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, 1996
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)
(formerly General Public Utilities
Corporation)
100 Interpace Parkway
Parsippany, New Jersey 07054-1149
Telephone (201) 263-6500
1-3141 Jersey Central Power & Light Company 21-0485010
(a New Jersey corporation)
2800 Pottsville Pike
Reading, Pennsylvania 19605
Telephone (610) 929-3601
1-446 Metropolitan Edison Company 23-0870160
(a Pennsylvania corporation)
2800 Pottsville Pike
Reading, Pennsylvania 19605
Telephone (610) 929-3601
1-3522 Pennsylvania Electric Company 25-0718085
(a Pennsylvania corporation)
2800 Pottsville Pike
Reading, Pennsylvania 19605
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 & Cumulative Preferred
Light Company Stock, $100 stated value
4% Series New York Stock Exchange
7.88% Series E New York Stock Exchange
Name of each exchange
Registrant Title of each class which registered
Jersey Central Power & First Mortgage Bonds:
Light Company (cont.) 7 1/8% Series due 2004 New York Stock Exchange
6 3/8% Series due 2003 New York Stock Exchange
7 1/2% Series due 2023 New York Stock Exchange
6 3/4% Series due 2025 New York Stock Exchange
Monthly Income Preferred
Securities, 8.56%
Series A, $25 stated
Value (a) New York Stock Exchange
Metropolitan Edison Monthly Income Preferred
Company Securities, 9% Series A,
$25 stated value (b) New York Stock Exchange
Pennsylvania Electric Cumulative Preferred
Company Stock, $100 stated value:
4.40% Series B Philadelphia Stock
Exchange
3.70% Series C Philadelphia Stock
Exchange
4.05% Series D Philadelphia Stock
Exchange
4.70% Series E Philadelphia Stock
Exchange
4.50% Series F Philadelphia Stock
Exchange
4.60% Series G Philadelphia Stock
Exchange
Monthly Income Preferred
Securities, 8 3/4%
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, L.P., and unconditionally guaranteed by
Metropolitan Edison Company.
(c) Issued by Penelec Capital, L.P., and unconditionally guaranteed by
Pennsylvania Electric Company.
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 as of February 3, 1997 was:
Registrant Amount
GPU, Inc. $4,007,836,032
The number of shares outstanding of each of the registrants' classes of
voting stock as of February 3, 1997 was as follows:
Shares
Registrant Title Outstanding
GPU, Inc. Common Stock, $2.50 par value 120,615,517
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 1997 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 43
Item 3. Legal Proceedings 46
Item 4. Submission of Matters to a Vote of Security Holders 46
Part II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters 47
Item 6. Selected Financial Data 47
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 48
Item 8. Financial Statements and Supplementary Data 48
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 48
Part III
Item 10. Directors and Executive Officers of the Registrant 49
Item 11. Executive Compensation 54
Item 12. Security Ownership of Certain Beneficial Owners
and Management 58
Item 13. Certain Relationships and Related Transactions 58
Part IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 59
Signatures 71
PART I
ITEM 1. BUSINESS.
GPU, Inc., a Pennsylvania corporation, organized in 1946, is a holding
company registered under the Public Utility Holding Company Act of 1935 (1935
Act). GPU, Inc. does not operate any utility properties directly, but owns
all of the outstanding common stock of three domestic electric utilities
serving customers in New Jersey - Jersey Central Power & Light Company
(JCP&L), incorporated under the laws of New Jersey in 1925, - and in
Pennsylvania - Metropolitan Edison Company (Met-Ed), a Pennsylvania
corporation incorporated in 1922, and Pennsylvania Electric Company (Penelec),
a Pennsylvania corporation incorporated in 1919. In 1996, the customer
service, transmission and distribution operations of these electric utilities
began doing business under the name GPU Energy. JCP&L, Met-Ed and Penelec
considered together are referred to as the "GPU Energy companies." The
generation operations of these three electric utilities are conducted by GPU
Generation, Inc. (Genco) and GPU Nuclear, Inc. (GPUN). GPU, Inc. also owns
all the common stock of GPU International, Inc., GPU Power, Inc. and GPU
Electric, Inc., which primarily develop, own and operate electric generation,
transmission and distribution facilities and supply businesses in the U.S. and
foreign countries. Collectively, these are referred to as the "GPU
International Group." Corporate functions are performed by GPU Service, Inc.
(GPUS). All of these companies considered together are referred to as "GPU."
The GPU registered holding company system is subject to regulation by the
Securities and Exchange Commission (SEC) under the 1935 Act. Retail rates,
conditions of service, issuance of securities and other matters relating to
the GPU Energy companies 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 construction,
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 GPU International Group foreign subsidiaries are subject to
limited rate and other regulation (see Regulation section).
This Form 10-K contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Statements
made that are not historical facts are forward-looking and, accordingly,
involve risks and uncertainties that could cause actual results or outcomes to
differ materially from those expressed in the forward-looking statements.
Although such forward-looking statements have been based on reasonable
assumptions, there is no assurance that the expected results will be achieved.
Some of the factors that could cause actual results to differ materially
include, but are not limited to: the effects of regulatory decisions; changes
in law and other governmental actions and initiatives; the impact of
deregulation and increased competition in the industry; industry
restructuring; expected outcomes of legal proceedings; generating plant
performance; fuel prices and availability; and uncertainties involved with
foreign operations including political risks and foreign currency
fluctuations.
1
RECENT DEVELOPMENTS
During the past year, there were a number of major developments which are
expected to significantly affect GPU. They are as follows:
- In 1996, GPU and Cinergy Corp. (Cinergy) formed Avon Energy Partners
Holdings (Holdings), a 50/50 joint venture, to acquire Midlands
Electricity plc (Midlands), an English regional electric company. A
wholly-owned subsidiary of Holdings purchased the outstanding shares of
Midlands through a cash tender offer of 1.7 billion pounds, or
approximately U.S. $2.6 billion. GPU's 50% interest in Holdings is held
by EI UK Holdings, Inc. (EI UK), a wholly-owned subsidiary of GPU
Electric, Inc.
At December 31, 1996, EI UK had borrowed approximately 342 million
pounds, or approximately U.S. $586 million, through a GPU, Inc.
guaranteed five-year bank term loan facility, to fund its investment in
Holdings. At December 31, 1996, Holdings had borrowed approximately
1.1 billion pounds, or approximately U.S. $1.8 billion, through a term
loan and revolving credit facility to provide for the balance of the
acquisition price.
Midlands supplies and distributes electricity to 2.2 million customers in
England in an area with a population of five million. Midlands also owns
a generation business that produces electricity domestically and
internationally and a gas supply company that provides natural gas to
8,000 customers in England. In addition, Midlands owns international
generation projects and is pursuing additional international generation
and transmission projects.
- Pennsylvania adopted comprehensive legislation which provides for the
restructuring of the electric utility industry. The legislation, among
other things, permits one-third of Pennsylvania retail consumers to
choose their electric supplier beginning January 1, 1999, and all retail
consumers by January 1, 2001. The legislation requires the unbundling of
rates for transmission, distribution and generation services. Utilities
would have the opportunity to recover their prudently incurred stranded
costs that result from customers choosing another supplier through a
PaPUC approved competitive transition charge, subject to certain
conditions, including that they attempt to mitigate these costs.
The legislation provides utilities the opportunity to reduce their
stranded costs through the sale of transition bonds by a separate trust
or other similar entity, with maturities of up to 10 years. Principal
and interest payments on the bonds would be paid by all distribution
service customers through a nonbypassable intangible transition charge.
Among other things, the sale proceeds could be used to buy out or buy
down uneconomic nonutility generation (NUG) contracts, to reduce
capitalization, or both. Reduced financing costs associated with the
sale of transition bonds would be used to provide rate reductions for all
customers.
Pennsylvania electric utilities are required to submit restructuring
plans to the PaPUC between April 1, 1997 and September 30, 1997. Met-Ed
and Penelec are scheduled to file their respective plans with the PaPUC
on June 1, 1997. The PaPUC is required to conduct public hearings prior
2
to approval of these plans.
Effective January 1, 1997, transmission and distribution rates charged to
Pennsylvania retail customers are generally capped for 4 1/2 years, and
generation rates are generally capped for up to nine years. Transmission
and distribution of electricity will continue as a regulated monopoly and
the PaPUC will ensure that adequate electrical reserves exist to maintain
reliable service. An independent system operator (ISO) will be
responsible for coordinating the generation and transmission of
electricity in an efficient and nondiscriminatory manner.
- The NJBPU released Phase II of the New Jersey Energy Master Plan (NJEMP)
which recommends, among other things, that certain electric retail
customers be permitted to choose their supplier beginning October 1998,
expanding to include all retail customers by April 2001. The NJBPU also
recommends a near-term electric rate reduction of 5% to 10% with the
phase-in of retail competition, and combined with the effects of separate
proposed modifications to the state's energy tax policy, an aggregate
rate reduction of at least 10% to 15% over time.
The NJBPU proposes in this report that utilities have an opportunity to
recover their stranded costs associated with generating capacity
commitments provided that they attempt to mitigate these costs. Also,
NUG contracts which cannot be mitigated would be eligible for stranded
cost recovery. The determination of stranded cost recovery by the NJBPU
would be undertaken on a case-by-case basis, with no guarantee for full
recovery of these costs. A separate market transition charge (MTC) would
be established for each utility to allow utilities to recover stranded
costs over four to eight years. The MTC would be capped to ensure that
customers experience the NJBPU's recommended overall rate reduction of 5%
to 10%. New Jersey is also considering authorizing the sale of
securitized transition bonds as a mechanism to help mitigate stranded
costs.
In addition, the NJBPU is proposing that, beginning October 1998,
utilities unbundle their rates to allow customers to choose their
electric generation supplier. Transmission and distribution of
electricity would continue as a regulated monopoly and utilities would be
responsible for connecting customers to the system and for providing
distribution service. Transmission service would be provided by an ISO,
who would be responsible for maintaining the reliability of the regional
power grid.
The NJBPU intends to issue its final findings and recommendations to the
Governor and the Legislature for their consideration in March 1997. The
NJBPU proposes requiring electric utilities in New Jersey to file for
review, by no later than July 15, 1997, complete restructuring plans,
stranded cost filings and unbundled rate filings, and intends to complete
its review of these filings by October 1998.
- The FERC issued Order 888, which requires utilities to provide open
access to their transmission network, thereby encouraging a fully
competitive wholesale electric power market. It also requires electric
utilities to, among other things: (1) file nondiscriminatory open access
transmission tariffs which would be available to all wholesale sellers
and buyers of electricity; (2) accept service under these new tariffs for
3
their own wholesale transactions; and (3) be permitted to recover their
legitimate and verifiable stranded costs incurred when a wholesale
customer purchases power from another supplier using the utility's
transmission system. While it does not require corporate unbundling
(i.e. the disposing of ancillary services or creating separate affiliates
to manage transmission services), Order 888 does call for functional
unbundling of transmission and ancillary services.
The GPU Energy companies filed pro forma tariffs in accordance with Order
888. These tariffs became effective on July 9, 1996.
The GPU Energy companies, along with six other electric utility members
of the Pennsylvania-New Jersey-Maryland (PJM) Power Pool (together, the
supporting PJM companies), filed with the FERC a transmission tariff and
agreements (including, among other things, establishing an ISO to operate
the energy market and transmission system), that would create a new
wholesale energy market to meet the requirements of Order 888, and to
increase competition in the Mid-Atlantic region.
In response to a FERC order, noting deficiencies and objections to their
initial submission, the PJM companies submitted to the FERC a revised
proposal which represents an interim solution and contains several
unresolved issues for which alternate proposals were presented to the
FERC for resolution. On February 28, 1997, the FERC issued an order
directing PJM to adopt all recommendations proposed by the supporting PJM
companies except with regard to congestion pricing, which the FERC
ordered implementation of PECO Energy's proposal on an interim basis.
The FERC has stated that it expects it will order PJM to adopt the
supporting PJM companies' proposal on congestion pricing after certain
issues are resolved concerning implementation of this proposal. PJM has
begun implementation of the FERC's order and plans to have the
restructured PJM Power Pool and pool-wide open access transmission tariff
operational on April 1, 1997. For additional information, see
Competitive Environment, Management's Discussion and Analysis.
- The GPU Energy companies have successfully bought out and/or entered into
restructured power purchase agreements with all major unbuilt NUG
projects with which they had executed power purchase agreements. Since
early 1995, nine NUG contracts representing 950 MW (JCP&L 300 MW; Met-Ed
490 MW; Penelec 160 MW) have been bought out and/or restructured at more
competitive prices. The GPU Energy companies expect these actions will
save their customers approximately $5.4 billion (JCP&L $1.8 billion; Met-
Ed $2.3 billion; Penelec $1.3 billion) over 25 years.
INDUSTRY DEVELOPMENTS
Electric utility customers have traditionally been served by vertically
integrated regulated monopolies. The electric utility industry is moving away
from a traditional rate regulated environment based on cost recovery to some
combination of a competitive marketplace and modified regulation. The
enactment of the Public Utility Regulatory Policies Act of 1978 (PURPA)
facilitated the entry of competitors into the electric generation business.
The Energy Policy Act of 1992 (EPAct) furthered competition among utilities
and NUGs in the wholesale electric generation market, accelerating industry
restructuring. As discussed earlier, Pennsylvania recently adopted
4
comprehensive legislation which provides for the restructuring of the electric
utility industry, and New Jersey has proposed similar legislation.
Operating in a competitive environment places pressures on utility profit
margins and credit quality. Utilities with significantly higher cost
structures than are supportable in the marketplace will experience reduced
earnings as they attempt to meet their customers' demands for lower-priced
electricity. Competitive forces continue to influence some retail pricing.
In some cases, commercial and industrial customers have indicated their
intention to pursue competitively priced electricity from other providers, and
in some instances have obtained price concessions from utilities. This
prospect of increasing competition in the electric utility industry has
already led the major credit rating agencies to apply more stringent
guidelines in making credit rating determinations.
The combination of the current market price of electricity being below
that of utility owned generation and power purchase commitments, as well as
the ability of some customers to choose their energy suppliers, has created
the potential for stranded costs in the electric utility industry. These
stranded costs, while recoverable in a regulated environment, are at risk in a
deregulated competitive environment. The GPU Energy companies estimate that
their total potential above market costs relating to power purchase
commitments, above market generation costs, generating plant decommissioning
costs and regulatory assets at year end 1998, on a present value basis, could
range from $4.5 billion to $8 billion (JCP&L $2.5 billion to $4 billion;
Met-Ed $1 billion to $2 billion; Penelec $1 billion to $2 billion). The
estimate is subject to significant uncertainties including the future market
price of both electricity and other competitive energy sources, as well as the
timing of when these above market costs become stranded due to customers
choosing another supplier. As discussed below, the restructuring legislation
in Pennsylvania and the proposed restructuring plan in New Jersey provide
mechanisms for utilities to recover, subject to regulatory approval, their
above market costs. These regulatory recovery mechanisms in Pennsylvania and
New Jersey will differ, but should allow for the recovery of non-mitigable
above market costs through either distribution charges or separate
nonbypassable charges to customers.
In response to competitive forces and regulatory changes, GPU is
considering various strategies designed to enhance its competitive position
and to increase its ability to adapt to, and anticipate changes in, its
business. GPU expects that its primary strategic focus will be on the
delivery infrastructure, retail supply and customer services segments of the
electric power industry. To this end, GPU is actively reviewing its portfolio
of assets, particularly nuclear and fossil generating facilities, for
consistency with this strategic focus. GPU is aware that a number of
nonaffiliated utilities in the Northeast and in California are in the process
of selling some or all of their generation assets in response to regulatory
and competitive pressures.
GPU's strategies may also include business combinations with other
companies, internal restructurings involving the complete or partial
separation of its wholesale and retail businesses, acquisitions of other
businesses, and additions to its transmission or distribution businesses. No
assurance can be given as to whether or when any potential transaction of the
type described above may actually occur, or as to the ultimate effect thereof
on the financial condition or competitive position of GPU.
5
OTHER DEVELOPMENTS AND GPU INITIATIVES
During 1996 and early 1997, there were other state and federal regulatory
developments and GPU initiatives relating to competition within the electric
utility industry which are described below:
- The PaPUC has issued a final order that sets forth the guidelines for
retail access pilot programs in Pennsylvania. These pilot programs will
include residential, commercial and industrial class customers, and
utilities are required to commit about 5% of load to retail access
programs and unbundle their rates to allow customers to choose their
electric generation supplier. In March 1997, Met-Ed and Penelec filed
with the PaPUC their plan for a proposed pilot program that would offer
approximately 51,000 (Met-Ed 23,000; Penelec 28,000) customers choice of
their electric generation supplier. The pilot program, which is subject
to PaPUC approval, is anticipated to begin in the fourth quarter of 1997
and will be in effect for at least one year.
- JCP&L is awaiting NJBPU approval of a plan to establish a one-year pilot
program offering customers in Monroe Township, New Jersey a choice of
their electric energy supplier. At the end of the first year, Monroe
Township will have the option of renewing the pilot. Monroe Township had
been exploring the possibility of establishing its own municipal electric
system.
- In early 1997, two pieces of legislation were introduced in Congress
which provide for a comprehensive restructuring of the electric utility
industry, including retail choice for all utility customers beginning as
early as December 2000, the opportunity for utilities to recover their
prudently incurred stranded costs, and repeal of both PURPA and the 1935
Act. It is expected that other similar proposed legislation will be
introduced in Congress during 1997.
- Federal legislation was enacted which, among other things, permits
registered holding company systems to acquire interests in
telecommunications companies. In addition, the SEC has adopted Rule 58
under the 1935 Act which permits registered holding company systems to
engage in a variety of energy-related services without further SEC
authorization. In February 1997, GPU formed a new, nonregulated
subsidiary, GPU Advanced Resources, Inc. (AR). AR's lines of business
may include telecommunications services, energy services and retail
energy sales.
- GPU reduced its total workforce by 8% in 1996 through voluntary enhanced
retirement programs which were accepted by 493 bargaining and 347
nonbargaining employees.
- Met-Ed and Penelec filed tariff supplements with the PaPUC requesting
approval to, among other things, include their currently effective energy
cost rates (ECR) and state tax adjustment surcharges (STAS) in base
rates, effective for all bills rendered after January 1, 1997. On
February 28, 1997, the PaPUC issued a final order approving this request.
- 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
6
established by regulators and charged to customers. If a portion of the
GPU Energy companies' operations continues to be regulated, FAS 71
accounting may only be applied to that portion. Insofar as the GPU
Energy companies are concerned, potentially unrecoverable costs will most
likely be related to generation investment, power purchase contracts, and
regulatory assets, which are deferred accounting transactions whose value
depends on the GPU Energy companies' ability to recover such costs from
their respective customers in the future.
In markets where there is excess capacity (as is currently the case in
the Mid-Atlantic and surrounding regions which include New Jersey and
Pennsylvania) and many available sources of power supply, the market
price of electricity is expected to be lower than what would be necessary
to support full recovery of the investment in the generating facilities.
Also, utilities that are locked into expensive power purchase agreements
may be forced to value the contracts at market prices and recognize
certain losses.
Although the GPU Energy companies continue to be subject to cost-based
ratemaking regulation, in the event that either all or a portion of their
operations are no longer subject to FAS 71 provisions, the related
regulatory assets, net of regulatory liabilities, would have to be
written off and charged to expense. In addition, any above market costs
of power purchase commitments would have to be expensed, and additional
depreciation expense would have to be recorded for any differences
created by the use of a regulated depreciation method that is different
from that which would have been used under generally accepted accounting
principles for enterprises in general. The experience gained from the
deregulation of the telecommunications industry indicates that
substantial write-offs may result with the discontinuation of FAS 71. At
this time, GPU is unable to determine when and to what extent FAS 71 will
no longer be applicable.
THE GPU ENERGY COMPANIES
The electric generating 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 1996, the GPU Energy
companies' revenues were about equally divided between Pennsylvania customers
and New Jersey customers. During 1996, sales to customers by customer class
were as follows:
% Operating Revenues % KWH Sales
Total JCP&L Met-Ed Penelec Total JCP&L Met-Ed Penelec
Residential 42 45 42 37 36 41 36 30
Commercial 35 39 28 33 33 39 27 30
Industrial 21 16 28 27 28 20 35 34
Other* 2 - 2 3 3 - 2 6
100 100 100 100 100 100 100 100
* Rural electric cooperatives, municipalities, street and highway lighting,
and others.
7
The GPU Energy companies also make interchange and spot market sales of
electricity to other utilities. Reference is made to GPU Energy Companies'
Statistics and Company Statistics on pages F-3, F-101, F-111, and F-121, for
additional information concerning GPU's sales and revenues. Revenues of
JCP&L, Met-Ed and Penelec derived from their largest single customers
accounted for less than 3%, 2% and 1%, respectively, of their electric
operating revenues for the year and their 25 largest customers, in the
aggregate, accounted for approximately 9%, 13% and 14%, respectively, of such
revenues.
The area served by the GPU Energy companies extends from the Atlantic
Ocean to Lake Erie, is generally comprised of small communities, rural and
suburban areas and includes a wide diversity of industrial enterprises, as
well as substantial farming areas. JCP&L provides retail service in northern,
western and east central New Jersey, having an estimated population of
approximately 2.5 million. Met-Ed provides retail electric service in all or
portions of 14 counties, in the eastern and south central parts of
Pennsylvania, having an estimated population of almost one million. Met-Ed
also sells electricity at wholesale to four municipalities having an estimated
population of over 11,000. 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 1.5 million, approximately 24% of which
is concentrated in ten cities and twelve boroughs, all with populations over
5,000. Penelec also provides wholesale service to five municipalities in New
Jersey, as well as to Allegheny Electric Cooperative, Inc., which serves 13
rural electric cooperatives in Pennsylvania and one in New Jersey. Penelec,
as lessee of the property of the Waverly Electric Light & Power Company, also
serves a population of about 13,700 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 has submitted a comprehensive restructuring
proposal, which is pending before the FERC. For additional discussion, see
Competitive Environment - Recent Regulatory Actions, Management's Discussion
and Analysis.
GPU INTERNATIONAL GROUP
The GPU International Group has ownership interests in distribution and
supply businesses in England and Australia, ten operating cogeneration plants
in the U.S. totaling 895 MW (of which the GPU International Group's equity
interest represents 261 MW) of capacity, and eleven operating generating
facilities located in foreign countries totaling 2,686 MW (of which the GPU
International Group's equity interest represents 546 MW) of capacity. It has
also made investments in certain advanced technologies related to the electric
power industry.
8
The GPU International Group is continuing to investigate investment
opportunities in various other domestic and foreign power projects and foreign
utility systems and has commitments, both domestically and internationally, in
five generating facilities under construction totaling 3,172 MW (of which its
equity interest represents 816 MW) of capacity.
At December 31, 1996, GPU, Inc.'s aggregate investment in the GPU
International Group was $211 million; GPU, Inc. has also guaranteed up to $893
million of GPU International Group obligations. GPU, Inc. has SEC approval to
finance investments in foreign utility companies and exempt wholesale
generators up to an aggregate amount equal to 50% of GPU's average
consolidated retained earnings, or approximately $1 billion. At December 31,
1996, GPU, Inc. had remaining authorization to finance an additional $25
million of such investments. A request to increase this limit to 100% of
GPU's average consolidated retained earnings, or to approximately $2 billion
at December 31, 1996, is pending before the SEC.
Selected financial data for the GPU International Group is as follows:
(In Millions)
1996 1995 1994
Total assets $1,075 $380 $130
Liabilities and capital:
Common equity $ 232 $209 $118
Long-term debt 752 104 -
Notes payable - 2 -
Total capitalization 984 315 118
Minority interest 43 41 -
Other liabilities 48 24 12
Total liabilities and capital $1,075 $380 $130
Purchase of investments $ 574 $165 $ 74
Net income/(loss) $ 24 $ 9 $ (3)
For additional information on the GPU International Group's investments, see
GPU International Group Equity Investments, Note 7 to GPU's Consolidated
Financial Statements.
With the acquisitions of Midlands in 1996 and Solaris Power (Solaris) in
1995, the GPU International Group now has 50% ownership interests in foreign
utility companies having total fixed assets of approximately $1.6 billion.
These foreign utility companies, which annually provide about 20 billion
kilowatt-hours of electricity to 2.2 million customers in England and 240,000
customers in Australia, had operating revenues of $2.5 billion in 1996.
The Labour Party in the United Kingdom has proposed a windfall tax on
privatized utilities and other companies as part of its election campaign
platform. General elections in the United Kingdom are required to be held no
later than May 1997. If the Labour Party wins the general election, and the
tax is enacted as currently proposed, a charge to Midlands' earnings, which is
estimated to range from $110 million to $350 million (GPU's 50% share being
$55 million to $175 million), would be recorded in 1997, perhaps as early as
the second quarter. Due to the fact that (1) the Labour Party may not win the
election; (2) the windfall tax may not be enacted as currently proposed; (3)
the amount of the proposed tax may change; and (4) the Labour Party may change
9
its current platform, there is no certainty that this tax, if levied, would be
enacted as currently proposed.
In 1996, GPU Power, through a wholly-owned subsidiary, purchased the
rights to acquire up to a 40% interest in a venture which plans to construct a
300 MW coal generating plant in the Philippines. GPU Power's equity
contribution is expected to be approximately $40 million.
In 1996, GPU International, through a wholly-owned subsidiary, completed
nonrecourse construction financing for its 300 MW Mid-Georgia project. As of
December 31, 1996, GPU International had aggregate borrowings outstanding for
the construction of this project of $62 million, of which $22 million is
guaranteed by GPU, Inc.
In 1996, GPU International and Ballard Power Systems of Canada entered
into an agreement to develop, manufacture and market stationary fuel cell
power plants worldwide. Under the agreement, GPU International will invest
approximately $23 million for up to a 19.3% equity interest in the new
venture, of which $6 million was invested as of December 31, 1996.
Management expects that the GPU International Group will provide a
substantial portion of GPU's future earnings growth and intends on making
additional investments in its business activities. The timing and amounts of
these investments, however, will depend upon the availability of appropriate
opportunities and financing capabilities, including receipt of regulatory
authorization from the SEC.
NUCLEAR FACILITIES
The GPU Energy companies have made investments in three major nuclear
projects -- Three Mile Island Unit 1 (TMI-1) and Oyster Creek, both of which
are operating generation facilities, and Three Mile Island Unit 2 (TMI-2),
which was damaged during a 1979 accident. TMI-1 and TMI-2 are jointly owned
by JCP&L, Met-Ed and Penelec in the percentages of 25%, 50% and 25%,
respectively. Oyster Creek is owned by JCP&L. At December 31, 1996, the GPU
Energy companies' net investment, including nuclear fuel, in TMI-1 was $597
million (JCP&L $154 million; Met-Ed $297 million; Penelec $146 million) and
$766 million for Oyster Creek. The GPU Energy companies' net investment in
TMI-2 at December 31, 1996 was $90 million (JCP&L $81 million; Met-Ed $1
million; Penelec $8 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 and Penelec are collecting revenues for TMI-2 related to
their wholesale customers.
Costs associated with the operation, maintenance and retirement of
nuclear plants have continued to be significant and less predictable than
costs associated with other sources of generation, in large part due to
changing regulatory requirements, safety standards, availability of nuclear
waste disposal facilities and experience gained in the construction and
operation of nuclear facilities. The GPU Energy companies may also incur
costs and experience reduced output at their nuclear plants because of the
prevailing design criteria at the time of construction and the age of the
plants' systems and equipment. In addition, for economic or other reasons,
operation of these plants for the full term of their operating licenses cannot
be assured. Also, not all risks associated with ownership or operation of
10
nuclear facilities may be adequately insured or insurable. Consequently, the
recovery of costs associated with nuclear projects, including replacement
power, any unamortized investment at the end of each plant's useful life
(whether scheduled or premature), the carrying costs of that investment and
retirement costs, is not assured.
TMI-1
The operating license for TMI-1, a 786 MW pressurized water reactor,
expires in 2014. TMI-1 operated at a capacity factor of 102.8% for the year.
Its next refueling outage is scheduled to begin in September 1997.
Oyster Creek
The operating license for the Oyster Creek station, a 619 MW boiling
water reactor, expires in 2009. Oyster Creek operated at a 79.8% capacity
factor for 1996. Oyster Creek completed a 49-day scheduled refueling outage
on October 23, 1996. Subsequently, the station experienced an automatic
reactor shutdown. After the cause of the shutdown was identified, Oyster
Creek was returned to service on November 7, 1996. The station's next
refueling outage is scheduled to begin in September 1998.
TMI-2
The 1979 TMI-2 accident resulted in significant damage to, and
contamination of, the plant and a release of radioactivity to the environment.
A cleanup program was completed in 1990, and after receiving NRC approval,
TMI-2 entered into long-term monitored storage in 1993.
As a result of the accident and its aftermath, individual claims for
alleged personal injury (including claims for punitive damages), which are
material in amount, have been asserted against GPU, Inc. and the GPU Energy
companies. Approximately 2,100 of such claims were filed in the United States
District Court for the Middle District of Pennsylvania. Some of the claims
also seek recovery for injuries from alleged emissions of radioactivity before
and after the accident.
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 (JCP&L $7.5 million; Met-Ed $5 million;
Penelec $2.5 million).
In October 1995, the U.S. Court of Appeals for the Third Circuit ruled
that the Price-Anderson Act provides coverage under its primary and secondary
levels for punitive as well as compensatory damages, but that punitive damages
could not be recovered against the Federal Government under the third level of
financial protection. In so doing, the Court of Appeals referred to the
"finite fund" (the $560 million of financial protection under the Price-
11
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 U.S. Supreme Court denied petitions filed
by GPU, Inc. and the GPU Energy companies to review the Court of Appeals'
rulings.
In June 1996, the District Court granted a motion for summary judgment
filed by GPU, Inc. and the GPU Energy companies, and dismissed all of the
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 have appealed the District Court's ruling to
the Court of Appeals for the Third Circuit. There can be no assurance as to
the outcome of this litigation.
Based on the above, 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 U.S. Department of Energy (DOE). For further
information regarding nuclear fuel disposal costs, see Summary of Significant
Accounting Policies - Nuclear Fuel Disposal Fee, Note 1 to GPU's Consolidated
Financial Statements.
In 1990, the GPU Energy companies submitted a report, in compliance with
NRC regulations, setting forth a funding plan (employing the external sinking
fund method) for the decommissioning of their nuclear reactors. Under this
plan, the GPU Energy companies intend to complete the funding for Oyster Creek
and TMI-1 by the end of the plants' license terms, 2009 and 2014,
respectively. The TMI-2 funding completion date is 2014, consistent with
TMI-2's remaining in long-term storage and being decommissioned at the same
time as TMI-1. Based on NRC studies, a comparable funding target was
developed for TMI-2 which took the accident into account. Under the NRC
regulations, the funding targets (in 1996 dollars) are as follows:
(Millions)
Oyster
TMI-1 TMI-2 Creek
JCP&L $ 43 $ 67 $221
Met-Ed 85 135 -
Penelec 42 68 -
Total $170 $270 $221
12
The funding targets, while not considered cost estimates, are reference
levels designed to assure that licensees demonstrate adequate financial
responsibility for decommissioning. While the NRC regulations address
activities related to the removal of the radiological portions of the plants,
they do not establish residual radioactivity limits nor do they address costs
related to the removal of nonradiological structures and materials.
In 1995, a consultant to GPUN performed site-specific studies of the TMI
site, including both Units 1 and 2, and of Oyster Creek, that considered
various decommissioning methods and estimated the cost of decommissioning the
radiological portions and the cost of removal of the nonradiological portions
of each plant, using the prompt removal/dismantlement method. GPUN management
has reviewed the methodology and assumptions used in these studies, is in
agreement with them, and believes the results are reasonable. The retirement
cost estimates under the site-specific studies are as follows (in 1996
dollars):
(Millions)
Oyster
GPU TMI-1 TMI-2 Creek
Radiological decommissioning $311 $378 $366
Nonradiological cost of removal 77 36* 35
Total $388 $414 $401
* Net of $6.5 million spent as of December 31, 1996.
(Millions)
Oyster
JCP&L TMI-1 TMI-2 Creek
Radiological decommissioning $78 $ 95 $366
Nonradiological cost of removal 19 9* 35
Total $97 $104 $401
* Net of $1.6 million spent as of December 31, 1996.
(Millions)
Met-Ed TMI-1 TMI-2
Radiological decommissioning $155 $189
Nonradiological cost of removal 39 18*
Total $194 $207
* Net of $3.3 million spent as of December 31, 1996.
(Millions)
Penelec TMI-1 TMI-2
Radiological decommissioning $78 $ 94
Nonradiological cost of removal 19 9*
Total $97 $103
* Net of $1.6 million spent as of December 31, 1996.
13
The ultimate cost of retiring the GPU Energy companies' nuclear
facilities may be different from the cost estimates contained in these site-
specific studies. Such costs are subject to (a) the escalation of various
cost elements (for reasons including, but not limited to, general inflation),
(b) the further development of regulatory requirements governing
decommissioning, (c) the technology available at the time of decommissioning,
and (d) the availability of nuclear waste disposal facilities.
The GPU Energy companies charge to depreciation expense and accrue
retirement costs based on amounts being collected from customers. Currently,
the GPU Energy companies are collecting retirement costs which are less than
the retirement cost estimates in the 1995 site-specific studies, and they do
not intend to increase these accruals until increased collections from
customers are obtained. Customer collections are contributed to external
trust funds. These deposits, including the related earnings, are classified
as Nuclear Decommissioning Trusts on the Balance Sheets. Accounting for
retirement costs may change based upon the Financial Accounting Standards
Board (FASB) Exposure Draft discussed below.
The FASB has issued an Exposure Draft titled "Accounting for Certain
Liabilities Related to Closure or Removal of Long-Lived Assets," which
includes nuclear plant retirement costs. If the Exposure Draft is adopted,
Oyster Creek and TMI-1 future retirement costs would have to be recognized as
a liability immediately, rather than the current industry practice of accruing
these costs in accumulated depreciation over the life of the plants. A
regulatory asset for amounts probable of recovery through rates would also be
established. Any amounts not probable of recovery through rates would have to
be charged to expense. For TMI-2, a liability has already been recognized,
based on the 1995 site-specific study (in 1996 dollars) since the plant is no
longer operating (see TMI-2 under this section). The effective date of this
accounting change could be as early as January 1, 1998.
TMI-1 and Oyster Creek:
The NJBPU has granted JCP&L annual revenues for TMI-1 and Oyster Creek
retirement costs of $2.5 million and $13.5 million, respectively. These
annual revenues are based on both the NRC funding targets for radiological
decommissioning costs and a site-specific study which was performed in 1988
for nonradiological costs of removal. A Stipulation of Final Settlement
pending before the NJBPU would allow for JCP&L's future collection of
retirement costs to increase annually to $5.2 million and $22.5 million for
TMI-1 and Oyster Creek, respectively, beginning in 1998, based on the 1995
site-specific study estimates (see Rate Matters - Final Settlement,
Management's Discussion and Analysis).
The PaPUC has granted Met-Ed annual revenues for TMI-1 retirement costs
of $8.5 million based on both the NRC funding target for radiological
decommissioning costs and the 1988 site-specific study for nonradiological
costs of removal. The PaPUC also granted Penelec annual revenues of $4.2
million for its share of TMI-1 retirement costs, on a basis consistent with
that granted Met-Ed.
The amounts charged to depreciation expense in 1996 and the provisions
for the future expenditure of these funds, which have been made in accumulated
depreciation, are as follows:
14
(Millions)
Oyster
TMI-1 Creek
Amount expensed in 1996:
JCP&L $ 2 $ 13
Met-Ed 9 -
Penelec 4 -
Total $ 15 $ 13
Accumulated depreciation
provision at December 31, 1996:
JCP&L $ 30 $174
Met-Ed 50 -
Penelec 21 -
Total $101 $174
Management believes that any TMI-1 and Oyster Creek retirement costs, in
excess of those currently recognized for ratemaking purposes, should be
recoverable under the current ratemaking process.
TMI-2:
The estimated liability for TMI-2 future retirement costs (reflected as
Three Mile Island Unit 2 Future Costs on the Balance Sheet) as of December 31,
1996 is $431 million (JCP&L $108 million; Met-Ed $215 million; Penelec $108
million). The liability is based upon the 1995 site-specific study estimates
(in 1996 dollars) discussed above and an estimate for remaining incremental
monitored storage costs of $17 million (JCP&L $4 million; Met-Ed $8 million;
Penelec $5 million), as a result of TMI-2's entering long-term monitored
storage in 1993. The GPU Energy companies are incurring annual incremental
monitored storage costs of approximately $1 million (JCP&L $250 thousand; Met-
Ed $500 thousand; Penelec $250 thousand).
Offsetting the $431 million liability at December 31, 1996 is $266
million (JCP&L $45 million; Met-Ed $143 million; Penelec $78 million), which
is probable of recovery from customers and included in Three Mile Island Unit
2 Deferred Costs on the Consolidated Balance Sheet, and $181 million (JCP&L
$72 million; Met-Ed $78 million; Penelec $31 million) in trust funds for TMI-2
and included in Nuclear Decommissioning Trusts on the Consolidated Balance
Sheet. Earnings on trust fund deposits are included in amounts shown on the
Consolidated Balance Sheet under Three Mile Island Unit 2 Deferred Costs.
TMI-2 decommissioning costs charged to depreciation expense in 1996 amounted
to $14 million (JCP&L $3 million; Met-Ed $10 million; Penelec $1 million).
The NJBPU and PaPUC have granted JCP&L and Met-Ed, respectively, TMI-2
decommissioning revenues for the NRC funding target and allowances for the
cost of removal of nonradiological structures and materials. In addition,
JCP&L is recovering its share of TMI-2's incremental monitored storage costs.
The Final Settlement pending before the NJBPU would adjust JCP&L's future
revenues for retirement costs based on the 1995 site-specific study estimates,
beginning in 1998. Based on Met-Ed's rate order, Penelec has recorded a
regulatory asset for that portion of such costs which it believes to be
probable of recovery.
15
At December 31, 1996, the accident-related portion of TMI-2 radiological
decommissioning costs is considered to be $67 million (JCP&L $17 million; Met-
Ed $34 million; Penelec $16 million), which is the difference between the 1995
TMI-1 and TMI-2 site-specific study estimates (in 1996 dollars). In
connection with rate case resolutions at the time, JCP&L, Met-Ed and Penelec
made contributions to irrevocable external trusts relating to their shares of
the accident-related portions of the decommissioning liability. In 1990,
JCP&L contributed $15 million and in 1991, Met-Ed and Penelec contributed
$40 million and $20 million, respectively, to irrevocable external trusts.
These contributions were not recovered from customers and have been expensed.
The GPU Energy companies will not pursue recovery from customers for any of
these amounts contributed in excess of the $67 million accident-related
portion referred to above.
JCP&L intends to seek recovery for any increases in TMI-2 retirement
costs, and Met-Ed and Penelec intend to seek recovery for any increases in the
nonaccident-related portion of such costs, but recognize that recovery cannot
be assured.
INSURANCE
GPU has insurance (subject to retentions and deductibles) for its
operations and facilities including coverage for property damage, liability to
employees and third parties, and loss of use and occupancy (primarily
incremental replacement power costs). There is no assurance that GPU will
maintain all existing insurance coverages. Losses or liabilities that are not
completely insured, unless allowed to be recovered through ratemaking, could
have a material adverse effect on the financial position of GPU.
