 million) as
a regulatory asset pending separate and further reviews by the NJBPU and the
PaPUC (Phase II of the Pennsylvania restructuring proceedings).
The GPU Energy companies completed the sales of substantially all their
fossil fuel and hydroelectric generating facilities to Sithe Energies (Sithe)
for approximately $1.6 billion (JCP&L $416 million; Met-Ed $641 million; Penelec
$558 million) (JCP&L's 50% interest in Yards Creek was not included in the sale
and the sales of the 66 MW Forked River combustion turbines and 19 MW York Haven
hydroelectric station were postponed). The sale resulted in the recording of an
after-tax gain of $13.4 million (Met-Ed $1.4 million; Penelec $12 million) in
1999 for the portion of the gain related to wholesale
F-66
operations and the deferral of the remaining pre-tax gain of $706.5 million
(Met-Ed $389.1 million; Penelec $317.4 million) as a regulatory liability
pending separate and further reviews by the NJBPU and the PaPUC.
Penelec sold its 20% interest in the Seneca Pumped Storage Hydroelectric
Generating Station to The Cleveland Electric Illuminating Company for $43
million. The sale resulted in the recording of an after-tax gain of $1.2 million
in 1999 for the portion of the gain related to wholesale operations and the
deferral of the remaining pre-tax gain of $30.2 million as a regulatory
liability pending further review by the PaPUC.
Penelec sold its 50% interest in the Homer City Station to a subsidiary of
Edison Mission Energy for approximately $900 million. As a result, Penelec
recorded an after-tax gain of $22.6 million in 1999 for the portion of the gain
related to wholesale operations and deferred as a regulatory liability the
remaining pre-tax gain of $590.7 million pending further review by the PaPUC.
Midlands sold its electric supply business to National Power plc for
approximately $300 million. As a result, in 1999 GPU recorded an after-tax gain
on the sale of $6.8 million.
For information on JCP&L's pending sale of Oyster Creek, see Note 12,
Commitments and Contingencies.
Pennsylvania Restructuring Write-offs:
- -------------------------------------
In 1998, Met-Ed and Penelec received PaPUC Restructuring Orders which,
among other things, essentially removed from regulation the costs associated
with providing electric generation service to Pennsylvania consumers, effective
January 1, 1999. Accordingly, in 1998 Met-Ed and Penelec discontinued the
application of FAS 71 and adopted the provisions of FAS 101 and EITF Issue 97-4
with respect to their electric generation operations. The transmission and
distribution operations of Met-Ed and Penelec continue to be subject to the
provisions of FAS 71.
As a result of the Restructuring Orders, Met-Ed and Penelec recorded an
extraordinary charge of $25.8 million (after-tax) or $0.20 per share and a
non-recurring charge of $40 million (after-tax), or $0.32 per share, for
customer refunds of 1998 revenues and for the establishment of a sustainable
energy fund.
In accordance with FAS 121, impairment tests were performed and determined
that the net investment in TMI-1 was impaired at December 31, 1998, resulting in
a write-down of $518 million (pre-tax) to reflect TMI-1's fair market value. Of
the amount written down for TMI-1, $508 million was reestablished as a
regulatory asset because management believes it is probable of recovery in the
restructuring process and $10 million (the FERC jurisdictional portion) was
charged to expense as an extraordinary item in 1998.
Windfall Profits Tax Write-off:
- ------------------------------
In 1997, the Government of the United Kingdom imposed a windfall profits
tax on privatized utilities, including Midlands. As a result, a one-time charge
to income of $109.3 million, or $0.90 per share, was taken in 1997.
F-67
7. ACQUISITIONS
Empresa Distribuidora Electrica Regional, S.A.
----------------------------------------------
In March 1999, GPU Electric acquired Empresa Distribuidora Electrica
Regional, S.A. (Emdersa) for US $375 million. The fair value of the assets
acquired totaled approximately $320 million and the amount of liabilities
assumed totaled approximately $153 million, including debt of $76 million.
Emdersa owns three electric distribution companies that serve three provinces in
northwest Argentina.
The acquisition was financed through the issuance of commercial paper by
GPU Capital, guaranteed by GPU, Inc., and a $50 million capital contribution
from GPU, Inc.
The acquisition has been accounted for under the purchase method of
accounting. The total acquisition cost exceeded the estimated value of net
assets by approximately $208 million. This excess is considered goodwill and is
being amortized on a straight-line basis over 40 years.
Transmission Pipelines Australia
--------------------------------
In June 1999, GPU Electric acquired Transmission Pipelines Australia (TPA),
a natural gas transmission business, from the State of Victoria, Australia for
A$1.025 billion (approximately US $675 million). TPA has been renamed GPU
GasNet. The fair value of the assets acquired totaled approximately US $704
million and the amount of liabilities assumed totaled approximately US $116
million.
The acquisition was financed through: (1) an A$750 million (approximately
US $495 million) senior credit facility, which is non-recourse to GPU, Inc.; and
(2) an equity contribution from GPU Capital of A$275 million (approximately US
$180 million) provided through the issuance of commercial paper guaranteed by
GPU, Inc.
The acquisition has been accounted for under the purchase method. The total
acquisition cost exceeded the estimated value of net assets acquired by
approximately $88 million. This excess is considered goodwill and is being
amortized on a straight-line basis over 40 years.
Midlands Electricity plc
------------------------
In July 1999, GPU Electric acquired Cinergy's 50% ownership interest in
Avon, which owns Midlands, for British Pounds 452.5 million (approximately US
$714 million). GPU and Cinergy had jointly formed Avon in 1996 to acquire
Midlands. The fair value of the assets acquired totaled approximately US $2.1
billion and the liabilities totaled approximately US $1.5 billion, including
debt of US $1 billion.
GPU Electric financed the acquisition through a combination of equity and
debt. The equity was funded from: (1) a US $250 million contribution from GPU,
Inc., and (2) the issuance of US $50 million of commercial paper by GPU Capital,
which is guaranteed by GPU, Inc. The debt has been provided through a two-year
(pound)245 million (approximately US $382 million) credit agreement entered into
by EI UK Holdings, of which GPU, Inc. has guaranteed approximately US $100
million.
F-68
As a result of GPU's purchase of Cinergy's 50% ownership in Midlands,
effective in the third quarter of 1999, GPU began accounting for Midlands as a
consolidated entity, rather than under the equity method of accounting as was
previously the practice. Consequently, Goodwill, net on the Consolidated Balance
Sheet increased by approximately $1.8 billion in the third quarter of 1999. Of
this amount, $1.7 billion relates to the previous 1996 acquisition of Midlands
by GPU and Cinergy and approximately $119 million represents goodwill resulting
from GPU's purchase of Cinergy's 50% share of Midlands. The goodwill is being
amortized on a straight-line basis over 40 years.
Concurrent with GPU's July 1999 acquisition of the 50% of Midlands which it
did not already own, GPU began to evaluate existing restructuring plans and
formulate additional plans to reduce operating expenses and achieve ongoing cost
reductions. As of December 31, 1999, GPU had identified and approved a cost
reduction plan. At the acquisition date, Midlands had recorded a liability of
$28.6 million related to previous cost reduction plans. GPU retained $25.7
million of this liability, related to contractual termination and other
severance benefits for 276 employees identified in a 1999 business process
reengineering project. GPU identified an additional 355 employees (234 in
Engineering Services, 38 in metering, 21 in Network Services and 62 from other
specific functions) to be terminated as part of the plan and recorded an
additional liability of $39.3 million. A net charge of $18.2 million for GPU's
50% share of these adjustments is included in expense and the other 50% was
recorded as a purchase accounting adjustment.
As of December 31, 1999, $7.2 million of severance benefits had been paid
to 172 of these employees. The remaining severance liability of $29.5 million
for the remaining 459 employees is included in Other current liabilities, and
$28.3 million to be funded out of pension plan assets is included as a pension
liability. Management expects the plan will be substantially completed by June
2000.
The following unaudited pro forma consolidated results of operations for
the years 1999 and 1998 presents information assuming Emdersa, GPU GasNet and
the 50% of Midlands GPU did not already own were acquired January 1, 1998. The
pro forma amounts include certain adjustments, primarily to recognize interest
expense, amortization of goodwill and depreciation of assets having stepped-up
bases, and are not necessarily indicative of the actual results that would have
been realized had the acquisitions occurred on the assumed date of January 1,
1998, nor are they necessarily indicative of future results. The pro forma
operating results are for information purposes only and are as follows:
1999 1998
- ----------------------------------------------------------------------------
(in thousands, except As As
per share data) Reported Pro Forma* Reported Pro Forma*
- ----------------------------------------------------------------------------
Revenues $ 4,757,124 $ 6,030,514 $ 4,248,792 $ 6,901,012
Income before extra-
ordinary item $ 459,014 $ 493,449 $ 385,881 $ 441,776
Net income $ 459,014 $ 493,449 $ 360,126 $ 416,021
Basic and Diluted earnings
per share before
extraordinary item $ 3.66 $ 3.94 $ 3.03 $ 3.47
Basic and Diluted earnings
per share $ 3.66 $ 3.94 $ 2.83 $ 3.27
* Unaudited
F-69
GPU PowerNet
------------
In 1997, GPU Electric acquired the business of GPU PowerNet from the State
of Victoria, Australia for A$2.6 billion (approximately US $1.9 billion). The
fair value of the assets acquired totaled approximately US $2 billion and the
amount of liabilities assumed totaled approximately US $142.9 million. GPU
PowerNet owns and operates the high-voltage electricity transmission system in
the State of Victoria serving an area of approximately 87,900 square miles and a
population of approximately 4.5 million.
The acquisition was financed through: (1) a senior debt credit facility
of A$1.9 billion (approximately US $1.4 billion), which is non-recourse to
GPU, Inc.; (2) a five-year US $450 million bank credit agreement which is
guaranteed by GPU, Inc.; and (3) an equity contribution from GPU, Inc. of US
$50 million.
The acquisition was accounted for under the purchase method of accounting.
The total acquisition costs exceeded the estimated value of net assets by A$877
million (approximately US $537 million). This excess is considered goodwill and
is being amortized on a straight-line basis over 40 years.
GPU PowerNet has been included in GPU's consolidated financial statements
since its purchase on November 6, 1997. The unaudited consolidated pro forma
information for 1997, assuming debt financing and an acquisition date of January
1, 1997, is as follows: operating revenues of $4.32 billion; net income of $327
million; basic earnings per share of $2.71 and; diluted earnings per share of
$2.70. The pro forma results, which are for information purposes only, are not
necessarily indicative of the actual results that would have been realized had
the acquisition occurred on the assumed date of January 1, 1997, nor are they
necessarily indicative of future results.
Planned Acquisition of MYR Group Inc.
-------------------------------------
In December 1999, GPU, Inc., and MYR Group Inc. (MYR) entered into an
agreement under which GPU has agreed to acquire the utility infrastructure
construction firm for $215 million cash, or $30.10 per share of MYR common
stock. Following the acquisition, MYR would become a wholly-owned subsidiary of
GPU, Inc. The acquisition, which is subject to approval by the SEC and other
conditions, is expected to be completed in the first quarter of 2000. The
acquisition will be initially financed through short-term debt and will be
accounted for under the purchase method of accounting.
8. INCOME TAXES
As of December 31, 1999 and 1998, Regulatory assets, net on the
Consolidated Balance Sheets reflected $296 million and $450 million,
respectively, of Income taxes recoverable through future rates (primarily
related to liberalized depreciation), and Income taxes refundable through future
rates of $28 million and $53 million, respectively (related to unamortized ITC),
substantially due to the recognition of amounts not previously recorded with the
adoption of Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes," in 1993, as follows:
F-70
(in millions)
1999 1998
---- ----
Income Taxes Recoverable Through Future Rates:
JCP&L $ 2 $173
Met-Ed 124 134
Penelec 170 143
--- ---
Total $296 $450
=== ===
Income Taxes Refundable Through Future Rates:
JCP&L $ 14 $ 36
Met-Ed 8 11
Penelec 6 6
--- ---
Total $ 28 $ 53
=== ===
Summaries of the components of deferred taxes as of December 31, 1999 and
1998 are as follows:
GPU, Inc. and Subsidiary Companies:
- ----------------------------------
(in millions)
Deferred Tax Assets Deferred Tax Liabilities
- ------------------- ------------------------
1999 1998 1999 1998
---- ---- ---- ----
Current: Current:
Unbilled revenue $ 12 $ 31 Revenue taxes $ 5 $ 8
Deferred energy - - Deferred energy 3 4
----- -----
Other 60 16 Total $ 8 $ 12
----- ----- ===== =====
Total $ 72 $ 47
===== =====
Noncurrent: Noncurrent:
Unamortized ITC $ 36 $ 70 Liberalized
Decommissioning 77 151 depreciation:
Contributions in aid Previously flowed
of construction 28 26 through $ 222 $ 202
Cumulative translation Future revenue
adjustment 22 29 requirements 147 155
----- -----
Above-market NUGs 798 748
Customer transition Subtotal 369 357
charge 533 534 Liberalized
Revenue subject depreciation 659 719
to refund 47 23 Customer transition
Generation revenue charge 1,451 1,684
requirements 47 44 Net loss on genera-
Net gain on genera- tion asset sale 218 -
tion asset sale 499 -
Other 441 379 Other 866 285
----- ----- ----- -----
Total $2,528 $2,004 Total $3,563 $3,045
===== ===== ===== =====
F-71
JCP&L:
- ------
(in millions)
Deferred Tax Assets Deferred Tax Liabilities
- ------------------- ------------------------
1999 1998 1999 1998
---- ---- ---- ----
Current: Current:
Unbilled revenue $ 2 $ 21 Revenue taxes $ 5 $ 12
Deferred energy - - Deferred Energy 3 -
--- --- ---- ---
Total $ 2 $ 21 Total $ 8 $ 12
=== === ==== ===
Noncurrent: Noncurrent:
Unamortized ITC $ 23 $ 36 Liberalized
Decommissioning 31 46 depreciation:
Contributions in aid Previously flowed
of construction 21 20 through $ 35 $ 46
DOE SNF interest 25 Future revenue
Revenues subject requirements 29 49
--- ---
to refund 47 - Subtotal 64 95
Net gain on genera- Liberalized
tion asset sale 73 - depreciation 368 375
Other 27 52 Forked River 7 5
--- ---
Total $222 $179 TMI-1 investment/loss - 60
=== ===
Net loss on genera-
tion asset sale 58 -
Other 74 136
--- ---
Total $571 $671
=== ===
Met-Ed:
- ------
(in millions)
Deferred Tax Assets Deferred Tax Liabilities
- ------------------- ------------------------
1999 1998 1999 1998
---- ---- ---- ----
Noncurrent:
Current: Liberalized
Unbilled revenue $ 3 $ 3 depreciation:
=== ===
Previously flowed
through $ 81 $ 57
Future revenue
Noncurrent: requirements 49 50
----- -----
Unamortized ITC $ 8 $ 16
Decommissioning 27 65 Subtotal 130 107
Contributions in aid Liberalized
of construction 4 3 depreciation 129 127
Customer transition Customer transition
charge 160 160 charge 594 737
Above-market NUGs 303 327 Net loss on genera-
Revenue subject tion asset sale 110 -
to refund 11 Other 30 40
----- -----
Generation revenue Total $ 993 $1,011
===== =====
requirements 24 23
Net gain on genera-
tion asset sale 161 -
Other 51 109
--- ---
Total $738 $714
=== ===
F-72
Penelec:
- -------
(in millions)
Deferred Tax Assets Deferred Tax Liabilities
1999 1998 1999 1998
---- ---- ---- ----
Noncurrent:
Current: Liberalized
Unbilled revenue $ 8 $ 8 depreciation:
===== ===
Previously flowed
Noncurrent: through $ 103 $ 96
Unamortized ITC $ 5 $ 19 Future revenue
Decommissioning 19 41 requirements 69 55
------ -----
Contributions in aid
of construction 3 3 Subtotal 172 151
Customer transition Liberalized
charge 374 373 depreciation 155 212
Above-market NUGs 494 421 Customer transition
Revenue subject charge 856 948
to refund - 12 Net loss on genera-
Generation revenue tion asset sale 51 -
requirements 23 21 Other 16 27
------ -----
Net gain on genera- Total $1,250 $1,338
===== =====
tion asset sale 264 -
Other 43 61
----- ---
Total $1,225 $951
===== ===
The reconciliations from net income to book income subject to tax and from
the federal statutory rate to combined federal and state effective tax rates are
as follows:
GPU, Inc. and Subsidiary Companies:
- ----------------------------------
(in millions)
1999 1998 1997
---- ---- ----
Net income $459 $360 $335
Preferred stock dividends 9 11 13
Loss on preferred stock reacquisition 2 - -
Income tax expense 294 250 234
--- --- ---
Book income subject to tax $764* $621* $582*
=== === ===
Federal statutory rate 35% 35% 35%
State tax, net of federal benefit 5 5 4
Amortization of ITC (6) (1) (2)
Other 4 1 3
--- --- ---
Effective income tax rate 38% 40% 40%
=== === ===
* Includes pre-tax foreign operations income of $331 million, $238 million, and
$34 million, of which $85 million, $88 million and $20 million, respectively
for 1999, 1998 and 1997, are included in Equity in undistributed
earnings/(losses) of affiliates in the Consolidated Statements of Income.
F-73
JCP&L:
- ------
(in millions)
1999 1998 1997
---- ---- ----
Net income $172 $222 $212
Income tax expense 101 145 112
--- --- ---
Book income subject to tax $273 $367 $324
=== === ===
Federal statutory rate 35% 35% 35%
State tax, net of federal benefit 6 5 -
Amortization of ITC, net (5) - -
Other 1 (1) -
--- --- ---
Effective income tax rate 37% 39% 35%
=== === ===
Met-Ed:
- ------
Net income $ 96 $ 51 $ 93
Income tax expense 61 33 66
--- --- ---
Book income subject to tax $157 $ 84 $159
=== === ===
Federal statutory rate 35% 35% 35%
State tax, net of federal benefit 7 6 6
Amortization of ITC (8) (2) -
Other 5 - -
--- --- ---
Effective income tax rate 39% 39% 41%
=== === ===
Penelec:
- -------
Net income $153 $ 40 $ 95
Income tax expense 54 31 71
--- --- ---
Book income subject to tax $207 $ 71 $166
=== === ===
Federal statutory rate 35% 35% 35%
State tax, net of federal benefit 7 8 6
Amortization of ITC, net (11) - -
Other (5) 1 2
--- --- ---
Effective income tax rate 26% 44% 43%
=== === ===
Federal and state income tax expense is comprised of the following:
F-74
GPU, Inc. and Subsidiary Companies:
- ----------------------------------
(in millions)
1999 1998 1997
---- ---- ----
Provisions for taxes currently payable:
Domestic $ 775 $290 $206
Foreign 60 22 40
---- --- ---
Total provision for taxes $ 835 $312 $246
Deferred income taxes:
Liberalized depreciation $(252) $ 2 $ 14
Foreign deferred taxes 80 31 4
Unbilled revenues 19 - (8)
Gain/(loss) on sale of property (406) - -
Decommissioning 87 (19) (5)
PA Restructuring (FAS 71) 61 (15) -
Global settlement 2 (8) -
Pension expense/Voluntary Enhanced
Retirement Programs (1) (8) (10)
Nonutility generation contract buyout costs (14) (11) 5
Provision for rate refunds (47) (10) -
OPEBS 2 (12) 5
Other (25) (3) (7)
---- --- ---
Deferred income taxes, net (494) (53) (2)
---- --- ---
Amortization of ITC, net (47) (9) (10)
---- --- ---
Income tax expense $ 294 $250 $234
==== === ===
The foreign taxes in the above table for 1999, 1998 and 1997 include $53
million ($16 million Current; $37 million Deferred), $27 million ($10 million
Current; $17 million Deferred) and $41 million ($37 million Current; $4 million
Deferred) in foreign tax expense which is netted in Equity in undistributed
earnings/(loss) of affiliates in the Consolidated Statements of Income. Included
in the ITC Amortization is the recognition of $36 million of ITC benefit
resulting from the sale of generation plants.
