UNITED STATES 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, 2000
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) 401-8200
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 $31.65 on March 12, 2001 was:
Registrant Amount
------------------------------------ --------------
GPU, Inc. $3,781,962,280
The number of shares outstanding of each of the registrants' classes of
voting stock as of March 12, 2001 was as follows:
Shares
Registrant Title Outstanding
- ------------------------------------ ----------------------------- -----------
GPU, Inc. Common Stock, $2.50 par value 119,493,279
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 2001 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 28
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 32
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 43
Item 13. Certain Relationships and Related Transactions 44
Part IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 45
Signatures 59
GPU, Inc. and Subsidiary Companies
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). 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." GPU Capital, Inc. and GPU Electric, Inc. and their subsidiaries own,
operate and fund the acquisition of electric distribution and gas transmission
systems in foreign countries, and are referred to as "GPU Electric." GPU
Electric's foreign utility companies include Midlands Electricity plc
(conducting business as GPU Power UK); Empresa Distribuidora Electrica Regional
S.A. (Emdersa); and GPU GasNet. GPU Power, Inc. and its subsidiaries (GPU Power)
develop, own and operate generation facilities in foreign countries. Other
subsidiaries of GPU, Inc. include GPU Advanced Resources, Inc. (GPU AR), which
sells electric energy at retail; GPU Telcom Services, Inc. (GPU Telcom), which
is engaged in telecommunications-related businesses; MYR Group Inc. (MYR), which
is a utility infrastructure construction services company; GPU Service, Inc.
(GPUS), which provides legal, accounting, financial and other services to the
GPU companies; GPU Diversified Holdings LLC; and GPU Nuclear, Inc. (GPUN). 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 Consolidated
Financial Statements.
SAFE HARBOR STATEMENT UNDER
---------------------------
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
----------------------------------------------------
In connection with the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995, GPU, Inc., JCP&L, Met-Ed and Penelec (the GPU
registrants) are hereby filing cautionary statements identifying important
factors that could cause their actual results to differ materially from those
projected in forward-looking statements (as that term is defined in the Private
Securities Litigation Reform Act of 1995) made by or on behalf of the GPU
registrants in this Form 10-K. Any statements that express, or involve
discussions as to, expectations, beliefs, plans, objectives, assumptions or
1
GPU, Inc. and Subsidiary Companies
future events or performance (often, but not always, through the use of words or
phrases such as "anticipates," "believes," "estimates," "expects," "intends,"
"plans," "projects," "will likely," "result," "will continue" or similar
expressions) are not statements of historical facts and may be forward-looking.
Forward-looking statements involve estimates, assumptions and
uncertainties and are qualified in their entirety by reference to, and are
accompanied by, the following important factors, which are difficult to predict,
contain uncertainties, are beyond the control of the GPU registrants and may
cause actual results to differ materially from those contained in those
forward-looking statements: the consummation of the proposed merger of GPU, Inc.
with FirstEnergy Corp. (FirstEnergy); the effects of regulatory decisions,
including any conditions imposed upon the proposed merger with FirstEnergy;
changes in law and other governmental actions and initiatives; economic or
weather conditions affecting future sales and margins; the impact of
deregulation and increased competition in the industry; industry restructuring;
expected outcomes of legal proceedings; energy prices and availability; and
uncertainties involved with foreign operations including political risks and
foreign currency fluctuations.
Any forward-looking statement speaks only as of the date on which that
statement is made, and the GPU registrants undertake no obligation to update any
forward-looking statement to reflect events or circumstances after the date on
which that statement is made or to reflect the occurrence of unanticipated
events. New factors emerge from time to time and it is not possible for
management to predict all of those factors, nor can it assess the impact of each
of those factors on the business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statement.
SIGNIFICANT DEVELOPMENTS
------------------------
Business Outlook
- ----------------
In August 2000, GPU, Inc. entered into an agreement to merge with
FirstEnergy, an Ohio corporation, headquartered in Akron, Ohio. Under the merger
agreement, FirstEnergy would acquire all of the outstanding shares of GPU's
common stock for approximately $4.5 billion in cash and FirstEnergy common
stock.
The merger has been approved by the Boards of Directors and stockholders
of GPU, Inc. and FirstEnergy and is expected to close promptly after all of the
conditions to the consummation of the merger (including the receipt of all
necessary regulatory approvals, provided that such approvals will not impose
terms and conditions that would reasonably be expected to result in a "material
adverse effect," as defined in the merger agreement, on the combined company,
and there being no "material adverse effect" on either GPU or FirstEnergy since
June 30, 2000 or March 31, 2000, respectively), are fulfilled or waived.
Relevant factors would include the nature of any order issued by the regulatory
authorities, the financial and business conditions of each company, and whether,
and the extent to which, any developments relate to general economic conditions.
In testimony before the PaPUC, FirstEnergy stated that FirstEnergy will
carefully review the PaPUC's action with respect to GPU's requested provider of
last resort (PLR) relief (see Domestic Energy Supply section) on the financial
condition of GPU to determine whether the
2
GPU, Inc. and Subsidiary Companies
consequences would have a "material adverse effect" on GPU or the combined
company. The receipt of all necessary regulatory approvals is expected to take
approximately nine to twelve months from the date of the merger agreement. There
can be no assurance as to the outcome of these matters.
As part of its plan to reduce ownership in non-core and under-performing
assets, in June 2000 GPU completed the sale of GPU PowerNet, its Australian
electric transmission company, to Singapore Power International for A$2.1
billion (US $1.26 billion). In addition, GPU completed the sale of GPU
International, Inc., its domestic independent power production business, to
Aquila Energy Corporation for $225 million in December 2000. GPU is retaining
GPU GasNet, its Australian gas transmission business, pending improvement in
local market conditions.
In August 2000, GPU sold the second of its two operating nuclear
generating stations, the Oyster Creek Nuclear Generating Station (Oyster Creek),
to AmerGen Energy Company (AmerGen), for $10 million, thereby essentially
exiting the generation business.
During 2000, with the goal of improving customer service and service
reliability, the GPU Energy companies committed to making additional investments
in their transmission and distribution business. In addition, in 2000 the GPU
Energy companies reorganized the structure of their operational divisions to
enhance customer service throughout their service territory. In January 2001,
the GPU Energy companies announced that they were offering Voluntary Enhanced
Retirement Programs (VERP) to certain bargaining unit employees in Pennsylvania.
Approximately 240 employees (Met-Ed 130 employees; Penelec 110 employees) are
eligible for the VERP. If all of the eligible employees accept the offer, a
pre-tax charge of approximately $23 million (Met-Ed $12 million; Penelec $11
million) would be recorded in 2001 earnings for the cost of pension and other
postretirement benefits, exclusive of any severance benefits that would be paid
to those employees.
In October 1999, GPU also initiated a program of planned cost reductions
of $100 million. A significant portion of these planned cost reductions were
achieved in 2000, and the remaining reductions are scheduled to be implemented
during 2001.
In connection with GPU's strategy to pursue opportunities in non-regulated
businesses related to its core utility infrastructure business, GPU completed
the acquisition of MYR, a specialty construction company, for approximately $218
million in April 2000. MYR provides power line and commercial/industrial
electrical construction services for electric utilities, telecommunications
providers, commercial and industrial facilities and government agencies. MYR
also builds cellular towers for the wireless communications market.
GPU also made investments in telecommunications-related businesses during
the year. In March 2000, GPU announced its participation in America's Fiber
Network LLC (AFN), of which GPU anticipates owning 25%. AFN is a high-speed
fiber optics company with a network of more than 7,000 route miles, or 140,000
fiber miles, connecting major markets in the eastern US to secondary markets.
GPU anticipates investing cash, as well as existing and new fiber routes and
electronic equipment, in AFN. As of December 31, 2000, GPU had invested $5.3
million in AFN through GPU Telcom.
3
GPU, Inc. and Subsidiary Companies
GPU Telcom participated in the formation of Telergy Mid-Atlantic (TMA), a
joint venture with Telergy, Inc. TMA provides telecommunications and marketing
services for utilities' existing fiber networks. TMA's current market includes
both New Jersey and Pennsylvania, with future expansions planned for contiguous
regions currently served by the network of GPU Telcom. As of December 31, 2000,
GPU Telcom had acquired $20 million of Telergy, Inc. convertible preferred
securities.
Competitive Business Risks
- --------------------------
The GPU Energy companies expect that they will continue to serve customers
in markets where there will be capped rates for varying periods and their
ability to seek rate increases will be limited. In addition, as a result of
Restructuring Orders issued by the NJBPU and PaPUC, the GPU Energy companies are
required to supply electricity to customers who do not choose an alternate
supplier. Because the GPU Energy companies have essentially exited the
generation business and will have to supply electricity to non-shopping
customers almost entirely from contracted and open market purchases, there will
be increased risks associated with supplying that electricity in an environment
where there are capped rates.
In recent months, certain aspects of California's restructuring plan have
created instability and price volatility in the electricity market, negatively
affecting the California electric utilities. These utilities have defaulted on
various contractual and financial obligations and have experienced rapid
deterioration of their credit quality. Reaction of the financial markets, which
did not anticipate the rapid deterioration of the California utilities'
financial condition, has included a careful review of overall credit exposure to
the electric utility industry. As a result, the amount of new financing capacity
available to GPU may be less than it had previously been and renewal or
refinancing of existing credit facilities will likely require GPU's acceptance
of higher pricing and/or more restrictive terms and conditions. For additional
information, see Financing Arrangements section.
GPU has made significant investments in foreign businesses and facilities
through its subsidiaries, GPU Electric and GPU Power. At December 31, 2000,
GPU's investments in GPU Electric and GPU Power were $881 million and $139
million, respectively. As of that date, GPU had also guaranteed an additional
$899 million and $21 million of GPU Electric and GPU Power 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.
Restructuring Actions
- ---------------------
With the transition to a competitive marketplace for generation service in
New Jersey and Pennsylvania, certain generation-related costs, which generally
would be recoverable in a regulated environment, may no longer be recoverable.
These costs are generally referred to as stranded costs.
In March 2001, the NJBPU issued a Final Decision and Order (Final Order)
with respect to JCP&L's rate unbundling, stranded cost and restructuring
filings, which supersedes the Summary Order issued in May 1999. This Final Order
provides for, among other things, the following:
4
GPU, Inc. and Subsidiary Companies
-- 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,
with JCP&L to file, by no later than August 1, 2002, its proposed level of
all unbundled rate components as of August 1, 2003, for NJBPU
consideration (in a proceeding in which all interested parties may
participate), in order to establish the appropriate level of rates
effective on and after August 1, 2003;
-- the removal from regulation of the costs associated with providing
electric generation service. JCP&L must provide basic generation service
(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;
-- the ability to recover stranded costs. However, the NJBPU deferred making
a final determination of the net proceeds and stranded costs related to
the generating asset divestitures until an Internal Revenue Service (IRS)
ruling regarding the treatment of associated federal income tax benefits
is received;
-- the ability to securitize approximately $400 million of stranded costs
associated with Oyster Creek;
-- 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;
-- 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 non-utility
generation (NUG) and utility power purchase agreement stranded costs.
JCP&L is permitted to defer for future collection from customers the
amounts by which costs of supplying BGS to non-shopping customers and
costs incurred under NUG agreements exceed amounts collected in connection
therewith through BGS rates. While the Summary Order specifically
authorized JCP&L to securitize the deferred NUG costs, the Final Order
provides that upon application by JCP&L and a determination by the NJBPU
that the conditions of the New Jersey restructuring legislation are met,
JCP&L will be permitted to securitize deferred balances to the extent
permitted by the restructuring legislation; and
-- the establishment of a non-bypassable MTC to recover, among other things,
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
and the amortization of Oyster Creek sunk costs, pending securitization.
5
GPU, Inc. and Subsidiary Companies
In 1998, the PaPUC issued amended Restructuring Orders approving
Settlement Agreements entered into by Met-Ed and Penelec which, among other
things, provide for customer choice of electric generation supplier beginning
January 1, 1999 and a one-year (1999) reduction in retail distribution rates for
all consumers. The Orders also provide for recovery of a substantial portion of
what otherwise would have become stranded costs, subject to Phase II proceedings
following the completion of Met-Ed's and Penelec's generating asset
divestitures, to make a final determination of the extent of that stranded cost
recovery. In 2000, Met-Ed and Penelec submitted Phase II Reports to the PaPUC
supporting their actual net divestiture proceeds and providing a reconciliation
of stranded costs pursuant to the 1998 Restructuring Orders.
On December 20, 2000, the PaPUC issued a Phase II Order which disallows
$28 million (Met-Ed $16 million; Penelec $12 million) of the requested $304
million (Met-Ed $226 million; Penelec $78 million) of additional stranded costs
above those amounts granted in the 1998 Orders. Met-Ed and Penelec had
anticipated a disallowance of a portion of stranded costs, and established a $25
million (Met-Ed $19 million; Penelec $6 million) reserve in 1999. In addition,
as a result of the Phase II Order, Met-Ed and Penelec recognized pre-tax income
of $66 million (Met-Ed $45 million; Penelec $21 million) due primarily to
pension curtailment gains associated with employees terminated as a result of
the sale of generating facilities in 1999, and the reversal of certain
liabilities and changes in estimates and assumptions related to Met-Ed's
leasehold interest in the Merrill Creek Reservoir project. The Phase II Order
also deferred a decision on Met-Ed's requested increase in rates, beginning in
2006, for recovery of Met-Ed's generation-related stranded costs. In addition,
the Order requires Met-Ed and Penelec to seek an IRS ruling regarding the return
of certain unamortized investment tax credits and excess deferred income tax
benefits to ratepayers. For further information, see Note 6, Accounting for
Extraordinary and Non-Recurring Items, of the Combined Notes to Consolidated
Financial Statements.
Domestic Energy Supply
- ----------------------
As a result of the NJBPU's and the PaPUC's Restructuring Orders, the GPU
Energy companies are required to supply electricity to customers who do not
choose an alternate supplier. In 1999, the GPU Energy companies completed the
sales of TMI-1 and substantially all their fossil-fuel and hydroelectric
generating stations, and in 2000, JCP&L sold Oyster Creek. (For additional
information regarding the sales of the GPU Energy companies' generating
facilities, see Note 6, Accounting for Extraordinary and Non-Recurring Items, of
the Combined Notes to Consolidated Financial Statements.) As a result, the GPU
Energy companies now have to supply electricity to non-shopping customers almost
entirely from contracted and open market purchases.
JCP&L is required to provide BGS to retail customers who choose to remain
with JCP&L as generation customers for a three-year period ending July 31, 2002.
Thereafter, BGS service is to be bid out at BGS rates, which are pre-determined
through July 31, 2003. The specific details of the BGS bidding process will be
the subject of a future NJBPU proceeding. Under its Restructuring Order, JCP&L
is permitted to defer for future recovery the amount by which its reasonable and
prudently incurred costs associated with providing BGS to non-shopping customers
exceed amounts currently reflected in its rates for BGS.
6
GPU, Inc. and Subsidiary Companies
The PaPUC has approved a competitive bid process designed to assign PLR
service to licensed generation suppliers, referred to as Competitive Default
Service (CDS), for 20% of Met-Ed's 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.
In 2000, the absence of acceptable bids required Met-Ed and Penelec to
supply 550 megawatts (MW) (Met-Ed 250 MW; Penelec 300 MW)of electric power more
than they had planned. In addition, customers requiring approximately 600 MW
(Met-Ed 240 MW; Penelec 360 MW) of power returned to Met-Ed and Penelec from
their alternate suppliers for the peak Summer months. During that same period,
market prices at which Met-Ed and Penelec were required to purchase electricity
for their retail supply customers at times substantially exceeded the amounts
Met-Ed and Penelec were allowed to charge for that electricity under their
capped generation rates. This situation resulted in GPU's Pennsylvania supply
business recording a loss for 2000 of approximately $28 million (Met-Ed $14
million; Penelec $14 million) after-tax, or $0.22 per share.
Under the terms of their restructuring settlements, Met-Ed and Penelec are
required to seek alternative providers through a CDS bidding process for a
portion of their customers again in 2001. Should the 2001 CDS bidding process be
successful, then up to 40% of Met-Ed's and Penelec's customers would be served
by third party energy providers starting on June 1, 2001. However, if the
bidding process is not successful and wholesale energy prices remain high, and
Met-Ed and Penelec are not granted state regulatory relief, the companies expect
substantial earnings losses to continue, as well as a reduction of cash flow.
Based on their current projection of returning customers to whom they must
supply electricity under their PLR obligations, Met-Ed and Penelec presently
estimate approximately 800 MW (Met-Ed 410 MW; Penelec 390 MW) of additional load
will return to them by June 1, 2001. If this projection proves to be correct,
Met-Ed and Penelec estimate that the cost of providing energy to Pennsylvania
customers, including the returning 800 MW of load, could result in GPU's
Pennsylvania supply business recording a loss for 2001 of approximately $120
million (Met-Ed $60 million; Penelec $60 million) after-tax, or $1 per share,
based on the companies' current assessment of market energy prices. Met-Ed and
Penelec also estimate that if all their shopping customers were to return by
June 1, 2001, their supply business losses could be up to approximately $150
million (Met-Ed $80 million; Penelec $70 million) after-tax, or $1.25 per share.
Given this situation, on November 29, 2000, Met-Ed and Penelec filed a
petition with the PaPUC seeking permission to defer for future recovery their
energy costs in excess of established generation rate caps. Various parties to
the proceeding filed motions to dismiss the petition. On January 19, 2001,
Met-Ed and Penelec made a further request that they be permitted to implement
their proposed deferral mechanism pending the PaPUC's final action on their
petition. On January 24, 2001, the PaPUC denied, without prejudice, the motions
to dismiss Met-Ed's and Penelec's petition and recommended that the companies
provide support for a rate cap exception based on the criteria in the Customer
Choice and Competition Act. In addition, the PaPUC consolidated the petition
with the GPU/FirstEnergy merger proceeding for consideration and resolution in
accord with the merger procedural schedule, which establishes a May 2001 date
for a PaPUC order in both cases. In February 2001, Met-Ed and Penelec filed a
supplement to their petition and supporting testimony which they believe
establish that the PaPUC should grant them exceptions to their rate caps. In
addition, Met-Ed and Penelec stated that as an alternative to the deferral
mechanism they previously proposed, the circumstances would
7
GPU, Inc. and Subsidiary Companies
warrant an immediate increase in their present rate caps. There can be no
assurance regarding the degree, if any, to which Met-Ed and Penelec may be able
to recover their costs to supply electricity in excess of amounts currently
reflected in their capped rates.
The GPU Energy companies have 285 MW of generation capacity and related
energy remaining to meet customer needs. The GPU Energy companies also have
contracts with nonutility generators totaling 1,600 MW and agreements with other
parties to provide varying amounts of capacity through May 31, 2004. These
capacity amounts from third parties vary from a monthly high of approximately
1,740 MW in 2001 to 500 MW in May 2004. Based on the exercise of call options,
the GPU Energy companies may take the energy associated with up to 150 MW of
this capacity through May 2003. The GPU Energy companies have also purchased all
of the capacity and energy from their previously owned TMI-1 and Oyster Creek
(sold by JCP&L) stations through December 31, 2001 and March 31, 2003,
respectively. In addition, the GPU Energy companies have the right to the
capacity of Penelec's previously owned Homer City station (942 MW) through May
31, 2001 and the right to the capacity of several other generating stations they
sold in 1999 (3,970 MW) through May 31, 2002. GPU Energy's remaining capacity
and energy needs will be met by short- to intermediate-term commitments (one
month to three years). Any residual needs will be purchased from the short-term
market (one hour to one month).
INDUSTRY DEVELOPMENTS
---------------------
Electric utility customers have traditionally been served by vertically
integrated regulated monopolies; however, for the past several years the
electric utility industry has been moving away from a rate regulated environment
based on cost recovery to some combination of a competitive marketplace and
regulation. The enactment of the Public Utility Regulatory Policies Act of 1978
(PURPA) facilitated the entry of competitors into the electric generation
business. The Energy Policy Act of 1992 (EPAct) furthered competition among
utilities and 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, as well as to establish
independent system operators. 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.
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 2000, the GPU Energy companies' revenues
were about equally divided between Pennsylvania customers and New Jersey
customers. During 2000, sales to customers by customer class were as follows:
8
GPU, Inc. and Subsidiary Companies
% Operating Revenues % KWH Sales
---------------------------- --------------------------
Total JCP&L Met-Ed Penelec Total JCP&L Met-Ed Penelec
----- ----- ------ ------- ----- ----- ------ -------
Residential 48 48 53 45 36 42 35 29
Commercial 35 38 30 32 35 40 30 33
Industrial 15 13 16 19 28 17 35 35
Other* 2 1 1 4 1 1 - 3
--- --- --- --- --- --- --- ---
100 100 100 100 100 100 100 100
=== === === === === === === ===
* Rural electric cooperatives, municipalities, street and highway lighting, and
others.
Revenues of JCP&L, Met-Ed and Penelec derived from their largest single
customers accounted for 1.4%, 0.4% and 1%, respectively, of their electric
operating revenues for the year and their 25 largest customers, in the
aggregate, accounted for approximately 9%, 5% and 7%, respectively, of such
revenues. The GPU Energy companies also make interchange and spot market sales
of electricity to other utilities.
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 2.7
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 about 1.3 million. 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 1.6 million, approximately 28% of
which is concentrated in 23 cities and boroughs, all with populations over
5,000. Penelec currently provides wholesale service to the Allegheny Electric
Cooperative, Inc., which serves 13 rural electric cooperatives in Pennsylvania
and one in New Jersey, under an agreement which is to be terminated as of April
1, 2001, subject to FERC approval. 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.
9
GPU, Inc. and Subsidiary Companies
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, or
approximately $2.4 billion as of December 31, 2000. At December 31, 2000, GPU,
Inc. has remaining authorization to finance approximately $680 million of
additional investments in FUCOs and EWGs. GPU, Inc.'s investments in FUCOs and
EWGs are made through GPU Electric and GPU Power.
GPU ELECTRIC
------------
GPU Electric owns electric distribution and gas transmission businesses in
England, Australia and Argentina. In June 2000, GPU Electric sold its electric
transmission business in Australia and, as a result, recorded a pre-tax loss in
2000 of $372 million ($276.6 million after-tax, or $2.28 per share), including a
$94 million foreign currency loss. At December 31, 2000, GPU, Inc.'s aggregate
investment in GPU Electric was $881 million. GPU, Inc. has also guaranteed up to
an additional $899 million of outstanding GPU Electric obligations.
GPU Power UK's primary business is the distribution of electricity in an
area having an estimated population of approximately five million residents
which includes 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. GPU Power UK also provides
service connections for street lighting, traffic lights and other installations
from its main networks.
Through its subsidiary Midlands Power International Limited (MPI), GPU
Power UK also has investments in operating generating facilities located
internationally totaling 4,201 MW (of which GPU Electric's equity interest
represents 1,119 MW) of capacity. At this time, MPI does not intend to invest in
any new generation projects.
GPU Power UK's non-regulated activities include electricity generation,
electrical contracting, metering services and related businesses.
GPU GasNet owns and maintains a high pressure gas transmission pipeline
system, 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 purpose 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 system consists 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 completed a number of 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.
10
GPU, Inc. and Subsidiary Companies
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.
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. The current tariff at La Rioja
expired in June 2000 and the new tariff is under negotiation and anticipated to
be agreed upon by the end of the first quarter 2001. The tariff at Salta expires
in August 2001; and at Edesal in March 2003.
GPU POWER
---------
GPU Power has ownership interests in four operating generating facilities
located in foreign countries totaling 1,229 MW (of which GPU Power's equity
interest represents 424 MW) of capacity. At December 31, 2000, GPU, Inc.'s
aggregate investment in GPU Power was $139 million. GPU, Inc. has also
guaranteed up to an additional $21.3 million of GPU Power obligations.
GPU TELCOM
----------
GPU Telcom is a telecommunications infrastructure development and
management company and wholesale telecommunications provider with operations
primarily in the Mid-Atlantic region of the US. Its customers consist of
telecommunications end-use service providers including: interexchange carriers;
competitive local exchange carriers; competitive access providers and multiple
system operators; commercial and industrial companies (private networks) and
governmental agencies; cable television and telephone companies; and internet
service providers. At December 31, 2000, GPU, Inc.'s aggregate investment in GPU
Telcom was $67 million. See the Significant Developments section for additional
information on GPU Telcom's recent business activities.
11
GPU, Inc. and Subsidiary Companies
MYR GROUP
---------
In April 2000, GPU, Inc. acquired MYR for approximately $218 million. MYR,
a suburban Chicago-based infrastructure construction services company, provides
a complete range of power line and commercial/industrial electrical construction
services for electric utilities, telecommunications providers, commercial and
industrial facilities and government agencies across the US. MYR also builds
cellular towers for the wireless communications market. At December 31, 2000,
GPU, Inc.'s aggregate investment in MYR was $237 million.
CAPITAL PROGRAMS
----------------
GPU's capital spending for 2000 was $571 million and its estimated capital
spending for 2001 is $667 million.
GPU Energy Companies
- --------------------
The GPU Energy companies' capital spending was $280 million (JCP&L $144
million; Met-Ed $59 million; Penelec $73 million; Other $4 million) in 2000, and
was used primarily to expand and improve existing transmission and distribution
(T&D) facilities and for new customer connections. In 2001, capital expenditures
for the GPU Energy companies are estimated to be $371 million (JCP&L $184
million; Met-Ed $83 million; Penelec $97 million; Other $7 million), primarily
for ongoing T&D system development. Management estimates that a substantial
portion of the GPU Energy companies' 2001 capital spending will be supplied
through internally generated funds.
GPU Electric
- ------------
GPU Electric's capital spending of $213 million in 2000 was used primarily
to make improvements to Emdersa's, GPU Power UK's, and (prior to its sale in
June 2000) GPU PowerNet's T&D networks. For 2001, GPU Electric's capital
expenditures are estimated to be $200 million, and management expects that a
substantial portion of this capital spending will be supplied through internally
generated funds.
GPU Telcom
- ----------
GPU Telcom's capital spending was $66 million in 2000, and was used
primarily to make investments in telecommunications infrastructure and
businesses. In 2001, GPU Telcom's capital expenditures are estimated to be $90
million, and management expects that this will be supplied by capital
contributions and internally generated funds.
FINANCING ARRANGEMENTS
----------------------
The California electricity market was deregulated in 1998. In recent
months, certain aspects of that state's restructuring plan have created
instability and price volatility in the electricity market, negatively affecting
the California electric utilities. These utilities have defaulted on various
contractual and financial obligations and have experienced rapid deterioration
of their credit quality. Reaction of the financial markets, which did not
anticipate the rapid deterioration of the California utilities' financial
condition, has included a careful review of overall credit exposure to the
electric utility industry.
12
GPU, Inc. and Subsidiary Companies
Furthermore, Met-Ed's and Penelec's energy cost exposure related to their
PLR obligation in Pennsylvania has negatively affected Met-Ed's and Penelec's
earnings. Consequently, the amount of new financing capacity available to GPU,
Inc. or its subsidiaries may be less than it had previously been. While the GPU
companies do not expect to require significant levels of new borrowings in 2001,
certain existing credit facilities are due for renewal or refinancing during
2001. At December 31, 2000, these credit facilities include: $465 million
available to GPU, Inc. and the GPU Energy companies under a $250 million
revolving credit agreement and various committed bank lines of credit; $1
billion under GPU Capital, Inc.'s (GPU Capital) senior revolving credit
agreement; $180 million under GPU Australia Holdings, Inc.'s (GPU Australia
Holdings) senior revolving credit agreement; and $366 million under EI UK
Holdings, Inc.'s (EI UK Holdings) two year term loan agreement.
Renewal or refinancing of these facilities will likely require GPU's
acceptance of higher pricing and/or more restrictive terms and conditions. If
renewal or refinancing of the existing credit facilities is limited or cannot be
achieved, GPU will be required to reduce capital spending and other
discretionary cash uses, including the amount and timing of future common stock
dividends. Moreover, the failure to obtain PLR relief will likely result in a
further increase in capital costs, more restrictive terms and conditions and
reduced access to capital markets.
In addition, primarily as a result of these conditions (the companies' PLR
exposure and the negative publicity surrounding the California utilities), in
early 2001 Met-Ed and Penelec began experiencing difficulty in selling their
commercial paper with maturities longer than overnight. Under normal
circumstances, they issue commercial paper having maturities of up to 30 days or
longer, if desired. As a result, Met-Ed and Penelec have temporarily withdrawn
from the commercial paper market, and instead have resorted to borrowing against
their various bank lines of credit.
There can be no assurance as to the outcome of these matters.
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,
2000, 9.2 million shares of common stock, or approximately 8% of the outstanding
shares, have been repurchased under the program, at an average price of $32.43
per share. No further repurchases of common stock are planned at this time.
In December 2000, GPU, Inc. issued and sold $300 million of unsecured
debentures, the net proceeds from which were used to repay debt at GPU, Inc.,
GPU Capital and GPU Electric.
GPU has various credit facilities in place, the most significant of which
are discussed below. These credit facilities generally provide GPU bank loans at
negotiated market rates.
GPU, Inc. and the GPU Energy companies have available $465 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 have commercial paper programs for 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
13
GPU, Inc. and Subsidiary Companies
time. JCP&L, Met-Ed and Penelec are limited by their charters or SEC
authorization to $266 million, $150 million and $150 million, respectively, of
short-term debt outstanding at any one time.
GPU Energy Companies
- --------------------
JCP&L, Met-Ed and Penelec have regulatory approval to issue senior notes
through December 31, 2002 in the amounts of $300 million, $150 million and $157
million, respectively. JCP&L and Met-Ed intend to issue 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.
Expenditures for maturing long-term debt are expected to total $40 million
(JCP&L) in 2001, and $130 million (JCP&L $50 million; Met-Ed $30 million;
Penelec $50 million) in 2002. Current plans call for each of 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 their 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
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. In August 2000, Oyster Creek was sold to AmerGen,
a joint venture of PECO Energy and British Energy. JCP&L has amended its
petition to include securitization of the up-front decommissioning payment it
has made under the Oyster Creek sale agreement.
In 2000, Penelec issued four tranches, totaling $118 million, of variable
and fixed rate senior notes. Two of these tranches, totaling $50 million of
variable rate senior notes, were converted to fixed rate obligations through
interest rate swap agreements.
In 2000, JCP&L and Met-Ed redeemed $40 million and $50 million,
respectively, of maturing FMBs; and Penelec redeemed $25 million of senior
notes. Also in 2000, JCP&L redeemed $21.7 million stated value of cumulative
preferred stock pursuant to mandatory and optional sinking fund provisions.
Met-Ed Capital Trust and Penelec Capital Trust
- ----------------------------------------------
In 1999, Met-Ed Capital Trust, a wholly-owned subsidiary of Met-Ed, issued
$100 million of trust preferred securities (Met-Ed Trust Preferred Securities)
at 7.35%, due 2039. The sole assets of Met-Ed Capital Trust are the 7.35%
Cumulative Preferred Securities of Met-Ed Capital II, L.P. (Met-Ed Partnership
Preferred Securities) and its only revenues are the quarterly cash distributions
it receives on the Met-Ed Partnership Preferred Securities. Each Met-Ed Trust
Preferred Security represents a Met-Ed Partnership Preferred Security. Met-Ed
Capital II, L.P. is a wholly-owned subsidiary of Met-Ed and
14
GPU, Inc. and Subsidiary Companies
the sponsor of Met-Ed Capital Trust. The sole assets of Met-Ed Capital II, L.P.
are Met-Ed's 7.35% Subordinated Debentures, Series A, due 2039, which have an
aggregate principal amount of $103.1 million. Distributions were made on the
Trust Preferred Securities during 2000 in the aggregate amount of $7,350,000.
Expenses of Met-Ed Trust for 2000 were approximately $17,000, 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 so
that there is only one holder of record. Met-Ed has fully and unconditionally
guaranteed the Met-Ed Partnership Preferred Securities, and, therefore, the
Met-Ed Trust Preferred Securities.
In 1999, Penelec Capital Trust, a wholly-owned subsidiary of Penelec,
issued $100 million of trust preferred securities (Penelec Trust Preferred
Securities) at 7.34%, due 2039. The sole assets of Penelec Capital Trust are the
7.34% Cumulative Preferred Securities of Penelec Capital II, L.P. (Penelec
Partnership Preferred Securities) and its only revenues are the quarterly cash
distributions it receives on the Penelec Partnership Preferred Securities. Each
Penelec Trust Preferred Security represents a Penelec Partnership Preferred
Security. Penelec Capital II, L.P. is a wholly-owned subsidiary of Penelec and
the sponsor of Penelec Capital Trust. The sole assets of Penelec Capital II,
L.P. are Penelec's 7.34% Subordinated Debentures, Series A, due 2039, which have
an aggregate principal amount of $103.1 million. Distributions were made on the
Trust Preferred Securities during 2000 in the aggregate amount of $7,340,000.
Expenses of Penelec Trust for 2000 were approximately $17,000, 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 so that there is only one holder of record. Penelec has fully and
unconditionally guaranteed the Penelec Partnership Preferred Securities, and,
therefore, the Penelec Trust Preferred Securities.
GPU Electric
- ------------
In 2000, GPU GasNet refinanced A$451 million (US $250 million) of its
A$747 million (two tranches totaling US $415 million) of bank debt utilizing
A$250 million (US $139 million) of proceeds from a new commercial paper program;
A$150 million (US $83 million) of proceeds from a new medium term note program;
and A$51 million (US $28 million) of proceeds from the issuance of additional
commercial paper by GPU Australia Holdings. At December 31, 2000, the following
GPU GasNet debt was outstanding and included in Long-term debt on the
Consolidated Balance Sheet: A$250 million (US $139 million) of commercial paper;
A$211 million (US $117 million) of bank debt; and A$150 million (US $83 million)
of medium term notes. In addition, GPU GasNet has established a A$750 million
(US $417 million) revolving credit facility, which serves as backstop for the
GPU GasNet commercial paper and medium term note programs. No borrowings were
outstanding under this facility at December 31, 2000.
GPU Capital has a $1 billion 364-day senior revolving credit agreement due
in November 2001 supporting the issuance of commercial paper for its $1 billion
commercial paper program, which has been established to fund GPU, Inc. and GPU
Electric acquisitions. GPU, Inc. has guaranteed GPU Capital's obligations under
this program. At December 31, 2000, $633 million was outstanding under this
commercial paper program and included in Notes payable on the Consolidated
Balance Sheet. In early 2001, GPU Capital refinanced the majority of this
outstanding commercial paper through its standby revolving credit agreement.
15
GPU, Inc. and Subsidiary Companies
GPU Electric has a $150 million credit facility due in May 2002 to
accommodate short term borrowing needs. The facility is guaranteed by GPU, Inc.
and there were no outstanding borrowings as of December 31, 2000.
GPU Australia Holdings has $180 million available under its senior
revolving credit facility, which expires in November 2001. This facility is
guaranteed by GPU, Inc. In 2000, GPU Australia Holdings borrowed $176 million
under this facility, which is included in Notes payable on the Consolidated
Balance Sheet at December 31, 2000, to repay all outstanding commercial paper.
EI UK Holdings has a (pound)245 million (US $366 million) credit facility,
a portion of which is guaranteed by GPU, Inc. At December 31, 2000, the entire
amount of this facility was outstanding and included in Long-term debt on the
Consolidated Balance Sheet.
GPU Power UK maintains a (pound)150 million (US $224 million) revolving
credit facility with six banks for working capital purposes, which expires at
various dates through June 2005. At December 31, 2000, there was (pound)60
million (US $90 million) outstanding under this facility, which is included in
Notes payable on the Consolidated Balance Sheet.
In addition, GPU Power UK maintains an ongoing (pound)75 million (US $112
million) facility with a bank whereby it may borrow funds for working capital
purposes. Outstanding borrowings are collateralized by portions of trade
accounts receivable. At December 31, 2000, (pound)75 million (US $112 million)
was outstanding under this facility, which is included in Notes payable on the
Consolidated Balance Sheet.
Expenditures for maturing long-term debt are expected to total $912
million in 2001 and $437 million in 2002.
GPU Power
- ---------
In 2000, expenditures for maturing long-term debt were $7 million, and are
expected to total $7 million in each of 2001 and 2002. Management anticipates
meeting these obligations through internally generated funds.
MYR Group
- ---------
MYR maintains a $50 million revolving credit facility, which expires in
November 2003, of which up to $10 million is available for the issuance of
standby letters of credit. As of December 31, 2000, $36 million was outstanding
under this facility.
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.
JCP&L's and Met-Ed's 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)
available for interest on FMBs shall have been at least twice the annual
16
GPU, Inc. and Subsidiary Companies
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 JCP&L and Met-Ed to issue additional FMBs
against a like principal amount of previously issued and retired FMBs.
At December 31, 2000, JCP&L did not have bondable value of property
additions available to issue any additional FMBs and Met-Ed had bondable value
of property additions to permit the issuance of approximately $6 million
principal amount of additional FMBs. However, JCP&L and Met-Ed can issue
approximately $383 million and $160 million, respectively, of FMBs against
previously issued and retired FMBs.
Penelec issued $118 million of senior notes in 2000. It does not intend to
issue any additional FMBs under its FMB indenture.
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, 2000, these provisions would
have permitted JCP&L to issue $1.4 billion stated value of cumulative preferred
stock at an assumed 8% 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 (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, 2000, these
restrictions would have permitted JCP&L to have approximately $266 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.
17
GPU, Inc. and Subsidiary Companies
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 Environmental Matters section
for additional information.
GPU Power UK's 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, GPU Power UK provides
distribution services to virtually all electricity customers in its franchise
area and, in addition, is obligated to offer electricity supply services to
these customers. In June 1999, GPU Power UK sold its supply business to National
Power and National Power assumed GPU Power UK's supply obligation under the PES
License. An agency agreement with National Power serves as a backstop for the
supply tariff GPU Power UK is allowed to charge its customers, since National
Power has assumed any risks of the costs of supplying power exceeding the tariff
rates.
GPU Power UK's distribution rates are determined in accordance with a
formula set by the Gas and Electricity Markets Authority, which is ordinarily
reviewed every five years. The effect of the most recent review was implemented
in April 2000 and the next review is scheduled for implementation in April 2005.
GPU GasNet is presently regulated by the Australian Competition Control
Commission 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,
18
GPU, Inc. and Subsidiary Companies
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., GPU Power'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 non-fuel variable operation and maintenance costs.
NUCLEAR FACILITIES
------------------
Investments:
- -----------
In December 1999, the GPU Energy companies sold TMI-1 to AmerGen for
approximately $100 million. In August 2000, JCP&L sold Oyster Creek to AmerGen
for approximately $10 million. As part of the sales, AmerGen has assumed full
responsibility for decommissioning the plants, and the GPU Energy companies have
transferred $320 million and $430 million of TMI-1 and Oyster Creek
decommissioning trust funds, respectively, to AmerGen. JCP&L, Met-Ed and Penelec
jointly own TMI-2, which was damaged during a 1979 accident, in the percentages
of 25%, 50% and 25%, respectively. JCP&L's net investment in TMI-2 as of
December 31, 2000 was $55 million. 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's and Penelec's remaining investments in TMI-2 were written off
in 1998 after receiving the PaPUC's Restructuring Orders.
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
19
GPU, Inc. and Subsidiary Companies
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. In June 2000, the
US Supreme Court denied petitions for review filed by GPU, Inc., the GPU Energy
companies and the plaintiffs.
In September 2000, the defendants filed a Motion for Summary Judgment in
the District Court. Meanwhile, the plaintiffs have taken an interlocutory appeal
to the Third Circuit seeking review of the District Court's determination that
the remaining plaintiffs should be allowed to advance causation theories based
only on the admissible evidence of record at the close of discovery in the case.
Oral arguments on the plaintiffs' appeal were held in January, 2001. 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 Department of Energy (DOE).
20
GPU, Inc. and Subsidiary Companies
In 1995, a consultant performed a site-specific study of TMI-2 that
considered various decommissioning methods and estimated the cost of
decommissioning the radiological portion and the cost of removal of the
nonradiological portion of the plant, using the prompt removal/dismantlement
method. Management has reviewed the methodology and assumptions used in this
study, is in agreement with them, and believes the results are reasonable. The
TMI-2 funding completion date is 2014, consistent with TMI-2 remaining in
long-term storage. The retirement cost estimate under the 1995 site-specific
study, assuming decommissioning of TMI-2 in 2014, is $450 million for
radiological decommissioning and $36 million for non-radiological removal costs
(net of $12.6 million spent as of December 31, 2000)(in 2000 dollars).
Each of the GPU Energy companies is responsible for retirement costs in
proportion to its respective ownership percentage. The ultimate cost of retiring
TMI-2 may be different from the cost estimate contained in this site-specific
study. Also, the cost estimate contained in this site-specific study is
significantly greater than the decommissioning funding targets established by
the NRC.
The estimated liability for future TMI-2 retirement costs (reflected as
Three Mile Island Unit 2 future costs on the Consolidated Balance Sheet) as of
December 31, 2000 is $515 million (JCP&L $129 million; Met-Ed $257 million;
Penelec $129 million). This liability is based upon the 1995 site-specific study
estimate (in 2000 dollars) discussed above and an estimate for remaining
incremental monitored storage costs of $29 million (JCP&L $7 million; Met-Ed $15
million; Penelec $7 million) as of December 31, 2000, as a result of TMI-2
entering long-term monitored storage in 1993.
Offsetting the $515 million liability as of December 31, 2000 is $127
million (JCP&L $15 million; Met-Ed $93 million; Penelec $19 million), which
management believes is probable of recovery from customers and included in
Regulatory assets, net on the Consolidated Balance Sheet, and $374 million
(JCP&L $115 million; Met-Ed $161 million; Penelec $98 million) in trust funds
for TMI-2 and included in Nuclear decommissioning trusts, at market on the
Consolidated Balance Sheet.
The NJBPU has granted JCP&L revenues for TMI-2 retirement costs based on
the 1995 site-specific study estimate. In addition, JCP&L is recovering a
portion of 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; however, Penelec has recovered these
costs through the divestiture of its generating assets. The 1996 Customer Choice
Act also allows Met-Ed and Penelec to defer as a regulatory asset those amounts
that are above the level provided for in the CTC for future recovery.
As of December 31, 2000, the accident-related portion of TMI-2
radiological decommissioning costs is estimated to be $80 million (JCP&L $20
million; Met-Ed $40 million; Penelec $20 million), which is based on the 1995
site-specific study (in 2000 dollars). In connection with rate case resolutions,
JCP&L, Met-Ed and Penelec made contributions to irrevocable external trusts for
their respective shares of the accident-related portion of the decommissioning
liability in amounts of $15 million, $40 million and $20 million, respectively.
These contributions were not recoverable from customers and were expensed in
1990, in the case of JCP&L, and in 1991 for Met-Ed and Penelec.
21
GPU, Inc. and Subsidiary Companies
The GPU Energy companies intend to seek recovery for any increases in
TMI-2 retirement costs, but recognize that recovery cannot be assured.
The GPU Energy companies own all of the common stock of the Saxton Nuclear
Experimental Corporation, which owns a small demonstration nuclear reactor.
Decommissioning of the plant is expected to be completed in 2002. In December
2000, based on new estimates to complete the decommissioning of the plant, the
decommissioning liability was increased by $13 million, to $52 million (JCP&L
$23 million; Met-Ed $17 million; Penelec $12 million) as of December 31, 2000.
The GPU Energy companies do not believe this increase is probable of recovery,
and have charged the entire amount to expense.
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. 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.
GPU has purchased property and decontamination insurance coverage for
TMI-2 totaling $150 million.
The Price-Anderson Act limits an owner's liability to third parties
resulting from a nuclear incident 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. Although TMI-2 is
exempt from retrospective premium assessments, the plant is still covered by the
provisions of the Price-Anderson Act. In addition, the GPU Energy companies are
subject to other retrospective premium assessments related to policies
applicable to TMI-1 prior to its sale to AmerGen.