The decontamination liability, premature decommissioning and property
damage insurance coverage for the TMI station and for Oyster Creek total
$2.7 billion per site. In accordance with NRC regulations, these insurance
policies generally require that proceeds first be used for stabilization of
the reactors and then to pay for decontamination and debris removal expenses.
Any remaining amounts available under the policies may then be used for repair
and restoration costs and decommissioning costs. Consequently, there can be
no assurance that in the event of a nuclear incident, property damage
insurance proceeds would be available for the repair and restoration of that
station or to retire capital investment.
The Price-Anderson Act limits GPU's liability to third parties for a
nuclear incident at one of its sites to approximately $8.9 billion. Coverage
for the first $200 million of such liability is provided by private insurance.
The remaining coverage, or secondary financial protection, is provided by
retrospective premiums payable by all nuclear reactor owners. Under secondary
financial protection, a nuclear incident at any licensed nuclear power reactor
in the country, including those owned by the GPU Energy companies, could
result in assessments of up to $79 million per incident for each of the GPU
Energy companies' two operating reactors, subject to an annual maximum payment
of $10 million per incident per reactor. In addition to the retrospective
premiums payable under Price-Anderson, the GPU Energy companies are also
subject to retrospective premium assessments of up to $54 million (JCP&L $32
million; Met-Ed $15 million; Penelec $7 million) in any one year under
insurance policies applicable to nuclear operations and facilities.
16
The GPU Energy companies have insurance coverage for incremental
replacement power costs resulting from an accident-related outage at their
nuclear plants. Coverage commences after the first 21 weeks of the outage and
continues for three years beginning at $1.8 million for Oyster Creek and
$2.6 million for TMI-1 per week for the first year, decreasing to 80% of such
amounts for years two and three.
NONUTILITY AND OTHER POWER PURCHASES
Pursuant to the requirements of PURPA and state regulatory directives,
the GPU Energy companies have entered into power purchase agreements with NUGs
for the purchase of energy and capacity for periods of up to 26 years (JCP&L
25 years; Met-Ed 26 years; Penelec 25 years). The following table shows
actual payments from 1994 through 1996, and estimated payments from 1997
through 2001.
Payments Under NUG Agreements
(in Millions)
Total JCP&L Met-Ed Penelec
* 1994 $528 $304 $101 $123
* 1995 670 381 131 158
* 1996 739 370 177 192
1997 672 336 146 190
1998 691 340 152 199
1999 706 344 152 210
2000 804 347 196 261
2001 873 353 225 295
* Actual. The 1996 amounts are reflected in the rates currently being
charged by the GPU Energy companies.
While a few of these facilities are dispatchable, most are must-run and
generally obligate the GPU Energy companies to purchase, at the contract
price, the output up to the contract limits. As of December 31, 1996,
facilities covered by these agreements having 1,631 MW (JCP&L 891 MW; Met-Ed
340 MW; Penelec 400 MW) of capacity were in service.
The emerging competitive generation market has created uncertainty
regarding the forecasting of the GPU Energy companies' energy supply needs,
which has caused the companies to change their supply strategy to seek
shorter-term agreements offering more flexibility. The cost of near- to
intermediate-term (i.e. one to four years) energy supply from generation
facilities now in service is currently and is expected to continue to be
priced below the costs of new supply sources, at least for some time. The
projected cost of energy from new generation supply sources has also decreased
due to improvements in power plant technologies and lower forecasted fuel
prices. As a result of these developments, the rates under virtually all of
the GPU Energy companies' NUG agreements for facilities currently in operation
are substantially in excess of current and projected prices from alternative
sources.
The GPU Energy companies are seeking to reduce the above market costs of
these NUG agreements by: (1) attempting to convert must-run agreements to
17
dispatchable agreements; (2) attempting to renegotiate prices of the
agreements; (3) offering contract buyouts (see The GPU Energy Companies'
Supply Plan - Managing Nonutility Generation, Management's Discussion and
Analysis); and (4) initiating proceedings before federal and state agencies,
and in the courts, where appropriate. In addition, the GPU Energy companies
intend to avoid, to the maximum extent practicable, entering into any new NUG
agreements that are not needed or not consistent with current market pricing,
and are supporting legislative efforts to repeal PURPA. These efforts have
resulted and may result in additional claims against GPU for substantial
damages. There can be no assurance as to the extent these efforts will be
successful in whole or in part. Recent NUG actions are as follows:
JCP&L entered into an agreement with the developer of the proposed 110 MW
Freehold gas-fired cogeneration project that terminates JCP&L's long-term
contract to purchase power from the project.
Met-Ed and Penelec entered into restructured power purchase agreements
with AES Power Corporation (AES) relating to the proposed Altoona (80 MW),
Blue Mountain (150 MW) and York County (227 MW) NUG facilities. AES, which
purchased the interests of the original developers, plans to construct a
single, fully dispatchable, gas-fired combined-cycle facility in Southeastern
Pennsylvania. These restructured power purchase agreements, which have
initial eight-year terms, require PaPUC approval.
Penelec entered into a restructured power purchase agreement with the
developer of a proposed 80 MW coal-fired cogeneration facility that was to be
built in western Pennsylvania. The restructured power purchase agreement
provides for a fully dispatchable, gas-fired combined-cycle cogeneration
facility to be built. The new power purchase agreement has an initial eight-
year term, with options for extension, and is subject to PaPUC approval.
From 1997 through 2002, JCP&L has contracts to purchase between 5,100 GWH
and 5,200 GWH of electric generation per year at prices which are estimated to
escalate approximately 1.2% annually on a unit cost (cents/KWH) basis during
this period. From 2003 through 2008, JCP&L has contracts to purchase between
4,700 GWH and 5,100 GWH of electric generation per year at an average annual
cost of $369 million. The prices during this period are estimated to escalate
approximately 1.5% annually. After 2008, when major contracts begin to
expire, purchases steadily decline to approximately 865 GWH in 2014. The
contract unit cost is estimated to escalate approximately 4.0% annually from
2009 through 2014, with a total average annual cost of $193 million during
this period. All of JCP&L's contracts will have expired by the end of 2017.
During this entire period, the NUG fuel mix averages approximately 95% natural
gas.
From 1997 through 1999, Met-Ed has contracts to purchase between 2,000
GWH and 2,100 GWH of electric generation per year at prices which are
estimated to escalate approximately 0.6% annually on a unit cost basis during
this period. From 2000 through 2008, Met-Ed has contracts to purchase between
2,900 GWH and 4,300 GWH of electric generation per year at an average annual
cost of $241 million. The prices during this period are estimated to escalate
approximately 2.5% annually on a unit cost basis. From 2009 through 2012,
Met-Ed is forecast to purchase between 1,500 GWH and 1,900 GWH of electric
generation per year at an average annual cost of $169 million. During this
period, the prices are estimated to escalate approximately 3.4% annually on a
unit cost basis. After 2012, Met-Ed's remaining contracts expire rapidly
18
through 2015; thereafter, they remain constant until the expiration of the
last contract in 2020. During this entire period, the NUG fuel mix averages
approximately 50% to 75% coal/waste coal.
From 1997 through 2000, Penelec has contracts to purchase between 3,000
GWH and 4,000 GWH of electric generation per year at prices which are
estimated to escalate approximately 1.4% annually on a unit cost basis during
this period. From 2001 through 2008, Penelec has contracts to purchase
between 3,900 GWH and 5,000 GWH of electric generation per year at an average
annual cost of $297 million. The prices during this period are estimated to
escalate approximately 1.5% annually on a unit cost basis. From 2009 through
2017, purchases decline from approximately 3,000 GWH to approximately 1,500
GWH in 2017. The contract unit cost is estimated to escalate approximately
3.4% annually from 2009 through 2017, with a total average annual cost of $211
million during this period. After 2017, Penelec's remaining contracts expire
rapidly through 2020. During this entire period, the NUG fuel mix averages
approximately 65% to 95% coal/waste coal.
This discussion contains estimates which are based on current knowledge
and expectations of the outcome of future events. The estimates are subject
to significant uncertainties, including changes in fuel prices, improvements
in technology, the changing regulatory environment and the deregulation of the
electric utility industry.
The GPU Energy companies have been granted recovery of their NUG costs
(including certain buyout costs) from customers by the PaPUC and NJBPU and
expect to continue to pursue such recovery. Although the recently enacted
legislation in Pennsylvania and the NJEMP in New Jersey both include
provisions for the recovery of costs under NUG agreements and certain NUG
buyout costs, there can be no assurance that the GPU Energy companies will
continue to be able to recover similar costs which may be incurred in the
future (see Competitive Environment, Management's Discussion and Analysis).
JCP&L has entered into agreements with other utilities to purchase
capacity and energy for various periods through 2004. These agreements will
provide for up to 745 MW in 1997, declining to 527 MW in 1999 and 345 MW in
2004. Payments pursuant to these agreements are estimated to be $145 million
in 1997, $128 million in 1998, $104 million in 1999, $84 million in 2000, and
$99 million in 2001.
In January 1996, JCP&L issued an all-supply source solicitation for the
supply of energy and capacity to meet its forecasted needs. In October 1996,
four potential suppliers were selected to provide capacity for four years,
beginning in June 1999. Contract negotiations are currently in progress to
provide for firm and optional purchases of capacity and energy from sources in
New Jersey, Pennsylvania and New York.
RATE PROCEEDINGS
Pennsylvania
Pennsylvania adopted comprehensive legislation in 1996 which provides for
the restructuring of the electric utility industry (see Recent Developments
section). Effective January 1, 1997, transmission and distribution rates
charged to Pennsylvania retail customers are generally capped for 4 1/2 years,
19
and generation rates are generally capped for up to nine years. Met-Ed and
Penelec filed, in December 1996, tariff supplements with the PaPUC requesting
approval to, among other things, include their currently effective ECR and
STAS in base rates, effective for all bills rendered after January 1, 1997.
On February 28, 1997, the PaPUC issued a final order approving this request.
Since rates that can be charged to customers for generation are capped for up
to nine years, Met-Ed's and Penelec's future earnings will be subject to
market volatility. Increases or decreases in fuel costs will no longer be
subject to deferred accounting and will be reflected in net income as
incurred. Met-Ed and Penelec will continue their efforts to manage fuel costs
and will mitigate, to the extent possible, any excessive risks. As a result
of including their ECRs in base rates and the cessation of deferred energy
accounting, both effective January 1, 1997, Met-Ed and Penelec will experience
step increases in reported revenues totaling approximately $25 million in the
first quarter of 1997.
New Jersey
In 1996, the NJBPU approved a provisional settlement for a combined
levelized energy adjustment clause (LEAC) and Demand-Side Factor (DSF)
increase of $27.9 million annually.
Also in 1996, JCP&L, the staff of the NJBPU and the Division of Ratepayer
Advocate reached an agreement on a variety of pending rate-related issues
(Final Settlement). An Administrative Law Judge (ALJ) issued a decision
recommending approval of the Final Settlement, but the NJBPU ordered
additional evidentiary hearings on the recovery of buyout costs for the
Freehold cogeneration project discussed below (see The GPU Energy Companies'
Supply Plan - Managing Nonutility Generation, Management's Discussion and
Analysis). In December 1996, the ALJ issued a further decision recommending
that recovery of the Freehold buyout costs be approved, subject to possible
revocation or modification, if it is determined that the project was not
viable when it was bought out. On December 31, 1996, an Addendum revising the
Final Settlement was agreed upon by JCP&L, the staff of the NJBPU and the
Division of Ratepayer Advocate. In January 1997, the NJBPU staff recommended
that rate recovery of the Freehold buyout costs be permitted. JCP&L expects
the NJBPU to issue an order in the first quarter of 1997 approving the Final
Settlement as revised. There can be no assurance as to the outcome of this
proceeding.
Provisions of the Final Settlement, as revised by the Addendum, include a
further annual increase of $7 million in the LEAC in addition to those noted
above and an annual reduction of $11 million in base rates. Base rates would
be frozen at that level until the year 2000, and the LEAC rate frozen through
the year 1999. JCP&L could seek a LEAC rate increase if the deferred LEAC
balance is projected to exceed $40 million, or a base rate increase under
certain other conditions, such as a major change in the current regulatory
environment. The Final Settlement provides for recovery in base rates,
beginning in 1998, of all postretirement benefit costs recorded in accordance
with Statement of Financial Accounting Standards No. 106 including amounts
previously deferred and an increase in decommissioning expense to reflect the
radiological decommissioning and nonradiological removal costs estimated in
the 1995 site-specific studies performed for GPUN. Also, included in base
rates would be recovery of the remaining investments in the 58 MW Werner
Unit 4 and 72 MW Gilbert Unit 3 generating plants, which were retired in 1996.
20
The Final Settlement also provides for recovery through the LEAC of:
(1) buyout costs up to $130 million, and 50% of any costs from $130 million to
$140 million, over a seven-year period for the termination of the Freehold
power purchase agreement; and (2) $14 million of the $17 million buyout costs,
over a two year period, for the termination of the agreement to purchase power
from the proposed 200 MW Crown/Vista project. JCP&L wrote-off the remaining
$3 million of buyout costs for the Crown/Vista project in the second quarter
of 1996.
In addition, the Final Settlement resolves the NJBPU's generic proceeding
regarding recovery of capacity costs associated with electric power purchases
from NUG projects which the Division of the Ratepayer Advocate claimed to
result in a double recovery. JCP&L would not have to refund any amounts
previously collected. The Final Settlement provides annual allowances for the
recovery of forecasted additions to nuclear plant. The Final Settlement also
provides that if JCP&L's return on equity exceeds 12.2%, excluding demand-side
management and nuclear performance incentives, the excess would be used to
reduce both customer rates and certain regulatory assets.
JCP&L's two operating nuclear units are subject to the NJBPU's annual
nuclear performance standard. Operation of these units at an aggregate annual
generating capacity factor below 65% or above 75% would trigger a charge or
credit based on replacement energy costs. At current cost levels, the maximum
annual effect of the performance standard charge at a 40% capacity factor
would be approximately $10 million before tax. While a capacity factor below
40% would generate no specific monetary charge, it would require the issue to
be brought before the NJBPU for review. The annual measurement period, which
begins in March of each year, coincides with that used for the LEAC.
CAPITAL PROGRAMS
General
During 1996, construction expenditures for the GPU Energy companies
totaled approximately $404 million (JCP&L $200 million; Met-Ed $77 million;
Penelec $115 million; Other $12 million) attributable principally to new
customer connections and maintenance and improvement of existing transmission
and distribution facilities. In addition, the GPU International Group made
investments in 1996 totaling $574 million, primarily to acquire Midlands (see
GPU International Group section). Expenditures for maturing obligations
totaled $131 million (JCP&L $35 million; Met-Ed $15 million; Penelec $75
million; Other $6 million) in 1996. The GPU Energy companies' principal
categories of estimated construction expenditures for 1997 are as follows:
(In Millions)
1997
Total JCP&L Met-Ed Penelec Other
Generation - Nuclear $ 35 $ 16 $13 $ 6 $ -
Non-nuclear 45 10 8 27 -
Total Generation 80 26 21 33 -
Transmission & Distribution 275 141 59 75 -
Other 47 18 10 12 7
Total $402 $185 $90 $120 $ 7
21
These construction expenditures are expected to be incurred primarily for
ongoing system development. Construction expenditures for the GPU Energy
companies are estimated to be $391 million in 1998 (JCP&L $168 million; Met-Ed
$98 million; Penelec $118 million; Other $7 million). Expenditures for
maturing obligations will total $179 million for 1997 (JCP&L $110 million;
Met-Ed $40 million; Penelec $26 million; Other $3 million) and $139 million
for 1998 (JCP&L $12 million; Penelec $30 million; Other $97 million). In
addition, during 1997 and 1998, and subject to the receipt of regulatory
approval, GPU, Inc. will make capital contributions and provide credit support
(in amounts which may be substantial) to the GPU International Group as
investment opportunities arise.
GPU and the GPU Energy companies estimate that a substantial portion of
their anticipated total capital needs in 1997 and 1998 will be satisfied
through internally generated funds. The GPU Energy companies expect to
finance the remainder of their capital needs principally through the issuance
of long-term debt, subject to market conditions. In addition, further
significant investments by the GPU International Group, or otherwise, may
require GPU, Inc. to issue additional debt and/or common stock.
The GPU Energy companies' bond indentures and articles of incorporation
include provisions that limit the amount of long-term debt, preferred stock
and short-term debt the companies may issue (see Limitations on Issuing
Additional Securities section).
The GPU Energy companies' 1996 construction expenditures exclude nuclear
fuel additions provided under capital leases that amounted to $35 million
(JCP&L $33 million; Met-Ed $1 million; Penelec $1 million). When consumed,
the presently leased material, which amounted to $139 million (JCP&L $95
million; Met-Ed $29 million; Penelec $15 million) at December 31, 1996, is
expected to be replaced by additional leased material at an average annual
rate (which is based on two full operating cycles, or four years) of between
$35 million and $50 million (JCP&L $20 million - $25 million; Met-Ed $10
million - $15 million; Penelec $5 million - $10 million). In the event the
needed nuclear fuel cannot be leased, the associated capital requirements
would have to be met by other means.
In light of retail access legislation enacted in Pennsylvania and
proposed in New Jersey, the extent to which competition will affect the GPU
Energy companies' supply plan remains uncertain. Over the next five years,
the GPU Energy companies' existing franchise service territories are expected
to experience an average annual growth in sales of about 1.7% (JCP&L 1.7%;
Met-Ed 1.9%; Penelec 1.7%), principally due to continued economic growth and a
slight increase in the number of customers. The GPU Energy companies intend
to provide for these increased energy needs, if necessary, through a mix of
economic supply sources and will continue to evaluate additional economic
purchase opportunities as both demand and supply market conditions evolve.
In response to this competitive climate in which it is likely a major
portion of the GPU Energy companies' existing customer base will be able to
choose their electric generation supplier, and the surplus capacity position
of nearby utilities, the GPU Energy companies' supply plan focuses
increasingly on short- to intermediate-term commitments, reliance on "spot"
market purchases, and avoidance of long-term firm commitments. The GPU Energy
22
companies' present strategy includes minimizing the financial exposure
associated with new long-term purchase commitments and the construction of new
facilities by evaluating these options in terms of an unregulated power
market. As part of this strategy, the GPU Energy companies are continually
evaluating the future financial viability of their nuclear and fossil
generation assets and will retire or otherwise dispose of plants that become
uneconomical. The GPU Energy companies intend to take necessary actions to
avoid adding new capacity which would result in costs that may exceed future
market prices. In addition, the GPU Energy companies intend to continue to
seek regulatory support to renegotiate or buy out contracts with NUGs where
the pricing is in excess of projected market prices.
FINANCING ARRANGEMENTS
GPU, Inc. has received SEC approval to issue and sell up to $300 million
of unsecured debentures through December 31, 2001 and up to seven million
shares of additional common stock through 1998. GPU, Inc. has no current
plans to issue these securities. Any sale of such securities will, among
other things, depend upon future capital requirements and market conditions.
GPU has $527 million of credit facilities, including two Revolving Credit
Agreements, as discussed below.
Under a Credit Agreement between GPU, Inc., the GPU Energy companies and
a consortium of banks, total borrowings are limited to $250 million
outstanding at any time and are subject to various covenants and acceleration
under certain circumstances. The agreement expires May 6, 2001, and a
commitment fee on the unborrowed amount of 1/8 of 1% is payable annually.
Borrowing rates and a facility fee are based on the long-term debt ratings of
the GPU Energy companies.
GPU International, Inc. has a separate Credit Agreement providing for
borrowings (guaranteed by GPU, Inc.) through December 1997 of up to $30
million outstanding at any time, which amount decreases for two years
thereafter. Up to $15 million may be borrowed in the form of letters of
credit. An annual commitment fee of 3/8 of 1% on unborrowed amounts and a
letter of credit fee of 1/2 of 1% are payable by GPU International, Inc.
GPU expects to have short-term debt outstanding from time to time
throughout 1997. The peak in short-term debt outstanding typically occurs in
the spring, coinciding with normal cash requirements for state revenue tax
payments.
As a result of the Pennsylvania restructuring legislation (see
Competitive Environment, Management's Discussion and Analysis), Met-Ed and
Penelec each plan to sell transition bonds through a separate trust or other
similar entity, with maturities of up to 10 years. Met-Ed and Penelec would
use the proceeds from such sale to reduce capitalization and further mitigate
stranded costs resulting from customer choice. The timing and amount of the
sale of transition bonds will depend upon PaPUC approval of restructuring
plans, as well as market conditions.
The GPU Energy companies have regulatory authority to issue and sell
first mortgage bonds (FMBs), including secured medium-term notes, and
preferred stock through various periods into 1997. The GPU Energy companies
23
intend to seek regulatory approval to extend such authorizations through June
1999 for both JCP&L and Penelec, and through December 1999 for Met-Ed. Under
existing authorizations, JCP&L, Met-Ed and Penelec may issue these senior
securities in aggregate amounts of $145 million, $190 million and $120
million, respectively, of which up to $100 million for each company may
consist of preferred stock. The GPU Energy companies also have regulatory
authority to incur short-term debt, a portion of which may be through the
issuance of commercial paper.
In 1996, the GPU Energy companies issued an aggregate of $120 million
(JCP&L $80 million; Penelec $40 million) principal amount of FMBs. The
proceeds were used to repay short-term debt and for other corporate purposes.
The GPU Energy companies redeemed $115.7 million (JCP&L $25.7 million; Met-Ed
$15 million; Penelec $75 million) principal amount of FMBs with 1996
maturities.
Also in 1996, JCP&L redeemed $20 million stated value of cumulative
preferred stock pursuant to mandatory and optional sinking fund provisions.
In December 1996, Met-Ed and Penelec repurchased an aggregate of $11.4 million
stated value and $20 million stated value, respectively, of cumulative
preferred stock through cash tender offers, at a total cost of approximately
$7.7 million and $14.4 million, respectively.
In January 1997, JCP&L redeemed an aggregate of $54.2 million principal
amount of FMBs, of which $24.2 million were redeemed prior to maturity.
Present plans call for the GPU Energy companies to issue long-term debt
during the next three years to finance construction activities, fund the
redemption of maturing senior securities, and depending on interest rates,
refinance outstanding senior securities. In addition, subject to the receipt
of further regulatory authorization, further significant investments by the
GPU International Group, or otherwise, may require GPU, Inc. to issue
additional debt and/or common stock (see GPU International Group section).
In 1996, GPU Electric, through its wholly-owned subsidiary EI UK, entered
into a five-year term loan agreement with a syndicate of banks which provides
for borrowings of up to 350 million pounds, which are guaranteed by GPU, Inc.
As of December 31, 1996, EI UK had aggregate borrowings outstanding under this
facility of 342 million pounds, or approximately U.S. $586 million. The
proceeds from these borrowings were used by EI UK to fund its equity
investment in Midlands.
Also in 1996, GPU International, through a wholly-owned subsidiary,
completed nonrecourse construction financing for its 300 MW Mid-Georgia
project. As of December 31, 1996, aggregate borrowings outstanding for the
construction of this project amounted to $62 million, of which $22 million has
been guaranteed by GPU, Inc.
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.
24
The GPU Energy companies' FMB indentures require that, for a period of
any twelve consecutive months out of the fifteen calendar months immediately
preceding the issuance of additional FMBs, net earnings (before income taxes,
with other income limited to 5% of operating income before income taxes for
JCP&L and Met-Ed and 10% for Penelec) available for interest on FMBs shall
have been at least twice the annual interest requirements on all FMBs to be
outstanding immediately after such issuance. Moreover, the GPU Energy
companies' FMB indentures 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. In addition, the indentures, in general, permit the GPU
Energy companies to issue additional FMBs against a like principal amount of
previously issued and retired FMBs.
At December 31, 1996, the net earnings requirement under the GPU Energy
companies' FMB indentures, as described above, would have permitted JCP&L,
Met-Ed and Penelec to issue $1.1 billion, $606 million and $556 million,
respectively, principal amount of additional FMBs at an assumed 8% interest
rate. However, the GPU Energy companies had bondable value of property
additions sufficient to permit JCP&L, Met-Ed and Penelec to issue only
approximately $361 million, $377 million and $257 million, respectively,
principal amount of additional FMBs. In addition, the GPU Energy companies'
FMB indentures would have permitted JCP&L, Met-Ed and Penelec to issue
approximately $261 million, $60 million and $142 million, respectively, of
FMBs against retired FMBs.
Among other restrictions, the GPU Energy companies' charters provide 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, 1996, these
provisions would have permitted JCP&L, Met-Ed and Penelec to issue $852
million, $419 million and $391 million, respectively, stated value of
cumulative preferred stock at an assumed 7.5% dividend rate.
The GPU Energy companies' charters also provide that, without the consent
of the holders of a majority of the total voting power of the GPU Energy
companies' outstanding preferred stock, the GPU Energy companies may not issue
or assume any securities representing short-term unsecured indebtedness,
except to refund certain outstanding unsecured securities issued or assumed by
the GPU Energy companies 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 10 years) would exceed 10% of the aggregate of (a) the
total principal amount of all outstanding secured indebtedness issued or
assumed by the GPU Energy companies and (b) the capital and surplus of the GPU
Energy companies. At December 31, 1996, these restrictions would have
permitted JCP&L, Met-Ed and Penelec to have approximately $292 million, $130
million and $145 million, respectively, of unsecured indebtedness outstanding.
25
The GPU Energy companies have obtained authorization from the SEC to
incur short-term debt (including indebtedness under the Credit Agreement and
commercial paper) up to the GPU Energy companies' charter limitations.
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 (see Other
Developments and GPU Initiatives section). 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. Although Penelec does not render electric service in
Maryland, the Public Service Commission of Maryland has jurisdiction over the
portion of Penelec's property located in that state. Moreover, 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 construction, ownership and
operation of nuclear generating stations and other related matters. JCP&L is
also subject, in certain respects, to regulation by the PaPUC in connection
with its participation in the ownership and operation of certain facilities
located in Pennsylvania. See Electric Generation and the Environment -
Environmental Matters section, for additional information.
Midlands, the GPU International Group's electric distribution subsidiary
in England, is subject to regulation by the Office of Electricity Regulation.
Midlands' network charges are subject to regulatory review every five years,
with the results of the next review scheduled for release on April 1, 2000.
The supply business franchise license currently relates only to customers
having an annual maximum demand of less than 100 KW. Customers with a higher
maximum demand are able to buy their electricity from any electricity
supplier. This option will be extended to cover all customers effective April
1, 1998.
Solaris, the GPU International Group's electric distribution subsidiary
in Australia, is subject to regulation by the Office of the Regulator General.
Solaris' network and connection charges are subject to regulatory review every
five years, with the next review scheduled for January 1, 2000. In addition,
Solaris' franchise license becomes nonexclusive in stages through the year
2001, at which time all customers will be permitted to choose their source of
electric supply.
Empresa Guaracachi S.A., the GPU International Group's electric
generation subsidiary in Bolivia, is subject to regulation under the
26
Electricity Law of 1994. Twice each year, the Superintendency of Electricity
recalculates the prices that Empresa Guaracachi S.A. and other electric
generators may charge for capacity based upon an estimated cost of
constructing a new generating unit. In addition, energy prices are
recalculated semi-annually based upon a projected cost of generation,
including fuel and nonfuel variable operation and maintenance costs.
ELECTRIC GENERATION AND THE ENVIRONMENT
Fuel
The GPU Energy companies utilized fuels in the generation of electric
energy during 1996 in approximately the following percentages:
1996 Actuals
Total JCP&L Met-Ed Penelec
Coal 60% 24% 56% 86%
Nuclear 38% 70% 42% 13%
Gas 1% 4% - -
Oil 1% 4% 1% -
Other* - (2)% 1% 1%
* Represents hydro and pumped storage (which is a net user of electricity).
Approximately 40% (JCP&L 58%; Met-Ed 34%; Penelec 29%) of the GPU Energy
companies' total energy requirements in 1996 was supplied by purchases and
interchange from other utilities and NUGs. For 1997, the GPU Energy companies
estimate that their use of fuels in the generation of electric energy will be
in the following percentages:
1997 Estimates
Total JCP&L Met-Ed Penelec
Coal 64% 24% 63% 90%
Nuclear 33% 71% 33% 10%
Gas 3% 10% 2% -
Oil - - - -
Other* - (5)% 2% -
* Represents hydro and pumped storage.
Approximately 40% (JCP&L 59%; Met-Ed 37%; Penelec 26%) of the GPU Energy
companies' 1997 energy requirements are expected to be supplied by purchases
and interchange from other utilities and NUGs.
Fossil: The GPU Energy companies have entered into long-term contracts
with nonaffiliated mining companies for the purchase of coal for certain
generating stations in which they have ownership interests (JCP&L - 16.67%
ownership interest in Keystone; Met-Ed - 16.45% ownership interest in
Conemaugh; and Penelec - 50% ownership interest in Homer City). The
contracts, which expire between 1997 and 2004, require the purchase of either
fixed or minimum amounts of coal. The price of the coal under the contracts
is based on adjustments of indexed cost components. One of Penelec's
contracts for Homer City also includes a provision for the payment of
postretirement benefits costs. The GPU Energy companies' share of the cost of
coal purchased under these agreements is expected to aggregate $133 million
(JCP&L $23 million; Met-Ed $29 million; Penelec $81 million) for 1997.
The GPU Energy companies' coal-fired generating stations now in service
are estimated to require an aggregate of 155 million tons (JCP&L 15 million
27
tons; Met-Ed 41 million tons; Penelec 99 million tons) of coal over the next
twenty years. Of this total requirement, approximately 8 million tons (JCP&L
3 million tons; Penelec 5 million tons) are expected to be supplied by
nonaffiliated mine-mouth coal companies with the balance supplied through
short- and long-term contracts and spot market purchases.
At the present time, adequate supplies of fossil fuels are readily
available to the GPU Energy companies, but this situation could change rapidly
as a result of actions over which they have no control.
28
Nuclear: The preparation of nuclear fuel for generating station use
involves various manufacturing stages for which GPU contracts separately.
Stage I involves the mining and milling of uranium ores to produce natural
uranium concentrates. Stage II provides for the chemical conversion of the
natural uranium concentrates into uranium hexafluoride. Stage III involves
the process of enrichment to produce enriched uranium hexafluoride from the
natural uranium hexafluoride. Stage IV provides for the fabrication of the
enriched uranium hexafluoride into nuclear fuel assemblies for use in the
reactor core at the nuclear generating station.
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 December 1996, the DOE notified the GPU Energy
companies and other standard contract holders that it will be unable to begin
acceptance of spent nuclear fuel for disposal by 1998, as mandated by the
NWPA. The DOE has requested recommendations for handling the delay. In
January 1997, the GPU Energy companies, along with other electric utilities
and state agencies, petitioned the U.S. Court of Appeals to, among other
things, permit utilities to cease payments into the Federal Nuclear Waste Fund
until the DOE complies with the NWPA. The DOE's inability to accept spent
nuclear fuel by 1998 could have a material impact on GPU's results of
operations, as additional costs may be incurred to build and maintain interim
on-site storage at Oyster Creek. For TMI-1, under normal operating
conditions, there is, with minor planned modifications, sufficient on-site
storage capacity to accommodate spent nuclear fuel through the end of its
licensed life, while maintaining the ability to remove the entire reactor
core.
At Oyster Creek, GPUN completed the construction of an interim spent fuel
dry storage facility in 1996. Currently, however, the dry storage facility at
Oyster Creek is not operational. The NRC has recently raised certain quality
assurance concerns regarding the vendor's quality assurance program and the
manufacture of the storage components under this quality assurance program.
Based on these concerns, the NRC issued a "Demand for Information" letter to
the vendor in late January 1997. This letter requires the vendor to review
and evaluate its program and provide a detailed response within 60 days.
In addition, GPUN had planned to use Oyster Creek's existing overhead
reactor building crane to remove fuel from the spent fuel pool to the interim
storage facility. The NRC has raised a safety concern regarding the use of
this crane while the plant is operating, and has requested GPUN to request a
license amendment addressing its use. GPUN is currently reviewing the
available options for moving spent fuel to the dry storage facility.
If these issues are resolved and the interim spent fuel dry storage
facility becomes operational, Oyster Creek would have sufficient on-site
storage capacity to accommodate, under normal operating conditions, its spent
nuclear fuel through the end of its current licensed life, while maintaining
the ability to remove the entire reactor core.
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
29
FERC and of nuclear power projects by the NRC. Such licensing and other
actions by federal agencies with respect to projects of the GPU Energy
companies 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 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,
30
decommission or cleanup waste disposal and other sites currently or formerly
used by it, including formerly owned manufactured gas plant (MGP) sites, coal
mine refuse piles and generation facilities. With regard to electromagnetic
fields, GPU may be required to postpone or cancel the installation of, or
replace or modify, utility plant, the costs of which could be material. The
consequences of environmental issues, which could cause the postponement or
cancellation of either the installation or replacement of utility plant, are
unknown. GPU believes the costs described above should be recoverable, but
recognizes that recovery cannot be assured.
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, 1996, the GPU Energy companies have
liabilities recorded on their balance sheets for environmental matters
totaling $74 million, as follows:
Company Site Description Amount (in millions)
JCP&L MGP sites $45
Penelec Seward station 12
All Ash disposal sites 9*
JCP&L Various non-MGP sites 6
Met-Ed/
Penelec Various other sites 2**
Total $74
* (JCP&L $1; Met-Ed $2; Penelec $6)
** (Met-Ed $1; Penelec $1)
For further discussion of the liabilities recorded for JCP&L's MGP sites,
Penelec's Seward station property and the GPU Energy companies' ash disposal
sites, see the Water, Residual Waste and Hazardous/Toxic Wastes sections,
respectively.
In 1996, the GPU Energy companies made capital expenditures of
approximately $13 million (JCP&L $3 million; Met-Ed $2 million; Penelec $8
million) in response to environmental considerations and have budgeted
approximately $14 million (JCP&L $1 million; Met-Ed $2 million; Penelec $11
million) for this purpose in 1997. The incremental annual operating and
maintenance costs for such equipment is not expected to be material.
Water: The federal Water Pollution Control Act (Clean Water Act)
generally requires, with respect to existing steam electric power plants, the
application of the best conventional or practicable pollutant control
technology available and compliance with state-established water quality
standards. Additionally, water quality-based effluent limits (more stringent
than "technology" limits) may be applied to utility waste water discharges
based on receiving stream quality. With respect to future plants, the Clean
Water Act requires the application of the "best available demonstrated control
technology, processes, operating methods or other alternatives."
The U.S. Environmental Protection Agency (EPA) has adopted regulations
that establish thermal and other limitations for effluents discharged from
both existing and new steam electric generating stations. Standards of
performance are developed, and enforcement of effluent limitations is
accomplished, through the issuance of discharge permits by the EPA, or states
31
authorized by the EPA, which specify limitations to be applied. Discharge
permits are required for all of the GPU Energy companies' steam generating
stations. JCP&L has filed an application with the New Jersey Department of
Environmental Protection (NJDEP) for a discharge permit for its Yards Creek
pumped storage facility. Negotiations are proceeding on this with the NJDEP
through a pre-draft review process. In addition, the discharge permits for
JCP&L's Sayreville station and Met-Ed's Portland station have expired, but the
terms of both have been administratively extended pending action by the NJDEP
and Pennsylvania Department of Environmental Protection (PaDEP), respectively.
GPU has obtained all other required permits for its generating facilities
under the Clean Water Act.
32
The NJDEP has proposed thermal and other conditions for inclusion in the
discharge permit for JCP&L's Sayreville generating station which, among other
things, could require JCP&L to install cooling towers and/or modify the water
intake/discharge systems at this facility. JCP&L has objected to these
conditions and has requested an adjudicatory hearing with respect thereto.
Implementation of these permit conditions has been stayed pending action on
JCP&L's hearing request, or alternatively, through negotiation during the
permit renewal process. JCP&L has made filings with the NJDEP that, JCP&L
believes, justify the issuance of a thermal variance to permit the continued
use of the present once-through cooling system. Based on the NJDEP's review
of these demonstrations, substantial modifications may be required at this
station, which may result in material capital expenditures.
The discharge permit for the Oyster Creek station may, among other
things, require the installation of a closed-cycle cooling system, such as a
cooling tower, to meet New Jersey state water quality-based thermal effluent
limitations. Although construction of such a system is not required in order
to meet the EPA's regulations setting effluent limitations for the Oyster
Creek station (such regulations would accept the use of the once- through
cooling system now in operation at this station), a closed-cycle cooling
system may be required in order to comply with the water quality standards
imposed by the NJDEP for water quality certification and incorporated in the
station's discharge permit. If a cooling tower is required, the capital costs
could exceed $150 million. In October 1994, following six years of studies,
the NJDEP issued a new Discharge to Surface Water Permit for the Oyster Creek
station. The new permit grants JCP&L a variance from the New Jersey Surface
Water Quality Standards. The variance allows the continued operation of the
existing once-through cooling system without modifications such as cooling
towers. The variance is effective through October 1999. The NJDEP could
revoke the variance at any time upon failure to comply with the permit
conditions.
Pursuant to federal environmental monitoring requirements, Penelec has
reported to the PaDEP that contaminants from coal mine refuse piles were
identified in storm water run-off at Penelec's Seward station property. The
refuse piles have contributed to acid mine drainage to the Conemaugh River.
Penelec signed a modified Consent Order (Order), which became effective
December 1996, that establishes a schedule for long-term remediation, based on
future operating scenarios, including reboilering the station using fluidized
bed combustion technology. The Order requires Penelec to submit a groundwater
remediation plan by May 31, 1998, and also requires compliance with stormwater
discharge limits contained in the Seward station's discharge permit by
November 1998, if the station is repowered, or by November 1999, if the
station is not repowered. In addition, the Order requires Penelec to perform
an aquatic study on the Conemaugh River in order to receive a thermal
variance.
Penelec currently estimates that the remediation of the Seward station
property will range from $12 million to $25 million and recorded a liability
of $12 million at December 31, 1996. These cost estimates are subject to
uncertainties based on continuing discussions with the PaDEP as to the method
of remediation, the extent of remediation required and available cleanup
technologies. Penelec expects recovery of these remediation costs through its
restructuring plan to be filed with the PaPUC (see Competitive Environment,
Management's Discussion and Analysis), and has recorded a corresponding
regulatory asset of approximately $12 million at December 31, 1996.
33
In 1993, York Haven Power Company, a wholly-owned subsidiary of Met-Ed,
entered into an agreement with various agencies to construct a fish passage
facility at the York Haven hydroelectric project by April 2000. This
agreement is part of the FERC license. The present estimated installed cost
of the facility is $7 million. Construction is expected to begin in 1998.
The GPU Energy companies are also subject to environmental and water
diversion requirements adopted by the Delaware River Basin Commission and the
Susquehanna River Basin Commission, as administered by those commissions or
the PaDEP and the NJDEP.
34
Nuclear: Reference is made to Nuclear Facilities for information
regarding the TMI-2 accident, its aftermath and the GPU Energy companies'
other nuclear facilities.
New Jersey and Connecticut have established the Northeast Compact, to
construct a low-level radioactive waste (radwaste) disposal facility in New
Jersey, which should commence operation by the end of 2003. Currently, the
N.J. Low-Level Radwaste Disposal Facility Siting Board is looking for a
volunteer community to host the site. GPUN's total share of the cost for
developing, constructing, and licensing the facility is estimated to be $58
million, which will be paid through 2002. Through December 1996, GPUN has
paid $6 million. As a result, at December 31, 1996, a liability of $52
million is reflected on the Consolidated Balance Sheet. JCP&L is recovering
these costs from customers, and a regulatory asset has also been recorded.