JCP&L:
(in millions)
1999 1998 1997
---- ---- ----
Provisions for taxes currently payable $197 $187 $139
Deferred income taxes:
Liberalized depreciation $(49) $(11) $ (3)
Gain/Loss on reacquired debt - 3 (1)
New Jersey revenue tax - (2) (3)
Deferral of energy costs (1) 10 (2)
Abandonment loss - Forked River (4) (4) (5)
Nuclear outage maintenance costs 3 3 (4)
Accretion income - 4 4
Unbilled revenue 19 - (3)
Decommissioning 22 (12) (3)
Pension expense/VERP (2) (2) (5)
Nonutility generation contract buyout costs (19) - 6
Demand-side management (7) - (3)
Other postemployment benefits 4 (5) 2
Global settlement 2 (8) -
Gas site & investigation MGP
insurance recovery - (8) -
Provision for rate refund (47) - -
Gain (loss) sale of property (16) - -
Other 11 (6) (2)
--- --- ---
Deferred income taxes, net (84) (38) (22)
--- --- ---
Amortization of ITC, net (12) (4) ( 5)
--- --- ---
Income tax expense $101 $145 $112
=== === ===
F-75
Met-Ed:
- ------
(in millions)
1999 1998 1997
---- ---- ----
Provisions for taxes currently payable $140 $ 56 $ 63
Deferred income taxes:
Liberalized depreciation $(88) $ 5 $ 6
Deferral of energy costs - - -
Unbilled revenue - - 3
Decommissioning 42 (5) (2)
PA Restructuring (FAS 71) 30 15 -
Pension expense/VERP - (3) (3)
Nonutility generation contract buyout costs 2 (9) (6)
Nuclear outage maintenance costs 3 (3) 3
Nonutility generation contract
over collections - 8 4
Other postemployment benefits - (5) (1)
Provision for rate refund - (11) -
CTC NUG deferrals - (5) -
Sustainable energy fund - (2) -
Gain (loss) sale of property (51) - -
Other (5) (6) 1
--- --- ---
Deferred income taxes, net (67) (21) 5
-- --- ---
Amortization of ITC, net (12) (2) (2)
--- --- ---
Income tax expense $ 61 $ 33 $ 66
=== === ===
Penelec:
- -------
Provisions for taxes currently payable $ 472 $ 47 $ 61
Deferred income taxes:
Liberalized depreciation $(114) $ 2 $ 6
Deferral of energy costs - - (1)
Unbilled revenue - - (7)
Decommissioning 23 (2) -
PA Restructuring (FAS 71) 31 (11) -
Pension expense/VERP - (2) (2)
Nonutility generation contract buyout costs 3 (1) 5
Nuclear outage maintenance costs 2 (1) 1
Nonutility generation contract
over collections - 6 6
Other postemployment benefits (2) (2) 3
Gain (loss) sale of property (339) - -
Other 1 (3) 2
--- --- ---
Deferred income taxes, net (395) (14) 13
--- --- ---
Amortization of ITC, net (23) (2) (3)
--- --- ---
Income tax expense $ 54 $ 31 $ 71
=== === ===
The Internal Revenue Service (IRS) has completed its examinations of GPU's
federal income tax returns through 1995.
F-76
9. SUPPLEMENTARY INCOME STATEMENT INFORMATION
Maintenance expense and other taxes charged to operating expenses consisted
of the following:
(in millions)
1999 1998 1997
---- ---- ----
Maintenance:
JCP&L $ 84 $ 91 $102
Met-Ed 48 49 46
Penelec 54 62 68
Other 24 - -
--- --- ---
Total Maintenance $210 $202 $216
=== === ===
Other Taxes:
New Jersey Transitional Energy
Facility Assessment $ 59 $ 67 $ -
New Jersey Unit Tax (JCP&L) - - 211
--- --- ---
Total $ 59 $ 67 $211
--- --- ---
Pennsylvania State Gross Receipts:
Met-Ed $ 27 $ 39 $ 39
Penelec 27 40 42
--- --- ---
Total $ 54 $ 79 $ 81
--- --- ---
Real Estate and Personal Property:
JCP&L $ 5 $ 9 $ 9
Met-Ed 4 6 8
Penelec 6 8 10
Other 24 - -
--- --- ---
Total $ 39 $ 23 $ 27
--- --- ---
Value Added and Stamp Taxes (U.K.) $ 6 $ - $ -
--- --- ---
Other:
JCP&L $ 13 $ 19 $ 12
Met-Ed 9 13 12
Penelec 9 16 15
Other 2 2 -
--- --- ---
Total $ 33 $ 50 $ 39
--- --- ---
Total Other Taxes $191 $219 $358
=== === ===
The cost of services rendered to the GPU Energy companies by their
affiliates is as follows:
(in millions)
1999 1998 1997
---- ---- ----
JCP&L:
- ------
Cost of services rendered by GPUN $189 $182 $156
Cost of services rendered by GPUS 366 26 31
Cost of services rendered by Genco 69 51 52
--- --- ---
Total $624 $259 $239
=== === ===
Amount Charged to Income $446 $239 $228
=== === ===
F-77
(in millions)
1999 1998 1997
---- ---- ----
Met-Ed:
- ------
Cost of services rendered by GPUN $102 $ 59 $ 78
Cost of services rendered by GPUS 215 40 31
Cost of services rendered by Genco 96 108 91
--- --- ---
Total $413 $207 $200
=== === ===
Amount Charged to Income $281 $180 $179
=== === ===
Penelec:
- -------
Cost of services rendered by GPUN $ 51 $ 30 $ 40
Cost of services rendered by GPUS 255 17 19
Cost of services rendered by Genco 102 163 162
--- --- ---
Total $408 $210 $221
=== === ===
Amount Charged to Income $280 $170 $195
=== === ===
For the years 1999, 1998 and 1997, JCP&L purchased $22 million, $26 million
and $24 million, respectively, of energy from a cogeneration project in which an
affiliate has a 50% partnership interest.
10. EMPLOYEE BENEFITS
Pension Plans and Other Postretirement Benefits:
- -----------------------------------------------
GPU maintains defined benefit pension plans covering substantially all
employees. GPU also provides certain retiree health care and life insurance
benefits for substantially all U.S. employees who reach retirement age while
working for GPU. The following tables provide a reconciliation of the changes in
the plans' benefit obligation and fair value of assets for the years ended
December 31, 1999 and 1998, a statement of the funded status of the plans, the
amounts recognized in the Consolidated Balance Sheets as of December 31, 1999
and 1998 and the weighted average assumptions used in the measurement of the
benefit obligation. The pension benefit disclosure amounts for GPU, Inc. and
Subsidiary Companies for the year 1999 reflect the acquisition of the remaining
50% of Midlands stock by GPU in July of that year. Accordingly, the July 1999
benefit obligation and fair value of plan assets balances for Midlands are shown
next to the line items entitled "Acquisitions" and the post-acquisition amounts
occurring in the second half of 1999 are included in the tables.
GPU, Inc. and Subsidiary Companies
- ----------------------------------
(in millions)
Other
Postretirement
Pension Benefits Benefits
---------------- ---------------
1999 1998 1999 1998
---- ---- ---- ----
Change in benefit obligation:
Benefit obligation
at January 1: $ 1,897.0 $ 1,791.7 $ 790.5 $ 798.0
Acquisitions 1,502.5 - - -
Service cost 46.2 36.1 15.9 16.4
Interest cost 158.0 121.6 52.2 54.4
Plan amendments 2.5 9.6 - (6.0)
Actuarial (gain)/loss and
other items (182.8) 26.2 (36.9) (55.7)
Currency exchange (4.0) - - -
Benefits paid (171.0) (123.9) (39.8) (30.2)
Curtailments and settlements (139.4) 6.8 (44.8) 12.5
Termination benefits 48.8 28.9 - 1.1
-------- -------- ------ -------
Benefit obligation
at December 31: $ 3,157.8 $ 1,897.0 $ 737.1 $ 790.5
======== ======== ====== =======
F-78
(in millions)
Other
Postretirement
Pension Benefits Benefits
---------------- ---------------
1999 1998 1999 1998
---- ---- ---- ----
Change in plan assets:
Fair value of plan assets
at January 1: $ 2,258.8 $ 2,033.3 $ 507.1 $ 403.0
Acquisitions 1,710.2 - - -
Actual return on plan assets 579.4 342.9 61.0 78.9
Employer contributions 1.8 6.5 15.0 55.4
Benefits paid (171.0) (123.9) (39.8) (30.2)
Currency exchange (5.8) - - -
Settlement and other items (30.0) - - -
-------- -------- ------ -------
Fair value of plan assets
at December 31: $ 4,343.4 $ 2,258.8 $ 543.3 $ 507.1
======== ======== ====== =======
Funded Status:
Funded status at December 31: $ 1,185.6 $ 361.8 $(193.8) $ (283.4)
Unrecognized net actuarial
(gain)/loss (953.0) (439.5) (54.2) (37.8)
Unrecognized prior service cost 21.5 27.6 2.9 4.3
Unrecognized net transition
(asset)/obligation (1.4) (1.9) 143.3 210.7
-------- -------- ------ -------
Net amount recognized $ 252.7 $ (52.0) $(101.8) $ (106.2)
======== ======== ====== =======
Amounts recognized in the Consolidated Balance Sheet at December 31:
Prepaid benefit cost $ 297.2 $ 42.0 $ 24.2 $ 43.8
Accrued benefit liability (45.3) (103.0) (126.0) (150.0)
Intangible asset 0.8 - - -
Accumulated other comprehensive
income - 5.3 - -
Deferred income taxes - 3.7 - -
-------- -------- ------- -------
Net amount recognized $ (252.7) $ (52.0) $ (101.8) $ (106.2)
======== ======== ======= =======
JCP&L
- -----
Change in benefit obligation:
Benefit obligation
at January 1: $ 509.7 $ 496.6 $ 198.2 $ 203.8
Transfer to GPUS (502.4) - (197.7) -
Service cost 0.1 7.2 - 2.9
Interest cost 0.4 33.7 - 13.9
Plan amendments - - - -
Actuarial (gain)/loss (2.8) 3.9 - (16.6)
Benefits paid (0.1) (34.8) - (7.3)
Curtailments - 0.6 - 1.2
Termination benefits - 2.5 - 0.3
-------- -------- ------- -------
Benefit obligation
at December 31: $ 4.9 $ 509.7 $ 0.5 $ 198.2
======== ======== ======= =======
F-79
(in millions)
Other
Postretirement
Pension Benefits Benefits
---------------- -----------------
1999 1998 1999 1998
---- ---- ---- ----
Change in plan assets:
Fair value of plan assets
at January 1: $ 639.9 $ 577.1 $ 137.0 $ 99.0
Transfer to GPUS (634.4) - (136.9) -
Actual return on plan assets 0.8 97.1 - 20.0
Employer contributions - - - 25.8
Benefits paid (0.1) (34.8) - (7.3)
Change in allocations - 0.5 - (0.5)
-------- -------- ------- -------
Fair value of plan assets
at December 31: $ 6.2 $ 639.9 $ 0.1 $ 137.0
======== ======== ======= =======
Funded Status:
Funded status at December 31: $ 1.3 $ 130.2 $ (0.4) $ (61.2)
Unrecognized net actuarial
(gain)/loss (3.2) (139.3) (0.2) (16.1)
Unrecognized prior service
Cost - 8.3 - 0.5
Unrecognized net transition
(asset)/obligation 0.1 (1.0) 0.1 61.0
-------- -------- ------- -------
Net amount recognized $ (1.8) $ (1.8) $ (0.5) $ (15.8)
======== ======== ======= =======
Amounts recognized in the Consolidated Balance Sheet at December 31:
Prepaid benefit cost $ - $ 18.8 $ - $ 27.2
Accrued benefit liability (1.9) (21.3) (0.5) (43.0)
Intangible Asset 0.1 - - -
Accumulated other
Comprehensive income - 0.4 - -
Deferred income taxes - 0.3 - -
-------- -------- ------- -------
Net amount recognized $ (1.8) $ (1.8) $ (0.5) $ (15.8)
======== ======== ======= =======
Met-Ed
- ------
Change in benefit obligation:
Benefit obligation
at January 1: $ 377.9 $ 345.9 $ 163.0 $ 152.5
Transfer to GPUS (367.9) - (160.8) -
Service cost 0.2 6.3 0.1 2.9
Interest cost 0.5 23.4 0.2 11.2
Plan amendments - 3.1 - (2.2)
Actuarial (gain)/loss (0.2) 14.3 (0.6) (0.1)
Benefits paid (0.2) (22.8) - (5.2)
Curtailments - 0.5 - 3.4
Termination benefits - 7.2 - 0.5
-------- -------- ------- -------
Benefit obligation
at December 31: $ 10.3 $ 377.9 $ 1.9 $ 163.0
======== ======== ======= =======
F-80
(in millions)
Other
Postretirement
Pension Benefits Benefits
---------------- ----------------
1999 1998 1999 1998
---- ---- ---- ----
Change in plan assets:
Fair value of plan assets
at January 1: $ 428.3 $ 373.2 $ 62.4 $ 49.5
Transfer to GPUS (420.2) - (61.9) -
Actual return on plan assets 1.1 65.0 0.1 9.9
Employer contributions - - - 5.3
Benefits paid (0.2) (22.8) - (5.2)
Change in allocations - 12.9 - 2.9
-------- -------- ------- -------
Fair value of plan assets
at December 31: $ 9.0 $ 428.3 $ 0.6 $ 62.4
======== ======== ======= =======
Funded Status:
Funded status at December 31: $ (1.3) $ 50.4 $ (1.3) $ (100.6)
Unrecognized net actuarial
(gain)/loss 0.4 (65.2) 0.7 20.5
Unrecognized prior service
Cost - 7.6 - 0.9
Unrecognized net transition
(asset)/obligation - (0.6) 0.3 39.7
-------- -------- ------- -------
Net amount recognized $ (0.9) $ (7.8) $ (0.3) $ (39.5)
======== ======== ======= =======
Amounts recognized in the Consolidated Balance Sheet at December 31:
Prepaid benefit cost $ - $ - $ - $ -
Accrued benefit liability (0.9) (8.7) (0.3) (39.5)
Accumulated other comprehensive
income - 0.5 - -
Deferred income taxes - 0.4 - -
-------- -------- ------- -------
Net amount recognized $ (0.9) $ (7.8) $ (0.3) $ (39.5)
======== ======== ======= =======
Penelec
- -------
Change in benefit obligation:
Benefit obligation
at January 1: $ 419.7 $ 404.4 $ - $ 236.1
Transfer to GPUS (416.1) - - -
Service cost - 4.1 - 2.1
Interest cost 0.2 27.2 - 15.1
Plan amendments - 4.3 - (3.5)
Actuarial (gain)/loss (0.7) 8.9 - (35.4)
Benefits paid (0.1) (37.6) - (6.9)
Curtailments - 0.7 - 4.5
Termination benefits - 7.7 - -
-------- -------- ------- -------
Benefit obligation
at December 31: $ 3.0 $ 419.7 $ - $ 212.0
======== ======== ======= =======
F-81
(in millions)
Other
Postretirement
Pension Benefits Benefits
---------------- ---------------
1999 1998 1999 1998
---- ---- ---- ----
Change in plan assets:
Fair value of plan assets
at January 1: $ 535.2 $ 486.8 $ - $ 130.4
Transfer to GPUS (533.5) - - -
Actual return on plan assets 0.3 81.9 - 22.9
Employer contributions - 0.1 - 10.0
Benefits paid (0.1) (37.6) - (6.9)
Change in allocations - 4.0 - (12.6)
-------- -------- ------- -------
Fair value of plan assets
at December 31: $ 1.9 $ 535.2 $ - $ 143.8
======== ======== ======= =======
Funded Status:
Funded status at December 31: $ (1.1) $ 115.5 $ - $ (68.2)
Unrecognized net actuarial
(gain)/loss 0.1 (105.9) - (4.4)
Unrecognized prior service
Cost - 10.3 - 0.3
Unrecognized net transition
obligation 0.1 1.4 - 60.0
-------- -------- ------- -------
Net amount recognized $ (0.9) $ 21.3 $ - $ (12.3)
======== ======== ======= =======
Amounts recognized in the Consolidated Balance Sheet at December 31:
Prepaid benefit cost $ - $ 22.5 $ - $ 16.5
Accrued benefit liability (1.0) (1.5) - (28.8)
Intangible Asset 0.1 - - -
Accumulated other
comprehensive income - 0.2 - -
Deferred income taxes - 0.1 - -
-------- --------- ------- -------
Net amount recognized $ (0.9) $ 21.3 $ - $ (12.3)
======== ======== ======= =======
Weighted average assumptions
as of December 31 for GPU, Inc.
and Subsidiary Companies:
Discount rate 7.0% 6.75% 7.5% 6.75%
Expected return on plan assets 8.1% 8.5% 8.5% 8.5%
Rate of compensation increase 4.7% 4.5% - -
Weighted average assumptions as of December 31 for JCP&L, Met-Ed and Penelec:
Discount rate 7.5% 6.75% 7.5% 6.75%
Expected return on plan assets 8.5% 8.5% 8.5% 8.5%
Rate of compensation increase 4.5% 4.5% - -
The following tables provide the components of net periodic pension and other
postretirement benefit costs. As previously discussed, the 1999 net periodic
pension cost for GPU, Inc. and Subsidiary Companies reflects post-acquisition
amounts related to Midlands for the second half of the year.