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.
As a result of existing and proposed legislation and regulations, and
ongoing legal proceedings dealing with environmental matters including, but not
limited to, air and water 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 facilities; modify or
replace existing and proposed equipment; or remediate, decommission or clean up
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. In addition, federal and state law provides for payment
by responsible parties for damage to natural resources.
22
GPU, Inc. and Subsidiary Companies
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, 2000, GPU has liabilities recorded on its balance
sheets for environmental matters, as follows:
Company Amount (in millions)
------- --------------------
JCP&L $56.6
Met-Ed 0.5
Penelec 7.9
GPUN 0.5
GPU, Inc. 3.5
----
Total $69.0
====
Nuclear: Reference is made to the Nuclear Facilities section for
-------
information regarding the TMI-2 accident, and its aftermath.
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,
2000 amounted to $22 million (JCP&L $14 million; Met-Ed $5 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 were denied recovery in
the Phase II proceedings and wrote off their respective regulatory assets for
DOE decontamination and decommissioning at December 31, 2000.
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. 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 requested recommendations from contract holders for handling the delay.
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.
At December 31, 2000, GPU has recorded a liability of $210 million (JCP&L
$157 million; Met-Ed $35 million; Penelec $18 million) owed to the Nuclear Waste
Fund, related to spent nuclear fuel generated prior to the sales of TMI-1 and
Oyster Creek to AmerGen. AmerGen has assumed all liability for disposal costs
related to spent nuclear fuel generated following its purchase of the plants.
Air: With respect to air quality, the remaining 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
GPU, Inc. and Subsidiary Companies
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 most of
the sites. As of December 31, 2000, JCP&L has spent approximately $44.5 million
in connection with the cleanup of these sites. In addition, JCP&L has recorded
an estimated environmental liability of $50.2 million relating to expected
future costs of these sites (as well as two other
24
GPU, Inc. and Subsidiary Companies
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 $50.2 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. As of December 31, 2000, JCP&L had
recorded on its Consolidated Balance Sheet a regulatory asset of $51.6 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, relating to these MGP sites, and has settled with all but
one of those carriers.
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 $1.1 million of past response costs as of December
31, 2000. Chesapeake claims to have spent approximately $10 million in
connection with remediation of the site. The EPA has more recently estimated the
cost of ground water remediation to be on the order of $6 million. Consultants
to Chesapeake have estimated the remaining remediation ground water costs to be
approximately $12 million to $19 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. As
of December 31, 2000, if the statutory maximum were applied, the total amount of
penalties would be approximately $44 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 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.
The Federal Resource Conservation and Recovery Act of 1976, the
Comprehensive Environmental Response, Compensation and Liability Act of 1980 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
25
GPU, Inc. and Subsidiary Companies
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
----- ------ ------- ---- --------- -----
7 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/or 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, 2000, a liability of approximately $6 million (JCP&L $2.2 million;
Met-Ed $0.6 million; Penelec $0.2 million; Other $3 million) was recorded for
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.
In August 2000, Rochester Gas & Electric Corporation (RG&E) filed suit
against GPU, Inc. in the US District Court for the Western District of New York
for the reimbursement of $5.2 million of costs and damages it has allegedly
incurred, and a declaratory judgement with respect to future costs and damages,
in connection with two former MGP sites and a third property where wastes from
one of those sites were allegedly deposited. All of the properties are located
in Rochester, New York. According to the complaint, RG&E was an indirect
subsidiary of AGECO from May 1929 until January 1946, and a subsidiary of GPU,
Inc. from January 1946 until October 1949, when it was divested by order of the
SEC under the 1935 Act. There can be no assurance as to the outcome of this
matter.
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
26
GPU, Inc. and Subsidiary Companies
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.
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 14,100 employees
worldwide, of whom 10,000 are employed in the US, 3,600 are in the United
Kingdom (UK) and the remaining 500 are in South America and Australia. The
majority of the US workforce is employed by the GPU Energy companies (4,880) and
MYR (4,831), of which approximately 2,900 and 4,000, respectively, are
represented by unions for collective bargaining purposes. In the UK,
approximately 2,300 GPU Power UK employees are represented by unions, and the
terms and conditions of various bargaining agreements are generally reviewed
annually, on April 1. The JCP&L, Met-Ed and Penelec collective bargaining
agreements with the International Brotherhood of Electrical Workers expire on
October 31, 2002, May 1, 2003 and May 14, 2002, respectively. Penelec's
collective bargaining agreement with the Utility Workers Union of America
expires on June 30, 2001.
27
GPU, Inc. and Subsidiary Companies
ITEM 2. PROPERTIES.
GPU Energy Companies' Generating Stations
- -----------------------------------------
At December 31, 2000, the generating stations of the GPU Energy companies
had an aggregate effective capability of 285,000 net kilowatts (KW), as follows:
Name of GPU Energy Year of Net KW
Station Company Installation (Summer)
------- ---------- ------------ --------
GAS/OIL-FIRED
COMBUSTION TURBINES:
Forked River 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 285,000
=======
(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.
GPU Electric Generating Facilities
- ----------------------------------
At December 31, 2000, GPU Electric had ownership interests in five
operating natural gas-fired power production facilities located internationally,
with an aggregate capability of 4,200,500 KW as follows:
Name of Year of Ownership
Facility Location Installation Total KW Interest (KW)
- -------- -------- ------------ ---------- -------------
Teesside England 1993 1,875,000 498,800
Humber England 1997-1999 1,261,500 237,200
Marmara Turkey 1999 478,000 148,200
Uch Pakistan 2000 586,000 234,400
--------- ---------
Total 4,200,500 1,118,600
========= =========
GPU Power Generating Facilities
- -------------------------------
At December 31, 2000, GPU Power had ownership interests in four operating
natural gas-fired cogeneration and other nonutility power production facilities
located internationally, with an aggregate capability of 1,229,300 KW as
follows:
28
GPU, Inc. and Subsidiary Companies
Name of Year of Ownership
Facility Location Installation Total KW Interest (KW)
- -------- -------- ------------ ---------- -------------
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
========= =======
Transmission and Distribution System
- ------------------------------------
At December 31, 2000, the GPU Energy companies owned the following
transmission and distribution facilities:
JCP&L Met-Ed Penelec Total
---------- ---------- ---------- --------
Transmission and Distribution
Substations 302 247 471 1,020
=== === === =====
Aggregate Installed Transformer
Capacity of Substations
(in kilovoltamperes - KVA) 18,882,447 9,649,966 13,348,911 41,881,324
========== ========= ========== ==========
Transmission System (estimate):
- -------------------
JCP&L Met-Ed Penelec Total
---------- ---------- ---------- --------
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):
- -------------------
JCP&L Met-Ed Penelec Total
---------- ---------- ---------- --------
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, GPU Power UK, which provides service to 2.3 million customers
in a 5,100 square mile area in England, owns a total of 37,000 miles of overhead
and underground lines and has over 33,000 transformers mounted on poles and over
14,000 ground mounted transformers. Emdersa, which owns three electric
distribution companies servicing three provinces in northwest Argentina with
approximately 389,869 customers within 124,323 square miles, has over 7,364
transformers, and owns 12,745 miles of overhead and underground lines.
29
GPU, Inc. and Subsidiary Companies
Gas Transmission:
- ----------------
GPU GasNet, a natural gas transmission business, encompasses 1,160 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 Note 12, Commitments and Contingencies, of the
Combined Notes to 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.
A special meeting of GPU, Inc. shareholders was held on November 21, 2000.
At that meeting, GPU, Inc. shareholders voted on a proposal to approve and adopt
the Agreement and Plan of Merger, dated as of August 8, 2000, between GPU, Inc.
and FirstEnergy Corp. (Merger Agreement). Under the terms of the Merger
Agreement, each GPU, Inc. shareholder would have the opportunity, prior to the
completion of the merger, to elect to receive for each share of GPU, Inc. common
stock owned, either: (a) $36.50 in cash, without interest; or (b) shares of
FirstEnergy Corp. common stock intended to provide GPU, Inc. shareholders with
FirstEnergy Corp. shares having a value of $36.50, subject to adjustment. The
exact exchange ratio would be determined by dividing $36.50 by the average of
the closing sale prices for a share of FirstEnergy Corp. common stock over the
20-day trading period ending on the seventh trading day before the merger is
completed. The exchange ratio will be fixed at 1.2318 if the average closing
price of FirstEnergy Corp. shares over this period is equal to or greater than
$29.6313, and at 1.5055 if the average closing price of FirstEnergy Corp. shares
over this period is equal to or less than $24.2438. The elections of GPU, Inc.
shareholders will be subject to proration if the result of those elections would
cause more than 50% of the outstanding GPU, Inc. shares to be converted into
either cash or FirstEnergy Corp. shares. GPU, Inc. shareholders voted 81,932,364
for the adoption of the Merger Agreement, and 1,425,969 against. The special
meeting did not involve the election of any GPU, Inc. directors.
30
GPU, Inc. and Subsidiary Companies
PART II
-------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
All of JCP&L's, Met-Ed's and Penelec's outstanding common stock is owned
by GPU, Inc. During 2000, JCP&L, Met-Ed and Penelec paid dividends on their
common stock to GPU, Inc. in the following amounts: JCP&L $130 million, Met-Ed
$25 million and Penelec $55 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. Based on December 31, 2000 financial statements, JCP&L,
Met-Ed and Penelec had retained earnings available to pay common stock dividends
of $793 million, $67 million and $33 million, respectively, net of amounts
restricted under each companies' respective FMB indentures.
Stock Trading
- -------------
GPU, Inc. is listed as GPU on the New York Stock Exchange. On March 8,
2001, there were 32,832 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 2000 and 1999 are set forth below. See
Financing Arrangements section in Part I regarding the amount and timing of
future common stock dividends.
Common Stock
------------
Dividends Declared Price Ranges*
- ------------------------- -------------------------------------------------
2000 1999
2000 1999 Quarter High/Low High/Low
----- ----- ------- ------------------ ------------------
April $.545 $.53 First $30 3/4 $23 7/16 $45 $37 1/4
June .545 .53 Second 30 3/8 26 3/16 44 5/8 36 1/2
October .545 .53 Third 32 3/4 26 3/8 42 9/16 32
December .545 .53 Fourth 37 3/16 31 7/16 34 13/16 28 3/4
* Based on New York Stock Exchange Composite Transactions as reported in the
Wall Street Journal.
Company-Obligated Trust Preferred Securities
- --------------------------------------------
In 1999, Met-Ed Capital Trust and Penelec Capital Trust issued $100
million each of Met-Ed Trust Preferred Securities and Penelec Trust Preferred
Securities, respectively. The quarterly price ranges of these securities for
2000 and 1999 are as follows:
31
GPU, Inc. and Subsidiary Companies
Price Ranges
- ---------------------------------------------------------------------------------------------------------
Met-Ed Trust Preferred Securities (a) Penelec Trust Preferred Securities (b)
------------------------------------------ ----------------------------------------
2000 1999 2000 1999
Quarter High/Low High/Low High/Low High/Low
- ------- ------------------- ------------------- ------------------ ----------------
First $21 13/16 $19 1/2 $ - $ - $21 1/4 $19 $ - $ -
Second 21 15/16 19 3/4 24 5/8 23 1/8 22 13/16 20 1/8 - -
Third 22 7/8 21 7/16 24 1/8 21 9/16 23 1/2 21 7/16 25 1/2 21 9/16
Fourth 24 7/8 22 22 13/16 19 1/8 24 3/4 21 7/8 22 5/8 19 1/4
(a) Began trading on the New York Stock Exchange on May 28, 1999.
(b) Began trading on the New York Stock Exchange on July 1, 1999.
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.
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-25 through F-27 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
GPU, Inc. and Subsidiary Companies
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 2001
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) 60 Chairman of the Board 1996 1978 1994
M. J. Chesser (b) 52 President and Chief 2000 2000 2000
Executive Officer
C. B. Snyder (c) 55 Director 1997 1997 1997
JCP&L only:
- ----------
G. E. Persson (d) 68 Director 1983
S. C. Van Ness (e) 66 Director 1983
(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, 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 and MYR; Chairman and a director of GPU Capital, Inc.
(GPU Capital), GPU Electric, Inc. (GPU Electric), and Saxton Nuclear
Experimental Corporation (Saxton); President, Chief Executive Officer, and
a member of the Board of Managers of GPU Diversified Holdings, LLC (GPU
Diversified Holdings); a director of GPU Power, Inc. (GPU Power), Avon
Energy Partners Holdings (Avon), Midlands Electricity plc (Midlands) and
GPU Telcom, all subsidiaries of GPU, Inc. 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.
(b) Mr. Chesser is also a director of GPUN, GPU Telcom, and Saxton. Prior to
joining GPU in April 2000, Mr. Chesser was President and Chief Operating
Officer of Atlantic Energy, Inc. since 1995.
33
GPU, Inc. and Subsidiary Companies
(c) Mrs. Snyder was elected Executive Vice President - Corporate Affairs of
GPUS in 1998. She is also a director of GPUS, GPU Electric, MYR and
Midlands; and a member of the Board of Managers of GPU Diversified
Holdings. 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.
(d) 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.
(e) Mr. Van Ness is Of Counsel in the firm of Hubert, Van Ness, Cayci 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.
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:
Year First
Name Age Position Elected
- ---- --- -------- ----------
GPU, Inc.:
- ---------
F. D. Hafer (a) 60 Chairman, President and Chief 1996
Executive Officer
M. J. Chesser (b) 52 President and Chief Executive 2000
Officer, JCP&L, Met-Ed and Penelec
I. H. Jolles (c) 62 Senior Vice President and General 1990
Counsel
B. L. Levy (d) 45 Senior Vice President and Chief 1998
Financial Officer
P. E. Maricondo (e) 54 Vice President, Comptroller and 1998
Chief Accounting Officer
T. G. Howson (f) 52 Vice President and Treasurer 1994
S. L. Guibord (g) 52 Secretary 1999
C. B. Snyder (h) 55 Executive Vice President - 1997
Corporate Affairs, GPUS
34
GPU, Inc. and Subsidiary Companies
Year First Elected
Name Age Position JCP&L Met-Ed Penelec
- ---- --- -------- ----- ------ -------
JCP&L/Met-Ed/Penelec:
- --------------------
F. D. Hafer (a) 60 Chairman 1996 1978 1994
M. J. Chesser (b) 52 President and Chief 2000 2000 2000
Executive Officer
B. L. Levy (d) 45 Vice President and 1998 1998 1998
Chief Financial Officer
T. G. Howson (f) 52 Vice President 1994 1994 1994
and Treasurer
S. L. Guibord (g) 52 Secretary 1996 1996 1996
C. Brooks (i) 51 Vice President 1997 1997 1997
M. J. Connolly (j) 48 Vice President - Law 2000 2000 2000
R. P. Lantzy (k) 51 Vice President - Generation 2000 2000 -
P. E. Maricondo(e) 54 Comptroller 2001 2001 2001
C. A. Mascari (l) 53 Vice President - Technical 1997 1997 1997
Services
M. B. Roche (m) 49 Vice President - Customer 1999 2000 2000
& Regulatory Services
(Met-Ed and Penelec)
Sr. Vice President - New
Jersey Operations/Customer
Regulatory Services (JCP&L)
R. S. Zechman (n) 57 Vice President 1996 1990 1994
(a) See Note (a) on page 33.
(b) See Note (b) on page 33.
(c) Mr. Jolles is also Executive Vice President, General Counsel and a
director of GPUS, and a director of GPU Power, GPU Capital, GPU Electric,
Avon and Midlands. He is also a director of Utilities Mutual Insurance
Company.
(d) Mr. Levy is also Executive Vice President, Chief Financial Officer and a
director of GPUS, and a director of GPU Power, GPU Capital, GPU Electric,
Avon, Midlands and GPU Enertech Holdings, Inc. 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 GPU International, Inc.
(GPUI) since 1991.
(e) Mr. Maricondo was elected Comptroller and Chief Accounting Officer of GPUN
in 2000. Mr. Maricondo is also Vice President, Comptroller and Chief
Accounting Officer of GPU, Inc. and GPUS, and Vice President and
Comptroller of GPU Capital. 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, and GPU
Capital. He is Vice President of GPU Electric, and Treasurer of GPU
Diversified Holdings and Saxton.
(g) Mr. Guibord served as Corporate Compliance Auditing Director of GPUS from
1994 to 1996. Mr. Guibord also serves as Secretary of GPUS, GPUN, GPU AR,
GPU Capital, GPU Electric, GPU Power, GPU Diversified Holdings, GPU
Enertech Holdings, Inc., GPU Telcom and Saxton.
35
GPU, Inc. and Subsidiary Companies
(h) See Note (c) on page 34.
(i) 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.
(j) Mr. Connolly is also Vice President - Law of GPUS, GPUN and GPU AR. He
previously served as Director of Legal Services of GPUS since 1993.
(k) Mr. Lantzy is also Northern New Jersey Regional President of JCP&L
(effective December 22, 2000) and President of GPU Power. He previously
served as President and Chief Executive Officer of GPUI since 1999 and
Senior Vice President and Chief Operating Officer of GPUI and GPU Power
since 1998. Prior to that he served as Director - Technical Services, GPU
Generation, Inc. since 1995.
(l) Mr. Mascari previously served as Vice President - System Planning of GPUS
since 1994.
(m) Mr. Roche is also a director of GPUN. 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 2001 Annual Meeting of Stockholders. The following table
sets forth remuneration paid, as required by this Item, to the Chief Executive
Officer and the four other most highly compensated executive officers of JCP&L,
Met-Ed and Penelec for the year ended December 31, 2000.
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
2000, 1999 and 1998.
36
GPU, Inc. and Subsidiary Companies
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 ($)
- -------- ---- --------- -------- ----------- ---------- -------- ----------
M. J. Chesser
President and Chief
Executive Officer (3) (3) (3) (3) (3) (3) (3)
M. J. Connolly (4) 2000 185,385 25,000 - 6,500 - 15,319 (5)
Vice President - Law 1999 168,846 105,000 - 1,400 - 9,398
1998 150,000 35,000 - - - 6,782
R. S. Zechman 2000 184,615 - - 6,300 33,432 29,172 (6)
Vice President 1999 170,000 120,000 - 1,400 21,043 22,083
1998 170,000 60,000 538 4,850 18,669 17,623
C. A. Mascari 2000 170,000 - - 5,500 33,784 36,875 (7)
Vice President - 1999 170,000 112,000 - 1,400 20,218 27,090
Technical Services 1998 170,000 50,000 - 4,850 21,002 20,762
C. Brooks 2000 170,000 - - 5,200 33,960 22,943 (8)
Vice President 1999 170,000 90,000 460 1,400 20,424 19,041
1998 170,000 50,000 592 4,850 20,536 15,593
(1) Consists of earnings on "Long-Term Incentive Plan" ("LTIP") compensation
paid in the year the award vests.
(2) Amounts reported in this column for the year 2000 represent each Named
Executive Officer's 1995 performance-based restricted stock award that
vested on June 4, 2000, at 90% of target, in accordance with the 1990
Stock Plan. The restricted units issued each year since 1995 under the
1990 Stock Plan have been performance based. For a discussion of how the
2000 performance percentages were determined, and for the 2000 restricted
unit awards, see the Long-Term Incentive Plans - Awards in the Last Fiscal
Year table (the "LTIP Table"). Dividends are earned on the aggregate
restricted units awarded under the 1990 Stock Plan and reinvested in
additional units.
Amounts reported in this column for the years 1998 and 1999 consist of
Performance Cash Incentive Awards paid on the 1993 and 1994 restricted
unit awards, respectively, which vested under the 1990 Stock Plan. These
amounts were designed to compensate recipients of restricted unit awards
for the amount of federal and state income taxes that are payable upon
vesting of such awards. There was no Performance Cash Incentive Award
associated with the vesting of the restricted units awarded in 1995 that
vested in 2000.
37
GPU, Inc. and Subsidiary Companies
The aggregate number and value (based on the stock price per share at
December 31, 2000) of unvested and deferred vested stock-equivalent
restricted units (including reinvested dividend equivalents) which include
the amounts shown on the LTIP table, at the end of 2000 were:
Aggregate Units Aggregate Value
--------------- ---------------
M. J. Chesser see note (3) see note (3)
M. J. Connolly 2,254 $ 82,975
R. S. Zechman 8,125 299,102
C. A. Mascari 9,313 342,835
C. Brooks 7,572 278,744
(3) Information with respect to Mr. Chesser's compensation is included in the
Executive Compensation section of GPU, Inc.'s Proxy Statement for the 2001
Annual Meeting of Stockholders, which is incorporated herein by reference.
(4) Mr. Connolly 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.
(5) Consists of GPU's matching contributions under the Savings Plan ($6,800),
matching contributions under the non-qualified deferred compensation plan
($4,785), above-market interest accrued on the retirement portion of
deferred compensation ($83), and earnings on LTIP compensation not paid in
the current year ($3,651).
(6) Consists of GPU's matching contributions under the Savings Plan ($6,800),
matching contributions under the non-qualified deferred compensation plan
($5,385), above-market interest accrued on the retirement portion of
deferred compensation ($1,036), and earnings on LTIP compensation not paid
in the current year ($15,951).
(7) Consists of GPU's matching contributions under the Savings Plan ($6,800),
matching contributions under the non-qualified deferred compensation plan
($4,480), above-market interest accrued on the retirement portion of
deferred compensation ($7,045), and earnings on LTIP compensation not paid
in the current year ($18,550).
(8) Consists of GPU's matching contributions under the Savings Plan ($6,800),
above-market interest accrued on the retirement portion of deferred
compensation ($1,136), and earnings on LTIP compensation not paid in the
current year ($15,007).
38
GPU, Inc. and Subsidiary Companies
Option Grants In Last Fiscal Year
- ---------------------------------
The following table summarizes option grants made during 2000 to the
executive officers named in the Summary Compensation Table. All of these options
were granted with an exercise price equal to the fair market value of GPU stock
on the date of grant.
Individual Grants
-----------------
Number of
Securities % of Total
Underlying Options
Options Granted to
Grant Granted(1) Employees in Base Price Expiration Grant Date
Name Date (#) Fiscal Year ($/Sh) Date Present Value (2)
------------- -------- ---------- ------------ ----------- ---------- ----------------
M. J. Chesser (3) (3) (3) (3) (3) (3)
M. J. Connolly 06/01/00 6,500 0.9% $29.25 06/01/10 $29,900
R. S. Zechman 06/01/00 6,300 0.9% 29.25 06/01/10 28,980
C. A. Mascari 06/01/00 5,500 0.8% 29.25 06/01/10 25,300
C. Brooks 06/01/00 5,200 0.7% 29.25 06/01/10 23,920
(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 2000 Stock Option Agreement. In the event of a change in control
(which would include the Corporation's proposed merger with FirstEnergy)
of GPU 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 grant date and the exercise price shown on the table, and the
fair market value of Common Stock on the grant date, which was the same as
the exercise price. For the June 2000 grant, the model assumed (i) a
risk-free rate of return of 6.38%, which approximates the yield on 10-year
US Treasury zero coupon bonds on the grant date; (ii) a stock price
volatility of 23.5%, based on the average historical volatility for the
36-month period ending on the grant date; (iii) an average dividend yield
of 5.71%, 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. Chesser's options is included in the
Executive Compensation section of GPU, Inc.'s Proxy Statement for the 2001
Annual Meeting of Stockholders, which is incorporated herein by reference.
39
GPU, Inc. and Subsidiary Companies
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 executive officers named in the Summary Compensation Table.
In 2000, 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
- ---- ----------- ------------- ----------- -------------
M. J. Chesser (1) (1) (1) (1)
M. J. Connolly 467 7,433 - 49,156
R. S. Zechman 3,700 8,850 606 47,947
C. A. Mascari 3,700 8,050 606 41,897
C. Brooks 3,700 7,750 606 39,628
(1) Information with respect to Mr. Chesser's options is included in the
Executive Compensation section of GPU, Inc.'s Proxy Statement for the 2001
Annual Meeting of Stockholders, which is incorporated herein by reference.
Long-Term Incentive Plans - Awards In Last Fiscal Year
- ------------------------------------------------------
This table shows the LTIP awards made to the executive officers named in
the Summary Compensation Table 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 (#) (#) (#)
---- ------------ -------------- --------- ------ -------
M. J. Chesser (2) (2) (2) (2) (2)
M. J. Connolly 1,000 3 year vesting 500 1,000 2,000
R. S. Zechman 1,000 3 year vesting 500 1,000 2,000
C. A. Mascari 900 3 year vesting 450 900 1,800
C. Brooks 800 3 year vesting 400 800 1,600
(1) The restricted units awarded in 2000 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 64th percentile, then the performance
adjustment would be increased in steps reaching 200% at the 85th
percentile as reflected in the "Maximum" column. Regular quarterly
dividends are reinvested in additional units that are subject to the
vesting restrictions of the award. Actual payouts, if any, under the Plan
would
40
GPU, Inc. and Subsidiary Companies
be based on the aggregate number of units awarded and the units
accumulated through dividend reinvestment at the time the restrictions
lapse.
(2) Information with respect to Mr. Chesser's long-term incentive plans is
included in the Executive Compensation section of GPU, Inc.'s Proxy
Statement for the 2001 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 2001 (computed on
a single life annuity basis) to persons in specified compensation and years of
service classifications:
41
GPU, Inc. and Subsidiary Companies
ESTIMATED ANNUAL RETIREMENT BENEFITS (2) (3) (4)
BASED UPON CAREER AVERAGE COMPENSATION
--------------------------------------
(2001 Retirement)
Career
Average
Compen- Years of Service
----------------------------------------------------------
sation(1) 15 20 25 30 35 40
--------- -------- -------- -------- -------- -------- ----------
$ 50,000 $ 13,736 $18,315 $ 22,894 $ 27,473 $ 32,052 $ 36,399
100,000 28,736 38,315 47,894 57,473 67,052 75,999
150,000 43,736 58,315 72,894 87,473 102,052 115,599
200,000 58,736 78,315 97,894 117,473 137,052 155,199
250,000 73,736 98,315 122,894 147,473 172,052 194,799
300,000 88,736 118,315 147,894 177,473 207,052 234,399
350,000 103,736 138,315 172,894 207,473 242,052 273,999
400,000 118,736 158,315 197,894 237,473 277,052 313,599
450,000 133,736 178,315 222,894 267,473 312,052 353,199
500,000 148,736 198,315 247,894 297,473 347,052 392,799
550,000 163,736 218,315 272,894 327,473 382,052 432,399
600,000 178,736 238,315 297,894 357,473 417,052 471,999
650,000 193,736 258,315 322,894 387,473 452,052 511,599
700,000 208,736 278,315 347,894 417,473 487,052 551,199
750,000 223,736 298,315 372,894 447,473 522,052 590,799
800,000 238,736 318,315 397,894 477,473 557,052 630,399
(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. Connolly - $104,273; Zechman - $142,358; Mascari -
$140,752; and Brooks - $134,515.
(2) Years of Creditable Service at December 31, 2000: Messrs. Chesser - 1
year; Connolly - 21 years; Zechman - 31 years; Mascari - 27 years; and
Brooks - 27 years.
(3) Based on an assumed retirement at age 65 in 2001. 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, 2000, 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.
42
GPU, Inc. and Subsidiary Companies
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 2001 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, 2001, 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.
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 13,345 166 48,709
M. J. Chesser GPU Common Stock - - 4,032
M. J. Connolly GPU Common Stock - 456 2,254
R. S. Zechman GPU Common Stock 1,914 - 8,124
C. A. Mascari GPU Common Stock - 6 9,313
C. Brooks GPU Common Stock 805 - 7,572
C. B. Snyder GPU Common Stock 1,643 - 10,262
JCP&L Only:
- -----------
G. E. Persson GPU Common Stock None
S. C. Van Ness GPU Common Stock None
All Directors and
Executive Officers
as a Group GPU Common Stock 47,861 1,999 154,557
(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 (which
are performance-based and 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. Zechman
- 740 units, Mr. Mascari - 2,150 units, and Mr. Brooks - 718 units. See
Summary Compensation Table above.
43
GPU, Inc. and Subsidiary Companies
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.
44
GPU, Inc. and Subsidiary Companies
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 - Incorporated by
reference to Exhibit 3-B, 1999 Annual Report on Form 10-K, SEC
File No. 1-6047.
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 May 25, 1993 - 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 - Incorporated by reference to Exhibit 3-E, 1999 Annual
Report on Form 10-K, SEC File No. 1-446.
3-F By-Laws of Met-Ed as amended May 16, 2000.
3-G Restated Articles of Incorporation of Penelec, dated March 8,
1999 - Incorporated by reference to Exhibit 3-G, 1999 Annual
Report on Form 10-K, SEC File No. 1-3522.
3-H By-Laws of Penelec as amended May 16, 2000.
45
GPU, Inc. and Subsidiary Companies
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.
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.
46
GPU, Inc. and Subsidiary Companies
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.
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.
47
GPU, Inc. and Subsidiary Companies
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.
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.
48
GPU, Inc. and Subsidiary Companies
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 Exhibit 4-B-44,
Registration No. 333-88783.
4-A-45 Fifty-third Supplemental Indenture of JCP&L, dated November 1,
1999 - Incorporated by reference to Exhibit 4-A-45, 1999
Annual Report on Form 10-K, SEC File No. 1-3141.
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, between Met-Ed
and 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.
49
GPU, Inc. and Subsidiary Companies
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.
50
GPU, Inc. and Subsidiary Companies
4-B-21 Supplemental Indenture of Met-Ed, dated January 1, 1980 -
Incorporated by reference to Exhibit 4-A(21), Registration No.
33-48937.
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.
51
GPU, Inc. and Subsidiary Companies
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.
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 Supplemental Indenture of Met-Ed, dated July 1, 1999 -
Incorporated by reference to Exhibit 4-B-38, 1999 Annual
Report on Form 10-K, SEC File No. 1-446.
4-B-38 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-39 Senior Note Indenture between Met-Ed and United States Trust
Company of New York, dated July 1, 1999 Incorporated by
reference to Exhibit C-154 to GPU, Inc.'s Annual Report on
Form U5S for the year 1999, SEC File No. 30-126.
4-B-40 First Supplemental Indenture between Met-Ed and United States
Trust Company of New York, dated August 1, 2000 - Incorporated
by reference to Exhibit 4-A, June 30, 2000 Quarterly Report on
Form 10-Q, SEC File No. 1-446.
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.
52
GPU, Inc. and Subsidiary Companies
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.
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 - Incorporated by
reference to Exhibit 4-C-13, 1999 Annual Report on Form 10-K,
SEC File No. 1-3522.
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-C-15 First Supplemental Indenture between Penelec and United States
Trust Company of New York, dated August 1, 2000 - Incorporated
by reference to Exhibit 4-B, June 30, 2000 Quarterly Report on
Form 10-Q, SEC File No. 1-3522.
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.
53
GPU, Inc. and Subsidiary Companies
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 - Incorporated by reference to Exhibit
4-H, 1999 Annual Report on Form 10-K, SEC File No. 1-446.
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 - Incorporated by reference to Exhibit
4-J, 1999 Annual Report on Form 10-K, SEC File No. 1-3522.
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.
4-L Indenture of GPU, Inc., dated as of December 1, 2000, between
GPU, Inc. and United States Trust Company of New York.
10-A GPU Companies Deferred Compensation Plan as amended through
August 8, 2000.
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.
54
GPU, Inc. and Subsidiary Companies
10-H Deferred Remuneration Plan for Outside Directors of JCP&L, as
amended and restated, effective August 8, 2000.
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 8, 2000 relating to terms of
employment and pension benefits for I.H. Jolles.
10-M GPU, Inc. Restricted Stock Plan for Outside Directors as
amended and restated as of August 8, 2000.
10-N Retirement Plan for Outside Directors of GPU, Inc. as amended
and restated as of August 8, 2000.
10-O Deferred Remuneration Plan for Outside Directors of GPU, Inc.
as amended and restated effective August 8, 2000.
10-P 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-Q 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-R Amended and Restated GPU System Companies Master Directors'
Benefits Protection Trust effective June 1, 1999 -
Incorporated by reference to Exhibit 10-T, 1999 Annual Report
on Form 10-K, SEC File No. 1-6047.
10-S Amended and Restated GPU System Companies Master Executives'
Benefits Protection Trust effective June 1, 1999 -Incorporated
by reference to Exhibit 10-U, 1999 Annual Report on Form 10-K,
SEC File No. 1-6047.
10-T GPU, Inc. 1990 Stock Plan for Employees of GPU, Inc. and
Subsidiaries as amended and restated to reflect amendments
through June 3, 1999 - Incorporated by reference to Exhibit
10-V, 1999 Annual Report on Form 10-K, SEC File No. 1-6047.
10-U Form of 1999 Stock Option Agreement under the 1990 Stock Plan
for Employees of GPU, Inc. and Subsidiaries - Incorporated by
reference to Exhibit 10-W, 1999 Annual Report on Form 10-K,
SEC File No. 1-6047.
55
GPU, Inc. and Subsidiary Companies
10-V Form of 1999 Performance Units Agreement under the 1990 Stock
Plan for Employees of GPU, Inc. and Subsidiaries -Incorporated
by reference to Exhibit 10-X, 1999 Annual Report on Form 10-K,
SEC File No. 1-6047.
10-W Form of 2000 Stock Option Agreement under the 1990 Stock Plan
for Employees of GPU, Inc. and Subsidiaries.
10-X Form of 2000 Performance Units Agreement under the 1990 Stock
Plan for Employees of GPU, Inc. and Subsidiaries.
10-Y Deferred Stock Unit Plan for Outside Directors of GPU, Inc. as
amended effective August 8, 2000.
10-Z Form of 2000 MYR Group Inc. Performance Units Agreement under
the 1990 Stock Plan for Employees of GPU, Inc. and
Subsidiaries.
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 GPU Companies Supplemental Executive Retirement Plan, as
amended through August 9, 2000.
10-FF 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 - Incorporated by reference to Exhibit
10-GG, 1999 Annual Report on Form 10-K, SEC File No. 1-3141.
10-GG 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-HH 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.
56
GPU, Inc. and Subsidiary Companies
10-II Forms of Estate Enhancement Program Agreements - Incorporated
by reference to Exhibit 10-JJ, 1999 Annual Report on Form
10-K, SEC File No. 1-6047.
10-JJ Severance Protection Agreement for Michael J. Chesser, dated
April 17, 2000 - Incorporated by reference to Exhibit C-23,
1999 Annual Report of GPU, Inc. on Form U5S, SEC File No.
30-126.
10-KK Supplemental Pension Agreement for Michael J. Chesser, dated
April 17, 2000 - Incorporated by reference to Exhibit C-24,
1999 Annual Report of GPU, Inc. on Form U5S, SEC File No.
30-126.
10-LL Agreement and Plan of Merger, dated August 8, 2000, between
FirstEnergy Corp. and GPU, Inc. - Incorporated by reference to
Exhibit (c)1, August 11, 2000 Current Report on Form 8-K, SEC
File No. 1-6047.
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
23 Consent of Independent Accountants
A - GPU, Inc.
B - JCP&L
C - Met-Ed
D - Penelec
57
GPU, Inc. and Subsidiary Companies
(b) Reports on Form 8-K:
GPU, Inc.:
---------
Dated January 22, 2001, under Item 5 (Other Events).
Dated January 26, 2001, under Item 5 (Other Events).
Dated March 7, 2001, under Item 7 (Financial Statements,
Pro Forma Financial Information and Exhibits).
Metropolitan Edison Company:
---------------------------
Dated January 22, 2001, under Item 5 (Other Events).
Dated January 26, 2001, under Item 5 (Other Events).
Pennsylvania Electric Company:
-----------------------------
Dated January 22, 2001, under Item 5 (Other Events).
Dated January 26, 2001, under Item 5 (Other Events).
58
GPU, Inc. and Subsidiary Companies
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 21, 2001 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 21, 2001
- ----------------------------------------------
F. D. Hafer, Chairman (Chief Executive
Officer), President and Director
/s/ B. L. Levy March 21, 2001
- ----------------------------------------------
B. L. Levy, Senior Vice President
(Chief Financial Officer)
/s/ P. E. Maricondo March 21, 2001
- ----------------------------------------------
P. E. Maricondo, Vice President and
Comptroller (principal accounting officer)
/s/ T. B. Hagen March 21, 2001
- ----------------------------------------------
T. B. Hagen, Director
/s/ J. M. Pietruski March 21, 2001
- ---------------------------------------------
J. M. Pietruski, Director
/s/ R. N. Pokelwaldt March 21, 2001
- ---------------------------------------------
R. N. Pokelwaldt, Director
/s/ C. A. Rein March 21, 2001
- ----------------------------------------------
C. A. Rein, Director
/s/ B. S. Townsend March 21, 2001
- ----------------------------------------------
B. S. Townsend, Director
/s/ C. A. H. Trost March 21, 2001
- ----------------------------------------------
C. A. H. Trost, Director
/s/ K. L. Wolfe March 21, 2001
- ----------------------------------------------
K. L. Wolfe, Director
/s/ P. K. Woolf March 21, 2001
- ----------------------------------------------
P. K. Woolf, Director
59
Jersey Central Power & Light Company and Subsidiary Company
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 21, 2001 BY: /s/ M. J. Chesser
------------------------
M. J. Chesser, 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 21, 2001
- ----------------------------------------------
F. D. Hafer, Chairman and Director
/s/ M. J. Chesser March 21, 2001
- ----------------------------------------------
M. J. Chesser, President
(Chief Executive Officer) and Director
/s/ B. L. Levy March 21, 2001
- ----------------------------------------------
B. L. Levy, Vice President
(Chief Financial Officer)
/s/ P. E. Maricondo March 21, 2001
- ---------------------------------------------
P. E. Maricondo, Comptroller
(principal accounting officer)
/s/ C. B. Snyder March 21, 2001
- ----------------------------------------------
C. B. Snyder, Director
/s/ G. E. Persson March 21, 2001
- ----------------------------------------------
G. E. Persson, Director
/s/ S. C. Van Ness March 21, 2001
- ----------------------------------------------
S. C. Van Ness, Director
60
Metropolitan Edison Company and Subsidiary Companies
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 21, 2001 BY: /s/ M. J. Chesser
------------------------
M. J. Chesser, 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 21, 2001
- ----------------------------------------------
F. D. Hafer, Chairman and Director
/s/ M. J. Chesser March 21, 2001
- ---------------------------------------------
M. J. Chesser, President
(Chief Executive Officer) and Director
/s/ B. L. Levy March 21, 2001
- ----------------------------------------------
B. L. Levy, Vice President
(Chief Financial Officer)
/s/ P. E. Maricondo March 21, 2001
- ----------------------------------------------
P. E. Maricondo, Comptroller
(principal accounting officer)
/s/ C. B. Snyder March 21, 2001
- ----------------------------------------------
C. B. Snyder, Director
61
Pennsylvania Electric Company and Subsidiary Companies
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 21, 2001 BY: /s/ M. J. Chesser
-----------------------
M. J. Chesser, 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 21, 2001
- ----------------------------------------------
F. D. Hafer, Chairman and Director
/s/ M. J. Chesser March 21, 2001
- ----------------------------------------------
M. J. Chesser, President
(Chief Operating Officer) and Director
/s/ B. L. Levy March 21, 2001
- ----------------------------------------------
B. L. Levy, Vice President
(Chief Financial Officer)
/s/ P. E. Maricondo March 21, 2001
- ----------------------------------------------
P. E. Maricondo, Comptroller
(principal accounting officer)
/s/ C. B. Snyder March 21, 2001
- ----------------------------------------------
C. B. Snyder, Director
62
INDEX TO SUPPLEMENTARY DATA, FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
GPU, INC.
Page
Supplementary Data
Selected Financial Data F-3
Quarterly Financial Data F-4
Combined Management's Discussion and Analysis of
Financial Condition and Results of Operations F-5
Financial Statements
Report of Independent Accountants F-42
Consolidated Balance Sheets as of December 31, 2000 and 1999 F-43
Consolidated Statements of Income for the
Years Ended December 31, 2000, 1999 and 1998 F-45
Consolidated Statements of Comprehensive Income for the
Years Ended December 31, 2000, 1999 and 1998 F-46
Consolidated Statements of Retained Earnings for the
Years Ended December 31, 2000, 1999 and 1998 F-46
Consolidated Statements of Cash Flows for the
Years Ended December 31, 2000, 1999 and 1998 F-47
Combined Notes to Consolidated Financial Statements F-48
Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts for the
Years 2000, 1999 and 1998 F-113
JERSEY CENTRAL POWER & LIGHT COMPANY
Supplementary Data
Selected Financial Data F-114
Quarterly Financial Data F-115
Financial Statements
Report of Independent Accountants F-116
Consolidated Balance Sheets as of December 31, 2000 and 1999 F-117
Consolidated Statements of Income for the
Years Ended December 31, 2000, 1999 and 1998 F-119
Consolidated Statements of Comprehensive Income for the
Years Ended December 31, 2000, 1999 and 1998 F-120
Consolidated Statements of Retained Earnings for the
Years Ended December 31, 2000, 1999 and 1998 F-120
Consolidated Statements of Cash Flows for the
Years Ended December 31, 2000, 1999 and 1998 F-121
Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts for the
Years 2000, 1999 and 1998 F-122
F-1
INDEX TO SUPPLEMENTARY DATA, FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
METROPOLITAN EDISON COMPANY
Page
Supplementary Data
Selected Financial Data F-123
Quarterly Financial Data F-124
Financial Statements
Report of Independent Accountants F-125
Consolidated Balance Sheets as of December 31, 2000 and 1999 F-126
Consolidated Statements of Income for the
Years Ended December 31, 2000, 1999 and 1998 F-128
Consolidated Statements of Comprehensive Income for the
Years Ended December 31, 2000, 1999 and 1998 F-129
Consolidated Statements of Retained Earnings for the
Years Ended December 31, 2000, 1999 and 1998 F-129
Consolidated Statements of Cash Flows for the
Years Ended December 31, 2000, 1999 and 1998 F-130
Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts for the
Years 2000, 1999 and 1998 F-131
PENNSYLVANIA ELECTRIC COMPANY
Supplementary Data
Selected Financial Data F-132
Quarterly Financial Data F-133
Financial Statements
Report of Independent Accountants F-134
Consolidated Balance Sheets as of December 31, 2000 and 1999 F-135
Consolidated Statements of Income for the
Years Ended December 31, 2000, 1999 and 1998 F-137
Consolidated Statements of Comprehensive Income for the
Years Ended December 31, 2000, 1999 and 1998 F-138
Consolidated Statements of Retained Earnings for the
Years Ended December 31, 2000, 1999 and 1998 F-138
Consolidated Statements of Cash Flows for the
Years Ended December 31, 2000, 1999 and 1998 F-139
Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts for the
Years 2000, 1999 and 1998 F-140
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
SELECTED FINANCIAL DATA
For The Years Ended December 31, 2000(1) 1999(2) 1998(3) 1997(4) 1996(5)
- ----------------------------------------------------------------------------------------------
Common Stock Data
Earnings per common share before extraordinary item:
Basic $ 1.92 $ 3.66 $ 3.03 $ 2.78 $ 2.48
Diluted $ 1.92 $ 3.66 $ 3.03 $ 2.77 $ 2.47
Earnings per common share:
Basic $ 1.92 $ 3.66 $ 2.83 $ 2.78 $ 2.48
Diluted $ 1.92 $ 3.66 $ 2.83 $ 2.77 $ 2.47
Cash dividends paid per share $ 2.165 $ 2.105 $ 2.045 $ 1.985 $ 1.925
Book value per share $ 27.81 $ 28.45 $ 27.01 $ 25.59 $ 25.21
Closing market price per share $36 13/16 $ 29 3/4 $ 44 3/16 $ 42 1/8 $ 33 5/8
Common shares outstanding (in thousands):
Basic average 121,161 125,368 127,093 120,722 120,513
Diluted average 121,259 125,570 127,312 121,002 120,751
At year-end 119,440 121,766 127,996 120,833 120,611
Market price to book value at year-end 132% 105% 164% 165% 133%
Price/earnings ratio 19.2 8.1 15.6 15.2 13.6
Return on average common equity 6.9% 13.0% 10.7% 10.7% 9.8%
Financial Data (in millions)
Operating revenues $5,196 $4,757 $4,249 $4,143 $3,971
Other operation and maintenance expense 1,372 1,443 1,107 994 1,115
Income before extraordinary item 234 459 386 335 298
Net income 234 459 360 335 298
Net utility plant in service 6,892 7,836 6,565 7,101 5,942
Total assets 19,262 21,698 16,288 12,823 10,851
Long-term debt 3,917 5,261 3,826 4,326 3,177
Long-term capital lease obligations 2 2 3 3 7
Subsidiary-obligated trust
preferred securities 200 200 - - -
Subsidiary-obligated mandatorily
redeemable preferred securities 125 125 330 330 330
Cumulative preferred stock with
mandatory redemption 52 73 87 92 114
Capital expenditures and investments 571 461 468 470 462
Employees 14,100 10,830 8,957 9,346 9,345
(1) Results for 2000 include a non-recurring charge of $276.6 million
(after-tax), or $2.28 per share, as a result of the sale of GPU PowerNet; a
gain of $89.2 million (after-tax), or $0.73 per share, as a result of the
sale of GPUI; a gain of $40.8 million (after-tax), or $0.34 per share, for
the net impact of the PaPUC's Phase II Order on Met-Ed and Penelec; a net
gain of $26.2 million (after-tax), or $0.22 per share, related primarily to
a restructured power purchase agreement between a GPU independent power
project and Niagara Mohawk; and a gain of $16.5 million (after-tax), or
$0.13 per share, for the elimination of deferred taxes and realization of an
investment tax credit related to the sale of the Oyster Creek nuclear
generating plant.