Pennsylvania, Delaware, Maryland and West Virginia have established the
Appalachian Compact to construct a facility for the disposal of low-level
radwaste in those states, including low-level radwaste from TMI-1. To date,
pre-construction costs of $33 million, out of an estimated $88 million, have
been paid. Eleven nuclear plants have so far shared equally in the pre-
construction costs; GPUN has contributed $3 million on behalf of TMI-1. All
contributors, including nonutility radwaste producers within the compact that
make voluntary contributions, will receive certain credits against surcharges
to be paid by all depositors of waste over a ten-year period. The methodology
for the allocation of these credits has yet to be determined. In addition,
$50 million of estimated construction costs will be funded by an independent
contractor and recovered by the contractor through waste disposal fees
collected during the first five years of the facility's operation. Delays in
the facility's construction could result in additional funding requirements,
however.
GPUN is currently shipping low-level radwaste to the Barnwell, South
Carolina radwaste disposal site. Operation of the Northeast Compact disposal
facility, initially expected to commence by the mid-1990's, is now expected to
be delayed until at least the end of 2003. The Appalachian Compact disposal
facility, which was scheduled to open in 1999, is now estimated to be
operational by 2002. Continuing delays in the completion of these disposal
facilities will require GPUN to perform an evaluation of its ability to safely
store radwaste beyond these dates.
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, 1996 amounted to $34 million (JCP&L $22 million; Met-Ed $8 million;
Penelec $4 million). The remaining amount recoverable from ratepayers at
December 31, 1996 is $36 million (JCP&L $23 million; Met-Ed $9 million;
Penelec $4 million).
Air: With respect to air quality, the GPU-owned or operated generating
stations are subject to certain state environmental regulations of the NJDEP
and the PaDEP. The stations are also subject to certain federal environmental
regulations of the EPA. One of the major sets of regulations that governs air
quality is the Federal Clean Air Act of 1970 (CAA):
CAA Title I sets National Ambient Air Quality Standards (NAAQS) for
certain criteria pollutants. The criteria pollutants are ozone, sulfur
35
dioxide (SO2), nitrogen dioxide, particulate matter, carbon monoxide and lead.
In particular, this Title has established the Ozone Transport Region (OTR),
which includes 12 northeast states and the District of Columbia, to address
the transport of those pollutants leading to non-attainment of the ozone NAAQS
in the Northeast. Ozone control is facilitated by the control of pollutant
precursors, which are nitrogen oxide (NOx) and volatile organic compounds
(VOCs). Fossil fuel-fired electric generating stations are major sources of
NOx emissions. Pennsylvania and New Jersey are part of the OTR, and will be
required to control NOx emissions to a level that will provide for the
attainment of the ozone standard in the Northeast. As an initial step, major
36
stationary sources of NOx were required to implement Reasonably Available
Control Technology (RACT) by May 31, 1995. The PaDEP proposed that RACT be
determined on a case-by-case basis and thus could be different for each unit
or facility. RACT proposals were prepared and submitted to the PaDEP in 1994.
GPU has opted for the installation of low NOx burners or other control
technology, and in some cases, limitations on annual operations, in order to
achieve the reductions required by the PaDEP RACT regulations. The NJDEP's
RACT regulations establish maximum allowable emission rates for utility
boilers based on fuel used and boiler type, and on combustion turbines based
on fuel used. Existing units are eligible for emissions averaging upon
approval of an averaging plan by the NJDEP. JCP&L is in compliance with NJDEP
RACT regulations.
A Memorandum of Understanding (MOU) has been signed by the members of the
Ozone Transport Commission (OTC). The MOU calls for inner and outer zones,
with seasonal NOx emission reductions from 1990 emission levels of 65% and
55%, respectively, by May 1, 1999. JCP&L, Met-Ed and Penelec will spend an
estimated $1 million, $9 million and $7 million, respectively, to meet the
1999 reductions set by the OTC. The MOU also calls for a 75% reduction from
1990 emission levels by May 2003. The 2003 limits will not be imposed if a
scientific demonstration to be provided by the North American Research
Strategy for Tropospheric Ozone (NARSTO) finds that less restrictive limits
would be necessary to obtain compliance with the ozone NAAQS. However, there
is also the potential that the NARSTO effort may actually recommend more
severe reductions than outlined in the MOU. A market-based NOx trading system
is proposed to allow for the transfer of excess reductions encouraging
alternate compliance strategies.
Under mandatory, routine review of the ozone NAAQS, the EPA proposed new
standards in November 1996 that will significantly increase the areas in the
country which are not in attainment of the NAAQS. The EPA is soliciting
comments on the proposal and must finalize the regulation by June 1997. A
timeline for implementation of the new standards calls for attainment
designations by June 1999; state implementation plans (SIP) by 2000 and 2002
for attainment and non-attainment areas, respectively; and attainment, with
probable extensions, by 2011.
The area around the Warren station has been designated as non-attainment
for the SO2 NAAQS. The EPA and the PaDEP have both approved the use of a non-
guideline air quality model, which is more representative and less
conservative than the EPA guideline model, to evaluate the ambient air quality
impacts of the station. This modeling has demonstrated attainment for the
area, with no required reduction in Warren station emissions. At Shawville
station, the approved use of the same non-guideline model shows attainment of
the SO2 NAAQS within current Pennsylvania default SO2 emission limits.
The vicinity of the Chestnut Ridge Energy Complex, which includes the
Homer City, Conemaugh, Keystone and Seward stations, is officially designated
as being in attainment of the SO2 NAAQS; however, both the EPA and the PaDEP
have questioned the area's attainment of this standard. The EPA and the
PaDEP have both approved the use of the same non-guideline model discussed
above to evaluate the ambient air quality impacts of these generating
stations. This model will also be used in the development of a compliance
strategy for all generating stations in the Chestnut Ridge Energy Complex.
Attainment of the SO2 NAAQS has been taken into account as part of the
37
design of the Conemaugh station scrubbers. In addition, Met-Ed has initiated
ambient air quality modeling studies for its Portland and Titus Stations,
which will take several years to complete. While the results are uncertain,
these studies may result in a revised Pennsylvania SIP with source-specific
emission limitations in order to attain NAAQS for SO2. If SO2 emissions need
to be reduced to meet the new SIP, Met-Ed will reevaluate its options
available for Portland and Titus stations.
Based on the results of the studies pursuant to compliance with NAAQS,
significant SO2 reductions may be required at one or more of these stations,
38
which could result in significant capital and additional operating
expenditures.
Under a court ordered review of the NAAQS for particulate matter, the EPA
released proposed new standards in November 1996, which could significantly
increase the areas in the country that are not in attainment of the standard.
The particulate matter NAAQS impact NOx and SO2 emission sources. It is
possible that once attainment status is defined by the EPA and the reductions
required under other provisions of the CAA are realized, compliance with the
particulate matter NAAQS could require further reductions in NOx and/or SO2
emissions.
Certain other environmental regulations limit the amount of particulate
matter emitted into the environment. GPU has installed equipment at its coal-
fired generating stations and may find it necessary to either upgrade or
install additional equipment at certain of its stations to consistently meet
particulate emission requirements. Also, the proposed revision to the
particulate matter NAAQS could trigger reduction requirements.
Title III of the CAA deals with emissions of hazardous air pollutants
(HAPs). As part of Title III, the EPA is charged with conducting a study to
determine if fossil fuel-fired electric steam generating units pose a serious
threat to public health due to emissions of HAPs. The study will seek to
determine whether regulation of utility sources is appropriate and necessary.
If the study results prove, through risk analysis, that regulation is
required, a Maximum Achievable Control Technology (MACT) standard will be
developed for utility sources. An interim study report was published in
October 1996. In general, the study did not find unacceptable health risks
from utility sources, but recommended further analysis of long-range transport
of HAPs and the impact of mercury emissions. The interim report does not
include the EPA's official recommendation as to the necessity of HAP
regulation for utilities.
Title IV of the CAA requires substantial reductions to meet a national
cap in SO2 emissions beginning in the years 1995 and 2000 (Phases I and II,
respectively). As a result, it will be necessary for the GPU Energy companies
to install and operate emission control equipment, switch to slightly lower
sulfur coal at some of their coal-fired plants, or purchase emission
allowances in order to achieve compliance. Title IV also imposes requirements
for the installation of NOx controls. To comply with Titles I and IV of the
CAA, the GPU Energy companies expect to spend up to $277 million (JCP&L $46
million; Met-Ed $117 million; Penelec $114 million) for air pollution control
equipment by the year 2000, of which approximately $240 million (JCP&L $43
million; Met-Ed $95 million; Penelec $102 million) has been spent as of
December 31, 1996 (these amounts include costs to meet the 1999 reductions set
by the OTC, as discussed on page 33). The capital costs of equipment are for
the installation of flue gas desulfurization systems (scrubbers), low NOx
burner technology, selective noncatalytic reduction and particulate removal
upgrades. The capital costs of this equipment and the increased operating
costs of the affected stations are expected to be recoverable, but recovery is
not assured.
Conemaugh, Portland and Shawville stations are Phase I affected units.
The second of two scrubbers was completed at the Conemaugh station during
1995, as part of GPU's plans to comply with SO2 emission limitations. For the
Portland station, Met-Ed plans to meet its Phase I compliance obligation
39
through the use of SO2 emission allowances, including allowances allocated
directly to Portland station by the EPA and excess allowances transferred from
the Conemaugh station that result from operation of the scrubbers. The
Shawville station will require lower sulfur coal and/or the purchase of
emission allowances to meet its Phase I requirements.
GPU's current strategy for Phase II compliance is the use of fuel
switching and the purchase of allowances at the Keystone and the Homer City
Unit 3 stations, with periodic reviews of the cost effectiveness of the
installation of scrubbers. Switching to lower sulfur coal and/or the
40
purchasing of allowances is currently planned for the Titus, Seward, Portland,
Shawville and Warren stations as well. Homer City units 1 and 2 will use
existing coal cleaning technology and the purchase of allowances. Additional
control modifications are not expected to be necessary for Phase II compliance
at the Conemaugh and Sayreville Stations.
Title IV of the CAA also requires Phase I and Phase II affected units to
install a continuous emission monitoring system (CEMS) and provide quality
assurance for the data related to SO2, NOx, opacity and volumetric flow. In
addition, Title VIII of the CAA requires all affected sources to monitor
carbon dioxide emissions. Monitoring systems have been installed and
certified on JCP&L, Met-Ed and Penelec's Phase I and Phase II affected units
as required by EPA, NJDEP and PaDEP regulations.
The PaDEP has a CEMS enforcement policy to ensure consistent compliance
with air quality regulations under federal and state statutes. The CEMS
enforcement policy includes matters such as visible emissions, SO2 emission
standards, NOx emissions and a requirement to maintain certified CEMS
equipment. In addition, this policy provides a mechanism for the payment of
certain prescribed amounts to the Pennsylvania Clean Air Fund (Clean Air Fund)
for air pollutant emission excess or monitoring failures. With respect to the
operation of Met-Ed and Penelec's generating stations, it is not anticipated
that payments to be made to the Clean Air Fund due to CEM penalties will be
material in amount. The CAA has also expanded the enforcement options
available to the EPA and the states and contains more stringent enforcement
provisions and penalties. Moreover, citizen suits can seek civil penalties
for violations of this act.
CAA Title V required that comprehensive permit applications be submitted
by major stationary sources to the permitting authorities in 1995. Title V
may dramatically increase the level of effort required to track compliance and
tabulate emissions of the numerous processes regulated by the new permits once
issued. The states' Title V program also established new emission fee
structures. In 1996, the Pennsylvania stations paid $1.5 million in emissions
fees, and the New Jersey fees totaled approximately $55,000. Emission fees
are based on the level of actual emissions and are assessed on a per ton
basis.
GPU continues to reassess its options for compliance with the CAA,
including those that may result from the continued development of the emission
trading allowance market. GPU's compliance strategy, especially with respect
to Phase II, could change as a result of further review, discussions with co-
owners of jointly owned stations and changes in federal and state regulatory
requirements.
In the fall of 1993, the Clinton Administration announced its Climate
Change Action Plan (Plan), intended to reduce greenhouse gas emissions to 1990
levels by the year 2000. The Plan relies heavily on voluntary action by
industry. GPU has joined approximately 630 other electric utility companies
which have signed accords or are otherwise cooperating with the DOE under the
Climate Challenge Program, which is the electric utility's response to the
Plan. GPU's greenhouse gas management program is expected to reduce,
sequester, or avoid the equivalent of eight million tons of carbon dioxide
emissions between 1995 and 2000.
In 1995, as a result of the United Nations Framework Convention on
41
Climate Change, over 160 countries began a negotiating process to produce a
document which would address the reduction of greenhouse gas emissions after
the year 2000. The U.S. State Department supports the negotiations and calls
for all developed nations to commit to emission reductions. The State
Department also supports global emissions credit banking and trading similar
to the domestic SO2 allowance trading program.
42
Electromagnetic Fields: 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 1990, the EPA
issued a draft report that identifies magnetic fields as a possible
carcinogen, although it acknowledged that there is still scientific
uncertainty surrounding these fields and their possible link to adverse health
effects. On the other hand, a 1992 White House Office of Science and
Technology policy report states that "there is no convincing evidence in the
published literature to support the contention that exposures to extremely low
frequency electric and magnetic fields generated by sources such as household
appliances, video display terminals, and local power lines are demonstrable
health hazards." In 1994, results of a large-scale epidemiology study of
electric utility workers suggested a statistical relationship between brain
cancer and the class of workers who received the highest exposure. These
findings conflicted with two earlier large-scale studies that found no such
relationship. 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 exposures to residential electric and magnetic
fields produce cancer, adverse neurobehavioral effects, or reproductive and
developmental effects." Additional studies, which may foster a better
understanding of the subject, are presently underway.
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
NJDEP and bills introduced in the Pennsylvania legislature 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 respective results of operations and
financial position.
Residual Waste: PaDEP regulations governing ash disposal sites require,
among other things, groundwater assessments of landfills if existing
groundwater monitoring indicates the possibility of degradation. The
assessments could require the installation of additional monitoring wells and
the evaluation of one year's data. If the assessments show degradation of the
groundwater, Penelec and Met-Ed would be required to develop abatement plans,
which may include the lining of currently unlined facilities. To date,
Penelec has not identified any cases requiring abatement. Although Met-Ed's
Titus station ash disposal site was upgraded in 1991 and meets many of the
lined facility requirements, degradation has been identified at the site. In
1996, Met-Ed filed an abatement plan with the PaDEP in conjunction with its
re-permitting application (see discussion below), which states that the
problem will be abated once the station is closed and projected site closure
43
procedures have been performed. Approval of the plan by the PaDEP is pending.
Also, Met-Ed's Portland station ash disposal site requires significant
modifications. Various alternatives for upgrading the site are being
evaluated, including beneficial uses of coal ash.
The GPU Energy companies are required to submit applications for re-
permitting seven (JCP&L- one; Met-Ed- three; Penelec- three) operating ash
disposal sites to the PaDEP by July 1997, including projected site closure
procedures and related cost estimates. Applications have been filed with the
PaDEP for five (JCP&L- one; Met-Ed- two; Penelec- two) of these sites. The
44
cost estimates for the closure of these five sites range from approximately $9
million to $14 million (JCP&L $1 million; Met-Ed $2 million to $4 million;
Penelec $6 million to $9 million), and a liability of $9 million (JCP&L $1
million; Met-Ed $2 million; Penelec $6 million) is reflected on the
Consolidated Balance Sheet at December 31, 1996. JCP&L's share of these
costs, which results from its 16.67% ownership interest in the Keystone
station, has been deferred based on past rate recovery precedent, and Penelec
and Met-Ed expect recovery through their restructuring plans to be filed with
the PaPUC (see Competitive Environment, Management's Discussion and Analysis).
As a result, a regulatory asset of $9 million (JCP&L $1 million; Met-Ed $2
million; Penelec $6 million) is reflected on the Consolidated Balance Sheet at
December 31, 1996.
Other PaDEP residual waste compliance requirements involve storage
impoundments, which also will eventually require groundwater monitoring
systems and potential assessments of impact on groundwater. Groundwater
abatement may be necessary at locations where pollution problems are
identified. The removal of all the residual waste ("clean closure") will be
done at some impoundments to eliminate the need for future monitoring and
abatement requirements. Storage impoundments must have implemented
groundwater monitoring plans by 2002, but the PaDEP can require this at any
time prior to this date or, at its discretion, defer full compliance beyond
2002 for some storage impoundments.
Preliminary groundwater assessment plans have been conducted at Met-Ed's
Portland and Titus stations' industrial waste treatment impoundments. The
Portland station impoundments were upgraded in 1987 and meet the requirements
for lined impoundments. The station's assessment plan is pending with the
PaDEP. Additional data will be collected and evaluated to determine if
abatement will be required. Although new groundwater monitoring wells were
installed at the Titus station, the station impoundments will require
significant modifications by 2002.
There are also a number of issues still to be resolved regarding certain
waivers related to Penelec's existing landfill and storage impoundment
compliance requirements. These waivers could significantly reduce the cost of
many of Penelec's facility compliance upgrades.
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 contains 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 necessary 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. To date, JCP&L has identified 17 former MGP sites
and two off-site properties where MGP waste may have been sent. JCP&L has
entered into cost sharing agreements with New Jersey Natural Gas Company and
45
Elizabethtown Gas Company, under which JCP&L is responsible for 60% of all
costs incurred in connection with the remediation of 12 of these sites. In
addition, JCP&L has entered into Administrative Consent Orders (ACOs) with the
NJDEP for seven of these sites and has entered into Memoranda of Agreement
(MOAs) with the NJDEP for eight of these sites. JCP&L anticipates entering
into MOAs for the remaining sites. The ACOs specify the agreed upon
obligations of both JCP&L and the NJDEP for remediation of the sites. The
MOAs afford JCP&L greater flexibility in the schedule for investigation and
remediation of the sites.
46
As of December 31, 1996, JCP&L has spent approximately $23 million in
connection with the cleanup of these sites. In addition, JCP&L has recorded
an estimated environmental liability of $45 million relating to expected
future costs of these sites, including the two off-site 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 $45 million due to significant uncertainties,
including changes in acceptable remediation methods and technologies.
JCP&L defers these remediation expenditures and accrues interest as
previously authorized by the NJBPU, and will continue to defer estimated
future remediation costs. JCP&L has requested the establishment of an
adjustment clause for the recovery of future remediation costs in its
Remediation Adjustment Clause (RAC) filing, which is currently under NJBPU
review. The Final Settlement pending before the NJBPU would allow JCP&L to
continue its accounting treatment for remediation costs and would also provide
for the RAC proceeding to remain open for future review.
JCP&L is pursuing reimbursement from its insurance carriers for
remediation costs already spent and for future estimated costs. In 1994,
JCP&L filed a complaint with the Superior Court of New Jersey against several
of its insurance carriers, relative to these MGP sites. Pretrial discovery
has begun in this case.
The Federal Resource Conservation and Recovery Act of 1976, the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
(CERCLA) and the Superfund Amendment and Reauthorization Act of 1986 authorize
the EPA to issue an order compelling responsible parties to take cleanup
action at any location that is determined to present an imminent and
substantial danger to the public or to the environment because of an actual or
threatened release of one or more hazardous substances. Pennsylvania and New
Jersey have enacted legislation giving similar authority to the PaDEP and the
NJDEP, respectively. 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
5 4 2 1 1 10
In addition, certain of the GPU companies have been requested to
voluntarily participate in the remediation or supply information to the EPA
and state environmental authorities on several other sites for which they have
not yet been formally named as PRPs, although the EPA and state authorities
may nevertheless consider them as PRPs. Certain of the GPU companies have
also been named in lawsuits requesting damages for hazardous and/or toxic
47
substances allegedly released into the environment. A discussion of five PRP
sites, where it is probable that a loss has been incurred, follows:
JCP&L, Met-Ed and GPUN are among the more than 800 PRPs under CERCLA who
may be liable to pay for costs associated with the investigation and
remediation of the Maxey Flats disposal site, located in Fleming County,
Kentucky. A negotiated settlement among all parties has been finalized and
cleanup efforts have begun. The interim remediation work is estimated to cost
$63 million, for which all responsible parties will be jointly and severally
liable. The estimated allocation, which is based upon a percentage of the
48
total volume of waste believed shipped to the site, is JCP&L $1.1 million,
Met-Ed $400 thousand and GPUN $150 thousand. A liability is reflected on the
Consolidated Balance Sheet accordingly.
JCP&L has been named as a PRP by the NJDEP for allegedly disposing of
hazardous waste at the Global Landfill, a dump site located in New Jersey.
JCP&L signed a Consent Decree, along with about 50 other PRPs, to investigate
the site and conduct site remediation. The current estimated cost of the
remediation is $33 million. A final allocation of JCP&L's share has not yet
been made. However, JCP&L's interim estimated allocation is $500,000. The
extent of the future liability beyond the $500,000 cannot be estimated at this
time. At December 31, 1996, JCP&L has recorded a liability of $500,000.
Met-Ed received a PRP notice from the PaDEP asserting that it had
disposed of hazardous waste at the Industrial Solvents & Chemical Company
site, a former solvents recycler. This site is being remediated under the
Pennsylvania Hazardous Sites Cleanup Act. Met-Ed has made immaterial payments
to the PRP group for the water line installation and the removal of tanks,
drums and other materials at the site. A groundwater study to determine the
extent of ground water contamination was completed in 1996 and has been
submitted to the PaDEP. A feasibility study will be conducted later in 1997
to determine the extent of additional remediation needed. Met-Ed cannot
reasonably estimate its remaining liability until the feasibility study
results are available and the PaDEP selects a remedy for ground water
contamination.
Penelec is part of a group of 10 PRPs who have entered into a Consent
Decree with Pennsylvania and a settlement with the EPA to pay for costs
associated with the remediation of a dump site located in Mill Creek Township
near Erie, Pennsylvania. Penelec has paid approximately $114,000 in costs for
the settlement with Pennsylvania and $600,000 in costs for the settlement with
the EPA. Penelec's share of the remaining costs for the site is estimated to
be $500,000 (including costs to cap the site), for which a liability has been
recorded at December 31, 1996.
Penelec has been named as a PRP by the EPA, along with over 1,000 other
PRPs, for allegedly disposing of hazardous materials at the Jack's
Creek/Sitken site, a former metals recycling and smelting operation in Mifflin
County, Pennsylvania. Penelec has joined a PRP group, which is exploring a
settlement with the EPA, but cannot predict the ultimate outcome of the
negotiations.
The ultimate cost of remediation of 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. GPU and the GPU Energy
companies are unable to estimate the extent of possible remediation and
associated costs of additional environmental matters.
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
49
owners of the soil, and also to occupy the public streets and ways underground
with its conduits, cables and equipment, where necessary, for its electric
operation. JCP&L has the requisite legal franchise for the operation of its
electric business within the State of New Jersey, including in incorporated
cities and towns where designations of new streets, public ways, etc., may be
obtained upon application to such municipalities. JCP&L holds a FERC license
expiring in 2013 authorizing it to operate and maintain the Yards Creek pumped
storage hydroelectric station in which JCP&L has a 50% ownership interest.
50
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. Penelec holds a license from the FERC,
which expires in 2002, for the continued operation and maintenance of the
Piney hydroelectric project. In addition, Penelec and the Cleveland Electric
Illuminating Company hold a license expiring in 2015 for the Seneca Pumped
Storage Hydroelectric station in which Penelec has a 20% undivided interest.
For the same station, Penelec and the Cleveland Electric Illuminating Company
hold a Limited Power Permit issued by the Pennsylvania Water and Power
Resources Board which is unlimited as to time. For purposes of the Homer City
station, Penelec and New York State Electric & Gas Corporation hold a Limited
Power Permit issued by the Pennsylvania Water and Power Resources Board which
expires in 2017, but is renewable by the permittees until they have recovered
all capital invested by them in the project. Penelec also holds a Limited
Power Permit issued by the Pennsylvania Water and Power Resources Board for
its Shawville station which expires in 2003, but is renewable by Penelec until
it has recovered all capital invested in the project.
The extent to which competition in the electric utility industry will
affect the territories currently served by the GPU Energy companies and their
rights to provide electric utility service in those territories is uncertain.
Refer to Competitive Environment and The GPU Energy Companies' Supply Plan,
Management's Discussion and Analysis for further discussion.
EMPLOYEE RELATIONS
At February 28, 1997, GPU had 9,061 full-time employees (JCP&L 2,363;
Met-Ed 2,234; Penelec 1,895; all other companies 2,569). The nonsupervisory
production and maintenance employees of the GPU Energy companies and certain
of their nonsupervisory clerical employees are represented for collective
bargaining purposes by local unions of the International Brotherhood of
Electrical Workers (IBEW) at JCP&L, Met-Ed and Penelec and the Utility Workers
Union of America (UWUA) at Penelec.
Penelec's five-year contracts with the IBEW and UWUA expire on May 14,
1998 and June 30, 1998, respectively. Met-Ed's three-year contract with the
IBEW expires on April 30, 1997. Negotiations between Met-Ed and the IBEW
began in March 1997. JCP&L's three-year contract with the IBEW expires on
October 31, 1999.
51
ITEM 2. PROPERTIES.
Generating Stations
At December 31, 1996, the generating stations of the GPU Energy companies
had an aggregate effective capability of 6,606,000 net kilowatts (KW), as
follows:
Name of GPU Energy Year of Net KW
Station Company Installation (Summer)
COAL-FIRED:
Homer City(a) Penelec 1969-1977 942,000
Shawville Penelec 1954-1960 597,000
Portland Met-Ed 1958-1962 401,000
Keystone(b) JCP&L 1967-1968 283,000
Conemaugh(c) Met-Ed 1970-1971 280,000
Titus Met-Ed 1951-1953 243,000
Seward Penelec 1950-1957 196,000
Warren Penelec 1948-1949 82,000
NUCLEAR:
TMI-1(d) All 1974 786,000
Oyster Creek JCP&L 1969 619,000
GAS/OIL-FIRED:
Sayreville JCP&L 1930-1958 229,000
Combustion
Turbines(e) All 1960-1996 1,299,000
Other(f) All 1968-1977 298,000
Hydroelectric(g) Met-Ed/Penelec 1905-1969 64,000
PUMPED STORAGE:(h)
Yards Creek JCP&L 1965 200,000
Seneca Penelec 1969 87,000
TOTAL 6,606,000
Aggregate Effective Capability of the GPU Energy Companies
Net KW
(Summer) (Winter)
JCP&L 2,718,000 3,139,000
Met-Ed 1,604,000 1,705,000
Penelec 2,284,000 2,365,000
TOTAL 6,606,000 7,209,000
(a) Represents Penelec's undivided 50% interest in the station.
(b) Represents JCP&L's undivided 16.67% interest in the station.
(c) Represents Met-Ed's undivided 16.45% interest in the station.
52
(d) Jointly owned by JCP&L, Met-Ed and Penelec in percentages of 25%, 50% and
25%, respectively.
(e) JCP&L - 901,000 KW, Met-Ed - 266,000 KW and Penelec 132,000 KW.
(f) Consists of internal combustion and combined-cycle units (JCP&L - 290,000
KW, Met-Ed - 2,000 KW and Penelec - 6,000 KW).
(g) Consists of Met-Ed's York Haven station (19,000 KW) and Penelec's Piney
(27,000 KW) and Deep Creek stations (18,000 KW).
(h) Represents the GPU Energy companies' undivided interests in these
stations which are net users rather than net producers of electric
energy. Effective June 10, 1996, the Yards Creek station was rerated
from 195,000 KW.
The GPU Energy companies' coal-fired, hydroelectric (other than the Deep
Creek station) and pumped storage stations (other than the Yards Creek
station) are located in Pennsylvania. The TMI-1 nuclear station is also
located in Pennsylvania. The GPU Energy companies' gas-fired and oil-fired
stations (other than some combustion turbines in Pennsylvania), the Yards
Creek pumped storage station and the Oyster Creek nuclear station are located
in New Jersey. The Deep Creek hydroelectric station is located in Maryland.
Substantially all of the GPU Energy companies' properties are subject to
the lien of their respective FMB indentures.
The peak loads of the GPU Energy companies were as follows:
(In KW)
Company Date Peak Load
GPU Energy companies Aug. 2, 1995 9,101,000
JCP&L July 9, 1993 4,564,000
Met-Ed Aug. 2, 1995 2,186,000
Penelec Dec. 11, 1995 2,589,000
53
GPU International Group Facilities
At December 31, 1996, the GPU International Group had ownership
interests in 21 operating natural gas-fired cogeneration and other nonutility
power production facilities located both domestically and internationally,
with an aggregate capability of 3,581,000 KW as follows:
Name of Year of Ownership
Facility Location Installation Total KW Interest (KW)
U.S. Facilities
Selkirk NY 1992-94 350,000 66,900
Lake* FL 1993 110,000 54,900
Pasco* FL 1993 109,000 54,400
Onondaga* NY 1993 80,000 40,000
Syracuse* NY 1992 80,000 3,500
Marcal* NJ 1989 65,000 32,500
Camarillo* CA 1988 26,500 300
Chino* CA 1987 26,000 300
FPB CA 1983 26,000 7,800
Berkeley*** CA 1987 22,500 200
Total 895,000 260,800
Non-U.S. Facilities
Teesside** England 1993 1,875,000 249,400
Redditch** England 1991 29,000 14,500
Hereford** England 1980 15,000 7,500
Enersis Group** Portugal 1987-95 50,000 12,500
Micdos** Spain 1975-95 35,000 7,500
Crisa** Spain 1948-58 6,000 2,900
Termobarran-
quilla* Colombia 1972-96 434,000 124,100
Guaracachi* Bolivia 1975-94 161,000 80,500
Aranjuez* Bolivia 1974-94 40,000 20,000
Karachipampa* Bolivia 1982 15,000 7,500
Brooklyn* Canada 1996 26,000 19,500
Total 2,686,000 545,900
Total capability 3,581,000 806,700
* The GPU International Group has operating responsibility for these
facilities.
** The GPU International Group's ownership interests in these facilities are
through its investment in Midlands.
*** Sold in January 1997.
54
Transmission and Distribution System
At December 31, 1996, GPU owned the following transmission and
distribution facilities:
JCP&L Met-Ed Penelec GPU Total
Transmission and Distribution
Substations 304 281 476 1,061
Aggregate Installed Transformer
Capacity of Substations
(in kilovoltamperes - KVA) 20,868,301 12,056,750 15,897,762 48,822,813
Transmission System:
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 232 361 1,326 1,919
69 KV, 46 KV and 34.5 KV 1,764 472 364 2,600
Total 2,584 1,407 2,735 6,726
Distribution System:
Line Transformer Capacity (KVA) 9,830,763 5,807,962 6,543,254 22,181,979
Pole Miles of Overhead Lines 15,746 12,613 22,136 50,495
Trench Miles of Underground
Cable 6,829 1,943 1,889 10,661
In addition, Midlands, which provides service to 2.2 million customers in
a 5,000 square mile area in England, owns a total of 39,000 miles of overhead
and underground lines. Solaris, which provides service to more than 240,000
customers in and around a 387 square mile area in Melbourne, Australia, owns a
total of 3,809 miles of overhead and underground lines (see the GPU
International Group section under Item 1).
ITEM 3. LEGAL PROCEEDINGS.
Reference is made to Nuclear Facilities - TMI-2, Rate Proceedings, and
Electric Generation and the Environment - Environmental Matters under Item 1
and to Commitments and Contingencies, Note 14 to GPU's Consolidated Financial
Statements contained in Item 8 for a description of certain pending legal
proceedings involving GPU.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
55
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
All of JCP&L, Met-Ed and Penelec's outstanding common stock is owned by
GPU, Inc. During 1996, JCP&L, Met-Ed and Penelec paid dividends on their
common stock to GPU, Inc. in the following amounts: JCP&L $135 million, Met-Ed
$60 million and Penelec $40 million.
In accordance with JCP&L, Met-Ed and Penelec's FMB indentures, as
supplemented, the balances of retained earnings at December 31, 1996 that are
restricted as to the payment of dividends on their common stock are as
follows:
JCP&L - $1.7 million Met-Ed - $3.4 million Penelec - $10 million
Stock Trading
GPU, Inc. is listed as GPU on the New York Stock Exchange. On February
3, 1997, there were approximately 43,350 registered holders of GPU, Inc.
common stock.
Dividends
GPU, Inc. common stock dividend declaration dates are the first
Thursdays of April, June, October and December. Dividend payment dates fall
on the last Wednesdays of February, May, August and November. Dividend
declarations and quarterly stock price ranges for 1996 and 1995 are set forth
below.
Common Stock
Dividends Declared Price Ranges*
1996 1995
1996 1995 Quarter High/Low High/Low
April $.485 $.47 First $35 1/8 31 1/8 $30 5/8 $26 1/4
June .485 .47 Second 35 1/4 30 1/8 31 28 1/4
October .485 .47 Third 35 30 1/2 31 1/4 28 1/8
December .485 .47 Fourth 34 3/8 30 3/4 34 30 5/8
* Based on New York Stock Exchange Composite Transactions as reported in the
Wall Street Journal.
ITEM 6. SELECTED FINANCIAL DATA.
See pages F-1 and F-2 for references to each registrant's Selected
Financial Data required by this item.
56
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 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.
57
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 pages 2 through 6 of GPU, Inc.'s Proxy Statement for the 1997 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:
J. R. Leva (a) 64 Chairman of the Board and 1986 1992 1992
Chief Executive Officer
D. Baldassari (b) 47 President 1982 1996 1996
J. G. Graham (c) 58 Vice President and 1986 1986 1986
Chief Financial Officer
D. W. Myers (d) 52 Vice President - Finance 1994 1996 1996
and Rates, and
Comptroller
F. D. Hafer (e) 55 Director 1996 1978 1994
R. C. Arnold (f) 59 Director 1989 1989 1989
JCP&L only:
G. E. Persson (g) 65 Director 1983
S. C. Van Ness (h) 63 Director 1983
S. B. Wiley (i) 67 Director 1982
(a) Mr. Leva is also Chairman and Chief Executive Officer and a director of
GPUS; Chairman, Chief Executive Officer and a director of Genco; and
Chairman and a director of GPUN, GPU International, Inc. (GPUI), GPU
Power, Inc. (GPU Power), and GPU Electric, Inc. (GPU Electric), all
subsidiaries of GPU, Inc. Mr. Leva also served as President of GPU,
Inc. and GPUS from 1991 to 1996. It is anticipated that Mr. Leva will
retire as Chairman and Chief Executive Officer of GPU, Inc. and other
similar positions with GPU (other than director of GPU, Inc.) in May
1997. Mr. Leva is also Chairman and a director of Avon Energy Partners
Holdings and Midlands Electricity plc, and a director of Utilities
Mutual Insurance Company.
(b) Mr. Baldassari was elected President of JCP&L in 1992, and President of
Met-Ed and Penelec in 1996. Prior to that, Mr. Baldassari served as
Vice President - Materials & Services of JCP&L since 1990. Mr.
Baldassari is also a director of GPUS, GPUN, Genco and First Morris Bank
of Morristown, NJ.
(c) Mr. Graham was elected Senior Vice President of GPU, Inc. in 1989. He
is also Executive Vice President, Chief Financial Officer and a director
of GPUS; Vice President and Chief Financial Officer of GPUN; and a
director of Genco, GPUI, GPU Power and GPU Electric. Mr. Graham is also
a director of Edisto Resources, Inc., Nuclear Electric Insurance
Limited, Nuclear Mutual Limited and Utilities Mutual Insurance Company.
58
(d) Mr. Myers was elected Vice President - Finance and Rates, and
Comptroller of Met-Ed and Penelec in 1996, and also serves as Vice
President - Finance and Rates, and Comptroller of JCP&L since 1994.
Prior to that, he served as Vice President and Treasurer of GPU, Inc.,
GPUS, JCP&L, Met-Ed and Penelec since 1993. He served as Vice President
and Comptroller of GPUN from 1986 to 1993.
(e) Mr. Hafer became President, Chief Operating Officer, and a director of
GPU, Inc. and President and Chief Operating Officer of GPUS in 1996.
Prior to that, he was President of Penelec since 1994 and Met-Ed since
1986. It is anticipated that Mr. Hafer will be elected Chairman and
Chief Executive Officer of GPU, Inc. in May 1997 upon Mr. Leva's
retirement. Mr. Hafer is also a director of GPUS, GPUN, Genco, GPUI,
Sovereign Bancorp Inc., Sovereign Bank, and Utilities Mutual Insurance
Company.
(f) Mr. Arnold has been Executive Vice President-Power Supply of GPUS since
1990. He is also a director of GPUS and Genco.
(g) Mrs. Persson serves 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.
(h) Mr. Van Ness has been 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.
(i) Mr. Wiley has been a partner in the law firm of Wiley, Malehorn and
Sirota of Morristown, NJ since 1973. He is also Chairman of First
Morris Bank of Morristown, NJ.
The directors of the GPU companies are elected at their respective
annual meetings of stockholders to serve until the next meeting of
stockholders and until their respective successors are duly elected and
qualified. There are no family relationships among the directors of the GPU
companies.
Identification of Executive Officers
The current executive officers of GPU, Inc., JCP&L, Met-Ed and Penelec,
their ages, positions held and business experience during the past five years
are as follows:
59
Year First
Name Age Position Elected
GPU:
J. R. Leva (a) 64 Chairman, and Chief Executive 1992
Officer
I. H. Jolles (b) 58 Senior Vice President and General 1990
Counsel
J. G. Graham (c) 58 Senior Vice President and Chief 1987
Financial Officer
F. A. Donofrio (d) 54 Vice President, Comptroller and 1985
Chief Accounting Officer
P. C. Mezey (e) 57 Senior Vice President, GPUS 1992
T. G. Howson (f) 48 Vice President and Treasurer 1994
M. A. Nalewako (g) 62 Secretary 1988
T. G. Broughton (h) 51 President, GPUN 1996
R. L. Wise (i) 53 President, Genco 1994
F. D. Hafer (j) 55 President and Chief Operating Officer 1996
D. Baldassari (k) 47 President, JCP&L, Met-Ed, Penelec 1992
B. L. Levy (l) 41 President and Chief Executive 1991
Officer, GPUI, GPU Power and
GPU Electric
R. C. Arnold (m) 59 Executive Vice President, GPUS 1990
Year First Elected
Name Age Position JCP&L Met-Ed Penelec
JCP&L/Met-Ed/Penelec:
J. R. Leva (a) 64 Chairman, and Chief 1992 1992 1992
Executive Officer
D. Baldassari (k) 47 President 1992 1996 1996
I. H. Jolles (b) 58 Vice President and 1996 1996 1996
General Counsel
J. G. Graham (c) 58 Vice President and 1987 1987 1987
Chief Financial Officer
T. G. Howson (f) 48 Vice President 1994 1994 1994
and Treasurer
D. J. Howe (n) 46 Vice President - Sales 1996 1996 1996
and Marketing
D. W. Myers (o) 52 Vice President - 1994 1996 1996
Finance and Rates
and Comptroller
G. R. Repko (p) 51 Vice President - Customer 1996 1994 1986
Services
C. B. Snyder (q) 51 Vice President - 1996 1994 1994
Public Affairs
R. J. Toole (r) 54 Vice President - 1990 1989 1996
Generation
R. S. Zechman (s) 53 Vice President - 1996 1990 1994
Corporate Services
R. S. Cohen (t) 54 Vice President 1996 - -
C. R. Fruehling 61 Vice President 1982 - -
E. J. McCarthy (u) 58 Vice President 1982 - -
D. L. O'Brien (v) 54 Vice President - 1981 1994
J. J. Westervelt(w) 56 Vice President 1982 - -
S. L. Guibord (x) 48 Secretary 1996 1996 1996
60
(a) See Note (a) on page 49.