F-82
Pension Plans:
(in millions)
GPU, Inc. and Subsidiary Companies 1999 1998 1997
- ---------------------------------- ---- ---- ----
Service cost $ 46.2 $ 36.1 $ 31.1
Interest cost 158.0 121.6 122.2
Expected return on plan assets (198.0) (140.1) (131.5)
Amortization of transition (asset)/obligation (0.5) (0.5) (0.5)
Other amortization 2.1 1.1 0.2
----- ------ -----
Net periodic pension cost $ 7.8 $ 18.2 $ 21.5
===== ====== =====
JCP&L
- -----
Service cost $ 0.1 $ 7.2 $ 6.1
Interest cost 0.4 33.7 34.2
Expected return on plan assets (0.3) (39.6) (37.5)
Amortization of transition (asset)/obligation - (0.3) (0.3)
Other amortization - 0.6 0.1
----- ------ -----
Net periodic pension cost $ 0.2 $ 1.6 $ 2.6
===== ====== =====
Met-Ed
- ------
Service cost $ 0.2 $ 6.3 $ 4.3
Interest cost 0.5 23.4 21.8
Expected return on plan assets (0.5) (25.4) (22.3)
Amortization of transition (asset)/obligation - (0.1) (0.1)
Other amortization - 0.4 0.6
------ ------ -----
Net periodic pension cost $ 0.2 $ 4.6 $ 4.3
====== ====== =====
Penelec
- -------
Service cost $ - $ 4.1 $ 3.3
Interest cost 0.2 27.2 26.2
Expected return on plan assets (0.1) (33.1) (29.7)
Amortization of transition (asset)/obligation - 0.3 0.3
Other amortization - 0.4 0.2
------ ------ -----
Net periodic pension cost $ 0.1 $ (1.1) $ 0.3
====== ====== =====
In 1999, the effect of increasing the discount rate assumption for the U.S.
pension plans from 6.75% to 7.5% resulted in a $162 million (JCP&L $0.5 million;
Met-Ed $1.0 million; Penelec $0.3 million; Other $160.2 million) decrease in the
benefit obligation as of December 31, 1999. In 1998, the effect of decreasing
the discount rate assumption from 7% to 6.75% was partially offset by the effect
of decreasing the salary scale assumption from 5% to 4.5% and resulted in a $35
million (JCP&L $7 million; Met-Ed $7 million; Penelec $8 million; Other $13
million)increase in the benefit obligation as of December 31, 1998.
The above net periodic pension cost amount for 1999 excludes pre-tax credits
of $31 million, of which $30 million was deferred for return to customers,
resulting from employee terminations related to generation asset divestiture. No
portion of these amounts relate to JCP&L, Met-Ed or Penelec. The above net
periodic pension cost amount for 1998 excludes pre-tax charges of $30 million
(JCP&L $8 million; Met-Ed $11 million; Penelec $9 million; Other $2 million), of
which $22 million (JCP&L $6 million; Met-Ed $9 million; Penelec $7 million) was
deferred pending future rate recovery, resulting from early retirement programs
in 1998.
F-83
Other Postretirement Benefits:
(in millions)
GPU, Inc. and Subsidiary Companies 1999 1998 1997
- ---------------------------------- ---- ---- ----
Service cost $ 15.9 $ 16.4 $ 10.7
Interest cost 52.2 54.4 51.7
Expected return on plan assets (37.5) (29.5) (23.7)
Amortization of transition (asset)/obligation 14.6 15.8 16.8
Other amortization 1.6 5.0 2.3
----- ----- -----
Net periodic postretirement benefit cost 46.8 62.1 57.8
Deferred for future recovery - - (13.0)
----- ----- -----
Postretirement benefit cost,
net of deferrals $ 46.8 $ 62.1 $ 44.8
===== ===== =====
JCP&L
- -----
Service cost $ - $ 2.9 $ 1.5
Interest cost - 13.9 13.2
Expected return on plan assets - (7.3) (5.7)
Amortization of transition obligation - 4.4 4.7
Other amortization - 0.7 0.6
----- ----- -----
Net periodic postretirement benefit cost - 14.6 14.3
Deferred for future recovery - - (0.8)
----- ----- -----
Postretirement benefit cost,
net of deferrals $ - $ 14.6 $ 13.5
===== ===== =====
Met-Ed
- ------
Service cost $ 0.1 $ 2.9 $ 1.5
Interest cost 0.2 11.2 10.0
Expected return on plan assets - (3.9) (3.1)
Amortization of transition obligation - 3.1 3.2
Other amortization - 1.7 0.8
----- ----- -----
Net periodic postretirement benefit cost 0.3 15.0 12.4
Deferred for future recovery - - (5.1)
----- ----- -----
Postretirement benefit cost,
net of deferrals $ 0.3 $ 15.0 $ 7.3
===== ===== =====
Penelec
- -------
Service cost $ - $ 2.0 $ 1.5
Interest cost - 15.1 13.7
Expected return on plan assets - (8.9) (6.6)
Amortization of transition obligation - 4.8 4.8
Other amortization - 1.4 0.6
----- ----- -----
Net periodic postretirement benefit cost - 14.4 14.0
Deferred for future recovery - - -
----- ----- ----
Postretirement benefit cost,
net of deferrals $ - $ 14.4 $ 14.0
===== ===== =====
F-84
In 1999, the effect of increasing the assumption associated with medical
inflation rates was partially offset by the effect of increasing the discount
rate assumption from 6.75% to 7.5% and resulted in a $45 million increase in the
benefit obligation as of December 31, 1999. No significant portion of this
amount relates to JCP&L, Met-Ed or Penelec. In 1998, the effect of decreasing
the assumption relating to the long-term medical cost of managed care plans was
partially offset by the effect of decreasing the discount rate assumption from
7% to 6.75% and resulted in a $40 million (JCP&L $12 million; Met-Ed $7 million;
Penelec $5 million; Other $16 million) decrease in the benefit obligation as of
December 31, 1998. The benefit obligation was determined by application of the
terms of the medical and life insurance plans, including the effects of
established maximums on covered costs, together with relevant actuarial
assumptions and health-care cost trend rates of 10% for those not eligible for
Medicare and 11% for those eligible for Medicare, then decreasing gradually to
6% in 2010 and thereafter. These costs also reflect the implementation of an
annual cost-cap of 6% for individuals who retire after December 31, 1995 and
reach age 65. The effect of a 1% change in these assumed cost trend rates would
increase or decrease the benefit obligation by $39.2 million or $36.9 million,
respectively. In addition, such a 1% change would increase or decrease the
aggregate service and interest cost components of net periodic postretirement
health-care cost by $3.5 million or $3.4 million, respectively. No significant
portion of the effect of such a 1% change rebates to JCP&L, Met-Ed or Penelec.
The above net periodic postretirement benefit cost amount for 1999 excludes
pre-tax charges of $3 million, which was deferred pending future rate recovery,
resulting from employee terminations related to generation asset divestiture. No
portion of this amount relates to JCP&L, Met-Ed or Penelec. The above net
periodic postretirement benefit cost amount for 1998 excludes pre-tax charges of
$20 million (JCP&L $6 million; Met-Ed $6 million; Penelec $7 million; Other $1
million), of which $12 million (JCP&L $3 million; Met-Ed $5 million; Penelec $4
million) was deferred pending future rate recovery, resulting from early
retirement programs in 1998.
In JCP&L's 1993 base rate proceeding, the NJBPU allowed JCP&L to collect $3
million annually for incremental postretirement benefit costs, charged to
expense, and recognized as a result of FAS 106. Based on the final order, and in
accordance with EITF Issue 92-12, "Accounting for OPEB Costs by Rate-Regulated
Enterprises," JCP&L has deferred the amounts above that level. A 1997
Stipulation of Final Settlement (Final Settlement) allows JCP&L to recover and
amortize the deferred balance at December 31, 1997 over a fifteen-year period.
In addition, the Final Settlement allows JCP&L to recover current amounts
accrued pursuant to FAS 106, including amortization of the transition
obligation. Met-Ed has deferred the incremental postretirement benefit costs
associated with the adoption of FAS 106 and in accordance with EITF Issue 92-12,
as authorized by the PaPUC in its 1993 base rate order. In accordance with EITF
Issue 92-12, effective January 1998, Met-Ed has ceased deferring these costs.
The approximately one-third generation-related portion of the deferred balance
at December 31, 1997 is to be recovered in rates over a twelve-year period
pursuant to the PaPUC's Restructuring Orders. The remaining two-thirds for the
transmission and distribution-related portion is to be amortized over a
fourteen-year period beginning January 1999, pursuant to the Restructuring
Orders. In 1994, Penelec determined that its FAS 106 costs, including costs
deferred since January 1993, were not probable of recovery and charged those
deferred costs to expense.
F-85
Savings Plans:
- --------------
GPU also maintains savings plans for substantially all US employees. These
plans provide for employee contributions up to specified limits and for various
levels of employer matching contributions. The matching contributions for GPU
were as follows:
(in millions)
Company 1999 1998 1997
- ------- ---- ---- ----
JCP&L $ 0.1 $ 2.8 $ 2.4
Met-Ed 0.1 3.4 3.1
Penelec - 1.6 1.3
Other 13.8 5.8 5.8
---- ----- -----
Total $14.0 $ 13.6 $ 12.6
==== ===== =====
11. LEASES
GPU Energy companies
The GPU Energy companies' capital leases consist primarily of leases for
nuclear fuel. Nuclear fuel capital lease obligations at December 31, 1999 and
1998 totaled $48 million (JCP&L $48 million), and $126 million(JCP&L $85
million; Met-Ed $27 million; Penelec $14 million).
Prior to the sale of TMI-1 to AmerGen in December 1999, the GPU Energy
companies had nuclear fuel lease agreements with nonaffiliated fuel trusts for
the plant. Upon the sale of TMI-1, the related fuel leases were terminated and
all outstanding amounts due under the related credit facility were paid. The
Oyster Creek fuel lease agreement will be terminated upon the sale of Oyster
Creek to AmerGen. Lease expense consists of an amount designed to amortize the
cost of the nuclear fuel as consumed plus interest costs. For the years ended
December 31, 1999, 1998, and 1997, these amounts were as follows:
(in millions)
Company 1999 1998 1997
- ------- ---- ---- ----
JCP&L $ 34 $ 30 $ 31
Met-Ed 13 16 12
Penelec 6 8 6
----- ----- -----
Total $ 53 $ 54 $ 49
===== ===== =====
Met-Ed and JCP&L have sold and leased back a portion of their respective
ownership interests in the Merrill Creek Reservoir project (Merrill Creek). The
annual minimum lease payments under these operating leases, which have remaining
terms of 33 years, range from approximately $3.6 million to $6.7 million (Met-Ed
$1.6 million to $2.9 million; JCP&L $2 million to $3.8 million) over the next
five years, net of reimbursements from sublessees. Met-Ed believes that its
Merrill Creek lease payments will be a recoverable stranded cost in Phase II
rate proceedings pending before the PaPUC. JCP&L is recovering its Merrill Creek
lease payments, net of reimbursements, through distribution rates.
F-86
GPUI Group
A subsidiary of GPU International sold and leased back an electric
cogeneration facility for an initial term of eleven years (facility lease) for
which GPU, Inc. has guaranteed payments of up to $8.1 million. In addition, a
20-year site lease was entered into commencing in 1993. The leases are accounted
for as operating leases and rent expense is recorded on a straight-line basis
over the initial 11-year term of the facility lease. Rent expense at December
31, 1999 and 1998 totaled $12.3 million and $11.3 million, respectively. The
minimum lease payments for 2000, 2001, 2002, 2003 and 2004 are $13.4 million,
$14.1 million, $14.8 million, $15.8 million and $12 million, respectively.
12. COMMITMENTS AND CONTINGENCIES
COMPETITION AND THE CHANGING REGULATORY ENVIRONMENT
---------------------------------------------------
Generation Asset Divestiture:
- ----------------------------
In 1999, the GPU Energy companies completed the sales of TMI-1 and
substantially all of their fossil and hydroelectric generating stations. For
additional information on the completed sales, see Note 6, Accounting for
Extraordinary and Non-recurring Items.
In October 1999, JCP&L agreed to sell Oyster Creek to AmerGen for $10
million and reimbursement of the cost (estimated at $88 million) of the next
scheduled refueling outage. This transaction is subject to the receipt of
various federal and state regulatory approvals.
JCP&L and Public Service Electric & Gas Company (PSE&G) each hold a 50%
undivided ownership interest in Yards Creek Pumped Storage Facility (Yards
Creek). In December 1998, JCP&L filed a petition with the NJBPU seeking a
declaratory order that PSE&G's right of first refusal to purchase JCP&L's
ownership interest at its current book value under a 1964 agreement between the
companies is void and unenforceable. Management believes that the fair market
value of JCP&L's ownership interest in Yards Creek is substantially in excess of
its December 31, 1999 book value of $22 million. There can be no assurance as to
the outcome of this matter.
Stranded Costs and Regulatory Restructuring Orders:
- --------------------------------------------------
With the current market price of electricity being below the cost of some
utility-owned generation and power purchase commitments, and the ability of
customers to choose their energy suppliers, certain costs, which generally would
be recoverable in a regulated environment, may not be recoverable in a
competitive environment. These costs are generally referred to as stranded
costs.
In 1998, the PaPUC issued Restructuring Orders to Met-Ed and Penelec which,
among other things, provide for Met-Ed and Penelec's recovery of a substantial
portion of what otherwise would have become stranded costs, and provide for a
Phase II proceeding following the completion of their generation divestitures to
make a final determination of the extent of that stranded cost recovery. An
appeal by one intervenor in the restructuring proceedings is pending before the
Pennsylvania Supreme Court. There can be no assurance as to the outcome of this
appeal.
F-87
In April 1999, JCP&L entered into a settlement agreement with several
parties to its stranded cost and rate unbundling proceedings, pending before the
NJBPU. In May 1999, the NJBPU issued a Summary Order, approving the settlement
with certain modifications. Among other things, the Summary Order provides for
full recovery of JCP&L's stranded costs. The Summary Order did not address the
pending sale of Oyster Creek, because at the time the Summary Order was issued,
it was uncertain whether the plant would be sold or retired early. As a result
of the NJBPU's actions, in the second quarter of 1999, JCP&L recorded a
reduction in operating revenues of $115 million reflecting JCP&L's obligation to
make refunds to customers. JCP&L is awaiting a final order from the NJBPU. For
additional information, see Note 6, Accounting for Extraordinary and
Non-recurring Items.
Under the NJBPU and the PaPUC restructuring orders, the GPU Energy
companies are required to provide generation service to customers who do not
choose an alternate supplier. As noted above, the GPU Energy companies have sold
or agreed to sell substantially all of their generation assets. Consequently,
there will be increased market risks associated with providing generation
service since the GPU Energy companies will have to supply energy almost
entirely from contracted and open market purchases. Under the Summary Order,
JCP&L is permitted to recover reasonable and prudently incurred costs associated
with providing basic generation service and to defer the portion of these costs
that cannot be recovered currently. The PaPUC's Restructuring Orders, however,
generally do not allow Met-Ed and Penelec to recover their costs, including
their energy costs in excess of established rate caps. An inability of the GPU
Energy companies to supply electricity to customers who do not choose an
alternate supplier at a cost recoverable under their capped rates, would have an
adverse effect, which may be material, on GPU's results of operations.
Generation Agreements:
- ---------------------
The emerging competitive generation market has created uncertainty
regarding the forecasting of the GPU Energy companies' energy supply needs,
which has caused the GPU Energy companies to seek shorter-term agreements
offering more flexibility. The GPU Energy companies' supply plan focuses on
short- to intermediate-term commitments (one month to three years) covering
times of expected high energy price volatility (that is, peak demand periods)
and reliance on spot market purchases during other periods.
As of December 31, 1999, the GPU Energy companies have entered into
agreements with third party suppliers to purchase capacity and energy. Payments
pursuant to these agreements, which include firm commitments as well as certain
assumptions regarding, among other things, call/put arrangements and the timing
of the pending Oyster Creek sale, are estimated to be $709 million in 2000, $565
million in 2001, $328 million in 2002, $144 million in 2003 and $44 million in
2004.
Pursuant to the mandates of the federal Public Utility Regulatory Policies
Act and state regulatory directives, the GPU Energy companies have been required
to enter into power purchase agreements with NUGs for the purchase of energy and
capacity which have remaining terms of up to 21 years. The rates under virtually
all of the GPU Energy companies' NUG agreements are substantially in excess of
current and projected prices from alternative sources. The projected cost of
energy from new generation supply sources has
F-88
also decreased due to improvements in power plant technologies and lower
forecasted fuel prices. The following table shows actual payments from 1997
through December 31, 1999, and estimated payments thereafter through 2004.
Payments Under NUG Agreements
-----------------------------
(in millions)
Total JCP&L Met-Ed Penelec
----- ----- ------ -------
1997 759 384 172 203
1998 788 403 174 211
1999 774 388 167 219
2000 794 405 157 232
2001 778 410 154 214
2002 799 422 158 219
2003 802 413 163 226
2004 808 407 168 233
The NJBPU Summary Order and PaPUC Restructuring Orders provide the GPU
Energy companies assurance of full recovery of their NUG costs (including
above-market NUG costs and certain buyout costs). Accordingly, the GPU Energy
companies have recorded, on a present value basis, a liability for above-market
NUG costs of $3.2 billion (JCP&L 1.6 billion; Met-Ed $0.7 billion; Penelec $0.9
billion) on the Consolidated Balance Sheets which is fully offset by Regulatory
assets, net. In addition, JCP&L recorded a liability of $64 million for
above-market utility power purchase agreements with a corresponding offset to
Regulatory assets, net, since there is also assurance of full recovery of these
costs. The GPU Energy companies are continuing efforts to reduce the
above-market costs of these agreements and will, where beneficial, attempt to
renegotiate the prices of the agreements, offer contract buyouts and attempt to
convert must-run agreements to dispatchable agreements. There can be no
assurance as to the extent to which these efforts will be successful.
In 1997, the NJBPU approved a Stipulation of Final Settlement which, among
other things, provided for the recovery of costs associated with the buyout of
the Freehold Cogeneration power purchase agreement (Freehold buyout). The NJBPU
approved the cost recovery of up to $135 million, over a seven-year period, on
an interim basis subject to refund. The NJBPU's Summary Order provides for the
continued recovery of the Freehold buyout in the MTC, but has not altered the
interim nature of such recovery, pending a final decision by the NJBPU. There
can be no assurance as to the outcome of this matter.
ACCOUNTING MATTERS
------------------
JCP&L, in 1999, and Met-Ed and Penelec in 1998, discontinued the
application of FAS 71, and adopted the provisions of FAS 101, and EITF Issue
97-4 with respect to their electric generation operations. The transmission and
distribution portion of the GPU Energy companies' operations continue to be
subject to the provisions of FAS 71.