(2) 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
GPU Power UK 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.
(3) 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's 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.
(4) 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 GPU Power UK, by the Government of the United Kingdom.
(5) 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.
F-3
GPU, Inc. and Subsidiary Companies
QUARTERLY FINANCIAL DATA (UNAUDITED)
First Quarter Second Quarter
----------------------- -----------------------
in thousands, except
per share data 2000 1999 (4) 2000 (1) 1999 (5)
- ---------------------------------------------------------------------------------------------
Operating revenues $1,176,444 $1,068,703 $1,280,374 $892,700
Operating income/(loss) 340,312 298,633 (142,003) 132,027
Income before extraordinary item 130,998 190,719 (210,813) 47,262
Net income/(loss) 130,998 190,719 (210,813) 47,262
Basic earnings/(loss) per share before
extraordinary item 1.08 1.49 (1.74) 0.39
Diluted earnings/(loss) per share before
extraordinary item 1.08 1.49 (1.74) 0.38
Basic earnings/(loss) per share 1.08 1.49 (1.74) 0.39
Diluted earnings/(loss) per share 1.08 1.49 (1.74) 0.38
Third Quarter Fourth Quarter
----------------------- -----------------------
in thousands, except
per share data 2000 (2) 1999 2000 (3) 1999 (6)
- ---------------------------------------------------------------------------------------------
Operating revenues $1,455,286 $1,424,286 $1,284,152 $1,371,435
Operating income 192,162 376,970 394,176 201,200
Income before extraordinary item 103,510 147,547 209,843 73,486
Net income 103,510 147,547 209,843 73,486
Basic earnings per share before
extraordinary item 0.86 1.18 1.72 0.60
Diluted earnings per share before
extraordinary item 0.86 1.18 1.72 0.60
Basic earnings per share 0.86 1.18 1.72 0.60
Diluted earnings per share 0.86 1.18 1.72 0.60
(1) Results for the second quarter of 2000 include a reduction of $295 million
after-tax, or $2.43 per share, for the loss on GPU Electric's sale of GPU
PowerNet.
(2) Results for the third quarter of 2000 include a net gain of $26.2 million
after-tax, or $0.22 per share, related primarily to a restructured power
purchase agreement between a GPU independent power project and Niagara
Mohawk; and an after-tax increase of $16.5 million, or $0.13 per share, for
the elimination of deferred taxes and realization of an investment tax
credit related to the sale of the Oyster Creek nuclear generating plant.
(3) Results for the fourth quarter of 2000 include an increase of $89.2 million
after-tax, or $0.73 per share, as a result of the sale of GPUI; and an
increase of $40.8 million, or $0.34 per share, for the net impact of the
PaPUC's Phase II Order. In addition, during the fourth quarter 2000 there
was a change in estimate of tax benefits associated with the second quarter
sale of GPU PowerNet which reduced GPU's loss on the sale by $18.4 million,
or $0.15 per share. The aggregate effect on earnings of other fourth quarter
2000 adjustments was a loss of approximately $17.6 million after-tax, or
approximately $0.15 per share.
(4) 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.
(5) 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 GPU Power UK supply business.
(6) 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 GPU Power UK supply business. 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-4
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). These electric
utilities are conducting business under the name GPU Energy and considered
together are referred to as the "GPU Energy companies." GPU Capital, Inc. and
GPU Electric, Inc. and their subsidiaries own, operate and fund the acquisition
of electric distribution and gas transmission systems in foreign countries, and
are referred to as "GPU Electric." GPU Electric's foreign utility companies
include Midlands Electricity plc (conducting business as GPU Power UK); Empresa
Distribuidora Electrica Regional S.A. (Emdersa); and GPU GasNet. GPU Power, Inc.
and its subsidiaries (GPU Power) develop, own and operate generation facilities
in foreign countries. 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; MYR Group Inc. (MYR), which is a utility infrastructure construction
services company; GPU Service, Inc. (GPUS), which provides legal, accounting,
financial and other services to the GPU companies; GPU Diversified Holdings LLC;
and GPU Nuclear, Inc. (GPUN). All of these companies considered together are
referred to as "GPU."
In 2000, GPU, Inc. sold GPU PowerNet, its Australian electric transmission
company, to Singapore Power International. In addition, GPU, Inc. sold GPU
International, Inc. (GPUI) to Aquila Energy Corporation. This sale included
GPUI's interests in six domestic electric generating plants, and one development
stage project. For further information, see Note 6, Accounting for Extraordinary
and Non-Recurring Items, of the Combined Notes to Consolidated Financial
Statements.
SAFE HARBOR STATEMENT UNDER
---------------------------
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
----------------------------------------------------
In connection with the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995, GPU, Inc., JCP&L, Met-Ed and Penelec (the GPU
registrants) are hereby filing cautionary statements identifying important
factors that could cause their actual results to differ materially from those
projected in forward-looking statements (as that term is defined in the Private
Securities Litigation Reform Act of 1995) made by or on behalf of the GPU
registrants in this Form 10-K. Any statements that express, or involve
discussions as to, expectations, beliefs, plans, objectives, assumptions or
future events or performance (often, but not always, through the use of words or
phrases such as "anticipates," "believes," "estimates," "expects," "intends,"
"plans," "projects," "will likely," "result," "will continue" or similar
expressions) are not statements of historical facts and may be forward-looking.
Forward-looking statements involve estimates, assumptions and
uncertainties and are qualified in their entirety by reference to, and are
accompanied by, the following important factors, which are difficult to predict,
contain uncertainties, are beyond the control of the GPU registrants and may
cause actual results to differ materially from those contained in
F-5
GPU, Inc. and Subsidiary Companies
those forward-looking statements: the consummation of the proposed merger of
GPU, Inc. with FirstEnergy Corp.; the effects of regulatory decisions, including
any conditions imposed upon the proposed merger with FirstEnergy Corp.; changes
in law and other governmental actions and initiatives; economic or weather
conditions affecting future sales and margins; the impact of deregulation and
increased competition in the industry; industry restructuring; expected outcomes
of legal proceedings; energy prices and availability; and uncertainties involved
with foreign operations including political risks and foreign currency
fluctuations.
Any forward-looking statement speaks only as of the date on which that
statement is made, and the GPU registrants undertake no obligation to update any
forward-looking statement to reflect events or circumstances after the date on
which that statement is made or to reflect the occurrence of unanticipated
events. New factors emerge from time to time and it is not possible for
management to predict all of those factors, nor can it assess the impact of each
of those factors on the business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statement.
GPU'S RESULTS OF OPERATIONS
---------------------------
EARNINGS PER SHARE CONTRIBUTION:
Change (per share)
-----------------------
(on a diluted basis) 2000 1999 1998 2000 vs. 1999 1999 vs. 1998
---- ---- ---- ------------- -------------
Operations:
GPU Energy companies $ 2.21 $ 3.51 $ 2.89 $(1.30) $ 0.62
GPU Electric 0.61 0.38 0.44 0.23 (0.06)
GPU Power and GPUI 0.14 0.15 0.11 (0.01) 0.04
GPU AR (0.01) (0.04) (0.01) 0.03 (0.03)
GPU Telcom (0.02) - 0.01 (0.02) (0.01)
MYR 0.04 - - 0.04 -
GPU, Inc. (Corporate) (0.19) (0.14) (0.09) (0.05) (0.05)
----- ----- ----- ----- -----
Total operations 2.78 3.86 3.35 (1.08) 0.51
Non-recurring items:
GPU Energy companies 0.47 (0.25) (0.52) 0.72 0.27
GPU Electric (2.28) 0.05 - (2.33) 0.05
GPUI 0.22 - - 0.22 -
GPU, Inc. 0.73 - - 0.73 -
----- ----- ----- ----- -----
Total $ 1.92 $ 3.66 $ 2.83 $(1.74) $ 0.83
===== ===== ===== ===== =====
GPU's 2000 earnings were $233.5 million, or $1.92 per share, compared with
earnings of $459 million, or $3.66 per share, for 1999. Both periods reflect
non-recurring items. GPU's return on average common equity was 6.9% in 2000,
compared to 13% in 1999. Excluding the non-recurring items discussed below,
return on average common equity for 2000 and 1999 would have been 9.6% and
13.7%, respectively.
GPU's earnings for 2000 would have been $337.4 million, or $2.78 per
share, if the following non-recurring items are excluded: the loss of $276.6
million after-tax, or $2.28 per share, on the sale of GPU PowerNet; the gain of
$89.2 million after-tax, or $0.73 per share, on the sale of GPUI; the net
increase in income of $40.8 million, or $0.34 per share, for the impact of the
Pennsylvania Public Utility Commission's (PaPUC) Phase II Order; the net gain of
$26.2 million after-tax, or $0.22 per share, primarily related to a restructured
power supply agreement between a GPU independent power project
F-6
GPU, Inc. and Subsidiary Companies
and Niagara Mohawk Corporation (NIMO); and the gain of $16.5 million, or $0.13
per share, for the reversal of certain deferred taxes and realization of an
investment tax credit related to the sale of the Oyster Creek Nuclear Generating
Station (Oyster Creek).
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, on the sales of the GPU Energy companies'
generating facilities, related to Met-Ed's and Penelec's 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 GPU
Power UK supply business of $6.8 million after-tax, or $0.05 per share.
The $1.08 per share earnings decrease for 2000 versus 1999, excluding
non-recurring items, was primarily due to the impact of electric utility
restructuring in New Jersey and Pennsylvania; increased energy costs for Met-Ed
and Penelec due to their need to purchase substantially all their energy
requirements following the sales of their generating facilities in 1999, and the
absence of deferred accounting treatment for these costs; and lower electric
rates charged to customers in New Jersey. Partially offsetting the decrease was
lower operation and maintenance (O&M) and depreciation expenses at the GPU
Energy companies, and increased GPU Electric earnings primarily due to the
acquisition of the remaining 50% ownership interest of GPU Power UK in July
1999.
GPU's 1998 earnings of $360.1 million, or $2.83 per share included a
non-recurring charge of $65.8 million after-tax, or $0.52 per share, as a result
of the PaPUC's Restructuring Orders. Excluding the impact of this non-recurring
item, GPU's 1998 earnings would have been $425.9 million, or $3.35 per share.
The $0.51 per share earnings increase for 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 O&M expenses and
lower depreciation expenses. Also contributing to the increase was higher
profits from operations at GPU Power UK. 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 and the
sale of AllGas Energy stock.
OPERATING REVENUES:
- -------------------
Operating revenues increased $439.1 million to $5.2 billion in 2000, and
increased $508.3 million to $4.8 billion in 1999. The components of the changes
are as follows:
F-7
GPU, Inc. and Subsidiary Companies
Change (in millions)
--------------------------------------
2000 vs. 1999 1999 vs. 1998
------------- -------------
GPU Energy companies:
Kilowatt-hour (KWH) revenues $(382.4) $(570.8)
Energy and restructuring-related
revenues (NJ) 242.0 220.2
Obligation to refund revenues 115.0 (58.6)
Competitive transition charge
(CTC) revenues (PA) 0.5 138.7
Other revenues (7.3) 12.7
----- ------
Total GPU Energy companies (32.2) (257.8)
GPU Electric 58.0 683.5
GPU Power and GPUI (4.3) 18.6
GPU AR (24.3) 73.7
GPU Telcom 4.2 (9.7)
MYR 437.7 -
------ ------
Total increase $ 439.1 $ 508.3
====== ======
GPU Energy companies
Kilowatt-hour revenues
- ----------------------
2000 vs. 1999
The decrease was due to lower sales to other utilities in 2000 of
approximately $50 million, as a result of GPU Energy having additional power
available in 1999 due to the delay in the divestiture of its generating assets;
and lower rates charged to JCP&L's customers and an increase in the number of
customers choosing alternate electricity suppliers in New Jersey, resulting in a
decrease in revenues of approximately $132 million. In addition, certain JCP&L
revenues related to stranded cost recovery of approximately $212 million, that
were previously included in KWH revenues, are now included in energy and
restructuring-related revenues, effective August 1, 1999.
1999 vs. 1998
The decrease was primarily due to lower generation-related revenues of
approximately $430 million as a result of some Pennsylvania customers choosing
other electricity suppliers, 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.
Energy and restructuring-related revenues (JCP&L only)
- ------------------------------------------------------
2000 vs. 1999
Changes in energy and restructuring-related revenues do not affect
earnings as they are offset by corresponding changes in expense. The increase
was primarily due to the inclusion of certain revenues, effective August 1,
1999, for the recovery of stranded costs due to restructuring in New Jersey. In
addition, JCP&L changed its estimate for unbilled revenue, which resulted in the
recording of additional revenues of approximately $25 million in 1999, partially
offsetting the increase in the current year.
F-8
GPU, Inc. and Subsidiary Companies
1999 vs. 1998
The 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.
Obligation to refund revenues
- -----------------------------
2000 vs. 1999
The increase was due to the absence this year of a reduction in operating
revenues of $115 million, recorded in 1999, as a result of the NJBPU's Summary
Order issued to JCP&L. The Summary Order requires JCP&L to refund customers 5%
from rates in effect as of April 30, 1997.
1999 vs. 1998
The decrease was primarily due to the NJBPU's Summary Order discussed
above. Partially offsetting the effect of the decrease was the absence of rate
reductions from operating revenues of $56.4 million, recorded in 1998, as a
result of PaPUC Restructuring Orders for Met-Ed and Penelec.
Competitive transition charge (CTC) revenues (Met-Ed and Penelec only)
- ----------------------------------------------------------------------
2000 vs. 1999 / 1999 vs. 1998
CTC revenues represent Pennsylvania stranded cost recoveries permitted by
the PaPUC in accordance with Met-Ed's 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
- --------------
2000 vs. 1999
The decrease was due to decreased transmission revenues as a result of
less load served by alternative suppliers in Pennsylvania.
1999 vs. 1998
The increase was due primarily to increased transmission revenues at
Met-Ed and Penelec as a result of customer shopping in Pennsylvania.
GPU Electric
2000 vs. 1999
The increase in revenues was primarily due to the inclusion of a full year
of revenues from: GPU Power UK (GPU acquired the remaining 50% ownership
interest in July 1999), approximately $90 million; Emdersa (acquired in March
1999), approximately $45 million; and GPU GasNet (acquired in June 1999),
approximately $25 million. Offsetting these increases was a reduction in
revenues at GPU PowerNet due to its sale in June 2000.
1999 vs. 1998
The increase in revenues was primarily due to the inclusion of revenues
from GPU Power UK, following the acquisition of the remaining 50% ownership
interest in 1999, approximately $505 million; and the inclusion of Emdersa,
approximately $135 million, and GPU GasNet, approximately $30 million, following
their acquisitions in 1999.
GPU Power and GPUI
1999 vs. 1998
The increase was primarily due to an increase in energy and capacity
revenues at Empresa Guaracachi, GPU's 50% owned subsidiary in Bolivia, $2.4
F-9
GPU, Inc. and Subsidiary Companies
million, and the full year effect of consolidating Onondaga Cogen, L.P.
(Onondaga), $11 million.
GPU AR
2000 vs. 1999
The decrease was due to GPU AR having fewer customers as compared to last
year.
1999 vs. 1998
The increase was primarily due to an increase in electricity sales to
customers who chose GPU AR as their electric energy supplier as part of retail
customer choice in Pennsylvania.
MYR
2000 vs. 1999
The increase was due to the inclusion of revenues from MYR following its
acquisition by GPU, Inc. in the second quarter 2000.
OPERATING INCOME:
- -----------------
Operating income decreased $224.2 million to $784.6 million in 2000, and
increased $112.8 million to $1.01 billion in 1999. The components of the changes
are as follows:
Change (in millions)
--------------------------------------
2000 vs. 1999 1999 vs. 1998
------------- -------------
GPU Energy companies $ (89.4) $(26.8)
GPU Electric (276.5) 143.9
GPU Power and GPUI (1.4) 11.5
GPU AR 3.7 (3.6)
GPU Telcom (1.7) (3.4)
MYR 17.6 -
GPU, Inc. 123.5 (8.8)
------ -----
Total increase/(decrease) $(224.2) $112.8
====== =====
GPU Energy companies
2000 vs. 1999
The decrease was primarily due to lower revenues as discussed above (see
Operating Revenues section for additional information) and higher energy costs
for Met-Ed and Penelec due to increased electricity purchases (approximately
$343 million) following the sale of their generating assets. JCP&L defers for
future collection its energy costs in excess of amounts in rates. Also
contributing to the decrease was higher bad debt expenses in 2000, approximately
$40 million; and a charge of $13 million in 2000 for increased costs associated
with decommissioning the Saxton Nuclear Experimental facility. Partially
offsetting this decrease was: lower 2000 O&M expenses resulting from a
non-recurring credit to expense of $66.1 million due to the impact of the
PaPUC's Phase II Order received by Met-Ed and Penelec (for additional
information, see Note 6, Accounting for Extraordinary and Non-recurring Items,
of the Combined Notes to Consolidated Financial Statements); a reduction in
expense of approximately $14 million for the receipt of additional cash
distributions in 2000, compared to 1999, related to Oyster Creek property
insurance; a reduction in operating expenses associated with the operation of
generating stations due to the sale of essentially all GPU Energy's generating
assets in 1999 (this was more than
F-10
GPU, Inc. and Subsidiary Companies
offset by increased purchased power expenses, as discussed above), approximately
$330 million; and lower depreciation expense due to the 1999 sales of generating
assets, approximately $75 million.
1999 vs. 1998
The decrease was due to lower revenues as discussed above. 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 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.
GPU Electric
2000 vs. 1999
The decrease was due to the pre-tax loss of $372 million in 2000 on the
sale of GPU PowerNet. Partially offsetting this decrease was increased operating
income at GPU Power UK due primarily to the acquisition of the remaining 50%
ownership interest in 1999, and the inclusion of Emdersa and GPU GasNet
following their acquisitions. Prior to its purchase of the remaining 50%
ownership interest, GPU accounted for its investment in GPU Power UK under the
equity method and included its share of GPU Power UK's income in Equity in
undistributed earnings of affiliates, net on the Consolidated Statements of
Income. Further offsetting the decrease was a credit to income of $15.9 million
pre-tax resulting from a reduction in the estimated liability of certain
long-term purchase obligations under natural gas supply contracts entered into
by GPU Power UK; and a pre-tax gain of $4.5 million realized on closed out
forward exchange contracts.
1999 vs. 1998
The increase was due primarily to the consolidation of GPU Power UK
following the acquisition of the remaining 50% ownership in 1999, and the
inclusion of Emdersa and GPU GasNet following their acquisitions in 1999.
GPU Power and GPUI
1999 vs. 1998
The increase was primarily due to higher revenues as discussed above, and
the full year effect of consolidating the Onondaga cogeneration project.
GPU AR
2000 vs. 1999
The decrease in operating loss resulted primarily from lower electricity
purchases due to GPU AR having fewer customers to supply energy, as compared to
last year, partially offset by lower revenues as discussed above.
1999 vs. 1998
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.
F-11
GPU, Inc. and Subsidiary Companies
MYR
2000 vs. 1999
The increase was due to the inclusion of MYR following its acquisition by
GPU, Inc. in the second quarter 2000.
GPU, Inc.
2000 vs. 1999
The increase was primarily due to the $133 million pre-tax gain on the
sale of GPUI in 2000. Partially offsetting the increase was merger-related costs
of approximately $12 million associated with the pending merger of GPU and
FirstEnergy Corp. (FirstEnergy).
1999 vs. 1998
The decrease was primarily due to higher expenses for corporate
activities.
OTHER INCOME AND DEDUCTIONS:
- ----------------------------
Other income and deductions increased $3 million to $178.8 million in
2000, and increased $54.5 million to $175.8 million in 1999. The components of
the changes are as follows:
Change (in millions)
--------------------------------------
2000 vs. 1999 1999 vs. 1998
------------- -------------
GPU Energy companies $(24.4) $ 78.9
GPU Electric (7.0) (25.6)
GPU Power and GPUI 35.0 0.4
GPU AR 0.7 0.1
GPU Telcom (2.9) (0.1)
MYR 0.9 -
GPU, Inc. 0.7 0.8
----- -----
Total increase $ 3.0 $ 54.5
===== =====
GPU Energy companies
2000 vs. 1999
The decrease was due to the absence in 2000 of net non-recurring gains,
related to Met-Ed's and Penelec's wholesale operations, of $61.3 million
pre-tax, recognized as a result of the sale of substantially all the GPU Energy
companies' electric generating stations. Partially offsetting the decrease was
higher interest income of approximately $12 million; and the reversal of an
estimated 1999 tax penalty of $10 million.
1999 vs. 1998
The increase was primarily due to the recognition of the net non-recurring
gains of $61.3 million pre-tax as discussed above. Also contributing to the
increase 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.
GPU Electric
2000 vs. 1999
The decrease was due primarily to the consolidation of GPU Power UK
following the acquisition of the remaining 50% ownership interest in 1999.
F-12
GPU, Inc. and Subsidiary Companies
Prior to that, the GPU Power UK investment was accounted for under the equity
method and GPU's share of GPU Power UK's income was included in Equity in
undistributed earnings of affiliates, net on the Consolidated Statements of
Income. Partially offsetting this was income from GPU Power UK's investments in
independent power projects accounted for under the equity and cost methods,
amounting to approximately $29 million in 2000.
1999 vs. 1998
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 Power.
Offsetting the decrease was the pre-tax gain on the sale of the GPU Power UK
supply business of $10.5 million and increased earnings from GPU Power UK's
operations prior to the acquisition from Cinergy Corp. of the remaining 50%.
GPU Power and GPUI
2000 vs. 1999
The increase was primarily due to the recognition in 2000 of a
non-recurring $42.8 million pre-tax net gain related to a restructured power
supply agreement between a GPU independent power project and NIMO. For
additional information, see Note 6, Accounting for Extraordinary and
Non-recurring Items, to the Consolidated Financial Statements.
1999 vs. 1998
In 1999, GPUI sold its interests in two cogeneration projects and its
shares of NIMO 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.
INTEREST CHARGES AND PREFERRED DIVIDENDS:
- -----------------------------------------
Interest charges and preferred dividends increased $67.8 million to $550.3
million in 2000, and increased $93.3 million to $482.5 million in 1999. The
components of the changes are as follows:
Change (in millions)
--------------------------------------
2000 vs. 1999 1999 vs. 1998
------------- -------------
GPU Energy companies $ (6.9) $(21.1)
GPU Electric 57.1 114.6
GPU Power and GPUI 2.2 1.5
GPU Telcom - -
MYR 7.3 -
GPU, Inc. 8.1 (1.7)
----- -----
Total increase $ 67.8 $ 93.3
===== =====
GPU Energy companies
2000 vs. 1999
The decrease was primarily due to the following: in 2000, JCP&L redeemed
$16.7 million stated value cumulative preferred stock pursuant to mandatory and
optional sinking fund provisions; Penelec redeemed $25 million
F-13
GPU, Inc. and Subsidiary Companies
of long-term debt; JCP&L and Met-Ed redeemed $40 million and $50 million,
respectively, of first mortgage bonds (FMBs); and in 1999, Met-Ed and Penelec
redeemed all their company-obligated mandatorily redeemable preferred securities
and cumulative preferred stock; and Penelec redeemed $600 million of FMBs.
Partially offsetting these decreases were increased interest expense associated
with Penelec's issuance of $350 million of senior notes in 1999, the issuance of
$118 million of senior notes in 2000; and the issuance of $100 million each of
company-obligated trust preferred securities by Met-Ed and Penelec in 1999.
1999 vs. 1998
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 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.
GPU Electric
2000 vs. 1999
The increase was primarily due to higher debt levels from the 1999
acquisitions of GPU Power UK (the remaining 50% ownership interest), Emdersa and
GPU GasNet, which resulted in additional interest expense of approximately $120
million, offset by lower interest expense due to the sale of GPU PowerNet.
1999 vs. 1998
The increase was primarily due to higher debt levels from the 1999
acquisitions of Emdersa, GPU GasNet and GPU Power UK (the remaining 50%
ownership interest), which resulted in additional interest expense of
approximately $90 million.
MYR
2000 vs. 1999
The increase was due to the inclusion of MYR following its acquisition by
GPU, Inc. in the second quarter 2000.
GPU, Inc.
2000 vs. 1999
The increase was due to higher average debt levels in 2000 due to the
issuance of $300 million of debentures, and the acquisition of MYR, which was
partially financed with short-term debt.
EXTRAORDINARY ITEM:
- -------------------
1999 vs. 1998
The 1998 extraordinary loss was due to the impact of the PaPUC
Restructuring Orders received by Met-Ed and Penelec.
F-14
Jersey Central Power & Light Company and Subsidiary Company
JCP&L'S RESULTS OF OPERATIONS
-----------------------------
JCP&L's earnings for 2000 were $203.9 million, compared to 1999 earnings
of $162.9 million. JCP&L's return on average common equity was 14.5% in 2000,
compared to 10.7% in 1999. The increase was primarily due to a non-recurring
gain of $16.5 million, in 2000, for the reversal of certain deferred taxes and
realization of an investment tax credit related to the sale of Oyster Creek; and
the absence of a non-recurring charge of $68 million after-tax as a result of
the NJBPU's Summary Order issued to JCP&L in 1999. Excluding the non-recurring
items, earnings for 2000 would have been $187.4 million, compared to 1999
earnings of $230.9 million. The decrease in earnings on this basis was due
primarily to the impact of electric utility restructuring in New Jersey; and
lower electric delivery rates charged to customers. Partially offsetting the
decrease was lower O&M and depreciation expenses.
JCP&L's earnings for 1998 were $212.4 million and its return on average
common equity was 13.5%. The decrease in earnings for 1999 versus 1998 was due
to the non-recurring charge of $68 million after-tax, as a result of the NJBPU's
Summary Order. Excluding the non-recurring charge, 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.
OPERATING REVENUES:
- -------------------
Operating revenues decreased $38.9 million to $1.98 billion in 2000, and
decreased $51.4 million to $2.02 billion in 1999. The components of the changes
are as follows:
Changes (in millions)
---------------------------------------
2000 vs. 1999 1999 vs. 1998
------------- -------------
KWH revenues $(392.2) $(156.3)
Energy and restructuring-related
revenues 242.0 220.2
Obligation to refund revenues 115.0 (115.0)
Other revenues (3.7) (0.3)
------ ------
Decrease in revenues $ (38.9) $ (51.4)
====== ======
KWH revenues
2000 vs. 1999
The decrease was primarily due to the fact that certain revenues related
to stranded cost recovery of approximately $212 million, that were previously
included in KWH revenues, are now included in energy and restructuring-related
revenues, effective August 1, 1999. Also contributing the decrease was lower
distribution rates charged to JCP&L's customers and an increase in the number of
customers choosing alternate electricity suppliers, resulting in a decrease in
revenues of approximately $132 million.
2000 Delivered KWH Sales by Service Class
-----------------------------------------
Residential 42%
Commercial 40%
Industrial/Other 18%
F-15
Jersey Central Power & Light Company and Subsidiary Company
1999 vs. 1998
The decrease was primarily due to decreased customer usage and decreased
sales to other utilities of approximately $10 million. Partially offsetting the
decreases 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.
Energy and restructuring-related revenues
- -----------------------------------------
2000 vs. 1999
Changes in energy and restructuring-related revenues do not affect
earnings as they are offset by corresponding changes in expense. The increase
was primarily due to the inclusion of certain revenues, effective August 1,
1999, for the recovery of stranded costs due to restructuring in New Jersey. In
addition, in 1999 JCP&L changed its estimate for unbilled revenue, which
resulted in the recording of additional revenues of approximately $25 million,
partially offsetting the increase in the current year.
1999 vs. 1998
The 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.
Obligation to refund revenues to customers
- ------------------------------------------
2000 vs. 1999
The increase was due to the absence this year of a reduction in operating
revenues of $115 million, recorded in 1999, as a result of the NJBPU's Summary
Order issued to JCP&L. The Summary Order requires JCP&L to refund customers 5%
from rates in effect as of April 30, 1997.
1999 vs. 1998
The decrease was primarily due to the NJBPU's Summary Order discussed
above.
OPERATING INCOME:
- -----------------
Operating income increased $41.4 million to $407.2 million in 2000, and
decreased $96.3 million to $365.8 million in 1999.
2000 vs. 1999
The increase was primarily due to a reduction in operating expenses
associated with the operation of generating stations of approximately $110
million; and lower depreciation expense of approximately $13 million, resulting
from the sale of generating assets in 1999. Also contributing to the increase
was a reduction in expense of approximately $13 million for the receipt of
additional cash distributions in 2000, compared to 1999, related to Oyster Creek
property insurance. Partially offsetting these increases was: lower revenues as
discussed above; higher bad debt expenses in 2000, approximately $16 million;
and a charge of $5.7 million in 2000 for increased costs associated with
decommissioning the Saxton Nuclear Experimental facility.
1999 vs. 1998
The decrease was due to the obligation to make refunds to customers and
lower KWH revenues as discussed above. Partially offsetting this decrease
F-16
Jersey Central Power & Light Company and Subsidiary Company
was lower depreciation expense due to the effect of the impairment write-down of
Oyster Creek and TMI-1 in 1999 and 1998, respectively.
OTHER INCOME AND DEDUCTIONS:
- ----------------------------
Other income and deductions increased $15.5 million to $28 million in
2000, and decreased $1.5 million to $12.5 million in 1999.
2000 vs. 1999
The increase was due to higher interest income of approximately $14
million; and the reversal of an estimated 1999 tax penalty of $1.3 million.
INTEREST CHARGES AND PREFERRED DIVIDENDS:
- -----------------------------------------
Interest charges and preferred dividends decreased $3 million to $111.4
million in 2000, and decreased $4.2 million to $114.4 million in 1999.
2000 vs. 1999
The decrease was primarily due to, in 2000, the redemption of $16.7
million stated value cumulative preferred stock pursuant to mandatory and
optional sinking fund provisions; and the redemption of $40 million FMBs.
1999 vs. 1998
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-17
Metropolitan Edison Company and Subsidiary Companies
MET-ED'S RESULTS OF OPERATIONS
------------------------------
Met-Ed's earnings for 2000 were $81.9 million, compared to 1999 earnings
of $94.5 million. Met-Ed's return on average common equity was 16.1% in 2000
compared to 13.9% in 1999. Excluding an after-tax gain of $32 million for the
impact of the PaPUC's Phase II order, earnings for 2000 would have been $49.9
million. Excluding the net gain from the sales of Met-Ed's generating facilities
related to wholesale operations, earnings for 1999 would have been $93.3
million. The decrease in earnings excluding non-recurring items was primarily
due to the impact of electric utility restructuring in Pennsylvania; increased
energy costs resulting from Met-Ed's need to purchase substantially all its
energy requirements following the sales of its generating assets in 1999, and
the absence of deferred accounting treatment for these costs. Partially
offsetting these was lower O&M and depreciation expenses.
Met-Ed's earnings for 1998 were $50.4 million and its return on average
common equity was 7.5%. Excluding the effect of PaPUC rate actions, earnings for
1998 would have been $76.4 million. The increase in earnings for 1999 versus
1998 on this basis was primarily due to increased sales to other utilities,
higher weather-related sales and a decrease in depreciation expense.
OPERATING REVENUES:
- ------------------
Operating revenues decreased $60.5 million to $842.3 million in 2000, and
decreased $16.8 million to $902.8 million in 1999. The components of the changes
are as follows:
Changes (in millions)
2000 vs. 1999 1999 vs.1998
------------- ------------
KWH revenues $ (64.7) $(152.0)
Obligation to refund revenues - 27.2
CTC revenues 4.2 90.0
Other revenues - 18.0
------ ------
Decrease in revenues $ (60.5) $ (16.8)
====== ======
KWH revenues
2000 vs. 1999
The decrease was primarily due to lower sales to other utilities in 2000
of approximately $93 million, as a result of Met-Ed having additional power
available in 1999 due to the delay of the divestiture of its generating assets.
2000 Delivered KWH Sales by Service Class
-----------------------------------------
Residential 35%
Commercial 30%
Industrial/Other 35%
F-18
Metropolitan Edison Company and Subsidiary Companies
1999 vs. 1998
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.
Obligation to refund revenues to customers
- ------------------------------------------
1999 vs. 1998
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.
CTC revenues
- ------------
2000 vs. 1999 / 1999 vs. 1998
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 vs. 1998
The increase was due primarily to increased transmission revenues as a
result of customer shopping in Pennsylvania.
OPERATING INCOME:
- -----------------
Operating income decreased $44.7 million to $168.5 million in 2000, and
increased $45.8 million to $213.2 million in 1999.
2000 vs. 1999
The decrease was primarily due to lower revenues as discussed above and
higher energy costs due to increased electricity purchases of approximately $160
million following the sale of Met-Ed's generating assets. Also contributing to
the decrease was higher bad debt expenses in 2000, approximately $12 million;
and a charge of $4.2 million in 2000 for increased costs associated with
decommissioning the Saxton Nuclear Experimental facility. Partially offsetting
these decreases was: lower 2000 O&M expenses resulting from a non-recurring
credit to expense of $44.6 million due to the impact of the PaPUC's Phase II
Order (for additional information, see Note 6, Accounting for Extraordinary and
Non-recurring Items, of the Combined Notes to Consolidated Financial
Statements); a reduction in operating expenses associated with the operation of
generating stations due to the sale of essentially all Met-Ed's generating
assets in 1999, approximately $130 million; and lower depreciation expense of
approximately $30 million due to the 1999 sale of generating assets.
1999 vs. 1998
The increase was primarily due to increased sales to other utilities, the
absence of rate refunds of $27.2 million recorded in 1998, 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 increase 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
F-19
Metropolitan Edison Company and Subsidiary Companies
recoverability of stranded costs in Phase II of the Pennsylvania restructuring
proceedings.
OTHER INCOME AND DEDUCTIONS:
- ----------------------------
Other income and deductions increased $8.1 million to $12.2 million in
2000, and increased $17.5 million to $4.1 million in 1999.
2000 vs. 1999
The increase was primarily due to higher interest income of approximately
$5 million; and the reversal of an estimated 1999 tax penalty of $1.8 million.
1999 vs. 1998
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.
INTEREST CHARGES AND PREFERRED DIVIDENDS:
- -----------------------------------------
Interest charges and preferred dividends decreased $6.7 million to $54.7
million in 2000, and increased $2.1 million to $61.4 million in 1999.
2000 vs. 1999
The decrease was primarily due to the retirement of $50 million of FMBs in
2000; and the redemption of $100 million of company-obligated mandatorily
redeemable preferred securities and $12 million of cumulative preferred stock,
both in 1999. Partially offsetting the decreases was increased interest expense
associated with the issuance of $100 million company-obligated trust preferred
securities in 1999.
1999 vs. 1998
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 ($12 million), which resulted in a
loss of $0.5 million.
EXTRAORDINARY ITEM:
- -------------------
1999 vs. 1998
The 1998 extraordinary loss was due to the impact of the PaPUC
Restructuring Order received by Met-Ed.
F-20
Pennsylvania Electric Company and Subsidiary Companies
PENELEC'S RESULTS OF OPERATIONS
-------------------------------
Penelec's earnings for 2000 were $39.2 million, compared to 1999 earnings
of $151.6 million. Penelec's return on average common equity was 8.8% in 2000
compared to 26.6% in 1999. Excluding an after-tax gain of $8.8 million for the
impact of the PaPUC's Phase II order, earnings for 2000 would have been $30.4
million. Excluding the net gain from the sales of Penelec's generating
facilities related to wholesale operations, earnings for 1999 would have been
$116.7 million. The decrease in earnings excluding non-recurring items was
primarily due to the impact of electric utility restructuring in Pennsylvania;
increased energy costs resulting from Penelec's need to purchase substantially
all its energy requirements following the sales of its generating assets in
1999, and the absence of deferred accounting treatment for these costs.
Partially offsetting these was lower O&M and depreciation expenses.
Penelec's earnings in 1998 were $38.9 million and its return on average
common equity was 5%. Excluding the effect of PaPUC rate actions, earnings for
1998 would have been $78.7 million. The increase in earnings for 1999 versus
1998 on this basis was primarily due to increased sales to other utilities,
higher weather-related sales and a decrease in depreciation expense.
OPERATING REVENUES:
- ------------------
Operating revenues decreased $20.1 million to $901.9 million in 2000, and
decreased $110.3 million to $922 million in 1999. The components of the changes
are as follows:
Changes (in millions)
---------------------------------------
2000 vs. 1999 1999 vs.1998
------------- ------------
KWH revenues $ (9.8) $(203.3)
Obligation to refund revenues - 29.2
CTC revenues (3.7) 48.7
Other revenues (6.6) 15.1
------ ------
Decrease in revenues $ (20.1) $(110.3)
====== ======
KWH revenues
2000 vs. 1999
The decrease was primarily due to lower sales to other utilities in 2000
of approximately $33 million, as a result of Penelec having additional power
available in 1999 due to the delay of the divestiture of its generating assets.
2000 Delivered KWH Sales by Service Class
-----------------------------------------
Residential 29%
Commercial 33%
Industrial/Other 38%
1999 vs. 1998
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
F-21
Pennsylvania Electric Company and Subsidiary Companies
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.
Obligation to refund revenues to customers
- ------------------------------------------
1999 vs. 1998
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.
CTC revenues
- ------------
2000 vs. 1999 / 1999 vs. 1998
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
- --------------
2000 vs. 1999
The decrease was due to decreased transmission revenues as a result of
less load served by alternative suppliers in Pennsylvania.
1999 vs. 1998
The increase was due primarily to increased transmission revenues as a
result of customer shopping in Pennsylvania.
OPERATING INCOME:
- -----------------
Operating income decreased $85.9 million to $105.7 million in 2000, and
increased $20.8 million to $191.6 million in 1999.
2000 vs. 1999
The decrease was primarily due to lower revenues as discussed above and
higher energy costs due to increased electricity purchases of approximately $183
million following the sale of Penelec's generating assets. Also contributing to
the decrease was higher bad debt expenses in 2000, approximately $12 million;
and a charge of $3.1 million in 2000 for increased costs associated with
decommissioning the Saxton Nuclear Experimental facility. Partially offsetting
these decreases was: lower 2000 O&M expenses resulting from a non-recurring
credit to expense of $21.5 million due to the impact of the PaPUC's Phase II
Order (for additional information, see Note 6, Accounting for Extraordinary and
Non-recurring Items, of the Combined Notes to Consolidated Financial
Statements); a reduction in operating expenses associated with the operation of
generating stations due to the sale of essentially all Penelec's generating
assets in 1999, approximately $92 million; and lower depreciation expense of
approximately $32 million due to the 1999 sale of generating assets.
1999 vs. 1998
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 these was lower KWH
revenues as discussed above and a pre-tax reserve of $6.3 million related to
F-22
Pennsylvania Electric Company and Subsidiary Companies
the regulatory uncertainty of the full recoverability of stranded costs in Phase
II of the Pennsylvania restructuring proceedings.
OTHER INCOME AND DEDUCTIONS:
- ----------------------------
Other income and deductions decreased $48.2 million to $11.1 million in
2000, and increased $65.7 million to $59.3 million in 1999.
2000 vs. 1999
The decrease was due to the absence in 2000 of net non-recurring gains of
$59.3 million pre-tax, as a result of the sale of substantially all Penelec's
electric generating stations; and lower interest income of approximately $7
million. Partially offsetting these was the reversal of an estimated 1999 tax
penalty of $6.9 million.
1999 vs. 1998
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 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.
INTEREST CHARGES AND PREFERRED DIVIDENDS:
- -----------------------------------------
Interest charges and preferred dividends increased $2.8 million to $47.8
million in 2000, and decreased $18.9 million to $45 million in 1999.
2000 vs. 1999
The increase was primarily due to the issuance of $118 million of senior
notes in 2000; and the issuance of $350 million of senior notes and $100 million
of company-obligated trust preferred securities, both in 1999. Partially
offsetting these increases were decreased interest expense due to the following:
in 2000, the redemption of $25 million of long-term debt; in 1999, the
redemption of $105 million of company-obligated mandatorily redeemable preferred
securities and $16.5 million of cumulative preferred stock; and the redemption
of $600 million of FMBs.
1999 vs. 1998
The decrease was primarily due to Penelec's redemption of all its
company-obligated mandatorily redeemable preferred securities ($105 million) and
cumulative preferred stock ($16.5 million), which resulted in a loss of $0.7
million (redemption of cumulative preferred stock); 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:
- -------------------
1999 vs. 1998
The 1998 extraordinary loss was due to the impact of the PaPUC
Restructuring Order received by Penelec.
F-23
GPU, Inc. and Subsidiary Companies
PENDING MERGER OF FIRSTENERGY CORP. AND GPU
-------------------------------------------
On August 8, 2000, GPU, Inc. entered into an agreement to merge with
FirstEnergy, an Ohio corporation, headquartered in Akron, Ohio. Under the merger
agreement, FirstEnergy would acquire all of the outstanding shares of GPU's
common stock for approximately $4.5 billion in cash and FirstEnergy common
stock.
The merger has been approved by the Boards of Directors and stockholders
of GPU, Inc. and FirstEnergy and is expected to close promptly after all of the
conditions to the consummation of the merger (including the receipt of all
necessary regulatory approvals, provided that such approvals will not impose
terms and conditions that would reasonably be expected to result in a "material
adverse effect," as defined in the merger agreement, on the combined company,
and there being no "material adverse effect" on either GPU or FirstEnergy since
June 30, 2000 or March 31, 2000, respectively), are fulfilled or waived.
Relevant factors would include the nature of any order issued by the regulatory
authorities, the financial and business conditions of each company, and whether,
and the extent by which, any developments relate to general economic conditions.
In testimony before the PaPUC, FirstEnergy stated that FirstEnergy will
carefully review the PaPUC's action with respect to GPU's requested provider of
last resort (PLR) relief on the financial condition of GPU to determine whether
the consequences would have a "material adverse effect" on GPU or the combined
company. The receipt of all necessary regulatory approvals is expected to take
approximately nine to twelve months from the date of the merger agreement. There
can be no assurance as to the outcome of these matters.