(b) Mr. Jolles is also Executive Vice President, General Counsel and a
director of GPUS, General Counsel of GPUN and Genco, and a director of
GPUI, GPU Power, GPU Electric and Genco.
(c) See Note (c) on page 49.
(d) Mr. Donofrio was elected Vice President of GPU, Inc. in 1989. He is also
Senior Vice President - Financial Controls of GPUS and a director of
GPUS.
(e) Mr. Mezey was elected Senior Vice President - System Services of GPUS in
1992 and is a director of GPUI, GPU Power and GPU Electric. He
previously served as Vice President of GPUS from January 1991 through
March 1992 and President of GPUI from February 1990 through December
1991.
(f) Mr. Howson is also Vice President and Treasurer of GPUS, GPUN and Genco.
He served as Vice President - Materials, Services and Regulatory Affairs
and a director of JCP&L in 1992. Prior to that, he served as Vice
President - Corporate Strategic Planning for GPUS since 1989.
(g) Mrs. Nalewako is also Secretary of GPUS and Genco and Assistant Secretary
of GPUN, JCP&L, Met-Ed and Penelec.
(h) Mr. Broughton previously served as Executive Vice President of GPUN since
September 1995. Prior to that, he served as Vice President-TMI of GPUN
since 1991. Mr. Broughton is also a director of GPUS and Genco.
(i) Mr. Wise is also a director of GPUS, GPUN, Genco, GPUI, GPU Power and GPU
Electric. He previously served as President, Fossil Generation-GPUS
since 1994. Prior to that, Mr. Wise served as President and a director
of Penelec since December 1986. He is also a director of U.S. Bancorp
and U.S. National Bank of Johnstown, PA.
(j) See Note (e) on page 50.
(k) See Note (b) on page 49.
(l) Mr. Levy is also a director of GPUI, GPU Power, GPU Electric and Genco.
He has served as President, Chief Executive Officer and director of GPUI
since 1991. Prior to that, Mr. Levy served as Vice President - Business
Development of GPUI since 1985.
(m) See Note (f) on page 50.
(n) Mr. Howe previously served as Director of Marketing and Pricing of JCP&L
since 1994. Prior to that, he was Director of Competitive Strategies and
Initiatives of JCP&L since 1993 and served as Manager - Cogeneration of
JCP&L from 1991-1993.
(o) See Note (d) on page 50.
(p) Mr. Repko was elected Vice President - Customer Services of JCP&L in
1996, and also serves as Vice President - Customer Services of Met-Ed and
Penelec since 1994. Prior to that, he served as Vice President -
Division Operations of Penelec from 1986 to 1993.
61
(q) Mrs. Snyder was elected Vice President - Public Affairs of JCP&L in 1996
and also serves as Vice President - Public Affairs of Met-Ed and Penelec
since 1994. Prior to that she was Regional Director of Met-Ed from 1991
to 1994, and Divisional Director of Met-Ed since 1990.
(r) Mr. Toole was also elected a Vice President and a director of Genco in
1996.
(s) Mr. Zechman was elected Vice President - Corporate Services of JCP&L in
1996 and also serves as Vice President - Corporate Services of Met-Ed and
Penelec since 1994. Prior to that, he served as Vice President -
Administrative Services of Met-Ed since 1992 and as Vice President -
Human Resources of Met-Ed from 1990 to 1992.
(t) Mr. Cohen previously served as Secretary and Corporate Counsel for JCP&L
since 1986.
(u) Mr. McCarthy served as Vice President - Customer Operations and Sales of
JCP&L from 1994 to 1996. Prior to that, he served as Vice President -
Customer Services of JCP&L since 1982.
(v) Mr. O'Brien previously served as Comptroller for Met-Ed and Penelec since
1994. Prior to that, he served as Comptroller of Met-Ed since 1981.
(w) Mr. Westervelt served as Vice President - Human Resources and Corporate
Services of JCP&L from 1994 to 1996. Prior to that, he served as Vice
President - Human Resources of JCP&L since 1982.
(x) Mr. Guibord was elected Secretary of JCP&L, Met-Ed, and Penelec in 1996.
He had served as Corporate Compliance Auditing Director of GPUS since
1994. Prior to that, he was a General Attorney at JCP&L. Mr. Guibord
also serves as Secretary of GPUN.
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.
62
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item with respect to GPU, Inc. is
incorporated by reference to pages 8 through 18 of GPU, Inc.'s Proxy Statement
for the 1997 Annual Meeting of Stockholders. The following table sets forth
remuneration paid, as required by this Item, to the most highly compensated
executive officers of JCP&L, Met-Ed and Penelec for the year ended December
31, 1996.
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 1996.
Remuneration of Executive Officers
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
Awards Payouts
Other
Name and Annual Restricted All Other
Principal Compen- Stock/Unit LTIP Compen-
Position Year Salary Bonus sation(1) Awards (2) Payouts(3) sation
J. R. Leva
Chairman of the Board
and Chief Executive
Officer (4) (4) (4) (4) (4) (4) (4)
JCP&L/Met-Ed/Penelec:
D. Baldassari
President (5) (5) (5) (5) (5) (5) (5)
G. R. Repko 1996 154,625 44,000 615 - 20,085 12,562 (6)
Vice President - 1995 147,100 48,000 337 - 9,930 11,491
Customer Services 1994 142,225 32,000 - 14,630 - 9,778
D. W. Myers 1996 153,333 44,000 590 - 19,265 12,505 (7)
Vice President - 1995 144,000 34,000 362 - 10,665 10,687
Finance and Rates 1994 142,125 29,300 - 13,716 - 9,853
R. S. Zechman 1996 152,827 44,000 596 - 19,470 14,051 (8)
Vice President - 1995 142,500 46,000 453 - 8,318 11,087
Corporate Services 1994 132,500 31,000 - 13,324 - 9,104
(1) Consists of earnings on "Long-Term Incentive Plan" ("LTIP")
Compensation paid in the year the award vested.
(2) The restricted units issued in 1995 and 1996 under the 1990 Stock Plan
are performance based. The 1996 awards are shown in "Long-Term
Incentive Plans - Awards in Last Fiscal Year" table (the LTIP table ).
Dividends are paid or accrued on the aggregate restricted stock/units
awarded under the 1990 Stock Plan and reinvested.
The aggregate number and value (based on the stock price per share at
63
December 31, 1996) of unvested stock-equivalent restricted units
(including reinvested dividends) includes the amounts shown on the LTIP
table, and at the end of 1996 were:
64
Aggregate Units Aggregate Value
J. R. Leva (4) (4)
D. Baldassari (5) (5)
G. R. Repko 3,946 $132,684
D. W. Myers 3,964 133,290
R. S. Zechman 3,744 125,892
(3) Consists of Performance Cash Incentive Awards paid on the 1990 and 1991
restricted stock awards which have vested under the 1990 Stock Plan.
These amounts are designed to compensate recipients of restricted
stock/unit awards for the amount of federal and state income taxes that
are payable upon vesting of the restricted stock/unit awards.
(4) As noted above, Mr. Leva is Chairman and Chief Executive Officer of GPU,
Inc. and its Subsidiaries. Mr. Leva is compensated by GPUS for his
overall service on behalf of GPU and accordingly is not compensated
directly by the other subsidiary companies for his services.
Information with respect to Mr. Leva's compensation is included on pages
11 through 13 in GPU, Inc.'s 1997 Proxy Statement, which is incorporated
herein by reference.
(5) Information with respect to Mr. Baldassari's compensation is included on
pages 11 through 13 in GPU, Inc.'s 1997 Proxy Statement, which is
incorporated herein by reference.
(6) Consists of GPU's matching contributions under the Savings Plan
($6,000), above-market interest accrued on the retirement portion of
deferred compensation ($92), and earnings on LTIP compensation not paid
in the current year ($6,470).
(7) Consists of GPU's matching contributions under the Savings Plan ($6,000)
and earnings on LTIP compensation not paid in the current year ($6,505).
(8) Consists of GPU's matching contributions under the Savings Plan
($6,000), matching contributions under the non-qualified deferred
compensation plan ($1,948), above-market interest accrued on the
retirement portion of deferred compensation ($9), and earnings on LTIP
compensation not paid in the current year ($6,094).
NOTE: The split-dollar life insurance amounts reported in the "All Other
Compensation" column are equal to the present value of the interest-free use
of the current year employer paid premiums to the projected date the premiums
will be refunded to the respective GPU companies.
65
LONG-TERM INCENTIVE PLANS - AWARDS IN LAST FISCAL YEAR
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 (#) (#) (#)
JCP&L/Met-Ed/Penelec:
G. R. Repko 970 5 year vesting 0 970 1,940
D. W. Myers 970 5 year vesting 0 970 1,940
R. S. Zechman 970 5 year vesting 0 970 1,940
(1) The restricted units awarded in 1996 under the 1990 Stock Plan provide
for a performance adjustment to the aggregate number of units vesting for
the recipient, including the accumulated reinvested dividends, 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% at the 39th percentile as reflected in the Threshold
column. Should the TSR percentile ranking exceed the 59th percentile,
then the performance adjustment would be increased in steps reaching 200%
at the 90th percentile as reflected in the Maximum column. Under the
1990 Stock Plan, regular quarterly dividends are reinvested in additional
units that are subject to the vesting restrictions of the award. Actual
payouts under the Plan would be based on the aggregate number of units
awarded and the units accumulated through dividend reinvestment at the
time the restrictions lapse. Information with respect to Mr. Leva's and
Mr. Baldassari's long-term incentive plans is included on pages 13 and 14
in GPU, Inc.'s 1997 Proxy Statement, 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 pension plans provide for pension benefits, payable for life
after retirement, based upon years of creditable service with GPU and the
employee's career average compensation as defined below. Under federal law,
an employee's pension benefits that may be paid from a qualified trust under a
qualified pension plan such as the GPU plans are subject to certain maximum
amounts. 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 or source, 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
benefits from funded and unfunded sources resulting from employer
contributions to the qualified trust and direct payments payable upon
retirement in 1997 (computed on a single life annuity basis) to persons in
specified salary and years of service classifications:
66
ESTIMATED ANNUAL RETIREMENT BENEFITS (2) (3) (4)
BASED UPON CAREER AVERAGE COMPENSATION
(1997 Retirement)
Career
Average
Compen- 10 Years 15 Years 20 Years 25 Years 30 Years 35 Years 40 Years 45 Years
sation(1) of Service of Service of Service of Service of Service of Service of Service of Service
$ 50,000 $ 9,338 $ 14,007 $ 18,676 $ 23,345 $ 28,014 $ 32,684 $ 37,085 $ 41,085
100,000 19,338 29,007 38,676 48,345 58,014 67,684 76,685 84,685
150,000 29,338 44,007 58,676 73,345 88,014 102,684 116,285 128,285
200,000 39,338 59,007 78,676 98,345 118,014 137,684 155,885 171,885
250,000 49,338 74,007 98,676 123,345 148,014 172,684 195,485 215,485
300,000 59,338 89,007 118,676 148,345 178,014 207,684 235,085 259,085
350,000 69,338 104,007 138,676 173,345 208,014 242,684 274,685 302,685
400,000 79,338 119,007 158,676 198,345 238,014 277,684 314,285 346,285
450,000 89,338 134,007 178,676 223,345 268,014 312,684 353,885 389,885
500,000 99,338 149,007 198,676 248,345 298,014 347,684 393,485 433,485
550,000 109,338 164,007 218,676 273,345 328,014 382,684 433,085 477,085
600,000 119,338 179,007 238,676 298,345 358,014 417,684 472,685 520,685
650,000 129,338 194,007 258,676 323,345 388,014 452,684 512,285 564,285
700,000 139,338 209,007 278,676 348,345 418,014 487,684 551,885 607,885
750,000 149,338 224,007 298,676 373,345 448,014 522,684 591,485 651,485
800,000 159,338 239,007 318,676 398,345 478,014 557,684 631,085 695,085
(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. Leva - $453,214; Baldassari - $191,741; Repko -
$132,857; Myers - $150,696; and Zechman - $117,028.
(2) Years of Creditable Service at December 31, 1996: Messrs. Leva - 45
years; Baldassari - 27 years; Repko - 30 years; Myers - 16 years; and
Zechman - 27 years.
(3) Based on an assumed retirement at age 65 in 1997. 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% of the average compensation during the highest paid 36
calendar months.
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.
67
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item for GPU, Inc. is incorporated by
reference to page 7 of GPU, Inc.'s Proxy Statement for the 1997 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., 100 Interpace Parkway, Parsippany, NJ 07054.
The following table sets forth, as of February 1, 1997, the beneficial
ownership of equity securities of each of the directors and each of the
executive officers named in the Summary Compensation Tables, and of all
directors and executive officers of each of the respective GPU Energy
companies as a group. The shares 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 Restricted Units(2)
JCP&L/Met-Ed/Penelec:
J. R. Leva GPU Common Stock 4,450 100 44,905
F. D. Hafer GPU Common Stock 5,035 131 11,378
J. G. Graham GPU Common Stock 4,377 1,180 11,721
R. C. Arnold GPU Common Stock - 5,370 10,003
D. Baldassari GPU Common Stock 1,081 - 10,839
D. W. Myers GPU Common Stock - - 3,964
G. R. Repko GPU Common Stock 8,099 - 3,946
R. S. Zechman GPU Common Stock 964 - 3,744
JCP&L Only:
G. E. Persson GPU Common Stock None
S. C. Van Ness GPU Common Stock None
S. B. Wiley GPU Common Stock None
All Directors and
Executive Officers
as a Group GPU Common Stock 38,039 7,219 142,860
(1) The number of shares owned and the nature of such ownership, not being
within the knowledge of GPU, have been furnished by each individual.
(2) Restricted units, which do not have voting rights, represent rights
(subject to vesting) to receive shares of Common Stock under the 1990
Stock Plan for Employees of GPU and Subsidiaries (the 1990 Stock Plan ).
See Summary Compensation Table above.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
68
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.
3-B By-Laws of GPU, as amended June 7, 1990 - Incorporated by
reference to Exhibit 3-A, 1990 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 - 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 - Incorporated
by reference to Exhibit B-18, 1991 Annual Report of GPU on
Form U5S, SEC File No. 30-126.
3-F By-Laws of Met-Ed dated July 27, 1995, as amended -
Incorporated by reference to Exhibit 3-F, 1995 Annual Report
on Form 10-K, SEC File No. 1-446.
3-G Restated Articles of Incorporation of Penelec as amended
through March 10, 1992 - Incorporated by reference to
Exhibit 3A, 1991 Annual Report on Form 10-K, SEC File No. 1-
3522.
3-H By-Laws of Penelec dated July 27 1995, as amended -
Incorporated by reference to Exhibit 3-H, 1995 Annual Report
on Form 10-K, SEC File No. 1-3522.
69
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.
70
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.
71
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.
72
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.
4-B Indenture of Met-Ed, dated November 1, 1944 with United
States Trust Company of New York, Successor Trustee, as
amended and supplemented by fourteen supplemental indentures
dated February 1, 1947 through May 1, 1960 - Incorporated by
reference to Met-Ed's Instruments of Indebtedness Nos. 1 to
14, inclusive and 16, filed as part of Amendment No. 1 to
1959 Annual Report of GPU on Form U5S, SEC File Nos. 30-126
and 1-3292.
4-B-1 Supplemental Indenture of Met-Ed, dated December 1, 1962 -
Incorporated by reference to Exhibit 2-E(1), Registration
No. 2-59678.
4-B-2 Supplemental Indenture of Met-Ed, dated March 20, 1964 -
Incorporated by reference to Exhibit 2-E(2), Registration
No. 2-59678.
4-B-3 Supplemental Indenture of Met-Ed, dated July 1, 1965 -
Incorporated by reference to Exhibit 2-E(3), Registration
No. 2-59678.
4-B-4 Supplemental Indenture of Met-Ed, dated June 1, 1966 -
Incorporated by reference to Exhibit 2-B-4, Registration No.
2-24883.
4-B-5 Supplemental Indenture of Met-Ed, dated March 22, 1968 -
Incorporated by reference to Exhibit 4-C-5, Registration No.
2-29644.
4-B-6 Supplemental Indenture of Met-Ed, dated September 1, 1968 -
Incorporated by reference to Exhibit 2-E(6), Registration
No. 2-59678.
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.
73
4-B-10 Supplemental Indenture of Met-Ed, dated December 1, 1973 -
Incorporated by reference to Exhibit 2-E(10), Registration
No. 2-59678.
4-B-11 Supplemental Indenture of Met-Ed, dated October 30, 1974 -
Incorporated by reference to Exhibit 2-E(11), Registration
No. 2-59678.
4-B-12 Supplemental Indenture of Met-Ed, dated October 31, 1974 -
Incorporated by reference to Exhibit 2-E(12), Registration
No. 2-59678.
4-B-13 Supplemental Indenture of Met-Ed, dated March 20, 1975 -
Incorporated by reference to Exhibit 2-E(13), Registration
No. 2-59678.
4-B-14 Supplemental Indenture of Met-Ed, dated September 25, 1975 -
Incorporated by reference to Exhibit 2-E(15), Registration
No. 2-59678.
4-B-15 Supplemental Indenture of Met-Ed, dated January 12, 1976 -
Incorporated by reference to Exhibit 2-E(16), Registration
No. 2-59678.
4-B-16 Supplemental Indenture of Met-Ed, dated March 1, 1976 -
Incorporated by reference to Exhibit 2-E(17), Registration
No. 2-59678.
4-B-17 Supplemental Indenture of Met-Ed, dated September 28, 1977 -
Incorporated by reference to Exhibit 2-E(18), Registration
No. 2-62212.
4-B-18 Supplemental Indenture of Met-Ed, dated January 1, 1978 -
Incorporated by reference to Exhibit 2-E(19), Registration
No. 2-62212.
4-B-19 Supplemental Indenture of Met-Ed, dated September 1, 1978 -
Incorporated by reference to Exhibit 4-A(19), Registration
No. 33-48937.
4-B-20 Supplemental Indenture of Met-Ed, dated June 1, 1979 -
Incorporated by reference to Exhibit 4-A(20), Registration
No. 33-48937.
4-B-21 Supplemental Indenture of Met-Ed, dated January 1, 1980 -
Incorporated by reference to Exhibit 4-A(21), Registration
No. 33-48937.
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.
74
4-B-24 Supplemental Indenture of Met-Ed, dated December 1, 1982 -
Incorporated by reference to Exhibit 4-A(24), Registration
No. 33-48937.
4-B-25 Supplemental Indenture of Met-Ed, dated September 1, 1983 -
Incorporated by reference to Exhibit 4-A(25), Registration
No. 33-48937.
4-B-26 Supplemental Indenture of Met-Ed, dated September 1, 1984 -
Incorporated by reference to Exhibit 4-A(26), Registration
No. 33-48937.
4-B-27 Supplemental Indenture of Met-Ed, dated March 1, 1985 -
Incorporated by reference to Exhibit 4-A(27), Registration
No. 33-48937.
4-B-28 Supplemental Indenture of Met-Ed, dated September 1, 1985 -
Incorporated by reference to Exhibit 4-A(28), Registration
No. 33-48937.
4-B-29 Supplemental Indenture of Met-Ed, dated June 1, 1988 -
Incorporated by reference to Exhibit 4-A(29), Registration
No. 33-48937.
4-B-30 Supplemental Indenture of Met-Ed, dated April 1, 1990 -
Incorporated by reference to Exhibit 4-A(30), Registration
No. 33-48937.
4-B-31 Amendment dated May 22, 1990 to Supplemental Indenture of
Met-Ed, dated April 1, 1990 - Incorporated by reference to
Exhibit 4-A(31), Registration No. 33-48937.
4-B-32 Supplemental Indenture of Met-Ed, dated September 1, 1992 -
Incorporated by reference to Exhibit 4-A(32)(a),
Registration No. 33-48937.
4-B-33 Supplemental Indenture of Met-Ed, dated December 1, 1993 -
Incorporated by reference to Exhibit C-58, 1993 Annual
Report of GPU on Form U5S, SEC File No. 30-126.
4-B-34 Supplemental Indenture of Met-Ed dated July 15, 1995 -
Incorporated by reference to Exhibit 4-B-35, 1995 Annual
Report on Form 10-K, SEC File No. 1-446.
4-B-35 Supplemental Indenture of Met-Ed dated August 15, 1996.
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.
75
4-C-1 Supplemental Indentures to Mortgage and Deed of Trust of
Penelec dated May 1, 1961 through December 1, 1977 -
Incorporated by reference to Exhibit 2-D(1) to 2-D(19),
Registration No. 2-61502.
4-C-2 Supplemental Indenture of Penelec dated June 1, 1978 -
Incorporated by reference to Exhibit 4-A(2), Registration
No. 33-49669.
4-C-3 Supplemental Indenture of Penelec dated June 1, 1979 -
Incorporated by reference to Exhibit 4-A(3), Registration
No. 33-49669.
4-C-4 Supplemental Indenture of Penelec dated September 1, 1984 -
Incorporated by reference to Exhibit 4-A(4), Registration
No. 33-49669.
4-C-5 Supplemental Indenture of Penelec dated December 1, 1985 -
Incorporated by reference to Exhibit 4-A(5), Registration
No. 33-49669.
4-C-6 Supplemental Indenture of Penelec dated December 1, 1986 -
Incorporated by reference to Exhibit 4-A(6), Registration
No. 33-49669.
4-C-7 Supplemental Indenture of Penelec dated May 1, 1989 -
Incorporated by reference to Exhibit 4-A(7), Registration
No. 33-49669.
4-C-8 Supplemental Indenture of Penelec dated December 1, 1990-
Incorporated by reference to Exhibit 4-A(8), Registration
No. 33-45312.
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.
4-D 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-E Subordinated Debenture Indenture of Met-Ed dated August 1,
1994 - Incorporated by reference to Exhibit A-8(a),
Certificate Pursuant to Rule 24, SEC File No. 70-8401.
76
4-F Subordinated Debenture Indenture of Penelec dated July 1,
1994 - Incorporated by reference to Exhibit A-8(a),
Certificate Pursuant to Rule 24, SEC File No. 70-8403.
4-G 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-H 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-I Payment and Guarantee Agreement of JCP&L, dated May 18, 1995
- Incorporated by reference to Exhibit B-1(a), Certificate
Pursuant to Rule 24, SEC File No. 70-8495.
4-J Amended and Restated Limited Partnership Agreement of Met-Ed
Capital, L.P., dated August 16, 1994 - Incorporated by
reference to Exhibit A-5(a), Certificate Pursuant to Rule
24, SEC File No. 70-8401.
4-K Action Creating Series A Preferred Securities of Met-Ed
Capital, L.P., dated August 16, 1994 - Incorporated by
reference to Exhibit A-6(a), Certificate Pursuant to Rule
24, SEC File No. 70-8401.
4-L Payment and Guarantee Agreement of Met-Ed, dated August 23,
1994 - Incorporated by reference to Exhibit B-1(a),
Certificate Pursuant to Rule 24, SEC File No. 70-8401.
4-M Amended and Restated Limited Partnership Agreement of
Penelec Capital, L.P., dated June 27, 1994 - Incorporated by
reference to Exhibit A-5(a), Certificate Pursuant to Rule
24, SEC File No. 70-8403.
4-N Action Creating Series A Preferred Securities of Penelec
Capital, L.P., dated June 27, 1994 - Incorporated by
reference to Exhibit A-6(a), Certificate Pursuant to Rule
24, SEC File No. 70-8403.
4-O Payment and Guarantee Agreement of Penelec, dated July 5,
1994 - Incorporated by reference to Exhibit B-1(a),
Certificate Pursuant to Rule 24, SEC File No. 70-8403.
10-A GPU System Companies Deferred Compensation Plan dated August
1, 1996.
10-B GPU System Companies Master Directors' Benefits Protection
Trust dated November 7, 1996.
10-C GPU System Companies Master Executives' Benefits Protection
Trust dated August 1, 1996.
77
10-D 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-E 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-F 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-G Incentive Compensation Plan for Elected Officers of JCP&L
dated August 1, 1996.
10-H Incentive Compensation Plan for Elected Officers of Met-Ed
dated August 1, 1996.
10-I Incentive Compensation Plan for Elected Officers of Penelec
dated August 1, 1996.
10-J Deferred Remuneration Plan for Outside Directors of JCP&L
dated November 7, 1996.
10-K JCP&L Supplemental and Excess Benefits Plan dated August 1,
1996.
10-L Met-Ed Supplemental and Excess Benefits Plan dated August 1,
1996.
10-M Penelec Supplemental and Excess Benefits Plan dated August
1, 1996.
10-N Letter agreements dated November 1, 1996 relating to
supplemental pension benefits for J.R. Leva.
10-O Letter agreement dated November 1, 1996 relating to terms of
employment and pension benefits for I.H. Jolles.
10-P Letter agreement dated November 1, 1996 relating to
supplemental pension benefits for J.G. Graham.
10-Q GPU, Inc. Restricted Stock Plan for Outside Directors dated
November 7, 1996.
10-R Retirement Plan for Outside Directors of GPU, Inc. dated
November 7, 1996.
10-S Deferred Remuneration Plan for Outside Directors of GPU,
Inc. dated November 7, 1996.
10-T Amended and Restated Nuclear Material Lease Agreement, dated
November 17, 1995, between Oyster Creek Fuel Corp. and JCP&L
- Incorporated by reference to Exhibit B-2(a)(i),
Certificate Pursuant to Rule 24, SEC File No. 70-7862.
78
10-U Amended and Restated Nuclear Material Lease Agreement, dated
November 17, 1995, between TMI-1 Fuel Corp. and JCP&L -
Incorporated by reference to Exhibit B-2(a)(ii), Certificate
Pursuant to Rule 24, SEC File No. 70-7862.
10-V Letter Agreement, dated November 17, 1995, from JCP&L
relating to Oyster Creek Nuclear Material Lease Agreement -
Incorporated by reference to Exhibit B-2(b)(i), Certificate
Pursuant to Rule 24, SEC File No. 70-7862.
10-W Letter Agreement, dated November 17, 1995, from JCP&L
relating to JCP&L TMI-1 Nuclear Material Lease Agreement -
Incorporated by reference to Exhibit B-2(b)(ii), Certificate
Pursuant to Rule 24, SEC File No. 70-7862.
10-X Amended and Restated Trust Agreement, dated November 17,
1995, between United States Trust Company of New York, as
Owner Trustee, Lord Fuel Corp., as Trustor and Beneficiary,
and JCP&L, Met-Ed and Penelec - Incorporated by reference to
Exhibit B-3(i), Certificate Pursuant to Rule 24, SEC File
No. 70-7862.
10-Y Amended and Restated Nuclear Material Lease Agreement, dated
November 17, 1995, between TMI-1 Fuel Corp. and Met-Ed -
Incorporated by reference to Exhibit B-2(a)(iii),
Certificate Pursuant to Rule 24, SEC File No. 70-7862.
10-Z Letter Agreement, dated November 17, 1995, from Met-Ed
relating to Met-Ed TMI-1 Nuclear Material Lease Agreement -
Incorporated by reference to Exhibit B-2(b)(i), Certificate
Pursuant to Rule 24, SEC File No. 70-7862.
10-AA Amended and Restated Nuclear Material Lease Agreement, dated
November 17, 1995, between TMI-1 Fuel Corp. and Penelec -
Incorporated by reference to Exhibit B-2(a)(iv), Certificate
Pursuant to Rule 24, SEC File No. 70-7862.
10-BB Letter Agreement, dated November 17, 1995, from Penelec
relating to Penelec Nuclear Material Lease Agreement -
Incorporated by reference to Exhibit B-2(b)(i), Certificate
Pursuant to Rule 24, SEC File No. 70-7862.
10-CC GPU, Inc. 1990 Stock Plan for Employees of GPU, Inc. and
Subsidiaries as amended and restated to reflect amendments
through August 1, 1996.
12 Statements Showing Computation of Ratio of Earnings to
Combined Fixed Charges and Preferred Stock Dividends.
A - GPU
B - JCP&L
C - Met-Ed
D - Penelec
79
21 Subsidiaries of the Registrant
A - JCP&L
B - Met-Ed
C - Penelec
23 Consent of Independent Accountants
A - GPU
B - JCP&L
C - Met-Ed
D - Penelec
27 Financial Data Schedule
A - GPU
B - JCP&L
C - Met-Ed
D - Penelec
(b) Reports on Form 8-K:
A - GPU, Inc.
Dated October 21, 1996, under Item 5 (Other Events).
Dated December 2, 1996, under Item 5 (Other Events).
B - JCP&L
Dated October 21, 1996, under Item 5 (Other Events).
C - Met-Ed
Dated November 20, 1996, under Item 5 (Other Events).
Dated December 2, 1996, under Item 5 (Other Events).
D - Penelec
Dated November 20, 1996, under Item 5 (Other Events).
Dated December 2, 1996, under Item 5 (Other Events).
80
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 10, 1997 BY: /s/ J. R. Leva
J. R. Leva, 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/ J. R. Leva March 10, 1997
J. R. Leva, Chairman (Chief Executive
Officer) and President
/s/ F. D. Hafer March 10, 1997
F. D. Hafer, President (Chief
Operating Officer) and Director
/s/ J. G. Graham March 10, 1997
J. G. Graham, Senior Vice President
(Chief Financial Officer)
/s/ F. A. Donofrio March 10, 1997
F. A. Donofrio, Vice President and
Comptroller (Chief Accounting Officer)
/s/ T. H. Black March 10, 1997
T. H. Black, Director
/s/ T. B. Hagen March 10, 1997
T. B. Hagen, Director
/s/ H. F. Henderson March 10, 1997
H. F. Henderson, Jr., Director
/s/ J. M. Pietruski March 10, 1997
J. M. Pietruski, Director
/s/ C. A. Rein March 10, 1997
C. A. Rein, Director
/s/ P. R. Roedel March 10, 1997
P. R. Roedel, Director
/s/ B. S. Townsend March 10, 1997
B. S. Townsend, Director
/s/ C. A. H. Trost March 10, 1997
C. A. H. Trost, Director
/s/ P. K. Woolf March 10, 1997
P. K. Woolf, Director
81
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 10, 1997 BY: /s/ D. Baldassari
D. Baldassari, 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/ J. R. Leva March 10, 1997
J. R. Leva, Chairman
(Principal Executive Officer) and Director
/s/ D. Baldassari March 10, 1997
D. Baldassari, President
(Principal Operating Officer) and Director
/s/ J. G. Graham March 10, 1997
J. G. Graham, Vice President
(Principal Financial Officer) and Director
/s/ D. W. Myers March 10, 1997
D. W. Myers, Vice President-Comptroller
(Principal Accounting Officer) and Director
/s/ R. C. Arnold March 10, 1997
R. C. Arnold, Director
/s/ F. D. Hafer March 10, 1997
F. D. Hafer, Director
/s/ G. E. Persson March 10, 1997
G. E. Persson, Director
/s/ S. C. Van Ness March 10, 1997
S. C. Van Ness, Director
/s/ S. B. Wiley March 10, 1997
S. B. Wiley, Director
82
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 10, 1997 BY: /s/ D. Baldassari
D. Baldassari, 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/ J. R. Leva March 10, 1997
J. R. Leva, Chairman (Principal Executive
Officer) and Director
/s/ D. Baldassari March 10, 1997
D. Baldassari, President (Principal
Operating Officer) and Director
/s/ J. G. Graham March 10, 1997
J. G. Graham, Vice President (Principal
Financial Officer) and Director
/s/ D. W. Myers March 10, 1997
D. W. Myers, Vice President-Comptroller
(Principal Accounting Officer) and Director
/s/ R. C. Arnold March 10, 1997
R. C. Arnold, Director
/s/ F. D. Hafer March 10, 1997
F. D. Hafer, Director
83
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 10, 1997 BY: /s/ D. Baldassari
D. Baldassari, 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/ J. R. Leva March 10, 1997
J. R. Leva, Chairman (Principal Executive
Officer) and Director
/s/ D. Baldassari March 10, 1997
D. Baldassari, President (Principal
Operating Officer) and Director
/s/ J. G. Graham March 10, 1997
J. G. Graham, Vice President (Principal
Financial Officer) and Director
/s/ D. W. Myers March 10, 1997
D. W. Myers, Vice President-Comptroller
(Principal Accounting Officer) and Director
/s/ R. C. Arnold March 10, 1997
R. C. Arnold, Director
/s/ F. D. Hafer March 10, 1997
F. D. Hafer, Director
84
Exhibit 12-A
Page 1 of 2
GPU, INC. AND SUBSIDIARY COMPANIES
STATEMENTS SHOWING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS BASED ON SEC REGULATION S-K, ITEM 503
(In Thousands)
Twelve Months Ended December 31,
1996 1995 1994 1993 1992
OPERATING REVENUES $3,918,089 $3,804,656 $3,649,516 $3,596,090 $3,434,153
OPERATING EXPENSES 3,243,238 3,070,150 3,008,944 2,868,135 2,821,710
Interest portion
of rentals (A) 26,093 27,362 24,655 25,536 28,374
Fixed charges of
service company
subsidiaries (B) 3,695 3,666 3,637 4,204 4,366
Net expense 3,213,450 3,039,122 2,980,652 2,838,395 2,788,970
OTHER INCOME AND DEDUCTIONS:
Allowance for funds
used during
construction 10,672 14,671 11,827 9,936 12,580
Other income /
(expense), net 28,151 216,110 (152,236) (7,579) 30,503
Fixed charges of
the GPU International
Group (C) 29,683 1,717 15 4 9
Total other income
and deductions 68,506 232,498 (140,394) 2,361 43,092
EARNINGS AVAILABLE FOR FIXED
CHARGES AND PREFERRED
STOCK DIVIDENDS
(excluding taxes
based on income) $ 773,145 $ 998,032 $ 528,470 $ 760,056 $ 688,275
FIXED CHARGES:
Interest on funded
indebtedness $ 216,352 $ 192,488 $ 186,259 $ 191,142 $ 178,176
Other interest (D) 59,398 56,396 47,498 21,525 19,604
Preferred stock dividends
of subsidiaries on a
pretax basis (F) 24,008 26,756 30,314 46,270 58,637
Interest portion
of rentals (A) 26,093 27,362 24,655 25,536 28,374
Total fixed
charges $ 325,851 $ 303,002 $ 288,726 $ 284,473 $ 284,791
RATIO OF EARNINGS
TO FIXED CHARGES 2.37 3.29 1.83 2.67 2.42
RATIO OF EARNINGS
TO COMBINED FIXED
CHARGES AND PREFERRED
STOCK DIVIDENDS (E) 2.37 3.29 1.83 2.67 2.42
Exhibit 12-A
Page 2 of 2
GPU, INC. AND SUBSIDIARY COMPANIES
STATEMENTS SHOWING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS BASED ON SEC REGULATION S-K, ITEM 503
(In Thousands)
Notes:
(A) The Company has included the equivalent of the interest portion of all rentals charged to
income as fixed charges for this statement and has excluded such components from
operating expenses.
(B) Represents fixed charges of GPU Service, Inc. and GPU Nuclear, Inc. which are accounted
for as operating expenses in the Company's consolidated income statement. The Company
has removed the fixed charges from operating expenses and included such amounts in fixed
charges as interest on funded indebtedness and other interest for this statement.
(C) Represents fixed charges of the GPU International Group which are accounted for as other
income and deductions in the Company's consolidated income statement. The Company
has removed the fixed charges from other income and deductions and included such amounts
in fixed charges as interest on funded indebtedness and other interest for this
statement.
(D) Includes dividends on subsidiary-obligated mandatorily redeemable preferred securities of
$28,888, $24,816 and $7,692 for the years 1996, 1995 and 1994, respectively.
(E) GPU Inc., the parent holding company, does not have any preferred stock outstanding,
therefore, the ratio of earnings to combined fixed charges and preferred stock dividends
is the same as the ratio of earnings to fixed charges.
(F) Calculation of preferred stock dividends of subsidiaries on a pretax basis is as follows:
Twelve Months Ended December 31,
1996 1995 1994 1993 1992
Income before provision
for income taxes and
preferred stock dividends
of subsidiaries and
gain on preferred
stock reacquisition $471,302 $721,786 $270,058 $521,853 $462,121
Income before preferred
stock dividends of
subsidiaries and gain
on preferred stock
reacquisition 304,583 457,080 184,380 324,430 288,193
Pretax earnings ratio 154.7% 157.9% 146.5% 160.9% 160.4%
Preferred stock dividends
of subsidiaries 15,519 16,945 20,692 28,757 36,557
Preferred stock dividends
of subsidiaries on
a pretax basis 24,008 26,756 30,314 46,270 58,637
Exhibit 12-B
Page 1 of 2
JERSEY CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARY COMPANY
STATEMENTS SHOWING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS BASED ON SEC REGULATION S-K, ITEM 503
(In Thousands)
Twelve Months Ended December 31,
1996 1995 1994 1993 1992
OPERATING REVENUES $2,057,918 $2,035,928 $1,952,425 $1,935,909 $1,774,071
OPERATING EXPENSES 1,729,532 1,653,387 1,622,399 1,600,984 1,536,596
Interest portion
of rentals (A) 10,666 12,354 10,187 10,944 12,414
Net expense 1,718,866 1,641,033 1,612,212 1,590,040 1,524,182
OTHER INCOME AND DEDUCTIONS:
Allowance for funds
used during
construction 6,647 7,824 4,143 4,756 8,071
Other income/
(expense), net 7,202 14,889 21,995 6,281 21,519
Total other income
and deductions 13,849 22,713 26,138 11,037 29,590
EARNINGS AVAILABLE FOR FIXED
CHARGES AND PREFERRED
STOCK DIVIDENDS
(excluding taxes
based on income) $ 352,901 $ 417,608 $ 366,351 $ 356,906 $ 279,479
FIXED CHARGES:
Interest on funded
indebtedness $ 89,648 $ 92,602 $ 93,477 $ 100,246 $ 92,942
Other interest (B) 21,847 16,337 14,726 6,530 4,873
Interest portion
of rentals (A) 10,666 12,354 10,187 10,944 12,414
Total fixed
charges $ 122,161 $ 121,293 $ 118,390 $ 117,720 $ 110,229
RATIO OF EARNINGS
TO FIXED CHARGES 2.89 3.44 3.09 3.03 2.54
Preferred stock
dividend requirement 13,072 14,457 14,795 16,810 20,604
Ratio of income before
provision for
income taxes to
net income (C) 147.6% 148.8% 152.3% 151.1% 144.2%
Preferred stock
dividend requirement
on a pretax basis 19,294 21,512 22,529 25,400 29,711
Fixed charges, as above 122,161 121,293 118,390 117,720 110,229
Total fixed charges
and preferred stock dividends $ 141,455 $ 142,805 $ 140,919 $ 143,120 $ 139,940
RATIO OF EARNINGS
TO COMBINED FIXED
CHARGES AND PREFERRED
STOCK DIVIDENDS 2.50 2.92 2.60 2.49 2.00
Exhibit 12-B
Page 2 of 2
JERSEY CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARY COMPANY
STATEMENTS SHOWING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS BASED ON SEC REGULATION S-K, ITEM 503
(In Thousands)
Notes:
(A) The Company has included the equivalent of the interest portion of all rentals charged to
income as fixed charges for this statement and has excluded such components from
Operating Expenses.
(B) Includes dividends on company-obligated mandatorily redeemable preferred securities of
$10,700 and $6,628 for the years 1996 and 1995, respectively.