F-89
Regulatory assets, net as reflected in the December 31, 1999 and December
31, 1998 Consolidated Balance Sheets in accordance with the provisions of FAS 71
and EITF Issue 97-4 were as follows:
GPU, Inc. and Subsidiaries
- --------------------------
(in thousands)
---------------------------
1999 1998
------------- ----------
Market transition charge (MTC) / basic
generation service (NJ) $2,358,844 $ -
Competitive transition charge (CTC) (PA) 803,064 1,023,815
Reserve for generation divestiture 536,904 1,527,985
Power purchase contract loss not in CTC (PA) 369,290 369,290
Costs recoverable through distribution rates (NJ) 296,841 -
Income taxes recoverable through future rates, net 280,268 396,937
Three Mile Island Unit 2 (TMI-2)
decommissioning costs 100,794 119,571
Societal benefits charge (NJ) 116,941 -
Other postretirement benefits 25,335 73,770
Nonutility generation contract buyout costs - 123,208
Unamortized property losses (NJ) - 80,287
Net investment in TMI-2 (NJ) - 65,787
Environmental remediation (NJ) - 50,214
Above market NUG deferral costs (252,348) (16,067)
Other, net 76,721 126,032
--------- ---------
Total regulatory assets, net $4,712,654 $3,940,829
========= =========
JCP&L
- -----
Regulatory assets, net:
MTC / basic generation service $2,358,844 $ -
Costs recoverable through distribution rates 296,841 -
Societal benefits charge 116,941 -
Net divestiture proceeds recoverable through MTC 37,175 -
Reserve for generation divestiture - 146,419
Income taxes recoverable through future rates, net - 137,217
Nonutility generation contract buyout costs - 120,708
Unamortized property losses - 80,287
Net investment in TMI-2 - 65,787
Environmental remediation - 50,214
Other, net - 162,868
--------- ---------
Total regulatory assets, net $2,809,801 $ 763,500
========= =========
Met-Ed
- ------
Regulatory assets, net:
CTC $ 591,316 $ 680,213
Power purchase contract loss not in CTC 271,270 271,270
Reserve for generation divestiture 137,037 435,386
Income taxes recoverable through future rates, net 115,713 122,781
TMI-2 decommissioning costs 65,455 68,091
Other, net 50,349 37,985
--------- ---------
Total regulatory assets, net $1,231,140 $1,615,726
========= =========
Penelec
- -------
Regulatory assets, net:
Reserve for generation divestiture $ 399,867 $ 946,181
Above market NUG deferral costs (252,893) -
CTC 211,748 343,602
Income taxes recoverable through future rates, net 164,555 136,939
Power purchase contract loss not in CTC 98,020 98,020
Other, net 50,416 36,861
--------- ---------
Total regulatory assets, net $ 671,713 $1,561,603
========= =========
F-90
Statement of Financial Accounting Standards No. 133 (FAS 133), "Accounting
for Derivative Instruments and Hedging Activities," establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. FAS 133
requires that companies recognize all derivatives as either assets or
liabilities on the balance sheet and measure those instruments at fair value.
GPU will be required to include its derivative transactions on its balance sheet
at fair value, and recognize the subsequent changes in fair value as either
gains or losses in earnings or report them as a component of other comprehensive
income, depending upon the intended use and designation of the derivative as a
hedge. FAS 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 2000. GPU will adopt FAS 133 in the first quarter of 2001 and is
in the process of evaluating the impact of the implementation of this statement.
GPU's use of derivative instruments is intended to manage the risk of interest
rate, foreign currency and commodity price fluctuations and may include such
transactions as electricity and natural gas forward and futures contracts,
foreign currency swaps, interest rate swaps and options. GPU does not intend to
hold or issue derivative instruments for trading purposes.
NUCLEAR FACILITIES
------------------
Investments:
- -----------
In December 1999, the GPU Energy companies sold TMI-1 to AmerGen for
approximately $100 million. In addition, JCP&L has agreed to sell Oyster Creek
to AmerGen for $10 million and reimbursement of the cost (estimated at $88
million) of the next refueling outage. TMI-2, which was damaged during a 1979
accident, is jointly owned by JCP&L, Met-Ed and Penelec in the percentages of
25%, 50% and 25%. JCP&L's net investment in TMI-2 at December 31, 1999 and 1998
was $61 million and $66 million, respectively. JCP&L is collecting 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's remaining investments in TMI-2 were
written off in 1998 after receiving the PaPUC's Restructuring Orders.
Costs associated with the operation, maintenance and retirement of nuclear
plants have continued to be significant and less predictable than costs
associated with other sources of generation, in large part due to changing
regulatory requirements, safety standards, availability of nuclear waste
disposal facilities and experience gained in the construction and operation of
nuclear facilities. Also, not all risks associated with the ownership or
operation of nuclear facilities may be adequately insured or insurable.
Consequently, the 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.
TMI-2:
- ------
As a result of the 1979 TMI-2 accident, individual claims for alleged
personal injury (including claims for punitive damages), which are material in
amount, were asserted against GPU, Inc. and the GPU Energy companies.
Approximately 2,100 of such claims were filed in the US District Court for
F-91
the Middle District of Pennsylvania. Some of the claims also seek recovery
for injuries from alleged emissions of radioactivity before and after the
accident.
At the time of the TMI-2 accident, as provided for in the Price-Anderson
Act, the GPU Energy companies 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 up to an aggregate of $335 million in premium charges under such
plan, and (c) an indemnity agreement with the Nuclear Regulatory Commission
(NRC) for up to $85 million, bringing their total financial protection up to an
aggregate of $560 million. Under the secondary level, the GPU Energy companies
are subject to a retrospective premium charge of up to $5 million per reactor,
or a total of $15 million (JCP&L $7.5 million; Met-Ed $5 million; Penelec $2.5
million).
In 1995, the US Court of Appeals for the Third Circuit ruled that the
Price-Anderson Act provides coverage under its primary and secondary levels for
punitive as well as compensatory damages, but that punitive damages could not be
recovered against the Federal Government under the third level of financial
protection. In so doing, the Court of Appeals referred to the "finite fund" (the
$560 million of financial protection under the Price-Anderson Act) to which
plaintiffs must resort to get compensatory as well as punitive damages.
The Court of Appeals also ruled that the standard of care owed by the
defendants to a plaintiff was determined by the specific level of radiation
which was released into the environment, as measured at the site boundary,
rather than as measured at the specific site where the plaintiff was located at
the time of the accident (as the defendants proposed). The Court of Appeals also
held that each plaintiff still must demonstrate exposure to radiation released
during the TMI-2 accident and that such exposure had resulted in injuries. In
1996, the US Supreme Court denied petitions filed by GPU, Inc. and the GPU
Energy companies to review the Court of Appeals' rulings.
In 1996, the District Court granted a motion for summary judgment filed by
GPU, Inc. and the GPU Energy companies, and dismissed the ten initial "test
cases," which had been selected for a test case trial as well as all of the
remaining 2,100 pending claims. The Court ruled that there was no evidence which
created a genuine issue of material fact warranting submission of plaintiffs'
claims to a jury. The plaintiffs appealed the District Court's ruling to the
Court of Appeals for the Third Circuit. In November 1999, the Third Circuit
affirmed the District Court's dismissal of the ten "test cases," but set aside
the dismissal of the additional pending claims, remanding them to the District
Court for further proceedings. In remanding these claims, the Third Circuit held
that the District Court had erred in extending its summary judgment decision to
the other plaintiffs and imposing on these plaintiffs the District Court's
finding that radiation exposures below 10 rems were too speculative to establish
a causal link to cancer. The Court of Appeals stated that the non-test case
plaintiffs should be permitted to present their own individual evidence that
exposure to radiation from the accident caused their cancers.
F-92
GPU, Inc. and the GPU Energy companies believe that the Third Circuit has
misinterpreted the record before the District Court as it applies to the
non-test case plaintiffs, and in November 1999, filed petitions seeking a
rehearing and reconsideration of the Court's decision regarding the remaining
claims. The "test case" plaintiffs also requested a rehearing of the Court's
decision upholding the dismissal of their claims. In January 2000, the Court of
Appeals denied both petitions. The "test case" plaintiffs have stated that they
intend to seek, and GPU, Inc. and the GPU Energy companies are considering
whether to seek, Supreme Court review of the District Court's decision. There
can be no assurance as to the outcome of this litigation.
GPU, Inc. and the GPU Energy companies believe that any liability to which
they might be subject by reason of the TMI-2 accident will not exceed their
financial protection under the Price-Anderson Act.
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 DOE.
In 1995, a consultant to GPUN performed site-specific studies of TMI-2 and
Oyster Creek (updated in 1998), that considered various decommissioning methods
and estimated the cost of decommissioning the radiological portions and the cost
of removal of the nonradiological portions of each plant, using the prompt
removal/dismantlement method. GPUN management has reviewed the methodology and
assumptions used in these studies, is in agreement with them, and believes the
results are reasonable. Under NRC regulations, JCP&L is making periodic payments
to complete the funding for Oyster Creek retirement costs by the end of the
plant's license term of 2009. The TMI-2 funding completion date is 2014,
consistent with TMI-2's remaining in long-term storage. The NRC may require an
acceleration of the decommissioning funding for Oyster Creek if the pending sale
is not completed and the plant is retired early. The retirement cost estimates
under the 1995 site-specific studies, assuming decommissioning of TMI-2 and
Oyster Creek in 2014 and 2009, respectively, are as follows (in 1999 dollars):
(in millions)
Oyster
TMI-2 Creek
----- ------
Radiological decommissioning $435 $591
Nonradiological cost of removal 34* 32
--- ---
Total $469 $623
=== ===
* Net of $12.6 million spent as of December 31, 1999.
Each of the GPU Energy companies is responsible for retirement costs in
proportion to its respective ownership percentage. The ultimate cost of retiring
the GPU Energy companies' nuclear facilities may be different from the cost
estimates contained in these site-specific studies. Also, the cost estimates
contained in these site-specific studies are significantly greater than the
decommissioning funding targets established by the NRC.
The 1995 Oyster Creek site-specific study was updated in 1998 in response
to the previously announced potential early closure of the plant in 2000. An
early shutdown would increase the retirement costs shown above to $632
F-93
million ($600 million for radiological decommissioning and $32 million for
nonradiological cost of removal). Both estimates include substantial spending
for an on-site dry storage facility for spent nuclear fuel and significant costs
for storing the fuel until the DOE complies with the Nuclear Waste Policy Act of
1982. For additional information, see OTHER COMMITMENTS AND CONTINGENCIES
section.
Upon the sale of TMI-1, AmerGen assumed all TMI-1 decommissioning
liabilities and the GPU Energy companies transferred $320 million to AmerGen for
decommissioning.
The agreements to sell Oyster Creek to AmerGen provide, among other things,
that upon financial closing, JCP&L will transfer $430 million in decommissioning
trust funds to AmerGen, which will assume all liability for decommissioning
Oyster Creek.
The GPU Energy companies charge to depreciation expense and accrue
retirement costs based on amounts being collected from customers. Customer
collections are contributed to external trust funds. These deposits, including
the related earnings, are classified as Nuclear decommissioning trusts, at
market on the Consolidated Balance Sheets.
The NJBPU has granted JCP&L annual revenues for Oyster Creek retirement
costs of $22.5 million based on the 1995 site-specific study. In August 2000,
the recovery of Oyster Creek retirement cost escalates to $34.4 million annually
if the plant is retired in 2000.
In the Restructuring Orders, the PaPUC granted Met-Ed and Penelec recovery
of TMI-1 decommissioning costs of $103.4 million and $67.8 million,
respectively, as part of the CTC. These amounts, which are computed on a present
value basis, are based on the 1995 site-specific study and will be adjusted in
Phase II of Met-Ed and Penelec's restructuring proceedings, once the net
proceeds from the generation asset divestiture are determined.
In the event JCP&L does not complete the pending sale of Oyster Creek,
management believes that any retirement costs, in excess of those currently
recognized for ratemaking purposes, should be recoverable from customers.
The estimated liabilities for TMI-2 future retirement costs (reflected as
Three Mile Island Unit 2 future costs on the Consolidated Balance Sheets) as of
December 31, 1999 and December 31, 1998 are $497 million (JCP&L $124 million;
Met-Ed $249 million; Penelec $124 million) and $484 million (JCP&L $121 million;
Met-Ed $242 million; Penelec $121 million), respectively. These amounts are
based upon the 1995 site-specific study estimates (in 1999 and 1998 dollars,
respectively) discussed above and an estimate for remaining incremental
monitored storage costs of $27 million (JCP&L $7 million; Met-Ed $13 million;
Penelec $7 million) as of December 31, 1999 and $29 million (JCP&L $7 million;
Met-Ed $15 million; Penelec $7 million) as of December 31, 1998, as a result of
TMI-2's entering long-term monitored storage in 1993. The GPU Energy companies
are incurring annual incremental monitored storage costs of approximately $1.8
million (JCP&L $450 thousand; Met-Ed $900 thousand; Penelec $450 thousand).
Offsetting the $497 million liability at December 31, 1999 is $193 million
(JCP&L $14 million; Met-Ed $144 million; Penelec $35 million) which management
believes is probable of recovery from customers and included in
F-94
Regulatory assets, net on the Consolidated Balance Sheets, and $355 million
(JCP&L $114 million; Met-Ed $144 million; Penelec $97 million) in trust funds
for TMI-2 and included in Nuclear decommissioning trusts, at market on the
Consolidated Balance Sheets. Earnings on trust fund deposits are included in
amounts shown on the Consolidated Balance Sheets under Regulatory assets, net.
TMI-2 decommissioning costs charged to depreciation expense in 1999 amounted to
$14.3 million (JCP&L $2.3 million; Met-Ed $11.2 million; Penelec $0.8 million).
The NJBPU has granted JCP&L revenues for TMI-2 retirement costs based on
the 1995 site-specific estimates. In addition, JCP&L is recovering its share of
TMI-2 incremental monitored storage costs. The PaPUC Restructuring Orders
granted Met-Ed and Penelec recovery of TMI-2 decommissioning costs as part of
the CTC, but also allowed Met-Ed and Penelec to defer as a regulatory asset
those amounts that are above the level provided for in the CTC.
At December 31, 1999, the accident-related portion of TMI-2 radiological
decommissioning costs is considered to be $77 million (JCP&L $19 million; Met-Ed
$39 million; Penelec $19 million), which is based on the 1995 site-specific
study estimate (in 1999 dollars). In connection with rate case resolutions at
the time, JCP&L, Met-Ed and Penelec have made contributions to irrevocable
external trusts relating to their shares of the accident-related portions of the
decommissioning liability in the amounts of $15 million, $40 million and $20
million, respectively. These contributions were not recoverable from customers
and have been expensed. The GPU Energy companies will not pursue recovery from
customers for any amounts contributed in excess of the $77 million
accident-related portion referred to above.
JCP&L intends to seek recovery for any increases in TMI-2 retirement costs,
and Met-Ed and Penelec intend to seek recovery for any increases in the
nonaccident-related portion of such costs, but recognize that recovery cannot be
assured.
INSURANCE
---------
GPU 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 GPU 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 GPU.
The decontamination liability, premature decommissioning and property
damage insurance coverage for Oyster Creek totals $2.75 billion. In addition,
GPU has purchased property and decontamination insurance coverage for TMI-2
totaling $150 million. 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.
F-95
The Price-Anderson Act limits GPU's liability to third parties for a
nuclear incident at Oyster Creek to approximately $9.5 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 Oyster Creek, could result in an assessment of up to
$88 million per incident, subject to an annual maximum payment of $10 million
per incident per reactor. Although TMI-2 is exempt from this assessment, the
plant is still covered by the provisions of the Price-Anderson Act. In addition
to the retrospective premiums payable under the Price-Anderson Act, the GPU
Energy companies are also subject to retrospective premium assessments of up to
$10.5 million (JCP&L $10.1 million; Met-Ed $0.3 million; Penelec $0.1 million)
for insurance policies currently in effect applicable to nuclear operations and
facilities. The GPU Energy companies are also subject to other retrospective
premium assessments related to policies applicable to TMI-1 prior to the sale of
the plant to AmerGen.
JCP&L has insurance coverage for incremental replacement power costs should
an accident-related outage at Oyster Creek occur. Coverage would commence after
a 12-week waiting period at $2.1 million per week for 52 weeks, decreasing to
80% of such amount for the next 110 weeks.
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, ambient air quality, global warming,
electromagnetic fields, and storage and disposal of hazardous and/or toxic
wastes, GPU may be required to incur substantial additional costs to construct
new equipment, modify or replace existing and proposed equipment, remediate,
decommission or cleanup waste disposal and other sites currently or formerly
used by it, including formerly owned manufactured gas plants (MGP), coal mine
refuse piles and generation facilities.
GPU has been formally notified by the EPA and state environmental
authorities that it is among the potentially responsible parties (PRPs) who may
be jointly and severally liable to pay for the costs associated with the
investigation and remediation at 11 hazardous and/or toxic waste sites (in some
cases, more than one company is named for a given site).
JCP&L MET-ED PENELEC GPUN GPU,INC. TOTAL
----- ------ ------- ---- ------- -----
6 4 2 1 1 11
In addition, certain of the GPU companies have been requested to participate
in the remediation or supply information to the EPA and state environmental
authorities on several other sites for which they have not been formally named
as PRPs, although the EPA and state authorities may nevertheless consider them
as PRPs. Certain of the GPU companies have also been named in lawsuits
requesting damages (which are material in amount) 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 companies involved.
F-96
In 1997, the EPA filed a complaint against GPU, Inc. in the US District
Court for the District of Delaware for enforcement of its Unilateral Order
(Order) issued against GPU, Inc. to clean up the former Dover Gas Light Company
(Dover) manufactured gas production site (Site) in Dover, Delaware. Dover was
part of the AGECO/AGECORP group of companies from 1929 until 1942; GPU, Inc.
emerged from the AGECO/AGECORP reorganization proceedings in 1946. All of
Dover's common stock, which was sold in 1942 to an unaffiliated entity, was
subsequently acquired by Chesapeake, which merged with Dover in 1960. Chesapeake
is currently performing the cleanup at the Site. According to the complaint, the
EPA is seeking (1) enforcement of the Order against GPU; (2) recovery of its
past response costs, (3) a declaratory judgment that GPU is liable for any
remaining cleanup costs of the Site and (4) statutory penalties for
noncompliance with the Order. The EPA has stated that it has incurred
approximately $1 million of past response costs as of December 31, 1999. The EPA
estimates the total Site cleanup costs at approximately $4.2 million.
Consultants to Chesapeake have estimated the remaining remediation groundwater
costs at approximately $10.5 million. In accordance with its penalty policy, and
in discussions with GPU, the EPA has demanded penalties calculated at a daily
rate of $8,800, rather than the statutory maximum of $27,500 per day. At
December 31, 1999, if the statutory maximum is applied, the total amount of
penalties would be approximately $34 million. GPU believes that it has
meritorious defenses as to why no penalty should be assessed or if a penalty is
assessed, why it should be at a lower daily rate. Chesapeake has also sued GPU,
Inc. for contribution to the cleanup of the Dover Site. The US District Court
for the District of Delaware has consolidated the case filed by Chesapeake with
the case filed by the EPA and discovery is proceeding. There can be no assurance
as to the outcome of these proceedings.
In connection with the sale of its Seward Generation Station to Sithe,
Penelec has assumed up to $6 million of remediation costs associated with
certain coal mine refuse piles which are the subject of an earlier consent
decree with the Pennsylvania Department of Environmental Protection. Penelec
expects recovery of these remediation costs in Phase II of its restructuring
proceeding and has recorded a corresponding regulatory asset of approximately $6
million at December 31, 1999.