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,
2000. At December 31, 2000, GPU, Inc. has remaining authorization to finance
approximately $680 million of additional investments in FUCOs and EWGs. GPU,
Inc.'s investments in FUCOs and EWGs are made through GPU Electric and GPU
Power.
GPU ELECTRIC
------------
GPU Electric owns electric distribution and gas transmission businesses in
England, Australia and Argentina. In June 2000, GPU Electric sold its electric
transmission business in Australia and, as a result, recorded a pre-tax loss in
the quarter ended June 30, 2000 of $372 million ($295 million after-tax, or
$2.43 per share), including a $94 million foreign currency loss. During the
fourth quarter 2000, there was a change in the estimated tax benefits, which
reduced GPU's after-tax loss on the sale to $276.6 million, or $2.28 per share.
Through its ownership in GPU Power UK, GPU Electric also has investments in
operating generating facilities located in foreign countries totaling 4,201
megawatts (MW) (of which GPU Electric's equity interest represents 1,119 MW) of
capacity. At December 31, 2000, GPU, Inc.'s aggregate investment in GPU Electric
was $881 million. GPU, Inc. has also guaranteed up to an additional $899 million
of outstanding GPU Electric obligations.
F-24
GPU, Inc. and Subsidiary Companies
GPU POWER
---------
GPU Power has ownership interests in four operating generating facilities
located in foreign countries totaling 1,229 MW (of which GPU Power's equity
interest represents 424 MW) of capacity. At December 31, 2000, GPU, Inc.'s
aggregate investment in GPU Power was $139 million. GPU, Inc. has also
guaranteed up to an additional $21.3 million of GPU Power obligations.
GPU TELCOM
----------
GPU Telcom is a telecommunications infrastructure development and
management company and wholesale telecommunications provider with operations
primarily in the Mid-Atlantic region of the US. Its customers consist of
telecommunications end-use service providers including: interexchange carriers;
competitive local exchange carriers; competitive access providers and multiple
system operators; commercial and industrial companies (private networks) and
governmental agencies; cable television and telephone companies; and internet
service providers. At December 31, 2000, GPU, Inc.'s aggregate investment in GPU
Telcom was $67 million.
For a discussion of GPU Telcom's participation in certain recent joint
ventures, see the GPU Business Plan section.
MYR GROUP
---------
In April 2000, GPU, Inc. acquired MYR for approximately $217.5 million.
MYR, a suburban Chicago-based infrastructure construction services company,
provides a complete range of power line and commercial/industrial electrical
construction services for electric utilities, telecommunications providers,
commercial and industrial facilities and government agencies across the US. MYR
also builds cellular towers for the wireless communications market. At December
31, 2000, GPU, Inc.'s aggregate investment in MYR was $237 million. For
additional information, see Note 7, Acquisitions, of the Combined Notes to
Consolidated Financial Statements.
MARKET RISK SENSITIVE INSTRUMENTS
---------------------------------
GPU uses various market risk sensitive instruments primarily to manage the
risk of price, interest rate and foreign currency fluctuations. None of these
instruments are held for trading purposes.
Price Fluctuations
- ------------------
The GPU Energy companies use New York Mercantile Exchange (NYMEX) futures
and Over-the-Counter (OTC) forward contracts and options on forward contracts to
manage the risk of fluctuations in the market price of electricity and capacity.
The GPU Energy companies also manage the natural gas requirements of certain NUG
facilities that generate and sell energy to JCP&L under long-term contracts.
Interest Rate Fluctuations
- --------------------------
Penelec and GPU Electric (through GPU GasNet and GPU Power UK) use
interest rate swap agreements to manage the risk of increases in variable
F-25
GPU, Inc. and Subsidiary Companies
interest rates. All of the agreements effectively convert variable rate debt to
fixed rate debt. The following summarizes the principal characteristics of the
swap agreements in effect as of December 31, 2000:
(in thousands)
Fixed Variable
Notional Fair Termination Pay/Receive Interest Interest Rate
Amount Value(a) Date Characteristic Rate at 12/31/00
---------- --------- -------- -------------- --------- --------------
Penelec $ 25,000 $ (385) 04/11/02 fixed/variable 7.12% 6.95%
$ 25,000 $ (550) 10/11/02 fixed/variable 7.19% 7.00%
-------- --------
$ 50,000 $ (935)
======== ========
GPU GasNet A$ 300,000 A$ (878) 06/03/02 fixed/variable 5.90% 6.31%
A$ 225,000 A$ (4,274) 06/02/06 fixed/variable 6.33% 6.31%
-------- --------
A$ 525,000 A$ (5,152)
======== ========
GPU Power UK BP 65,000 BP (660) 09/11/03 fixed/variable 5.98% 5.99%
BP 60,000 BP (661) 09/11/03 fixed/variable 6.02% 5.99%
-------- --------
BP 125,000 BP (1,321)
======== ========
BP - Represents British pounds.
Exchange rates at December 31, 2000 were as follows: A$1.7999/US$ and BP
0.6694/US$.
(a)Represents the amount Penelec and GPU Electric would (pay)/receive to
terminate the swap agreements as of December 31, 2000 (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, are as
follows:
(in thousands)
Penelec GPU GasNet GPU Power UK
-----------------------------------------------------------------
Expected Expected Expected
Average Variable Average Variable Average Variable
Debt Interest Debt Interest Debt Interest
Year Covered Rates Covered Rates Covered Rates
- ---------------------------------------------------------------------------------------
2001 $ 50,000 5.67% A$525,000 5.37-6.31% BP125,000 5.63-5.99%
2002 $ 26,597 5.61-5.86% A$375,000 5.42-5.83% BP125,000 5.58-5.61%
2003 - - A$225,000 5.83-6.00% BP 93,750 5.61-5.66%
2004 - - A$225,000 6.00-6.04% - -
2005 - - A$225,000 6.04-6.09% - -
The expected variable interest rates included above, for the years 2001
through 2005, 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, 2000, these agreements covered approximately $528 million
of debt and are scheduled to expire on various dates through June 2006. For the
year ended December 31, 2000, fixed rate interest expense exceeded variable rate
interest by approximately $0.3 million.
Foreign Currency Fluctuations
- -----------------------------
GPU Electric uses currency swap agreements to manage currency risk caused
by fluctuations in the US dollar exchange rate related to bonds issued in the US
by Avon Energy Partners Holdings (Avon), which owns GPU Power UK. 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, 2000:
F-26
GPU, Inc. and Subsidiary Companies
(in thousands)
Fixed Fixed
Currency USD Sterling Sterling USD USD
Swap Notional Notional Termination Interest Interest Fair
Type Value Value Date Rate Rate Value(a)
- -------- --------- --------- ----------- -------- -------- --------
$/BP $350,000 BP212,122 12/11/02 7.66% 6.73% $27,255
$/BP $100,000 BP 60,606 12/11/07 7.75% 7.05% $ 9,596
$/BP $150,000 BP 90,909 12/11/07 7.70% 7.05% $ 5,122
$/BP $250,000 BP153,374 03/04/08 6.94% 6.46% $11,974
(a) Represents the amount GPU Electric would (pay)/receive to terminate the swap
agreements as of December 31, 2000 (prior to their scheduled termination
dates).
Interest expense for the year ended December 31, 2000 would have been BP 37.8
million (US $57.3 million) had these agreements not been in place as compared to
actual interest expense of BP 38.6 million (US $58.4) million.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The California electricity market was deregulated in 1998. In recent
months, certain aspects of that state's restructuring plan have created
instability and price volatility in the electricity market, negatively affecting
the California electric utilities. These utilities have defaulted on various
contractual and financial obligations and have experienced rapid deterioration
of their credit quality. Reaction of the financial markets, which did not
anticipate the rapid deterioration of the California utilities' financial
condition, has included a careful review of overall credit exposure to the
electric utility industry.
Furthermore, Met-Ed's and Penelec's energy cost exposure related to their
PLR obligation in Pennsylvania (see Competitive Environment and Rate Matters
section) has negatively affected Met-Ed's and Penelec's earnings. Consequently,
the amount of new financing capacity available to GPU, Inc. or its subsidiaries
may be less than it had previously been. While the GPU companies do not expect
to require significant levels of new borrowings in 2001, certain existing credit
facilities are due for renewal or refinancing during 2001. At December 31, 2000,
these credit facilities include: $465 million available to GPU, Inc. and the GPU
Energy companies under a $250 million revolving credit agreement and various
committed bank lines of credit; $1 billion under GPU Capital, Inc.'s (GPU
Capital) senior revolving credit agreement; $180 million under GPU Australia
Holdings, Inc.'s (GPU Australia Holdings) senior revolving credit agreement; and
$366 million under EI UK Holdings, Inc.'s two year term loan agreement.
Renewal or refinancing of these facilities will likely require GPU's
acceptance of higher pricing and/or more restrictive terms and conditions. If
renewal or refinancing of the existing credit facilities is limited or cannot be
achieved, GPU will be required to reduce capital spending and other
discretionary cash uses, including the amount and timing of future common stock
dividends. Moreover, the failure to obtain PLR relief will likely result in a
further increase in capital costs, more restrictive terms and conditions and
reduced access to capital markets.
In addition, primarily as a result of these conditions (the companies' PLR
exposure and the negative publicity surrounding the California utilities), in
early 2001 Met-Ed and Penelec began experiencing difficulty in selling their
commercial paper with maturities longer than overnight. Under
F-27
GPU, Inc. and Subsidiary Companies
normal circumstances, they issue commercial paper having maturities of up to 30
days or longer, if desired. As a result, Met-Ed and Penelec have temporarily
withdrawn from the commercial paper market, and instead have resorted to
borrowing against their various bank lines of credit.
There can be no assurance as to the outcome of these matters.
Capital Expenditures and Investments
- ------------------------------------
GPU's actual capital expenditures for the years 1996 through 2000, and its
estimated capital spending for 2001, are as follows:
(in millions)
2001* 2000 1999 1998 1997 1996
---- ---- ---- ---- ---- ----
GPU Energy companies $371 $280 $289 $327 $356 $404
GPU Electric 200 213 138 59 2 -
GPU Power and GPUI - 8 32 81 112 58
GPU Telcom 90 66 2 1 - -
MYR 6 4 - - - -
--- --- --- --- --- ---
Total $667 $571 $461 $468 $470 $462
=== === === === === ===
* Estimate.
GPU Energy companies
The GPU Energy companies' capital spending was $280 million (JCP&L $144
million; Met-Ed $59 million; Penelec $73 million; Other $4 million) in 2000, and
was used primarily to expand and improve existing transmission and distribution
(T&D) facilities and for new customer connections. In 2001, capital expenditures
for the GPU Energy companies are estimated to be $371 million (JCP&L $184
million; Met-Ed $83 million; Penelec $97 million; Other $7 million), primarily
for ongoing T&D system development. Management estimates that a substantial
portion of the GPU Energy companies' 2001 capital spending will be satisfied
through internally generated funds.
GPU Electric
GPU Electric's capital spending was $213 million in 2000, and was used
primarily to make improvements to GPU PowerNet's (prior to its sale in June
2000), Emdersa's and GPU Power UK's transmission and distribution network. For
2001, GPU Electric's capital expenditures are estimated to be $200 million, and
management expects that a substantial portion of this amount will be satisfied
through internally generated funds.
GPU Telcom
GPU Telcom's capital spending was $66 million in 2000, and was used
primarily to make investments in telecommunications infrastructure and
businesses. In 2001, GPU Telcom's capital expenditures are estimated to be $90
million, which management expects will be funded by capital contributions and
internally generated funds.
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,
2000, 9.2 million shares of common stock, or approximately 8% of the
F-28
GPU, Inc. and Subsidiary Companies
outstanding shares, have been repurchased under the program, at an average price
of $32.43 per share. GPU, Inc. has no plans to make further common stock
repurchases at this time.
In December 2000, GPU, Inc. issued and sold $300 million of unsecured
debentures, the net proceeds from which were used to repay debt at GPU, Inc.,
GPU Capital and GPU Electric.
GPU has various credit facilities in place, the most significant of which
are discussed below. These credit facilities generally provide GPU bank loans at
negotiated market rates.
GPU, Inc. and the GPU Energy companies have available $465 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 $266 million, $150 million and $150 million, respectively, of
short-term debt outstanding at any one time. As of December 31, 2000, GPU, Inc.
and the GPU Energy companies had $113 million and $132 million (JCP&L $29
million; Met-Ed $47 million; Penelec $56 million), respectively, of short-term
debt outstanding.
GPU Energy companies
JCP&L, Met-Ed and Penelec have regulatory approval to issue senior notes
through December 31, 2002 in the amounts of $300 million, $150 million and $157
million, respectively. JCP&L and Met-Ed intend to issue 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.
Expenditures for maturing long-term debt are expected to total $40 million
(JCP&L) in 2001, and $130 million (JCP&L $50 million; Met-Ed $30 million;
Penelec $50 million) in 2002. Current plans call for each of 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 their 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.
JCP&L's and Met-Ed's bond indentures include provisions that limit the
amount of FMBs the companies may issue. JCP&L's and Met-Ed's interest coverage
ratios are currently in excess of indenture restrictions. In addition, 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 excess of this charter restriction.
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-
F-29
GPU, Inc. and Subsidiary Companies
bypassable transition bond charge (TBC) and for the transfer of the bondable
transition property relating to the TBC to another entity. In August 2000,
Oyster Creek was sold to AmerGen Energy Company LLC (AmerGen), a joint venture
of PECO Energy and British Energy. JCP&L has amended its petition to include
securitization of the up-front decommissioning payment it has agreed to make
under the Oyster Creek sale agreement.
In 2000, Penelec issued four tranches, totaling $118 million, of variable
and fixed rate senior notes. Two of these tranches, totaling $50 million of
variable rate senior notes, were converted to fixed rate obligations through
interest rate swap agreements.
In 2000, JCP&L and Met-Ed redeemed $40 million and $50 million,
respectively, of maturing FMBs; and Penelec redeemed $25 million of senior
notes. Also in 2000, JCP&L redeemed $21.7 million stated value of cumulative
preferred stock pursuant to mandatory and optional sinking fund provisions.
GPU Electric
In 2000, GPU GasNet refinanced A$451 million (US $250 million) of its
A$747 million (two tranches totaling US $415 million) of bank debt utilizing
A$250 million (US $139 million) of proceeds from a new commercial paper program;
A$150 million (US $83 million) of proceeds from a new medium term note program;
and A$51 million (US $28 million) of proceeds from the issuance of additional
commercial paper by GPU Australia Holdings. At December 31, 2000, the following
GPU GasNet debt was outstanding and included in Long-term debt on the
Consolidated Balance Sheet: A$250 million (US $139 million) of commercial paper;
A$211 million (US $117 million) of bank debt; and A$150 million (US $83 million)
of medium term notes. In addition, GPU GasNet has established a A$750 million
(US $417 million) revolving credit facility, which serves as backstop for the
GPU GasNet commercial paper and medium term note programs. No borrowings were
outstanding under this facility at December 31, 2000.
GPU Capital has a $1 billion 364-day senior revolving credit agreement due
in November 2001 supporting the issuance of commercial paper for its $1 billion
commercial paper program, which has been established to fund GPU, Inc. and GPU
Electric acquisitions. GPU, Inc. has guaranteed GPU Capital's obligations under
this program. At December 31, 2000, $633 million was outstanding under this
commercial paper program and included in Notes payable on the Consolidated
Balance Sheet. In early 2001, GPU Capital refinanced the majority of this
outstanding commercial paper through its standby revolving credit agreement.
GPU Electric has a $150 million credit facility due in May 2002 to
accommodate short-term borrowing needs. The facility is guaranteed by GPU, Inc.
and there were no outstanding borrowings as of December 31, 2000.
GPU Australia Holdings has $180 million available under its senior
revolving credit facility, which expires in November 2001. This facility is
guaranteed by GPU, Inc. In 2000, GPU Australia Holdings borrowed $176 million
under this facility, which is included in Notes payable on the Consolidated
Balance Sheet at December 31, 2000, to repay all outstanding obligations under
its $180 million commercial paper program.
The above-mentioned GPU Australia Holdings commercial paper program is
supported by GPU, Inc. credit facilities and GPU, Inc. has guaranteed all
obligations under this program. No borrowings were outstanding at December 31,
2000.
F-30
GPU, Inc. and Subsidiary Companies
EI UK Holdings, Inc. has a BP 245 million (US $366 million) credit
facility, a portion of which is guaranteed by GPU, Inc. At December 31, 2000,
the entire amount of this facility was outstanding and included in Securities
due within one year on the Consolidated Balance Sheet.
GPU Power UK maintains a BP 150 million (US $224 million) revolving credit
facility with six banks for working capital purposes, which expires at various
dates through June 2005. At December 31, 2000, there was BP 60 million (US $90
million) outstanding under this facility, which is included in Notes payable on
the Consolidated Balance Sheet.
In addition, GPU Power UK maintains an ongoing BP 75 million (US $112
million) bank facility for working capital purposes. Outstanding borrowings are
collateralized by portions of trade accounts receivable. At December 31, 2000,
BP 75 million (US $112 million) was outstanding under this facility, which is
included in Notes payable on the Consolidated Balance Sheet.
Expenditures for maturing long-term debt are expected to total $912
million in 2001 and $437 million in 2002.
GPU Power
In 2000, expenditures for maturing long-term debt were $7 million, and are
expected to total $7 million in each of 2001 and 2002. Management anticipates
meeting these obligations through internally generated funds.
MYR Group
MYR maintains a $50 million revolving credit facility, which expires in
November 2003, of which up to $10 million is available for the issuance of
standby letters of credit. As of December 31, 2000, $36 million was outstanding
under this facility and included in Notes payable on the Consolidated Balance
Sheet.
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 and the GPU Energy companies' actual
capitalization ratios at December 31 for the years indicated were as follows:
GPU, Inc. and Subsidiary Companies 2000 1999 1998
- ---------------------------------- ---- ---- ----
Common equity 33% 30% 40%
Preferred securities 4 4 6
Debt 63 66 54
--- --- ----
Total 100% 100% 100%
=== === ===
JCP&L
- -----
Common equity 52% 50% 50%
Preferred securities 7 8 8
Debt 41 42 42
--- --- ----
Total 100% 100% 100%
=== === ===
F-31
GPU, Inc. and Subsidiary Companies
Met-Ed 2000 1999 1998
- ------ ---- ---- ----
Common equity 45% 44% 47%
Preferred securities 9 9 8
Debt 46 47 45
--- --- ---
Total 100% 100% 100%
=== === ===
Penelec
- -------
Common equity 41% 44% 47%
Preferred securities 9 10 7
Debt 50 46 46
--- --- ---
Total 100% 100% 100%
=== === ===
The increase in GPU's debt ratio in 1999 resulted mainly from GPU
Electric's acquisition of three FUCOs, including the remaining 50% of GPU Power
UK that GPU did not already own.
In 2000, the quarterly dividend on GPU, Inc.'s common stock was increased
by 2.8% to an annualized rate of $2.18 per share. GPU, Inc.'s dividend payout
rate in 2000 was 79% of earnings (excluding the non-recurring items).
Based on December 31, 2000 financial statements, JCP&L, Met-Ed and Penelec
had retained earnings available to pay common stock dividends of $793 million,
$67 million and $33 million, respectively, net of amounts restricted under each
companies' respective FMB indentures.
GPU BUSINESS PLAN
-----------------
With the goal of improving customer service and service reliability, the
GPU Energy companies have committed to making additional investments in their
transmission and distribution business. In addition, in 2000 the GPU Energy
companies reorganized the structure of their operational divisions to enhance
customer service throughout their service territory. In January 2001, the GPU
Energy companies announced that they were offering Voluntary Enhanced Retirement
Programs (VERP) to certain bargaining unit employees in Pennsylvania.
Approximately 240 employees (Met-Ed 130 employees; Penelec 110 employees) are
eligible for the VERP. If all of the eligible employees accept the offer, a
pre-tax charge of approximately $23 million (Met-Ed $12 million; Penelec $11
million) would be recorded in 2001 earnings for the cost of pension and other
postretirement benefits, exclusive of any severance benefits that would be paid
to those employees.
In October 1999, GPU also initiated a program to enhance shareholder value
through planned cost reductions of $100 million and through the sale of non-core
and under-performing assets. A significant portion of these planned cost
reductions were achieved in 2000, and the remaining reductions will be
implemented during 2001. Furthermore, GPU believes the sales of GPU PowerNet and
GPUI advance its plan to enhance shareholder value by reducing its ownership in
non-core and under-performing assets.
In March 2000, GPU announced its participation in America's Fiber Network
LLC (AFN), of which GPU anticipates owning 25%. AFN is a high-speed fiber optics
company with a network of more than 7,000 route miles, or 140,000 fiber miles,
connecting major markets in the eastern US to secondary markets with a growing
need for broadband access. GPU anticipates investing cash, as well as existing
and new fiber routes and electronic equipment, in
F-32
GPU, Inc. and Subsidiary Companies
AFN through GPU Telcom. As of December 31, 2000, GPU Telcom had invested $5.3
million in AFN.
In April 2000, GPU announced the formation of Telergy Mid-Atlantic (TMA),
a joint venture between GPU Telcom and Telergy, Inc. TMA combines established
telecommunications services and marketing expertise with utilities' existing
fiber networks. TMA's initial target market includes New Jersey and
Pennsylvania, with future expansions planned for contiguous regions currently
served by the network of GPU Telcom. TMA plans to offer telecommunications
service, and ultimately electricity, marketing them jointly to businesses,
hospitals and educational institutions, among others. As of December 31, 2000,
GPU Telcom had acquired $20 million of Telergy, Inc. convertible preferred
securities.
COMPETITIVE ENVIRONMENT AND RATE MATTERS
----------------------------------------
Recent Regulatory Actions
- -------------------------
With the transition to a competitive marketplace for generation service in
New Jersey and Pennsylvania, certain generation-related costs, which generally
would be recoverable in a regulated environment, may no longer be recoverable.
These costs are generally referred to as stranded costs.
New Jersey Restructuring
In 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 final
NJBPU order. The Summary Order provides for, among other things, full recovery
of what otherwise would have become stranded costs, as well as customer choice
of electric generation supplier beginning August 1, 1999 and rate reductions for
all consumers. In addition, the NJBPU issued separate Orders approving the sales
of JCP&L's generating assets; however, the NJBPU deferred making a final
determination of the net proceeds and stranded costs related to the generating
asset divestitures until an Internal Revenue Service (IRS) ruling regarding the
treatment of associated federal income tax benefits is received.
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. (For additional information, see Financing section of
Liquidity and Capital Resources.) There can be no assurance as to the extent, if
any, that the NJBPU will allow JCP&L to securitize these stranded costs.
Pennsylvania Restructuring
In 1998, the PaPUC issued amended Restructuring Orders approving
Settlement Agreements entered into by Met-Ed and Penelec which, among other
things, provide for customer choice of electric generation supplier beginning
January 1, 1999 and a one-year (1999) reduction in retail distribution rates for
all consumers. The Orders also provide for recovery of a substantial portion of
what otherwise would have become stranded costs, subject to Phase II proceedings
following the completion of Met-Ed's and Penelec's generating asset
divestitures, to make a final determination of the extent of that stranded cost
recovery. In 2000, Met-Ed and Penelec submitted Phase II Reports to the PaPUC
supporting their actual net divestiture proceeds and
F-33
GPU, Inc. and Subsidiary Companies
providing a reconciliation of stranded costs pursuant to the 1998 Restructuring
Orders.
On December 20, 2000, the PaPUC issued a Phase II Order which disallows
$28 million (Met-Ed $16 million; Penelec $12 million) of the requested $304
million (Met-Ed $226 million; Penelec $78 million) of additional stranded costs
above those amounts granted in the 1998 Orders. Met-Ed and Penelec had
anticipated a disallowance of a portion of stranded costs, and established a $25
million (Met-Ed $19 million; Penelec $6 million) reserve in 1999. In addition,
as a result of the Phase II Order, Met-Ed and Penelec recognized pre-tax income
of $66 million (Met-Ed $45 million; Penelec $21 million) due primarily to
pension curtailment gains associated with employees terminated as a result of
the sale of generating facilities in 1999, and the reversal of certain
liabilities and changes in estimates and assumptions related to Met-Ed's
leasehold interest in the Merrill Creek Reservoir project. The Phase II Order
also deferred a decision on Met-Ed's requested increase in rates, beginning in
2006, for recovery of Met-Ed's generation-related stranded costs. In addition,
the Order requires Met-Ed and Penelec to seek an IRS ruling regarding the return
of certain unamortized investment tax credits and excess deferred income tax
benefits to ratepayers. For further information, see Note 6, Accounting for
Extraordinary and Non-Recurring Items, of the Combined Notes to Consolidated
Financial Statements.
GPU Energy Supply Plan
- ----------------------
As a result of the NJBPU's and the PaPUC's Restructuring Orders, the GPU
Energy companies are required to supply electricity to customers who do not
choose an alternate supplier. In 1999, the GPU Energy companies completed the
sales of TMI-1 and substantially all their fossil-fuel and hydroelectric
generating stations, and in 2000, JCP&L sold Oyster Creek. (For additional
information regarding the sales of the GPU Energy companies' generating
facilities, see Note 6, Accounting for Extraordinary and Non-Recurring Items, of
the Combined Notes to Consolidated Financial Statements.) As a result, the GPU
Energy companies now have to supply electricity to non-shopping customers almost
entirely from contracted and open market purchases, as discussed below. (For
additional information regarding the increased risks associated with supplying
that electricity, see GPU Energy Supply Market Risk section.)
Generation Agreements
The GPU Energy companies have 285 MW (JCP&L 266 MW; Met-Ed 19 MW) of
generation capacity and related energy remaining to meet customer needs. The GPU
Energy companies also have power purchase agreements with NUGs totaling 1,600 MW
(JCP&L 926 MW; Met-Ed 273 MW; Penelec 401 MW) and contracts with other parties
to provide varying amounts of capacity through May 31, 2004. These capacity
amounts from third parties vary from a monthly high of approximately 1,740 MW in
2001 to 500 MW in May 2004. Based on the exercise of call options, JCP&L may
take the energy associated with up to 150 MW of this capacity through May 2003.
The GPU Energy companies have also purchased all of the capacity and energy from
the TMI-1 and Oyster Creek nuclear generating stations (which they sold to
AmerGen) through December 31, 2001 and through March 31, 2003, respectively. In
addition, the GPU Energy companies have the right to the capacity of the Homer
City Station (in which Penelec sold its 50% interest to a subsidiary of Edison
Mission Energy) (942 MW) through May 31, 2001 and the right to the capacity of
the generating stations sold in 1999 (3,970 MW) through May 31, 2002. The GPU
Energy companies' remaining capacity and energy needs will be met by short- to
F-34
GPU, Inc. and Subsidiary Companies
intermediate-term commitments (one month to three years). Any residual needs
will be purchased from the short-term market (one hour to one month).
Pursuant to the mandates of the Public Utility Regulatory Policies Act and
state regulatory directives, the GPU Energy companies were required to enter
into power purchase agreements with NUGs for the purchase of energy and capacity
for terms of up to 20 years. The NJBPU Summary Order provides JCP&L full
recovery of its NUG costs (including above-market NUG costs and certain buyout
costs); and the PaPUC Restructuring Orders provide Met-Ed and Penelec full
recovery of their above-market NUG costs and certain NUG buyout costs. The GPU
Energy companies have recorded, on a present value basis, a total liability of
$3.3 billion (JCP&L $1.7 billion; Met-Ed $0.7 billion; Penelec $0.9 billion) on
the Consolidated Balance Sheets for above-market NUG costs. These amounts are
offset by corresponding regulatory assets. The GPU Energy companies are
continuing efforts to reduce the above-market costs of these agreements;
however, there can be no assurance as to the extent to which these efforts will
be successful.
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, 2000 of $191
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.
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. Thereafter, BGS service will be bid out
at BGS rates, which are pre-determined through July 31, 2003. The specific
details of the BGS bidding process will be the subject of a future NJBPU
proceeding. Under its Summary Order, JCP&L is permitted to defer for future
recovery the amount by which its reasonable and prudently incurred costs
associated with providing BGS to non-shopping customers exceed amounts currently
reflected in its rates for BGS.
Provider of Last Resort
Under the 1998 PaPUC Restructuring Orders, Met-Ed and Penelec customers
have been permitted to shop for their generation supplier since January 1, 1999.
The PaPUC approved a competitive bid process designed to assign PLR service to
licensed generation suppliers, referred to as Competitive Default Service (CDS),
for 20% of Met-Ed's 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. Any retail customers
assigned to CDS may return to Met-Ed and Penelec as the default PLR. 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's and
Penelec's rate cap.
In February 2000, Met-Ed and Penelec announced that they had not received
any bids in response to their offer to auction CDS service for up to 20% of
their retail customers and, as a result, would be increasing their forward
purchasing of electric power to accommodate these customers for whom they will
now continue to be the default supplier. At the PaPUC's direction, Met-Ed and
Penelec initiated a collaborative process in June 2000 with all interested
parties from the 1998 Restructuring Orders, including the PaPUC, to address the
companies' PLR risks. This process was concluded without resolution of the
issues surrounding the companies' PLR risk.
F-35
GPU, Inc. and Subsidiary Companies
In 2000, the lack of bidders required Met-Ed and Penelec to supply 550 MW
(Met-Ed 250 MW; Penelec 300 MW) of electric power more than they had planned. In
addition, customers requiring approximately 600 MW (Met-Ed 240 MW; Penelec 360
MW) of power returned to Met-Ed and Penelec from their alternate suppliers for
the peak Summer months. During that same period, market prices at which Met-Ed
and Penelec were required to purchase electricity for their retail supply
customers at times substantially exceeded the amounts Met-Ed and Penelec were
allowed to charge for that electricity under their capped generation rates. This
situation resulted in GPU's Pennsylvania supply business recording a loss for
2000 of approximately $28 million (Met-Ed $14 million; Penelec $14 million)
after-tax, or $0.22 per share.
Under the terms of their restructuring settlements, Met-Ed and Penelec are
required to seek alternative providers through a CDS bidding process for a
portion of their customers again in 2001. Should the 2001 CDS bidding process be
successful, then up to 40% of Met-Ed's and Penelec's customers would be served
by third party energy providers starting on June 1, 2001. However, if the
bidding process is not successful and wholesale energy prices remain high, and
Met-Ed and Penelec are not granted state regulatory relief, the companies expect
substantial earnings losses to continue, as well as a reduction of cash flow.
Based on their current projection of returning customers to whom they must
supply electricity under their PLR obligations, Met-Ed and Penelec presently
estimate approximately 800 MW (Met-Ed 410 MW; Penelec 390 MW) of additional load
will return to them by June 1, 2001. If this projection proves to be correct,
Met-Ed and Penelec estimate that the cost of providing energy to Pennsylvania
customers, including the returning 800 MW of load, could result in GPU's
Pennsylvania supply business recording a loss for 2001 of approximately $120
million (Met-Ed $60 million; Penelec $60 million) after-tax, or $1 per share,
based on the companies' current assessment of market energy prices. Met-Ed and
Penelec also estimate that if all their shopping customers were to return by
June 1, 2001, their supply business losses could be up to approximately $150
million (Met-Ed $80 million; Penelec $70 million) after-tax, or $1.25 per share.
Given this situation, on November 29, 2000, Met-Ed and Penelec filed a
petition with the PaPUC seeking permission to defer for future recovery their
energy costs in excess of established generation rate caps. Various parties to
the proceeding filed motions to dismiss the petition. On January 19, 2001,
Met-Ed and Penelec made a further request that they be permitted to implement
their proposed deferral mechanism pending the PaPUC's final action on their
petition. On January 24, 2001, the PaPUC denied, without prejudice, the motions
to dismiss Met-Ed's and Penelec's petition and recommended that the companies
provide support for a rate cap exception based on the criteria in the Customer
Choice and Competition Act. In addition, the PaPUC consolidated the petition
with the GPU/FirstEnergy merger proceeding for consideration and resolution in
accord with the merger procedural schedule, which establishes a May 2001 date
for a PaPUC order in both cases. In February 2001, Met-Ed and Penelec filed a
supplement to their petition and supporting testimony which they believe
establish that the PaPUC should grant them exceptions to their rate caps. In
addition, Met-Ed and Penelec stated that as an alternative to the deferral
mechanism they previously proposed, the circumstances would warrant an immediate
increase in their present rate caps. There can be no assurance regarding the
degree, if any, to which Met-Ed and Penelec may be able to recover their costs
to supply electricity in excess of amounts currently reflected in their capped
rates.
F-36
GPU, Inc. and Subsidiary Companies
GPU Energy Supply Market Risk
- -----------------------------
With the divestiture of essentially all their generating plants, the GPU
Energy companies are in a net short position (load in excess of supply).
Consequently, the GPU Energy companies must manage their purchase and sale of
installed capacity and ancillary services to minimize business risk associated
with their reliability obligation in PJM. Supply/risk management transactions
will be made based on the objective of decreasing price uncertainty. The GPU
Energy companies will enter into supply/hedging market arrangements for hedging
purposes only.
Electricity
The GPU Energy companies are generally at risk of rising prices for
electricity and electricity-related products and services. These risks may
differ during some months of the year. To manage these risks, the GPU Energy
companies employ a portfolio approach which primarily consists 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 recovery-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 fixed 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 customers to
purchase electricity from other electric suppliers. This customer
shopping, combined with weather changes, which affect 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 and capacity cost recovery mechanism (Market Transition
Charge). 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.
Natural Gas
GPU Energy purchases natural gas for JCP&L's Forked River generating
facility. In addition, as part of its NUG cost mitigation program, GPU Energy
also manages the natural gas requirements of certain NUGs that produce and sell
energy to JCP&L under long-term contracts. Prudently incurred costs associated
with natural gas commodity and transportation are included in JCP&L's BGS costs
to be recovered through BGS charges and the Market Transition Charge.
F-37
GPU, Inc. and Subsidiary Companies
GPU Energy employs a portfolio approach consisting of two party forward
purchases and NYMEX natural gas futures contracts. GPU Energy is exposed to
price-related, volume-related and cost recovery-related market risks for its
natural gas purchases, similar to those electricity market risks previously
described.
Allegheny Complaint
- -------------------
In 2000, Allegheny Electric Cooperative (AEC), a wholesale customer, filed
a complaint with the Federal Energy Regulatory Commission (FERC) against Penelec
claiming, among other things, that Penelec should not be permitted to charge AEC
increased purchased power costs which Penelec has incurred following Penelec's
divestiture of its generating plants.
On January 5, 2001, Penelec and AEC entered into a settlement agreement,
which is subject to approval by FERC and the Rural Utilities Service. Under the
agreement, Penelec would no longer be obligated to supply energy to AEC under
its existing wheeling and power supply contract, effective March 2001. In
addition, in February 2001 Penelec paid AEC $16 million, subject to refund in
the event the agreement is not approved or AEC defaults on certain of its
obligations in the agreement.
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, air and water 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 facilities; modify or
replace existing and proposed equipment; or remediate, decommission or clean up
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, 2000, the GPU Energy companies have
liabilities recorded on their balance sheets for environmental remediation
totaling $66 million (JCP&L $56 million; Met-Ed $2 million; Penelec $8 million).
For more information, see the Environmental Matters section of Note 12,
Commitments and Contingencies, of the Combined Notes to Consolidated Financial
Statements.
LEGAL MATTERS - TMI-2 ACCIDENT CLAIMS
-------------------------------------
As a result of the 1979 Three Mile Island Unit 2 (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.
F-38
GPU, Inc. and Subsidiary Companies
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. In June 2000, the
US Supreme Court denied petitions for review filed by GPU, Inc., the GPU Energy
companies and the plaintiffs.
In September 2000, the defendants filed a Motion for Summary Judgment in
the District Court. Meanwhile, the plaintiffs have taken an interlocutory appeal
to the Third Circuit seeking review of the District Court's determination that
the remaining plaintiffs should be allowed to advance causation theories based
only on the admissible evidence of record at the close of discovery in the case.
Oral arguments on the plaintiffs' appeal were held in January 2001. 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,
F-39
GPU, Inc. and Subsidiary Companies
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 continues to be subject to the
provisions of FAS 71.
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended by FAS 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133" and FAS 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities - An Amendment of FASB
Statement No. 133" (collectively, FAS 133), establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. In general, FAS 133
requires that companies recognize all derivatives as either assets or
liabilities on the balance sheet and measure those instruments at fair value.
FAS 133 (as amended) provides an exemption for certain contracts that qualify as
normal purchases and sales. To qualify for this exclusion, certain criteria must
be met, including that it must be probable that the contract will result in
physical delivery. GPU adopted FAS 133 on January 1, 2001.
GPU's use of derivative instruments is intended to manage the risk of
fluctuations in commodity prices, interest rates and foreign currencies. GPU
does not intend to hold or issue derivative instruments for trading purposes.
GPU enters into fixed-price contracts for future purchases of electricity and
natural gas with individual counterparties or through traded exchanges. The
majority of these commodity contracts entered into by GPU are considered "normal
purchases," as defined by FAS 133, and, therefore, are excluded from the
statement's scope. Commodity contracts accounted for as derivatives under FAS
133 are designated as cash flow hedges of the underlying commodity purchases, to
the extent they qualify for such treatment. FAS 133 requires that the effective
portion of the gain or loss on a derivative instrument designated and qualifying
as a cash flow hedge be reported as a component of Other Comprehensive Income,
net of tax. GPU also enters into third party energy option contracts. These
derivative instruments are accounted for as cash flow hedges of the underlying
commodity purchases, to the extent they are effective hedges. Upon adoption of
this statement at January 1, 2001, the impact of FAS 133 as it relates to
forward, futures and option contracts was immaterial to GPU's earnings or
financial position.
To hedge against high transmission rates along certain routes during
periods of high congestion, GPU enters into fixed transmission rights (FTRs)
agreements. Upon adoption of FAS 133 at January 1, 2001, the impact of this
statement as it relates to FTRs was immaterial to GPU's earnings or financial
position.
GPU uses various types of interest rate swaps to convert floating-rate
loans to fixed rates. These instruments are accounted for as cash flow hedges,
to the extent they are effective hedges. Upon adoption of this statement on
January 1, 2001, derivative liabilities of approximately $7 million (Penelec $1
million; GPU Power $1.5 million; GPU Electric $4.5 million)were recognized on
the Consolidated Balance Sheet, with an offset, net of tax, of $5 million
(Penelec $1 million; GPU Power $1.5 million; GPU Electric $2.5 million) to
Accumulated other comprehensive income and a $2 million (GPU Electric) charge to
income.
F-40
GPU, Inc. and Subsidiary Companies
GPU 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. These instruments will be accounted for as cash
flow hedges, to the extent they are effective hedges. Upon adoption of FAS 133
on January 1, 2001, derivative assets of approximately $54 million (GPU Power
UK) were recognized on the Consolidated Balance Sheet, with an offset, net of
tax, to Accumulated other comprehensive income.