(C) Represents income before provision for income taxes divided by net income as follows:
Twelve Months Ended December 31,
1996 1995 1994 1993 1992
Income before provision
for income taxes $230,740 $296,315 $247,961 $239,187 $169,250
Net Income 156,303 199,089 162,841 158,344 117,361
Exhibit 12-C
Page 1 of 2
METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANIES
STATEMENTS SHOWING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS BASED ON SEC REGULATION S-K, ITEM 503
(In Thousands)
Twelve Months Ended December 31,
1996 1995 1994 1993 1992
OPERATING REVENUES $910,408 $854,674 $801,303 $801,487 $821,823
OPERATING EXPENSES 733,664 686,183 655,805 624,025 660,497
Interest portion
of rentals (A) 5,367 5,186 5,315 4,932 5,817
Net expense 728,297 680,997 650,490 619,093 654,680
OTHER INCOME AND DEDUCTIONS:
Allowance for funds
used during
construction 1,245 2,430 3,847 2,919 2,858
Other income/
(expense), net 1,220 129,660 (98,953) (5,581) 3 229
Total other income
and deductions 2,465 132,090 (95,106) (2,662) 6,087
EARNINGS AVAILABLE FOR FIXED
CHARGES AND PREFERRED
STOCK DIVIDENDS
(excluding taxes
based on income) $184,576 $305,767 $ 55,707 $179,732 $173,230
FIXED CHARGES:
Interest on funded
indebtedness $ 45,373 $ 45,844 $ 43,270 $ 42,887 $ 38,882
Other interest (B) 14,436 14,147 15,137 6,990 6,039
Interest portion
of rentals (A) 5,367 5,186 5,315 4,932 5,817
Total fixed
charges $ 65,176 $ 65,177 $ 63,722 $ 54,809 $ 50,738
RATIO OF EARNINGS
TO FIXED CHARGES 2.83 4.69 0.87 3.28 3.41
Preferred stock
dividend requirement 944 944 2,960 6,960 10,289
Ratio of income before
provision for
income taxes to
net income (C) 172.9% 162.0% 174.8% 160.4% 167.6%
Preferred stock
dividend requirement
on a pretax basis 1,632 1,529 5,174 11,164 17,244
Fixed charges, as above 65,176 65,177 63,722 54,809 50,738
Total fixed charges
and preferred
stock dividends $ 66,808 $ 66,706 $ 68,896 $ 65,973 $ 67,982
RATIO OF EARNINGS
TO COMBINED FIXED
CHARGES AND PREFERRED
STOCK DIVIDENDS 2.76 4.58 0.81 2.72 2.55
Exhibit 12-C
Page 2 of 2
METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANIES
STATEMENTS SHOWING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS BASED ON SEC REGULATION S-K, ITEM 503
(In Thousands)
Notes:
(A) The Company has included the equivalent of the interest portion of all rentals charged to
income as fixed charges for this statement and has excluded such components from
Operating Expenses.
(B) Includes dividends on company-obligated mandatorily redeemable preferred securities of
$9,000, $9,000 and $3,200 for the years 1996, 1995 and 1994, respectively.
(C) Represents income before provision for income taxes divided by net income as follows:
Twelve Months Ended December 31,
1996 1995 1994* 1993 1992
Income before provision
for income taxes $119,400 $240,590 $ - $124,923 $122,492
Net Income 69,067 148,540 - 77,875 73,077
* For the twelve months ended December 31, 1994, the ratio was based on the composite income
tax rate for 1994.
Exhibit 12-D
Page 1 of 2
PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES
STATEMENTS SHOWING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS BASED ON SEC REGULATION S-K, ITEM 503
(In Thousands)
Twelve Months Ended December 31,
1996 1995 1994 1993 1992
OPERATING REVENUES $1,019,645 $981,329 $944,744 $908,280 $896,337
OPERATING EXPENSES 840,288 793,320 776,215 688,587 678,478
Interest portion
of rentals (A) 4,490 4,911 3,632 3,406 3,945
Net expense 835,798 788,409 772,583 685,181 674,533
OTHER INCOME AND DEDUCTIONS:
Allowance for funds
used during
construction 2,780 4,417 3,837 2,261 1,651
Other income/
(expense), net (825) 56,454 (71,287) (7,021) (179)
Total other income
and deductions 1,955 60,871 (67,450) (4,760) 1,472
EARNINGS AVAILABLE FOR FIXED
CHARGES AND PREFERRED
STOCK DIVIDENDS
(excluding taxes
based on income) $185,802 $253,791 $104,711 $218,339 $223,276
FIXED CHARGES:
Interest on funded
indebtedness $ 49,654 $ 49,875 $ 46,439 $ 44,714 $ 42,615
Other interest (B) 16,300 17,616 11,913 5,255 6,415
Interest portion
of rentals (A) 4,490 4,911 3,632 3,406 3,945
Total fixed
charges $ 70,444 $ 72,402 $ 61,984 $ 53,375 $ 52,975
RATIO OF EARNINGS
TO FIXED CHARGES 2.64 3.51 1.69 4.09 4.21
Preferred stock
dividend requirement 1,503 1,544 2,937 4,987 5,664
Ratio of income before
provision for
income taxes to
net income (C) 165.2% 163.4% 134.4% 172.3% 170.7%
Preferred stock
dividend requirement
on a pretax basis 2,483 2,523 3,946 8,594 9,671
Fixed charges, as above 70,444 72,402 61,984 53,375 52,975
Total fixed charges
and preferred
stock dividends $ 72,927 $ 74,925 $ 65,930 $ 61,969 $ 62,646
RATIO OF EARNINGS TO COMBINED FIXED
CHARGES AND PREFERRED
STOCK DIVIDENDS 2.55 3.39 1.59 3.52 3.56
Exhibit 12-D
Page 2 of 2
PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES
STATEMENTS SHOWING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS BASED ON SEC REGULATION S-K, ITEM 503
(In Thousands)
Notes:
(A) The Company has included the equivalent of the interest portion of all rentals charged to
income as fixed charges for this statement and has excluded such components from
Operating Expenses.
(B) Includes dividends on company-obligated mandatorily redeemable preferred securities of
$9,188, $9,188 and $4,492 for the years 1996, 1995 and 1994, respectively.
(C) Represents income before provision for income taxes divided by net income as follows:
Twelve Months Ended December 31,
1996 1995 1994 1993 1992
Income before provision
for income taxes $115,358 $181,389 $42,727 $164,964 $170,301
Net Income 69,809 111,010 31,799 95,728 99,744
INDEX TO SUPPLEMENTARY DATA, FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
GPU, INC. Page
Supplementary Data
GPU Energy Companies' Statistics F-3
Selected Financial Data F-4
Quarterly Financial Data F-5
Combined Management's Discussion and Analysis of
Financial Condition and Results of Operations F-6
Financial Statements
Report of Independent Accountants F-39
Statements of Income for the Years Ended
December 31, 1996, 1995 and 1994 F-40
Balance Sheets as of December 31, 1996 and 1995 F-41
Statements of Retained Earnings for the Years Ended
December 31, 1996, 1995 and 1994 F-43
Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994 F-44
Combined Notes to Consolidated Financial Statements F-45
Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts for the
Years 1994-1996 F-100
JERSEY CENTRAL POWER & LIGHT COMPANY
Supplementary Data
Company Statistics F-101
Selected Financial Data F-102
Quarterly Financial Data F-103
Financial Statements
Report of Independent Accountants F-104
Statements of Income for the Years Ended
December 31, 1996, 1995 and 1994 F-105
Balance Sheets as of December 31, 1996 and 1995 F-106
Statements of Retained Earnings for the Years Ended
December 31, 1996, 1995 and 1994 F-108
Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994 F-109
Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts for the
Years 1994-1996 F-110
F-1
INDEX TO SUPPLEMENTARY DATA, FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
METROPOLITAN EDISON COMPANY
Supplementary Data
Company Statistics F-111
Selected Financial Data F-112
Quarterly Financial Data F-113
Financial Statements
Report of Independent Accountants F-114
Statements of Income for the Years Ended
December 31, 1996, 1995 and 1994 F-115
Balance Sheets as of December 31, 1996 and 1995 F-116
Statements of Retained Earnings for the Years Ended
December 31, 1996, 1995 and 1994 F-118
Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994 F-119
Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts for the
Years 1994-1996 F-120
PENNSYLVANIA ELECTRIC COMPANY
Supplementary Data
Company Statistics F-121
Selected Financial Data F-122
Quarterly Financial Data F-123
Financial Statements
Report of Independent Accountants F-124
Statements of Income for the Years Ended
December 31, 1996, 1995 and 1994 F-125
Balance Sheets as of December 31, 1996 and 1995 F-126
Statements of Retained Earnings for the Years Ended
December 31, 1996, 1995 and 1994 F-128
Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994 F-129
Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts for the
Years 1994-1996 F-130
Schedules other than those listed above have been omitted since they are not
required, are inapplicable or the required information is presented in the
Financial Statements or Notes thereto.
F-2
GPU, Inc. and Subsidiary Companies
GPU ENERGY COMPANIES' STATISTICS
For The Years Ended December 31, 1996 1995 1994 1993 1992 1991
Capacity at System Peak (in MW):
Company owned 6,680 6,637 6,655 6,735 6,718 6,737
Contracted 3,536 3,604 3,416 3,236 3,360 3,045
Total capacity (a) 10,216 10,241 10,071 9,971 10,078 9,782
Hourly Peak Load (in MW):
Summer peak 8,497 9,101 8,521 8,533 8,067 8,271
Winter peak 7,756 7,861 7,683 7,167 7,173 7,119
Reserve at system peak (%) 20.2 12.5 18.2 16.9 24.9 18.3
Load factor (%) (b) 64.2 57.5 61.7 60.9 62.3 61.1
Sources of Energy (in thousands of MWH):
Coal 18,133 17,500 16,548 16,969 18,123 17,942
Nuclear 11,439 11,582 10,216 10,614 11,449 8,598
Gas, hydro & oil 812 1,019 1,071 575 409 1,187
Net generation 30,384 30,101 27,835 28,158 29,981 27,727
Utility purchases and interchange 8,795 10,297 10,326 11,984 11,931 14,255
Nonutility purchases 11,046 10,712 8,810 8,383 8,070 5,934
Total sources of energy 50,225 51,110 46,971 48,525 49,982 47,916
Company use, line loss, etc (5,777) (5,357) (4,313) (5,166) (4,843) (4,775)
Total electric energy sales 44,448 45,753 42,658 43,359 45,139 43,141
Fuel Expense (in millions):
Coal $263 $251 $260 $266 $266 $285
Nuclear 70 74 65 66 69 60
Gas & oil 38 38 39 32 21 44
Total $371 $363 $364 $364 $356 $389
Power Purchased and Interchanged (in millions):
Utility purchases and interchange $ 267 $ 351 $367 $406 $430 $508
Nonutility purchases 739 671 528 491 471 343
Total $1,006 $1,022 $895 $897 $901 $851
Electric Energy Sales (in thousands of MWH):
Residential 15,298 14,802 14,788 14,498 13,725 13,852
Commercial 14,017 13,544 13,301 12,919 12,333 12,336
Industrial 12,093 11,982 11,983 11,699 11,901 12,035
Other 1,105 1,143 1,245 1,221 1,303 1,369
Sales to customers 42,513 41,471 41,317 40,337 39,262 39,592
Sales to other utilities 1,935 4,282 1,341 3,022 5,877 3,549
Total 44,448 45,753 42,658 43,359 45,139 43,141
Operating Revenues (in millions):
Residential $1,599 $1,542 $1,503 $1,465 $1,339 $1,341
Commercial 1,324 1,258 1,215 1,169 1,079 1,060
Industrial 803 780 774 755 752 753
Other 71 73 78 89 89 93
Sales to customers 3,797 3,653 3,570 3,478 3,259 3,247
Sales to other utilities 57 101 24 67 127 84
Total electric energy sales 3,854 3,754 3,594 3,545 3,386 3,331
Other revenues 64 51 56 51 48 41
Total $3,918 $3,805 $3,650 $3,596 $ 3,434 $3,372
Price per KWH (in cents):
Residential 10.51 10.35 10.18 10.07 9.73 9.67
Commercial 9.47 9.25 9.12 9.04 8.72 8.59
Industrial 6.65 6.51 6.46 6.47 6.32 6.25
Total sales to customers 8.96 8.77 8.64 8.61 8.28 8.20
Total electric energy sales 8.70 8.17 8.43 8.17 7.49 7.72
Kilowatt-hour Sales per Residential Customer 8,741 8,539 8,646 8,575 8,215 8,374
Customers at Year-End (in thousands) 1,997 1,976 1,949 1,925 1,901 1,879
(a) Summer ratings at December 31, 1996 of owned and contracted capacity were 6,606 MW and 3,901 MW, respectively.
(b) The ratio of the average hourly load in kilowatts supplied during the year to the peak load occurring during the year.
F-3
GPU, Inc. and Subsidiary Companies
SELECTED FINANCIAL DATA
For The Years Ended December 31, 1996* 1995** 1994*** 1993 1992 1991****
Common Stock Data
Earnings per average common share $ 2.47 $ 3.79 $ 1.42 $ 2.65 $ 2.27 $ 2.49
Cash dividends paid per share $ 1.925 $ 1.86 $ 1.775 $ 1.65 $ 1.575 $ 1.45
Book value per share $ 25.21 $ 24.66 $ 22.31 $ 22.69 $ 21.46 $ 20.81
Closing market price per share $ 33 5/8 $ 34 $ 26 1/4 $ 30 7/8 $ 27 5/8 $ 27 1/4
Common shares outstanding (In Thousands):
Average 120,743 116,214 115,160 111,779 110,840 110,798
At year-end 120,870 120,619 115,315 115,041 110,857 110,815
Market price to book value at year-end 133% 138% 118% 136% 129% 131%
Price/earnings ratio 13.6 9.0 18.5 11.7 12.2 10.9
Return on average common equity 9.8% 16.0% 6.3% 11.9% 10.7% 12.0%
Financial Data (In Thousands)
Operating revenues $3,918,089 $3,804,656 $3,649,516 $3,596,090 $3,434,153 $3,371,599
Other operation and maintenance expense 1,090,888 963,609 1,076,925 909,786 856,773 891,314
Net income 298,352 440,135 163,688 295,673 251,636 275,882
Net utility plant in service 5,942,354 5,862,390 5,730,962 5,512,057 5,244,039 5,064,254
Total assets 10,941,219 9,849,516 9,209,777 8,829,255 7,730,738 7,408,834
Long-term debt 3,177,016 2,567,898 2,345,417 2,320,384 2,221,617 1,992,499
Long-term obligations under
capital leases 6,623 11,696 16,982 23,320 24,094 27,210
Subsidiary-obligated mandatorily
redeemable preferred securities 330,000 330,000 205,000 - - -
Cumulative preferred stock with
mandatory redemption 114,000 134,000 150,000 150,000 150,000 100,000
Capital expenditures:
GPU Energy companies 403,880 461,860 585,916 495,517 460,073 467,050
GPU International Group 573,587 164,831 73,835 16,426 747 5,338
Number of employees 9,345 10,286 10,555 11,963 11,969 12,018
* Results for 1996 reflect a decrease in earnings of $74.5 million (after-tax), or $0.62 per share, for costs related to
voluntary enhanced retirement programs.
** Results for 1995 reflect the reversal of $104.9 million (after-tax), or $0.91 per share, of certain future TMI-2
retirement costs written off in 1994. The reversal of this write-off resulted from a 1995 Pennsylvania Supreme Court
decision that overturned a 1994 lower court order, and restored a 1993 PaPUC order allowing for the recovery of such
costs. Partially offsetting this increase was a charge to income of $8.4 million (after-tax), or $0.07 per share, of
TMI-2 monitored storage costs deemed not probable of recovery through ratemaking.
*** Results for 1994 reflect a net decrease in earnings of $164.7 million (after-tax), or $1.43 per share, due to a write-
off of certain future TMI-2 retirement costs ($104.9 million, or $0.91 per share); charges for costs related to early
retirement programs ($76.1 million, or $0.66 per share); a write-off of Penelec's postretirement benefit costs believed
not probable of recovery in rates ($10.6 million, or $0.09 per share); and net interest income from refunds of
previously paid federal income taxes related to the tax retirement of TMI-2 ($26.9 million, or $0.23 per share).
**** Results for 1991 reflect an increase in earnings of $58.2 million (after-tax), or $0.53 per share, for an accounting
change recognizing unbilled revenues and a decrease in earnings of $56.2 million (after-tax), or $0.51 per share, for
estimated TMI-2 costs.
F-4
GPU, Inc. and Subsidiary Companies
QUARTERLY FINANCIAL DATA (UNAUDITED)
First Quarter Second Quarter
In Thousands Except
Per Share Data 1996 1995 1996 1995
Operating revenues $1,022,934 $913,972 $912,254 $864,648
Operating income 161,206 133,660 134,753 126,318
Net income 108,253 75,497 73,625 60,980
Earnings per share .90 .65 .61 .53
Third Quarter Fourth Quarter
In Thousands Except
Per Share Data 1996* 1995** 1996 1995
Operating revenues $1,058,223 $1,095,082 $924,678 $930,954
Operating income 93,166 184,581 119,154 115,992
Net income 35,821 234,278 80,653 69,380
Earnings per share .29 2.02 .67 .59
* Results for the third quarter of 1996 reflect charges of $74.5 million (after-tax),
or $0.62 per share, for costs related to voluntary enhanced retirement programs.
** Results for the third quarter of 1995 reflect the reversal of $104.9 million
(after-tax), or $0.91 per share, of certain future TMI-2 retirement costs written
off in the second quarter of 1994. The reversal of this write-off resulted from a
1995 Pennsylvania Supreme Court decision that overturned a 1994 lower court order,
and restored a 1993 PaPUC order allowing for the recovery of such costs. Partially
offsetting this increase was a charge to income of $8.4 million (after-tax), or
$0.07 per share, of TMI-2 monitored storage costs deemed not probable of recovery
through ratemaking.
F-5
GPU, Inc. and Subsidiary Companies
COMBINED MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GPU, Inc. (formerly General Public Utilities Corporation) 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). In 1996, the customer service,
transmission and distribution operations of these electric utilities began
doing business under the name GPU Energy. JCP&L, Met-Ed and Penelec
considered together are referred to as the "GPU Energy companies." The
generation operations of these three electric utilities are conducted by GPU
Generation, Inc. (Genco) and GPU Nuclear, Inc. (GPUN). GPU, Inc. also owns
all the common stock of GPU International, Inc. (formerly Energy Initiatives,
Inc.), GPU Power, Inc. (formerly EI Power, Inc.) and GPU Electric, Inc.
(formerly EI Energy, Inc.). Collectively, these are referred to as the "GPU
International Group." Corporate functions are performed by GPU Service, Inc.
(GPUS). All of these companies considered together are referred to as "GPU."
GPU RESULTS OF OPERATIONS
GPU's 1996 earnings were $298.4 million, or $2.47 per share, compared to
1995 earnings of $440.1 million, or $3.79 per share. GPU's return on average
common equity was 9.8% in 1996 compared to 16.0% in 1995.
Earnings for 1996 would have been $372.9 million, or $3.09 per share,
compared to earnings of $343.6 million, or $2.95 per share for 1995, if
nonrecurring items are excluded. Excluding these nonrecurring items, return
on average common equity for 1996 and 1995 would have been 12.1% and 12.7%,
respectively. The earnings increase, on this basis, was due primarily to
higher GPU International Group income, mainly resulting from the earnings
inclusion of Midlands Electricity plc (Midlands), in which a 50% interest was
acquired in 1996. Also affecting the 1996 earnings were lower reserve
capacity expense and gains associated with the reacquisition of preferred
stock through cash tender offers, which were primarily offset by higher
depreciation and other operation and maintenance (O&M) expenses.
The 1996 nonrecurring item consisted of a $74.5 million after-tax charge
to income, or $0.62 per share, for costs related to voluntary enhanced
retirement programs, which were accepted by 840 bargaining and nonbargaining
employees, representing about 8% of GPU's total workforce.
The 1995 nonrecurring items consisted of the reversal of a $104.9 million
after-tax expense, or $0.91 per share, for certain future Three Mile Island
Unit 2 (TMI-2) retirement costs written off by Met-Ed and Penelec in 1994.
This reversal of expense resulted from a 1995 Pennsylvania Supreme Court
decision restoring a 1993 Pennsylvania Public Utility Commission (PaPUC) order
allowing Met-Ed to recover such costs from customers. Partially offsetting
the effect of this was a charge to income of $8.4 million after-tax, or $0.07
per share, for TMI-2 monitored storage costs deemed not probable of recovery
through ratemaking.
F-6
GPU, Inc. and Subsidiary Companies
GPU RESULTS OF OPERATIONS (continued)
Earnings in 1995 were $440.1 million, or $3.79 per share, compared to
1994 earnings of $163.7 million, or $1.42 per share. The increase in earnings
was due primarily to the effect of 1995 (discussed above) and 1994
nonrecurring items. Excluding these nonrecurring items, earnings for 1995
would have been $343.6 million, or $2.95 per share, compared to 1994 earnings
of $328.4 million, or $2.85 per share. Contributing to this increase were
higher new customer sales, partially offset by higher depreciation and
financing expenses.
The 1994 nonrecurring items included the write-off of $104.9 million
after-tax, or $0.91 per share (discussed above), of certain future TMI-2
retirement costs. Also in 1994, there was a charge to income of $76.1 million
after-tax, or $0.66 per share, for costs related to voluntary enhanced
retirement programs; a write-off of $10.6 million after-tax, or $0.09 per
share, for certain postretirement benefit (OPEB) costs; and net interest
income of $26.9 million after-tax, or $0.23 per share, resulting from refunds
of previously paid federal income taxes related to the tax retirement of
TMI-2.
OPERATING REVENUES:
Total revenues increased 3% to $3.9 billion in 1996, after increasing
4.3% to $3.8 billion in 1995. The components of these changes are as follows:
(In Millions)
1996 1995
Kilowatt-hour (KWH) revenues
(excluding energy portion) $ 24.9 $ 14.7
Energy revenues 67.8 141.6
Other revenues 20.7 (1.2)
Increase in revenues $113.4 $155.1
Kilowatt-hour revenues
1996 and 1995
The 1996 and 1995 increases in KWH revenues were due primarily to
increased new commercial and residential customer sales, partially offset by
lower weather-related sales to residential customers.
1996 KWH Customer Sales by Service Class
Residential 36%
Commercial 33%
Industrial/Other 31%
F-7
GPU, Inc. and Subsidiary Companies
GPU RESULTS OF OPERATIONS (continued)
Energy revenues
1996 and 1995
Changes in energy revenues do not affect earnings as they reflect
corresponding changes in the energy cost rates billed to customers and
expensed. The 1996 increase was due primarily to higher energy cost rates in
effect and increased commercial and residential customer sales, partially
offset by lower sales to other utilities. Energy revenues in 1995 increased
primarily from additional sales to other utilities and higher energy cost
rates.
Other revenues
1996 and 1995
Generally, changes in other revenues do not affect earnings as they are
offset by corresponding changes in expense, such as taxes other than income
taxes. However, increased transmission revenues contributed to earnings in
1996.
OPERATING EXPENSES:
Power purchased and interchanged (PP&I)
1996 and 1995
Generally, changes in the energy component of PP&I expense do not
significantly affect earnings since these cost increases are substantially
recovered through the GPU Energy companies' energy adjustment clauses.
However, lower reserve capacity expense, which is a component of PP&I,
contributed to earnings in 1996.
Fuel and Deferral of energy costs, net
1996 and 1995
Generally, changes in fuel expense and deferral of energy costs do not
affect earnings as they are offset by corresponding changes in energy
revenues. However, earnings for 1996 benefitted from a $6.3 million pre-tax
performance award earned by JCP&L for the efficient operation of its nuclear
generating stations.
Other operation and maintenance
1996
The 1996 increase in other O&M expenses was due primarily to a $122.7
million pre-tax charge related to the early retirement programs. Partially
offsetting the effect of these was a 1995 write-off of $14.7 million pre-tax,
for TMI-2 monitored storage costs deemed not probable of recovery through
ratemaking. Greater storm damage and emergency repairs in 1996 also
contributed to the increase.
F-8
GPU, Inc. and Subsidiary Companies
GPU RESULTS OF OPERATIONS (continued)
1995
The 1995 decrease in other O&M expenses was due to a $127 million pre-tax
charge in 1994 related to early retirement programs. Partially offsetting the
effect of these was the 1995 write-off of $14.7 million for TMI-2 monitored
storage costs.
Depreciation and amortization
1996
The 1996 increase in depreciation and amortization expense was due
primarily to additions to plant in service and higher depreciation rates for
Met-Ed and Penelec.
1995
The 1995 increase in depreciation and amortization expense was due
primarily to additions to plant in service.
Taxes, other than income taxes
1996 and 1995
Generally, changes in taxes other than income taxes do not significantly
affect earnings as they are substantially recovered in revenues.
OTHER INCOME AND DEDUCTIONS:
Other income/(expense), net
1996
The 1996 decrease in other income/(expense) was due primarily to the
reversal in 1995, of $183.9 million pre-tax, of certain future TMI-2
retirement costs written off in 1994 by Met-Ed and Penelec. This reversal of
expense resulted from a 1995 Pennsylvania Supreme Court decision restoring a
1993 PaPUC order allowing Met-Ed to recover such costs from customers. This
was partially offset by higher GPU International Group income, due primarily
to the inclusion of Midlands' income (see Note 6 to GPU's Consolidated
Financial Statements).
1995
The 1995 increase in other income/(expense) was due largely to the
reversal of TMI-2 retirement costs written off in 1994. Also, in 1994 Penelec
expensed $18.6 million pre-tax for certain OPEB costs believed not probable of
recovery in rates. Of this amount, $14.6 million was written off as a result
of a PaPUC order disallowing the collection of such costs by a nonaffiliated
utility, and $4 million was charged to expense for OPEB costs related to
employees who participated in the 1994 early retirement programs. Increased
GPU International Group income in 1995, due primarily to gains on the sale of
investment securities totaling $11.8 million pre-tax, also contributed to the
increase. Partially offsetting these was interest income in 1994 of $59.4
million pre-tax resulting from refunds of previously paid federal income taxes
related to the tax retirement of TMI-2.
F-9
GPU, Inc. and Subsidiary Companies
GPU RESULTS OF OPERATIONS (continued)
INTEREST CHARGES AND PREFERRED DIVIDENDS:
Other interest
1995
The 1995 decrease in other interest was due primarily to the GPU Energy
companies recognizing in 1994 interest expense related to the tax retirement
of TMI-2. The tax retirement of TMI-2 resulted in a $13.8 million pre-tax
charge to interest expense on additional amounts owed for tax years in which
depreciation deductions with respect to TMI-2 had been taken.
Dividends on subsidiary-obligated mandatorily redeemable preferred securities
1996 and 1995
The 1996 increase was due to JCP&L issuing in May 1995, through a
special-purpose finance subsidiary, $125 million stated value of mandatorily
redeemable preferred securities. The 1995 increase was due to Met-Ed and
Penelec issuing in 1994, through special-purpose finance subsidiaries, $100
million and $105 million, respectively, of these securities.
Gain on preferred stock reacquisition
1996
The 1996 increase was due to gains associated with Met-Ed and Penelec
reacquiring, through cash tender offers, portions of their preferred stock.
JCP&L RESULTS OF OPERATIONS
JCP&L's 1996 earnings were $143.2 million, compared to 1995 earnings of
$184.6 million. The decrease in earnings was due primarily to a $39.4 million
after-tax charge in 1996 for voluntary enhanced retirement programs (includes
JCP&L's share of costs allocated from Genco, GPUN and GPUS), which were
accepted by 341 bargaining and non-bargaining employees of JCP&L, or about
11.5% of its workforce. JCP&L's return on average common equity was 9.5% in
1996 compared to 13.1% in 1995. Excluding this nonrecurring item, 1996
earnings would have been $182.6 million and return on average common equity,
on this basis, would have been 12%.
Earnings in 1995 were $184.6 million, compared to 1994 earnings of $148
million. Contributing to this earnings increase were a $30.4 million after-
tax charge in 1994 for early retirement programs, lower other O&M expenses,
and higher new customer sales, partially offset by lower weather-related
sales. Also, in 1994 JCP&L recognized net interest income of $7.4 million
after-tax resulting from refunds of previously paid federal income taxes
related to the tax retirement of TMI-2.
F-10
GPU, Inc. and Subsidiary Companies
JCP&L RESULTS OF OPERATIONS (continued)
OPERATING REVENUES:
Total revenues increased 1.1% to $2.06 billion in 1996, after increasing
4.3% to $2.04 billion in 1995. The components of these changes are as
follows:
(In Millions)
1996 1995
Kilowatt-hour revenues
(excluding energy portion) $ (7.2) $ 11.4
Energy revenues 22.1 72.3
Other revenues 7.1 (0.2)
Increase in revenues $ 22.0 $ 83.5
Kilowatt-hour revenues
1996
The 1996 decrease in KWH revenues was due to lower weather-related sales
to residential customers, partially offset by new residential and commercial
customer sales.
1996 KWH Customer Sales by Service Class
Residential 41%
Commercial 39%
Industrial/Other 20%
1995
The 1995 increase in KWH revenues was due to increases in new residential
and commercial customer sales, partially offset by lower weather-related
sales.
Energy revenues
1996 and 1995
Changes in energy revenues do not affect earnings as they reflect
corresponding changes in the energy cost rates billed to customers and
expensed. The 1996 increase in energy revenues was due primarily to higher
energy cost rates in effect and increased commercial customer sales, partially
offset by lower sales to other utilities. The 1995 increase was primarily due
to additional sales to other utilities and higher energy cost rates.
Other revenues
1996 and 1995
Generally, changes in other revenues do not affect earnings as they are
offset by corresponding changes in expense, such as taxes other than income
taxes.
F-11
GPU, Inc. and Subsidiary Companies
JCP&L RESULTS OF OPERATIONS (continued)
OPERATING EXPENSES:
Power purchased and interchanged
1996
Generally, changes in the energy component of PP&I expense do not
significantly affect earnings since these cost increases are substantially
recovered through the energy adjustment clause. However, lower reserve
capacity expense resulting primarily from reduced purchases from Pennsylvania
Power & Light Company contributed to the 1996 earnings.
1995
Earnings in 1995 were negatively affected by higher reserve capacity
expense resulting primarily from a Pennsylvania-New Jersey-Maryland
Interconnection (PJM Power Pool) prior year adjustment and one-time net
charges of $3.6 million pre-tax from another utility.
Fuel and Deferral of energy and capacity costs, net
1996 and 1995
Generally, changes in fuel expense and deferral of energy and capacity
costs do not affect earnings as they are offset by corresponding changes in
energy revenues. However, earnings for 1996 benefitted from a $6.3 million
pre-tax performance award earned by JCP&L for the efficient operation of its
nuclear generating stations.
Other operation and maintenance
1996
The 1996 increase in other O&M expenses was due in part to a $62.9
million pre-tax charge related to the early retirement programs. Payments
associated with the use of others' transmission facilities (primarily
associated companies) and greater storm damage and emergency repairs also
contributed to the increase.
1995
The 1995 decrease in other O&M expenses was due primarily to the effect
of a $46.9 million pre-tax charge in 1994 related to early retirement programs
and lower 1995 storm damage and emergency repairs.
Depreciation and amortization
1996
The 1996 increase in depreciation and amortization expense was due
primarily to additions to plant in service, partially offset by lower
depreciation rates; and higher regulatory asset amortizations.
1995
The 1995 increase in depreciation and amortization expense was due
primarily to additions to plant in service, partially offset by lower
regulatory asset amortizations.
F-12
GPU, Inc. and Subsidiary Companies
JCP&L RESULTS OF OPERATIONS (continued)
Taxes, other than income taxes
1996 and 1995
Generally, changes in taxes other than income taxes do not significantly
affect earnings as they are substantially recovered in revenues.
OTHER INCOME AND DEDUCTIONS:
Other income, net
1996
The 1996 decrease in other income was due largely to the write-off of $3
million pre-tax of nonutility generation (NUG) buyout costs related to the
Crown/Vista project (see Rate Matters section) and the write-off of obsolete
inventory in connection with the retirements of the Werner and Gilbert
generating stations.
1995
The 1995 decrease was due to the recognition in 1994 of interest income
of $14.7 million pre-tax resulting from refunds of previously paid federal
income taxes related to the tax retirement of TMI-2. Partially offsetting the
effect of this was a 1994 write-off of $4.2 million pre-tax for a cancelled
project.
INTEREST CHARGES AND DIVIDENDS ON PREFERRED SECURITIES:
Interest on long-term debt
1996
The decrease in interest on long-term debt was due to lower interest
rates on long-term debt.
Dividends on company-obligated mandatorily redeemable preferred securities
1996 and 1995
The 1996 increase was due to JCP&L issuing in May 1995, through a
special-purpose finance subsidiary, $125 million stated value of mandatorily
redeemable preferred securities.
MET-ED RESULTS OF OPERATIONS
Met-Ed's 1996 earnings were $71.8 million, compared to 1995 earnings of
$147.6 million. The decrease in earnings was due primarily to the effect of
1996 and 1995 nonrecurring items. Met-Ed's return on average common equity
was 10.3% in 1996 compared to 23.5% in 1995.
F-13
GPU, Inc. and Subsidiary Companies
MET-ED RESULTS OF OPERATIONS (continued)
Excluding these nonrecurring items, earnings would have been $87.2
million, compared to earnings of $80.5 million for 1995. Return on average
common equity for 1996 and 1995, on this basis, would have been 12.4% and
13.4%, respectively. The earnings increase, on this basis, was due to
primarily higher customer sales, lower reserve capacity expense and gains
associated with the reacquisition of preferred stock.
The 1996 nonrecurring item consisted of a charge to income of $15.4
million after-tax for voluntary enhanced retirement programs (includes Met-
Ed's share of costs allocated from Genco, GPUN and GPUS), which were accepted
by 163 bargaining and non-bargaining employees of Met-Ed, or about 7.5% of its
workforce.
The 1995 nonrecurring items consisted of the reversal of a $72.8 million
after-tax expense, for certain future TMI-2 retirement costs written off in
1994. This reversal of expense resulted from a 1995 Pennsylvania Supreme
Court decision restoring a 1993 PaPUC order allowing Met-Ed to recover such
costs from customers. Partially offsetting the effect of this was a charge to
income of $5.7 million after-tax for TMI-2 monitored storage costs deemed not
probable of recovery through ratemaking.
Earnings in 1995 were $147.6 million, compared to a net loss of $2.2
million for 1994. The increase in earnings was due primarily to the net
effect of 1995 (discussed above) and 1994 nonrecurring items. Excluding these
nonrecurring items, earnings for 1995 would have been $80.5 million, compared
to 1994 earnings of $77.7 million. Contributing to this increase were higher
customer sales and lower other O&M expenses, partially offset by higher
depreciation and financing expenses.
The 1994 nonrecurring items included the above mentioned TMI-2 write-off
of $72.8 million after-tax. Also, in 1994 there was a charge to income of
$20.1 million after-tax, for costs related to voluntary enhanced retirement
programs; and net interest income of $13 million after-tax resulting from
refunds of previously paid federal income taxes related to the tax retirement
of TMI-2.
OPERATING REVENUES:
Total revenues increased 6.5% to $910.4 million in 1996, after increasing
6.7% to $854.7 million in 1995. The components of these changes are as
follows:
(In Millions)
1996 1995
Kilowatt-hour revenues
(excluding energy portion) $ 21.5 $ 4.8
Energy revenues 30.1 46.4
Other revenues 4.1 2.2
Increase in revenues $ 55.7 $ 53.4
F-14
GPU, Inc. and Subsidiary Companies
MET-ED RESULTS OF OPERATIONS (continued)
Kilowatt-hour revenues
1996
The 1996 increase in KWH revenues was due to increased customer usage,
higher weather-related sales to residential customers and an increase in new
commercial and residential customer sales.
1996 KWH Customer Sales by Service Class
Residential 36%
Commercial 27%
Industrial/Other 37%
1995
The 1995 increase in KWH revenues was due to an increase in new
residential and commercial customer sales and higher industrial customer
usage, partially offset by lower weather-related sales.
Energy revenues
1996 and 1995
Changes in energy revenues do not affect earnings as they reflect
corresponding changes in the energy cost rates billed to customers and
expensed. The 1996 increase in energy revenues was due primarily to higher
energy cost rates in effect and increased commercial and residential customer
sales, partially offset by lower sales to other utilities. The 1995 increase
was due to higher energy cost rates and additional sales to other utilities.
Other revenues
1996 and 1995
Generally, changes in other revenues do not affect earnings as they are
offset by corresponding changes in expense, such as taxes other than income
taxes.
OPERATING EXPENSES:
Power purchased and interchanged
1996 and 1995
Generally, changes in the energy component of PP&I expense do not
significantly affect earnings since these cost increases are substantially
recovered through the energy adjustment clause. However, lower reserve
capacity expense contributed to the 1996 and 1995 earnings.
Fuel and Deferral of energy costs, net
1996 and 1995
Generally, changes in fuel expense and deferral of energy costs do not
affect earnings as they are offset by corresponding changes in energy
revenues.
F-15
GPU, Inc. and Subsidiary Companies
MET-ED RESULTS OF OPERATIONS (continued)
Other operation and maintenance
1996
The 1996 increase in other O&M expenses was due primarily to a $26.2
million pre-tax charge related to the early retirement programs and greater
storm damage and emergency repairs. Partially offsetting the effect of these
was a 1995 write-off of $10 million pre-tax, for TMI-2 monitored storage costs
deemed not probable of recovery through ratemaking.
1995
The 1995 decrease in other O&M expenses was due primarily to a $35.2
million pre-tax charge in 1994 related to early retirement programs.
Partially offsetting the effect of this was a 1995 write-off of $10 million
pre-tax for TMI-2 monitored storage costs.
Depreciation and amortization
1996
The 1996 decrease in depreciation and amortization was due to adjustments
in 1995 related to TMI-2 decommissioning. These adjustments more than offset
1996 increases in depreciation expense resulting from additions to plant in
service and higher depreciation rates.
1995
The 1995 increase in depreciation and amortization expense was due
primarily to additions to plant in service and adjustments for TMI-2
decommissioning.
Taxes, other than income taxes
1996 and 1995
Generally, changes in taxes other than income taxes do not significantly
affect earnings as they are substantially recovered in revenues.
OTHER INCOME AND DEDUCTIONS:
Other income/(expense), net
1996
The 1996 decrease in other income/(expense) was due primarily to the
reversal in 1995, of $127.6 million pre-tax, of certain future TMI-2
retirement costs written off in 1994. This reversal of expense resulted from
a 1995 Pennsylvania Supreme Court decision restoring a 1993 PaPUC order
allowing Met-Ed to recover such costs from customers.
1995
The 1995 increase in other income/(expense) was due largely to the
reversal of TMI-2 retirement costs written off in 1994. Partially offsetting
F-16
GPU, Inc. and Subsidiary Companies
MET-ED RESULTS OF OPERATIONS (continued)
the effect of this was interest income in 1994 of $29.8 million pre-tax
resulting from refunds of previously paid federal income taxes related to the
tax retirement of TMI-2.
INTEREST CHARGES AND DIVIDENDS ON PREFERRED SECURITIES:
Dividends on company-obligated mandatorily redeemable preferred securities
1995
The 1995 increase was due to Met-Ed issuing in August 1994, through a
special-purpose finance subsidiary, $100 million stated value of mandatorily
redeemable preferred securities.
Gain on preferred stock reacquisition
1996
The 1996 increase was due to gains associated with Met-Ed reacquiring,
through cash tender offers, portions of its preferred stock.