JCP&L has entered into agreements with the New Jersey Department of
Environmental Protection for the investigation and remediation of 17 formerly
owned MGP sites. JCP&L has also entered into various cost-sharing agreements
with other utilities for most of the sites. As of December 31, 1999, JCP&L has
spent approximately $36 million in connection with the cleanup of these sites.
In addition, JCP&L has recorded an estimated environmental liability of $52
million relating to expected future costs of these sites (as well as two other
properties). This estimated liability is based upon ongoing site investigations
and remediation efforts, which generally involve capping the sites and pumping
and treatment of ground water. Moreover, the cost to clean up these sites could
be materially in excess of $52 million due to significant uncertainties,
including changes in acceptable remediation methods and technologies. In
addition, federal and state law provides for payment by responsible parties for
damage to natural resources.
In 1997, the NJBPU approved JCP&L's request to establish a Remediation
Adjustment Clause for the recovery of MGP remediation costs. As a result of the
NJBPU's Summary Order, effective August 1, 1999, the recovery of these costs was
transferred to the Societal Benefits Charge. At December 31, 1999,
F-97
JCP&L had recorded on its Consolidated Balance Sheet a regulatory asset of $44
million. JCP&L is continuing to pursue reimbursement from its insurance carriers
for remediation costs already spent and for future estimated costs. In 1994,
JCP&L commenced litigation in the New Jersey Superior Court against several of
its insurance carriers, relative to these MGP sites, and has settled with all
but one of those insurance companies.
OTHER COMMITMENTS AND CONTINGENCIES
-----------------------------------
Class Action Litigation:
- -----------------------
GPU Energy
In July 1999, New Jersey experienced a severe heat storm that resulted in
major power outages and temporary service interruptions including in JCP&L's
service territory. As a result, the NJBPU has initiated an investigation into
the reliability of the transmission and distribution systems of all New Jersey
utilities and their response to power outages. In addition, two class action
lawsuits have been commenced in New Jersey Superior Court against GPU, Inc. and
the GPU Energy companies, seeking both compensatory and punitive damages for
alleged losses suffered due to service interruptions. The GPU defendants
originally requested the Court to stay or dismiss the litigation in deference to
the NJBPU's primary jurisdiction. The Court denied the motion, but in January
2000 the Appellate Division agreed to review the Court's decision. In response
to GPU's demand for a statement of damages, the plaintiffs have stated that they
are seeking damages of $700 million, subject to the results of pre-trial
discovery. GPU has notified its insurance carriers who have reserved their
rights to contest coverage under GPU's insurance policies for losses which GPU
may incur. There can be no assurance as to the outcome of these matters.
GPU Electric
As a result of the fire and explosion in September 1998, at the Longford
natural gas plant in Victoria, Australia, three class actions have been brought
in Australian Federal Court against Esso Australia Limited and its affiliate
(Esso), the owner and operator of the plant, for losses suffered due to the lack
of natural gas supply and related damages. Plaintiffs claim that Esso was, among
other things, negligent in designing, maintaining and operating the Longford
plant and also assert claims under various Australian fair trade practices laws.
Esso has joined as third party defendants the State of Victoria (State) and
various State-owned entities which operated the Victorian gas industry prior to
its privatization, including TPA and its affiliate Transmission Pipelines
(Assets) Australia (TPAA). GPU, Inc. through GPU GasNet acquired the assets of
TPA and the shares of TPAA from the State in June 1999. Esso has also named GPU
GasNet as a third party defendant. Under the acquisition agreement with the
State, GPU GasNet has indemnified TPA and the State against third party claims.
Esso is seeking contribution and indemnity from the third party defendants for
any damages for which Esso may be found liable. In addition, Esso has asserted
several separate claims against the State and the former State-owned entities
for damages, and contends that GPU GasNet assumed TPA's liabilities as part of
the State's privatization process.
F-98
GPU GasNet and TPAA have filed answers denying liability, which could be
material and have moved to dismiss portions of Esso's claims. GPU GasNet and
TPAA have also notified their insurance carriers of this action. The insurers
have reserved their rights to deny coverage. There can be no assurance as to the
outcome of this matter.
Investments and Guarantees:
- --------------------------
GPU, Inc.
GPU, Inc. has made significant investments in foreign businesses and
facilities through its subsidiaries, GPU Electric and the GPUI Group. At
December 31, 1999, GPU, Inc.'s investment in GPU Electric and the GPUI Group was
$1.06 billion and $232 million, respectively. As of that date, GPU, Inc. has
also guaranteed an additional $1.04 billion and $29.9 million (including $8.7
million of guarantees related to domestic operations) of GPU Electric and GPUI
Group outstanding obligations, respectively. Although management attempts to
mitigate the risks of investing in certain foreign countries by, among other
things, securing political risk insurance, GPU faces additional risks inherent
to operating in such locations, including foreign currency fluctuations.
GPU Electric
Midlands has a 40% ownership interest in a 586 MW power project in Pakistan
(the Uch Power Project), which was originally scheduled to begin commercial
operation in late 1998, but testing and commercial operation have been delayed.
In June 1999, certain Project lenders issued notices of default to the
Project sponsors (including Midlands) for, among other things, failure to pay
principal and interest under various loan agreements. In November 1999, the
Project sponsors and lenders reached an agreement under which repayment of the
construction loan will be extended, principal and interest payments deferred,
and the sponsors will fund the completion of the plant through the remaining
equity contribution commitments. Midlands' investment in the Uch Power Project
at December 31, 1999 was approximately $43 million, and its share of the
projected completion costs represents an additional $8 million commitment.
Cinergy has agreed to fund up to an aggregate of $20 million of the required
capital contributions and/or certain future "cash losses" which could be
incurred on the Uch Power Project. Cinergy has reimbursed Midlands $3 million of
capital contributions as of December 31, 1999, leaving a remaining commitment of
up to $17 million. Testing of the plant has begun and the start of commercial
operations is now anticipated in 2000. There can be no assurance as to the
outcome of this matter.
As part of the sale of the Midlands' supply business and the purchase of the
50% of Midlands GPU did not already own, certain long-term obligations under
natural gas supply contracts were retained. Most of these contracts were at
fixed prices in excess of the market price of gas as of December 31, 1999. A
liability was previously established for the estimated loss under such
contracts, which extend to September 2005. The estimated liability at December
31, 1999 was $55.1 million.
F-99
GPUI Group
On July 9, 1999, DIAN (the Columbian national tax authority) issued a
"Special Requirement" on the Termobarranquilla S.A., Empresa de Servicios
Publicos (TEBSA, an investment in which GPU Power has a 29% interest) 1996
income tax return which challenges the exclusion from taxable income of an
inflation adjustment related to the value of assets used for power generation.
The failure to give notice of this Special Requirement to the US Export
Import Bank may be asserted as a technical event of default under the loan
agreement. An event of default would entitle TEBSA's lenders to accelerate the
payment of outstanding loans of TEBSA and require payment of certain standby
equity commitments by TEBSA's shareholders and equity guarantors, which include
a subsidiary of GPU Power and GPU, Inc. respectively. The lenders have not
asserted that an event of default has occurred or indicated whether they will
pursue remedies under the project financing documents.
As of December 31, 1999, GPU Power has an investment of approximately $79
million in TEBSA and GPU, Inc. has guaranteed $21.3 million in standby equity
commitments. There can be no assurance as to the outcome of these matters.
Other:
- -----
GPU AR has entered into contracts to supply electricity to retail customers
through May 2001. In connection with meeting its supply obligations, GPU AR has
entered into firm purchase commitments for energy and capacity with payment
obligations totaling approximately $27 million as of December 31, 1999. GPU,
Inc. has guaranteed up to $19 million of these payments.
In accordance with the Nuclear Waste Policy Act of 1982 (NWPA), the GPU
Energy companies have entered into contracts with, and have been paying fees to,
the DOE for the future disposal of spent nuclear fuel in a repository or interim
storage facility. AmerGen has assumed all liability for disposal costs related
to spent fuel generated after its purchase of TMI-1 and has agreed to assume
this liability for Oyster Creek following its purchase of that plant. In 1996,
the DOE notified the GPU Energy companies and other standard contract holders
that it will be unable to begin acceptance of spent nuclear fuel for disposal by
1998, as mandated by the NWPA. The DOE requested recommendations from contract
holders for handling the delay. The DOE's inability to accept spent nuclear fuel
could have a material impact on GPU's results of operations, as additional costs
may be incurred to build and maintain interim on-site storage at Oyster Creek.
In June 1997, a consortium of electric utilities, including GPUN, filed a
license application with the NRC seeking permission to build an interim
above-ground disposal facility for spent nuclear fuel in Utah. There can be no
assurance as to the outcome of these matters.
GPU, Inc. and consolidated affiliates have approximately 10,800 employees
worldwide, of which 6,100 are employed in the US and 3,700 are employed in the
United Kingdom. The majority of the US workforce is employed by the GPU Energy
companies, of which approximately 4,000 are represented by unions for collective
bargaining purposes. In the United Kingdom, approximately 2,800 Midlands
employees are represented by unions; terms and conditions of the
F-100
various bargaining agreements are generally reviewed annually, on April 1.
JCP&L, Met-Ed and Penelec's collective bargaining agreements with the
International Brotherhood of Electrical Workers expire on October 31, 2002,
April 30, 2000 and May 14, 2002, respectively. Penelec's collective bargaining
agreement with the Utility Workers Union of America expires on June 30, 2001.
During the normal course of the operation of its businesses, in addition to
the matters described above, GPU is from time to time involved in disputes,
claims and, in some cases, as a defendant in litigation in which compensatory
and punitive damages are sought by the public, customers, contractors, vendors
and other suppliers of equipment and services and by employees alleging unlawful
employment practices. While management does not expect that the outcome of these
matters will have a material effect on GPU's financial position or results of
operations, there can be no assurance that this will continue to be the case.
13. SEGMENT INFORMATION
The following is presented in accordance with Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information."
GPU's reportable segments are strategic business units that are managed
separately due to their different operating and regulatory environments. GPU's
management evaluates the performance of its business units based upon income
before extraordinary and non-recurring items. For the purpose of providing
segment information, domestic electric utility operations (GPU Energy) is
comprised of the three electric utility operating companies serving customers in
New Jersey and Pennsylvania, as well as GPU Generation, Inc. (sold in late
1999), GPUN, GPU Telcom and GPUS. For additional information on GPU's
organizational structure and businesses, see preface to the Notes to
Consolidated Financial Statements.
F-101
GPU, Inc. and Subsidiary Companies
Business Segment Data (in thousands)
Income
Interest Before Extra-
Depreciation Charges and Income Tax ordinary and Investments
Operating and Preferred Expense/ Non-recurring Total and Capital
Revenues Amortization Dividends (Benefit)(a) Items Assets Expenditures(b)
--------- ------------ ----------- ----------- -------------- ------ --------------
1999
- ----
Domestic Segments:
Electric Utility Operations
(GPU Energy) $3,685,821 $ 409,345 $ 209,769 $ 238,591 $ 440,983 $13,244,301 $ 291,391
Independ Power Prod
(GPU International) 83,434 9,401 1,044 9,478 11,337 359,374 1,225
Electric Retail Energy
Sales (GPU AR) 84,681 - - (2,393) (4,558) 24,630 -
--------- ------- ------- -------- -------- ---------- --------
Subtotal 3,853,936 418,746 210,813 245,676 447,762 13,628,305 292,616
--------- ------- ------- -------- -------- ---------- --------
Foreign Segments:
Electric/Gas Utility
Operations: (GPU Electric)
Electric Distribution-United Kingdom 504,826 52,847 91,433 21,208 54,836(c) 4,687,476 727,793
Electric Distribution - Argentina 135,938 15,273 23,414 (960) (1,778) 579,907 407,225
Electric Transmission - Australia 193,366 42,850 110,059 (1,171) (6,715) 1,824,309 19,889
Gas Transmission - Australia 31,326 6,933 28,821 (12,156) (39) 795,527 653,747
Independ Power Prod -
S. America (GPU Power) 37,732 6,290 3,560 5,152 8,116 238,644 30,421
--------- ------- ------- -------- -------- ---------- --------
Subtotal 903,188 124,193 257,287 12,073 54,420 8,125,863 1,839,075
--------- ------- ------- -------- -------- ---------- --------
Corporate and Eliminations - - 14,397 - (18,068) (36,086) -
--------- ------- ------- -------- -------- ---------- --------
Consolidated Total $4,757,124 $ 542,939 $ 482,497 $ 257,749 $ 484,114 $21,718,082 $2,131,691
========= ========= ========= ======= ========= ========== ==========
1998
- ----
Domestic Segments:
Electric Utility Operations
(GPU Energy) $3,953,254 $ 469,623 $241,886 271,336 $ 369,752 $13,298,257 $ 328,418
Independ Power Prod
(GPU International) 72,256 4,560 748 9,103 11,622 397,523 21,375
Electric Retail Energy Sales (GPU AR) 10,938 - - (1,201) (2,231) 2,651 34
--------- ------- ------- -------- -------- ---------- --------
Subtotal 4,036,448 474,183 242,634 279,238 379,143 13,698,431 349,827
--------- ------- ------- -------- -------- ---------- --------
Foreign Segments:
Electric/Gas Utility Operations:
(GPU Electric)
Electric Distribution -
United Kingdom 944 1,226 30,859 (6,489) 37,249(d) 617,737 -
Electric Transmission - Australia 181,059 40,841 108,227 11,421 18,885 1,788,877 58,549
Independ Power Prod -
S. America (GPU Power) 33,136 5,844 4,219 719 2,499 237,162 59,847
--------- ------- ------- -------- -------- ---------- --------
Subtotal 215,139 47,911 143,305 5,651 58,633 2,643,776 118,396
--------- ------- ------- -------- -------- ---------- --------
Corporate and Eliminations (2,795) - 3,293 - (11,818) (54,098) -
--------- ------- ------- -------- -------- ---------- --------
Consolidated Total $4,248,792 $ 522,094 $ 389,232 $284,889 $ 425,958 $16,288,109 $ 468,223
========= ======== ======= ======= ======== ========== ========
F-102
GPU, Inc. and Subsidiary Companies
Income
Interest Before Extra-
Depreciation Charges and Income Tax ordinary and Investments
Operating and Preferred Expense/ Non-recurring Total and Capital
(in thousands) Revenues Amortization Dividends (Benefit)(a) Items Assets Expenditures(b)
--------- ------------ ----------- ----------- -------------- ------ --------------
1997
Domestic Segments:
Electric Utility Operations
(GPU Energy) $4,045,233 $ 451,009 $ 249,015 $ 249,184 $ 388,030 $ 9,850,784 $ 356,416
Independ Power Prod
(GPU International) 38,727 778 713 (3,115) (13,362) 318,592 111,700
Electric Retail Energy Sales
(GPU AR) 1,339 - - (2,576) (4,782) 5,122 -
--------- ------------ -------- ------- -------- ---------- --------
Subtotal 4,085,299 451,787 249,728 243,493 369,886 10,174,498 468,116
--------- ------------ -------- ------- -------- ---------- --------
Foreign Segments:
Electric/Gas Utility Operations:
(GPU Electric)
Electric Distribution -
United Kingdom - 354 39,312 (44,438) 78,463(d) 568,997 449
Electric Transmission &
Distribution-Australia 30,339 9,412 23,397 (5,184) 12,631 1,967,946 1,800,072
Independ Power Prod -
S. America (GPU Power) 29,174 6,161 3,202 (335) (2,301) 145,859 -
--------- ------------ -------- ------- -------- ---------- --------
Subtotal 59,513 15,927 65,911 (49,957) 88,793 2,682,802 1,800,521
--------- ------------ -------- ------- -------- ---------- --------
Corporate and Eliminations (1,433) - 3,682 - (14,278) (34,366) -
--------- ------------ -------- ------- -------- ---------- --------
Consolidated Total $4,143,379 $ 467,714 $ 319,321 $193,536 $ 444,401 $12,822,934 $2,268,637
========== ========== ========== ======== ========== =========== ==========
(a) Represents income taxes on income before extraordinary and non-recurring
items.
(b) Includes acquisitions, net of cash acquired of $1,671 million in 1999
(Midlands $653 million; Emdersa $369 million; GPU GasNet $649 million) and
$1,798 million in 1997 (GPU PowerNet).
(c) Includes equity in net income of investee accounted for under the equity
method of $74 million, for the period prior to the consolidation of
Midlands.
(d) Includes equity in net income of investee accounted for under the equity
method of $62 million in 1998 and $74 million in 1997.
F-103
GPU, Inc. and Subsidiary Companies
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)
- ------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
- ---------------------------- --------- --------- -------- --------
Additions
----------------------
Balance (1) (2)
at Charged to Charged Balance
Beginning Costs and to Other at End
Description of Period Expenses Accounts Deductions of Period
- ------------------------------- --------- --------- -------- ---------- ---------
Year ended December 31, 1999
Allowance for doubtful
accounts $51,045(e) $31,458 $120,161(a) $143,261(b) $59,403
Allowance for inventory
obsolescence 218(e) 581 - 160(c) 639
Year ended December 31, 1998
Allowance for doubtful
accounts $ 8,087 $16,169 $ 5,564(a) $21,486(b) $ 8,334
Allowance for inventory
obsolescence 1,484 - (13)d) 1,311(c) 160
Year ended December 31, 1997
Allowance for doubtful
accounts $ 8,660 $17,984 $ 6,069(a) $ 24,626(b) $ 8,087
Allowance for inventory
obsolescence 2,256 - 8(d) 780(c) 1,484
<FN>
(a) Recovery of accounts previously written off.
(b) Accounts receivable written off.
(c) Inventory written off.
(d) Sale of inventory previously written off.
(e) Beginning balance is adjusted for 1999 acquisitions ($42,711 relating to
the allowance for doubtful accounts and $58 relating to the allowance for
inventory obsolescence). For more information, see Note 7 of the Notes to
Consolidated Financial Statements.