F-41
GPU, Inc. and Subsidiary Companies
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, 2000 and 1999, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2000 in conformity with accounting principles generally
accepted in the United States of America. 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 of America, 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 our opinion.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
January 31, 2001
F-42
GPU, Inc. and Subsidiary Companies
CONSOLIDATED BALANCE SHEETS
(In Thousands)
December 31,
2000 1999
- -------------------------------------------------------------------------------------
ASSETS
Utility Plant:
Utility plant in service $10,138,233 $11,766,446
Accumulated depreciation (3,246,175) (3,929,963)
---------- ----------
Net utility plant in service (Note 1) 6,892,058 7,836,483
Construction work in progress 153,417 170,317
Other, net 16,572 18,128
---------- ----------
Net utility plant 7,062,047 8,024,928
---------- ----------
Other Property and Investments:
Goodwill, net (Note 1) 1,986,449 2,615,301
Nuclear decommissioning trusts, at market (Note 12) 367,805 636,284
Nuclear fuel disposal trust, at market 126,336 119,293
Other, net 765,783 923,171
---------- ----------
Total other property and investments 3,246,373 4,294,049
---------- ----------
Current Assets:
Cash and temporary cash investments 392,004 471,548
Marketable securities 17,114 26,946
Special deposits 126,149 42,687
Accounts receivable:
Customers, less provision for doubtful accounts
of $92,714 for 2000 and $59,403 for 1999 540,166 445,745
Other 162,048 185,968
Unbilled revenues (Note 1) 221,810 152,263
Cost and estimated earnings in excess of
billings on uncompleted contracts (Note 1) 29,377 -
Materials and supplies, at average cost or less 79,679 101,255
Deferred income taxes (Note 8) 33,857 72,249
Prepayments 154,775 141,352
---------- ----------
Total current assets 1,756,979 1,640,013
---------- ----------
Deferred Debits and Other Assets:
Regulatory assets, net (Notes 1 & 12) 5,033,004 4,716,246
Deferred income taxes (Note 8) 1,732,537 2,528,393
Other 431,521 494,203
---------- ----------
Total deferred debits and other assets 7,197,062 7,738,842
---------- ----------
Total Assets $19,262,461 $21,697,832
========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
F-43
GPU, Inc. and Subsidiary Companies
CONSOLIDATED BALANCE SHEETS
(In Thousands)
December 31,
2000 1999
- -------------------------------------------------------------------------------------
LIABILITIES AND CAPITALIZATION
Capitalization:
Common stock $ 331,958 $ 331,958
Capital surplus 1,014,326 1,011,721
Retained earnings 2,395,384 2,426,350
Accumulated other comprehensive income/(loss) (62,624) (6,341)
---------- ----------
Total 3,679,044 3,763,688
Reacquired common stock, at cost (357,994) (298,735)
---------- ----------
Total common stockholders' equity (Note 5) 3,321,050 3,464,953
Cumulative preferred stock: (Note 4)
With mandatory redemption 51,500 73,167
Without mandatory redemption 12,649 12,649
Subsidiary-obligated mandatorily redeemable
preferred securities (Note 4) 125,000 125,000
Subsidiary-obligated trust preferred securities (Note 4) 200,000 200,000
Long-term debt (Note 3) 3,917,069 5,261,070
---------- ----------
Total capitalization 7,627,268 9,136,839
---------- ----------
Current Liabilities:
Securities due within one year (Notes 3 & 4) 992,090 581,147
Notes payable (Note 2) 1,480,667 1,761,395
Bank overdraft (Note 1) 276,456 224,585
Obligations under capital leases (Note 11) 485 48,165
Accounts payable 481,712 468,825
Billings in excess of cost and estimated
earnings on uncompleted contracts (Note 1) 21,315 -
Taxes accrued 37,604 309,509
Interest accrued 95,083 76,246
Other 447,154 732,110
---------- ----------
Total current liabilities 3,832,566 4,201,982
---------- ----------
Deferred Credits and Other Liabilities:
Deferred income taxes (Note 8) 3,093,826 3,563,078
Unamortized investment tax credits 44,344 61,364
Three Mile Island Unit 2 future costs (Note 12) 514,922 496,944
Power purchase contract loss liability (Note 12) 3,273,968 3,300,878
Other 875,567 936,747
---------- ----------
Total deferred credits and other liabilities 7,802,627 8,359,011
---------- ----------
Commitments and Contingencies (Note 12)
Total Liabilities and Capitalization $19,262,461 $21,697,832
========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
F-44
GPU, Inc. and Subsidiary Companies
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Data)
For The Years Ended December 31,
2000 1999 1998
- -----------------------------------------------------------------------------------------------
Operating Revenues (Note 1) $5,196,256 $4,757,124 $4,248,792
---------- ---------- ----------
Operating Expenses:
Fuel 62,630 304,621 407,105
Power purchased and interchanged 2,196,847 1,305,521 1,122,841
Deferred costs, net (Note 1) (229,321) (38,108) (25,542)
Other operation and maintenance (Note 9) 1,372,447 1,443,109 1,106,913
Net loss on sale of businesses (Note 6) 239,510 - -
Depreciation and amortization (Note 1) 548,259 542,939 522,094
Taxes, other than income taxes (Note 9) 221,237 190,212 219,302
---------- ---------- ----------
Total operating expenses 4,411,609 3,748,294 3,352,713
---------- ---------- ----------
Operating Income 784,647 1,008,830 896,079
---------- ---------- ----------
Other Income and Deductions:
Allowance for other funds used during construction 747 432 916
Equity in undistributed earnings of affiliates, net 28,456 89,746 72,012
Other income, net 149,635 85,616 48,366
---------- ---------- ----------
Total other income and deductions 178,838 175,794 121,294
---------- ---------- ----------
Income Before Interest Charges
and Preferred Dividends 963,485 1,184,624 1,017,373
---------- --------- ----------
Interest Charges and Preferred Dividends:
Long-term debt and notes payable 510,826 432,368 345,172
Subsidiary-obligated trust preferred securities 13,690 8,345 -
Subsidiary-obligated mandatorily
redeemable preferred securities 10,700 24,627 28,888
Other interest 10,655 10,048 8,277
Allowance for borrowed funds used
during construction (2,506) (3,897) (4,348)
Preferred stock dividends of subsidiaries,
inclusive of $2,116 loss on 1999 reacquisitions 6,904 11,006 11,243
---------- ---------- ----------
Total interest charges and preferred dividends 550,269 482,497 389,232
---------- ---------- ----------
Income Before Income Taxes and Minority Interest 413,216 702,127 628,141
Income taxes (Note 8) 176,807 239,623 240,089
Minority interest net income 2,871 3,490 2,171
---------- ---------- ----------
Income Before Extraordinary Item 233,538 459,014 385,881
Extraordinary item, net of income tax benefit of
$16,300 (Note 6) - - (25,755)
---------- ---------- ----------
Net Income $ 233,538 $ 459,014 $ 360,126
========== ========== ==========
Basic - Earnings Per Average Common Share
Before Extraordinary Item $ 1.92 $ 3.66 $ 3.03
Extraordinary Item - - (0.20)
---------- ---------- ----------
Earnings Per Average Common Share $ 1.92 $ 3.66 $ 2.83
========== ========== ==========
Average Common Shares Outstanding 121,161 125,368 127,093
========== ========== ==========
Diluted - Earnings Per Average Common Share
Before Extraordinary Item $ 1.92 $ 3.66 $ 3.03
Extraordinary Item - - (0.20)
---------- ---------- ----------
Earnings Per Average Common Share $ 1.92 $ 3.66 $ 2.83
========== ========== ==========
Average Common Shares Outstanding 121,259 125,570 127,312
========== ========== ==========
Cash Dividends Paid Per Share $ 2.165 $ 2.105 $ 2.045
========== ========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
F-45
GPU, Inc. and Subsidiary Companies
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands)
For The Years Ended December 31,
2000 1999 1998
- ---------------------------------------------------------------------------------------------
Net income $233,538 $459,014 $360,126
------- ------- -------
Other comprehensive income/(loss), net of tax: (Note 5)
Net unrealized (loss)/gain on investments (20,779) 5,838 8,987
Foreign currency translation (31,884) 13,859 (9,461)
Minimum pension liability (3,620) 5,266 (1,534)
------- ------- -------
Total other comprehensive (loss)/income (56,283) 24,963 (2,008)
------- ------- -------
Comprehensive income $177,255 $483,977 $358,118
======= ======= =======
The net unrealized loss on investments, reflected above for 2000, is due
to the reclassification of previous unrealized gains totaling $31.8 million,
from Accumulated other comprehensive income to Regulatory assets, net on the
Consolidated Balance Sheets. See Nuclear Plant Retirement Costs section of Note
12, Commitments and Contingencies.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(In Thousands)
For The Years Ended December 31,
2000 1999 1998
- -------------------------------------------------------------------------------------------
Balance at beginning of year $2,426,350 $2,230,425 $2,140,712
Net income 233,538 459,014 360,126
Cash dividends declared on common stock (264,504) (263,089) (263,561)
Other adjustments, net - - (6,852)
--------- --------- ---------
Balance at end of year $2,395,384 $2,426,350 $2,230,425
========= ========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
F-46
GPU, Inc. and Subsidiary Companies
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
For The Years Ended December 31,
2000 1999 1998
- -----------------------------------------------------------------------------------------------
Operating Activities:
Net income $ 233,538 $ 459,014 $ 360,126
Extraordinary item (net of income tax
benefit of $16,300) - - 25,755
---------- ---------- ----------
Income before extraordinary item 233,538 459,014 385,881
Adjustments to reconcile income to cash provided:
Depreciation and amortization 583,804 568,832 552,795
Provision for doubtful accounts 66,516 25,091 16,169
Regulatory assets, net (189,968) (20,123) (65,959)
Amortization of property under capital leases 11,472 47,584 49,913
Gain on restructured supply agreement (42,781) - -
NJBPU / PaPUC restructuring rate orders (66,130) 115,000 68,500
Loss/(Gain) on sale of businesses / investments 232,059 (64,019) (43,548)
Equity in undistributed earnings of affiliates,
net of distributions received 14,036 (62,170) (44,621)
Deferred income taxes and investment tax
credits, net 344,177 (717,768) (165,860)
Deferred costs, net (229,321) (37,841) (24,482)
Changes in working capital:
Receivables (235,654) (109,373) 75,116
Materials and supplies 13,381 81,297 704
Special deposits and prepayments (16,772) 42,247 (18,514)
Payables and accrued liabilities (168,781) (22,972) (18,645)
Nonutility generation contract buyout costs (5,660) (94,034) (54,018)
Other, net 30,900 (59,513) 79,435
---------- ---------- ----------
Net cash provided by operating activities 574,816 151,252 792,866
---------- ---------- ----------
Investing Activities:
Acquisitions, net of cash acquired (220,243) (1,670,739) -
Capital expenditures and investments (570,574) (460,952) (468,223)
Proceeds from sale of businesses / investments 1,459,576 2,581,151 160,244
Contributions to nonutility generation trusts - (266,701) -
Proceeds from nonutility generation trusts 75,991 - -
Contributions to decommissioning trusts (139,184) (168,657) (51,039)
Trust fund established for repayment of debt (112,634) - -
Other, net (4,142) 61,560 (37,876)
---------- ---------- ----------
Net cash provided/(required)
by investing activities 488,790 75,662 (396,894)
---------- ---------- ----------
Financing Activities:
Issuance of long-term debt 491,587 1,787,094 749,724
Retirement of long-term debt (1,086,086) (1,883,850) (1,036,110)
Increase/(Decrease) in notes payable, net (119,654) 882,352 (62,292)
Issuance of subsidiary-obligated trust
preferred securities - 193,070 -
Redemption of subsidiary-obligated mandatorily
redeemable preferred securities - (205,383) -
Redemption of preferred stock of subsidiaries (21,667) (60,944) (15,000)
Capital lease principal payments (48,515) (51,040) (50,663)
Issuance of common stock - - 269,448
Reacquisition of common stock (71,913) (225,821) -
Dividends paid on common stock (262,965) (264,448) (258,058)
---------- ---------- ----------
Net cash provided/(required)
by financing activities (1,119,213) 171,030 (402,951)
---------- ---------- ----------
Effect of exchange rate changes on cash (23,937) 849 (5,365)
---------- ---------- ----------
Net increase/(decrease) in cash and temporary cash
investments from above activities (79,544) 398,793 (12,344)
Cash and temporary cash investments, beginning of year 471,548 72,755 85,099
---------- ---------- ----------
Cash and temporary cash investments, end of year $ 392,004 $ 471,548 $ 72,755
========== ========== ==========
Supplemental Disclosure:
Interest and preferred dividends paid $ 548,989 $ 459,496 $ 370,303
========== ========== ==========
Income taxes paid $ 99,116 $ 702,355 $ 333,994
========== ========== ==========
New capital lease obligations incurred $ 41,580 $ 37,662 $ 37,793
========== ========== ==========
Common stock dividends declared but not paid $ 65,095 $ 64,557 $ 65,917
========== ========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
F-47
GPU, Inc. and Subsidiary Companies
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). These electric
utilities are conducting business under the name GPU Energy and considered
together are referred to as the "GPU Energy companies." GPU Capital, Inc. and
GPU Electric, Inc. and their subsidiaries own, operate and fund the acquisition
of electric distribution and gas transmission systems in foreign countries, and
are referred to as "GPU Electric." GPU Electric's foreign utility companies
include Midlands Electricity plc (conducting business as GPU Power UK); Empresa
Distribuidora Electrica Regional S.A. (Emdersa); and GPU GasNet. GPU Power, Inc.
and its subsidiaries (GPU Power) develop, own and operate generation facilities
in foreign countries. 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; MYR Group Inc. (MYR), which is a utility infrastructure construction
services company; GPU Service, Inc. (GPUS), which provides legal, accounting,
financial and other services to the GPU companies; GPU Diversified Holdings LLC;
and GPU Nuclear, Inc. (GPUN). All of these companies considered together are
referred to as "GPU."
In 2000, GPU, Inc. sold GPU PowerNet, its Australian electric transmission
company, to Singapore Power International (SPI). In addition, GPU, Inc. sold GPU
International, Inc. (GPUI) to Aquila Energy Corporation (Aquila). This sale
included GPUI's interests in six domestic electric generating plants, and one
development stage project. For further information, see Note 6, Accounting for
Extraordinary and Non-Recurring Items.
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
F-48
GPU, Inc. and Subsidiary Companies
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.
GPU began accounting for GPU Power UK as a consolidated entity in the
third quarter of 1999, following its acquisition of the remaining 50% ownership
interest from Cinergy Corp. (Cinergy).
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. Therefore, the electric operating revenues of GPU
Electric and the GPU Energy companies include an estimate for unbilled revenues.
MYR recognizes revenue on construction contracts using the
percentage-of-completion accounting method determined in each case by the ratio
of cost incurred to date on the contract (excluding uninstalled direct
materials) to management's estimate of the contract's total cost. Contract cost
includes
F-49
GPU, Inc. and Subsidiary Companies
all direct material, subcontract and labor costs and those indirect costs
related to contract performance, such as supplies, tool repairs and
depreciation. MYR charges selling, general and administrative costs, including
indirect costs associated with maintaining district offices, to expense as
incurred.
Provisions for estimated losses on uncompleted contracts are recorded in
the period in which such losses are determined. Changes in estimated revenues
and costs are recognized in the periods in which such estimates are revised.
Significant claims are included in revenue in accordance with industry practice.
The asset, "Costs and estimated earnings in excess of billings on
uncompleted contracts," represents revenues recognized in excess of amounts
billed. The liability, "Billings in excess of costs and estimated earnings on
uncompleted contracts," represents amounts billed in excess of revenues
recognized.
CLASSIFICATION OF CURRENT ASSETS AND CURRENT LIABILITIES
--------------------------------------------------------
The length of MYR's contracts vary, with some larger contracts exceeding
one year. In accordance with industry practice, MYR includes in current assets
and current liabilities amounts realizable and payable under contracts which may
extend beyond one year.
DEFERRED COSTS
--------------
JCP&L recovers its prudently incurred generation-related costs, including
nonutility generation (NUG) costs, through a Basic Generation Service (BGS)
charge and a Market Transition Charge (MTC), 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 NUG costs which
are collected through the Competitive Transition Charge (CTC).
On November 29, 2000, Met-Ed and Penelec filed a petition with the PaPUC
seeking recovery of their power purchase costs in excess of established rate
caps. Currently, Met-Ed and Penelec do not have authority to defer these costs
for future recovery. The PaPUC consolidated this petition for consideration with
the GPU/FirstEnergy Corp. (FirstEnergy) merger proceeding, which establishes a
May 2001 date for a PaPUC order in both cases, based on the current merger
procedural schedule.
UTILITY PLANT
-------------
Prior to the sale of the Oyster Creek Nuclear Generation Station (Oyster
Creek) in 2000, the plant was written down to its sale price of $10 million. All
other utility plant, including the GPU Energy companies' remaining generation
plants, 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.
F-50
GPU, Inc. and Subsidiary Companies
These rates, on an aggregate composite basis, resulted in annual rates as
follows:
GPU JCP&L Met-Ed Penelec
--- ----- ------ -------
2000 3.16% 3.30% 2.87% 2.72%
1999 2.96% 2.94% 3.01% 2.81%
1998 3.43% 3.65% 3.53% 3.25%
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, 2000, $55 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, 2000, $48 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:
- ------------
Prior to the sale of Three Mile Island Unit 1 (TMI-1) in 1999 and Oyster
Creek in 2000, the GPU Energy companies amortized nuclear fuel on a
unit-of-production basis and rates were determined and periodically revised to
amortize the cost of the fuel over its useful life.
At December 31, 2000 and 1999, 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 $22 million (JCP&L $14 million; Met-Ed $5 million; Penelec $3
million) and $25 million (JCP&L $15 million; Met-Ed $7 million; Penelec $3
million), respectively, and is 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. Met-Ed and Penelec are not recovering these costs in
rates.
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 $54.7 million, $51.6 million and $14 million for the years
ended December 31, 2000, 1999 and 1998, 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.
F-51
GPU, Inc. and Subsidiary Companies
NUCLEAR FUEL DISPOSAL FEE
-------------------------
The GPU Energy companies are providing for estimated future disposal costs
for spent nuclear fuel at Oyster Creek and TMI-1 in accordance with the Nuclear
Waste Policy Act of 1982. The GPU Energy companies entered into contracts in
1983 with the US Department of Energy (DOE) for the disposal of spent nuclear
fuel. 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.
The total liability under these contracts, including interest, at December
31, 2000, all of which relates to spent nuclear fuel from nuclear generation
through April 1983, amounted to $210.1 million (JCP&L $157 million; Met-Ed $35.4
million; Penelec $17.7 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. For Met-Ed and
Penelec, these costs are a component of 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.
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 to manage the risk of
price, interest rate and foreign currency fluctuations. GPU does not intend to
hold or issue derivative instruments for trading purposes.
Commodity Derivatives:
- ---------------------
The GPU Energy companies use New York Mercantile Exchange (NYMEX) futures
and Over-the-Counter (OTC) forward contracts and options on forward contracts to
manage the risk of fluctuations in the market price of electricity. The GPU
Energy companies also manage the natural gas requirements of certain NUG
facilities that generate and sell energy to JCP&L
F-52
GPU, Inc. and Subsidiary Companies
under long-term contracts. These commodity derivatives qualify for hedge
accounting treatment under current accounting rules since price movements of
GPU, Inc. and Subsidiary Companies
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:
- -----------------------------
Penelec and GPU Electric (through GPU GasNet and GPU Power UK) use
interest rate swap agreements to manage the risk of increases in variable
interest rates. As of December 31, 2000, these agreements covered approximately
$528 million (Penelec $50 million; GPU Electric $478 million) of debt, and were
scheduled to expire on various dates through June 2006. Differences between the
amounts paid and received under interest rate swaps are recorded as 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 to fixed rate debt. For the year ended
December 31, 2000, fixed rate interest expense exceeded variable rate interest
by approximately $0.3 million (Penelec $0.1 million; GPU Electric $0.2 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. As of
December 31, 2000, these currency swap agreements covered BP 517 million (US
$850 million) of debt. Interest expense would have been BP 37.8 million (US
$57.3 million) as compared to British pounds (BP) 38.6 million (US $58.4
million) for the year ended December 31, 2000 had these agreements not been in
place.
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 currencies in
effect at the time of the cash transaction. The effect of
F-53
GPU, Inc. and Subsidiary Companies
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 GPU Power UK 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 GPU Power UK operating account. The
overdraft balance was $276.5 million as of December 31, 2000, while total cash
at GPU Power UK was $314.3 million. Since GPU Power UK 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, GPU Power UK 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, 2000 and 1999, short-term debt outstanding consisted of the
following:
2000 1999
--------------------- ----------------------
Balance Weighted Balance Weighted
Company Facility Outstanding Avg. Rate Outstanding Avg. Rate
- ------- -------- ----------- --------- ----------- ---------
(in millions) (in millions)
GPU, Inc. Bank Loans $ 113 7.2% $ 123 7.0%
JCP&L Bank Loans 2 7.0 - -
Commercial Paper 27 7.4 - -
Met-Ed Commercial Paper 47 6.8 - -
Penelec Commercial Paper 56 6.7 54 6.9
MYR Bank Loans 36 7.2 - -
GPU Electric Bank Loans 476 7.0 366 6.1
Commercial Paper/
Medium Term Notes 724 8.0 1,218 6.5
----- -----
Total $1,481 $1,761
===== =====
GPU's weighted average interest rate on the short-term borrowings was 7.5% and
6.5% at December 31, 2000 and 1999, 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
negotiated 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.
In recent months, certain aspects of California's restructuring plan have
created instability and price volatility in the electricity market, negatively
affecting the California electric utilities. These utilities have defaulted on
various contractual and financial obligations and have experienced rapid
deterioration of their credit quality. Reaction of the financial markets, which
did not anticipate the rapid deterioration of the California utilities'
financial condition, has included a careful review of overall credit exposure to
the electric utility industry.
Furthermore, Met-Ed's and Penelec's energy cost exposure related to their
provider of last resort (PLR) obligation in Pennsylvania has negatively affected
Met-Ed's and Penelec's earnings. Consequently, the amount of new
F-54
GPU, Inc. and Subsidiary Companies
financing capacity available to GPU, Inc. or its subsidiaries may be less than
it had previously been and renewal or refinancing of existing credit facilities
will likely require GPU's acceptance of higher pricing and/or more restrictive
terms and conditions. The credit facilities that expire in 2001 include: $465
million available to GPU, Inc. and the GPU Energy companies under a $250 million
revolving credit agreement and various committed bank lines of credit; $1
billion under GPU Capital, Inc.'s (GPU Capital) senior revolving credit
agreement; $180 million under GPU Australia Holdings, Inc.'s (GPU Australia
Holdings) senior revolving credit agreement; and $366 million under EI UK
Holdings, Inc.'s two year term loan agreement.
In addition, primarily as a result of these conditions (the companies' PLR
exposure and the negative publicity surrounding the California utilities), in
early 2001 Met-Ed and Penelec began experiencing difficulty in selling their
commercial paper with maturities longer than overnight. Under normal
circumstances, they issue commercial paper having maturities of up to 30 days or
longer, if desired. As a result, Met-Ed and Penelec have temporarily withdrawn
from the commercial paper market, and instead have resorted to borrowing against
their various bank lines of credit.
GPU, Inc. and GPU Energy companies
GPU, Inc. and the GPU Energy companies have available $465 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 $266 million, $150 million and $150 million, respectively, of
short-term debt outstanding at any one time. As of December 31, 2000, GPU, Inc.
and the GPU Energy companies had $113 million and $132 million (JCP&L $29
million; Met-Ed $47 million; Penelec $56 million), respectively, of short-term
debt outstanding.
GPU Electric
GPU Capital has a $1 billion 364-day senior revolving credit agreement due
in November 2001 supporting the issuance of commercial paper for its $1 billion
commercial paper program, which has been established to fund GPU, Inc. and GPU
Electric acquisitions. GPU, Inc. has guaranteed GPU Capital's obligations under
this program. At December 31, 2000 and 1999, $633 million and $768 million was
outstanding under this commercial paper program, respectively, and included in
Notes payable on the Consolidated Balance Sheets. In early 2001, GPU Capital
refinanced the majority of this outstanding commercial paper through its standby
revolving credit agreement.
GPU Electric has a $150 million credit facility due in May 2002 to
accommodate short-term borrowing needs. The facility is guaranteed by GPU, Inc.
and there were no outstanding borrowings as of December 31, 2000.
GPU Australia Holdings has $180 million available under its senior
revolving credit facility, which expires in November 2001. This facility is
guaranteed by GPU, Inc. In 2000, GPU Australia Holdings borrowed $176 million
under this facility, which is included in Notes payable on the Consolidated
Balance Sheet, to repay all outstanding obligations under its $180 million
commercial paper program. There were no outstanding borrowings under this
revolving credit facility as of December 31, 1999.
F-55
GPU, Inc. and Subsidiary Companies
The above-mentioned GPU Australia Holdings commercial paper program is
supported by GPU, Inc. credit facilities and GPU, Inc. has also guaranteed all
obligations under this program. At December 31, 1999, $182 million was
outstanding under this commercial paper program and included in Notes payable on
the Consolidated Balance Sheet. No borrowings were outstanding at December 31,
2000.
In August 2000, GPU GasNet entered into a A$750 million (US $417 million)
commercial paper program to refinance maturing bank debt. In addition, GPU
GasNet established a A$750 million (US $417 million) credit facility to serve as
a backstop for this commercial paper program. At December 31, 2000, there was
A$250 million (US $139 million) of commercial paper outstanding under this
program and included in Long-term debt on the Consolidated Balance Sheet since
it is management's intent to reissue this amount of commercial paper on a
long-term basis.
GPU Power UK maintains a BP 150 million (approximately US $224 million)
revolving credit facility with six banks for working capital purposes, which
expires at various dates through June 2005. At December 31, 2000 and 1999, there
was BP 60 million (US $90 million) and BP 87 million (US $140 million)
outstanding under this facility, respectively, which is included in Notes
payable on the Consolidated Balance Sheets.
In addition, GPU Power UK maintains an ongoing BP 75 million (US $112
million) bank facility for working capital purposes. Outstanding borrowings are
collateralized by portions of trade accounts receivable. At December 31, 2000
and 1999, BP 75 million (US $112 million) and BP 75 million (US $121 million)
was outstanding under this facility, respectively, which is included in Notes
payable on the Consolidated Balance Sheets.
MYR
MYR maintains a $50 million revolving credit facility, which expires in
November 2003, of which up to $10 million is available for the issuance of
standby letters of credit. As of December 31, 2000, $36 million was outstanding
under this facility and included in Notes payable on the Consolidated Balance
Sheet.
3. LONG-TERM DEBT
At December 31, 2000 and 1999, long-term debt outstanding consisted of the
following:
F-56
GPU, Inc. and Subsidiary Companies
GPU, Inc. and Subsidiary Companies
- ----------------------------------
(in millions)
Total Due
2000 Interest Debt Within
- ----
Maturities Rates Outstanding One Year
---------- ----- ----------- --------
GPU Energy companies, GPUS
& GPU, Inc.:
First mortgage bonds 2001-2027 5.35-9.20% $1,695 (1) $ 40
Senior notes 2002-2019 5.75-7.77% 441 (2) -
Other long-term debt 2001-2039 7.05-7.69% 334 22
GPU Electric:
Bank loans 2001-2014 5.98-10.5% 1,184 912
Bonds 2002-2008 7.38-7.46% 983 -
Commercial
paper/Medium
term notes 2001-2003 5.98-10.5% 222 (3) -
GPU Power 2003-2022 4.5-9.5% 39 7
----- -----
Total $4,898 $ 981
===== =====
(1) Amount is less unamortized net discount of $3.1 million.
(2) Amount is less unamortized net discount of $1.6 million.
(3) Amount includes $139 million of Australian commercial paper, which is
included in Long-term debt on the Consolidated Balance Sheet since it is
management's intent to reissue this amount on a long-term basis.
(in millions)
Total Due
1999 Interest Debt Within
- ----
Maturities Rates Outstanding One Year
---------- ----- ----------- --------
GPU Energy companies & GPUS:
First mortgage bonds(a) 2000-2027 5.35-9.48% $1,785 (1) $ 90
Senior notes 2004-2019 5.75-6.63% 348 (2) -
Other long-term debt 2000-2039 6.76-7.69% 34 -
GPU Electric:
Bank loans 2000-2014 4.16-6.56% 2,264 475
Bonds 2002-2008 7.38-7.46% 1,092 -
Medium term notes 2001-2002 6.33% 263 -
GPUI Group 2000-2022 4.5 -7% 46 5
----- ----
Total $5,832 $ 570
===== ====
(1) Amount is less unamortized net discount of $2.8 million.
(2) Amount is less unamortized net discount of $1.8 million.
F-57
GPU, Inc. and Subsidiary Companies
JCP&L (in thousands)
- -----
2000 1999
---------- ---------
First Mortgage Bonds - Series as noted (a):
6.04% due 2000 $ - $ 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 1,133,500 1,173,500
Amounts due within one year (40,000) (40,000)
Unamortized net discount (2,511) (2,752)
--------- ---------
Total 1,090,989 1,130,748
--------- ---------
Other long-term debt
(excludes amounts due within one year
of $14 for 2000 and $13 for 1999) 2,998 3,012
--------- ---------
Total long-term debt $1,093,987 $1,133,760
========= =========
F-58
GPU, Inc. and Subsidiary Companies
Met-Ed (in thousands)
- ------
2000 1999
--------- ----------
First Mortgage Bonds - Series as noted (a):
6.2% due 2000 $ - $ 30,000
9.48% due 2000 - 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 490,890 540,890
Amounts due within one year - (50,000)
Unamortized net discount (27) (31)
------- -------
Total 490,863 490,859
------- -------
Other long-term debt
(excludes amounts due within one year
of $27 for 2000 and $25 for 1999) 5,997 6,024
------- -------
Total long-term debt $496,860 $496,883
======= =======
Penelec (in thousands)
- -------
2000 1999
--------- ---------
First Mortgage Bonds - Series as noted (a):
6.125% due 2007 $ 4,110 $ 4,110
6.55% due 2009 - -
5.35% due 2010 12,310 12,310
5.35% due 2010 12,000 12,000
5.80% due 2020 20,000 20,000
6.05% due 2025 25,000 25,000
------- -------
Subtotal 73,420 73,420
Amounts due within one year - -
Unamortized net discount (8) (10)
------- -------
Total 73,412 73,410
------- -------
F-59
GPU, Inc. and Subsidiary Companies
Penelec (continued) (in thousands)
- -------
2000 1999
--------- ---------
Senior Notes - Series as noted:
6.42% due 2002 25,000 -
6.47% due 2002 25,000 -
5.75% due 2004 125,000 125,000
7.50% due 2005 8,000 -
6.125% due 2009 100,000 100,000
7.77% due 2010 35,000 -
6.625% due 2019 125,000 125,000
------- -------
Subtotal 443,000 350,000
Unamortized net discount (1,597) (1,781)
------- -------
Total 441,403 348,219
------- -------
Other long-term debt
(excludes amounts due within one year
of $14 for 2000 and $13 for 1999) 2,998 3,012
------- -------
Total long-term debt $517,813 $424,641
======= =======
(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 2001, 2002, 2003, 2004 and 2005, GPU has long-term debt
maturities as follows:
(in millions)
Company 2001 2002 2003 2004 2005
- ------- ---- ---- ---- ---- ----
JCP&L $ 40 $ 50 $150 $160 $50
Met-Ed - 30 90 40 50
Penelec - 50 - 125 8
GPU Electric 912 436 176 11 12
GPU Power 7 7 6 6 2
GPU, Inc. - - - - 300
GPUS 22 - - - -
--- --- --- --- ---
Total $981 $573 $422 $342 $422
=== === === === ===
At December 31, 2000, EI UK Holdings, Inc. had long-term debt outstanding
of BP 245 million (US $366 million) under its BP 245 million credit facility, a
portion of which is guaranteed by GPU, Inc.
As discussed in Note 2, Short-Term Borrowing Arrangements, the amount of
new financing capacity available to GPU, Inc. or its subsidiaries may be less
than it had previously been and renewal or refinancing of existing credit
facilities will likely require GPU's acceptance of higher pricing and/or more
restrictive terms and conditions.
F-60
GPU, Inc. and Subsidiary Companies
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, 2000 and 1999 is as follows:
(in millions)
------------------------------------------------
2000 1999
----------------------- ---------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ---------- ---------- --------
JCP&L $1,134 $1,125 $1,174 $1,139
Met-Ed 497 504 547 532
Penelec 518 497 424 392
GPU Electric 2,389 2,469 3,619 4,186
GPU Power 39 35 46 41
GPU, Inc. 299 300 - -
GPUS 22 22 22 22
----- ----- ----- -----
Total $4,898 $4,952 $5,832 $6,312
===== ===== ===== =====
4. PREFERRED SECURITIES
Cumulative Preferred Stock: (a)
- --------------------------
JCP&L
- -----
Cumulative preferred stock, without par value, 15,600,000 shares authorized,
748,334 and 965,000 shares issued and outstanding in 2000 and 1999,
respectively.
(in thousands)
2000 1999
-------- --------
Cumulative preferred stock -
with mandatory redemption (b)(c)(d):
8.65% Series J,
333,334 and 500,000 shares at 12/31/00
and 12/31/99, respectively $33,333 $50,000
7.52% Series K,
290,000 and 340,000 shares at 12/31/00
and 12/31/99, respectively 29,000 34,000
------ ------
Subtotal 62,333 84,000
Amounts due within one year (d) (10,833) (10,833)
------ ------
Total cumulative preferred stock -
with mandatory redemption $51,500 $73,167
====== ======
Cumulative preferred stock - without mandatory redemption (c)(e):
4% Series, 125,000 shares,
callable at $106.50 a share $12,500 $12,500
Premium on cumulative preferred stock 149 149
------ ------
Total cumulative preferred stock -
without mandatory redemption $12,649 $12,649
====== ======
F-61
GPU, Inc. and Subsidiary Companies
(a) 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. At December 31, 2000 and 1999, 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 7.52% and 8.65% Series are callable at various prices above their
stated values beginning in 2002 and 2000, respectively. Pursuant to
mandatory sinking fund provisions, the 7.52% Series is to be redeemed
ratably over the next fourteen years. The 8.65% Series is to be redeemed
ratably over the next four years.
(c) During 2000, JCP&L redeemed $5 million stated value of its 7.52% cumulative
preferred stock and $16.7 million stated value of its 8.65% cumulative
preferred stock pursuant to mandatory and optional sinking fund provisions.
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. JCP&L's total redemption
cost for 2000 and 1999 was $21.7 million and $30.9 million, respectively.
(d) The shares with mandatory redemption have redemption requirements of $10.8
million for each year of the next four years, and $2.5 million in year
five. The fair value of the preferred stock with mandatory redemption,
including amounts due within one year, based on market price quotations at
December 31, 2000 and 1999, was $65.6 million and $86.5 million,
respectively.
(e) The outstanding shares of preferred stock without mandatory redemption are
callable at various prices above their stated values. At December 31, 2000,
JCP&L could call the 4% Series for $13.3 million.
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
F-62
GPU, Inc. and Subsidiary Companies
redeemed all of their outstanding shares of MIPS for $100 million and $105
million, respectively. At December 31, 2000, JCP&L's outstanding shares of MIPS
had a fair value of $122.2 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.
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.
Subsidiary-Obligated Trust Preferred Securities:
- -----------------------------------------------
In 1999, Met-Ed Capital Trust, a wholly-owned subsidiary of Met-Ed, issued
$100 million of trust preferred securities (Met-Ed Trust Preferred Securities)
at 7.35%, due 2039. The sole assets of Met-Ed Capital Trust are the 7.35%
Cumulative Preferred Securities of Met-Ed Capital II, L.P. (Met-Ed Partnership
Preferred Securities) and its only revenues are the quarterly cash distributions
it receives on the Met-Ed Partnership Preferred Securities. Each Met-Ed Trust
Preferred Security represents a Met-Ed Partnership Preferred Security. Met-Ed
Capital II, L.P. is a wholly-owned subsidiary of Met-Ed and the sponsor of
Met-Ed Capital Trust. The sole assets of Met-Ed Capital II, L.P. are Met-Ed's
7.35% Subordinated Debentures, Series A, due 2039, which have an aggregate
principal amount of $103.1 million. Met-Ed has fully and unconditionally
guaranteed the Met-Ed Partnership Preferred Securities, and, therefore, the
Met-Ed Trust Preferred Securities.
In 1999, Penelec Capital Trust, a wholly-owned subsidiary of Penelec,
issued $100 million of trust preferred securities (Penelec Trust Preferred
Securities) at 7.34%, due 2039. The sole assets of Penelec Capital Trust are the
7.34% Cumulative Preferred Securities of Penelec Capital II, L.P. (Penelec
Partnership Preferred Securities) and its only revenues are the quarterly cash
distributions it receives on the Penelec Partnership Preferred Securities. Each
Penelec Trust Preferred Security represents a Penelec Partnership Preferred
Security. Penelec Capital II, L.P. is a wholly-owned subsidiary of Penelec and
the sponsor of Penelec Capital Trust. The sole assets of Penelec Capital II,
L.P. are Penelec's 7.34% Subordinated Debentures, Series A, due 2039, which have
an aggregate principal amount of $103.1 million. Penelec has fully and
unconditionally guaranteed the Penelec Partnership Preferred Securities, and,
therefore, the Penelec Trust Preferred Securities.
The fair value of the Met-Ed and Penelec Trust Preferred Securities at
December 31, 2000 was $96.5 million and $97 million, respectively.
F-63
GPU, Inc. and Subsidiary Companies
5. STOCKHOLDERS' EQUITY
The following table presents information relating to the common stock
($2.50 par value) of GPU, Inc.:
2000 1999 1998
---- ---- ----
Authorized shares 350,000,000 350,000,000 350,000,000
Issued shares 132,783,338 132,783,338 132,783,338
Reacquired shares 13,343,387 11,017,798 4,787,657
Outstanding shares 119,439,951 121,765,540 127,995,681
Outstanding restricted units 312,520 283,602 268,360
Outstanding stock options 1,175,069 389,250 335,950
In 2000, GPU, Inc. reacquired 2.8 million shares of common stock at a
total cost of $71.9 million.
At December 31, 2000 and 1999, the following issues of common stock were
outstanding:
(in thousands)
2000 1999
- - -------- ---------
GPU, Inc.
- --------
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 1, 2000), awards may be granted in the form of incentive
stock options, nonqualified stock options, restricted shares of common stock,
performance units and stock appreciation rights, which may accompany options.
In 2000, GPU, Inc. granted stock options to officers and selected
employees to purchase 722,700 shares at $29.25 per share. During the year,
17,100 of these options were forfeited leaving a total of 705,600 outstanding at
December 31, 2000. Also in 2000, as part of the acquisition of MYR, options held
by MYR employees to purchase MYR stock were converted to 97,524 options to
purchase GPU, Inc. common stock. The average exercise price of the 97,524
options is $9.93 per share and 6,305 of these options were exercised at an
average price of $4.90 during 2000. No additional options
F-64
GPU, Inc. and Subsidiary Companies
were exercised in 2000. In 1999, GPU, Inc. granted stock options to 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 officers to
purchase 305,950 and 30,000 shares at $36.625 per share and $44.25 per share,
respectively. In 2000, 7,300 and 3,700 options exercisable at $36.625 and
$42.9375 per share, respectively, were forfeited. No options were exercised in
1999 and 1998.
At December 31, 2000 and 1999, there were 274,892 and 101,607 options
exercisable at weighted average exercise prices of $32.66 and $37.38 per option,
respectively. There were no options exercisable at December 31, 1998. All
options, other than the MYR converted options have an exercise price equal to
the fair market per share value of GPU, Inc. common stock on the grant date. All
options vest in three equal annual installments, have a 10-year term and are
exercisable in accordance with the terms set forth in the Stock Option
Agreement. In the event of a change in control of GPU during the option term
(which would include GPU, Inc.'s proposed merger with FirstEnergy), all options
would immediately become exercisable. The weighted-average remaining contractual
life of options outstanding as of December 31, 2000 was 8.7 years.
The weighted average fair value of options granted during 2000, 1999 and
1998 was $4.60, $6.60 and $4.41 per option, respectively. The options were
valued using the Black-Scholes pricing model. For the years 2000, 1999 and 1998,
the assumptions used in these valuations were as follows: a risk-free rate of
return of 6.38%, 6.14% and 5.70%, respectively; a stock price volatility of
23.5%, 20.21% and 17.36%, respectively; an average dividend yield of 5.71%,
5.42% and 5.67%, respectively; and the exercise of all options on the final day
of their 10-year terms.
Also pursuant to the 1990 Employee Stock Plan, in 2000, 1999 and 1998,
GPU, Inc. issued performance units to officers and selected employees
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 performance period and could range from 0% to 200% of the originally awarded
units plus additional units resulting from reinvested dividend equivalents.
These performance units vest on a pro-rata basis over three or five years. In
the event of a change in control of GPU during the performance period (which
would include GPU, Inc.'s proposed merger with FirstEnergy), all performance
units would immediately vest within the range of 100% to 200% of the original
units awarded.
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. The restricted units vest upon the outside director completing 54 months
of service or immediately in the case of a change in control.
Through the above-mentioned plans, officers, selected employees and
outside directors were awarded 72,327, 56,994 and 53,260 performance units or
restricted units in 2000, 1999 and 1998, respectively. Also in 2000, as part of
the acquisition of MYR, restricted units held by MYR employees were converted to
GPU, Inc. common stock restricted shares. As of December 31,
F-65
GPU, Inc. and Subsidiary Companies
2000, 208,136 of these shares were outstanding. In 2000, 1999 and 1998, through
these plans, GPU, Inc. issued a total of 247,845, 20,215 and 20,611 shares of
common stock, respectively, from previously reacquired shares. At December 31,
2000, there were 1,974,190 shares of common stock authorized for issuance as
awards of restricted shares, units, options or rights, in the aggregate.
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." Had the fair value-based method of accounting
been applied instead, the fair value of options would have been expensed, and
net income for 2000, 1999 and 1998 would have been $231.4 million, $458.7
million and $359.3 million, respectively, and earnings per share for the same
periods would have been $1.91, $3.66 and $2.83, respectively.
Accumulated Other Comprehensive Income/(Loss):
- ----------------------------------------------
In 1997, GPU adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income." At December 31, 2000 and 1999, GPU had the
following amounts in Accumulated other comprehensive income/(loss) on the
Consolidated Balance Sheets:
(in thousands)
2000 1999
---- ----
GPU, Inc. and Subsidiary Companies
- ----------------------------------
Net unrealized gains on investments (1) $ 13,404 $ 34,183
Foreign currency translation (72,402) (40,518)
Minimum pension liability (3,626) (6)
------ ------
Accumulated other comprehensive income/(loss) $(62,624) $( 6,341)
====== ======
JCP&L
-----
Net unrealized gain on investments $ 7 $ 7
Minimum pension liability (15) -
----- -------
Accumulated other comprehensive income/(loss) $ (8) $ 7
===== ======
Met-Ed
------
Net unrealized gain on investments (1) $ 74 $ 21,369
Minimum pension liability (10) (6)
------ ------
Accumulated other comprehensive income $ 64 $ 21,363
====== ======
Penelec
- -------
Net unrealized gain on investments (1) $ 23 $ 10,619
Minimum pension liability - -
------ -------
Accumulated other comprehensive income $ 23 $ 10,619
====== ======
(1) The change in the net unrealized gain on investments includes the
reclassification of previously unrealized gains totaling $31.8 million
(Met-Ed $21.2 million; Penelec $10.6 million), from Accumulated other
F-66
GPU, Inc. and Subsidiary Companies
comprehensive income to Regulatory assets, net on the Consolidated Balance
Sheets. See Nuclear Plant Retirement Costs section of Note 12, Commitments
and Contingencies.
The components of the change in accumulated other comprehensive
income/(loss), and the related tax effects, for the years 2000, 1999 and 1998
are as follows:
(in thousands)
Amount Income Tax Amount
Before (Expense) Net of
Taxes Benefit Taxes
-------- ---------- ---------
GPU, Inc. and Subsidiary Companies
- ----------------------------------
2000
- ----
Net unrealized gains/(loss) on investments $(38,042) $ 17,263 $(20,779)
------ ------ ------
Foreign currency translation adjustments (43,240) 15,134 (28,106)
Adjustment for amounts included in income (5,813) 2,035 (3,778)
------ ------ ------
Net change in accumulated other
comprehensive income (49,053) 17,169 (31,884)
------ ------ ------
Minimum pension liability (6,183) 2,563 (3,620)
------ ------ ------
Total change in accumulated other
comprehensive income/(loss) $(93,278) $ 36,995 $(56,283)
====== ====== ======
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)
====== ====== ======
JCP&L
- -----
2000
- ----
Net unrealized gain on investments $ - $ - $ -
Minimum pension liability (26) 11 (15)
------ ------ ------
Total change in accumulated
other comprehensive income/(loss) $ (26) $ 11 $ (15)
====== ====== ======
F-67
GPU, Inc. and Subsidiary Companies
(in thousands)
Amount Income Tax Amount
Before (Expense) Net of
Taxes Benefit Taxes
-------- ---------- ---------
JCP&L (continued)
- -----
1999
- ----
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
- ------
2000
- ----
Net unrealized gain on investments $(36,312) $ 15,016 $(21,296)
Minimum pension liability (6) 3 (3)
------ ------ ------
Total change in accumulated
other comprehensive income/(loss) $(36,318) $ 15,019 $(21,299)
====== ====== ======
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
====== ====== ======
Penelec
- -------
2000
- ----
Net unrealized gain on investments $(18,173) $ 7,577 $(10,596)
Minimum pension liability - - -
------ ------ ------
Total change in accumulated
other comprehensive income/(loss) $(18,173) $ 7,577 $(10,596)
====== ====== ======
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 $ 3,470 $ (1,406) $ 2,064
Minimum pension liability (73) 30 (43)
------ ------ ------
Total change in accumulated
other comprehensive income/(loss) $ 3,397 $ (1,376) $ 2,021
====== ====== ======
F-68
GPU, Inc. and Subsidiary Companies
6. ACCOUNTING FOR EXTRAORDINARY AND NON-RECURRING ITEMS
GPU PowerNet Sale (2000):
- -------------------------
In June 2000, GPU, Inc. sold GPU PowerNet, its Australian electric
transmission company, to SPI for A$2.1 billion (approximately US $1.26 billion).
As part of the sales price, SPI assumed liability for A$230 million (US $137.8
million) of medium term notes. A significant portion of the net proceeds from
the sale were used to repay debt in 2000, and the remaining proceeds have been
placed in a trust and will be used to further reduce debt. As a result of the
sale, GPU recorded in Operating Income on the Consolidated Statement of Income,
a pre-tax loss in the quarter ended June 30, 2000 of $372 million ($295 million
after-tax, or $2.43 per share), including a $94 million foreign currency loss.
During the fourth quarter 2000, there was a change in the estimated tax
benefits, which reduced GPU's after-tax loss on the sale to $276.6 million, or
$2.28 per share.
GPU International, Inc. (GPUI) Sale (2000):
- ------------------------------------------
In December 2000, GPU, Inc. sold GPUI to Aquila for $225 million. The sale
included GPUI's interests in six domestic operating plants and one development
stage project. The net proceeds from the sale were used primarily to reduce debt
at GPU Capital.
As a result of the sale, GPU realized a pre-tax gain of $133 million
($89.2 million after-tax, or $0.73 per share).
Restructured Power Purchase Agreement (2000):
- --------------------------------------------
In June 1998, Onondaga Cogeneration L.P. (Onondaga), a GPUI independent
power project, and Niagara Mohawk Power Corporation (NIMO) renegotiated their
existing power purchase agreement and entered into a 10-year indexed swap
agreement and power put.
In September 2000 (prior to the sale of GPUI), Onondaga terminated its
rights under the power put thereby terminating all agreements Onondaga had with
NIMO to sell energy and capacity under the restructured power purchase
agreement. As a result, in 2000, a net pre-tax gain of $42.8 million ($27.8
million after-tax, or $0.23 per share) was recorded in Other Income and
Deductions on the Consolidated Statement of Income, as follows: the deferred
gain of $86.7 million pre-tax related to the restructured power purchase
agreement with NIMO was recognized in income; and the indexed swap agreement was
marked to market and the associated deferred revenue was taken to income
resulting in a pre-tax gain of $90.8 million. In addition, as a result of
terminating the power put with NIMO and based on information supplied by an
outside independent expert, management determined that the Onondaga plant would
not operate on an economically profitable basis in the merchant generation
market, and that the equipment would be technologically obsolete. As the result
of an impairment test performed under 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," using the undiscounted cash flows
of the plant's operations, management determined that the plant was impaired,
and the carrying value of the plant was written down by $69.1 million pre-tax.