PENELEC RESULTS OF OPERATIONS
Penelec's 1996 earnings were $73.9 million, compared to 1995 earnings of
$109.5 million. The decrease in earnings was due primarily to the effect of
1996 and 1995 nonrecurring items. Penelec's return on average common equity
was 10% in 1996 compared to 15.8% in 1995.
Excluding these nonrecurring items, earnings would have been $93.6
million compared to earnings of $80.1 million for 1995. Return on average
common equity for 1996 and 1995, on this basis, would have been 12.6% and
11.8%, respectively. The earnings increase, on this basis, was due primarily
to higher customer sales and gains associated with the reacquisition of
preferred stock, which were partially offset by higher depreciation expense.
The 1996 nonrecurring item consisted of a charge to income of $19.7
million after-tax for voluntary enhanced retirement programs (includes
Penelec's share of costs allocated from Genco, GPUN and GPUS), which were
accepted by 165 bargaining and non-bargaining employees of Penelec or about
7.5% of its workforce.
The 1995 nonrecurring items consisted of the reversal of a $32.1 million
after-tax expense, for certain future TMI-2 retirement costs written off in
1994. This reversal of expense resulted from a 1995 Pennsylvania Supreme
Court decision restoring a 1993 PaPUC order allowing an affiliate (Met-Ed) to
recover such costs from customers. Partially offsetting the effect of this
was a charge to income of $2.7 million after-tax for TMI-2 monitored storage
costs deemed not probable of recovery through ratemaking.
F-17
GPU, Inc. and Subsidiary Companies
PENELEC RESULTS OF OPERATIONS (continued)
Earnings in 1995 were $109.5 million, compared to 1994 earnings of $28.9
million. The increase in earnings was due primarily to the net effect of 1995
(discussed above) and 1994 nonrecurring items. Excluding these nonrecurring
items, earnings for 1995 would have been $80.1 million, compared to 1994
earnings of $90.7 million. Contributing to this earnings decrease were higher
other O&M expenses and increased financing expenses.
The 1994 nonrecurring items included the above mentioned TMI-2 write-off
of $32.1 million after-tax. Also in 1994, there was a charge to income of
$25.6 million after-tax, for costs related to voluntary enhanced retirement
programs; a write-off of $10.6 million after-tax for certain OPEB costs; and
net interest income of $6.5 million after-tax resulting from refunds of
previously paid federal income taxes related to the tax retirement of TMI-2.
OPERATING REVENUES:
Total revenues increased 3.9% to $1 billion in 1996, after increasing
3.9% to $981.3 million in 1995. The components of these changes are as
follows:
(In Millions)
1996 1995
Kilowatt-hour revenues
(excluding energy portion) $ 7.5 $ 1.7
Energy revenues 14.7 32.3
Other revenues 16.1 2.6
Increase in revenues $ 38.3 $ 36.6
Kilowatt-hour revenues
1996 and 1995
The 1996 and 1995 increases in KWH revenues were due primarily to
increased new commercial and residential customer sales. Higher weather-
related sales to residential customers also contributed to the 1996 increase.
1996 KWH Customer Sales by Service Class
Residential 29%
Commercial 31%
Industrial 34%
Other 6%
Energy revenues
1996 and 1995
Changes in energy revenues do not affect earnings as they reflect
corresponding changes in the energy cost rates billed to customers and
expensed. The 1996 increase in energy revenues was due primarily to higher
energy cost rates in effect and increased commercial and residential customer
F-18
GPU, Inc. and Subsidiary Companies
PENELEC RESULTS OF OPERATIONS (continued)
sales, partially offset by lower sales to other utilities. The 1995 increase
was due primarily to additional sales to other utilities and higher energy
cost rates.
Other revenues
1996 and 1995
Generally, changes in other revenues do not affect earnings as they are
offset by corresponding changes in expense, such as taxes other than income
taxes. However, increased transmission revenues contributed to earnings in
1996.
OPERATING EXPENSES:
Power purchased and interchanged
1996 and 1995
Generally, changes in the energy component of PP&I expense do not
significantly affect earnings since these cost increases are substantially
recovered through the energy adjustment clause.
Fuel and Deferral of energy costs, net
1996 and 1995
Generally, changes in fuel expense and deferral of energy costs do not
affect earnings as they are offset by corresponding changes in energy
revenues.
Other operation and maintenance
1996
The 1996 increase in other O&M expenses was due to a $33.6 million
pre-tax charge related to the early retirement programs. Partially offsetting
the effect of this was a 1995 write-off of $4.7 million pre-tax, for TMI-2
monitored storage costs deemed not probable of recovery through ratemaking.
1995
The 1995 decrease in other O&M expenses was due to a $44.9 million
pre-tax charge in 1994 related to early retirement programs. Partially
offsetting the effect of this were a 1995 write-off of $4.7 million pre-tax
for TMI-2 monitored storage costs, and employee severance payments associated
with the management combination with Met-Ed in 1995.
Depreciation and amortization
1996 and 1995
The 1996 increase in depreciation and amortization expense was due to
additions to plant in service and higher depreciation rates. The 1995
increase was due primarily to additions to plant in service.
F-19
GPU, Inc. and Subsidiary Companies
PENELEC RESULTS OF OPERATIONS (continued)
Taxes, other than income taxes
1996 and 1995
Generally, changes in taxes other than income taxes do not significantly
affect earnings as they are substantially recovered in revenues.
OTHER INCOME AND DEDUCTIONS:
Other income/(expense), net
1996
The 1996 decrease in other income/(expense) was due primarily to the
reversal in 1995, of $56.3 million pre-tax, of certain future TMI-2 retirement
costs written off in 1994. This reversal of expense resulted from a 1995
Pennsylvania Supreme Court decision restoring a 1993 PaPUC order allowing an
affiliate to recover such costs from customers. Partially offsetting this was
a write-off in 1995 of $2.5 million of deferred OPEB costs related to
wholesale customers which were deemed not recoverable through ratemaking.
1995
The 1995 increase in other income/(expense) was due largely to the
reversal of TMI-2 retirement costs of $56.3 million pre-tax written off in
1994. In 1994, Penelec expensed $18.6 million pre-tax for certain OPEB costs
believed not probable of recovery in rates. Of this amount, $14.6 million was
written off as a result of a PaPUC order disallowing a nonaffiliated utility
to collect such costs, and $4 million was charged to expense for OPEB costs
related to employees who participated in the early retirement programs. Also,
Penelec recorded interest income of $14.9 million pre-tax resulting from
refunds of previously paid federal income taxes related to the tax retirement
of TMI-2.
INTEREST CHARGES AND DIVIDENDS ON PREFERRED SECURITIES:
Dividends on company-obligated mandatorily redeemable preferred securities
1995
The 1995 increase was due to Penelec issuing in July 1994, through a
special-purpose finance subsidiary, $105 million stated value of mandatorily
redeemable preferred securities.
Gain on preferred stock reacquisition
1996
The 1996 increase was due to gains associated with Penelec reacquiring,
through cash tender offers, portions of its preferred stock.
F-20
GPU, Inc. and Subsidiary Companies
The following sections of Management's Discussion and Analysis of
Financial Condition and Results of Operations contain certain forward-looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995. Statements made that are not historical facts are forward-looking
and, accordingly, involve risks and uncertainties that could cause actual
results or outcomes to differ materially from those expressed in the
forward-looking statements. Although such forward-looking statements have
been based on reasonable assumptions, there is no assurance that the expected
results will be achieved. Some of the factors that could cause actual results
to differ materially include, but are not limited to: the effects of
regulatory decisions; changes in law and other governmental actions and
initiatives; the impact of deregulation and increased competition in the
industry; industry restructuring; expected outcomes of legal proceedings;
generating plant performance; fuel prices and availability; and uncertainties
involved with foreign operations including political risks and foreign
currency fluctuations.
GPU INTERNATIONAL GROUP
The GPU International Group develops, owns and operates electric
generation, transmission and distribution facilities and supply businesses in
the U.S. and foreign countries. It has also made investments in certain
advanced technologies related to the electric power industry. The GPU
International Group has ownership interests in distribution and supply
businesses in England and Australia, ten operating cogeneration plants in the
U.S. totaling 895 MW (of which the GPU International Group's equity interest
represents 261 MW) of capacity, and eleven operating generating facilities
located in foreign countries totaling 2,686 MW (of which the GPU International
Group's equity interest represents 546 MW) of capacity.
The GPU International Group is continuing to pursue investment
opportunities and has commitments, both domestically and internationally, in
five generating facilities under construction totaling 3,172 MW (of which the
GPU International Group's equity interest represents 816 MW) of capacity.
At December 31, 1996, GPU, Inc.'s aggregate investment in the GPU
International Group was $211 million; GPU, Inc. has also guaranteed up to an
additional $893 million of GPU International Group obligations. GPU, Inc. has
Securities and Exchange Commission (SEC) approval to finance investments in
foreign utility companies and exempt wholesale generators up to an aggregate
amount equal to 50% of GPU's average consolidated retained earnings, or
approximately $1 billion. At December 31, 1996, GPU, Inc. had remaining
authorization to finance an additional $25 million of such investments. A
request to increase this limit to 100% of GPU's average consolidated retained
earnings, or to approximately $2 billion at December 31, 1996, is pending.
Selected financial data for the GPU International Group is as follows:
F-21
GPU, Inc. and Subsidiary Companies
(In Millions)
1996 1995 1994
Total assets $1,075 $380 $130
Liabilities and capital:
Common equity $ 232 $209 $118
Long-term debt 752 104 -
Notes payable - 2 -
Total capitalization 984 315 118
Minority interest 43 41 -
Other liabilities 48 24 12
Total liabilities and capital $1,075 $380 $130
Purchase of investments $ 574 $165 $ 74
Net income/(loss) $ 24 $ 9 $ (3)
For additional information on the GPU International Group's investments, see
Note 7 to GPU's Consolidated Financial Statements.
In 1996, GPU and Cinergy Corp. (Cinergy) formed Avon Energy Partners
Holdings (Holdings), a 50/50 joint venture, to acquire Midlands (see Note 6 to
GPU's Consolidated Financial Statements), an English regional electric
company. A wholly-owned subsidiary of Holdings purchased the outstanding
shares of Midlands through a cash tender offer of 1.7 billion pounds, or
approximately U.S. $2.6 billion. GPU's 50% interest in Holdings is held by EI
UK Holdings, Inc. (EI UK), a wholly-owned subsidiary of GPU Electric.
The Labour Party in the United Kingdom has proposed a windfall tax on
privatized utilities and other companies as part of its election campaign
platform. General elections in the United Kingdom are required to be held no
later than May 1997. If the Labour Party wins the general election, and the
tax is enacted as currently proposed, a charge to Midlands' earnings, which is
estimated to range from $110 million to $350 million (GPU's 50% share being
$55 million to $175 million), would be recorded in 1997, perhaps as early as
the second quarter. Due to the fact that (1) the Labour Party may not win the
election; (2) the windfall tax may not be enacted as currently proposed; (3)
the amount of the proposed tax may change; and (4) the Labour Party may change
its current platform, there is no certainty that this tax, if levied, would be
enacted as currently proposed.
With the acquisitions of Midlands in 1996 and Solaris Power in 1995, the
GPU International Group now has 50% ownership interests in foreign utility
companies having total fixed assets of approximately $1.6 billion. These
foreign utility companies annually provide about 20 billion kilowatt-hours of
electricity to 2.2 million customers in England and 240,000 customers in
Australia, with operating revenues of $2.5 billion in 1996.
In 1996, GPU Power, through a wholly-owned subsidiary, purchased the
rights to acquire up to a 40% interest in a venture which plans to construct a
300 MW coal generating plant in the Philippines. GPU Power's equity
contribution is expected to be approximately $40 million.
F-22
GPU, Inc. and Subsidiary Companies
In 1996, GPU International and Ballard Power Systems of Canada agreed to
a business venture to develop, manufacture and market stationary fuel cell
power plants worldwide. Under the agreement, GPU International will invest
approximately $23 million for up to a 19.3% equity interest in the new
venture, of which $6 million was invested as of December 31, 1996.
Management expects that the GPU International Group will provide a
substantial portion of GPU's future earnings growth and intends on making
additional investments in its business activities. The timing and amounts of
these investments, however, will depend upon the availability of appropriate
opportunities and financing capabilities.
LIQUIDITY AND CAPITAL RESOURCES
Capital Needs
The GPU Energy companies' capital needs were $535 million (JCP&L $235
million; Met-Ed $92 million; Penelec $190 million; Other $18 million) in 1996,
consisting of cash construction expenditures of $404 million (JCP&L $200
million; Met-Ed $77 million; Penelec $115 million; Other $12 million) and
amounts for maturing obligations of $131 million (JCP&L $35 million; Met-Ed
$15 million; Penelec $75 million; Other $6 million). In addition, the GPU
International Group made investments in 1996 totaling $574 million, due
primarily to the acquisition of Midlands (see Note 6 to GPU's Consolidated
Financial Statements).
During 1996, construction expenditures were used primarily for new
customer connections and to maintain and improve existing transmission and
distribution facilities. In 1997, construction expenditures for the GPU
Energy companies are estimated to be $402 million (JCP&L $185 million; Met-Ed
$90 million; Penelec $120 million; Other $7 million), consisting primarily of
$391 million (JCP&L $179 million; Met-Ed $88 million; Penelec $117 million;
Other $7 million) for ongoing system development. Expenditures for maturing
obligations will total $179 million (JCP&L $110 million; Met-Ed $40 million;
Penelec $26 million; Other $3 million) in 1997, and $139 million (JCP&L $12
million; Penelec $30 million; Other $97 million) in 1998. Management
estimates that a substantial portion of GPU's and the GPU Energy companies'
1997 capital needs will be satisfied through internally generated funds.
Cash Construction Expenditures
(In millions of dollars)
1992 1993 1994 1995 1996 1997*
GPU $460 $496 $586 $462 $404 $402
JCP&L $219 $197 $244 $218 $200 $185
Met-Ed 131 142 160 113 77 90
Penelec 110 150 174 131 115 120
Other - 7 8 - 12 7
* Estimate
The GPU Energy companies' capital leases are primarily for nuclear fuel.
F-23
GPU, Inc. and Subsidiary Companies
Nuclear fuel capital leases at December 31, 1996 totaled $139 million (JCP&L
$95 million; Met-Ed $29 million; Penelec $15 million). When consumed,
portions of the presently leased material will be replaced by additional
leased material at an average annual rate (which is based on two full
operating cycles, or four years) of between $35 million and $50 million (JCP&L
$20 million - $25 million; Met-Ed $10 million - $15 million; Penelec $5
million - $10 million). In the event the needed nuclear fuel cannot be
leased, the associated capital requirements would have to be met by other
means.
Financing
GPU, Inc. has received SEC approval to issue and sell up to $300 million
of unsecured debentures through December 31, 2001 and up to seven million
shares of additional common stock through 1998. GPU, Inc. has no current
plans to issue these securities. Any sale of such securities will, among
other things, depend upon future capital requirements and market conditions.
As a result of Pennsylvania legislation (see Competitive Environment
section), Met-Ed and Penelec each plan to sell securitized transition bonds
through a separate trust or other similar entity, and would use the proceeds
to reduce capitalization and further mitigate stranded costs resulting from
customer choice. The timing and amount of any sale will depend upon PaPUC
approval of restructuring plans, as well as market conditions.
The GPU Energy companies have regulatory authority to issue and sell
first mortgage bonds (FMBs), including secured medium-term notes, and
preferred stock through various periods into 1997. JCP&L and Penelec intend
to seek regulatory approval to extend such authorizations through June 1999.
Under existing authorizations, JCP&L, Met-Ed and Penelec may issue these
senior securities in aggregate amounts of $145 million, $190 million and $120
million, respectively, of which up to $100 million for each company may
consist of preferred stock. The GPU Energy companies also have regulatory
authority to incur short-term debt, a portion of which may be through the
issuance of commercial paper.
In 1996, the GPU Energy companies issued an aggregate of $120 million
(JCP&L $80 million; Penelec $40 million) principal amount of FMBs. The
proceeds from these issuances were used to repay short-term debt and for other
corporate purposes. The GPU Energy companies redeemed $115.7 million (JCP&L
$25.7 million; Met-Ed $15 million; Penelec $75 million) principal amount of
FMBs with 1996 maturities.
Also in 1996, JCP&L redeemed $20 million stated value of cumulative
preferred stock pursuant to mandatory and optional sinking fund provisions.
In December 1996, Met-Ed and Penelec repurchased an aggregate of $11.4 million
stated value and $20 million stated value, respectively, of cumulative
preferred stock, through cash tender offers, at a total cost of approximately
$7.7 million and $14.4 million, respectively.
In January 1997, JCP&L redeemed an aggregate of $54.2 million principal
amount of FMBs, of which $24.2 million were redeemed prior to maturity.
F-24
GPU, Inc. and Subsidiary Companies
The GPU Energy companies' bond indentures and articles of incorporation
include provisions that limit the amount of long-term debt, preferred stock
and short-term debt the companies may issue. The GPU Energy companies'
interest and preferred dividend coverage ratios are currently in excess of
indenture and charter restrictions. The amount of FMBs that the GPU Energy
companies could issue based on the bondable value of property additions is in
excess of amounts currently authorized.
GPU's cost of capital and ability to obtain external financing are
affected by its security ratings, which are periodically reviewed by the
credit rating agencies. The GPU Energy companies' FMBs are currently rated at
an equivalent of "BBB+" or higher by the major credit rating agencies, while
the preferred stock and mandatorily redeemable preferred securities have been
assigned an equivalent of "BBB" or higher. In addition, the GPU Energy
companies' commercial paper is rated as having good to high credit quality.
The Standard & Poor's (S&P) rating outlook is used to assess the
potential direction of an issuer's long-term debt rating over the intermediate
to longer-term. The rating outlook for the GPU Energy companies remained
constant in 1996. Met-Ed's "positive" rating outlook reflects expectations of
steady financial improvement based on economic growth, the successful buyout
of expensive NUG contracts, and continued strong nuclear operations. JCP&L's
and Penelec's "stable" rating outlooks reflect manageable construction
programs, minimal rate relief requirements and expectations of modest
strengthening in the service area economies. The S&P business position is a
financial benchmarking standard for rating the debt of electric utilities to
reflect the changing risk profiles resulting primarily from the intensifying
competitive pressures in the industry. The business position currently
assigned to the GPU Energy companies is "low average" to "average"; in 1996,
the business position for Met-Ed was raised to "average."
Present plans call for the GPU Energy companies to issue long-term debt
during the next three years to finance construction activities, fund the
redemption of maturing senior securities, and depending on interest rates,
refinance outstanding senior securities. In addition, further significant
investments by the GPU International Group, or otherwise, may require GPU,
Inc. to issue additional debt and/or common stock (see GPU International Group
section for a discussion of GPU, Inc.'s remaining investment authorization).
In 1996, GPU Electric, through its wholly-owned subsidiary EI UK, entered
into a five-year term loan agreement with a syndicate of banks which provides
for borrowings of up to 350 million pounds. As of December 31, 1996, EI UK
had aggregate borrowings outstanding under the GPU, Inc. guaranteed term loan
of 342 million pounds, or approximately U.S. $586 million. The proceeds from
these borrowings were used by EI UK to fund the acquisition of Midlands.
Also in 1996, GPU International, through a wholly-owned subsidiary,
completed nonrecourse construction financing for its 300 MW Mid-Georgia
project. As of December 31, 1996, GPU International had aggregate borrowings
outstanding for the construction of this project of $62 million, of which $22
million is guaranteed by GPU, Inc.
F-25
GPU, Inc. and Subsidiary Companies
Capitalization
GPU's target capitalization ratios are designed to provide credit quality
ratings that permit capital market access at reasonable costs. The targets
and actual capitalization ratios are as follows:
GPU Target Range 1996 1995 1994
Common equity 45-48% 43% 47% 44%
Preferred equity 7-9 7 9 8
Notes payable and
long-term debt 48-43 50 44 48
100% 100% 100% 100%
JCP&L Target Range 1996 1995 1994
Common equity 48-51% 48% 49% 47%
Preferred equity 8-10 9 10 7
Notes payable and
long-term debt 44-39 43 41 46
100% 100% 100% 100%
Met-Ed Target Range 1996 1995 1994
Common equity 47-50% 48% 47% 46%
Preferred equity 8-10 8 9 10
Notes payable and
long-term debt 45-40 44 44 44
100% 100% 100% 100%
Penelec Target Range 1996 1995 1994
Common equity 45-48% 45% 45% 43%
Preferred equity 8-10 7 9 9
Notes payable and
long-term debt 47-42 48 46 48
100% 100% 100% 100%
In 1996, the quarterly dividend on GPU, Inc.'s common stock was increased
by 3.2% to an annualized rate of $1.94 per share. GPU, Inc.'s payout rate in
1996 was 62% of earnings (excluding the nonrecurring items). Management will
continue to review GPU, Inc.'s dividend policy to determine how to best serve
the long-term interests of shareholders.
COMPETITIVE ENVIRONMENT
The GPU Energy companies estimate that their total potential above market
costs relating to power purchase commitments, above market generation costs,
generating plant decommissioning costs and regulatory assets at year end 1998,
on a present value basis, could range from $4.5 billion to $8 billion (JCP&L
$2.5 billion to $4 billion; Met-Ed $1 billion to $2 billion; Penelec $1
billion to $2 billion). The estimate is subject to significant uncertainties
including the future market price of both electricity and other competitive
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GPU, Inc. and Subsidiary Companies
energy sources, as well as the timing of when these above market costs become
stranded due to customers choosing another supplier. As discussed below, both
the restructuring legislation in Pennsylvania and the proposed restructuring
plan in New Jersey provide mechanisms for utilities to recover, subject to
regulatory approval, their above market costs. These regulatory recovery
mechanisms in Pennsylvania and New Jersey will differ, but should allow for
the recovery of non-mitigable above market costs through either distribution
charges or separate nonbypassable charges to customers.
Recent Regulatory Actions
Since the enactment of the federal Public Utility Regulatory Policies Act
of 1978 (PURPA), market forces combined with state and federal actions have
led to increased competition in the electric utility industry. During 1996,
state and federal actions continued to move the electric utility industry in
this direction.
In 1996, Pennsylvania adopted comprehensive legislation which provides
for the restructuring of the electric utility industry. The legislation,
among other things, permits one-third of Pennsylvania retail consumers to
choose their electric supplier beginning January 1, 1999, and all retail
consumers by January 1, 2001. The legislation requires the unbundling of
rates for transmission, distribution and generation services. Utilities would
have the opportunity to recover up to 100% of their prudently incurred
stranded costs that result from customers choosing another supplier through a
PaPUC approved competitive transition charge, subject to certain conditions,
including that they attempt to mitigate these costs. For a discussion of
stranded costs, see the Competition and the Changing Regulatory Environment
section of Note 14 to GPU's Consolidated Financial Statements.
The legislation provides utilities the opportunity to reduce their
stranded costs through the issuance of transition bonds with maturities of up
to 10 years. The sale proceeds could be used to buy out or buy down
uneconomic NUG contracts, to reduce capitalization, or both. Principal and
interest payments on the bonds would be paid by all distribution service
customers through a nonbypassable intangible transition charge. Reduced
financing costs associated with the sale of transition bonds would be used to
provide rate reductions for all customers.
Pennsylvania electric utilities are required to submit restructuring
plans to the PaPUC between April 1, 1997 and September 30, 1997. Met-Ed and
Penelec are scheduled to file their respective plans with the PaPUC on June 1,
1997. The PaPUC is required to conduct public hearings prior to its approval
of these plans.
Effective January 1, 1997, transmission and distribution rates charged to
Pennsylvania retail customers are generally capped for 4 1/2 years, and
generation rates are generally capped for up to nine years. Transmission and
distribution of electricity will continue as a regulated monopoly and the
PaPUC will ensure that adequate electrical reserves exist to maintain reliable
service. An independent system operator (ISO) will be responsible for
coordinating the generation and transmission of electricity in an efficient
and nondiscriminatory manner.
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GPU, Inc. and Subsidiary Companies
As part of this restructuring, Met-Ed and Penelec filed, in December
1996, tariff supplements with the PaPUC requesting approval to, among other
things, include their currently effective energy cost rates (ECR) and state
tax adjustment surcharges (STAS) in base rates, effective for all bills
rendered after January 1, 1997. The PaPUC has issued a tentative order
approving this request. Since rates that can be charged to customers for
generation are capped for up to nine years, Met-Ed's and Penelec's future
earnings will be subject to market volatility. Increases or decreases in fuel
costs will no longer be subject to deferred accounting and will be reflected
in net income as incurred. Met-Ed and Penelec will continue their efforts to
manage fuel costs and will mitigate, to the extent possible, any excessive
risks. As a result of including their ECRs in base rates and the cessation of
deferred energy accounting, both effective January 1, 1997, Met-Ed and Penelec
will experience step increases in reported revenues totaling approximately $25
million (Met-Ed $10 million; Penelec $15 million) in the first quarter of
1997.
The PaPUC has also issued a final order that sets forth the guidelines
for retail access pilot programs in Pennsylvania. These pilot programs shall
include residential, commercial and industrial class customers, and utilities
are required to commit about 5% of load to retail access programs and unbundle
their rates to allow customers to choose their electric generation supplier.
Met-Ed and Penelec expect to file with the PaPUC in the first quarter of 1997
their plan for a proposed pilot program that would offer certain customers
choice of their electric generation supplier.
In January 1997, the New Jersey Board of Public Utilities (NJBPU)
released Phase II of the New Jersey Energy Master Plan which recommends, among
other things, that certain electric retail customers be permitted to choose
their supplier beginning October 1998, expanding to include all retail
customers by April 2001. The NJBPU also recommends a near-term electric rate
reduction of 5% to 10% with the phase in of retail competition, and combined
with the effects of separate proposed modifications to the state's energy tax
policy, an aggregate rate reduction of at least 10% to 15% over time.
The NJBPU proposes in this report that utilities have an opportunity to
recover their stranded costs associated with generating capacity commitments
provided that they attempt to mitigate these costs. Also, NUG contracts which
cannot be mitigated will be eligible for stranded cost recovery. The
determination of stranded cost recovery by the NJBPU would be undertaken on a
case-by-case basis, with no guarantee for full recovery of these costs. A
separate market transition charge (MTC) would be established for each utility
to allow utilities to recover stranded costs over 4 to 8 years. The MTC would
be capped to ensure that customers experience the NJBPU's recommended overall
rate reduction of 5% to 10%. New Jersey is also considering securitization as
a mechanism to help mitigate stranded costs.
In addition, the NJBPU is proposing that beginning October 1998,
utilities unbundle their rates to allow customers to choose their electric
generation supplier. Transmission and distribution of electricity would
continue as a regulated monopoly and utilities would be responsible for
connecting customers to the system and for providing distribution service.
Transmission service would be provided by an ISO, who would be responsible for
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GPU, Inc. and Subsidiary Companies
maintaining the reliability of the regional power grid and would be regulated
by the Federal Energy Regulatory Commission (FERC).
The NJBPU intends to issue its final findings and recommendations to the
Governor and the Legislature for their consideration in March 1997. The NJBPU
proposes requiring electric utilities in New Jersey to file for review, by no
later than July 15, 1997, complete restructuring plans, stranded cost filings
and unbundled rate filings. The NJBPU intends to complete its review of these
filings by October 1998.
JCP&L is awaiting NJBPU approval of a plan to establish a one-year pilot
program offering customers in Monroe Township, New Jersey a choice of their
electric energy supplier. At the end of the first year, Monroe Township will
have the option of renewing the pilot. Monroe Township had been exploring the
possibility of establishing its own municipal electric system.
In 1996, FERC issued Order 888, which requires utilities to provide open
access to their transmission network, thereby encouraging a fully competitive
wholesale electric power market. It also requires electric utilities to,
among other things: (1) file nondiscriminatory open access transmission
tariffs which would be available to all wholesale sellers and buyers of
electricity; (2) accept service under these new tariffs for their own
wholesale transactions; and (3) be permitted to recover their legitimate and
verifiable stranded costs incurred when a wholesale customer purchases power
from another supplier using the utility's transmission system. While it does
not require corporate unbundling, which the FERC defines as the disposing of
ancillary services or creating separate affiliates to manage transmission
services, Order 888 does call for functional unbundling of transmission and
ancillary services.
In July 1996, the GPU Energy companies filed pro forma tariffs in
accordance with Order 888. These tariffs became effective on July 9, 1996.
In 1996, the GPU Energy companies, along with six other electric utility
members of the PJM Power Pool (together, the supporting PJM companies), filed
with the FERC a transmission tariff and agreements that would create a new
wholesale energy market to meet the requirements of Order 888, and to increase
competition in the Mid-Atlantic region. The Mid-Atlantic energy agreements
include: (1) the requirements and standards under which an ISO will operate
the energy market and transmission system; (2) a transmission owners agreement
and tariff that provides pool-wide transmission service with ten zones, each
reflecting an existing PJM company's transmission costs, and an average
transmission rate for service across or out of the power pool; (3)
establishment of a Mid-Atlantic spot energy market; and (4) requiring the
ownership of, or contracting for, sufficient transmission and generation
capacity, including the sharing of generating capacity reserves, to meet
reliability requirements. The proposed PJM tariff and agreements would
supersede the tariffs filed by the GPU Energy companies in July 1996. PECO
Energy Company (PECO), which opposes the supporting PJM companies' proposed
restructuring plan, has filed its own plan with the FERC.
A number of parties, including PECO, have intervened in this proceeding.
Among other things, the interveners contend that the proposal would leave
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GPU, Inc. and Subsidiary Companies
excessive control of the transmission system to the PJM member utilities and
that the plan's ten zone transmission pricing is anticompetitive and preserves
utility market power.
In a November 1996 order the FERC directed the PJM companies to develop a
new ISO proposal. According to the FERC, the proposals failed to satisfy
Order 888, particularly the requirement that ISOs be independent. Among other
things, the FERC noted that all stakeholders should participate in the
formation of an ISO, no party should exercise undue influence on its board of
directors, and no administrative oversight committee should control the
actions of the ISO, which should be able to develop its own operating
procedures. In December 1996, the PJM companies, including PECO, submitted to
the FERC a joint filing they believe is in compliance with Order 888. The
joint filing represents an interim solution and contains several unresolved
issues for which alternate proposals were presented to the FERC for
resolution. The joint filing includes a pool-wide pro forma tariff and
amendments to the PJM Interconnection Agreement to modify membership and
governance provisions.
As part of the joint compliance filing, the supporting PJM companies and
PECO filed separate briefs supporting their positions on a number of other
unresolved issues involving PJM restructuring, principally concerning
transmission tariff design and congestion pricing. The PJM companies hope to
reach consensus among themselves and with other stakeholders on all the issues
and file a new pro forma tariff and other agreements by no later than May 31,
1997.
In January 1997, legislation was introduced in Congress which provides
for a comprehensive restructuring of the electric utility industry, including,
retail choice for all utility customers beginning December 2003, the
opportunity for utilities to recover their prudently incurred stranded costs,
and repeal of both PURPA and the Public Utility Holding Company Act. It is
expected that other similar proposed legislation will be introduced in
Congress during 1997.
Managing the Transition
As competition in the electric utility industry increases, the price of
electricity and quality of customer services will be critical. GPU has been
active both on the federal and state levels in helping to shape electric
industry restructuring while protecting the interests of its shareholders and
customers, and is attempting to assess the impact that these competitive
pressures and other changes will have on its financial condition and results
of operations.
GPU has identified the following strategic objectives to guide it over
the next several years: (1) strengthen and expand the distribution business;
(2) maximize existing generation asset values consistent with competitive
market economics; (3) internally and externally position GPU for industry
deregulation and restructuring; and (4) seek earnings growth from new core-
related business initiatives, including making investments in the GPU
International Group.
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GPU, Inc. and Subsidiary Companies
As part of its strategic planning, GPU is continuing to investigate
investment opportunities in various domestic and foreign power projects and
foreign utility systems, and intends on making additional investments which
would be financed with new debt or equity (see GPU International Group section
for a discussion of GPU, Inc.'s remaining investment authorization). GPU
believes it can achieve earnings growth by making these kinds of investments
and also gain operating experience in businesses that are already operating in
a competitive environment.
While GPU recognizes that there are risks inherent in making these
investments and that investment risk cannot be mitigated entirely, GPU
believes the best long-term approach to managing these risks is through
portfolio diversification. GPU's diversification policy is to reduce its
overall investment risk by: (1) investing in diverse electric businesses; (2)
achieving a balance between new development and construction of electric
facilities, and acquisitions of assets already in operation (thereby producing
near-term earnings without significant development or construction risk); and
(3) investing in diverse geographic regions.
In 1996, 493 bargaining employees (JCP&L 265; Met-Ed 90; Penelec 133;
Other 5) and 347 nonbargaining employees (JCP&L 76; Met-Ed 73; Penelec 32;
Other 166) accepted voluntary enhanced retirement programs, resulting in an 8%
reduction in GPU's total workforce and a third quarter pre-tax charge to
earnings of $122.7 million (JCP&L $62.9 million; Met-Ed $26.2 million; Penelec
$33.6 million). GPU funded the cost of these retirement programs in 1996.
In response to competitive forces and regulatory changes, GPU has from
time to time considered, and expects to continue to consider, various
strategies designed to enhance its competitive position and to increase its
ability to adapt to, and anticipate changes in, its business. GPU is aware
that a number of nonaffiliated utilities in the Northeast and in California
are in the process of selling some or all of their generation assets in
response to regulatory and competitive pressures.
The GPU Energy companies are continually evaluating the future financial
viability of their nuclear and fossil generation assets and will retire or
otherwise attempt to dispose of plants that become uneconomical. In 1996,
JCP&L retired its 58 MW Werner Unit 4 and 72 MW Gilbert Unit 3 generating
plants because of high operating costs. See the Rate Matters section
regarding the recovery of JCP&L's remaining investment in these plants.
GPU's strategies may include business combinations with other companies,
internal restructurings involving the complete or partial separation of its
wholesale and retail businesses, acquisitions of other businesses, and
additions to or dispositions of all or portions of its generation,
transmission or distribution businesses. As a result of federal and state
actions noted above, the GPU Energy companies will be required to implement
rate unbundling for generation, transmission and distribution services. No
assurances can be given as to whether any potential transaction of the type
described above may actually occur, or as to the ultimate effect thereof on
the financial condition or competitive position of GPU.
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GPU, Inc. and Subsidiary Companies
Nonutility Generation Agreements
Pursuant to the requirements of PURPA and state regulatory directives,
the GPU Energy companies have entered into power purchase agreements with NUGs
for the purchase of energy and capacity for periods of up to 26 years (JCP&L
25 years; Met-Ed 26 years; Penelec 25 years). Although a few of these
facilities are dispatchable, most are must-run and generally obligate the GPU
Energy companies to purchase, at the contract price, the output up to the
contract limits. While the GPU Energy companies thus far have been granted
recovery of their NUG costs from customers by the PaPUC and NJBPU, there can
be no assurance that they will continue to be able to recover these costs
throughout the terms of the related agreements. As of December 31, 1996,
facilities covered by these agreements having 1,631 MW (JCP&L 891 MW; Met-Ed
340 MW; Penelec 400 MW) of capacity were in service.
Due to the current availability of excess capacity in the marketplace,
the cost of near- to intermediate-term (i.e., one to four years) energy supply
from generation facilities now in service is currently and is expected to
continue to be priced below the costs of new supply sources, at least for some
time. The projected cost of energy from new generation supply sources has
also decreased due to improvements in power plant technologies and lower
forecasted fuel prices.
The GPU Energy companies intend to avoid, to the maximum extent
practicable, entering into any new NUG agreements that are not needed or not
consistent with current market pricing and continue to support legislative
efforts to repeal PURPA. They are also attempting to renegotiate, and in some
cases buy out, existing high cost long-term NUG agreements (see Managing
Nonutility Generation section).
RATE MATTERS
Pennsylvania adopted comprehensive legislation in 1996 which provides for
the restructuring of the electric utility industry. For additional
information and related rate matters, see the Competitive Environment section.
In 1996, the NJBPU approved a provisional settlement for a combined
levelized energy adjustment clause (LEAC) and Demand-Side Factor (DSF)
increase of $27.9 million annually. The DSF is applied to customer rates so
electric utilities can recover their demand-side management program costs,
which include activities designed to improve efficiency in customer
electricity use and load-management programs that reduce peak demand.
Also in 1996, JCP&L, the staff of the NJBPU and the Division of Ratepayer
Advocate reached an agreement on a variety of pending rate-related issues
(Final Settlement). An Administrative Law Judge (ALJ) issued a decision
recommending approval of the Final Settlement, but the NJBPU ordered
additional evidentiary hearings on the recovery of buyout costs for the
Freehold cogeneration project discussed below (see Managing Nonutility
Generation section). In December 1996, the ALJ issued a further decision
recommending that recovery of the Freehold buyout costs be approved, subject
to possible revocation or modification, if it is determined that the project
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GPU, Inc. and Subsidiary Companies
was not viable when it was bought out. On December 31, 1996, an Addendum
revising the Final Settlement was agreed upon by JCP&L, the staff of the NJBPU
and the Division of Ratepayer Advocate. In January 1997, the NJBPU staff
recommended that rate recovery of the Freehold buyout costs be permitted.
JCP&L expects the NJBPU to issue an order in the first quarter of 1997
approving the Final Settlement as revised. There can be no assurance as to
the outcome of this proceeding.
Provisions of the Final Settlement, as revised by the Addendum, include a
further annual increase of $7 million in the LEAC in addition to those noted
above and an annual reduction of $11 million in base rates. Base rates would
be frozen at that level until the year 2000, and the LEAC rate frozen through
the year 1999. JCP&L could seek a LEAC rate increase if the deferred LEAC
balance is projected to exceed $40 million, or a base rate increase under
certain other conditions, such as a major change in the current regulatory
environment. The Final Settlement provides for recovery in base rates,
beginning in 1998, of all OPEB costs recorded in accordance with Statement of
Financial Accounting Standards No. 106 including amounts previously deferred
and an increase in decommissioning expense to reflect the radiological
decommissioning and nonradiological removal costs estimated in the 1995 site-
specific studies performed for GPUN (see Nuclear Plant Retirement Costs
section of Note 14 to GPU's Consolidated Financial Statements). Also,
included in base rates would be recovery of the remaining investments in the
58 MW Werner Unit 4 and 72 MW Gilbert Unit 3 generating plants, which were
retired in 1996.
The Final Settlement also provides for recovery through the LEAC of:
(1) buyout costs up to $130 million, and 50% of any costs from $130 million to
$140 million, over a seven-year period for the termination of the Freehold
power purchase agreement; and (2) $14 million of the $17 million buyout costs,
over a two year period, for the termination of the agreement to purchase power
from the proposed 200 MW Crown/Vista project. JCP&L wrote-off the remaining
$3 million of buyout costs for the Crown/Vista project in the second quarter
of 1996.
In addition, the Final Settlement resolves the NJBPU's generic proceeding
regarding recovery of capacity costs associated with electric power purchases
from NUG projects which the Division of the Ratepayer Advocate claimed to
result in a double recovery. JCP&L would not have to refund any amounts
previously collected. The Final Settlement provides annual allowances for the
recovery of forecasted additions to nuclear plant. The Final Settlement also
provides that if JCP&L's return on equity exceeds 12.2%, excluding demand-side
management and nuclear performance incentives, the excess would be used to
reduce both customer rates and certain regulatory assets.