</FN>
F-104
Jersey Central Power & Light Company and Subsidiary Company
COMPANY STATISTICS
For The Years Ended December 31, 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------
Capacity at Company Peak (in MW):
Company owned 2,685 2,729 2,718 2,850 2,749
Contracted 1,512 2,933 2,794 2,497 2,462
------ ------ ------ ------ ------
Total capacity (a) 4,197 5,662 5,512 5,347 5,211
====== ====== ====== ====== ======
Hourly Peak Load (in MW):
Summer peak 5,180 4,817 4,817 4,130 4,554
Winter peak 3,402 3,175 3,168 3,173 3,260
Reserve at company peak (%) (19.0) 17.3 14.4 29.5 14.4
Load factor (%) (b) 46.1 47.7 46.5 53.9 47.1
Sources of Energy (in thousands of MWH):
Coal 1,936 2,224 2,215 2,105 1,929
Nuclear 6,911 6,064 6,553 6,114 6,791
Gas, hydro & oil 419 487 548 535 861
------ ------ ------ ------ ----
Net generation 9,266 8,775 9,316 8,754 9,581
Utility purchases and interchange 7,862 7,567 6,044 6,608 6,304
Nonutility purchases 5,323 5,271 5,342 5,439 5,850
------ ------ ------ ------ -----
Total sources of energy 22,451 21,613 20,702 20,801 21,735
Energy from alternate suppliers 21 - - - -
Company use, line loss, etc. (1,878) (1,558) (1,794) (2,127) (1,749)
------ ------ ------ ------ ------
Total electric energy sales 20,594 20,055 18,908 18,674 19,986
====== ====== ====== ====== =======
Fuel Expense (in millions):
Coal $24 $27 $ 28 $ 30 $ 26
Nuclear 43 37 39 40 44
Gas & oil 24 22 34 31 31
-- -- --- --- ---
Total $91 $86 $101 $101 $101
== == === === ====
Power Purchased and Interchanged (in millions):
Utility and interchange purchases $377 $293 $234 $246 $279
Nonutility purchases 398 403 384 370 382
Amortization of nonutility buyout costs 23 20 9 - -
--- --- --- --- ---
Total $798 $716 $627 $616 $661
=== === === === ====
Delivered MWH Sales (in thousands):
Residential 7,978 7,551 7,256 7,266 7,112
Commercial 7,624 7,259 6,974 6,829 6,611
Industrial 3,289 3,474 3,536 3,497 3,562
Other 81 81 79 78 77
------ ------ ------ ------ ----
Sales to customers 18,972 18,365 17,845 17,670 17,362
Sales to other utilities 1,622 1,690 1,063 1,004 2,624
------ ------ ------ ------ -----
Total 20,594 20,055 18,908 18,674 19,986
====== ====== ====== ====== ======
Operating Revenues (in millions):
Residential $ 933 $ 891 $ 907 $ 895 $ 881
Commercial 807 779 797 775 742
Industrial 276 288 313 311 315
Other 21 21 21 21 21
----- ----- ----- ----- ----
Sales to customers 2,037 1,979 2,038 2,002 1,959
Provision for rate refunds (112) (6) - - -
Sales to other utilities 64 75 36 35 62
----- ----- ----- ----- ----
Total electric energy sales 1,989 2,048 2,074 2,037 2,021
Other revenues 29 22 20 21 15
----- ----- ----- ----- ----
Total $2,018 $2,070 $2,094 $2,058 $2,036
===== ===== ===== ===== ======
Customers at Year-End (in thousands):
Total customers 996 982 969 954 940
Customers choosing alternate suppliers 4 - - - -
<FN>
(a) Summer ratings at December 31, 1999 of owned and contracted capacity were
885 MW and 3,312 MW, respectively.
(b) The ratio of the average hourly load in kilowatts supplied during the year
to the peak load occurring during the year.
</FN>
F-105
Jersey Central Power & Light Company and Subsidiary Company
SELECTED FINANCIAL DATA
(In Millions)
For the Years Ended December 31, 1999(1 1998 1997 1996(2) 1995
- -------------------------------------------------------------------------------------------------------
Operating revenues $2,018.2 $2,069.6 $2,094.0 $2,057.9 $2,035.9
Other operation and
maintenance expense 482.9 485.0 455.0 556.1 475.4
Net income 172.4 222.4 212.0 156.3 199.1
Earnings available for
common stock 162.9 212.4 200.6 143.2 184.6
Net utility plant
in service 1,729.3 2,538.2 2,664.1 2,717.1 2,641.6
Total assets 5,811.0 4,582.1 4,641.6 4,676.7 4,418.8
Long-term debt 1,133.8 1,173.5 1,173.3 1,173.1 1,192.9
Long-term obligations
under capital leases - - - 0.1 2.4
Company-obligated
mandatorily redeemable
preferred securities 125.0 125.0 125.0 125.0 125.0
Cumulative preferred stock
with mandatory redemption 73.2 86.5 91.5 114.0 134.0
Capital expenditures and
investments 140.9 154.9 172.2 199.8 217.8
Return on average
common equity 10.7% 13.5% 13.1% 9.5% 13.1%
(1) Results for 1999 reflect a non-recurring charge of $68 million
(after-tax) related to the NJBPU Restructuring Order.
(2) Results for 1996 reflect a non-recurring charge of $39.4 million
(after-tax) for costs related to voluntary enhanced retirement programs.
F-106
Jersey Central Power and Light Company and Subsidiary Company
QUARTERLY FINANCIAL DATA (UNAUDITED)
First Quarter Second Quarter
----------------------- -----------------
In Thousands 1999 1998 1999(1) 1998
- ----------------------------------------------------------------------------------------
Operating revenues $516,889 $472,334 $391,025 $478,894
Operating income 113,127 110,318 11,285 92,750
Net income/(loss) 53,697 52,816 (5,855) 40,285
Earnings/(loss) available for common stock 51,265 50,078 (8,225) 37,720
Third Quarter Fourth Quarter
----------------------- -----------------
In Thousands 1999 1998 1999(2) 1998
- ----------------------------------------------------------------------------------------
Operating revenues $670,245 $647,625 $440,050 $470,795
Operating income 194,846 177,081 46,531 81,910
Net income 102,903 91,607 21,635 37,734
Earnings available for common stock 100,565 89,277 19,257 35,302
(1) Results for the second quarter of 1999 include a reduction of $68 million
after-tax as a result of the NJBPU's Restructuring Order on JCP&L.
(2) The aggregate effect on earnings of fourth quarter 1999 adjustments was a
gain of approximately $3 million after-tax.
F-107
Jersey Central Power & Light Company and Subsidiary Company
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of Jersey Central Power & Light
Company:
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of Jersey
Central Power & Light Company and Subsidiary Company at December 31, 1999 and
1998, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999 in conformity with accounting
principles generally accepted in the United States. In addition, in our opinion,
the financial statement schedule listed in the accompanying index presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements and financial statement schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
February 10, 2000
F-108
Jersey Central Power & Light Company and Subsidiary Company
CONSOLIDATED BALANCE SHEETS
(In Thousands)
December 31, 1999 1998
- -----------------------------------------------------------------------------
ASSETS
Utility Plant:
Transmission, distribution, and general plant $3,097,150 $3,108,697
Generation plant 504,545 1,646,576
--------- ---------
Utility plant in service (Note 6) 3,601,695 4,755,273
Accumulated depreciation (1,872,422) (2,217,108)
--------- ---------
Net utility plant in service (Note 1) 1,729,273 2,538,165
Construction work in progress 80,671 48,126
Other, net 14,781 98,491
--------- --------
Net utility plant 1,824,725 2,684,782
--------- ---------
Other Property and Investments:
Nuclear decommissioning trusts, at market
(Note 12) 394,941 422,277
Nuclear fuel disposal trust, at market 119,293 116,871
Other, net 1,252 9,596
--------- --------
Total other property and investments 515,486 548,744
--------- --------
Current Assets:
Cash and temporary cash investments 68,684 1,850
Special deposits 1,035 6,047
Accounts receivable:
Customers, net 164,099 152,120
Other 83,086 32,562
Unbilled revenues (Note 1) 78,251 56,391
Materials and supplies, at average cost or less:
Construction and maintenance - 79,863
Fuel - 13,144
Deferred income taxes (Note 8) 1,652 20,812
Prepayments 23,000 27,648
--------- -------
Total current assets 419,807 390,437
--------- ---------
Deferred Debits and Other Assets:
Regulatory assets, net (Notes 1 & 12) 2,809,801 763,500
Deferred income taxes (Note 8) 221,668 179,237
Other 19,510 15,422
--------- --------
Total deferred debits and other assets 3,050,979 958,159
--------- -----------
Total Assets $5,810,997 $4,582,122
========= ===========
The accompanying notes are an integral part of the consolidated financial
statements.
F-109
Jersey Central Power & Light Company and Subsidiary Company
CONSOLIDATED BALANCE SHEETS
(In Thousands)
December 31, 1999 1998
- ----------------------------------------------------------------------------
LIABILITIES AND CAPITALIZATION
Capitalization:
Common stock $ 153,713 $153,713
Capital surplus 510,769 510,769
Retained earnings 720,878 893,016
Accumulated other comprehensive income/(loss) 7 (425)
--------- ----------
Total common stockholder's equity (Note 5) 1,385,367 1,557,073
Cumulative preferred stock: (Note 4)
With mandatory redemption 73,167 86,500
Without mandatory redemption 12,649 37,741
Company-obligated mandatorily redeemable
preferred securities (Note 4) 125,000 125,000
Long-term debt (Note 3) 1,133,760 1,173,532
--------- ---------
Total capitalization 2,729,943 2,979,846
--------- ---------
Current Liabilities:
Securities due within one year (Notes 3 & 4) 50,846 2,512
Notes payable (Note 2) - 122,344
Obligations under capital leases (Note 11) 48,165 85,366
Accounts payable:
Affiliates 60,527 40,861
Other 82,355 80,233
Taxes accrued 13,079 5,559
Interest accrued 24,523 26,678
Deferred credits (Note 1) - 2,411
Other 36,169 104,408
--------- --------
Total current liabilities 315,664 470,372
--------- --------
Deferred Credits and Other Liabilities:
Deferred income taxes (Note 8) 570,568 670,961
Unamortized investment tax credits 32,114 50,225
Nuclear fuel disposal fee 148,009 141,270
Three Mile Island Unit 2 future costs (Note 12) 124,241 120,904
Power purchase contract loss liability (Note 12) 1,624,769 -
Other 265,689 148,544
--------- --------
Total deferred credits and other liabilities 2,765,390 1,131,904
--------- ---------
Commitments and Contingencies (Note 12)
Total Liabilities and Capitalization $5,810,997 $4,582,122
========= ==========
The accompanying notes are an integral part of the consolidated financial
statements.
F-110
Jersey Central Power & Light Company and Subsidiary Company
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands)
For The Years Ended December 31, 1999 1998 1997
- -------------------------------------------------------------------------------------------------
Operating Revenues (Note 1) $2,018,209 $2,069,648 $2,093,972
---------- ---------- ----------
Operating Expenses:
Fuel 91,044 86,431 101,030
Power purchased and interchanged:
Affiliates 127,406 57,643 15,979
Others 670,538 658,742 610,792
Deferred costs, net (Note 1) (38,108) (25,542) 6,043
Other operation and maintenance (Note 9) 482,874 485,054 454,991
Depreciation and amortization (Note 1) 241,842 250,675 237,461
Taxes, other than income taxes (Note 9) 76,824 94,586 232,086
---------- ---------- ----------
Total operating expenses 1,652,420 1,607,589 1,658,382
---------- ---------- ----------
Operating Income 365,789 462,059 435,590
---------- ---------- ----------
Other Income and Deductions:
Allowance for other funds used during construction - 786 -
Other income, net 12,461 13,227 1,919
---------- ---------- ----------
Total other income and deductions 12,461 14,013 1,919
---------- ---------- ----------
Income Before Interest Charges 378,250 476,072 437,509
---------- ---------- ----------
Interest Charges:
Long-term debt and notes payable 95,325 95,361 100,706
Company-obligated mandatorily
redeemable preferred securities 10,700 10,700 10,700
Other interest 650 4,129 4,292
Allowance for borrowed funds used during
construction (1,775) (1,638) (2,319)
---------- ---------- ----------
Total interest charges 104,900 108,552 113,379
---------- ---------- ----------
Income Before Income Taxes 273,350 367,520 324,130
Income taxes (Note 8) 100,970 145,078 112,116
---------- ---------- ----------
Net Income 172,380 222,442 212,014
Preferred stock dividends 8,670 10,065 11,376
Loss on preferred stock reacquisition 848 - -
---------- ---------- ----------
Earnings Available for Common Stock $ 162,862 $ 212,377 $ 200,638
========== ========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
F-111
Jersey Central Power & Light Company and Subsidiary Company
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands)
For The Years Ended December 31, 1999 1998 1997
- -------------------------------------------------------------------------------------------------
Net income $172,380 $222,442 $212,014
-------- -------- --------
Other comprehensive income/(loss), net of tax: (Note 5)
Net unrealized gain on investments 7 - -
Minimum pension liability 425 (425) -
-------- -------- --------
Total other comprehensive income/(loss) 432 (425) -
-------- -------- --------
Comprehensive income $172,812 $222,017 $212,014
======== ======== ========
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(In Thousands)
For The Years Ended December 31, 1999 1998 1997
- -------------------------------------------------------------------------------------------------
Balance at beginning of year $ 893,016 $ 875,639 $ 825,001
Net income 172,380 222,442 212,014
-------- -------- --------
Total 1,065,396 1,098,081 1,037,015
--------- --------- ---------
Cash dividends on capital stock:
Cumulative preferred stock
(at the annual rates indicated below):
4% Series ($4.00 a share) (500) (500) (500)
7.88% Series E ($7.88 a share) (1,162) (1,970) (1,970)
8.48% Series I ($8.48 a share) - (212) (1,272)
8.65% Series J ($8.65 a share) (4,325) (4,325) (4,325)
7.52% Series K ($7.52 a share) (2,683) (3,058) (3,309)
Common stock (not declared on a
per share basis) (335,000) (195,000) (150,000)
-------- -------- --------
Total (343,670) (205,065) (161,376)
-------- -------- --------
Loss on preferred stock reacquisition (848) - -
-------- -------- --------
Balance at end of year $ 720,878 $ 893,016 $ 875,639
========== ========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
F-112
Jersey Central Power & Light Company and Subsidiary Company
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
For The Years Ended December 31, 1999 1998 1997
- -------------------------------------------------------------------------------------------------
Operating Activities:
Net income $ 172,380 $222,442 $ 212,014
Adjustments to reconcile income to cash provided:
Depreciation and amortization 272,284 277,950 253,278
Amortization of property under capital leases 29,507 26,739 28,703
NJBPU restructuring rate order 115,000 - -
Voluntary enhanced retirement programs - - -
Nuclear outage maintenance costs, net - (6,640) 11,615
Deferred income taxes and investment tax
credits, net (96,183) (41,865) (27,449)
Deferred costs, net (37,841) (24,482) 8,193
Allowance for other funds used during
construction - (786) -
Changes in working capital:
Receivables (84,364) (9,407) (6,261)
Materials and supplies 46,023 3,863 7,721
Special deposits and prepayments 9,660 (12,450) 6,844
Payables and accrued liabilities (195) 1,418 (31,854)
Nonutility generation contract buyout costs (35,500) (15,000) (30,500)
Other, net (12,327) 13,091 (4,479)
------- ------ ------
Net cash provided by operating activities 378,444 434,873 427,825
------- ------- -------
Investing Activities:
Capital expenditures (140,915) (154,918) (172,243)
Proceeds from sale of investments 413,753 - -
Contributions to decommissioning trusts (59,175) (28,003) (18,003)
Other, net (2,162) (10,720) (10,989)
--------- -------- ---------
Net cash provided/(used) for investing activities 211,501 (193,641) (201,235)
--------- -------- ---------
Financing Activities:
Increase/(decrease) in notes payable, net (122,344) 7,090 83,454
Retirement of long-term debt (12) (11) (100,075)
Capital lease principal payments (27,347) (29,084) (26,496)
Redemption of preferred stock (30,940) (15,000) (20,000)
Dividends paid on preferred stock (7,468) (10,371) (11,800)
Dividends paid on common stock (335,000) (195,000) (150,000)
--------- -------- ---------
Net cash required by financing activities (523,111) (242,376) (224,917)
--------- -------- ---------
Net increase/(decrease) in cash and temporary cash
investments from above activities 66,834 (1,144) 1,673
Cash and temporary cash investments, beginning of year 1,850 2,994 1,321
--------- -------- ---------
Cash and temporary cash investments, end of year $ 68,684 $1,850 $ 2,994
========= ======== =========
Supplemental Disclosure:
Interest and preferred dividends paid $ 115,624 $116,942 $ 126,223
========= ======== =========
Income taxes paid $ 189,304 $192,335 $ 133,689
========= ======== =========
New capital lease obligations incurred $ 9,407 $32,680 $ 11,048
========= ======== =========
The accompanying notes are an integral part of the consolidated financial
statements.
F-113
Jersey Central Power & Light Company and Subsidiary Company
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)
- ------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
- ---------------------------- --------- -------- -------- ---------
Additions
---------------
Balance (1) (2)
at Charged to Charged Balance
Beginning Costs and to Other at End
Description of Period Expenses Accounts Deductions of Period
- ------------------------------ --------- ---------- -------- ---------- ----------
Year ended December 31, 1999
Allowance for doubtful
accounts $1,764 $9,549 $37,098(a) $42,355(b) $6,056
Allowance for inventory
obsolescence - - - - -
Year ended December 31, 1998
Allowance for doubtful
accounts $1,414 $4,670 $1,729(a) $6,049(b) $1,764
Allowance for inventory
obsolescence (16) - - 16(c) -
Year ended December 31, 1997
Allowance for doubtful
accounts $1,670 $4,976 $1,939 $7,171(b) $1,414
Allowance for inventory
obsolescence 206 - 1(d) 223(c) (16)
<FN>
(a) Recovery of accounts previously written off.
(b) Accounts receivable written off.
(c) Inventory written off.
(d) Sale of inventory previously written off.
</FN>
F-114
Metropolitan Edison Company and Subsidiary Companies
COMPANY STATISTICS
For The Years Ended December 31, 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------
Capacity at Company Peak (in MW):
Company owned 1,738 1,738 1,738 1,705 1,604
Contracted 261 568 507 853 492
------ ------ ------ ------ ------
Total capacity (a) 1,999 2,306 2,245 2,558 2,096
====== ====== ====== ====== ======
Hourly Peak Load (in MW):
Summer peak 2,384 2,176 2,224 2,017 2,186
Winter peak 2,100 2,082 2,054 2,114 2,012
Reserve at company peak (%) (16.1) 6.0 .9 21.0 (4.1)
Load factor (%) (b) 62.6 66.1 63.5 66.3 61.4
Sources of Energy (in thousands of MWH):
Coal 4,835 5,363 5,203 4,760 4,334
Nuclear 3,045 3,529 2,959 3,550 3,194
Gas, hydro & oil 235 329 204 182 253
------ ------ ------ ------ ------
Net generation 8,115 9,221 8,366 8,492 7,781
Utility purchases and interchange 1,655 1,671 2,424 2,021 3,087
Nonutility purchases 2,283 2,389 2,481 2,406 2,066
------ ------ ------ ------ -----
Total sources of energy 12,053 13,281 13,271 12,919 12,934
Energy from alternate suppliers 5,113 - - - -
Company use, line loss, etc. (624) (387) (790) (718) (856)
------ ------ ------ ------ -----
Total electric energy sales 16,542 12,894 12,481 12,201 12,078
====== ====== ====== ====== ======
Fuel Expense (in millions):
Coal $65 $71 $72 $69 $61
Nuclear 16 20 16 20 20
Gas & oil 5 8 4 5 6
-- -- -- -- ---
Total $86 $99 $92 $94 $87
== == == == ====
Power Purchased and Interchanged (in millions):
Utility and interchange purchases $ 63 $ 58 $ 70 $ 54 $ 84
Nonutility purchases 167 174 162 168 131
Deferred nonutility costs (8) (4) - - -
Amortization of nonutility buyout costs 3 10 10 9 -
--- --- --- --- ----
Total $225 $238 $242 $231 $215
=== === === === ===
Delivered MWH Sales (in thousands):
Residential 4,265 4,040 4,034 4,135 3,925
Commercial 3,488 3,321 3,209 3,144 3,011
Industrial 4,085 4,174 4,098 4,033 3,957
Other 122 202 210 213 209
------ ------ ------ ------ ----
Sales to customers 11,960 11,737 11,551 11,525 11,102
Sales to other utilities 4,582 1,157 930 676 976
------ ------ ------ ------ ----
Total 16,542 12,894 12,481 12,201 12,078
====== ====== ====== ====== ======
Operating Revenues (in millions):
Residential $362 $361 $368 $365 $339
Commercial 193 260 259 247 229
Industrial 98 244 253 243 228
Other 8 14 14 14 13
--- --- --- --- ---
Sales to customers 661 879 894 869 809
Provision for rate refunds 27 (27) - - -
Sales to other utilities 163 34 24 20 26
--- --- --- --- ----
Total electric energy sales 851 886 918 889 835
Other revenues 52 33 25 21 20
--- --- --- --- ----
Total $903 $919 $943 $910 $855
=== === === === ===
Customers at Year-End (in thousands):
Total customers 489 482 477 470 465
Customers choosing alternate suppliers 33 - - - -
<FN>
(a) Summer ratings at December 31, 1999 of owned and contracted capacity were 19
MW and 1,872 MW, respectively.