Also, as a result of the termination of Onondaga's rights under the power put, a
review of firmly committed long-term executory gas transportation contracts was
performed and the contracts were determined to be out of market, which resulted
in a charge to income of $65.6 million. Management's analysis utilized gas and
energy pricing supplied by an independent expert.
F-69
GPU, Inc. and Subsidiary Companies
In addition, in 2000 a pre-tax charge of $2.5 million ($1.6 million
after-tax, or $0.01 per share) was recorded in other operation and maintenance
expense for settlement amounts paid in connection with the termination of
Onondaga's steam supply agreement.
PaPUC Phase II Order (2000):
- ----------------------------
On December 20, 2000, the PaPUC issued a Phase II Order providing a final
determination of Met-Ed's and Penelec's stranded cost recovery related to the
divestiture of their generating assets. The net impact of the Phase II Order was
a credit to income of $66.1 million pre-tax (Met-Ed $44.6 million; Penelec $21.5
million), or $40.8 million after-tax (Met-Ed $32 million; Penelec $8.8 million),
or $0.34 per share, the major components of which are discussed below.
As a result of the sales of their generating facilities in 1999, Met-Ed
and Penelec recognized a pension curtailment gain (per Statement of Financial
Accounting Standards No. 88 (FAS 88), "Employers' Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for Termination Benefits," and
Statement of Financial Accounting Standards No. 106 (FAS 106), "Employers'
Accounting for Postretirement Benefits Other Than Pensions"), associated with
employees who were terminated from the companies at the time of the sale. This
gain, which amounted to $50.5 million pre-tax (Met-Ed $26.2 million; Penelec
$24.3 million), was deferred pending the outcome of the Phase II proceedings.
Upon receipt of the Phase II Order, the deferred gain was recognized in income.
In their Phase II filings, Met-Ed and Penelec requested recovery of an
additional $303.8 million (Met-Ed $226.3 million; Penelec $77.5 million) of
stranded costs. The Phase II Order disallows recovery of $27.9 million (Met-Ed
$16 million; Penelec $11.9 million) of this amount. However, Met-Ed and Penelec
anticipated a disallowance of a portion of their stranded costs, and established
a reserve of $24.9 million (Met-Ed $18.7 million; Penelec $6.2 million) in 1999.
Therefore, in 2000, the remaining disallowance of $3 million pre-tax (Met-Ed
$(2.7) million; Penelec $5.7 million) was (credited)/charged to income.
Met-Ed requested recovery of stranded costs associated with its leasehold
interest in the Merrill Creek Reservoir project. The Phase II Order granted
Met-Ed full recovery of these costs. Met-Ed had previously recorded liabilities
which were reversed upon review of the Phase II Order. In addition, during the
proceedings, certain estimates and assumptions used in calculating the lease
expense were revised. The reversal of related liabilities and the changes in
estimates and assumptions resulted in a credit to income of $13.8 million
pre-tax.
The Phase II Order deferred a decision on Met-Ed's requested rate increase
in 2006 for future consideration. The Order also requires Met-Ed and Penelec to
seek a ruling from the Internal Revenue Service (IRS) approving the credit to
ratepayers of unamortized investment tax credits and excess deferred income tax
benefits associated with their divested generating stations, which were
recognized in operating income in 1999. If the IRS ruling ultimately supports
returning these tax benefits to ratepayers, Met-Ed and Penelec would then reduce
stranded costs by $40 million and record a corresponding charge to income.
F-70
GPU, Inc. and Subsidiary Companies
Generation Asset Divestiture (2000 and 1999):
- ---------------------------------------------
GPU Energy companies
During 2000 and 1999, the GPU Energy companies completed the sales of
substantially all their electric generating facilities. The PaPUC has made a
final determination of Met-Ed's and Penelec's stranded cost recovery, as
discussed above. The NJBPU, however, has deferred making a final determination
of the net proceeds and stranded cost recovery related to JCP&L's generating
asset divestitures until an IRS ruling regarding the treatment of associated
federal income tax benefits is received.
In August 2000, JCP&L sold Oyster Creek to AmerGen Energy Company, LLC
(AmerGen), a joint venture of PECO Energy and British Energy, for approximately
$10 million. As a result of the sale, a non-recurring gain of $16.5 million, or
$0.13 per share, was recognized in income for the reversal of certain deferred
taxes and realization of an investment tax credit related to the sale. If JCP&L
receives an IRS ruling that supports returning these tax benefits to ratepayers,
JCP&L would then reduce its stranded costs by this amount and record a
corresponding charge to income. As part of the sale, AmerGen has assumed full
responsibility for decommissioning the plant and JCP&L has transferred $440
million of Oyster Creek decommissioning trust funds to AmerGen, of which
approximately $114 million was paid into the trust by JCP&L at closing. JCP&L
has agreed to fund the station's outage cost (up to a maximum of $88 million),
including the fuel reload, for the refueling outage completed in November 2000.
Outage costs of approximately $88 million were incurred, and are presently being
reviewed by GPU. AmerGen will repay these outage costs to JCP&L in nine equal
annual installments without interest, beginning August 2001. As discussed below,
the Oyster Creek plant was written down to its fair market value in 1999.
In 1999, the GPU Energy companies sold TMI-1 to AmerGen 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, resulting in a loss of $528.3 million pre-tax (JCP&L
$133.1 million; Met-Ed $270.7 million; Penelec $124.5 million), which was
deferred as a regulatory asset.
Penelec sold its 50% interest in the Homer City Station to a subsidiary of
Edison Mission Energy for approximately $900 million in 1999. As a result,
Penelec recorded a pre-tax gain of $38.2 million ($22.6 million after-tax, or
$0.18 per share) for the portion of the gain related to wholesale operations and
deferred as a regulatory liability the remaining pre-tax gain of $590.7.
Penelec sold its 20% interest in the Seneca Pumped Storage Hydroelectric
Generating Station to The Cleveland Electric Illuminating Company for $43
million in 1999. The sale resulted in a pre-tax gain of $2 million ($1.2 million
after-tax, or $0.01 per share) 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.
In addition, during 1999 the GPU Energy companies completed the sales of
their remaining 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 Forked River combustion turbines and 50%
interest in Yards Creek, as well as Met-Ed's York Haven hydroelectric station,
were not included in the sales). The sales resulted in a pre-tax gain of $22.9
million (Met-Ed $2.4 million; Penelec $20.5
F-71
GPU, Inc. and Subsidiary Companies
million), or $13.4 million after-tax (Met-Ed $1.4 million; Penelec $12 million),
or $0.11 per share, for the portion of the gain related to wholesale operations,
and deferral of the remaining pre-tax gain of $706.5 million (Met-Ed $389.1
million; Penelec $317.4 million) as a regulatory liability.
GPU Power UK
Prior to GPU's purchase of the 50% of GPU Power UK it did not already own,
GPU Power UK sold its electric supply business to National Power plc for
approximately $300 million. As a result, in 1999 GPU recorded a pre-tax gain on
the sale of $10.5 million ($6.8 million after-tax, or $0.05 per share).
JCP&L Restructuring Order (1999):
- ---------------------------------
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 Issue
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
($68 million after-tax, or $0.54 per share) relating to the Summary Order. 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 FAS 121. Management 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 re-established as a
regulatory asset since the NJBPU Summary Order provides for rate recovery.
Pennsylvania Restructuring Orders (1998):
- ----------------------------------------
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 a
pre-tax extraordinary charge of $42.1 million (Met-Ed $11.5 million; Penelec
$30.6 million), or $25.8 million after-tax (Met-Ed $6.8 million; Penelec $19
million), or $0.20 per share, and a pre-tax non-recurring charge of $68.5
million (Met-Ed $32.9 million; Penelec $35.6 million), or $40 million after-tax
(Met-Ed $19.2 million; Penelec $20.8 million), or $0.32 per share, for customer
refunds of 1998 revenues and for the establishment of a sustainable energy fund.
F-72
GPU, Inc. and Subsidiary Companies
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 (JCP&L $134 million; Met-Ed $257 million;
Penelec $127 million) to reflect TMI-1's fair market value. Of the amount
written down for TMI-1, $508 million (JCP&L $134 million; Met-Ed $255 million;
Penelec $119 million) was deferred as a regulatory asset pending the outcome of
the Phase II proceedings and $10 million (Met-Ed $2 million; Penelec $8 million)
(the FERC jurisdictional portion) was charged to expense as an extraordinary
item in 1998.
7. ACQUISITIONS
MYR Group Inc.
- --------------
In April 2000, GPU, Inc. acquired MYR for approximately $217.5 million.
The fair value of the assets acquired totaled approximately $154.6 million and
the amount of liabilities assumed totaled approximately $99.7 million.
MYR, a suburban Chicago-based infrastructure construction services
company, provides a complete range of power line and commercial/industrial
electrical construction services for electric utilities, telecommunications
providers, commercial and industrial facilities and government agencies across
the US. MYR also builds cellular towers for the wireless communications market.
The acquisition was partially financed through the issuance of GPU, Inc.
short-term debt and was accounted for under the purchase method of accounting.
The total acquisition cost exceeded the estimated value of net assets acquired
by approximately $162.9 million. This excess is considered goodwill and is being
amortized on a straight-line basis over 40 years.
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 was 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.
F-73
GPU, Inc. and Subsidiary Companies
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 was 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 (GPU Power UK)
- --------------------------------------
In July 1999, GPU Electric acquired Cinergy's 50% ownership interest in
Avon, which owns GPU Power UK, for BP 452.5 million (approximately US $714
million). GPU and Cinergy had jointly formed Avon in 1996 to acquire GPU Power
UK. 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
BP 245 million (approximately US $382 million) credit agreement entered into by
EI UK Holdings, of which GPU, Inc. has guaranteed approximately US $100 million.
As a result of GPU's purchase of Cinergy's 50% ownership in GPU Power UK,
effective in the third quarter of 1999, GPU began accounting for GPU Power UK 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 GPU Power
UK by GPU and Cinergy and approximately $119 million represents goodwill
resulting from GPU's purchase of Cinergy's 50% share of GPU Power UK. The
goodwill is being amortized on a straight-line basis over 40 years.
Pro Forma Information (1999 Acquisitions)
The consolidated unaudited pro forma results of operations for 1999 and
1998 present information assuming Emdersa, GPU GasNet and the 50% of GPU Power
UK (that 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 consolidated
unaudited pro forma information is as follows for 1999 and 1998, respectively:
operating revenues of $6 billion and $6.9 billion; income before extraordinary
item of $493 million and $442 million; net income of $493 million and $416
million; basic and diluted earnings per share before extraordinary item of $3.94
and $3.47; and basic and diluted earnings per share of $3.94 and $3.27.
F-74
GPU, Inc. and Subsidiary Companies
8. INCOME TAXES
As of December 31, 2000 and 1999, Regulatory assets, net on the
Consolidated Balance Sheets reflected $301 million and $296 million,
respectively, of Income taxes recoverable through future rates (primarily
related to liberalized depreciation), and Income taxes refundable through future
rates of $23 million and $28 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:
(in millions)
2000 1999
---- ----
Income Taxes Recoverable Through Future Rates:
JCP&L $ 18 $ 2
Met-Ed 124 124
Penelec 159 170
--- ---
Total $301 $296
=== ===
Income Taxes Refundable Through Future Rates:
JCP&L $ 4 $ 14
Met-Ed 10 8
Penelec 9 6
--- ---
Total $ 23 $ 28
=== ===
Summaries of the components of deferred taxes as of December 31, 2000 and
1999 are as follows:
F-75
GPU, Inc. and Subsidiary Companies
GPU, Inc. and Subsidiary Companies:
- ----------------------------------
(in millions)
Deferred Tax Assets Deferred Tax Liabilities
- ------------------- ------------------------
2000 1999 2000 1999
---- ---- ---- ----
Current: Current:
Unbilled revenue $ 24 $ 12 Revenue taxes $ 6 $ 5
Other 10 60 Deferred energy 3 3
----- ----- ----- -----
Total $ 34 $ 72 Total $ 9 $ 8
===== ===== ===== =====
Noncurrent: Noncurrent:
Unamortized ITC $ 32 $ 36 Liberalized
Decommissioning 111 77 depreciation:
Above-market NUGs 725 798 Previously flowed
Customer transition through $ 205 $ 222
charge - 533 Future revenue
NUG Costs 62 - requirements 150 147
----- -----
Net gain on genera- Subtotal 355 369
tion asset sales 184 499 Liberalized
Deferred foreign depreciation 552 659
tax credits 145 137 Customer transition
Other 474 448 charge 795 1,451
----- -----
Total $1,733 $2,528 Net loss on genera-
===== =====
tion asset sales 292 218
Market transition
charge 100 -
Decommissioning 116 -
Purchase accounting
basis difference 482 573
Other 402 293
----- -----
Total $3,094 $3,563
===== =====
JCP&L:
- -----
(in millions)
Deferred Tax Assets Deferred Tax Liabilities
- ------------------- ------------------------
2000 1999 2000 1999
---- ---- ---- ----
Current: Current:
Unbilled revenue $ 21 $ 2 Revenue taxes $ 6 $ 5
=== ===
Deferred Energy 2 3
--- ---
Total $ 8 $ 8
=== ===
Noncurrent: Noncurrent:
Unamortized ITC $ 13 $ 23 Liberalized
Decommissioning 15 31 depreciation:
Contributions in aid Previously flowed
of construction 20 21 through $ 41 $ 35
Revenues subject Future revenue
to refund 47 47 requirements 33 29
--- ---
Net gain on genera- Subtotal 74 64
tion asset sales 93 73 Liberalized
Other - 27 depreciation 261 368
--- ---
Total $188 $222 Forked River - 7
=== ===
Net loss on genera-
tion asset sales 291 58
Market transition
charge 100 -
Decommissioning 56 -
Other 84 74
--- ---
Total $866 $571
=== ===
F-76
GPU, Inc. and Subsidiary Companies
Met-Ed:
- ------
(in millions)
Deferred Tax Assets Deferred Tax Liabilities
- ------------------- ------------------------
2000 1999 2000 1999
---- ---- ---- ----
Current: Noncurrent:
Unbilled revenue $ 2 $ 3 Liberalized
=== ===
depreciation:
Noncurrent: Previously flowed
Unamortized ITC $ 10 $ 8 through $ 71 $ 81
Decommissioning 63 27 Future revenue
Above-market NUGs 296 303 requirements 51 49
--- ---
Customer transition Subtotal 122 130
charge - 160 Liberalized
Generation revenue depreciation 132 129
requirements 24 24 Customer transition
Net gain on genera- charge 382 594
tion asset sales 2 161 Net loss on genera-
Other 53 55 tion asset sales - 110
--- ---
Total $448 $738 Decommissioning 62 -
=== ===
Other 30 30
--- ---
Total $728 $993
=== ===
Penelec:
- -------
(in millions)
Deferred Tax Assets Deferred Tax Liabilities
- ------------------- ------------------------
2000 1999 2000 1999
---- ---- ---- ----
Current: Noncurrent:
Unbilled revenue $ 2 $ 8 Liberalized
===== =====
depreciation:
Noncurrent: Previously flowed
Unamortized ITC $ 9 $ 5 through $ 92 $ 103
Decommissioning 35 19 Future revenue
Above-market NUGs 428 494 requirements 66 69
----- -----
Customer transition Subtotal 158 172
charge - 374 Liberalized
NUG Costs 83 - depreciation 158 155
Generation revenue Customer transition
requirements 23 23 charge 412 856
Net gain on genera- Net loss on genera-
tion asset sales 89 264 tion asset sales - 51
Other 42 46 Other 8 16
----- ----- ----- -----
Total $ 709 $1,225 Total $ 736 $1,250
===== ===== ===== =====
The reconciliations of net income to book income subject to tax and of the
federal statutory rate to combined federal and state effective tax rates, are as
follows:
F-77
GPU, Inc. and Subsidiary Companies
GPU, Inc. and Subsidiary Companies:
- ----------------------------------
(in millions)
2000 1999 1998
---- ---- -----
Net income $234 $459 $360
Preferred stock dividends 7 9 11
Loss on preferred stock reacquisition - 2 -
Income tax expense 182 294 250
--- --- ---
Book income subject to tax $423* $764* $621*
=== === ===
Federal statutory rate 35% 35% 35%
State tax, net of federal benefit 9 5 5
Amortization of ITC (4) (6) (1)
Australian tax rate reduction (2) - -
PowerNet sale 8 - -
Other, net (3) 4 1
--- --- ---
Effective income tax rate 43% 38% 40%
=== === ===
* Includes pre-tax foreign operations income of $228 million, $331 million and
$238 million, of which $15 million, $85 million and $88 million, respectively
for 2000, 1999 and 1998, are included in Equity in undistributed
earnings/(loss) of affiliates in the Consolidated Statements of Income. For
2000, pre-tax foreign operations income excludes a loss of $372 million on
sale of PowerNet.
JCP&L:
- ----- (in millions)
2000 1999 1998
---- ---- -----
Net income $211 $172 $222
Income tax expense 120 101 145
--- --- ---
Book income subject to tax $331 $273 $367
=== === ===
Federal statutory rate 35% 35% 35%
State tax, net of federal benefit 7 6 5
Amortization of ITC, net (4) (5) -
Other, net (2) 1 (1)
--- --- ---
Effective income tax rate 36% 37% 39%
=== === ===
Met-Ed:
- ------
(in millions)
2000 1999 1998
---- ---- ----
Net income $ 82 $ 96 $ 51
Income tax expense 44 61 33
--- --- ---
Book income subject to tax $126 $157 $ 84
=== === ===
Federal statutory rate 35% 35% 35%
State tax, net of federal benefit 6 7 6
Amortization of ITC (1) (8) (2)
Other, net (5) 5 -
--- --- ---
Effective income tax rate 35% 39% 39%
=== === ===
F-78
GPU, Inc. and Subsidiary Companies
Penelec:
- -------
(in millions)
2000 1999 1998
---- ---- ----
Net income $ 39 $153 $ 40
Income tax expense 30 54 31
--- --- ---
Book income subject to tax $ 69 $207 $ 71
=== === ===
Federal statutory rate 35% 35% 35%
State tax, net of federal benefit 5 7 8
Amortization of ITC, net (2) (11) -
Other, net 5 (5) 1
--- --- ---
Effective income tax rate 43% 26% 44%
=== === ===
Federal and state income tax expense is comprised of the following:
GPU, Inc. and Subsidiary Companies:
- ----------------------------------
(in millions)
2000 1999 1998
---- ---- -----
Provisions for taxes currently payable:
Domestic $(174) $ 775 $290
Foreign 34 60 22
--- --- ---
Total provision for taxes (140) 835 312
--- --- ---
Deferred income taxes:
Liberalized depreciation (100) (252) 2
Foreign deferred taxes 27 80 31
Unbilled revenues 6 19 -
Gain/(loss) on sale of property 395 (406) -
Decommissioning 26 87 (19)
PA Restructuring (FAS 71) - 61 (15)
Operating nonutility generators (187) - -
Customer transition charge 124 - -
Market transition charge 76 21 -
Nonutility generation contract buyout costs (56) (14) (11)
Provision for rate refunds - (47) (10)
OPEBs - 2 (12)
Other 28 (45) (19)
--- --- ---
Deferred income taxes, net 339 (494) (53)
--- --- ---
Amortization of ITC, net (17) (47) (9)
--- --- ---
Income tax expense $ 182 $ 294 $250
=== === ===
The foreign taxes in the above table for 2000, 1999 and 1998 include $5
million ($19 million Current; $(14) million Deferred), $53 million ($16 million
Current; $37 million Deferred) and $27 million ($10 million Current; $17 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 $10 million and $36 million for
2000 and 1999, respectively of ITC benefit resulting from the sale of generation
plants.
F-79
GPU, Inc. and Subsidiary Companies
JCP&L: (in millions)
- -----
2000 1999 1998
---- ---- -----
Provisions for taxes currently payable $(135) $197 $187
--- --- ---
Deferred income taxes:
Liberalized depreciation (106) (49) (11)
Decommissioning 62 22 (12)
Nonutility generation contract buyout costs (20) (19) -
Provision for rate refund - (47) -
Unbilled revenue (3) 19 -
Gain/(loss) sale of property 226 (16) -
Market transition charge 76 21 -
Other postemployment benefits - 4 (5)
Gain/Loss on reacquired debt - - 3
New Jersey revenue tax 4 - (2)
Deferral of energy costs - (1) 10
Abandonment loss - Forked River - (4) (4)
Nuclear outage maintenance costs 34 3 3
Accretion income - - 4
Pension expense/VERP - (2) (2)
Demand-side management 4 (7) -
Global settlement - 2 (8)
Gas site & investigation MGP
insurance recovery - - (8)
Other (7) (10) (6)
--- --- ---
Deferred income taxes, net 270 (84) (38)
--- --- ---
Amortization of ITC, net (15) (12) (4)
--- --- ---
Income tax expense $ 120 $101 $145
=== === ===
Met-Ed: (in millions)
- ------
2000 1999 1998
---- ---- ----
Provisions for taxes currently payable $ 22 $140 $ 56
--- --- ---
Deferred income taxes:
Liberalized depreciation 3 (88) 5
Decommissioning (31) 42 (5)
PA Restructuring (FAS 71) - 30 15
Operating nonutility generators (99) - -
Customer transition charge 118 - -
Nonutility generation contract buyout costs - 2 (9)
Provision for rate refund - - (11)
Unbilled revenue 3 - -
Gain/(loss) sale of property 49 (51) -
Other postemployment benefits - - (5)
Pension expense/VERP (5) - (3)
Nuclear outage maintenance costs - 3 (3)
Nonutility generation contract
over collections - - 8
CTC NUG deferrals - - (5)
Sustainable energy fund - - (2)
Other (15) (5) (6)
--- --- ---
Deferred income taxes, net 23 (67) (21)
--- --- ---
Amortization of ITC, net (1) (12) (2)
--- --- ---
Income tax expense $ 44 $ 61 $ 33
=== === ===
F-80
GPU, Inc. and Subsidiary Companies
Penelec: (in millions)
- -------
2000 1999 1998
---- ---- ----
Provisions for taxes currently payable $ 15 $472 $ 47
--- --- ---
Deferred income taxes:
Liberalized depreciation 3 (114) 2
Decommissioning (4) 23 (2)
PA Restructuring (FAS 71) - 31 (11)
Operating nonutility generators (89) - -
Customer transition charge 6 - -
Nonutility generation contract buyout costs (36) 3 (1)
Unbilled revenue 7 - -
Gain/(loss) sale of property 120 (339) -
Other postemployment benefits - (2) (2)
Pension expense/VERP (4) - (2)
Nuclear outage maintenance costs - 2 (1)
Nonutility generation contract
over collections - - 6
CTC NUG deferrals (15) - 2
Sustainable energy fund 2 - (3)
Other 26 1 (2)
--- --- ---
Deferred income taxes, net 16 (395) (14)
--- --- ---
Amortization of ITC, net (1) (23) (2)
--- --- ---
Income tax expense $ 30 $ 54 $ 31
=== === ===
The IRS has completed its examinations of GPU's federal income tax returns
through 1995.
9. SUPPLEMENTARY INCOME STATEMENT INFORMATION
Maintenance expense and other taxes charged to operating expenses
consisted of the following:
(in millions)
2000 1999 1998
---- ---- ----
Maintenance:
JCP&L $ 79 $ 84 $ 91
Met-Ed 23 48 49
Penelec 31 54 62
Other 51 24 -
--- --- ---
Total maintenance $184 $210 $202
=== === ===
F-81
GPU, Inc. and Subsidiary Companies
(in millions)
2000 1999 1998
---- ---- ----
Other taxes:
New Jersey Transitional Energy
Facility Assessment $ 48 $ 59 $ 67
--- --- ---
Pennsylvania state gross receipts:
Met-Ed 36 27 39
Penelec 37 27 40
--- --- ---
Total 73 54 79
--- --- ---
Real estate and personal property:
JCP&L 4 5 9
Met-Ed 2 4 6
Penelec 1 6 8
Other 41 24 -
--- --- ---
Total 48 39 23
--- --- ---
Stamp taxes (U.K.) - 6 -
--- --- ---
Other:
JCP&L 13 13 19
Met-Ed 6 9 13
Penelec 8 9 16
Other 25 2 2
--- --- ---
Total 52 33 50
--- --- ---
Total other taxes $221 $191 $219
=== === ===
The cost of services rendered to the GPU Energy companies by their
affiliates is as follows:
(in millions)
2000 1999 1998
---- ---- ----
JCP&L:
- -----
Cost of services rendered by GPUN $211 $189 $182
Cost of services rendered by GPUS 253 322 26
Cost of services rendered by
GPU Generation, Inc. (Genco) - 69 51
--- --- ---
Total $464 $580 $259
=== === ===
Amount Charged to Income $259 $393 $239
=== === ===
Met-Ed:
- ------
Cost of services rendered by GPUN $ 2 $102 $ 59
Cost of services rendered by GPUS 97 152 40
Cost of services rendered by Genco - 96 108
--- --- ---
Total $ 99 $350 $207
=== === ===
Amount Charged to Income $ 77 $264 $180
=== === ===
Penelec:
- -------
Cost of services rendered by GPUN $ 1 $ 51 $ 30
Cost of services rendered by GPUS 138 184 17
Cost of services rendered by Genco - 102 163
--- --- ---
Total $139 $337 $210
=== === ===
Amount Charged to Income $109 $259 $170
=== === ===
F-82
GPU, Inc. and Subsidiary Companies
For the years 2000, 1999 and 1998, JCP&L purchased $14 million, $22
million and $26 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 US 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, 2000 and 1999, a statement of the funded status of the plans, the
amounts recognized in the Consolidated Balance Sheets as of December 31, 2000
and 1999 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 GPU Power UK by GPU in July of that year. Accordingly, the July 1999
benefit obligation and fair value of plan assets balances for GPU Power UK 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.
(in millions)
Other
Postretirement
Pension Benefits Benefits
---------------------- ------------------
2000 1999 2000 1999
---- ---- ---- ----
GPU, Inc. and Subsidiary Companies
- ----------------------------------
Change in benefit obligation:
Benefit obligation
at January 1: $ 3,157.8 $ 1,897.0 $ 737.1 $ 790.5
Acquisitions - 1,502.5 - -
Service cost 37.0 46.2 11.4 15.9
Interest cost 201.8 158.0 53.9 52.2
Plan amendments - 2.5 8.2 -
Actuarial (gain)/loss and
other items (102.3) (182.8) (57.8) (36.9)
Currency exchange (104.9) (4.0) - -
Benefits paid (205.4) (171.0) (37.2) (39.8)
Curtailments and settlements (18.9) (139.4) (5.7) (44.8)
Termination benefits 27.1 48.8 - -
------- ------- ----- ------
Benefit obligation
at December 31: $ 2,992.2 $ 3,157.8 $ 709.9 $ 737.1
======= ======= ===== =====
Change in plan assets:
Fair value of plan assets
at January 1: $ 4,343.4 $ 2,258.8 $ 543.3 $ 507.1
Acquisitions - 1,710.2 - -
Actual return on plan assets (172.4) 579.4 (7.2) 61.0
Employer contributions 1.4 1.8 11.2 15.0
Benefits paid (205.4) (171.0) (37.2) (39.8)
Currency exchange (117.5) (5.8) - -
Settlement and other items (35.4) (30.0) - -
------- ------- ----- -----
Fair value of plan assets
at December 31: $ 3,814.1 $ 4,343.4 $ 510.1 $ 543.3
======= ======= ===== =====
F-83
GPU, Inc. and Subsidiary Companies
(in millions)
Other
Postretirement
Pension Benefits Benefits
---------------------- ------------------
2000 1999 2000 1999
---- ---- ---- ----
GPU, Inc. and Subsidiary Companies (continued)
- ----------------------------------
Funded Status:
Funded status at December 31: $ 821.9 $ 1,185.6 $(199.8) $(193.8)
Unrecognized net actuarial
(gain)/loss (575.1) (953.0) (61.7) (54.2)
Unrecognized prior service cost 19.4 21.5 15.2 2.9
Unrecognized net transition
(asset)/obligation (0.9) (1.4) 111.8 143.3
------- ------- ------ -----
Net amount recognized $ 265.3 $ 252.7 $(134.5) $(101.8)
======= ======= ====== =====
Amounts recognized in the
Consolidated Balance Sheet
at December 31:
Prepaid benefit cost $ 286.0 $ 297.2 $ - $ 24.2
Accrued benefit liability (28.5) (45.3) (134.5) (126.0)
Intangible asset 1.6 0.8 - -
Accumulated other comprehensive
income 2.6 - - -
Deferred income taxes 3.6 - - -
------- ------- ----- ------
Net amount recognized $ 265.3 $ 252.7 $(134.5) $(101.8)
======= ======= ===== =====
JCP&L
- -----
Change in benefit obligation:
Benefit obligation
at January 1: $ 4.9 $ 509.7 $ 0.5 $ 198.2
Transfer to GPUS - (502.4) - (197.7)
Service cost 0.5 0.1 - -
Interest cost 1.5 0.4 - -
Actuarial (gain)/loss (1.7) (2.8) - -
Benefits paid (0.1) (0.1) - -
------- ------- ----- -----
Benefit obligation
at December 31: $ 5.1 $ 4.9 $ 0.5 $ 0.5
======= ======= ===== =====
Change in plan assets:
Fair value of plan assets
at January 1: $ 6.2 $ 639.9 $ 0.1 $ 137.0
Transfer to GPUS - (634.4) - (136.9)
Actual return on plan assets (0.1) 0.8 - -
Benefits paid (0.1) (0.1) - -
Change in allocations (2.6) - - -
------- ------- ----- -----
Fair value of plan assets
at December 31: $ 3.4 $ 6.2 $ 0.1 $ 0.1
======= ======= ===== =====
F-84
GPU, Inc. and Subsidiary Companies
(in millions)
Other
Postretirement
Pension Benefits Benefits
---------------------- ------------------
2000 1999 2000 1999
---- ---- ---- ----
JCP&L (continued)
- -----
Funded Status:
Funded status at December 31: $ (1.7) $ 1.3 $ (0.4) $ (0.4)
Unrecognized net actuarial
(gain)/loss (0.1) (3.2) 0.2 (0.2)
Unrecognized net transition
(asset)/obligation 0.1 0.1 0.1 0.1
------- ------- ----- -----
Net amount recognized $ (1.7) $ (1.8) $ (0.1) $ (0.5)
======= ======= ===== =====
Amounts recognized in the
Consolidated Balance Sheet
at December 31:
Accrued benefit liability $ (1.8) $ (1.9) $ (0.1) $ (0.5)
Intangible Asset 0.1 0.1 - -
------- ------- ----- -----
Net amount recognized $ (1.7) $ (1.8) $ (0.1) $ (0.5)
======= ======= ===== =====
Met-Ed
- ------
Change in benefit obligation:
Benefit obligation
at January 1: $ 10.3 $ 377.9 $ 1.9 $ 163.0
Transfer to GPUS - (367.9) - (160.8)
Service cost 0.2 0.2 0.1 0.1
Interest cost 0.8 0.5 0.2 0.2
Plan amendments - - 0.1 -
Actuarial (gain)/loss (1.0) (0.2) (0.3) (0.6)
Benefits paid (0.1) (0.2) - -
------- ------- ----- -----
Benefit obligation
at December 31: $ 10.2 $ 10.3 $ 2.0 $ 1.9
======= ======= ===== =====
Change in plan assets:
Fair value of plan assets
at January 1: $ 9.0 $ 428.3 $ 0.6 $ 62.4
Transfer to GPUS - (420.2) - (61.9)
Actual return on plan assets (0.4) 1.1 - 0.1
Benefits paid (0.1) (0.2) - -
Change in allocations 3.0 - (0.1) -
------- ------- ----- -----
Fair value of plan assets
at December 31: $ 1.5 $ 9.0 $ 0.5 $ 0.6
======= ======= ===== =====
Funded Status:
Funded status at December 31: $ 1.3 $ (1.3) $ (1.5) $ (1.3)
Unrecognized net actuarial
(gain)/loss (2.2) 0.4 0.8 0.7
Unrecognized net transition
(asset)/obligation - - 0.3 0.3
------- ------- ----- -----
Net amount recognized $ (0.9) $ (0.9) $ (0.4) $ (0.3)
======= ======= ===== =====
F-85
GPU, Inc. and Subsidiary Companies
(in millions)
Other
Postretirement
Pension Benefits Benefits
-------------------- ------------------
2000 1999 2000 1999
---- ---- ---- ----
Met-Ed (continued)
- ------
Amounts recognized in the
Consolidated Balance Sheet at
December 31:
Accrued benefit liability $ (0.9) $ (0.9) $ (0.4) $ (0.3)
------- ------- ----- -----
Net amount recognized $ (0.9) $ (0.9) $ (0.4) $ (0.3)
======= ======= ===== =====
Penelec
- -------
Change in benefit obligation:
Benefit obligation
at January 1: $ 3.0 $ 419.7 $ - $ -
Transfer to GPUS - (416.1) - -
Interest cost 0.2 0.2 - -
Actuarial (gain)/loss 0.1 (0.7) - -
Benefits paid (0.1) (0.1) - -
------- ------- ----- -----
Benefit obligation
at December 31: $ 3.2 $ 3.0 $ - $ -
======= ======= ===== =====
Change in plan assets:
Fair value of plan assets
at January 1: $ 1.9 $ 535.2 $ - $ -
Transfer to GPUS - (533.5) - -
Actual return on plan assets (0.1) 0.3 - -
Benefits paid (0.1) (0.1) - -
Change in allocations (0.1) - - -
------- ------- ----- -----
Fair value of plan assets
at December 31: $ 1.6 $ 1.9 $ - $ -
======= ======= ===== =====
Funded Status:
Funded status at December 31: $ (1.6) $ (1.1) $ - $ -
Unrecognized net actuarial
(gain)/loss 0.6 0.1 - -
Unrecognized net transition
obligation 0.1 0.1 - -
------- ------- ----- -----
Net amount recognized $ (0.9) $ (0.9) $ - $ -
======= ======= ===== =====
Amounts recognized in the
Consolidated Balance Sheet
at December 31:
Accrued benefit liability $ (1.0) $ (1.0) $ - $ -
Intangible Asset 0.1 0.1 - -
------- ------- ----- -----
Net amount recognized $ (0.9) $ (0.9) $ - $ -
======= ======= ===== =====
F-86
GPU, Inc. and Subsidiary Companies
Other
Postretirement
Pension Benefits Benefits
---------------- -----------------
2000 1999 2000 1999
---- ---- ---- ----
Weighted average assumptions
as of December 31 for GPU, Inc.
and Subsidiary Companies:
Discount rate 7.1% 7.0% 7.5% 7.5%
Expected return on plan assets 8.5% 8.1% 9.25% 8.5%
Rate of compensation increase 4.7% 4.7% - -
Weighted average assumptions
as of December 31 for JCP&L,
Met-Ed and Penelec:
Discount rate 7.5% 7.5% 7.5% 7.5%
Expected return on plan assets 9.25% 8.5% 9.25% 8.5%
Rate of compensation increase - 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 GPU Power UK for the second half of the year.
Pension Plans:
(in millions)
2000 1999 1998
---- ---- ----
GPU, Inc. and Subsidiary Companies
- ----------------------------------
Service cost $ 37.0 $ 46.2 $ 36.1
Interest cost 201.8 158.0 121.6
Expected return on plan assets (273.9) (198.0) (140.1)
Amortization of transition (asset)/obligation (0.5) (0.5) (0.5)
Other amortization (12.0) 2.1 1.1
----- ----- -----
Net periodic pension cost $ (47.6) $ 7.8 $ 18.2
===== ===== =====
JCP&L
- -----
Service cost $ 0.5 $ 0.1 $ 7.2
Interest cost 1.5 0.4 33.7
Expected return on plan assets (2.2) (0.3) (39.6)
Amortization of transition (asset)/obligation - - (0.3)
Other amortization (0.3) - 0.6
----- ----- ------
Net periodic pension cost $ (0.5) $ 0.2 $ 1.6
===== ===== =====
Met-Ed
- ------
Service cost $ 0.2 $ 0.2 $ 6.3
Interest cost 0.8 0.5 23.4
Expected return on plan assets (0.9) (0.5) (25.4)
Amortization of transition (asset)/obligation - - (0.1)
Other amortization - - 0.4
----- ----- -----
Net periodic pension cost $ 0.1 $ 0.2 $ 4.6
===== ===== =====
F-87
GPU, Inc. and Subsidiary Companies
(in millions)
2000 1999 1998
---- ---- ----
Penelec
- -------
Service cost $ - $ - $ 4.1
Interest cost 0.2 0.2 27.2
Expected return on plan assets (0.1) (0.1) (33.1)
Amortization of transition (asset)/obligation - - 0.3
Other amortization - - 0.4
----- ----- -----
Net periodic pension cost $ 0.1 $ 0.1 $ (1.1)
===== ===== =====
In 2000, the effects of lower than expected salary increases and the GPU
PowerNet divestiture resulted in decreases in the benefit obligation as of
December 31, 2000 of $30 million and $36 million, respectively. No significant
portions of these amounts relate to JCP&L, Met-Ed or Penelec. In 1999, the
effect of increasing the discount rate assumption for the US 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.
The above net periodic pension cost amount for 2000 excludes pre-tax
charges of $9 million related to JCP&L, which were deferred pending future rate
recovery, resulting from employee terminations related to continuing generation
asset divestiture. 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.
Other Postretirement Benefits:
(in millions)
2000 1999 1998
---- ---- ----
GPU, Inc. and Subsidiary Companies
- ----------------------------------
Service cost $ 11.4 $ 15.9 $ 16.4
Interest cost 53.9 52.2 54.4
Expected return on plan assets (41.8) (37.5) (29.5)
Amortization of transition (asset)/obligation 10.8 14.6 15.8
Other amortization (0.8) 1.6 5.0
---- ---- ----
Net periodic postretirement benefit cost $ 33.5 $ 46.8 $ 62.1
==== ==== ====
JCP&L
- -----
Service cost $ - $ - $ 2.9
Interest cost - - 13.9
Expected return on plan assets - - (7.3)
Amortization of transition obligation - - 4.4
Other amortization - - 0.7
---- ---- ----
Net periodic postretirement benefit cost $ - $ - $ 14.6
==== ==== ====
F-88
GPU, Inc. and Subsidiary Companies
(in millions)
2000 1999 1998
---- ---- ----
Met-Ed
- ------
Service cost $ 0.1 $ 0.1 $ 2.9
Interest cost 0.2 0.2 11.2
Expected return on plan assets (0.1) - (3.9)
Amortization of transition obligation - - 3.1
Other amortization - - 1.7
---- ---- ----
Net periodic postretirement benefit cost $ 0.2 $ 0.3 $ 15.0
==== ==== ====
Penelec
- -------
Service cost $ - $ - $ 2.0
Interest cost - - 15.1
Expected return on plan assets - - (8.9)
Amortization of transition obligation - - 4.8
Other amortization - - 1.4
---- ---- ----
Net periodic postretirement benefit cost $ - $ - $ 14.4
==== ==== ====
In 2000, lower than expected claims experience resulted in a $32 million
decrease in the benefit obligation as of December 31, 2000. No significant
portion of this amount relates to JCP&L, Met-Ed or Penelec. 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. 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 9.5% for those not eligible for
Medicare and 10.5% for those eligible for Medicare, then decreasing gradually to
6% in 2009 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 $36.9 million or $36.6 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 $3.4 million or $3.3 million, respectively. No significant
portion of the effect of such a 1% change relates to JCP&L, Met-Ed or Penelec.
The above net periodic postretirement benefit cost amount for 2000 excludes
pre-tax charges of $7 million, which were deferred pending future rate recovery,
resulting from employee terminations related to continuing 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 1999 excludes pre-tax
charges of $3 million, which were 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.
F-89
GPU, Inc. and Subsidiary Companies
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.
Certain employees of MYR are covered by union-sponsored collectively
bargained defined benefit plans. Expenses for these plans amounted to
approximately $26 million, $27 million and $26 million in 2000, 1999 and 1998,
respectively, as determined in accordance with negotiated labor contracts.
Savings Plans:
- --------------
GPU also maintains savings plans for substantially all US employees. These
plans provide for employee contributions up to specified limits and various
levels of employer matching contributions. The matching contributions for GPU
were as follows:
(in millions)
Company 2000 1999 1998
- ------- ---- ---- ----
JCP&L $ 0.1 $ 0.1 $ 2.8
Met-Ed 0.1 0.1 3.4
Penelec - - 1.6
Other 10.8 13.8 5.8
---- ---- ----
Total $11.0 $14.0 $13.6
==== ==== ====
11. LEASES
GPU Energy companies
Capital lease obligations at December 31, 2000 and 1999 totaled $2 million
and $48 million (consisting primarily of Oyster Creek nuclear fuel, as discussed
below), respectively.
Prior to the sales of TMI-1 and Oyster Creek to AmerGen in December 1999
and August 2000, respectively, the GPU Energy companies had nuclear fuel lease
agreements with nonaffiliated fuel trusts for the plant. Upon the sales of TMI-1
and Oyster Creek, the related fuel leases were terminated and
F-90
GPU, Inc. and Subsidiary Companies
all outstanding amounts due under the related credit facilities were paid. 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, 2000, 1999 and
1998, these amounts were as follows:
(in millions)
Company 2000 1999 1998
- ------- ---- ---- ----
JCP&L $ 13 $ 34 $ 30
Met-Ed - 13 16
Penelec - 6 8
---- ---- ----
Total $ 13 $ 53 $ 54
==== ==== ====
Met-Ed and JCP&L have sold and leased back a portion of their respective
ownership interests in the Merrill Creek Reservoir project. The annual minimum
lease payments under these operating leases, which have remaining terms of 32
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 sub-lessees. JCP&L is recovering its Merrill
Creek lease payments, net of reimbursements, through distribution rates.
Met-Ed's Merrill Creek lease payments were offset against the actual net
divestiture proceeds received from the 1999 sales of its generation assets.
GPU, Inc.
A subsidiary of GPUI sold and leased back the Lake electric cogeneration
facility for an initial term of eleven years, expiring in August 2004, for which
GPU, Inc. has guaranteed payments of up to $8.1 million. Although GPU, Inc. sold
GPUI (including Lake) in 2000, GPU, Inc. has remained on the guaranty, and has
obtained an indemnity from Aquila's parent. In addition, a 20-year site lease
was entered into for the Lake facility expiring in 2013. Prior to its sale to
Aquila, GPUI accounted for these leases as operating leases and GPU's related
rent expense for 2000 and 1999 totaled $11.3 million and $12.3 million,
respectively.
12. COMMITMENTS AND CONTINGENCIES
PENDING MERGER OF FIRSTENERGY CORP. AND GPU
-------------------------------------------
On August 8, 2000, GPU, Inc. entered into an agreement to merge with
FirstEnergy, an Ohio corporation, headquartered in Akron, Ohio. Under the merger
agreement, FirstEnergy would acquire all of the outstanding shares of GPU's
common stock for approximately $4.5 billion in cash and FirstEnergy common
stock.
Under the agreement, GPU stockholders would receive $36.50 for each share
of GPU common stock they own, payable in cash or the equivalent of $36.50 per
share in FirstEnergy common stock, as long as FirstEnergy's common stock price
is between $24.24 and $29.63. Each GPU stockholder would be able to elect the
form of consideration, subject to proration so that the aggregate consideration
to all GPU stockholders will be 50 percent cash and 50 percent FirstEnergy
common stock. Each GPU stockholder's share converted into FirstEnergy common
stock would be exchanged for not less than 1.2318 and not more than 1.5055
shares of FirstEnergy common stock, depending on the average closing price of
FirstEnergy stock during the 20-day trading period ending on the sixth trading
date prior to the merger closing.