THE GPU ENERGY COMPANIES' SUPPLY PLAN
Under traditional retail regulation, supply planning in the electric
utility industry is directly related to projected growth in a utility's
franchise service territory. In light of retail access legislation enacted in
Pennsylvania and proposed in New Jersey, the extent to which competition will
affect the GPU Energy companies' supply plan remains uncertain (see
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GPU, Inc. and Subsidiary Companies
Competitive Environment section). As the GPU Energy companies prepare to
operate in a competitive environment, its supply planning strategy is being
modified. One planning effort is focused on providing for the needs of
existing retail customers who continue to receive energy supplied by the GPU
Energy companies and to whom the GPU Energy companies will continue to have an
obligation to serve. The second planning effort will focus on those new
customers who may choose the GPU Energy companies as their alternative
supplier.
Over the next five years, the GPU Energy companies' existing franchise
service territories are expected to experience an average annual growth in
sales of about 1.7% (JCP&L 1.7%; Met-Ed 1.9%; Penelec 1.7%), principally due
to continued economic growth and a slight increase in the number of
customer. To be able to meet this growth, if necessary, actual and projected
capacity and sources of energy are as follows:
Capacity
1996 2001
MW % MW %
Coal 3,024 29 2,746 25
Nuclear 1,405 13 1,405 13
Gas, hydro & oil 2,177 21 2,082 19
Contracted purchases 3,901 37 3,763 34
Uncommitted sources - - 1,021 9
Total 10,507 100 11,017 100
Sources of Energy
1996 2001
GWH % GWH %
Coal 18,133 36 18,581 36
Nuclear 11,439 23 10,338 20
Gas, hydro & oil 812 2 855 2
Contracted purchases 16,365 32 18,226 36
Spot market &
interchange purchases 3,476 7 3,279 6
Total 50,225 100 51,279 100
In response to this competitive climate in which it is likely a major
portion of the GPU Energy companies' existing customer base will be able to
choose their electric generation supplier, and the surplus capacity position
of nearby utilities, the GPU Energy companies' supply plan focuses
increasingly on short- to intermediate-term commitments, reliance on "spot"
market purchases, and avoidance of long-term firm commitments. The GPU Energy
companies' present strategy includes minimizing the financial exposure
associated with new long-term purchase commitments and the construction of new
facilities by evaluating these options in terms of an unregulated power
market. As part of this strategy, the GPU Energy companies are continually
evaluating the future financial viability of their nuclear and fossil
generation assets and will retire or otherwise dispose of plants that become
uneconomical. The GPU Energy companies intend to take necessary actions to
avoid adding new capacity which would result in costs that may exceed future
market prices. In addition, the GPU Energy companies intend to continue to
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GPU, Inc. and Subsidiary Companies
seek regulatory support to renegotiate or buy out contracts with NUGs where
the pricing is in excess of projected market prices.
New Energy Supplies
The GPU Energy companies' supply plan includes contracted capacity from
NUGs, the replacement of expiring utility purchase contracts, the construction
of new peaking units, and the continued promotion of economic
energy-conservation and load-management programs. The supply plan also
includes the addition of approximately 1,021 MW (JCP&L 816 MW; Met-Ed 78 MW;
Penelec 127 MW) of currently uncommitted capacity.
JCP&L has constructed a 141 MW gas-fired combustion turbine at its
Gilbert generating station at a cost of approximately $50 million. The
facility was placed in service in July 1996.
In January 1996, JCP&L issued an all-supply source solicitation for the
supply of energy and capacity to meet its forecasted needs. In October 1996,
four potential suppliers were selected to provide capacity for four years,
beginning in June 1999. Contract negotiations are currently in progress to
provide for firm and optional purchases of capacity and energy from sources in
New Jersey, Pennsylvania and New York.
The GPU Energy companies will continue to evaluate additional economic
purchase opportunities as both demand and supply market conditions evolve. If
warranted, the GPU Energy companies will conduct further solicitations to fill
a part of their uncommitted supply needs.
Managing Nonutility Generation
The GPU Energy companies are seeking to reduce the above market costs of
NUG agreements by: (1) attempting to convert must-run agreements to
dispatchable agreements; (2) attempting to renegotiate prices of the
agreements; (3) offering contract buyouts; and (4) initiating proceedings
before federal and state agencies, and in the courts, where appropriate. In
addition, the GPU Energy companies intend to avoid, to the maximum extent
practicable, entering into any new NUG agreements that are not needed or not
consistent with current market pricing and are supporting legislative efforts
to repeal PURPA. These efforts may result in claims against GPU for
substantial damages. There can, however, be no assurance as to what extent
these efforts will be successful in whole or in part.
In 1996, JCP&L entered into an agreement with Freehold Cogeneration
Associates (Freehold), the developer of a proposed 110 MW gas-fired
cogeneration project, that terminates JCP&L's long-term obligation to purchase
power from the project. JCP&L expects that the buyout will save customers
$1.1 billion over the term of the power purchase contract based on the
projected cost of alternative sources of energy. JCP&L has agreed to pay
Freehold $125 million, of which $65 million was paid in 1996 and the remainder
to be paid over a three-year period. Associated with this buyout are certain
payments to third parties, which could be material in amount. As part of the
Final Settlement (see Rate Matters section), JCP&L would recover buyout costs
of up to $130 million, and 50% of any costs from $130 million to $140 million,
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GPU, Inc. and Subsidiary Companies
over a seven-year period.
In October 1996, JCP&L was named as a defendant in a breach of contract
lawsuit against Freehold brought by Nestle Beverage Company (Nestle) in New
Jersey Superior Court. Nestle is seeking damages of at least $75 million for
Freehold's alleged breach of the steam sales agreement and approximately
$412 million in damages against JCP&L for alleged unlawful interference with
that agreement. Nestle has also requested punitive damages in an unspecified
amount. JCP&L believes the claims against it are without merit (see Other
Commitments and Contingencies section of Note 14 to GPU's Consolidated
Financial Statements).
In February 1997, Met-Ed and Penelec entered into restructured power
purchase agreements with AES Power Corporation (AES) for 377 MW and 80 MW,
respectively, relating to a gas-fired combined-cycle facility that AES plans
to construct in Southeastern Pennsylvania. In 1996, AES purchased the
interests of the developers of the proposed Altoona, Blue Mountain and York
County NUG facilities and plans to construct a single fully dispatchable NUG
facility. The restructured power purchase agreements, which are subject to
PaPUC approval, are for an initial eight-year term, with options for
extensions. Met-Ed has paid $63.5 million to terminate the power purchase
agreements it had for the Blue Mountain and York County facilities. If the
restructured power purchase agreements with AES are not approved by the PaPUC,
Met-Ed and Penelec have agreed to pay AES up to an additional $28 million and
$8.3 million, respectively. Met-Ed has received approval to recover up to $35
million in buyout costs for the proposed York County project through its ECR
over three years, beginning in 1997 and intends to seek recovery of buyout
costs for the Blue Mountain project.
Penelec also entered into an agreement in 1996 with the developer of a
proposed 80 MW coal-fired cogeneration facility that was to be built in
western Pennsylvania. Under the agreement, Penelec paid the developer $11.7
million to cancel the project and both parties agreed to attempt to negotiate
a new, competitively priced power purchase agreement. In November 1996, the
power purchase agreement was amended to provide for a fully dispatchable
gas-fired combined-cycle cogeneration facility. The agreement, which is
subject to PaPUC approval, is for an initial eight-year term, with options for
extension. Penelec intends to seek recovery of the $11.7 million in buyout
costs.
In December 1996, Met-Ed and Penelec requested PaPUC approval to, among
other things, include their currently effective ECR in base rates including
NUG buyout costs already in the ECR, effective January 1, 1997, and defer for
possible future rate recovery NUG buyout costs not yet reflected in rates. In
January 1997, the PaPUC issued a tentative order approving this request. For
additional information, see the Competitive Environment section.
ENVIRONMENTAL MATTERS
The federal Clean Air Act Amendments of 1990 (Clean Air Act) require
substantial reductions in sulfur dioxide (SO2) and nitrogen oxide (NOx)
emissions by the year 2000. The GPU Energy companies plan to install and
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GPU, Inc. and Subsidiary Companies
operate emission control equipment at some coal-fired facilities and switch to
lower sulfur coal in conjunction with the purchase of SO2 and NOx allowances
at other coal-fired facilities.
To comply with the Clean Air Act, the GPU Energy companies expect to
spend up to $277 million (JCP&L $46 million; Met-Ed $117 million; Penelec $114
million) for air pollution control equipment by the year 2000, of which
approximately $240 million (JCP&L $43 million; Met-Ed $95 million; Penelec
$102 million) has already been spent.
In 1994, the Ozone Transport Commission (OTC), consisting of
representatives of 12 northeast states (including New Jersey and Pennsylvania)
and the District of Columbia, proposed reductions in NOx emissions it believes
necessary to meet ambient air quality standards for ozone and the statutory
deadlines set by the Clean Air Act. The GPU Energy companies expect that the
U.S. Environmental Protection Agency (EPA) will approve state implementation
plans consistent with the proposal, and that as a result, they will spend an
estimated $17 million (JCP&L $1 million; Met-Ed $9 million; Penelec $7
million) (included in the Clean Air Act total), beginning in 1997, to meet the
1999 seasonal reductions agreed upon by the OTC. The OTC has stated that it
anticipates that additional NOx reductions will be necessary to meet the Clean
Air Act's 2005 National Ambient Air Quality Standard (NAAQS) for ozone.
However, the specific requirements that will have to be met at that time have
not been finalized. In addition, the EPA has recently proposed changes to the
NAAQS for ozone, particulate matter and regional haze. The GPU Energy
companies are unable to determine what additional costs, if any, will be
incurred.
In developing their least-cost plan to comply with the Clean Air Act, the
GPU Energy companies will continue to evaluate major capital investments
compared to participation in the SO2 and NOx emission allowance market and the
use of low-sulfur fuel or retirement of facilities. These and other
compliance alternatives may result in the substitution of increased operating
expenses for capital costs.
For more information, see the Environmental Matters section of Note 14 to
GPU's Consolidated Financial Statements.
LEGAL MATTERS - TMI-2 ACCIDENT CLAIMS
In 1996, a U.S. District Court granted a motion for summary judgment
filed by GPU, Inc. and the GPU Energy companies, dismissing all of the 2,100
pending claims for alleged personal injury and punitive damages filed as a
result of the TMI-2 accident in March 1979. The plaintiffs have appealed the
District Court's ruling to the Court of Appeals for the Third Circuit. There
can be no assurance as to the outcome of this litigation. For more
information, see the Nuclear Facilities section of Note 14 to GPU's
Consolidated Financial Statements.
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GPU, Inc. and Subsidiary Companies
EFFECTS OF INFLATION
As competition and deregulation accelerate, there can be no assurance as
to the future recovery of increased operating expenses or utility plant
investments through traditional ratemaking. As a result, the GPU Energy
companies are focusing less on the ratemaking process, and are actively trying
to find new ways to increase revenues, improve performance and reduce
operating costs to facilitate the competitive pricing of their products and
services.
ACCOUNTING MATTERS
In June 1996, the Financial Accounting Standards Board issued Financial
Accounting Standard No. 125 (FAS 125), "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities," which is effective
for transactions occurring after December 31, 1996. The accounting for the
GPU Energy companies' securitization of stranded costs is expected to be
covered by this statement. In February 1997, the staff of the SEC Chief
Accountant's Office concluded that in applying FAS 125 with respect to several
California utilities' securitization plans, the enforceable right of these
utilities to recover the cost of their "stranded assets" was not a contractual
right and therefore not a financial asset as defined by FAS 125. Under this
basis, a utility would not be able to remove the related "stranded assets"
from its balance sheet. The accounting for securitizations by other utilities
will be based on specific facts and circumstances of the individual utility,
including the legislation enacted in its state and the particular
securitization structure.
F-38
GPU, Inc. and Subsidiary Companies
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
GPU, Inc.
Parsippany, New Jersey
We have audited the consolidated financial statements and financial statement
schedule of GPU, Inc. and Subsidiary Companies as listed in the index on page
F-1 of this Form 10-K. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of GPU, Inc. and
Subsidiary Companies as of December 31, 1996 and 1995, and the consolidated
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1996 in conformity with generally accepted
accounting principles. In addition, in our opinion, the financial statement
schedule referred to above, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
New York, New York
February 5, 1997
F-39
GPU, Inc. and Subsidiary Companies
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands)
For The Years Ended December 31, 1996 1995 1994
Operating Revenues $3,918,089 $3,804,656 $3,649,516
Operating Expenses:
Fuel 371,396 363,211 363,834
Power purchased and interchanged 1,005,630 1,022,361 894,560
Deferral of energy costs, net 19,788 (5,902) (29,025)
Other operation and maintenance 1,090,888 963,609 1,076,925
Depreciation and amortization 400,253 377,650 353,705
Taxes, other than income taxes 355,283 349,221 348,945
Total operating expenses 3,243,238 3,070,150 3,008,944
Operating Income Before Income Taxes 674,851 734,506 640,572
Income taxes 166,572 173,955 152,047
Operating Income 508,279 560,551 488,525
Other Income and Deductions:
Allowance for other funds used during construction 2,249 5,113 4,712
Other income/(expense), net 28,151 216,110 (152,236)
Income taxes (147) (90,751) 66,369
Total other income and deductions 30,253 130,472 (81,155)
Income Before Interest Charges and
Preferred Dividends 538,532 691,023 407,370
Interest Charges and Preferred Dividends:
Interest on long-term debt 184,675 188,321 183,186
Other interest 28,809 30,364 39,227
Allowance for borrowed funds used during
construction (8,423) (9,558) (7,115)
Dividends on subsidiary-obligated mandatorily
redeemable preferred securities 28,888 24,816 7,692
Preferred stock dividends of subsidiaries 15,519 16,945 20,692
Gain on preferred stock reacquisition (9,288) - -
Total interest charges and preferred dividends 240,180 250,888 243,682
Net Income $ 298,352 $ 440,135 $ 163,688
Earnings Per Average Common Share $ 2.47 $ 3.79 $ 1.42
Average Common Shares Outstanding (In Thousands) 120,743 116,214 115,160
Cash Dividends Paid Per Share $ 1.925 $ 1.86 $ 1.775
The accompanying notes are an integral part of the consolidated financial statements.
F-40
GPU, Inc. and Subsidiary Companies
CONSOLIDATED BALANCE SHEETS
(In Thousands)
December 31, 1996 1995
ASSETS
Utility Plant:
In service, at original cost $ 9,646,380 $9,295,630
Less, accumulated depreciation 3,704,026 3,433,240
Net utility plant in service 5,942,354 5,862,390
Construction work in progress 277,440 313,471
Other, net 168,029 193,356
Net utility plant 6,387,823 6,369,217
Other Property and Investments:
GPU International Group investments, net 924,397 288,044
Nuclear decommissioning trusts, at market 464,011 362,957
Nuclear fuel disposal trust, at market 101,661 95,393
Other, net 51,122 39,505
Total other property and investments 1,541,191 785,899
Current Assets:
Cash and temporary cash investments 31,604 18,422
Special deposits 47,545 14,877
Accounts receivable:
Customers, net 270,844 278,643
Other 91,637 69,773
Unbilled revenues 114,891 128,749
Materials and supplies, at average cost or less:
Construction and maintenance 187,130 194,769
Fuel 40,207 39,795
Deferred income taxes 32,148 20,090
Prepayments 81,168 42,746
Total current assets 897,174 807,864
Deferred Debits and Other Assets:
Regulatory assets:
Three Mile Island Unit 2 deferred costs 356,517 368,712
Income taxes recoverable through future rates 527,385 527,584
Nonutility generation contract buyout costs 242,481 84,132
Unamortized property losses 100,310 105,729
Other 426,579 353,551
Total regulatory assets 1,653,272 1,439,708
Deferred income taxes 332,828 330,186
Other 128,931 116,642
Total deferred debits and other assets 2,115,031 1,886,536
Total Assets $10,941,219 $9,849,516
The accompanying notes are an integral part of the consolidated financial statements.
F-41
GPU, Inc. and Subsidiary Companies
CONSOLIDATED BALANCE SHEETS
(In Thousands)
December 31, 1996 1995
LIABILITIES AND CAPITAL
Capitalization:
Common stock $ 314,458 $ 314,458
Capital surplus 750,569 746,449
Retained earnings 2,068,976 2,004,072
Total 3,134,003 3,064,979
Less, reacquired common stock, at cost 86,416 90,345
Total common stockholders' equity 3,047,587 2,974,634
Cumulative preferred stock:
With mandatory redemption 114,000 134,000
Without mandatory redemption 66,478 98,116
Subsidiary-obligated mandatorily redeemable
preferred securities 330,000 330,000
Long-term debt 3,177,016 2,567,898
Total capitalization 6,735,081 6,104,648
Current Liabilities:
Securities due within one year 178,583 131,246
Notes payable 265,547 123,890
Obligations under capital leases 143,818 159,565
Accounts payable 354,819 318,394
Taxes accrued 25,717 46,613
Deferred energy 15,559 (13,208)
Interest accrued 70,370 69,456
Other 282,193 252,306
Total current liabilities 1,336,606 1,088,262
Deferred Credits and Other Liabilities:
Deferred income taxes 1,562,979 1,466,060
Unamortized investment tax credits 133,572 145,375
Three Mile Island Unit 2 future costs 430,508 413,031
Regulatory liabilities 89,815 97,999
Other 652,658 534,141
Total deferred credits and other liabilities 2,869,532 2,656,606
Commitments and Contingencies (Note 14)
Total Liabilities and Capital $10,941,219 $9,849,516
The accompanying notes are an integral part of the consolidated financial statements.
F-42
GPU, Inc. and Subsidiary Companies
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(In Thousands)
For The Years Ended December 31, 1996 1995 1994
Balance at beginning of year $2,004,072 $1,775,759 $1,813,490
Net income 298,352 440,135 163,688
Cash dividends declared on common stock (235,731) (218,288) (207,215)
Net unrealized gain on investments 704 5,731 6,549
Net foreign currency translation gain 3,054 959 -
Other adjustments, net (1,475) (224) (753)
Balance at end of year $2,068,976 $2,004,072 $1,775,759
The accompanying notes are an integral part of the consolidated financial statements.
F-43
GPU, Inc. and Subsidiary Companies
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
For The Years Ended December 31, 1996 1995 1994
Operating Activities:
Net income $ 298,352 $ 440,135 $ 163,688
Adjustments to reconcile income to cash provided:
Depreciation and amortization 422,506 381,618 363,099
Amortization of property under capital leases 55,642 57,324 56,793
Equity in undistributed (earnings)/losses
of affiliates (33,981) 3,597 1,014
Three Mile Island Unit 2 costs - (170,005) 183,944
Voluntary enhanced retirement programs 122,739 - 126,964
Nuclear outage maintenance costs, net (6,078) 7,407 (7,425)
Deferred income taxes and investment tax
credits, net 57,144 115,278 (80,139)
Deferred energy costs, net 19,719 (6,061) (28,463)
Accretion income (11,610) (12,520) (14,855)
Allowance for other funds used during
construction (2,249) (5,113) (4,713)
Changes in working capital:
Receivables 2,893 (54,993) 6,799
Materials and supplies 6,604 9,323 316
Special deposits and prepayments (36,294) 14,401 25,696
Payables and accrued liabilities (103,221) (18,651) (59,798)
Nonutility generation contract buyout costs (120,018) (38,499) -
Other, net (29,479) (58,008) (4,325)
Net cash provided by operating activities 642,669 665,233 728,595
Investing Activities:
Cash construction expenditures (403,880) (461,860) (585,916)
Contributions to decommissioning trusts (40,324) (37,541) (33,575)
GPU International Group investments (573,587) (164,831) (73,835)
Other, net (16,251) (3,834) (17,429)
Net cash used for investing activities (1,034,042) (668,066) (710,755)
Financing Activities:
Issuance of long-term debt 743,596 403,656 178,787
Increase/(Decrease) in notes payable, net 141,657 (223,962) 131,574
Retirement of long-term debt (150,763) (192,664) (197,232)
Capital lease principal payments (56,217) (50,611) (61,002)
Issuance of common stock - 157,545 -
Issuance of subsidiary-obligated mandatorily
redeemable preferred securities - 121,063 197,917
Redemption of preferred stock of subsidiaries (42,347) (6,049) (62,763)
Dividends paid on common stock (231,956) (215,413) (204,233)
Net cash provided/(required) by
financing activities 403,970 (6,435) (16,952)
Effect of exchange rate changes on cash 585 959 -
Net increase/(decrease) in cash and temporary cash
investments from above activities 13,182 (8,309) 888
Cash and temporary cash investments, beginning of year 18,422 26,731 25,843
Cash and temporary cash investments, end of year $ 31,604 $ 18,422 $ 26,731
Supplemental Disclosure:
Interest and preferred dividends paid $ 281,057 $ 254,906 $ 271,303
Income taxes paid $ 153,599 $ 187,361 $ 124,274
New capital lease obligations incurred $ 34,826 $ 54,478 $ 43,246
Common stock dividends declared but not paid $ 58,493 $ 54,718 $ 51,843
The accompanying notes are an integral part of the consolidated financial statements.
F-44
GPU, Inc. and Subsidiary Companies
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GPU, Inc. (formerly General Public Utilities Corporation), a Pennsylvania
corporation, is a holding company registered under the Public Utility Holding
Company Act of 1935. 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). In 1996, the customer
service, transmission and distribution operations of these electric utilities
began doing business under the name GPU Energy. JCP&L, Met-Ed and Penelec
considered together are referred to as the "GPU Energy companies." The
fossil-fuel and hydroelectric generating facilities owned by these utilities
are operated and maintained by GPU Generation, Inc. (Genco), and the nuclear
generating units are operated and maintained by GPU Nuclear, Inc. (GPUN).
GPU, Inc. also owns all of the common stock of GPU International, Inc., GPU
Power, Inc. and GPU Electric, Inc. These three companies (collectively, the
GPU International Group) develop, own and operate generation, transmission and
distribution facilities and supply businesses in the United States and in
foreign countries. GPU Service, Inc. (GPUS), a service company, is also a
wholly-owned subsidiary of GPU, Inc. All of these companies considered
together are referred to as "GPU."
The Notes to Consolidated Financial Statements are presented below on a
combined basis for all of GPU, Inc., JCP&L, Met-Ed and Penelec.
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), and also comply with the Securities and Exchange
Commission's rules and regulations.
CONSOLIDATION
The consolidated financial statements include the accounts of all
subsidiaries. All significant intercompany transactions and accounts are
eliminated in consolidation. GPU consolidates the accounts of its wholly-
owned subsidiaries and any affiliates in which it has a controlling financial
F-45
GPU, Inc. and Subsidiary Companies
interest (generally evidenced by a greater than 50% ownership interest). GPU
also uses the equity method of accounting for investments in affiliates in
which it has the ability to exercise significant influence. (For further
information, see Note 7, GPU International Group Equity Investments.)
REGULATORY ACCOUNTING
In accordance with Statement of Financial Accounting Standards No. 71
(FAS 71), "Accounting for the Effects of Certain Types of Regulation," the
consolidated financial statements reflect assets and costs in accordance with
current cost-based ratemaking regulation. Continued accounting under FAS 71
requires that the following criteria be met:
a) A utility's rates for regulated services provided to its customers are
established by, or are subject to approval by, an independent third-
party regulator;
b) The regulated rates are designed to recover specific costs of
providing the regulated services or products; and
c) In view of the demand for the regulated services and the level of
competition, direct and indirect, it is reasonable to assume that
rates set at levels that will recover a utility's costs can be charged
to and collected from customers. This criteria requires consideration
of anticipated changes in levels of demand or competition during the
recovery period for any capitalized costs.
In accordance with the provisions of FAS 71, the GPU Energy companies have
deferred certain costs pursuant to actions of the NJBPU, PaPUC and FERC, and
are recovering or expect to recover such costs in electric rates charged to
customers. Regulatory assets are reflected in the Deferred Debits and Other
Assets section of the Consolidated Balance Sheets, and regulatory liabilities
are reflected in the Deferred Credits and Other Liabilities section of the
Consolidated Balance Sheets. (For further information about regulatory assets
and liabilities, see Note 14, Commitments and Contingencies.)
CURRENCY TRANSLATION
In accordance with Statement of Financial Accounting Standards No. 52 (FAS
52), "Foreign Currency Translation," balance sheet accounts of the GPU
International Group's foreign operations are translated from foreign
currencies into U.S. dollars at either year-end rates or historical rates,
while income statement accounts are translated at the weighted average
exchange rates for the relevant period. The resulting translation adjustments
are not material and are included in Retained Earnings. Gains and losses
resulting from foreign currency transactions are included in Net Income.
REVENUES
The GPU Energy companies recognize electric operating revenues for
services rendered (including an estimate of unbilled revenues) to the end of
the relevant accounting period.
F-46
GPU, Inc. and Subsidiary Companies
DEFERRED ENERGY COSTS
Energy costs are recognized in the period in which the related energy
clause revenues are billed. Through December 31, 1996, Met-Ed and Penelec
recovered energy costs through the Energy Cost Rate (ECR) mechanism and
deferred any differences between actual energy costs and amounts recovered.
Comprehensive legislation adopted in Pennsylvania in 1996, which provides for
the restructuring of the electric utility industry in the state, capped rates
that can be charged to customers for generation for up to nine years. In
December 1996, Met-Ed and Penelec filed a request with the PaPUC and received
a tentative order, effective for all bills rendered after January 1, 1997,
which allows their currently effective ECRs to be included in base rates. As
a result, effective January 1, 1997, Met-Ed and Penelec will no longer defer
energy costs. (For further information, see Competitive Environment,
Management's Discussion and Analysis.) JCP&L continues to recover energy-
related costs through the Levelized Energy Adjustment Clause (LEAC).
UTILITY PLANT
It is the policy of the GPU Energy companies to record additions to
utility plant (material, labor, overhead and an allowance for funds used
during construction) at cost. The cost of current repairs and minor
replacements is charged to appropriate operating and maintenance expense and
clearing accounts, and the cost of renewals is capitalized. The original cost
of utility plant retired or otherwise disposed of is charged to accumulated
depreciation.
DEPRECIATION
GPU provides for depreciation at annual rates determined and revised
periodically, on the basis of studies, to be sufficient to depreciate the
original cost of depreciable property over estimated remaining service lives,
which are generally longer than those employed for tax purposes. These rates,
on an aggregate composite basis, were as follows:
GPU JCP&L Met-Ed Penelec
1996 3.31% 3.58% 3.27% 2.82%
1995 3.22% 3.64% 3.07% 2.61%
1994 3.16% 3.62% 3.04% 2.49%
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION (AFUDC)
The Uniform System of Accounts defines AFUDC as "the net cost for the
period of construction of borrowed funds used for construction purposes and a
reasonable rate on other funds when so used." AFUDC is recorded as a charge
to construction work in progress, and the equivalent credits are to interest
charges for the pre-tax cost of borrowed funds and to other income for the
allowance for other funds. While AFUDC results in an increase in utility
plant and represents current earnings, it is realized in cash through
depreciation or amortization allowances only when the related plant is
recognized in rates. These rates, on an aggregate composite basis, were as
follows:
F-47
GPU, Inc. and Subsidiary Companies
GPU JCP&L Met-Ed Penelec
1996 6.79% 6.88% 8.11% 6.15%
1995 8.05% 8.04% 8.62% 7.78%
1994 6.45% 5.35% 7.31% 7.19%
AMORTIZATION POLICIES
Accounting for TMI-2 and Forked River Investments:
JCP&L is collecting annual revenues for the amortization of Three Mile
Island Unit 2 (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, 1996, $81 million is included in Unamortized property losses
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
the year 2006. Because the GPU Energy companies have 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. The related annual accretion,
which represents the carrying charges that are accrued as the asset is written
up from its discounted value, is recorded in Other Income/(Expense), Net on
the Income Statement in accordance with Statement of Financial Accounting
Standards No. 90, "Regulated Enterprises- Accounting for Abandonments and
Disallowances of Plant Costs."
Nuclear Fuel:
Nuclear fuel is amortized on a unit-of-production basis. Rates are
determined and periodically revised to amortize the cost of the fuel over its
useful life.
At December 31, 1996, 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 $34 million (JCP&L $22 million; Met-Ed $8 million; Penelec $4
million), and was primarily reflected in Deferred Credits and Other
Liabilities-Other. Annual contributions, which began in 1993, are being made
over a 15-year period and are being recovered from customers. At
December 31, 1996, $36 million (JCP&L $23 million; Met-Ed $9 million; Penelec
$4 million) was recorded on the Consolidated Balance Sheets in Regulatory
assets-Other.
Intangibles:
The GPU International Group records goodwill for any amount paid over the
fair value of net assets it acquires, and other intangible assets for the
right to perform management services. As of December 31, 1996 and 1995, the
GPU International Group had goodwill and other intangibles, net of accumulated
amortization, of approximately $24 million and $32 million, respectively.
Goodwill and other intangibles are amortized on a straight-line basis over a
F-48
GPU, Inc. and Subsidiary Companies
period of 40 years. Amortization expense, in the aggregate, amounted to $0.8
million and $0.9 million for the years ended December 31, 1996 and 1995,
respectively. The GPU International Group periodically reviews projections of
future cash flows from operations to assess any potential intangible
impairment. An impairment, if identified, would be recorded based upon
discounted projected cash flows.
Goodwill related to the GPU International Group's purchase of Midlands
Electricity plc and the other investments accounted for under the equity
method is discussed in Note 6, Acquisition of Midlands Electricity plc and
Note 7, GPU International Group Equity Investments.
NUCLEAR OUTAGE MAINTENANCE COSTS
The GPU Energy companies accrue incremental nuclear outage maintenance
costs anticipated to be incurred during scheduled nuclear plant refueling
outages to provide a proper matching of revenues to expenses.
NUCLEAR FUEL DISPOSAL FEE
The GPU Energy companies are providing for estimated future disposal costs
for spent nuclear fuel at Oyster Creek and Three Mile Island Unit 1
(TMI-1) in accordance with the Nuclear Waste Policy Act of 1982. The GPU
Energy companies entered into contracts in 1983 with the U.S. Department of
Energy (DOE) for the disposal of spent nuclear fuel. The total liability
under these contracts, including interest, at December 31, 1996, all of which
relates to spent nuclear fuel from nuclear generation through April 1983,
amounted to $171 million (JCP&L $128 million; Met-Ed $29 million; Penelec $14
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 of
$21.6 million (JCP&L $23.3 million; Met-Ed $(1.2) million; Penelec $(0.5)
million) at December 31, 1996 in Regulatory assets - Other. The rates
presently charged to customers provide for the collection of these costs, plus
interest, over remaining periods of 10 years for JCP&L and Met-Ed and one year
for Penelec.
The GPU Energy companies are collecting one mill per kilowatt-hour from
their customers for spent nuclear fuel disposal costs resulting from nuclear
generation subsequent to April 1983. These amounts are remitted quarterly to
the DOE. (See Note 14, Commitments and Contingencies, 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.)
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 liberalized
depreciation methods, deferred energy costs, decommissioning funds and
discounted Forked River and TMI-2 investments, reflect the impact of temporary
F-49
GPU, Inc. and Subsidiary Companies
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. At December 31, 1996, the
Consolidated Balance Sheets included $47 million in restricted cash, related
to the GPU International Group's 50% ownership interest in Empresa Guaracachi,
S.A.
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.
F-50
GPU, Inc. and Subsidiary Companies
2. SHORT-TERM BORROWING ARRANGEMENTS
At December 31, 1996 and 1995, GPU had short-term notes outstanding as
follows:
1996 1995
Balance Weighted Balance Weighted
Company Facility Outstanding Avg. Rate Outstanding Avg. Rate
(in millions) (in millions)
GPU, Inc. Bank Lines of Credit $ 75 5.7% $ 72 6.0%
JCP&L Bank Lines of Credit 32 6.5 1 6.0
Met-Ed Bank Lines of Credit 51 5.9 22 5.6
Penelec Bank Lines of Credit 99 6.1 27 5.9
Commercial Paper 9 5.8 - -
GPU International Bank Lines of Credit - - 2 6.3
Total $266 6.0% $124 5.9%
GPU has $527 million of credit facilities, including two Revolving Credit
Agreements, as discussed below:
Under the Credit Agreement between GPU, Inc., the GPU Energy companies and
a consortium of banks, total borrowings are limited to $250 million
outstanding at any time and are subject to various covenants and acceleration
under certain circumstances. The agreement expires May 6, 2001, and a
commitment fee on the unborrowed amount of 1/8 of 1% is payable annually.
Borrowing rates and a facility fee are based on the long-term debt ratings of
the GPU Energy companies.
GPU International, Inc. has a separate Credit Agreement providing for
borrowings (guaranteed by GPU, Inc.) through December 1997 of up to $30
million outstanding at any time, which decreases for two years thereafter. Up
to $15 million may be borrowed in the form of letters of credit. An annual
commitment fee of 3/8 of 1% on unborrowed amounts and a letter of credit fee
of 1/2 of 1% are payable by GPU International, Inc.
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GPU, Inc. and Subsidiary Companies
3. LONG-TERM DEBT
At December 31, 1996 and 1995, long-term debt outstanding was as follows:
(in thousands)
JCP&L
First Mortgage Bonds - Series as noted (a):
1996 1995 1996 1995
6 1/8% due 1996 $ - $25,701 6.85% due 2006 $ 40,000 $ -
6.90% due 1997 30,000 30,000 7.90% due 2007 40,000 40,000
6 5/8% due 1997 25,874 25,874 7 1/8% due 2009 6,300 6,300
6.70% due 1997 20,000 20,000 7.10% due 2015 12,200 12,200
7 1/4% due 1998 24,191 24,191 9.20% due 2021 50,000 50,000
6.04% due 2000 40,000 40,000 8.55% due 2022 30,000 30,000
6.45% due 2001 40,000 - 8.82% due 2022 12,000 12,000
9% due 2002 50,000 50,000 8.85% due 2022 38,000 38,000
6 3/8% due 2003 150,000 150,000 8.32% due 2022 40,000 40,000
7 1/8% due 2004 160,000 160,000 7.98% due 2023 40,000 40,000
6.78% due 2005 50,000 50,000 7 1/2% due 2023 125,000 125,000
8 1/4% due 2006 50,000 50,000 8.45% due 2025 50,000 50,000
6 3/4% due 2025 150,000 150,000
Subtotal $1,273,565 $1,219,266
Amount due within one year (100,065) (25,701)
Total $1,173,500 $1,193,565
Other long-term debt (excludes amounts due within one year
of $10 for 1996 and $9 for 1995) 3,048 3,058
Unamortized net discount on long-term debt (3,457) (3,678)
Total long-term debt $1,173,091 $1,192,945
Met-Ed
First Mortgage Bonds - Series as noted (a):
1996 1995 1996 1995
5 3/4% due 1996 $ - $15,000 6.77% due 2005 $ 30,000 $ 30,000
7.47% due 1997 20,000 20,000 7.35% due 2005 20,000 20,000
9.2% due 1997 20,000 20,000 6.36% due 2006 17,000 17,000
7.05% due 1999 30,000 30,000 6.40% due 2006 33,000 33,000
6.2% due 2000 30,000 30,000 6% due 2008 8,700 8,700
9.48% due 2000 20,000 20,000 6.1% due 2021 28,500 28,500
8.05% due 2002 30,000 30,000 8.6% due 2022 30,000 30,000
6.6% due 2003 20,000 20,000 8.8% due 2022 30,000 30,000
7.22% due 2003 40,000 40,000 6.97% due 2023 30,000 30,000
9.1% due 2003 30,000 30,000 7.65% due 2023 30,000 30,000
6.34% due 2004 40,000 40,000 8.15% due 2023 60,000 60,000
Subtotal $ 597,200 $ 612,200
Amount due within one year (40,000) (15,000)
Total 557,200 597,200
Other long-term debt (excludes amounts due within one year
of $20 for 1996 and $19 for 1995) 6,095 6,115
Unamortized net discount on long-term debt (43) (47)
Total long-term debt $ 563,252 $ 603,268
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GPU, Inc. and Subsidiary Companies
(in thousands)
Penelec
First Mortgage Bonds-Series as noted (a):
1996 1995 1996 1995
6 1/4% due 1996 $ - $25,000 6.10% due 2004 $ 30,000 $ 30,000
6.80% due 1996 - 20,000 6.7% due 2005 30,000 30,000
7.45% due 1996 - 30,000 6.35% due 2006 40,000 40,000
6.1/4% due 1997 26,000 26,000 8.05% due 2006 10,000 10,000
7 7/8% due 1998 30,000 30,000 6 1/8% due 2007 4,110 4,110
6.15% due 2000 30,000 30,000 6.55% due 2009 50,000 50,000
6.8% due 2001 20,000 - 5.35% due 2010 12,310 12,310
8.70% due 2001 30,000 30,000 5.35% due 2010 12,000 12,000
7.40% due 2002 10,000 10,000 5.80% due 2020 20,000 20,000
7.43% due 2002 30,000 30,000 8.33% due 2022 20,000 20,000
7.92% due 2002 10,000 10,000 7.49% due 2023 30,000 30,000
7.40% due 2003 10,000 10,000 8.38% due 2024 40,000 40,000
6.60% due 2003 30,000 30,000 8.61% due 2025 30,000 30,000
7.02% due 2003 20,000 - 7.53% due 2025 40,000 40,000
7.48% due 2004 40,000 40,000 6.05% due 2025 25,000 25,000
Subtotal $ 679,420 $ 714,420
Amounts due within one year (26,000) (75,000)
Total $ 653,420 $ 639,420
Other long-term debt (excludes amounts due within one year
of $10 for 1996 and $9 for 1995) 3,048 3,058
Unamortized net (discount)/premium on long-term debt (9) 9
Total long-term debt $ 656,459 $ 642,487
(a) Substantially all of the utility plant owned by the GPU Energy companies is subject to the lien of
their respective mortgages.
GPU International Group
Other long-term debt (excludes amounts due within one year
of $2,478 for 1996 and $2,308 for 1995) $ 749,214 $ 101,698
GPUS
Other long-term debt (excludes amounts due within one year
of $3,200 for 1995) $ 35,000 $ 27,500
Total - GPU, Inc. and Subsidiary Companies
First Mortgage Bonds $2,550,185 $2,545,886
Amounts due within one year (166,065) (115,701)
Total $2,384,120 $2,430,185
Other long-term debt $ 798,922 $ 146,974
Amounts due within one year (2,518) (5,545)
Total $ 796,404 $ 141,429
Unamortized net discount (3,508) (3,716)
Total long-term debt $3,177,016 $2,567,898
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GPU, Inc. and Subsidiary Companies
At December 31, 1996, the GPU International Group had long-term debt
outstanding of approximately $752 million (included in the table above under
"Other long-term debt"). Of this amount, approximately $680 million was
guaranteed by GPU, Inc. The guaranteed amount consisted of the following: 342
million pounds (approximately U.S. $586 million at December 31, 1996) under a
bank term loan facility used to fund EI UK Holdings, Inc.'s investment in Avon
Energy Partners Holdings (see Note 6); A$90 million (approximately U.S. $72
million at December 31, 1996 and U.S. $68 million at December 31, 1995)
through a bank term loan facility used to fund a GPU Electric, Inc.
subsidiary's purchase of its interest in Solaris Power; and approximately $22
million through a bank term loan facility used to fund a GPU International,
Inc. subsidiary's investment in Mid-Georgia Cogen, L.P.