(b) The ratio of the average hourly load in kilowatts supplied during the year
to the peak load occurring during the year.
</FN>
F-115
Metropolitan Edison Company and Subsidiary Companies
SELECTED FINANCIAL DATA
(In Millions)
For the Years Ended December 31, 1999(1) 1998(2) 1997 1996(3) 1995(4)
- -----------------------------------------------------------------------------------------
Operating revenues $ 902.8 $ 919.6 $ 943.1 $ 910.4 $ 854.7
Other operation
and maintenance expense 250.2 247.2 228.3 250.0 229.6
Income before
extraordinary item 95.1 57.7 93.5 69.1 148.5
Net income 95.1 50.9 93.5 69.1 148.5
Earnings/(loss) available for
common stock 94.5 50.4 93.0 71.8 147.6
Net utility plant
in service 1,059.4 1,239.2 1,492.0 1,455.7 1,477.0
Total assets 3,488.2 4,065.0 2,509.8 2,447.0 2,410.7
Long-term debt 496.9 546.9 576.9 563.3 603.3
Long-term obligations
under capital leases - - - 0.4 1.0
Company-obligated
mandatorily redeemable
preferred securities - 100.0 100.0 100.0 100.0
Trust preferred securities 100.0 - - - -
Capital expenditures and
investments 66.4 75.1 87.6 76.7 112.6
Return on average
common equity 13.9% 7.5% 12.9% 10.3% 23.5%
<FN>
(1) Results for 1999 include a net gain of $1.2 million (after-tax) as a result
of the sale of substantially all of Met-Ed's electric generating stations.
(2) Results for 1998 include an extraordinary charge of $6.8 million (after-tax)
as a result of the PaPUC's Restructuring Order. Also in 1998, as a result of
the PaPUC Order, Met-Ed recorded a non-recurring charge of $19 million
(after-tax) related to the obligation to refund 1998 revenues; and for the
establishment of a sustainable energy fund.
(3) Results for 1996 reflect a non-recurring charge of $15.4 million (after-tax)
for costs related to voluntary enhanced retirement programs.
(4) Results for 1995 reflect the reversal of $72.8 million (after-tax) of
certain future TMI-2 retirement costs written off in 1994. The reversal of
this write-off resulted from a 1995 Pennsylvania Supreme Court decision
that overturned a 1994 lower court order, and restored a 1993 PaPUC order
allowing for the recovery of such costs. Partially offsetting this increase
was a non-recurring charge to income of $5.7 million (after-tax) of TMI-2
monitored storage costs deemed not probable of recovery through ratemaking.
F-116
</FN>
Metropolitan Edison Company and Subsidiary Companies
QUARTERLY FINANCIAL DATA (UNAUDITED)
First Quarter Second Quarter
---------------------- ---------------------
In Thousands 1999 1998 1999 1998(1)
- ----------------------------------------------------------------------------------------
Operating revenues $229,157 $234,748 $198,010 $226,030
Operating income 76,252 57,874 44,623 53,704
Income before extraordinary item 32,832 24,730 19,142 18,548
Net income/(loss) 32,832 24,730 19,142 (168,732)
Earnings/(loss) available for common stock 32,224 24,609 19,142 (168,853)
Third Quarter Fourth Quarter
---------------------- ---------------------
In Thousands 1999 1998(2) 1999(3) 1998
- -----------------------------------------------------------------------------------------
Operating revenues $280,235 $229,051 $195,425 $229,765
Operating income 81,257 13,604 11,116 42,244
Income/(loss) before extraordinary item 41,622 (3,544) 1,527 17,986
Net income 41,622 176,931 1,527 17,986
Earnings available for common stock 41,622 176,811 1,527 17,865
<FN>
(1)Results for the second quarter of 1998 were affected by an extraordinary
charge of $187.3 million after-tax as a result of the Pennsylvania Public
Utility Commission's (PaPUC) June 30, 1998 Restructuring Order on Met-Ed's
restructuring plans.
(2)In the third quarter of 1998, as a result of the amended PaPUC Restructuring
Order, Met-Ed reversed $183.2 million after-tax of the extraordinary charge
taken in the second quarter, primarily related to above-market nonutility
generation costs; and recorded an additional extraordinary charge of $3
million after-tax primarily related to the write-off of FERC assets. Also, in
the third quarter of 1998, as a result of the amended PaPUC Order, Met-Ed
recorded a non-recurring charge of $19 million after-tax related to the
obligation to refund 1998 revenues; and for the establishment of a
sustainable energy fund.
(3) Results for the fourth quarter of 1999 include an increase of $1.2 million
after-tax for the net gain on the sale of substantially all of Met-Ed's
generating assets, related to wholesale operations. In addition, the
aggregate effect on earnings of other fourth quarter 1999 adjustments was a
loss of approximately $5 million after-tax.
</FN>
F-117
Metropolitan Edison Company and Subsidiary Companies
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of Metropolitan Edison Company:
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of
Metropolitan Edison Company and Subsidiary Companies at December 31, 1999 and
1998, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999 in conformity with accounting
principles generally accepted in the United States. In addition, in our opinion,
the financial statement schedule listed in the accompanying index presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements and financial statement schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
February 10, 2000
F-118
Metropolitan Edison Company and Subsidiary Companies
CONSOLIDATED BALANCE SHEETS
(In Thousands)
December 31, 1999 1998
- ------------------------------------------------------------------------------
ASSETS
Utility Plant:
Transmission, distribution and general plant $1,500,417 $1,481,958
Generation plant 21,683 765,669
---------- ----------
Utility plant in service (Note 6) 1,522,100 2,247,627
Accumulated depreciation (462,709) (1,008,438)
---------- ----------
Net utility plant in service (Note 1) 1,059,391 1,239,189
Construction work in progress 25,329 19,380
Other, net 643 27,819
---------- ----------
Net utility plant 1,085,363 1,286,388
--------- ---------
Other Property and Investments:
Nuclear decommissioning trusts, at market (Note 12) 144,261 211,194
Other, net 3,010 11,742
---------- ----------
Total other property and investments 147,271 222,936
---------- ----------
Current Assets:
Cash and temporary cash investments 10,899 442
Special deposits 160 1,062
Accounts receivable:
Customers, net 60,188 60,012
Other 149,760 41,895
Unbilled revenues (Note 1) 28,956 43,687
Materials and supplies, at average cost or less:
Construction and maintenance - 24,727
Fuel - 12,218
Deferred income taxes (Note 8) 2,945 2,945
Prepayments 16,715 20,616
---------- ----------
Total current assets 269,623 207,604
---------- ----------
Deferred Debits and Other Assets:
Regulatory assets, net (Notes 1 & 12) 1,231,140 1,615,726
Deferred income taxes (Note 8) 738,189 714,202
Other 16,607 18,113
---------- ----------
Total deferred debits and other assets 1,985,936 2,348,041
---------- ----------
Total Assets $3,488,193 $4,064,969
========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
F-119
Metropolitan Edison Company and Subsidiary Companies
CONSOLIDATED BALANCE SHEETS
(In Thousands)
December 31, 1999 1998
- ------------------------------------------------------------------------------
LIABILITIES AND CAPITALIZATION
Capitalization:
Common stock $ 66,273 $66,273
Capital surplus 400,200 370,200
Retained earnings 13,581 234,066
Accumulated other comprehensive income (Note 5) 21,363 16,520
------- -------
Total common stockholder's equity 501,417 687,059
Cumulative preferred stock (Note 4) - 12,056
Company-obligated mandatorily redeemable
preferred securities (Note 4) - 100,000
Trust preferred securities 100,000 -
Long-term debt (Note 3) 496,883 546,904
------- -------
Total capitalization 1,098,300 1,346,019
--------- ---------
Current Liabilities:
Securities due within one year (Note 3) 50,025 30,024
Notes payable (Note 2) - 79,540
Obligations under capital leases (Note 11) - 27,135
Accounts payable:
Affiliates 125,179 75,933
Other 30,106 102,390
Taxes accrued 35,976 19,463
Interest accrued 16,738 16,747
Other 18,208 42,598
------- -------
Total current liabilities 276,232 393,830
------- -------
Deferred Credits and Other Liabilities:
Deferred income taxes (Note 8) 993,427 1,010,982
Three Mile Island Unit 2 future costs (Note 12) 248,381 241,707
Unamortized investment tax credits 15,010 27,157
Nuclear fuel disposal fee 33,430 31,912
Power purchase contract loss liability (Note 12) 735,833 787,440
Other 87,580 225,922
--------- ---------
Total deferred credits and other liabilities 2,113,661 2,325,120
--------- ---------
Commitments and Contingencies (Note 12)
Total Liabilities and Capitalization $3,488,193 $4,064,969
========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
F-120
Metropolitan Edison Company and Subsidiary Companies
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands)
For The Years Ended December 31, 1999 1998 1997
- ---------------------------------------------------------------------------------------
Operating Revenues (Note 1) $902,827 $919,594 $943,109
------- -------- --------
Operating Expenses:
Fuel 86,156 99,511 92,726
Power purchased and interchanged:
Affiliates 3,415 17,766 17,936
Others 221,516 220,095 223,948
Other operation and maintenance (Note 9) 250,220 247,189 228,258
Depreciation and amortization (Note 1) 88,989 109,148 106,437
Taxes, other than income taxes (Note 9) 39,283 58,459 59,339
------- -------- --------
Total operating expenses 689,579 752,168 728,644
------- -------- --------
Operating Income 213,248 167,426 214,465
------- -------- --------
Other Income and Deductions:
Allowance for other funds used during construction 164 130 75
Other income/(expense), net 3,901 (13,539) 3,371
------- -------- --------
Total other income and deductions 4,065 (13,409) 3,446
------- -------- --------
Income Before Interest Charges 217,313 154,017 217,911
------- -------- --------
Interest Charges:
Long-term debt and notes payable 45,996 47,557 48,789
Trust preferred securities 4,369 - -
Other interest 2,527 3,130 1,861
Allowance for borrowed funds used during
construction (1,048) (813) (1,025)
Company-obligated mandatorily
redeemable preferred securities 8,950 9,000 9,000
------- -------- --------
Total interest charges 60,794 58,874 58,625
------- ------ ------
Income Before Income Taxes 156,519 95,143 159,286
Income taxes (Note 8) 61,396 37,423 65,769
-------- -------- --------
Income Before Extraordinary Item 95,123 57,720 93,517
Extraordinary item (net of income taxes
of $4,708) (Note 6) - (6,805) -
-------- -------- --------
Net Income 95,123 50,915 93,517
Preferred stock dividends 66 483 483
Loss on preferred stock reacquisition 542 - -
------- -------- --------
Earnings Available for Common Stock $ 94,515 $ 50,432 $ 93,034
======== ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
F-121
Metropolitan Edison Company and Subsidiary Companies
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands)
For The Years Ended December 31, 1999 1998 1997
- ---------------------------------------------------------------------------------------
Net income $ 95,123 $ 50,915 $ 93,517
-------- -------- --------
Other comprehensive income/(loss), net of tax: (Note 5)
Net unrealized gain on investments 4,315 4,148 4,249
Minimum pension liability 528 (115) (157)
-------- -------- --------
Total other comprehensive income 4,843 4,033 4,092
-------- -------- --------
Comprehensive income $ 99,966 $ 54,948 $ 97,609
======== ======== ========
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(In Thousands)
For The Years Ended December 31, 1999 1998 1997
- -----------------------------------------------------------------------------------------
Balance at beginning of year $234,066 $268,634 $255,649
Net income 95,123 50,915 93,517
-------- -------- --------
Total 329,189 319,549 349,166
-------- -------- --------
Cash dividends on capital stock:
Cumulative preferred stock
(at the annual rates indicated below):
3.90% Series ($3.90 a share) (34) (251) (251)
4.35% Series ($4.35 a share) (14) (98) (98)
3.85% Series ($3.85 a share) (5) (36) (36)
3.80% Series ($3.80 a share) (4) (30) (30)
4.45% Series ($4.45 a share) (9) (68) (68)
Common stock (not declared on a
per share basis) (315,000) (85,000) (80,000)
-------- -------- --------
Total (315,066) (85,483 (80,483)
-------- -------- --------
Loss on preferred stock reacquisition (542) - -
Other adjustments, net - - (49)
-------- -------- --------
Balance at end of year $ 13,581 $234,066 $268,634
======== ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
F-122
Metropolitan Edison Company and Subsidiary Companies
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
For The Years Ended December 31, 1999 1998 1997
- -----------------------------------------------------------------------------------------
Operating Activities:
Net income $ 95,123 $50,915 $ 93,517
Extraordinary item (net of income tax
benefit of $4,708) - 6,805 -
--------- ------- ---------
Income before extraordinary item 95,123 57,720 93,517
Adjustments to reconcile income to cash provided:
Depreciation and amortization 91,575 114,961 113,662
Amortization of property under capital leases 12,041 14,666 11,637
PaPUC restructuring rate orders - 32,900 -
Gain on sale of investments (2,011) - -
Nuclear outage maintenance costs, net (7,595) 6,494 (6,169)
Deferred income taxes and investment tax
credits, net (79,142) (23,152) 3,137
Allowance for other funds used during
construction (164) (130) (75)
Changes in working capital:
Receivables (108,040) (11,292) (28,393)
Materials and supplies 36,944 (1,911) 845
Special deposits and prepayments 4,803 (13,861) 10,489
Payables and accrued liabilities (30,924) 23,504 47,819
Nonutility generation contract buyout costs (55,034) (32,917) (16,050)
Other, net (61,924) 6,566 (17,942)
--------- ------- ---------
Net cash provided/(required) by operating activities (104,348) 173,548 212,477
--------- ------- ---------
Investing Activities:
Capital expenditures (66,388) (75,068) (87,613)
Proceeds from sale of investments 641,273 - -
Contributions to decommissioning trusts (33,556) (17,766) (16,992)
Other, net (45) 465 (363)
--------- ------- ---------
Net cash provided/(used) for investing activities 541,284 (92,369) (104,968)
--------- ------- ---------
Financing Activities:
Issuance of trust preferred securities 96,535 - -
Issuance of long-term debt - - 13,577
Increase/(decrease) in notes payable, net (79,540) 12,261 16,612
Retirement of long-term debt (30,024) (22) (40,020)
Capital lease principal payments (15,786) (13,609) (12,744)
Contributions from parent company 30,000 - -
Redemption of preferred stock (12,598) - -
Redemption of company-obligated mandatorily
redeemable preferred securities (100,000) - -
Dividends paid on preferred stock (66) (483) (719)
Dividends paid on common stock (315,000) (85,000) (80,000)
--------- ------- ---------
Net cash required by financing activities (426,479) (86,853) (103,294)
--------- ------- ---------
Net increase/(decrease) in cash and temporary cash
investments from above activities 10,457 (5,674) 4,215
Cash and temporary cash investments, beginning of year 442 6,116 1,901
--------- ------- ---------
Cash and temporary cash investments, end of year $ 10,899 $442 $ 6,116
========= ======== =========
Supplemental Disclosure:
Interest and preferred dividends paid $ 59,380 $ 57,891 $ 60,538
========= ======== =========
Income taxes paid $ 120,277 $ 77,296 $ 55,375
========= ======== =========
New capital lease obligations incurred $ 18,840 $3,399 $ 19,695
========= ======== =========
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</FN>
F-123
Metropolitan Edison Company and Subsidiary Companies
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)
- --------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
- ---------------------------- --------- -------- -------- --------
Additions
---------------
Balance (1) (2)
at Charged to Charged Balance
Beginning Costs and to Other at End
Description of Period Expenses Accounts Deductions of Period
- ------------------------------ --------- --------- -------- ---------- ---------
Year ended December 31, 1999
Allowance for doubtful
accounts $3,335 $7,095 $42,811(a) $48,484(b) $4,757
Allowance for inventory
obsolescence 160 - - 160(c) -
Year ended December 31, 1998
Allowance for doubtful
accounts $3,147 $5,673 $1,712(a) $7,197(b) $3,335
Allowance for inventory
obsolescence 1,433 - (13)(d) 1,260(c) 160
Year ended December 31, 1997
Allowance for doubtful
accounts $3,172 $6,644 $1,944(a) $8,613(b) $3,147
Allowance for inventory
obsolescence 1,864 - 7(d) 438(c) 1,433
<FN>
(a) Recovery of accounts previously written off.
(b) Accounts receivable written off.
(c) Inventory written off.
(d) Sale of inventory previously written off.