F-91
GPU, Inc. and Subsidiary Companies
The merger has been approved by the Boards of Directors and stockholders
of GPU, Inc. and FirstEnergy and is expected to close promptly after all of the
conditions to the consummation of the merger (including the receipt of all
necessary regulatory approvals, provided that such approvals will not impose
terms and conditions that would reasonably be expected to result in a "material
adverse effect," as defined in the merger agreement, on the combined company,
and there being no "material adverse effect" on either GPU or FirstEnergy since
June 30, 2000 or March 31, 2000, respectively), are fulfilled or waived.
Relevant factors would include the nature of any order issued by the regulatory
authorities, the financial and business conditions of each company, and whether,
and the extent by which, any developments relate to general economic conditions.
In testimony before the PaPUC, FirstEnergy stated that FirstEnergy will
carefully review the PaPUC's action with respect to GPU's requested PLR relief
on the financial condition of GPU to determine whether the consequences would
have a "material adverse effect" on GPU or the combined company. The receipt of
all necessary regulatory approvals is expected to take approximately nine to
twelve months from the date of the merger agreement. There can be no assurance
as to the outcome of these matters.
COMPETITION AND THE CHANGING REGULATORY ENVIRONMENT
---------------------------------------------------
Stranded Costs and Regulatory Restructuring Orders:
- --------------------------------------------------
With the transition to a competitive marketplace for generation service in
New Jersey and Pennsylvania, certain generation-related costs, which generally
would be recoverable in a regulated environment, may no longer be recoverable.
These costs are generally referred to as stranded costs.
In 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 final
NJBPU order. The Summary Order provides for, among other things, full recovery
of what otherwise would have become stranded costs, as well as customer choice
of electric generation supplier beginning August 1, 1999 and rate reductions for
all consumers. In addition, the NJBPU issued separate Orders approving the sales
of JCP&L's generating assets; however, the NJBPU deferred making a final
determination of the net proceeds and stranded costs related to the generating
asset divestitures until an IRS ruling regarding the treatment of associated
federal income tax benefits is received.
In 1998, the PaPUC issued amended Restructuring Orders approving
Settlement Agreements entered into by Met-Ed and Penelec which, among other
things, provide for customer choice of electric generation supplier beginning
January 1, 1999 and a one-year (1999) reduction in retail distribution rates for
all consumers. The Orders also provide for recovery of a substantial portion of
what otherwise would have become stranded costs, subject to Phase II proceedings
following the completion of Met-Ed's and Penelec's generating asset
divestitures, to make a final determination of the extent of that stranded cost
recovery. In 2000, Met-Ed and Penelec submitted Phase II Reports to the PaPUC
supporting their actual net divestiture proceeds and providing a reconciliation
of stranded costs pursuant to the 1998 Restructuring Orders.
On December 20, 2000, the PaPUC issued a Phase II Order which disallows
$28 million (Met-Ed $16 million; Penelec $12 million) of the requested $304
million (Met-Ed $226 million; Penelec $78 million) of additional stranded costs
above those amounts granted in the 1998 Orders. Met-Ed and Penelec had
anticipated a disallowance of a portion of stranded costs, and established a
F-92
GPU, Inc. and Subsidiary Companies
$25 million pre-tax (Met-Ed $19 million; Penelec $6 million) reserve in 1999. In
addition, as a result of the Phase II Order, Met-Ed and Penelec recognized
pre-tax income of $66 million (Met-Ed $45 million; Penelec $21 million) due
primarily to pension curtailment gains associated with employees terminated as a
result of the sale of generating facilities in 1999, and the reversal of certain
liabilities and changes in estimates and assumptions related to Met-Ed's
leasehold interest in the Merrill Creek Reservoir project. The Phase II Order
also deferred a decision on Met-Ed's requested increase in rates, beginning in
2006, for recovery of Met-Ed's generation-related stranded costs. In addition,
the Order requires Met-Ed and Penelec to seek an IRS ruling regarding the return
of certain unamortized investment tax credits and excess deferred income tax
benefits to ratepayers. If the IRS ruling ultimately supports returning these
tax benefits to ratepayers, Met-Ed and Penelec would then reduce stranded costs
by $40 million and record a corresponding charge to income. For further
information, see Note 6, Accounting for Extraordinary and Non-Recurring Items.
Supply of Electricity:
- ---------------------
As a result of the NJBPU's and the PaPUC's Restructuring Orders, 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
essentially exited the generation business and will have to supply electricity
to non-shopping customers almost entirely from contracted and open market
purchases, there will be increased risks associated with supplying that
electricity. JCP&L is permitted to defer for future recovery the amount by which
its reasonable and prudently incurred costs associated with providing basic
generation service to non-shopping customers exceed amounts currently reflected
in its rates for basic generation service. Met-Ed and Penelec, however, are
unable to recover energy costs in excess of their established rate caps, which
are in effect for varying periods.
During 2000, market prices at which Met-Ed and Penelec were required to
purchase electricity for their retail supply customers at times substantially
exceeded the amounts Met-Ed and Penelec were allowed to charge for that
electricity under their capped generation rates. This situation has resulted in
a substantial loss of earnings for Met-Ed and Penelec in 2000, especially during
the peak Summer months, and this condition is expected to continue so long as
wholesale energy prices remain high, and Met-Ed and Penelec are not granted
regulatory relief.
Given this situation, on November 29, 2000, Met-Ed and Penelec filed a
petition with the PaPUC seeking permission to defer for future recovery their
energy costs in excess of established generation rate caps. Various parties to
the proceeding filed motions to dismiss the petition. On January 19, 2001,
Met-Ed and Penelec made a further request that they be permitted to implement
their proposed deferral mechanism pending the PaPUC's final action on their
petition. On January 24, 2001, the PaPUC denied, without prejudice, the motions
to dismiss Met-Ed's and Penelec's petition and recommended that the companies
provide support for a rate cap exception based on the criteria in the Customer
Choice and Competition Act. In addition, the PaPUC consolidated the petition
with the GPU/FirstEnergy merger proceeding for consideration and resolution in
accord with the merger procedural schedule, which establishes a May 2001 date
for a PaPUC order in both cases. In February 2001, Met-Ed and Penelec filed a
supplement to their petition and supporting testimony which they believe
establish that the PaPUC should grant them exceptions to their rate caps. In
addition, Met-Ed and Penelec stated that as an alternative to the deferral
mechanism they previously proposed, the circumstances would warrant an immediate
increase in their present rate
F-93
GPU, Inc. and Subsidiary Companies
caps. There can be no assurance regarding the degree, if any, to which Met-Ed
and Penelec may be able to recover their costs to supply electricity in excess
of amounts currently reflected in their capped rates.
Generation Agreements:
- ---------------------
The evolving 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), with any
residual needs then being purchased from the short-term market (one hour to one
month).
The GPU Energy companies have entered into agreements with third party
suppliers to purchase capacity and energy through 2004. Payments pursuant to
these agreements, which include firm commitments as well as certain assumptions
regarding, among other things, call/put arrangements, are estimated to be $1.2
billion in 2001, $265 million in 2002, $92 million in 2003 and $5 million in
2004.
Pursuant to the mandates of the federal Public Utility Regulatory Policies
Act and state regulatory directives, the GPU Energy companies were required to
enter into power purchase agreements with nonutility generators (NUGs) for the
purchase of energy and capacity, which agreements have remaining terms of up to
20 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 following table shows actual payments from 1998 through
2000, and estimated payments thereafter through 2005:
Payments Under NUG Agreements
-----------------------------
(in millions)
Total JCP&L Met-Ed Penelec
----- ----- ------ -------
1998 $788 $403 $174 $211
1999 774 388 167 219
2000 734 364 153 217
2001 775 438 145 192
2002 804 466 148 190
2003 813 465 153 195
2004 816 458 157 201
2005 798 443 160 195
The NJBPU Summary Order provides JCP&L assurance of full recovery of its
NUG costs (including above-market NUG costs and certain buyout costs); and the
PaPUC Restructuring Orders provide Met-Ed and Penelec assurance of full recovery
of their above-market NUG costs and certain NUG buyout costs. At December 31,
2000, the GPU Energy companies have recorded, on a present value basis, a total
estimated liability of $3.3 billion (JCP&L $1.7 billion; Met-Ed $0.7 billion;
Penelec $0.9 billion) on the Consolidated Balance Sheet for above-market NUG
costs which is offset by corresponding regulatory assets. The GPU Energy
companies are continuing efforts to reduce the above-market costs of these
agreements. There can be no assurance as to the extent to which these efforts
will be successful.
F-94
GPU, Inc. and Subsidiary Companies
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 Statement of Financial Accounting Standards No. 71 (FAS 71),
"Accounting for the Effects of Certain Types of Regulation," 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 Emerging Issues Task Force (EITF) Issue 97-4,
"Deregulation of the Pricing of Electricity - Issues Related to the Application
of FAS 71 and FAS 101," with respect to their electric generation operations.
The transmission and distribution portion of the GPU Energy companies'
operations continues to be subject to the provisions of FAS 71. Regulatory
assets, net as reflected in the December 31, 2000 and December 31, 1999
Consolidated Balance Sheets in accordance with the provisions of FAS 71 and EITF
Issue 97-4 were as follows:
(in thousands)
--------------------------
2000 1999
----------- ----------
GPU, Inc. and Subsidiaries
- --------------------------
Market transition charge (MTC) / basic
generation service $2,732,926 $2,397,071
Competitive transition charge (CTC) 1,680,484 1,709,258
Income taxes recoverable through future
rates, net 263,942 280,268
Costs recoverable through distribution rates 257,135 296,842
Societal benefits charge 195,011 116,941
Three Mile Island Unit 2 (TMI-2)
decommissioning costs 60,362 100,794
Above-market deferred NUG costs (178,573) (252,348)
Other, net 21,717 67,420
--------- ---------
Total regulatory assets, net $5,033,004 $4,716,246
========= =========
JCP&L
- -----
Regulatory assets, net:
MTC / basic generation service $2,732,926 $2,397,071
Costs recoverable through distribution rates 257,135 296,842
Societal benefits charge 195,011 116,941
--------- ---------
Total regulatory assets, net $3,185,072 $2,810,854
========= =========
Met-Ed
- ------
Regulatory assets, net:
CTC $1,048,211 $ 999,623
Income taxes recoverable through future
rates, net 114,543 115,713
TMI-2 decommissioning costs 27,610 65,455
Above-market NUG deferral costs 8,485 545
Other, net 29,132 51,529
--------- ---------
Total regulatory assets, net $1,227,981 $1,232,865
========= =========
F-95
GPU, Inc. and Subsidiary Companies
(in thousands)
--------------------------
2000 1999
---------- ---------
Penelec
- -------
Regulatory assets, net:
CTC $ 632,273 $ 709,635
Income taxes recoverable through future
rates, net 149,399 164,555
TMI-2 decommissioning costs 32,752 35,339
Above-market NUG deferral costs (187,058) (252,893)
Other, net (7,415) 15,891
--------- ---------
Total regulatory assets, net $ 619,951 $ 672,527
========= =========
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended by FAS 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133" and FAS 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities - An Amendment of FASB
Statement No. 133" (collectively, FAS 133), establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. In general, FAS 133
requires that companies recognize all derivatives as either assets or
liabilities on the balance sheet and measure those instruments at fair value.
FAS 133 (as amended) provides an exemption for certain contracts that qualify as
normal purchases and sales. To qualify for this exclusion, certain criteria must
be met, including that it must be probable that the contract will result in
physical delivery. GPU adopted FAS 133 on January 1, 2001.
GPU's use of derivative instruments is intended to manage the risk of
fluctuations in commodity prices, interest rates and foreign currencies. GPU
does not intend to hold or issue derivative instruments for trading purposes.
GPU enters into fixed-price contracts for future purchases of electricity and
natural gas with individual counterparties or through traded exchanges. The
majority of these commodity contracts entered into by GPU are considered "normal
purchases," as defined by FAS 133, and, therefore, are excluded from the
statement's scope. Commodity contracts accounted for as derivatives under FAS
133 are designated as cash flow hedges of the underlying commodity purchases, to
the extent they qualify for such treatment. FAS 133 requires that the effective
portion of the gain or loss on a derivative instrument designated and qualifying
as a cash flow hedge be reported as a component of Other Comprehensive Income,
net of tax. GPU also enters into third party energy option contracts. These
derivative instruments are accounted for as cash flow hedges of the underlying
commodity purchases, to the extent they are effective hedges. Upon adoption of
this statement at January 1, 2001, the impact of FAS 133 as it relates to
forward, futures and option contracts was immaterial to GPU's earnings or
financial position.
To hedge against high transmission rates along certain routes during
periods of high congestion, GPU enters into fixed transmission rights (FTRs)
agreements. Upon adoption of FAS 133 at January 1, 2001, the impact of this
statement as it relates to FTRs was immaterial to GPU's earnings or financial
position.
GPU uses various types of interest rate swaps to convert floating-rate
loans to fixed rates. These instruments are accounted for as cash flow hedges,
to the extent they are effective hedges. Upon adoption of this statement on
January 1, 2001, derivative liabilities of approximately $7 million (Penelec $1
million; GPU Power $1.5 million; GPU Electric $4.5
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GPU, Inc. and Subsidiary Companies
million) were recognized on the Consolidated Balance Sheet, with an offset, net
of tax, of $5 million (Penelec $1 million; GPU Power $1.5 million; GPU Electric
$2.5 million) to Accumulated other comprehensive income and a $2 million (GPU
Electric) charge to income.
GPU 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. These instruments will be accounted for as cash
flow hedges, to the extent they are effective hedges. Upon adoption of FAS 133
on January 1, 2001, derivative assets of approximately $54 million (GPU Power
UK) were recognized on the Consolidated Balance Sheet, with an offset, net of
tax, to Accumulated other comprehensive income.
NUCLEAR FACILITIES
------------------
Investments:
- -----------
In December 1999, the GPU Energy companies sold TMI-1 to AmerGen for
approximately $100 million. In August 2000, JCP&L sold Oyster Creek to AmerGen
for approximately $10 million. As part of the sales, AmerGen has assumed full
responsibility for decommissioning the plants, and the GPU Energy companies have
transferred $320 million and $430 million of TMI-1 and Oyster Creek
decommissioning trust funds, respectively, to AmerGen. JCP&L, Met-Ed and Penelec
jointly own TMI-2, which was damaged during a 1979 accident, in the percentages
of 25%, 50% and 25%, respectively. JCP&L's net investment in TMI-2 as of
December 31, 2000 and December 31, 1999 was $55 million and $61 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's and
Penelec's remaining investments in TMI-2 were written off in 1998 after
receiving the PaPUC's Restructuring Orders.
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 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
F-97
GPU, Inc. and Subsidiary Companies
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. In June 2000, the
US Supreme Court denied petitions for review filed by GPU, Inc., the GPU Energy
companies and the plaintiffs.
In September 2000, the defendants filed a Motion for Summary Judgment in
the District Court. Meanwhile, the plaintiffs have taken an interlocutory appeal
to the Third Circuit seeking review of the District Court's determination that
the remaining plaintiffs should be allowed to advance causation theories based
only on the admissible evidence of record at the close of discovery in the case.
Oral arguments on the plaintiffs' appeal were held in January, 2001. 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.
F-98
GPU, Inc. and Subsidiary Companies
In 1995, a consultant performed a site-specific study of TMI-2 that
considered various decommissioning methods and estimated the cost of
decommissioning the radiological portion and the cost of removal of the
nonradiological portion of the plant, using the prompt removal/dismantlement
method. Management has reviewed the methodology and assumptions used in this
study, is in agreement with them, and believes the results are reasonable. The
TMI-2 funding completion date is 2014, consistent with TMI-2 remaining in
long-term storage. The retirement cost estimate under the 1995 site-specific
study, assuming decommissioning of TMI-2 in 2014, is $450 million for
radiological decommissioning and $36 million for non-radiological removal costs
(net of $12.6 million spent as of December 31, 2000)(in 2000 dollars).
Each of the GPU Energy companies is responsible for retirement costs in
proportion to its respective ownership percentage. The ultimate cost of retiring
TMI-2 may be different from the cost estimate contained in this site-specific
study. Also, the cost estimate contained in this site-specific study is
significantly greater than the decommissioning funding targets established by
the NRC.
The estimated liability for future TMI-2 retirement costs (reflected as
Three Mile Island Unit 2 future costs on the Consolidated Balance Sheets) as of
December 31, 2000 and December 31, 1999 is $515 million (JCP&L $129 million;
Met-Ed $257 million; Penelec $129 million) and $497 million (JCP&L $124 million;
Met-Ed $249 million; Penelec $124 million), respectively. This liability is
based upon the 1995 site-specific study estimate (in 2000 and 1999 dollars,
respectively) discussed above and an estimate for remaining incremental
monitored storage costs of $29 million (JCP&L $7 million; Met-Ed $15 million;
Penelec $7 million) and $27 million (JCP&L $7 million; Met-Ed $13 million;
Penelec $7 million) as of December 31, 2000 and December 31, 1999, respectively,
as a result of TMI-2 entering long-term monitored storage in 1993.
Offsetting the $515 million liability as of December 31, 2000 is $127
million (JCP&L $15 million; Met-Ed $93 million; Penelec $19 million), which
management believes is probable of recovery from customers and included in
Regulatory assets, net on the Consolidated Balance Sheet, and $374 million
(JCP&L $115 million; Met-Ed $161 million; Penelec $98 million) in trust funds
for TMI-2 and included in Nuclear decommissioning trusts, at market on the
Consolidated Balance Sheet.
The NJBPU has granted JCP&L revenues for TMI-2 retirement costs based on
the 1995 site-specific study estimate. In addition, JCP&L is recovering a
portion of 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; however, Penelec has recovered these
costs through the divestiture of its generating assets. The 1996 Customer Choice
Act also allows Met-Ed and Penelec to defer as a regulatory asset those amounts
that are above the level provided for in the CTC for future recovery.
As of December 31, 2000, the accident-related portion of TMI-2
radiological decommissioning costs is estimated to be $80 million (JCP&L $20
million; Met-Ed $40 million; Penelec $20 million), which is based on the 1995
site-specific study (in 2000 dollars). In connection with rate case resolutions,
JCP&L, Met-Ed and Penelec made contributions to irrevocable external trusts for
their respective shares of the accident-related portion of the decommissioning
liability in amounts of $15 million, $40 million and
F-99
GPU, Inc. and Subsidiary Companies
$20 million, respectively. These contributions were not recoverable from
customers and were expensed in 1990, in the case of JCP&L, and in 1991 for
Met-Ed and Penelec.
The GPU Energy companies intend to seek recovery for any increases in
TMI-2 retirement costs, but recognize that recovery cannot be assured.
Prior to September 2000, increases in the accident-related portion of
Met-Ed's and Penelec's TMI-2 decommissioning liability were charged to expense,
in amounts totaling $23.2 million (Met-Ed $15.4 million; Penelec $7.8 million)
through August 2000. Likewise, through August 2000, earnings on Met-Ed's and
Penelec's contributions to external trusts, in amounts totaling $34.9 million
(Met-Ed $23.3 million; Penelec $11.6 million), were taken to income, and the
related unrealized gains and losses were accrued to Accumulated other
comprehensive income on the Consolidated Balance Sheet.
During the course of ongoing regulatory proceedings in Pennsylvania,
Met-Ed and Penelec determined, in the third quarter 2000, that a portion of
their regulatory assets for TMI-2 decommissioning previously regarded as
probable of recovery in rates, are now no longer deemed probable of recovery. As
a result, in the third quarter 2000, Met-Ed and Penelec charged to income $11.7
million (Met-Ed $7.9 million; Penelec $3.8 million) pre-tax for the write-down
of their respective regulatory assets for TMI-2 decommissioning, representing
the net realized gain they previously recorded on the accident-related portion
of the TMI-2 decommissioning trust. Furthermore, the unrealized gains or losses
associated with the accident-related portion of the TMI-2 decommissioning trust
(previously recorded in Accumulated other comprehensive income) were transferred
to Regulatory assets, net on the Consolidated Balance Sheet, and will no longer
be recorded in Accumulated other comprehensive income.
The GPU Energy companies own all of the common stock of the Saxton Nuclear
Experimental Corporation, which owns a small demonstration nuclear reactor.
Decommissioning of the plant is expected to be completed in 2002. In December
2000, based on new estimates to complete the decommissioning of the plant, the
decommissioning liability was increased by $13 million, to $52 million (JCP&L
$23 million; Met-Ed $17 million; Penelec $12 million) as of December 31, 2000.
The GPU Energy companies do not believe this increase is probable of recovery,
and have charged the entire amount to expense.
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. 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.
GPU has purchased property and decontamination insurance coverage for
TMI-2 totaling $150 million.
The Price-Anderson Act limits an owner's liability to third parties
resulting from a nuclear incident 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.
F-100
GPU, Inc. and Subsidiary Companies
Although TMI-2 is exempt from retrospective premium assessments, the plant is
still covered by the provisions of the Price-Anderson Act. In addition, the GPU
Energy companies are subject to other retrospective premium assessments related
to policies applicable to TMI-1 prior to its sale to AmerGen.
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
----- ------ ------- ---- ------- -----
7 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/or 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, 2000, a liability of approximately $6 million (JCP&L $2.2 million;
Met-Ed $0.6 million; Penelec $0.2 million; other $3 million) was recorded for
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 companies involved.
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
F-101
GPU, Inc. and Subsidiary Companies
approximately $1.1 million of past response costs as of December 31, 2000.
Chesapeake claims to have spent approximately $10 million in connection with
remediation of the site. The EPA has more recently estimated the cost of ground
water remediation to be on the order of $6 million. Consultants to Chesapeake
have estimated the remaining remediation ground water costs to be approximately
$12 million to $19 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. As of December
31, 2000, if the statutory maximum were applied, the total amount of penalties
would be approximately $44 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 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 August 2000, Rochester Gas & Electric Corporation (RG&E) filed suit
against GPU, Inc. in the US District Court for the Western District of New York
for the reimbursement of $5.2 million of costs and damages it has allegedly
incurred, and a declaratory judgement with respect to future costs and damages,
in connection with two former MGP sites and a third property where wastes from
one of those sites were allegedly deposited. All of the properties are located
in Rochester, New York. According to the complaint, RG&E was an indirect
subsidiary of AGECO from May 1929 until January 1946, and a subsidiary of GPU,
Inc. from January 1946 until October 1949, when it was divested by order of the
SEC under the Public Utility Holding Company Act. There can be no assurance as
to the outcome of this matter.
In connection with the 1999 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
received recovery of these remediation costs through a reduction of its
liability to ratepayers, per the December 20, 2000 PaPUC Phase II Order.
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, 2000, JCP&L has
spent approximately $44.5 million in connection with the cleanup of these sites.
In addition, JCP&L has recorded an estimated environmental liability of $50.2
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. The cost to clean up these sites could be
materially in excess of the $50.2 million due to significant uncertainties,
including changes in acceptable remediation methods and technologies.
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. As of December 31, 2000, JCP&L had
recorded on its Consolidated Balance Sheet a regulatory asset of $51.6 million.
JCP&L is continuing to pursue reimbursement from its insurance carriers for
remediation costs already spent and for future
F-102
GPU, Inc. and Subsidiary Companies
estimated costs. In 1994, JCP&L filed a complaint with the Superior Court of New
Jersey against several of its insurance carriers, relating to these MGP sites,
and has settled with all but one of those carriers.
OTHER COMMITMENTS AND CONTINGENCIES
-----------------------------------
Class Action Litigation:
- -----------------------
GPU Energy
In July 1999, the Mid-Atlantic states experienced a severe heat storm
which resulted in power outages throughout the service territories of many
electric utilities, including the territory of JCP&L. Following these outages,
the NJBPU initiated an investigation into the causes of the outages and the
reliability of the transmission and distribution systems of all four New Jersey
electric utilities. This investigation was essentially completed in May 2000,
with the issuance of Phase I and Phase II reports and orders from the NJBPU.
Both the Phase I and Phase II reports and orders contain, among other things,
directions for JCP&L to undertake certain actions and report back to the NJBPU
on the results. Additionally, the NJBPU Phase II order concluded that there is
not a prima facie case demonstrating that, overall, JCP&L provided unsafe,
inadequate or improper service to its customers.
Two class action lawsuits were commenced in New Jersey Superior Court in
July 1999. These suits were subsequently consolidated into a single proceeding,
and they seek compensatory and punitive damages arising from the service
interruptions of July 1999 in the JCP&L territory. The GPU defendants named in
these suits (i.e., GPU, Inc., JCP&L, GPUS and GPU Generation, Inc.) moved to
dismiss or stay the litigation pending the NJBPU's exercise of its primary
jurisdiction to investigate the causes of the outages. The trial court denied
that motion, and also certified a plaintiff class consisting of JCP&L customers
and their "dependents, tenants, employees and other intended beneficiaries of
customers who suffered damages as a result" of the service interruptions.
In January 2000, the New Jersey Appellate Division granted the GPU
defendants' motion for leave to take an interlocutory appeal of the trial
court's decision on the issue of primary jurisdiction. On June 14, 2000, the
Appellate Division affirmed the trial court but determined that the NJBPU's
findings in the exercise of its "exclusive jurisdiction" could be
"probative...but not determinative" of at least some of the issues in the
litigation, and leaving it to the trial court to "decide in the first instance
just what weight and validity to give the [NJBPU's] findings and conclusions."
In response to the GPU defendants' demand for a statement of damages, the
plaintiffs have stated that they are seeking $700 million, subject to the
results of pretrial discovery. JCP&L has notified its insurance carriers of the
plaintiffs' allegations. The primary insurance carrier has stated that, while
the substance of the plaintiffs' allegations is covered under the policy, it is
reserving its rights concerning coverage as circumstances develop. In September
2000, JCP&L received from its primary insurance carrier the initial
indemnification payment for certain expenses incurred by JCP&L relative to this
action.
Discovery continues in the class action, and no trial date has been set.
The GPU defendants filed a motion with the trial court seeking
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GPU, Inc. and Subsidiary Companies
decertification of the class, and oral argument on the decertification was held
in February 2001. There can be no assurance as to the outcome of these matters.
GPU Electric
As a result of the September 1998 fire and explosion at the Longford
natural gas plant in Victoria, Australia, Victorian gas users (plaintiffs) have
brought a class action in the 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. The
plaintiffs claim that Esso was, among other things, negligent in designing,
maintaining and operating the Longford plant, and also assert claims under
Australian fair trade practices law.
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 Transmission Pipelines Australia (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 asserts that the State and the gas industry were negligent in
that, among other things, they failed to ensure that the gas system would
provide a secure supply of gas to users, and also asserts claims under the
Australian fair trade practices law. In addition, GPU GasNet and other private
entities (Buyers) that purchased the Victorian gas assets from the State have
joined Esso as third party defendants. Esso asserts that if the gas industry is
liable as alleged, that liability has been transferred to the Buyers as part of
the State's privatization process.
Under the acquisition agreement with the State, GPU GasNet has indemnified
TPA and the State against third party claims arising out of, among other things,
the operation of TPA's business. TPA and the State have commenced proceedings
against GPU GasNet to enforce the indemnity in respect of any liability that may
flow to TPA as a result of Esso's claim.
GPU GasNet and TPAA have filed answers denying liability to Esso, the
State and TPA, which could be material. GPU GasNet and TPAA have notified their
insurance carriers of this action. The insurers have notified GPU GasNet that
they have formed the preliminary view that GPU GasNet is not entitled to
coverage under the liability policy. GPU GasNet believes that it is entitled to
coverage, and discussions with the insurers are continuing. 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 GPU Power. As of December
31, 2000, GPU, Inc.'s investments in GPU Electric and GPU Power were $881
million and $139 million, respectively. As of that date, GPU, Inc. has also
guaranteed an additional $899 million and $21 million of GPU Electric and GPU
Power 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.
F-104
GPU, Inc. and Subsidiary Companies
GPU Electric
In June 2000, GPU sold GPU PowerNet, its Australian electric transmission
company, for A$2.1 billion (US $1.26 billion). For further information, see Note
6, Accounting for Extraordinary and Non-Recurring Items.
GPU Power UK has a 40% equity interest in a 586 MW power project in
Pakistan (the Uch Power Project), which was originally scheduled to begin
commercial operation in late 1998. In June 1999, certain Project lenders for the
Uch Power Project issued notices of default to the Project sponsors (including
GPU Power UK) 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 was
extended, principal and interest payments deferred, and the sponsors agreed to
fund the completion of the plant through the remaining equity contribution
commitments. The plant commenced commercial operations in October 2000.
Uch has renegotiated several of the project agreements with the Government
of Pakistan and its agencies, under which it agreed, among other things, to
accept a reduction in the power purchase tariff averaging approximately 8% over
the project term. The agreement includes options to extend the term of the
project from 23 to 30 years.
GPU's investment in the Uch Power Project as of December 31, 2000 was
approximately $37.9 million, plus a guaranty letter of credit of $3.6 million,
and its share of the projected completion costs represents an additional $3.1
million commitment. Cinergy (the former owner of 50% of Midlands Electricity
plc) agreed to fund up to an aggregate of $20 million of the required capital
contributions, for a period of one year from July 15, 1999, and "cash losses,"
which could be incurred on the Uch Power Project, for a period of up to ten
years from July 15, 1999. Cinergy has reimbursed GPU Electric for $4.9 million
of capital contributions through December 31, 2000, leaving a remaining
commitment of up to $15.1 million. There can be no assurance as to the outcome
of this matter.
GPU Power UK also owns an 18.75% interest in Humber Power Limited
(Humber). At December 31, 2000, GPU Power UK's equity in the project, which is
located in England, was approximately $28 million. A number of investors in the
project (not including GPU Power UK) also have purchase power agreements with
Humber, which provide for the servicing of the project's debt and a return on
equity. The purchasers are claiming that such contracts, which provide for
prices of power in excess of current market prices, will become unenforceable
under a proposed new UK regulatory scheme. Humber and the purchasers have agreed
to submit the matter to arbitration as provided by the contracts. If the
contracts cannot be satisfactorily reformed, the prices at which Humber can sell
its energy may not be sufficient to provide an equity return to the investors or
ultimately to service Humber's debt. There can be no assurance as to the outcome
of this matter.
As part of the 1999 sale of the GPU Power UK supply business and the
purchase of the 50% of GPU Power UK that GPU did not already own, certain
long-term purchase obligations under natural gas supply contracts were retained.
Most of these contracts, which extend to September 2005, were at fixed prices in
excess of the market price of gas, and a liability had been established for the
estimated loss under such contracts. However, as a result of increasing gas
prices during the second quarter of 2000, GPU Power UK was able to enter into
matching forward sale contracts for the majority of
F-105
GPU, Inc. and Subsidiary Companies
the gas purchases, resulting in a reduction in the estimated liability and a
pre-tax credit to income of $15.9 million. Other open gas contracts, which
extend to 2002, require GPU Power UK to purchase or to sell gas at fixed prices.
The estimated out-of-market position of all contracts at December 31, 2000 was
$22 million; however, the remaining open positions included both sales and
purchases, thereby reducing the remaining exposure to future price changes.
In an English court decision involving two unaffiliated utilities
(National Grid and National Power), the court held that utilities improperly
used a pension plan surplus in the UK Electricity Supply Pension Scheme to
eliminate scheduled payments in respect of early retirement costs and employer
contributions. The court found that, in the case of National Grid and National
Power, procedures had not been strictly followed, and as such, a liability may
now exist. At a subsequent hearing, the court refused to consider the validity
or effectiveness of retrospective amendments to the plan. National Grid and
National Power have appealed the court's decision to the House of Lords. Pending
the outcome of the Appeal, the requirement for any payments has been stayed. The
appeal in the House of Lords is expected to be heard in the first quarter of
2001. If a similar complaint were to be made against GPU Power UK, GPU Power
UK's potential liability is estimated to be a maximum of BP 63 million (US $94
million), exclusive of any applicable interest charges or penalties. The GPU
Power UK section of the Electricity Supply Pension Scheme remains in substantial
surplus and any payment to the plan that might ultimately prove to be necessary
would be accounted for as an increase in pension assets, and would not have an
immediate impact on income. However, any related penalties or interest (which
could be assessed, though none are currently proposed) may adversely affect
income. There can be no assurance as to the outcome of this matter.
Emdersa's operating companies are subject to a number of government claims
related to Value-added tax liabilities and to Social Security taxes collected in
their electric rates, which aggregate approximately $21 million. The claims are
generally related to transitional issues surrounding the privatization of
Argentina's electricity industry. There can be no assurance as to the outcome of
these matters.
GPU Power
On July 9, 1999, DIAN (the Colombian national tax authority) issued a
"Special Requirement" on the Termobarranquilla S.A., Empresa de Servicios
Publicos (TEBSA) 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 (EI Barranquilla, a wholly owned subsidiary of GPU Power,
ABB Barranquilla, Corporacion Electrica de la Costa Atlantica (CORELCA) and
Distral Group have a 28.7%, 28.7%, 42.5% and 0.1% interest in TEBSA,
respectively). The failure to give notice of this Special Requirement to the US
Export Import Bank (EXIM Bank) is an event of default under the loan agreement.
GPU Power also believes that other events of default exist under the loan
agreements with project lenders including the Overseas Private Investments
Corporation (OPIC), a commercial bank syndicate. As a result, certain required
certifications have not been delivered to EXIM Bank, OPIC and the other project
lenders, which failure is, itself, an event of default under the loan
agreements. These issues are currently being discussed with EXIM Bank, the other
project lenders, and the Government of Colombia, as well as the other partners
in the TEBSA project. In addition, in January 2001 CORELCA advised GPU Power
that it was conducting its own investigation of the matter. As of December 31,
2000, GPU Power has an investment of approximately $92 million in TEBSA and is
committed to make additional standby equity
F-106
GPU, Inc. and Subsidiary Companies
contributions of $21.3 million, which GPU, Inc. has guaranteed. The total
outstanding senior debt of the TEBSA project is $372 million at December 31,
2000, and, in addition, GPU, Inc. has guaranteed the obligations of the
operators of the TEBSA project, up to a maximum of $5 million, under the
project's operations and maintenance agreement. There can be no assurance as to
the outcome of these matters.
With regard to the "Special Requirement" issued by DIAN, DIAN asserts that
TEBSA should be liable for approximately $4.4 million consisting of $1.3 million
in additional tax and $3.1 million in penalties and interest. TEBSA has filed
both procedural and substantive objections to these assertions, the DIAN
responded to these objections reiterating its previous position, and TEBSA, in
turn, filed an appeal with the DIAN on June 2, 2000. A response is expected
within one year.
In July 2000, the DIAN issued a "Special Requirement" on the 1997 income
tax return of TEBSA challenging a tax exemption benefit under a Colombian income
tax statute. The DIAN requested payment of approximately $1.2 million in
additional tax, penalties and interest. On October 12, 2000, TEBSA filed a
response with the DIAN stating arguments supporting its tax exemption benefit.
There can be no assurance as to the outcome of these matters.
GPU Telcom
In March 2000, GPU, Inc. announced its participation in America's Fiber
Network LLC (AFN), of which GPU, Inc. anticipates owning 25%. AFN is a
high-speed fiber optics company with a network of more than 7,000 route miles,
or 140,000 fiber miles, connecting major markets in the eastern US to secondary
markets with a growing need for broadband access. GPU, Inc. anticipates
investing cash, as well as existing and new fiber routes and electronic
equipment, in AFN through GPU Telcom. As of December 31, 2000, GPU Telcom had
invested $5.3 million in AFN.
In April 2000, GPU, Inc. announced the formation of Telergy Mid-Atlantic
(TMA), a joint venture between GPU Telcom and Telergy, Inc. TMA combines
established telecommunications services and marketing expertise with utilities'
existing fiber networks and natural positioning in serving retail markets. As of
December 31, 2000 GPU Telcom had acquired $20 million of Telergy, Inc.
convertible preferred securities.
Other:
- -----
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, 2000 book value of $21 million. Negotiations to resolve this
dispute are continuing; however, there can be no assurance as to the outcome of
this matter.
In March 1999, Penelec and New York State Electric & Gas Corporation
(NYSEG) each sold their 50% undivided ownership interests in the Homer City
Station to a subsidiary of Edison Mission Energy (EME) for a total of $1.9
billion. In connection with the sale, Penelec and NYSEG indemnified the buyer
with respect to certain contingent liabilities, including costs or
F-107
GPU, Inc. and Subsidiary Companies
expenses which the EPA might impose for failure to comply with New Source
Performance Standards, Prevention of Significant Deterioration and New Source
Review regulations under the Clean Air Act prior to the date of the sale. In
1998, the EPA had conducted inspections at Homer City with regard to the plant's
compliance with these regulations. On October 30, 2000, EME notified Penelec and
NYSEG that the EPA had concluded that these regulations applied to Homer City
prior to the sale to EME and that Homer City was operating in violation of these
Clean Air Act regulations. If it is ultimately determined that these regulations
were applicable to Homer City, the EPA could assess substantial monetary
penalties and require capital modifications to the plant, the costs of which
would be material. To the extent Penelec and NYSEG are obligated to indemnify
EME for any of these costs, they would each be severally liable for a 50% share.
There can be no assurance as to the outcome of this matter.
Concurrent with GPU's July 1999 acquisition of the 50% of GPU Power UK
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, GPU Power UK 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 was included in expense in 1999 and the other 50%
was recorded in Goodwill as a purchase accounting adjustment.
In 2000, a change in the investment return assumptions, due to better than
expected investment performance, resulted in a reduction of approximately $6.9
million, to $22.6 million, in the estimated liability for the remaining 459
employees. Consequently, goodwill was credited for $3.4 million (50% of the
change in estimate) and $3.5 million was credited to income. During 2000, $16.9
million was paid to 399 employees. The remaining severance liability of $4.5
million at December 31, 2000 reflects the above transactions as well as currency
translation adjustments and the impact of seven employees who were retained, and
is included in Other current liabilities on the Consolidated Balance Sheet.
Management expects the remaining employees to leave by June 30, 2001.
GPU AR has entered into contracts to supply electricity to retail
customers through June 2001. In connection with meeting its supply obligations,
GPU AR has entered into purchase commitments for energy and capacity with
payment obligations totaling approximately $10.6 million as of December 31,
2000. GPU, Inc. has guaranteed these payments, as well as certain other
obligations, up to a maximum of $19 million.
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. 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 requested
recommendations from contract holders for handling
F-108
GPU, Inc. and Subsidiary Companies
the delay. 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.
At December 31, 2000, GPU has recorded a liability of $210 million owed to
the Nuclear Waste Fund, related to spent nuclear fuel generated prior to the
sales of TMI-1 and Oyster Creek to AmerGen. AmerGen has assumed all liability
for disposal costs related to spent nuclear fuel generated following its
purchase of the plants.
On July 26, 2000, GPUN filed suit in the United States Court of Claims
seeking to recover damages as a result of the DOE's failure to commence disposal
of GPUN's spent nuclear fuel on January 31, 1998, as required by the terms of
the Standard Contract between GPUN and DOE. The complaint seeks damages from the
Government in an amount to be determined at trial. GPUN has alleged that it is
entitled to damages attributable to operations at both TMI-1 and Oyster Creek.
The Government has not yet answered the complaint. There can be no assurance as
to the outcome of this matter.
GPU, Inc. and consolidated affiliates have approximately 14,100 employees
worldwide, of whom 10,000 are employed in the US, 3,600 are in the United
Kingdom (UK) and the remaining 500 are in South America and Australia. The
majority of the US workforce is employed by the GPU Energy companies (4,880) and
MYR (4,831), of which approximately 2,900 and 4,000, respectively, are
represented by unions for collective bargaining purposes. In the UK,
approximately 2,300 GPU Power UK employees are represented by unions, and the
terms and conditions of various bargaining agreements are generally reviewed
annually, on April 1. The JCP&L, Met-Ed and Penelec collective bargaining
agreements with the International Brotherhood of Electrical Workers expire on
October 31, 2002, May 1, 2003 and May 14, 2002, respectively. Penelec's
collective bargaining agreement with the Utility Workers Union of America
expires on June 30, 2001.
In January 2001, the GPU Energy companies announced that they were
offering Voluntary Enhanced Retirement Programs (VERP) to certain bargaining
unit employees in Pennsylvania. Approximately 240 employees (Met-Ed 130
employees; Penelec 110 employees) are eligible for the VERP. If all of the
eligible employees accept the offer, a pre-tax charge of approximately $23
million (Met-Ed $12 million; Penelec $11 million) would be recorded in 2001
earnings for the cost of pension and other postretirement benefits, exclusive of
any severance benefits that would be paid to those employees.
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.
F-109
GPU, Inc. and Subsidiary Companies
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 (the adjustments to income for each
of the years presented are described below). 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 and GPUS. For additional information on GPU's organizational
structure and businesses, see preface to the Combined Notes to Consolidated
Financial Statements.
GPU's 2000 non-recurring items totaled a net charge of $103.9 million
after-tax, and consisted of the following: the loss of $276.6 million after-tax
on the sale of GPU PowerNet; the gain of $89.2 million after-tax on the sale of
GPUI; the net increase in income of $40.8 million for the impact of the PaPUC's
Phase II Order; the net gain of $26.2 million after-tax primarily related to a
restructured power supply agreement between a GPU independent power project and
NIMO; and the gain of $16.5 million for the reversal of certain deferred taxes
and realization of an investment tax credit related to the sale of Oyster Creek.
GPU's 1999 non-recurring items totaled a net charge of $25.1 million
after-tax, and consisted of the following: the charge of $68 million after-tax
resulting from a NJBPU Summary Order issued to JCP&L ; the net gain of $36.1
million after-tax on the sales of the GPU Energy companies' generating
facilities, related to wholesale operations; and the gain on the sale of the GPU
Power UK supply business of $6.8 million after-tax.
GPU's 1998 non-recurring items totaled a charge of $65.8 million
after-tax, and consisted of the following: an extraordinary loss of $25.8
million after-tax as a result of the PaPUC's Restructuring Orders and the
discontinued application of FAS 71 with respect to Met-Ed's and Penelec's
electric generation operations; and a charge of $40 million after-tax for
customer refunds and the establishment of a sustainable energy fund, also as a
result of the PaPUC's Restructuring Orders.
F-110
GPU, Inc. and Subsidiary Companies
Business Segment Data (in thousands)
Interest Income
Charges Before Extra- Capital
Depreciation and Income Tax ordinary and Expenditures
Operating and Preferred Expense/ Non-recurring Total and
Revenues Amortization Dividends (Benefit)(a) Items Assets Investments
--------- ----------- --------- --------- ---------- ----------- ----------
2000
Domestic Segments:
Electric Utility Operations (GPU Energy) $3,647,482 $360,201 $213,921 $184,876 $ 267,764 $12,647,529 $276,117
Independ Power Prod (GPU International) (d) 74,440 8,864 2,115 5,135 7,685 - 6,763
Electric Retail Energy Sales (GPU AR) 60,306 - - (853) (1,715) 19,943 -
Telecommunications Infrastructure (GPU Telcom) 10,488 429 - (1,856) (2,635) 104,061 65,664
Construction Services (MYR) (b) 437,679 4,893 7,294 5,879 5,334 354,197 3,883
--------- ------- ------- ------- ------- ---------- -------
Subtotal 4,230,395 374,387 223,330 193,181 276,433 13,125,730 352,427
--------- ------- ------- ------- ------- ---------- -------
Foreign Segments:
Electric/Gas Utility Operations:
(GPU Electric)
Electric Distribution - United Kingdom 594,294 115,643 184,234 35,224 62,277(e) 4,367,405 168,536
Electric Distribution - Argentina 182,502 18,259 32,602 5,829 (846) 635,050 37,541
Electric Transmission - Australia (c) 90,007 19,947 46,822 (10,921) 9,242 - 4,993
Gas Transmission - Australia 56,669 13,748 47,173 (9,929) 4,131 862,939 2,101
Independ Power Prod - S. America (GPU Power) 42,389 6,232 3,371 5,002 8,634 255,166 182
--------- ------- ------- ------- ------- ---------- -------
Subtotal 965,861 173,829 314,202 25,205 83,438 6,120,560 213,353
--------- ------- ------- ------- ------- ---------- --------
Corporate and Eliminations - 43 12,737 (12,432) (22,381) 16,171 4,794
--------- ------- ------- ------- ------- ---------- -------
Consolidated Total $5,196,256 $548,259 $550,269 $205,954 $337,490 $19,262,461 $570,574
========= ======= ======= ======= ======= ========== =======
1999
- ----
Domestic Segments:
Electric Utility Operations (GPU Energy) $3,679,474 $409,215 $209,769 $238,533 $440,881 $13,211,808 $289,025
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 -
Telecommunications Infrastructure (GPU Telcom) 6,347 130 - 58 102 12,243 2,366
--------- ------- ------- ------- ------- ---------- -------
Subtotal 3,853,936 418,746 210,813 245,676 447,762 13,608,055 292,616
--------- ------- ------- ------- ------- ---------- -------
Foreign Segments:
Electric/Gas Utility Operations: (GPU Electric)
Electric Distribution - United Kingdom 504,826 52,847 91,433 21,208 54,836(f) 4,687,476 75,054
Electric Distribution - Argentina 135,938 15,273 23,414 (960) (1,778) 579,907 38,225
Electric Transmission - Australia (c) 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 4,747
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 8,125,863 168,336
--------- ------- ------- ------- ------- ---------- -------
Corporate and Eliminations - - 14,397 - (18,068) (36,086) -
--------- ------- ------- ------- ------- ---------- -------
Consolidated Total $4,757,124 $542,939 $482,497 $257,749 $484,114 $21,697,832 $460,952
========= ======= ======= ======= ======= ========== =======
F-111
GPU, Inc. and Subsidiary Companies
Business Segment Data (in thousands)
Interest Income
Charges Before Extra- Capital
Depreciation and Income Tax ordinary and Expenditures
Operating and Preferred Expense/ Non-recurring Total and
Revenues Amortization Dividends (Benefit)(a) Items Assets Investments
--------- ----------- --------- --------- ---------- ----------- ----------
1998
Domestic Segments:
Electric Utility Operations (GPU Energy) $3,937,139 $469,623 $241,886 $269,838 $367,586 $13,290,138 $326,858
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
Telecommunications Infrastructure (GPU Telcom) 16,115 - - 1,498 2,166 8,119 1,560
--------- ------- ------- ------- ------- ---------- -------
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(g) 617,737 -
Electric Transmission - Australia (c) 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
========= ======= ======= ======= ======= ========== =======
(a) Represents income taxes on income before extraordinary and non-recurring
items.
(b) MYR was acquired in April 2000.
(c) Represents GPU PowerNet, which was sold in June 2000.
(d) GPU International was sold in December 2000.
(e) Includes income from GPU Power UK's investments in independent power
projects accounted for under the equity and cost methods of $29 million.
(f) Includes equity in net income of investee accounted for under the equity
method of $74 million, for the period prior to the consolidation of GPU
Power UK.
(g) Includes equity in net income of investee accounted for under the equity
method of $62 million.
F-112
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, 2000
Allowance for doubtful
accounts $59,927(e) $61,671 $4,619(a) $33,503(b) $92,714
Allowance for inventory
obsolescence 639 102 - 83(c) 658
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
(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 2000 acquisition ($524 relating to
allowance for doubtful accounts) and 1999 acquisitions ($42,711 relating to
the allowance for doubtful accounts and $58 relating to the allowance for
inventory obsolescence). For additional information, see Note 7 of the
Combined Notes to Consolidated Financial Statements.
F-113
Jersey Central Power & Light Company and Subsidiary Company
SELECTED FINANCIAL DATA
(In Millions)
For the Years Ended December 31,
2000(1) 1999(2) 1998 1997 1996(3)
- -------------------------------------------------------------------------------------------
Operating revenues $1,979.3 $2,018.2 $2,069.6 $2,094.0 $2,057.9
Other operation and
maintenance expense 381.8 482.9 485.0 455.0 556.1
Net income 210.8 172.4 222.4 212.0 156.3
Earnings available for
common stock 203.9 162.9 212.4 200.6 143.2
Net utility plant in service 2,056.9 1,729.3 2,538.2 2,664.1 2,717.1
Total assets 6,217.4 5,811.0 4,582.1 4,641.6 4,676.7
Long-term debt 1,094.0 1,133.8 1,173.5 1,173.3 1,173.1
Long-term obligations
under capital leases - - - - 0.1
Company-obligated
mandatorily redeemable
preferred securities 125.0 125.0 125.0 125.0 125.0
Cumulative preferred stock
with mandatory redemption 51.5 73.2 86.5 91.5 114.0
Capital expenditures and
investments 144.4 140.9 154.9 172.2 199.8
Return on average common equity 14.5% 10.7% 13.5% 13.1% 9.5%
(1) Results for 2000 reflect non-recurring income of $16.5 million (after-tax)
resulting from the elimination of deferred taxes and realization of an
investment tax credit related to the sale of the Oyster Creek nuclear
generating plant.
(2) Results for 1999 reflect a non-recurring charge of $68 million (after-tax)
related to the NJBPU Restructuring Order.
(3) Results for 1996 reflect a non-recurring charge of $39.4 million
(after-tax) for costs related to voluntary enhanced retirement programs.
F-114
Jersey Central Power & Light Company and Subsidiary Company
QUARTERLY FINANCIAL DATA (UNAUDITED)
First Quarter Second Quarter
----------------------- ----------------------
In Thousands 2000 1999 2000 1999 (1)
- --------------------------------------------------------------------------------------------
Operating revenues $452,745 $516,889 $490,150 $391,025
Operating income 95,995 113,127 99,553 11,285
Net income/(loss) 45,570 53,697 44,434 (5,855)
Earnings/(loss) available for common stock 43,109 51,265 42,773 (8,225)
Third Quarter Fourth Quarter
----------------------- ----------------------
In Thousands 2000 (2) 1999 2000 (3) 1999 (4)
- --------------------------------------------------------------------------------------------
Operating revenues $605,045 $670,245 $431,357 $440,050
Operating income 135,835 194,846 75,863 46,531
Net income 92,793 102,903 28,015 21,635
Earnings available for common stock 91,402 100,565 26,624 19,257
(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) Results for the third quarter of 2000 include an increase of $16.5 million
after-tax resulting from the elimination of deferred taxes and realization
of an investment tax credit related to the sale of the Oyster Creek nuclear
generating plant.
(3) The aggregate effect on earnings of fourth quarter 2000 adjustments was a
loss of approximately $9.9 million after-tax.
(4) The aggregate effect on earnings of fourth quarter 1999 adjustments was a
gain of approximately $3 million after-tax.
F-115
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, 2000 and
1999, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2000 in conformity with accounting
principles generally accepted in the United States of America. 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 of America, 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 our opinion.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
January 31, 2001
F-116
Jersey Central Power & Light Company and Subsidiary Company
CONSOLIDATED BALANCE SHEETS
(In Thousands)
December 31,
2000 1999
- ------------------------------------------------------------------------------------
ASSETS
Utility Plant:
Utility plant in service $3,269,676 $3,601,695
Accumulated depreciation (1,212,784) (1,872,422)
--------- ---------
Net utility plant in service (Note 1) 2,056,892 1,729,273
Construction work in progress 75,201 80,671
Other, net 13,311 14,781
--------- ---------
Net utility plant 2,145,404 1,824,725
--------- ---------
Other Property and Investments:
Nuclear decommissioning trusts, at market (Note 12) 115,311 394,941
Nuclear fuel disposal trust, at market 126,336 119,293
Other, net 6,342 1,252
--------- ---------
Total other property and investments 247,989 515,486
--------- ---------
Current Assets:
Cash and temporary cash investments 801 68,684
Special deposits 1,220 1,035
Accounts receivable:
Customers, less provision for doubtful accounts
of $21,479 for 2000 and $6,056 for 1999 156,358 164,099
Affiliates 28,853 34,992
Other 38,107 34,696
Unbilled revenues (Note 1) 80,864 78,251
Fuel inventory, at average cost or less 508 240
Deferred income taxes (Note 8) 20,669 1,652
Prepayments 96,916 23,000
--------- ---------
Total current assets 424,296 406,649
--------- ---------
Deferred Debits and Other Assets:
Regulatory assets, net (Notes 1 & 12) 3,185,072 2,810,854
Deferred income taxes (Note 8) 187,632 221,668
Other 26,962 31,615
--------- ---------
Total deferred debits and other assets 3,399,666 3,064,137
--------- ---------
Total Assets $6,217,355 $5,810,997
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
F-117
Jersey Central Power & Light Company and Subsidiary Company
CONSOLIDATED BALANCE SHEETS
(In Thousands)
December 31,
2000 1999
- ------------------------------------------------------------------------------------
LIABILITIES AND CAPITALIZATION
Capitalization:
Common stock $ 153,713 $ 153,713
Capital surplus 510,769 510,769
Retained earnings 794,786 720,878
Accumulated other comprehensive income/(loss) (8) 7
--------- ---------
Total common stockholder's equity (Note 5) 1,459,260 1,385,367
Cumulative preferred stock: (Note 4)
With mandatory redemption 51,500 73,167
Without mandatory redemption 12,649 12,649
Company-obligated mandatorily redeemable
preferred securities (Note 4) 125,000 125,000
Long-term debt (Note 3) 1,093,987 1,133,760
--------- ---------
Total capitalization 2,742,396 2,729,943
--------- ---------
Current Liabilities:
Securities due within one year (Notes 3 & 4) 50,847 50,846
Notes payable (Note 2) 29,200 -
Obligations under capital leases (Note 11) - 48,165
Accounts payable:
Affiliates 98,526 60,527
Other 95,988 82,355
Taxes accrued 8,836 13,079
Interest accrued 23,625 24,523
Other 37,786 36,169
--------- ---------
Total current liabilities 344,808 315,664
--------- ---------
Deferred Credits and Other Liabilities:
Deferred income taxes (Note 8) 866,058 570,568
Unamortized investment tax credits 17,087 32,114
Power purchase contract loss liability (Note 12) 1,699,473 1,624,769
Nuclear fuel disposal fee 156,959 148,009
Three Mile Island Unit 2 future costs (Note 12) 128,735 124,241
Other 261,839 265,689
--------- ---------
Total deferred credits and other liabilities 3,130,151 2,765,390
--------- ---------
Commitments and Contingencies (Note 12)
Total Liabilities and Capitalization $6,217,355 $5,810,997
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
F-118
Jersey Central Power & Light Company and Subsidiary Company
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands)
For The Years Ended December 31,
2000 1999 1998
- ----------------------------------------------------------------------------------------------
Operating Revenues (Note 1) $1,979,297 $2,018,209 $2,069,648
---------- ---------- ----------
Operating Expenses:
Fuel 19,886 91,044 86,431
Power purchased and interchanged:
Affiliates 48,131 127,406 57,643
Others 1,052,108 670,538 658,742
Deferred costs, net (Note 1) (229,321) (38,108) (25,542)
Other operation and maintenance (Note 9) 381,848 482,874 485,054
Depreciation and amortization (Note 1) 235,001 241,842 250,675
Taxes, other than income taxes (Note 9) 64,398 76,824 94,586
---------- ---------- ----------
Total operating expenses 1,572,051 1,652,420 1,607,589
---------- ---------- ----------
Operating Income 407,246 365,789 462,059
---------- ---------- ----------
Other Income and Deductions:
Allowance for other funds used during construction 719 - 786
Other income, net 27,234 12,461 13,227
---------- ---------- ----------
Total other income and deductions 27,953 12,461 14,013
---------- ---------- ----------
Income Before Interest Charges 435,199 378,250 476,072
---------- ---------- ----------
Interest Charges:
Long-term debt and notes payable 93,888 95,325 95,361
Company-obligated mandatorily
redeemable preferred securities 10,700 10,700 10,700
Other interest 1,211 650 4,129
Allowance for borrowed funds used during
construction (1,287) (1,775) (1,638)
---------- ---------- ----------
Total interest charges 104,512 104,900 108,552
---------- ---------- ----------
Income Before Income Taxes 330,687 273,350 367,520
Income taxes (Note 8) 119,875 100,970 145,078
---------- ---------- ----------
Net Income 210,812 172,380 222,442
Preferred stock dividends 6,904 8,670 10,065
Loss on preferred stock reacquisition - 848 -
Earnings Available for Common Stock $ 203,908 $ 162,862 $ 212,377
========== ========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
F-119
Jersey Central Power & Light Company and Subsidiary Company
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands)
For The Years Ended December 31,
2000 1999 1998
- ----------------------------------------------------------------------------------------------
Net income $210,812 $172,380 $222,442
---------- ---------- ----------
Other comprehensive income/(loss), net of tax: (Note 5)
Net unrealized gain on investments - 7 -
Minimum pension liability (15) 425 (425)
---------- ---------- ----------
Total other comprehensive income/(loss) (15) 432 (425)
---------- ---------- ----------
Comprehensive income $210,797 $172,812 $222,017
========== ========== ==========
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(In Thousands)
For The Years Ended December 31,
2000 1999 1998
- ---------------------------------------------------------------------------------------------
Balance at beginning of year $ 720,878 $ 893,016 $ 875,639
Net income 210,812 172,380 222,442
---------- ---------- ----------
Total 931,690 1,065,396 1,098,081
---------- ---------- ----------
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)
8.48% Series I ($8.48 a share) - - (212)
8.65% Series J ($8.65 a share) (3,843) (4,325) (4,325)
7.52% Series K ($7.52 a share) (2,561) (2,683) (3,058)
Common stock (not declared on a
per share basis) (130,000) (335,000) (195,000)
---------- ---------- ----------
Total (136,904) (343,670) (205,065)
---------- ---------- ----------
Loss on preferred stock reacquisition - (848) -
---------- ---------- ----------
Balance at end of year $ 794,786 $ 720,878 $ 893,016
========== ========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
F-120
Jersey Central Power & Light Company and Subsidiary Company
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
For The Years Ended December 31,
2000 1999 1998
- ---------------------------------------------------------------------------------------------
Operating Activities:
Net income $ 210,812 172,380 $ 222,442
Adjustments to reconcile income to cash provided:
Depreciation and amortization 269,564 272,284 277,950
Provision for doubtful accounts 25,732 9,549 4,670
Regulatory assets, net (167,331) (7,271) 26,947
Amortization of property under capital leases 11,472 29,507 26,739
NJBPU restructuring rate order - 115,000 -
Loss on sale of investments 1,163 - -
Nuclear outage maintenance costs, net - - (6,640)
Deferred income taxes and investment tax
credits, net 255,453 (96,183) (41,865)
Deferred costs, net (229,321) (37,841) (24,482)
Allowance for other funds used during
construction (719) - (786)
Changes in working capital:
Receivables (20,105) (57,943) (11,106)
Materials and supplies (268) 46,023 3,863
Special deposits and prepayments (74,099) 9,660 (12,450)
Payables and accrued liabilities 20,076 (19,861) (12,275)
Due to/from affiliates 44,136 (6,755) 10,722
Nonutility generation contract buyout costs - (35,500) (15,000)
Other, net 4,259 (14,605) (13,856)
--------- --------- ----------
Net cash provided by operating activities 350,824 378,444 434,873
--------- --------- ----------
Investing Activities:
Capital expenditures (144,389) (140,915) (154,918)
Proceeds from sale of investments 74,797 413,753 -
Contributions to decommissioning trusts (130,444) (59,175) (28,003)
Other, net (624) (2,162) (10,720)
--------- --------- ----------
Net cash provided/(required) by
investing activities (200,660) 211,501 (193,641)
--------- --------- ----------
Financing Activities:
Increase/(decrease) in notes payable, net 29,200 (122,344) 7,090
Retirement of long-term debt (40,000) (12) (11)
Capital lease principal payments (48,515) (27,347) (29,084)
Redemption of preferred stock (21,667) (30,940) (15,000)
Dividends paid on preferred stock (7,065) (7,468) (10,371)
Dividends paid on common stock (130,000) (335,000) (195,000)
--------- --------- ----------
Net cash required by financing activities (218,047) (523,111) (242,376)
--------- --------- ----------
Net increase/(decrease) in cash and temporary cash
investments from above activities (67,883) 66,834 (1,144)
Cash and temporary cash investments, beginning of year 68,684 1,850 2,994
--------- --------- ----------
Cash and temporary cash investments, end of year $ 801 $ 68,684 $ 1,850
========= ========= =========
Supplemental Disclosure:
Interest and preferred dividends paid $ 110,661 $ 115,624 $ 116,942
========= ========= =========
Income taxes paid/(refunded) $ (50,105) $ 189,304 $ 192,335
========= ========= =========
New capital lease obligations incurred $ 41,580 $ 9,407 $ 32,680
========= ========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
F-121
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, 2000
Allowance for doubtful
accounts $6,056 $25,732 $ 2,427(a) $12,736(b) $21,479
Allowance for inventory
obsolescence - - - - -
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) -
(a) Recovery of accounts previously written off.
(b) Accounts receivable written off.
(c) Inventory written off.
F-122
Metropolitan Edison Company and Subsidiary Companies
SELECTED FINANCIAL DATA
(In Millions)
For the Years Ended December 31,
2000(1) 1999(2) 1998(3) 1997 1996(4)
- --------------------------------------------------------------------------------------------
Operating revenues $ 842.3 $ 902.8 $ 919.6 $ 943.1 $ 910.4
Other operation
and maintenance expense 91.5 250.2 247.2 228.3 250.0
Income before
extraordinary item 81.9 95.1 57.7 93.5 69.1
Net income 81.9 95.1 50.9 93.5 69.1
Earnings available for
common stock 81.9 94.5 50.4 93.0 71.8
Net utility plant in service 1,094.7 1,059.4 1,239.2 1,492.0 1,455.7
Total assets 3,161.4 3,488.2 4,065.0 2,509.8 2,447.0
Long-term debt 496.9 496.9 546.9 576.9 563.3
Long-term obligations
under capital leases - - - - 0.4
Company-obligated
mandatorily redeemable
preferred securities - - 100.0 100.0 100.0
Company-obligated trust
preferred securities 100.0 100.0 - - -
Capital expenditures and
investments 58.5 66.4 75.1 87.6 76.7
Return on average common equity 16.1% 13.9% 7.5% 12.9% 10.3%
(1) Results for 2000 include a gain of $32 million (after-tax) as a result of
the net impact of the PaPUC's Phase II order.
(2) 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.
(3) 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.
(4) Results for 1996 reflect a non-recurring charge of $15.4 million (after-tax)
for costs related to voluntary enhanced retirement programs.
F-123
Metropolitan Edison Company and Subsidiary Companies
QUARTERLY FINANCIAL DATA (UNAUDITED)
First Quarter Second Quarter
----------------------- ----------------------
In Thousands 2000 1999 2000 1999
- -------------------------------------------------------------------------------------------
Operating revenues $203,056 $229,157 $197,814 $198,010
Operating income 55,319 76,252 19,213 44,623
Net income/(loss) 26,493 32,832 8,667 19,142
Earnings available for common stock 26,493 32,224 8,667 19,142
Third Quarter Fourth Quarter
----------------------- ----------------------
In Thousands 2000 1999 2000 (1) 1999 (2)
- --------------------------------------------------------------------------------------------
Operating revenues $227,442 $280,235 $214,021 $195,425
Operating income 9,844 81,257 84,113 11,116
Net income (3,791) 41,622 50,526 1,527
Earnings available for common stock (3,791) 41,622 50,526 1,527
(1) Results for 2000 include a gain of $32 million (after-tax) as a result of
the net impact of the PaPUC's Phase II order. The aggregate effect on
earnings of other fourth quarter 2000 adjustments was a loss of
approximately $6 million after-tax.
(2) 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.
F-124
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, 2000 and
1999, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2000 in conformity with accounting
principles generally accepted in the United States of America. 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 of America, 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 our opinion.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
January 31, 2001
F-125
Metropolitan Edison Company and Subsidiary Companies
CONSOLIDATED BALANCE SHEETS
(In Thousands)
December 31,
2000 1999
- ------------------------------------------------------------------------------------
ASSETS
Utility Plant:
Utility plant in service $1,561,252 $1,522,100
Accumulated depreciation (489,607) (462,709)
--------- ---------
Net utility plant in service (Note 1) 1,071,645 1,059,391
Construction work in progress 22,437 25,329
Other, net 596 643
--------- ---------
Net utility plant 1,094,678 1,085,363
--------- ---------
Other Property and Investments:
Nuclear decommissioning trusts, at market (Note 12) 154,068 144,261
Other, net 4,472 3,010
--------- ---------
Total other property and investments 158,540 147,271
--------- ---------
Current Assets:
Cash and temporary cash investments 3,234 10,899
Special deposits 205 160
Accounts receivable:
Customers, less provision for doubtful accounts
of 13,004 for 2000, and 4,757 for 1999 70,118 60,188
Affiliates 49,731 77,067
Other 28,525 46,377
Unbilled revenues (Note 1) 38,688 28,956
Deferred income taxes (Note 8) 1,838 2,945
Prepayments 7,556 16,715
--------- ---------
Total current assets 199,895 243,307
--------- ---------
Deferred Debits and Other Assets:
Regulatory assets, net (Notes 1 & 12) 1,227,981 1,232,865
Deferred income taxes (Note 8) 447,868 738,189
Other 32,417 41,198
--------- ---------
Total deferred debits and other assets 1,708,266 2,012,252
--------- ---------
Total Assets $3,161,379 $3,488,193
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
F-126
Metropolitan Edison Company and Subsidiary Companies
CONSOLIDATED BALANCE SHEETS
(In Thousands)
December 31,
2000 1999
- ------------------------------------------------------------------------------------
LIABILITIES AND CAPITALIZATION
Capitalization:
Common stock $ 66,273 $ 66,273
Capital surplus 400,200 400,200
Retained earnings 70,476 13,581
Accumulated other comprehensive income 64 21,363
--------- ---------
Total common stockholder's equity (Note 5) 537,013 501,417
Company-obligated trust preferred securities 100,000 100,000
Long-term debt (Note 3) 496,860 496,883
--------- ---------
Total capitalization 1,133,873 1,098,300
--------- ---------
Current Liabilities:
Securities due within one year (Note 3) 27 50,025
Notes payable (Note 2) 46,600 -
Accounts payable:
Affiliates 69,462 125,179
Other 37,399 30,106
Taxes accrued 20,768 35,976
Interest accrued 14,375 16,738
Other 13,858 18,208
--------- ---------
Total current liabilities 202,489 276,232
--------- ---------
Deferred Credits and Other Liabilities:
Deferred income taxes (Note 8) 728,344 993,427
Unamortized investment tax credits 14,159 15,010
Power purchase contract loss liability (Note 12) 727,503 735,833
Three Mile Island Unit 2 future costs (Note 12) 257,367 248,381
Nuclear fuel disposal fee 35,456 33,430
Other 62,188 87,580
--------- ---------
Total deferred credits and other liabilities 1,825,017 2,113,661
--------- ---------
Commitments and Contingencies (Note 12)
Total Liabilities and Capitalization $3,161,379 $3,488,193
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
F-127
Metropolitan Edison Company and Subsidiary Companies
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands)
For The Years Ended December 31,
2000 1999 1998
- --------------------------------------------------------------------------------------------
Operating Revenues (Note 1) $842,333 $902,827 $919,594
------- ------- -------
Operating Expenses:
Fuel - 86,156 99,511
Power purchased and interchanged:
Affiliates 2,328 3,415 17,766
Others 468,742 221,516 220,095
Other operation and maintenance (Note 9) 91,456 250,220 247,189
Depreciation and amortization (Note 1) 68,695 88,989 109,148
Taxes, other than income taxes (Note 9) 42,623 39,283 58,459
------- ------- -------
Total operating expenses 673,844 689,579 752,168
------- ------- -------
Operating Income 168,489 213,248 167,426
------- ------- -------
Other Income and Deductions:
Allowance for other funds used during construction 28 164 130
Other income/(expense), net 12,169 3,901 (13,539)
------- ------- -------
Total other income and deductions 12,197 4,065 (13,409)
------- ------- -------
Income Before Interest Charges 180,686 217,313 154,017
------- ------- -------
Interest Charges:
Long-term debt and notes payable 45,866 45,996 47,557
Company-obligated trust preferred securities 6,656 4,369 -
Company-obligated mandatorily
redeemable preferred securities - 8,950 9,000
Other interest 2,658 2,527 3,130
Allowance for borrowed funds used during
construction (477) (1,048) (813)
------- ------- -------
Total interest charges 54,703 60,794 58,874
------- ------- -------
Income Before Income Taxes 125,983 156,519 95,143
Income taxes (Note 8) 44,088 61,396 37,423
------- ------- -------
Income Before Extraordinary Item 81,895 95,123 57,720
Extraordinary item (net of income taxes
of $4,708) (Note 6) - - (6,805)
------- ------- -------
Net Income 81,895 95,123 50,915
Preferred stock dividends - 66 483
Loss on preferred stock reacquisition - 542 -
------- ------- -------
Earnings Available for Common Stock $ 81,895 $ 94,515 $ 50,432
======= ======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
F-128
Metropolitan Edison Company and Subsidiary Companies
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands)
For The Years Ended December 31,
2000 1999 1998
- ---------------------------------------------------------------------------------------------
Net income $ 81,895 $ 95,123 $ 50,915
------- ------- -------
Other comprehensive income/(loss), net of tax: (Note 5)
Net unrealized gain/(loss) on investments (21,295) 4,315 4,148
Minimum pension liability (4) 528 (115)
------- ------- --------
Total other comprehensive income/(loss) (21,299) 4,843 4,033
------- ------- -------
Comprehensive income $ 60,596 $ 99,966 $ 54,948
======= ======= =======
The net unrealized loss on investments, reflected above for 2000, is due
to the reclassification of previous unrealized gains totaling $21.2 million,
from Accumulated other comprehensive income to Regulatory assets, net on the
Consolidated Balance Sheets. See Nuclear Plant Retirement Costs section of Note
12, Commitments and Contingencies.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(In Thousands)
For The Years Ended December 31,
2000 1999 1998
- --------------------------------------------------------------------------------------------
Balance at beginning of year $ 13,581 $234,066 $268,634
Net income 81,895 95,123 50,915
------- ------- -------
Total 95,476 329,189 319,549
------- ------- -------
Cash dividends on capital stock:
Cumulative preferred stock (at the annual rates indicated below):
3.90% Series ($3.90 a share) - (34) (251)
4.35% Series ($4.35 a share) - (14) (98)
3.85% Series ($3.85 a share) - (5) (36)
3.80% Series ($3.80 a share) - (4) (30)
4.45% Series ($4.45 a share) - (9) (68)
Common stock (not declared on a
per share basis) (25,000) (315,000) (85,000)
------- ------- -------
Total (25,000) (315,066) (85,483)
------- ------- -------
Loss on preferred stock reacquisition - (542) -
------- ------- -------
Balance at end of year $ 70,476 $ 13,581 $234,066
======= ======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
F-129
Metropolitan Edison Company and Subsidiary Companies
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
For The Years Ended December 31,
2000 1999 1998
- -------------------------------------------------------------------------------------------
Operating Activities:
Net income $ 81,895 $ 95,123 $ 50,915
Extraordinary item (net of income tax
benefit of $4,708) - - 6,805
-------- -------- -------
Income before extraordinary item 81,895 95,123 57,720
Adjustments to reconcile income to cash provided:
Depreciation and amortization 74,379 91,575 114,961
Provision for doubtful accounts 18,511 7,095 5,673
Regulatory assets, net 15,941 33,987 (44,890)
Amortization of property under capital leases - 12,041 14,666
PaPUC restructuring rate orders (44,580) - 32,900
Gain/(loss) on sale of investments 575 (2,011) -
Nuclear outage maintenance costs, net - (7,595) 6,494
Deferred income taxes and investment tax
credits, net 21,631 (79,142) (23,152)
Allowance for other funds used during
construction - (164) (130)
Changes in working capital:
Receivables (12,499) (53,810) (5,238)
Materials and supplies - 36,944 (1,911)
Special deposits and prepayments 9,115 4,803 (13,861)
Payables and accrued liabilities (14,656) (80,141) 10,445
Due to/from affiliates (28,352) (5,013) 1,332
Nonutility generation contract buyout costs (1,250) (55,034) (32,917)
Other, net (36,313) (103,006) 51,456
-------- -------- -------
Net cash provided/(required) by
operating activities 84,397 (104,348) 173,548
-------- -------- -------
Investing Activities:
Capital expenditures (58,481) (66,388) (75,068)
Proceeds from sale of investments 3,519 641,273 -
Contributions to decommissioning trusts (8,700) (33,556) (17,766)
Other, net - (45) 465
-------- -------- -------
Net cash provided/(required) by
investing activities (63,662) 541,284 (92,369)
-------- -------- -------
Financing Activities:
Issuance of company-obligated trust preferred
securities - 96,535 -
Increase/(decrease) in notes payable, net 46,600 (79,540) 12,261
Retirement of long-term debt (50,000) (30,024) (22)
Capital lease principal payments - (15,786) (13,609)
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)
Dividends paid on common stock (25,000) (315,000) (85,000)
-------- -------- -------
Net cash required by financing activities (28,400) (426,479) (86,853)
-------- -------- -------
Net increase/(decrease) in cash and temporary cash
investments from above activities (7,665) 10,457 (5,674)
Cash and temporary cash investments, beginning of year 10,899 442 6,116
-------- -------- -------
Cash and temporary cash investments, end of year $ 3,234 $ 10,899 $ 442
======== ======== =======
Supplemental Disclosure:
Interest and preferred dividends paid $ 54,107 $ 59,380 $ 57,891
======== ======== =======
Income taxes paid $ 45,534 $ 120,277 $ 77,296
======== ======== =======
New capital lease obligations incurred $ - $ 18,840 $ 3,399
======== ======== =======
The accompanying notes are an integral part of the consolidated financial
statements.
F-130
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, 2000
Allowance for doubtful
accounts $4,757 $18,511 $ 1,602(a) $11,866(b) $13,004
Allowance for inventory
obsolescence - - - - -
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(d) -
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)(c) 1,260(d) 160
(a) Recovery of accounts previously written off.
(b) Accounts receivable written off.
(c) Sale of inventory previously written off.
(d) Inventory written off.
F-131
Pennsylvania Electric Company and Subsidiary Companies
SELECTED FINANCIAL DATA
(In Millions)
For the Years Ended December 31,
2000(1) 1999(2) 1998(3) 1997 1996(4)
- -------------------------------------------------------------------------------------------
Operating revenues $ 901.9 $ 922.0 $1,032.2 $1,052.9 $1,019.6
Other operation and
maintenance expense 148.7 248.0 275.1 258.4 293.9
Income before
extraordinary item 39.3 152.5 58.6 95.0 69.8
Net income 39.3 152.5 39.6 95.0 69.8
Earnings available
for common stock 39.3 151.6 38.9 94.4 73.9
Net utility plant in service 1,203.2 1,179.9 1,626.5 1,720.8 1,715.7
Total assets 3,048.1 3,695.8 4,524.8 2,563.0 2,503.4
Long-term debt 517.8 424.6 626.4 676.4 656.5
Long-term obligations
under capital leases 1.7 2.2 2.6 3.3 4.1
Company-obligated
mandatorily redeemable
preferred securities - - 105.0 105.0 105.0
Company-obligated trust
preferred securities 100.0 100.0 - - -
Capital expenditures and
investments 73.2 78.3 89.6 99.1 114.7
Return on average common equity 8.8% 26.6% 5.0% 12.1% 10.0%
(1) Results for 2000 include a gain of $8.8 million (after-tax) as a result of
the net impact of the PaPUC's Phase II order.
(2) 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.
(3) 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.
(4) Results for 1996 reflect a non-recurring charge of $19.7 million
(after-tax) for costs related to voluntary enhanced retirement programs.
F-132
Pennsylvania Electric Company and Subsidiary Companies
QUARTERLY FINANCIAL DATA (UNAUDITED)
First Quarter Second Quarter
----------------------- ---------------------
In Thousands 2000 1999 (1) 2000 1999
- ------------------------------------------------------------------------------------------
Operating revenues $220,105 $246,249 $206,789 $205,097
Operating income 53,632 72,642 14,678 45,009
Net income/(loss) 26,942 65,490 4,539 19,945
Earnings available for common stock 26,942 64,610 4,539 19,945
Third Quarter Fourth Quarter
----------------------- ---------------------
In Thousands 2000 1999 2000 (3) 1999 (2)
- --------------------------------------------------------------------------------------------
Operating revenues $236,729 $254,609 $238,258 $216,010
Operating income (11,067) 41,613 48,428 32,336
Net income (14,009) 22,515 21,778 44,541
Earnings/(loss) available for common stock (14,009) 22,515 21,778 44,541
(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 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.
(3) Results for the fourth quarter of 2000 include an after-tax gain of $8.8
million for the net impact of the PaPUC's Phase II order. The aggregate
effect on earnings of other fourth quarter 2000 adjustments was a loss of
approximately $1.7 million after-tax.
F-133
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, 2000 and
1999, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2000 in conformity with accounting
principles generally accepted in the United States of America. 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 of America, 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 our opinion.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
January 31, 2001
F-134
Pennsylvania Electric Company and Subsidiary Companies
CONSOLIDATED BALANCE SHEETS
(In Thousands)
December 31,
2000 1999
- ------------------------------------------------------------------------------------
ASSETS
Utility Plant:
Utility plant in service $1,791,594 $1,732,386
Accumulated depreciation (588,377) (552,449)
--------- ---------
Net utility plant in service (Note 1) 1,203,217 1,179,937
Construction work in progress 25,895 30,329
Other, net 2,665 2,704
--------- ---------
Net utility plant 1,231,777 1,212,970
--------- ---------
Other Property and Investments:
Nonutility generation trusts, at market 190,710 266,700
Nuclear decommissioning trusts, at market (Note 12) 98,426 97,082
Other, net 833 1,233
--------- ---------
Total other property and investments 289,969 365,015
--------- ---------
Current Assets:
Cash and temporary cash investments 250 32,250
Special deposits 330 233
Accounts receivable:
Customers, less provision for doubtful accounts
of $14,851 for 2000 and $5,288 for 1999 78,001 69,752
Affiliates 25,073 15,546
Other 21,205 24,658
Unbilled revenues (Note 1) 39,514 30,836
Deferred income taxes (Note 8) 1,912 7,589
Prepayments 11,869 15,484
--------- ---------
Total current assets 178,154 196,348
--------- ---------
Deferred Debits and Other Assets:
Regulatory assets, net: (Notes 1 & 12) 619,951 672,527
Deferred income taxes (Note 8) 708,954 1,225,150
Other 19,314 23,781
--------- ---------
Total deferred debits and other assets 1,348,219 1,921,458
--------- ---------
Total Assets $3,048,119 $3,695,791
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
F-135
Pennsylvania Electric Company and Subsidiary Companies
CONSOLIDATED BALANCE SHEETS
(In Thousands)
December 31,
2000 1999
- ------------------------------------------------------------------------------------
LIABILITIES AND CAPITALIZATION
Capitalization:
Common stock $ 105,812 $ 105,812
Capital surplus 320,487 285,486
Retained earnings 43,515 59,265
Accumulated other comprehensive income 23 10,619
--------- ---------
Total common stockholder's equity (Note 5) 469,837 461,182
Company-obligated trust preferred securities 100,000 100,000
Long-term debt (Note 3) 517,813 424,641
--------- ---------
Total capitalization 1,087,650 985,823
--------- ---------
Current Liabilities:
Securities due within one year (Note 3) 14 13
Notes payable (Note 2) 55,800 53,600
Obligations under capital leases (Note 11) 485 -
Accounts payable:
Affiliates 29,788 66,223
Other 50,673 34,845
Taxes accrued 23,895 108,005
Interest accrued 11,582 6,588
Other 6,880 17,567
--------- ---------
Total current liabilities 179,117 286,841
--------- ---------
Deferred Credits and Other Liabilities:
Deferred income taxes (Note 8) 735,750 1,250,490
Unamortized investment tax credits 13,098 14,240
Power purchase contract loss liability (Note 12) 846,992 940,276
Three Mile Island Unit 2 future costs (Note 12) 128,820 124,322
Nuclear fuel disposal fee 17,728 16,717
Other 38,964 77,082
--------- ---------
Total deferred credits and other liabilities 1,781,352 2,423,127
--------- ---------
Commitments and Contingencies (Note 12)
Total Liabilities and Capitalization $3,048,119 $3,695,791
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
F-136
Pennsylvania Electric Company and Subsidiary Companies
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands)
For The Years Ended December 31,
2000 1999 1998
- ------------------------------------------------------------------------------------------
Operating Revenues (Note 1) $ 901,881 $ 921,965 $1,032,226
--------- --------- ---------
Operating Expenses:
Fuel - 82,397 176,548
Power purchased and interchanged:
Affiliates 2,634 6,422 2,729
Others 542,483 273,082 233,395
Other operation and maintenance (Note 9) 148,698 248,034 275,107
Depreciation and amortization (Note 1) 56,505 78,384 109,800
Taxes, other than income taxes (Note 9) 45,890 42,046 63,874
--------- --------- ---------
Total operating expenses 796,210 730,365 861,453
--------- --------- ---------
Operating Income 105,671 191,600 170,773
--------- --------- ---------
Other Income and Deductions:
Allowance for other funds used during construction - 268 -
Other income/(expense), net 11,135 59,081 (6,429)
--------- --------- ---------
Total other income and deductions 11,135 59,349 (6,429)
--------- --------- ---------
Income Before Interest Charges 116,806 250,949 164,344
--------- --------- ---------
Interest Charges:
Long-term debt and notes payable 36,839 34,588 54,907
Company-obligated trust preferred securities 7,034 3,976 -
Company-obligated mandatorily
redeemable preferred securities - 4,977 9,188
Other interest 4,671 1,608 1,019
Allowance for borrowed funds used during
construction (742) (1,074) (1,897)
--------- --------- ---------
Total interest charges 47,802 44,075 63,217
--------- --------- ---------
Income Before Income Taxes 69,004 206,874 101,127
Income taxes (Note 8) 29,754 54,383 42,537
--------- --------- ---------
Income Before Extraordinary Item 39,250 152,491 58,590
Extraordinary item (net of income taxes
of $11,592) (Note 6) - - (18,950)
--------- --------- ---------
Net Income 39,250 152,491 39,640
Preferred stock dividends - 154 695
Loss on preferred stock reacquisition - 726 -
--------- --------- ---------
Earnings Available for Common Stock $ 39,250 $ 151,611 $ 38,945
========= ========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
F-137
Pennsylvania Electric Company and Subsidiary Companies
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands)
For The Years Ended December 31,
2000 1999 1998
- --------------------------------------------------------------------------------------------
Net income $ 39,250 $152,491 $ 39,640
------- ------- -------
Other comprehensive income/(loss), net of tax: (Note 5)
Net unrealized gains/(loss) on investments (10,596) 2,101 2,064
Minimum pension liability - 165 (42)
------- ------- -------
Total other comprehensive income/(loss) (10,596) 2,266 2,022
------- ------- -------
Comprehensive income $ 28,654 $154,757 $ 41,662
======= ======= =======
The net unrealized loss on investments for year 2000 is due to the
reclassification of previous unrealized gains totaling $10.6 million from
Accumulated other comprehensive income to Regulatory assets, net in the
Consolidated Balance Sheets. See Nuclear Plant Retirement Costs section of Note
12, Commitments and Contingencies.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(In Thousands)
For The Years Ended December 31,
2000 1999 1998
- --------------------------------------------------------------------------------------------
Balance at beginning of year $ 59,265 $367,653 $393,708
Net income 39,250 152,491 39,640
------- ------- -------
Total 98,515 520,144 433,348
------- ------- -------
Cash dividends on capital stock:
Cumulative preferred stock (at the annual rates indicated below):
4.40% Series B ($4.40 a share) - (29) (131)
3.70% Series C ($3.70 a share) - (41) (183)
4.05% Series D ($4.05 a share) - (25) (114)
4.70% Series E ($4.70 a share) - (15) (66)
4.50% Series F ($4.50 a share) - (17) (77)
4.60% Series G ($4.60 a share) - (27) (124)
Common stock (not declared on a
per share basis) (55,000) (460,000) (65,000)
------- ------- ------
Total (55,000) (460,154) (65,695)
------- ------- -------
Loss on preferred stock reacquisition - (725) -
------- ------- -------
Balance at end of year $ 43,515 $ 59,265 $367,653
======= ======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
F-138
Pennsylvania Electric Company and Subsidiary Companies
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
For The Years Ended December 31,
2000 1999 1998
- ----------------------------------------------------------------------------------------------
Operating Activities:
Net income $ 39,250 $ 152,491 $ 39,640
Extraordinary item (net of income tax
benefit of $11,592) - - 18,950
-------- --------- ---------
Income before extraordinary item 39,250 152,491 58,590
Adjustments to reconcile income to cash provided:
Depreciation and amortization 56,852 78,072 107,239
Provision for doubtful accounts 20,667 8,447 5,826
Regulatory assets, net (38,578) (46,839) (48,016)
Amortization of property under capital leases - 6,036 7,319
PaPUC restructuring rate orders (21,550) - 35,600
Gain on sale of investments (4,882) (59,313) -
Nuclear outage maintenance costs, net - (3,803) 3,251
Deferred income taxes and investment tax
credits, net 14,804 (417,559) (15,496)
Allowance for other funds used during construction (742) (268) -
Changes in working capital:
Receivables (30,228) (28,343) (7,601)
Materials and supplies - 56,559 (1,310)
Special deposits and prepayments 3,518 18,466 (1,878)
Payables and accrued liabilities (73,976) 29,484 16,709
Due to/from affiliates (45,963) 14,577 21,466
Nonutility generation contract buyout costs (4,410) (3,500) (6,101)
Other, net (31,283) (69,964) 16,537
-------- --------- ---------
Net cash provided/(required) by
operating activities (116,521) (265,457) 192,135
-------- --------- ---------
Investing Activities:
Capital expenditures (73,247) (78,331) (89,550)
Proceeds from sale of investments - 1,493,444 -
Contributions to nonutility generation trusts 75,991 (266,701) -
Contributions to decommissioning trusts (40) (75,926) (5,270)
Other, net 6,617 1,002 (520)
-------- --------- ---------
Net cash provided/(required) by
investing activities 9,321 1,073,488 (95,340)
-------- --------- ---------
Financing Activities:
Issuance of company-obligated trust
preferred securities - 96,535 -
Issuance of long-term debt 118,000 348,218 -
Increase/(Decrease) in notes payable, net 2,200 (32,423) 8,442
Contributions from parent 35,000 - -
Retirement of long-term debt (25,000) (600,011) (30,011)
Capital lease principal payments - (7,907) (6,781)
Redemption of preferred stock - (17,406) -
Redemption of company-obligated mandatorily
redeemable preferred securities - (105,383) -
Dividends paid on preferred stock - (154) (695)
Dividends paid on common stock (55,000) (460,000) (65,000)
-------- --------- ---------
Net cash provided/(required) by
financing activities 75,200 (778,531) (94,045)
-------- --------- ---------
Net increase/(decrease) in cash and temporary cash
investments from above activities (32,000) 29,500 2,750
Cash and temporary cash investments, beginning of year 32,250 2,750 -
-------- --------- ---------
Cash and temporary cash investments, end of year $ 250 $ 32,250 $ 2,750
======== ========= =========
Supplemental Disclosure:
Interest and preferred dividends paid $ 40,443 $ 55,779 $ 64,057
======== ========= =========
Income taxes paid $ 110,395 $ 413,810 $ 46,732
======== ========= =========
New capital lease obligations incurred $ - $ 9,415 $ 1,714
======== ========= =========
The accompanying notes are an integral part of the consolidated financial statements.
F-139
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, 2000
Allowance for doubtful
accounts $5,288 $20,667 $ 1,539(a) $12,643(b) $14,851
Allowance for inventory
obsolescence - - - - -
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) -
(a) Recovery of accounts previously written off.
(b) Accounts receivable written off.
(c) Inventory written off.
F-140