</FN>
F-124
Pennsylvania Electric Company and Subsidiary Companies
COMPANY STATISTICS
For The Years Ended December 31, 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------
Capacity at Company Peak (in MW):
Company owned 2,365 2,284 2,365 2,365 2,365
Contracted 692 717 867 782 868
----- ----- ----- ----- -----
Total capacity (a) 3,057 3,001 3,232 3,147 3,233
===== ===== ===== ===== =====
Hourly Peak Load (in MW):
Summer peak 2,567 2,560 2,535 2,410 2,495
Winter peak 2,613 2,515 2,652 2,574 2,589
Reserve at company peak (%) 17.0 17.2 21.9 22.3 24.9
Load factor (%) (b) 72.1 72.5 69.7 71.1 67.6
Sources of Energy (in thousands of MWH):
Coal 5,345 12,088 11,972 11,268 11,237
Nuclear 1,523 1,765 1,480 1,775 1,597
Gas, hydro & oil 82 72 48 95 (95)
----- ----- ----- ----- -----
Net generation 6,950 13,925 13,500 13,138 12,739
Utility purchases and interchange 4,473 2,439 2,297 2,268 3,071
Nonutility purchases 3,269 3,292 3,296 3,201 2,796
----- ----- ----- ----- -----
Total sources of energy 14,692 19,656 19,093 18,607 18,606
Energy from alternate suppliers 4,900 - - - -
Company use, line loss, etc. (2,282) (2,355) (2,853) (2,932) (2,751)
----- ----- ----- ----- -----
Total electric energy sales 17,310 17,301 16,240 15,675 15,855
====== ====== ====== ====== ======
Fuel Expense (in millions):
Coal $ 73 $165 $168 $164 $164
Nuclear 8 10 8 10 10
Gas & oil 2 2 2 2 1
----- ----- ----- ----- -----
Total $ 83 $177 $178 $176 $175
===== ===== ===== ===== =====
Power Purchased and Interchanged (in millions):
Utility and interchange purchases $119 $ 38 $ 27 $ 18 $ 43
Nonutility purchases 218 211 188 192 158
Deferred nonutility costs (58) (13) - - -
----- ----- ----- ----- -----
Total $279 $236 $215 $210 $201
===== ===== ===== ===== =====
Delivered MWH Sales (in thousands):
Residential 3,864 3,756 3,801 3,897 3,765
Commercial 4,319 4,198 4,098 4,044 3,922
Industrial 4,865 4,996 4,835 4,563 4,463
Other 608 713 821 814 857
----- ----- ----- ----- -----
Sales to customers 13,656 13,663 13,555 13,318 13,007
Sales to other utilities 3,654 3,638 2,685 2,357 2,848
----- ----- ----- ----- -----
Total 17,310 17,301 16,240 15,675 15,855
===== ===== ===== ===== =====
Operating Revenues (in millions):
Residential $323 $ 327 $ 342 $ 339 $322
Commercial 229 311 316 302 287
Industrial 124 263 267 249 237
Other 31 31 40 36 39
----- ----- ----- ----- -----
Sales to customers 707 932 965 926 885
Provision for rate refunds 29 (29) - - -
Sales to other utilities 143 101 54 53 68
----- ----- ----- ----- -----
Total electric energy sales 879 1,004 1,019 979 953
Other revenues 43 28 34 41 28
----- ----- ----- ----- -----
Total $922 $1,032 $1,053 $1,020 $981
===== ===== ===== ===== =====
Customers at Year-End (in thousands):
Total customers 578 577 575 573 571
Customers choosing alternate suppliers 35 - - - -
<FN>
(a) Summer ratings at December 31, 1999 of contracted capacity were 2,658 MW.
(b) The ratio of the average hourly load in kilowatts supplied during the year
to the peak load occurring during the year.
</FN>
F-125
Pennsylvania Electric Company and Subsidiary Companies
SELECTED FINANCIAL DATA
(In Millions)
For the Years Ended December 31, 1999(1) 1998(2) 1997 1996(3) 1995(4)
- -------------------------------------------------------------------------------------------
Operating revenues $ 922.0 $1,032.2 $1,052.9 $1,019.6 $ 981.3
Other operation and
maintenance expense 248.0 275.1 258.4 293.9 266.3
Income before
extraordinary item 152.5 58.6 95.0 69.8 111.0
Net income 152.5 39.6 95.0 69.8 111.0
Earnings available
for common stock 151.6 38.9 94.4 73.9 109.5
Net utility plant
in service 1,179.9 1,626.5 1,720.8 1,715.7 1,692.9
Total assets 3,695.8 4,524.8 2,563.0 2,503.4 2,439.6
Long-term debt 424.6 626.4 676.4 656.5 642.5
Long-term obligations
under capital leases 2.2 2.6 3.3 4.1 5.3
Company-obligated
mandatorily redeemable
preferred securities - 105.0 105.0 105.0 105.0
Trust preferred securities 100.0 - - - -
Capital expenditures and
investments 78.3 89.6 99.1 114.7 130.5
Return on average
common equity 26.6% 5.0% 12.1% 10.0% 15.8%
<FN>
(1) Results for 1999 include a gain of $34.9 million (after-tax) as a result of
the sale of Penelec's remaining electric generating stations.
(2) Results for 1998 include an extraordinary charge of $19 million (after-tax)
as a result of the PaPUC's Restructuring Order. Also in 1998, as a result
of the PaPUC Order, Penelec recorded a non-recurring charge of $21 million
(after-tax) related to the obligation to refund 1998 revenues; and for the
establishment of a sustainable energy fund.
(3) Results for 1996 reflect a non-recurring charge of $19.7 million
(after-tax) for costs related to voluntary enhanced retirement programs.
(4) Results for 1995 reflect the reversal of $32.1 million (after-tax) of
certain future TMI-2 retirement costs written off in 1994. The reversal of
this write-off resulted from a 1995 Pennsylvania Supreme Court decision
that overturned a 1994 lower court order, and restored a 1993 PaPUC order
allowing for the recovery of such costs. Partially offsetting this increase
was a non-recurring charge to income of $2.7 million (after-tax) of TMI-2
monitored storage costs deemed not probable of recovery through ratemaking.
</FN>
F-126
Pennsylvania Electric Company and Subsidiary Companies
QUARTERLY FINANCIAL DATA (UNAUDITED)
First Quarter Second Quarter
------------- --------------
In Thousands 1999(1) 1998 1999 1998(2)
- -----------------------------------------------------------------------------------------
Operating revenues $246,249 $263,655 $205,097 $250,355
Operating income 72,642 62,623 45,009 45,803
Income before extraordinary item 65,490 26,645 19,945 19,751
Net income/(loss) 65,490 26,645 19,945 (68,079)
Earnings/(loss) available for common stock 64,610 26,529 19,945 (68,310)
Third Quarter Fourth Quarter
------------- --------------
In Thousands 1999 1998(3) 1999(4) 1998
- ----------------------------------------------------------------------------------------
Operating revenues $254,609 $259,354 $216,010 $258,862
Operating income 41,613 11,759 32,336 50,588
Income/(loss) before extraordinary item 22,515 (5,860) 44,541 18,054
Net income 22,515 63,020 44,541 18,054
Earnings available for common stock 22,515 62,846 44,541 17,880
<FN>
(1) Results for the first quarter of 1999 include an increase of $27.8 million
after-tax for the gain on the sale of Penelec's Homer City Station,
related to wholesale operations.
(2) Results for the second quarter of 1998 were affected by an extraordinary
charge of $87.8 million after-tax as a result of the Pennsylvania Public
Utility Commission's (PaPUC) June 30, 1998 Restructuring Order on
Penelec's restructuring plans.
(3) In the third quarter of 1998, as a result of the amended PaPUC
Restructuring Order, Penelec reversed $83.1 million after-tax of the
extraordinary charge taken in the second quarter, primarily related to
above-market nonutility generation costs; and recorded an additional
extraordinary charge of $14 million after-tax primarily related to the
write-off of FERC assets. Also, in the third quarter of 1998, as a result
of the amended PaPUC Order, Penelec recorded a non-recurring charge of $21
million after-tax related to the obligation to refund 1998 revenues; and
for the establishment of a sustainable energy fund.
(4) Results for the fourth quarter of 1999 includes an increase of $7.1
million after-tax for the net gain on the sale of Penelec's remaining
generating assets, related to wholesale operations. In addition, the
aggregate effect on earnings of other fourth quarter 1999 adjustments was
a gain of approximately $14 million after-tax.
</FN>
F-127
Pennsylvania Electric Company and Subsidiary Companies
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of Pennsylvania Electric Company:
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of
Pennsylvania Electric Company and Subsidiary Companies at December 31, 1999 and
1998, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999 in conformity with accounting
principles generally accepted in the United States. In addition, in our opinion,
the financial statement schedule listed in the accompanying index presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements and financial statement schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
February 10, 2000
F-128
Pennsylvania Electric Company and Subsidiary Companies
CONSOLIDATED BALANCE SHEETS
(In Thousands)
December 31, 1999 1998
- ------------------------------------------------------------------------------
ASSETS
Utility Plant:
Transmission, distribution and general plant $1,732,386 $1,768,621
Generation plant - 1,033,739
--------- ---------
Utility plant in service (Note 6) 1,732,386 2,802,360
Accumulated depreciation (552,449) (1,175,842)
--------- ---------
Net utility plant in service (Note 1) 1,179,937 1,626,518
Construction work in progress 30,329 18,862
Other, net 2,704 19,482
--------- ---------
Net utility plant 1,212,970 1,664,862
--------- ---------
Other Property and Investments:
Nonutility generation trusts, at market 266,700 -
Nuclear decommissioning trusts, at market (Note 12) 97,082 82,803
Other, net 1,233 7,705
--------- ---------
Total other property and investments 365,015 90,508
--------- ---------
Current Assets:
Cash and temporary cash investments 32,250 2,750
Special deposits 233 2,632
Accounts receivable:
Customers, net 69,752 69,887
Other 53,406 28,893
Unbilled revenues (Note 1) 30,836 43,998
Materials and supplies, at average cost or less:
Construction and maintenance - 39,452
Fuel - 17,107
Deferred income taxes (Note 8) 7,589 7,589
Prepayments 15,484 31,551
--------- ---------
Total current assets 209,550 243,859
--------- ---------
Deferred Debits and Other Assets:
Regulatory assets, net: (Notes 1 & 12) 671,713 1,561,603
Deferred income taxes (Note 8) 1,225,150 951,471
Other 11,393 12,504
--------- ---------
Total deferred debits and other assets 1,908,256 2,525,578
--------- ---------
Total Assets $3,695,791 $4,524,807
========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
F-129
Pennsylvania Electric Company and Subsidiary Companies
CONSOLIDATED BALANCE SHEETS
(In Thousands)
December 31, 1999 1998
- ------------------------------------------------------------------------------
LIABILITIES AND CAPITALIZATION
Capitalization:
Common stock $ 105,812 $105,812
Capital surplus 285,486 285,486
Retained earnings 59,265 367,653
Accumulated other comprehensive income 10,619 8,353
---------- --------
Total common stockholder's equity (Note 5) 461,182 767,304
Cumulative preferred stock (Note 4) - 16,681
Company-obligated mandatorily redeemable
preferred securities (Note 4) - 105,000
Trust preferred securities 100,000 -
Long-term debt (Note 3) 424,641 626,434
---------- --------
Total capitalization 985,823 1,515,419
---------- --------
Current Liabilities:
Securities due within one year (Note 3) 13 50,012
Notes payable (Note 2) 53,600 86,023
Obligations under capital leases (Note 11) - 13,979
Accounts payable:
Affiliates 66,223 47,164
Other 34,845 47,795
Taxes accrued 108,005 32,755
Interest accrued 6,588 19,700
Other 17,567 37,272
---------- --------
Total current liabilities 286,841 334,700
---------- --------
Deferred Credits and Other Liabilities:
Deferred income taxes (Note 8) 1,250,490 1,338,235
Three Mile Island Unit 2 future costs (Note 12) 124,322 120,904
Unamortized investment tax credits 14,240 36,926
Nuclear fuel disposal fee 16,717 15,956
Power purchase contract loss liability (Note 12) 940,276 1,016,380
Other 77,082 146,287
---------- --------
Total deferred credits and other liabilities 2,423,127 2,674,688
---------- --------
Commitments and Contingencies (Note 12)
Total Liabilities and Capitalization $3,695,791 $4,524,807
========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
F-130
Pennsylvania Electric Company and Subsidiary Companies
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands)
For The Years Ended December 31, 1999 1998 1997
- ----------------------------------------------------------------------------------------------
Operating Revenues (Note 1) $ 921,965 $1,032,226 $1,052,936
---------- ------- ----------
Operating Expenses:
Fuel 82,397 176,548 177,256
Power purchased and interchanged:
Affiliates 6,422 2,729 3,252
Others 273,082 233,395 212,166
Other operation and maintenance (Note 9) 248,034 275,107 258,416
Depreciation and amortization (Note 1) 78,384 109,800 107,111
Taxes, other than income taxes (Note 9) 42,046 63,874 66,395
---------- ------- ----------
Total operating expenses 730,365 861,453 824,596
---------- ------- ----------
Operating Income 191,600 170,773 228,340
---------- ------- ----------
Other Income and Deductions:
Allowance for other funds used during construction 268 - -
Other income/(expense), net 59,081 (6,429) 2,469
---------- ------- ----------
Total other income and deductions 59,349 (6,429) 2,469
---------- ------- ----------
Income Before Interest Charges 250,949 164,344 230,809
---------- ------- ----------
Interest Charges:
Long-term debt and notes payable 34,588 54,907 56,095
Trust preferred securities 3,976 - -
Other interest 1,608 1,019 1,368
Allowance for borrowed funds used during
construction (1,074) (1,897) (2,164)
Company-obligated mandatorily
redeemable preferred securities 4,977 9,188 9,188
---------- ------- ----------
Total interest charges 44,075 63,217 64,487
---------- ------- ----------
Income Before Income Taxes 206,874 101,127 166,322
Income taxes (Note 8) 54,383 42,537 71,299
---------- ------- ----------
Income Before Extraordinary Item 152,491 58,590 95,023
Extraordinary item (net of income taxes
of $11,592) (Note 6) - (18,950) -
---------- ------- ----------
Net Income 152,491 39,640 95,023
Preferred stock dividends 154 695 665
Loss on preferred stock reacquisition 726 - -
---------- ------- ----------
Earnings Available for Common Stock $ 151,611 $38,945 $ 94,358
========== ======= ==========
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</FN>
F-131
Pennsylvania Electric Company and Subsidiary Companies
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands)
For The Years Ended December 31, 1999 1998 1997
- -------------------------------------------------------------------------------------------
Net income $152,491 $ 39,640 $ 95,023
-------- ------- -------
Other comprehensive income/(loss), net of tax: (Note 5)
Net unrealized gains on investments 2,101 2,064 2,125
Minimum pension liability 165 (42) (122)
-------- ------- -------
Total other comprehensive income 2,266 2,022 2,003
-------- ------- -------
Comprehensive income $154,757 $ 41,662 $ 97,026
======== ======== ========
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(In Thousands)
For The Years Ended December 31, 1999 1998 1997
- -------------------------------------------------------------------------------------------
Balance at beginning of year $367,653 $393,708 $359,373
Net income 152,491 39,640 95,023
-------- ------- -------
Total 520,144 433,348 454,396
-------- ------- -------
Cash dividends on capital stock:
Cumulative preferred stock (at the annual rates indicated below):
4.40% Series B ($4.40 a share) (29) (131) (125)
3.70% Series C ($3.70 a share) (41) (183) (174)
4.05% Series D ($4.05 a share) (25) (114) (109)
4.70% Series E ($4.70 a share) (15) (66) (64)
4.50% Series F ($4.50 a share) (17) (77) (74)
4.60% Series G ($4.60 a share) (27) (124) (119)
Common stock (not declared on a
per share basis) (460,000) (65,000) (60,000)
-------- ------- -------
Total (460,154) (65,695) (60,665)
-------- ------- -------
Loss on preferred stock reacquisition (725) - -
Other adjustments, net - - (23)
Balance at end of year $ 59,265 $367,653 $393,708
======== ======== ========
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
F-132
</FN>
Pennsylvania Electric Company and Subsidiary Companies
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
For The Years Ended December 31, 1999 1998 1997
- -------------------------------------------------------------------------------------------
Operating Activities:
Net income $ 152,491 $39,640 $ 95,023
Extraordinary item (net of income tax
benefit of $11,592) - 18,950 -
-------- ------- -------
Income before extraordinary item 152,491 58,590 95,023
Adjustments to reconcile income to cash provided:
Depreciation and amortization 78,072 107,239 99,688
Amortization of property under capital leases 6,036 7,319 7,954
PaPUC restructuring rate orders - 35,600 -
Gain on sale of investments (59,313) - -
Nuclear outage maintenance costs, net (3,803) 3,251 (3,072)
Deferred income taxes and investment tax
credits, net (417,559) (15,496) 10,193
Allowance for other funds used during
construction (268) - -
Changes in working capital:
Receivables (24,378) (2,661) (20,426)
Materials and supplies 56,559 (1,310) (3,763)
Special deposits and prepayments 18,466 (1,878) 6,973
Payables and accrued liabilities 48,543 39,061 19,736
Nonutility generation contract buyout costs (3,500) (6,101) (10,000)
Other, net (116,803) (31,479) (22,963)
-------- ------- -------
Net cash provided/(required) by operating activities (265,457) 192,135 179,343
-------- ------- -------
Investing Activities:
Capital expenditures (78,331) (89,550) (99,074)
Proceeds from sale of investments 1,493,444 - -
Contributions to nonutility generation trusts (266,701) - -
Contributions to decommissioning trusts (75,926) (5,270) (5,288)
Other, net 1,002 (520) 454
-------- ------- -------
Net cash provided/(used) for investing activities 1,073,488 (95,340) (103,908)
-------- ------- -------
Financing Activities:
Issuance of trust preferred securities 96,535 - -
Issuance of long-term debt 348,218 - 49,875
Increase/(Decrease) in notes payable, net (32,423) 8,442 (30,099)
Retirement of long-term debt (600,011) (30,011) (26,010)
Capital lease principal payments (7,907) (6,781) (8,506)
Redemption of preferred stock (17,406) - -
Redemption of company-obligated mandatorily
Redeemable preferred securities (105,383) - -
Dividends paid on preferred stock (154) (695) (695)
Dividends paid on common stock (460,000) (65,000) (60,000)
-------- ------- -------
Net cash required by financing activities (778,531) (94,045) (75,435)
-------- ------- -------
Net increase in cash and temporary cash
investments from above activities 29,500 2,750 -
Cash and temporary cash investments, beginning of year 2,750 - -
-------- ------- -------
Cash and temporary cash investments, end of year $ 32,250 $ 2,750 $ -
========= ========= =========
Supplemental Disclosure:
Interest and preferred dividends paid $ 55,779 $ 64,057 $ 62,514
========== ======== =========
Income taxes paid $ 413,810 $46,732 $ 48,348
========== ======== =========
New capital lease obligations incurred $ 9,415 $1,714 $ 11,155
========== ======== =========
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</FN>
F-133
Pennsylvania Electric Company and Subsidiary Companies
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)
- -------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
- ---------------------------- --------- -------- -------- --------
Additions
----------------------
Balance (1) (2)
at Charged to Charged Balance
Beginning Costs and to Other at End
Description of Period Expenses Accounts Deductions of Period
- ----------------------------- --------- --------- -------- ---------- ---------
Year ended December 31, 1999
Allowance for doubtful
accounts $3,235 $8,447 $38,374(a) $44,768(b) $5,288
Allowance for inventory
obsolescence - - - - -
Year ended December 31, 1998
Allowance for doubtful
accounts $3,526 $5,826 $2,123(a) $8,240(b) $3,235
Allowance for inventory
obsolescence 67 - - 67(c) -
Year ended December 31, 1997
Allowance for doubtful
accounts $3,818 $6,364 $2,186(a) $8,842(b) $3,526
Allowance for inventory
obsolescence 186 - - 119(c) 67
<FN>
(a) Recovery of accounts previously written off.
(b) Accounts receivable written off.
(c) Inventory written off.
</FN>
F-134