For the years 1997, 1998, 1999, 2000 and 2001, GPU has long-term debt
maturities for first mortgage bonds and other long-term debt as follows:
(in millions)
Company 1997 1998 1999 2000 2001
JCP&L $100 $ - $ - $ 40 $ 40
Met-Ed 40 - 30 50 -
Penelec 26 30 - 30 50
GPU International Group 3 97 3 589 3
GPUS - - - - 35
Total $169 $127 $ 33 $709 $128
The estimated fair value of GPU's long-term debt, as of December 31, 1996
and 1995 was as follows:
(in thousands)
1996 1995
Carrying Fair Carrying Fair
Amount Value Amount Value
JCP&L $1,173,091 $1,177,544 $1,192,945 $1,260,502
Met-Ed 563,252 567,075 603,268 644,838
Penelec 656,459 640,274 642,487 677,564
GPU International Group 749,214 742,126 101,698 101,698
GPUS 35,000 35,000 27,500 27,500
Total $3,177,016 $3,162,019 $2,567,898 $2,712,102
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.
4. 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 of mandatorily redeemable preferred securities
(Preferred Securities) and in 1994, Met-Ed Capital, L.P. and Penelec Capital,
L.P. issued $100 million and $105 million, respectively, of Preferred
Securities. The proceeds were then lent to JCP&L, Met-Ed and Penelec,
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GPU, Inc. and Subsidiary Companies
respectively, which, in turn, issued their deferrable interest subordinated
debentures to the partnerships. The following issues of Preferred Securities
were outstanding at December 31, 1996 and 1995:
Issue Securities Total
Company Series Price Outstanding (in thousands)
JCP&L Capital, L.P. 8.56% $25 5,000,000 $125,000
Met-Ed Capital, L.P. 9.00% $25 4,000,000 100,000
Penelec Capital, L.P. 8.75% $25 4,200,000 105,000
Total $330,000
The fair value of the Preferred Securities based on market price
quotations at December 31, 1996 and 1995 was $337 million (JCP&L $127 million;
Met-Ed $103 million; Penelec $107 million) and $347 million (JCP&L
$131 million; Met-Ed $106 million; Penelec $110 million), respectively.
The Preferred Securities of JCP&L Capital, L.P. mature in 2044, while
those of Met-Ed Capital, L.P. and Penelec Capital, L.P. mature in 2043. Their
respective Preferred Securities are redeemable at the option of JCP&L
beginning in 2000, and at the option of Met-Ed and Penelec beginning in 1999,
at 100% of their principal amount, or earlier under certain limited
circumstances, including the loss of the tax deduction for interest paid on
the subordinated debentures. JCP&L, Met-Ed and Penelec have 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 their respective Preferred
Securities. Distributions on the Preferred Securities (and interest on the
subordinated debentures) may be deferred for up to 60 months, but JCP&L,
Met-Ed and Penelec may not pay dividends on, or redeem or acquire, any of
their preferred or common stock until deferred payments on their respective
subordinated debentures are paid in full.
5. CAPITAL STOCK
At December 31, 1996 and 1995, GPU had the following issues of capital
stock outstanding:
GPU, Inc.
Common stock, par value $2.50 a share; 350,000,000 shares authorized in both
1996 and 1995; 125,783,338 shares issued in both 1996 and 1995; and
120,611,137 and 120,423,341 shares outstanding in 1996 and 1995,
respectively (a), (b), (c)
(in thousands)
1996 1995
Common Stock $314,458 $314,458
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GPU, Inc. and Subsidiary Companies
JCP&L
Cumulative preferred stock, without par value, 15,600,000 shares authorized,
1,615,000 and 1,815,000 shares issued and outstanding in 1996 and 1995,
respectively (f):
(in thousands)
1996 1995
Cumulative preferred stock -
without mandatory redemption (g):
4% Series, 125,000 shares,
callable at $106.50 a share $ 12,500 $ 12,500
7.88% Series E, 250,000 shares,
callable at $103.65 a share 25,000 25,000
Subtotal 37,500 37,500
Premium on cumulative preferred stock 241 241
Total cumulative preferred stock -
without mandatory redemption $ 37,741 $ 37,741
Cumulative preferred stock -
with mandatory redemption (d), (e), (h):
8.48% Series I, 300,000 shares in 1996
and 500,000 shares in 1995 $ 30,000 $ 50,000
8.65% Series J, 500,000 shares 50,000 50,000
7.52% Series K, 440,000 shares 44,000 44,000
Subtotal 124,000 144,000
Amount due in one year (h) (10,000) (10,000)
Total cumulative preferred stock -
with mandatory redemption $114,000 $134,000
Common stock, par value $10 a share,
16,000,000 shares authorized, 15,371,270
shares issued and outstanding $153,713 $153,713
Met-Ed
Cumulative preferred stock, without par value, 10,000,000 shares authorized,
119,475 and 233,912 shares issued and outstanding in 1996 and 1995, without
mandatory redemption (f), (g), (i):
(in thousands)
1996 1995
3.90% Series, 64,384 shares in 1996 and
117,729 shares in 1995, callable at
$105.625 a share $ 6,439 $ 11,773
4.35% Series, 22,517 shares in 1996 and
33,429 shares in 1995, callable at
$104.25 a share 2,252 3,325
3.85% Series, 9,252 shares in 1996 and
29,175 shares in 1995, callable at
$104.00 a share 925 2,917
3.80% Series, 7,982 shares in 1996 and
18,122 shares in 1995, callable at
$104.70 a share 798 1,812
4.45% Series, 15,340 shares in 1996 and
35,637 shares in 1995, callable at
$104.25 a share 1,534 3,564
Subtotal 11,948 23,391
Premium on cumulative preferred stock 108 207
Total cumulative preferred stock $ 12,056 $ 23,598
Common stock, no par value, 900,000 shares
authorized, 859,500 shares issued
and outstanding $ 66,273 $ 66,273
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GPU, Inc. and Subsidiary Companies
Penelec
Cumulative preferred stock, without par value, 11,435,000 shares authorized,
167,485 and 365,000 shares issued and outstanding in 1996 and 1995, no
mandatory redemption (f), (g), (i):
(in thousands)
1996 1995
4.40% Series B, 29,678 shares in 1996 and
56,810 shares in 1995, callable at
$108.25 per share $ 2,968 $ 5,681
3.70% Series C, 49,568 shares in 1996 and
97,054 shares in 1995, callable at
$105.00 per share 4,957 9,705
4.05% Series D, 28,219 shares in 1996 and
63,696 shares in 1995, callable at
$104.53 per share 2,822 6,370
4.70% Series E, 14,103 shares in 1996 and
28,739 shares in 1995, callable at
$105.25 per share 1,410 2,874
4.50% Series F, 17,081 shares in 1996 and
42,969 shares in 1995, callable at
$104.27 per share 1,708 4,297
4.60% Series G, 26,836 shares in 1996 and
75,732 shares in 1995, callable at
$104.25 per share 2,684 7,573
Subtotal 16,549 36,500
Premium on cumulative preferred stock 132 277
Total cumulative preferred stock $ 16,681 $ 36,777
Common stock, par value $20 per share,
5,400,000 shares authorized, 5,290,596
shares issued and outstanding $105,812 $105,812
Total - GPU. Inc. and Subsidiary Companies
(in thousands)
1996 1995
Cumulative preferred stock:
With mandatory redemption $114,000 $134,000
Without mandatory redemption 66,478 $ 98,116
Total cumulative preferred stock $180,478 $232,116
(a) In 1995, GPU, Inc. sold five million additional shares of common
stock, for net proceeds of $157.5 million. The issuance resulted in
a credit to capital surplus totaling $71.9 million. No shares of
common stock were reacquired in 1996, 1995 or 1994. In 1996, 1995
and 1994, under GPU Inc.'s Dividend Reinvestment Plan, capital
surplus was credited $3.0 million, $2.7 million and $2.3 million,
respectively, for shares sold. There were 5,172,201 and 5,359,997
reacquired shares outstanding at December 31, 1996 and 1995,
respectively.
(b) In 1996, 1995 and 1994, pursuant to the 1990 Restricted Stock Plan,
GPU, Inc. issued restricted units to officers representing rights to
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GPU, Inc. and Subsidiary Companies
receive shares of common stock, on a one-for-one basis, at the end of
the vesting or restriction period. Beginning with awards in 1995,
the number of shares eventually issued will vary from the number of
units awarded according to the degree that GPU, Inc.'s performance
goals have been met for the restriction period. The shares issuable
at the end of the period could range from 0% to 200% of the
originally awarded units. The units are considered common stock
equivalents and therefore are reflected in the computation of
earnings per share shown on the income statement. The units accrue
dividend equivalents on a quarterly basis, which are invested in
additional equivalent units. In 1996, 1995 and 1994, GPU, Inc.
awarded to plan participants 63,206, 83,600 and 34,595 restricted
units, respectively. In 1996, 1995 and 1994, GPU, Inc. issued a
total of 37,253, 30,558 and 6,275 shares, respectively, from
previously reacquired shares. There were 258,705 and 195,499
restricted units outstanding at December 31, 1996 and 1995,
respectively.
(c) In 1996, GPU adopted 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. Under this method, compensation cost is measured at the
grant date, based on the market price of the stock at that date, and is
recognized as expense over the restricted period. FAS 123 permits
companies to continue to follow the accounting prescribed by Accounting
Principles Board Opinion No. 25 (APB No. 25), provided that pro forma
disclosures of net income are made as if the fair value-based method of
accounting had been applied. GPU has elected to continue accounting for
stock-based compensation in accordance with APB No. 25, which contains
provisions for subsequent adjustments to compensation cost based on
market price fluctuations of the stock after the grant date. The pro
forma effects on net income resulting from the application of the fair
value-based method of accounting defined in FAS 123 are immaterial.
(d) The 7.52% and 8.65% Series are callable at various prices above their
stated values beginning in 2002 and 2000, respectively. The 7.52% Series
is to be redeemed ratably over twenty years beginning in 1998. The 8.65%
Series is to be redeemed ratably over six years beginning in 2000. The
8.48% Series is not callable and is to be redeemed ratably over a five-
year period which began in 1996.
(e) During 1996, JCP&L redeemed $20 million stated value of 8.48% cumulative
preferred stock pursuant to mandatory and optional sinking fund
provisions. JCP&L's total redemption cost was $20 million. During 1995,
JCP&L repurchased in the market 60,000 shares of its 7.52% cumulative
preferred stock with mandatory redemption, with a stated value of
$6 million. JCP&L's total redemption cost was $6.1 million, which
resulted in a $0.1 million charge to Retained Earnings.
(f) At December 31, 1996 and 1995, the GPU Energy companies were authorized
to issue 37,035,000 shares of cumulative preferred stock. If dividends
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GPU, Inc. and Subsidiary Companies
on any of the preferred stock are in arrears for four quarters, the
holders of preferred stock, voting as a class, are entitled to elect a
majority of the board of directors of that company until all dividends in
arrears have been paid. A GPU Energy company may not redeem preferred
stock unless dividends on all of its preferred stock for all past
quarterly dividend periods have been paid or declared and set aside for
payment.
(g) The outstanding shares of preferred stock without mandatory redemption
are callable at various prices above their stated values. At December
31, 1996, the aggregate amount at which these shares could be called by
the GPU Energy companies was $69 million (JCP&L $39 million; Met-Ed $13
million; Penelec $17 million).
(h) The outstanding shares with mandatory redemption have the following
redemption requirements over the next five years: $10.0 million in 1997;
$12.5 million in 1998 and 1999; and $10.8 million in 2000 and 2001. The
fair value of the preferred stock with mandatory redemption, based on
market price quotations at December 31, 1996 and 1995, was $123.4 million
and $146.6 million, respectively.
(i) During 1996, Met-Ed and Penelec reacquired, pursuant to cash tender
offers, preferred shares for a total cost of $7.7 million and
$14.4 million, respectively. A reacquisition gain of $3.7 million and
$5.6 million was recorded for Met-Ed and Penelec, respectively, which
resulted in an increase in GPU, Inc.'s earnings per share of $0.08.
During 1994, Met-Ed and Penelec redeemed their 7.68% (aggregate stated
value of $35 million) and 8.36% (aggregate stated value of $25 million)
cumulative preferred stock, respectively. Met-Ed's total redemption cost
was $36 million, which resulted in a $1.2 million charge to Retained
Earnings. Penelec's total cost of the redemption was $26 million,
resulting in a $1.1 million charge to Retained Earnings.
6. ACQUISITION OF MIDLANDS ELECTRICITY PLC
In 1996, GPU, Inc. and Cinergy Corp. (Cinergy) formed Avon Energy
Partners Holdings (Holdings), a 50/50 joint venture, to acquire Midlands
Electricity plc (Midlands), an English regional electric company. A wholly-
owned subsidiary of Holdings, Avon, purchased the outstanding shares of
Midlands through a cash tender offer of 1.7 billion pounds, or approximately
U.S. $2.6 billion. GPU's 50% interest in Holdings is held by EI UK Holdings,
Inc. (EI UK), a wholly-owned subsidiary of GPU Electric, Inc.
At December 31, 1996, EI UK has borrowed approximately 342 million pounds,
or approximately U.S. $586 million, through a GPU, Inc. guaranteed five-year
bank term loan facility, to fund its investment in Holdings. At December 31,
1996, Holdings has borrowed approximately 1.1 billion pounds, or approximately
U.S. $1.8 billion, through a term loan and revolving credit facility to
provide for the balance of the acquisition price.
Midlands supplies and distributes electricity to 2.2 million customers in
England in an area with a population of five million. Midlands also owns a
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GPU, Inc. and Subsidiary Companies
generation business that produces electricity domestically and internationally
and a gas supply company that provides natural gas to 8,000 customers in
England. In addition, Midlands owns international generation projects and is
pursuing additional international generation and transmission projects.
EI UK accounts for its 50% investment in Holdings using the equity method
of accounting (see Note 7, GPU International Group Equity Investments).
Accordingly, EI UK's investment is reported on the Consolidated Balance Sheets
in GPU International Group investments, net, and its proportionate share of
earnings from Holdings is reflected on the Consolidated Income Statements in
Other Income and Deductions. EI UK has recorded its proportionate share of
Holdings' income (from the Midlands' acquisition date), which is reflected in
GPU's results of operations.
The acquisition of Midlands by Avon is accounted for under the purchase
method of accounting. The total acquisition cost exceeds the preliminary
estimated value of net assets by 1.4 billion pounds, or approximately U.S.
$2.1 billion. This excess amount is considered goodwill and is amortized to
expense on a straight-line basis over 40 years.
7. GPU INTERNATIONAL GROUP EQUITY INVESTMENTS
The GPU International Group has investments in joint ventures and
affiliates involved in power production, transmission and distribution in the
United States and foreign countries. The GPU International Group uses the
equity method of accounting for its investments in which it has the ability to
exercise significant influence. Brooklyn Energy, L.P. is being accounted for
under the equity method of accounting in anticipation of a reduction of the
percentage to 27%. Investments accounted for under the equity method follow:
Ownership
Investment Location of Operations Percentage
Brooklyn Energy, L.P. Canada 75%
Avon Energy Partners
Holdings (owns Midlands) United Kingdom 50%
Solaris Power Australia 50%
Prime Energy, L.P. United States 50%
Onondaga Cogen, L.P. United States 50%
Pasco Cogen, Ltd. United States 50%
Lake Cogen, Ltd. United States 50%
FPB Cogeneration Partners, L.P. United States 30%
Termobarranquilla S.A. Colombia 29%
Polsky Energy Corporation United States & Canada 25%
Selkirk Cogeneration Partners, L.P. United States 19%
EnviroTech Investment Fund United States 10%
Ballard Generation Systems, Inc. Canada 6%
Project Orange Associates, L.P. United States 4%
OLS Power, L.P. United States 1%
Summarized financial information for the GPU International Group's equity
investments (which are not consolidated in the financial statements),
including both the GPU International Group's ownership interests and the non-
ownership interests, is as follows:
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GPU, Inc. and Subsidiary Companies
December 31, December 31,
Balance Sheet Data (in thousands) 1996 1995
Current Assets $ 1,016,730 $ 248,012
Noncurrent Assets 5,761,593 1,962,238
Current Liabilities (1,207,038) (220,796)
Noncurrent Liabilities (4,080,475) (1,693,669)
Net Assets $ 1,490,810 $ 295,785
GPU International Group's
Equity in Net Assets $ 735,763 $ 25,341
For the Year Ended December 31,
Earnings Data (in thousands) 1996 1995
Revenues $ 1,869,038 $ 680,617
Operating Income $ 299,161 $ 102,817
Net Income/(Loss) $ 70,346 $ (140)
GPU International Group's
Equity in Net Income/(Loss) $ 33,981 $ (3,597)
As of December 31, 1996 and 1995, the amount of investments accounted for
under the equity method included goodwill, net of accumulated amortization, of
approximately $23 million and $29 million, respectively, which is amortized to
expense over periods not exceeding 40 years. Amortization expense amounted to
$0.8 million for each of the years ended December 31, 1996 and 1995. In 1996,
the GPU International Group recorded a net reduction of $5 million in goodwill
attributed primarily to the sale of a partnership interest.
In addition, the GPU International Group's 50% ownership interest in
Empresa Guaracachi, S.A., a Bolivian electric generating company, is accounted
for as a consolidated entity in GPU's financial statements. The GPU
International Group also has a 100% ownership interest in Mid-Georgia Cogen,
L.P., a cogeneration facility under construction, which is currently accounted
for as a consolidated entity in GPU's financial statements.
8. DERIVATIVE FINANCIAL INSTRUMENTS
The GPU International Group uses interest rate swap agreements as hedges
to manage the risk of increases in interest rates. These swap agreements
effectively convert variable-rate debt into fixed-rate debt. At December 31,
1996, these agreements covered approximately $329 million of debt and were
scheduled to expire at various dates through 1998. Amounts paid and received
under these agreements are recorded as adjustments to the interest expense of
the underlying debt. During 1996, fixed interest expense exceeded variable-
rate interest by approximately $0.6 million.
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GPU, Inc. and Subsidiary Companies
9. INCOME TAXES
As of December 31, 1996 and 1995, the Consolidated Balance Sheets
reflected income taxes recoverable through future rates (primarily related to
liberalized depreciation), and a regulatory liability for income taxes
refundable through future rates (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)
1996 1995
Income Taxes Recoverable Through Future Rates:
JCP&L $143 $135
Met-Ed 174 179
Penelec 210 214
Total $527 $528
Income Taxes Refundable Through Future Rates:
JCP&L $ 33 $ 36
Met-Ed 23 25
Penelec 32 34
Total $ 88 $ 95
Summaries of the components of deferred taxes as of December 31, 1996
and 1995 are as follows:
GPU, Inc. and Subsidiary Companies:
(in millions)
Deferred Tax Assets Deferred Tax Liabilities
1996 1995 1996 1995
Current: Current:
Unbilled revenue $ 23 $ 23 Revenue taxes $ 12 $ 16
Other 9 (3)
Total $ 32 $ 20
Noncurrent: Noncurrent:
Unamortized ITC $ 88 $ 95 Liberalized
Decommissioning 75 62 depreciation:
Contributions in aid previously flowed
of construction 24 23 through $ 292 $ 301
Other 146 150 future revenue
Total $333 $330 requirements 203 209
Subtotal 495 510
Liberalized
depreciation 859 817
Other 209 139
Total $1,563 $1,466
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GPU, Inc. and Subsidiary Companies
JCP&L:
(in millions)
Deferred Tax Assets Deferred Tax Liabilities
1996 1995 1996 1995
Current: Current:
Unbilled revenue $ 18 $ 12 Revenue taxes $ 12 $ 16
Deferred energy 5 (3)
Total $ 23 $ 9
Noncurrent: Noncurrent:
Unamortized ITC $ 33 $ 36 Liberalized
Decommissioning 32 26 depreciation:
Contributions in aid previously flowed
of construction 19 19 through $ 76 $ 77
Other 55 41 future revenue
Total $139 $122 requirements 42 42
Subtotal 118 119
Liberalized
depreciation 412 393
Forked River 9 11
Other 125 84
Total $664 $607
Met-Ed:
(in millions)
Deferred Tax Assets Deferred Tax Liabilities
1996 1995 1996 1995
Noncurrent:
Current: Liberalized
Unbilled revenue $ 5 $ 6 depreciation:
Other 2 2 previously flowed
Total $ 7 $ 8 through $ 95 $100
future revenue
Noncurrent: requirements 73 76
Unamortized ITC $ 24 $ 25
Decommissioning 28 23 Subtotal 168 176
Contributions in aid Liberalized
of construction 2 2 depreciation 185 182
Other 31 41 Other 48 22
Total $ 85 $ 91 Total $401 $380
F-63
GPU, Inc. and Subsidiary Companies
Penelec:
(in millions)
Deferred Tax Assets Deferred Tax Liabilities
1996 1995 1996 1995
Current: Current:
Unbilled revenue $ - $ 5 Deferred energy $ - $ 4
Noncurrent: Noncurrent:
Unamortized ITC $ 32 $ 34 Liberalized
Decommissioning 15 13 depreciation:
Contributions in aid previously flowed
of construction 3 3 through $119 $121
Other 17 29 future revenue
Total $ 67 $ 79 requirements 89 91
Subtotal 208 212
Liberalized
depreciation 239 229
Other 26 21
Total $473 $462
The reconciliations from net income to book income subject to tax and from
the federal statutory rate to combined federal and state effective tax rates
are as follows:
GPU, Inc. and Subsidiary Companies:
(in millions)
1996 1995 1994
Net income $298 $440 $164
Preferred stock dividends 16 17 21
Gain on preferred stock reacquisition (9) - -
Income tax expense 184 265 86
Book income subject to tax $489* $722 $271
Federal statutory rate 35% 35% 35%
State tax, net of federal benefit 3 4 -
Other - (2) (3)
Effective income tax rate 38% 37% 32%
* Includes pre-tax foreign operations income of $58 million, of which $54
million relates to equity method investments, which is reflected in Other
income, net in the Consolidated Statement of Income.
F-64
GPU, Inc. and Subsidiary Companies
Federal and state income tax expense is comprised of the following:
(in millions)
1996 1995 1994
Provisions for taxes currently payable:
Domestic $108 $154 $162
Foreign 11 - -
Total provision for taxes $119 $154 $162
Deferred income taxes:
Liberalized depreciation 27 31 31
New Jersey revenue tax (3) (2) 32
Deferral of energy costs (8) 1 12
Foreign deferred taxes 7 - -
Accretion income 5 5 11
Decommissioning (9) 71 (76)
Voluntary Enhanced Retirement
Programs (VERP) 15 24 (51)
Nonutility generation contract buyout costs 41 15 -
Other 2 (23) (21)
Deferred income taxes, net 77 122 (62)
Amortization of ITC, net (12) (11) (14)
Income tax expense $184 $265 $ 86
The foreign taxes in the above table for 1996, which primarily relate to
equity method investees, total $17 million ($10 million- Current; $7 million-
Deferred), and are included in Other income, net in the Consolidated
Statements of Income.
JCP&L:
The reconciliations from net income to book income subject to tax and
from the federal statutory rate to combined federal and state effective tax
rates are as follows:
(in millions)
1996 1995 1994
Net income $156 $199 $163
Income tax expense 74 97 85
Book income subject to tax $230 $296 $248
Federal statutory rate 35% 35% 35%
Other (3) (2) (1)
Effective income tax rate 32% 33% 34%
F-65
GPU, Inc. and Subsidiary Companies
Federal and state income tax expense is comprised of the following:
(in millions)
1996 1995 1994
Provisions for taxes currently payable $ 70 $100 $ 50
Deferred income taxes:
Liberalized depreciation 1 8 13
Nonutility generation contract buyout costs 22 6 -
Gain/Loss on reacquired debt - - 6
New Jersey revenue tax (3) (2) 32
Deferral of energy costs (8) 1 9
Abandonment loss - Forked River (4) (4) (5)
Nuclear outage maintenance costs 5 (6) 6
Accretion income 5 5 6
Unbilled revenue (5) (2) 2
Pension expense/VERP 4 3 (15)
Other (6) (6) (12)
Deferred income taxes, net 11 3 42
Amortization of ITC, net ( 7) ( 6) ( 7)
Income tax expense $ 74 $ 97 $ 85
Met-Ed:
The reconciliations from net income to book income subject to tax and from
the federal statutory rate to combined federal and state effective tax rates
are as follows:
(in millions)
1996 1995 1994
Net income $ 69 $149 $ 1
Income tax expense 50 92 (9)
Book income subject to tax $119 $241 $ (8)
Federal statutory rate 35% 35% 35%
State tax, net of federal benefit 5 6 32
Amortization of ITC (2) (1) 22
Other 4 (2) 20
Effective income tax rate 42% 38% 109%
F-66
GPU, Inc. and Subsidiary Companies
Federal and state income tax expense is comprised of the following:
(in millions)
1996 1995 1994
Provisions for taxes currently payable $ 25 $ 23 $ 45
Deferred income taxes:
Liberalized depreciation 10 10 6
Deferral of energy costs 5 - 6
Decommissioning (3) 46 (52)
Pension expense/VERP 5 8 (15)
Unbilled revenue - (4) 2
Nonutility generation contract buyout costs 14 8 -
Other (4) 3 2
Deferred income taxes, net 27 71 (51)
Amortization of ITC, net (2) (2) (3)
Income tax expense $ 50 $ 92 $ (9)
Penelec:
The reconciliations from net income to book income subject to tax and from
the federal statutory rate to combined federal and state effective tax rates
are as follows:
(in millions)
1996 1995 1994
Net income $ 70 $111 $32
Income tax expense 45 70 11
Book income subject to tax $115 $181 $43
Federal statutory rate 35% 35% 35%
State tax, net of federal benefit 6 6 1
Other ( 2) ( 2) (10)
Effective income tax rate 39% 39% 26%
Federal and state income tax expense is comprised of the following:
(in millions)
1996 1995 1994
Provisions for taxes currently payable $ 26 $ 28 $ 61
Deferred income taxes:
Liberalized depreciation 8 12 12
Deferral of energy costs - - (3)
Accretion income - - 5
Decommissioning (1) 21 (24)
Pension expense/VERP 7 13 (21)
Unbilled revenue 5 (2) -
Nonutility generation contract buyout costs 5 - -
Other (2) 1 (15)
Deferred income taxes, net 22 45 (46)
Amortization of ITC, net (3) (3) (4)
Income tax expense $ 45 $ 70 $ 11
F-67
GPU, Inc. and Subsidiary Companies
In 1994, GPU and the Internal Revenue Service (IRS) reached an agreement to
settle GPU's claim for 1986 that TMI-2 has been retired for tax purposes. The
GPU Energy companies received net refunds totaling $17 million (JCP&L $4
million; Met-Ed $9 million; Penelec $4 million), which have been credited to
their customers. Also in 1994, GPU received net interest from the IRS
totaling $46 million (JCP&L $11.5 million; Met-Ed $23 million; Penelec $11.5
million), before income taxes, associated with the refund settlement, which
was credited to income. The IRS has completed its examinations of GPU's
federal income tax returns through 1992. The years 1993 through 1995 are
currently being audited.
10. SUPPLEMENTARY INCOME STATEMENT INFORMATION
Maintenance expense and other taxes charged to operating expenses consisted
of the following:
(in millions)
1996 1995 1994
Maintenance:
JCP&L $120 $128 $132
Met-Ed 50 54 59
Penelec 65 71 80
Total Maintenance $235 $253 $271
Other Taxes:
New Jersey Unit Tax (JCP&L) $208 $209 $204
Pennsylvania State Gross Receipts:
Met-Ed $ 38 $ 35 $ 32
Penelec 40 39 38
Total $ 78 $ 74 $ 70
Real Estate and Personal Property:
JCP&L $ 8 $ 8 $ 7
Met-Ed 8 7 6
Penelec 9 8 8
Total $ 25 $ 23 $ 21
Other:
JCP&L $ 13 $ 10 $ 20
Met-Ed 15 13 14
Penelec 16 20 20
Total $ 44 $ 43 $ 54
Total Other Taxes $355 $349 $349
F-68
GPU, Inc. and Subsidiary Companies
The cost of services rendered to the GPU Energy companies by their
affiliates is as follows:
(in millions)
1996 1995 1994
JCP&L:
Cost of services rendered by GPUN $221 $186 $268
Cost of services rendered by GPUS 44 43 48
Cost of services rendered by Genco 85 - -
Total $350 $229 $316
Amount Charged to Income $293 $183 $242
Met-Ed:
Cost of services rendered by GPUN $ 67 $ 81 $ 77
Cost of services Rendered by GPUS 29 27 27
Cost of services rendered by Genco 85 - -
Total $181 $108 $104
Amount Charged to Income $153 $ 92 $ 87
Penelec:
Cost of services rendered by GPUN $ 34 $ 41 $ 40
Cost of services rendered by GPUS 31 38 40
Cost of services rendered by Genco 159 - -
Total $224 $ 79 $ 80
Amount Charged to Income $181 $ 67 $ 64
For the years 1996, 1995 and 1994, JCP&L purchased $21 million, $23 million
and $22 million, respectively, in energy from a cogeneration project in which
an affiliate has a 50% partnership interest.
11. EMPLOYEE BENEFITS
Pension Plans
GPU maintains defined benefit pension plans covering substantially all
employees. GPU's policy is to currently fund net pension costs within the
deduction limits permitted by the Internal Revenue Code.
Summaries of the components of net periodic pension cost follow:
(in millions)
GPU, Inc. and Subsidiary Companies 1996 1995 1994
Service cost-benefits earned during the period $ 36.1 $ 30.0 $ 34.8
Interest cost on projected benefit obligation 112.1 109.8 95.4
Less: Expected return on plan assets (123.2) (112.9) (104.4)
Amortization (1.1) (1.4) (1.4)
Net periodic pension cost $ 23.9 $ 25.5 $ 24.4
F-69
GPU, Inc. and Subsidiary Companies
(in millions)
JCP&L 1996 1995 1994
Service cost-benefits earned during the period $ 8.0 $ 7.3 $ 8.8
Interest cost on projected benefit obligation 32.1 32.9 29.0
Less: Expected return on plan assets (36.3) (35.2) (33.3)
Amortization (0.3) (0.3) (0.5)
Net periodic pension cost $ 3.5 $ 4.7 $ 4.0
(in millions)
Met-Ed 1996 1995 1994
Service cost-benefits earned during the period $ 4.5 $ 4.4 $ 4.7
Interest cost on projected benefit obligation 19.6 20.2 17.7
Less: Expected return on plan assets (21.3) (20.3) (19.1)
Amortization - (0.1) (0.3)
Net periodic pension cost $ 2.8 $ 4.2 $ 3.0
(in millions)
Penelec 1996 1995 1994
Service cost-benefits earned during the period $ 6.0 $ 8.9 $ 10.2
Interest cost on projected benefit obligation 29.3 34.9 30.6
Less: Expected return on plan assets (32.3) (35.6) (32.4)
Amortization 0.3 0.3 0.5
Net periodic pension cost $ 3.3 $ 8.5 $ 8.9
The above amounts for 1996 and 1994 do not include pre-tax charges to
earnings of $71 million (JCP&L $37 million; Met-Ed $17 million; Penelec $17
million) and $97 million (JCP&L $38 million; Met-Ed $26 million; Penelec $33
million), respectively, resulting from early retirement programs in both of
those years. At December 31, 1996, GPU has funded the entire cost of its
retirement programs.
The actual return on the plans' assets for the years 1996, 1995 and 1994
resulted in gains as follows:
(in millions)
Company 1996 1995 1994
JCP&L $ 66.0 $101.3 $ 4.4
Met-Ed 39.6 59.4 2.5
Penelec 53.5 100.3 4.2
Other 69.9 61.0 2.7
Total $229.0 $322.0 $ 13.8
F-70
GPU, Inc. and Subsidiary Companies
The funded status of the plans and related assumptions at December 31,
1996 and 1995 were as follows:
(in millions)
GPU, Inc. and Subsidiary Companies 1996 1995
Accumulated benefit obligation (ABO):
Vested benefits $ 1,338.5 $ 1,172.8
Nonvested benefits 137.8 133.7
Total ABO 1,476.3 1,306.5
Effect of future compensation levels 215.1 237.7
Projected benefit obligation (PBO) $ 1,691.4 $ 1,544.2
Plan assets at fair value $ 1,801.8 $ 1,596.1
PBO (1,691.4) (1,544.2)
Plan assets in excess of PBO 110.4 51.9
Less: Unrecognized net gain (143.8) (64.9)
Unrecognized prior service cost 5.7 5.2
Unrecognized net transition asset (3.0) (5.8)
Adjustment required to recognize
minimum liability (3.8) (0.2)
Accrued pension liability $ (34.5) $ (13.8)
(in millions)
JCP&L 1996 1995
ABO:
Vested benefits $ 391.9 $ 359.8
Nonvested benefits 27.8 30.4
Total ABO 419.7 390.2
Effect of future compensation levels 53.8 69.9
PBO $ 473.5 $ 460.1
Plan assets at fair value $ 514.5 $ 494.4
PBO (473.5) (460.1)
Plan assets in excess of PBO 41.0 34.3
Less: Unrecognized net gain (45.7) (32.2)
Unrecognized prior service cost 2.2 2.4
Unrecognized net transition asset (1.5) (2.1)
(Accrued) prepaid pension cost $ (4.0) $ 2.4
F-71
GPU, Inc. and Subsidiary Companies
(in millions)
Met-Ed 1996 1995
ABO:
Vested benefits $ 240.7 $ 220.9
Nonvested benefits 24.4 24.0
Total ABO 265.1 244.9
Effect of future compensation levels 37.4 42.4
PBO $ 302.5 $ 287.3
Plan assets at fair value $ 309.9 $ 293.1
PBO (302.5) (287.3)
Plan assets in excess of PBO 7.4 5.8
Less: Unrecognized net gain (7.1) (7.6)
Unrecognized prior service cost 2.8 3.5
Unrecognized net transition asset (0.6) (1.3)
Adjustment required to recognize
minimum liability (0.4) -
Prepaid pension cost $ 2.1 $ 0.4
(in millions)
Penelec 1996 1995
ABO:
Vested benefits $ 303.6 $ 364.4
Nonvested benefits 24.3 44.1
Total ABO 327.9 408.5
Effect of future compensation levels 39.1 73.3
PBO $ 367.0 $ 481.8
Plan assets at fair value $ 411.8 $ 496.8
PBO (367.0) (481.8)
Plan assets in excess of PBO 44.8 15.0
Less: Unrecognized net gain (35.2) (18.8)
Unrecognized prior service cost 3.4 3.8
Unrecognized net transition obligation 2.1 3.0
Prepaid pension cost $ 15.1 $ 3.0
Principal actuarial assumptions (%):
Annual long-term rate of return on plan assets 8.5 8.5
Discount rate 7.5 7.5
Annual increase in compensation levels 5.5 5.5
F-72
GPU, Inc. and Subsidiary Companies
In 1996, the PBO increased by $92 million (JCP&L $28 million; Met-Ed $16
million; Penelec $14 million; Other $34 million) as a result of the VERP. The
assets of the plans are held in a Master Trust and generally invested in
common stocks and fixed income securities. The unrecognized net gain
represents actual experience different from that assumed, which is deferred
and not included in the determination of pension cost until it exceeds certain
levels. Both the unrecognized prior service cost resulting from retroactive
changes in benefits and the unrecognized net transition asset/obligation
arising out of the adoption of Statement of Financial Accounting Standards No.
87 (FAS 87), "Employers' Accounting for Pensions," are being amortized to
pension cost over the average remaining service periods for covered employees.
At December 31, 1996, 1995 and 1994, GPU had accumulated pension
obligations in excess of amounts accrued; as a result, additional minimum
liabilities in the amounts of $2.2 million (Met-Ed $0.3 million; GPUS $1.8
million; Genco $0.1 million), $0.1 million (GPUS) and $0.7 million (GPUS),
respectively, net of deferred income taxes of $1.6 million (Met-Ed $0.2
million; GPUS $1.3 million; Genco $0.1 million), $0.1 million (GPUS) and $0.5
million (GPUS), respectively, are reflected as reductions in Retained Earnings
in accordance with FAS 87.
Savings Plans
GPU also maintains savings plans for substantially all employees. These
plans provide for employee contributions up to specified limits. GPU's
savings plans provide for various levels of matching contributions. The
matching contributions for GPU were as follows:
(in millions)
Company 1996 1995 1994
JCP&L $ 2.8 $ 3.2 $ 2.4
Met-Ed 3.2 2.7 2.2
Penelec 1.4 2.5 3.0
Other 6.7 5.0 5.1
Total $ 14.1 $ 13.4 $ 12.7
Postretirement Benefits Other Than Pensions
GPU provides certain retiree health care and life insurance benefits for
substantially all employees who reach retirement age while working for GPU.
Health care benefits are administered by various organizations. A portion of
the costs are borne by the participants. Effective January 1, 1993, GPU
adopted Statement of Financial Accounting Standards No. 106 (FAS 106),
"Employers' Accounting for Postretirement Benefits Other Than Pensions."
FAS 106 requires that the estimated cost of these benefits, which are
primarily for health care, be accrued during the employee's active working
career. GPU has elected to amortize the unfunded transition obligation
existing at January 1, 1993 over a period of 20 years. The unrecognized net
loss represents actual experience different from that assumed, which is
deferred and not included in the determination of postretirement benefit cost
until it exceeds certain levels. The unrecognized prior service cost
resulting from retroactive changes in benefits is being amortized to
postretirement benefit cost over the average remaining service periods for
covered employees.
F-73
GPU, Inc. and Subsidiary Companies
Summaries of the components of the net periodic postretirement benefit
cost for 1996, 1995 and 1994 follows:
(in millions)
GPU, Inc. and Subsidiary Companies 1996 1995 1994
Service cost-benefits attributed to service
during the period $ 14.3 $ 13.4 $ 14.6
Interest cost on the accumulated postretirement
benefit obligation 45.7 43.4 37.0
Expected return on plan assets (13.8) (11.0) (7.0)
Amortization of transition obligation 17.4 17.4 18.1
Other amortization, net 2.9 1.3 2.1
Net periodic postretirement benefit cost 66.5 64.5 64.8
Less, deferred for future recovery (18.2) (15.0) (15.8)
Postretirement benefit cost, net of deferrals $ 48.3 $ 49.5 $ 49.0
The above amounts for 1996 and 1994 do not include pre-tax charges to
earnings of $52 million and $30 million, respectively, relating to early
retirement programs in both of those years. At December 31, 1996, GPU has
funded the entire cost of its retirement programs.
(in millions)
JCP&L 1996 1995 1994
Service cost-benefits attributed to service
during the period $ 2.8 $ 3.0 $ 3.3
Interest cost on the accumulated postretirement
benefit obligation 11.4 11.2 9.4
Expected return on plan assets (2.8) (2.3) (1.7)
Amortization of transition obligation 4.8 5.0 5.2
Other amortization, net 0.7 0.5 0.4
Net periodic postretirement benefit cost 16.9 17.4 16.6
Less, deferred for future recovery (4.4) (4.0) ( 7.8)
Postretirement benefit cost, net of deferrals $ 12.5 $ 13.4 $ 8.8
The above amounts for 1996 and 1994 do not include pre-tax charges to
earnings of $26 million and $9 million, respectively, relating to early
retirement programs in both of those years. The amount deferred for future
recovery does not include $7.2 million of allocated postretirement benefit
costs from affiliates for 1996.
F-74
GPU, Inc. and Subsidiary Companies
(in millions)
Met-Ed 1996 1995 1994
Service cost-benefits attributed to service
during the period $ 1.9 $ 2.0 $ 2.3
Interest cost on the accumulated postretirement
benefit obligation 8.6 8.3 7.1
Expected return on plan assets (1.6) (1.4) (1.2)
Amortization of transition obligation 3.2 3.4 3.4
Other amortization, net 0.7 0.3 0.5
Net periodic postretirement benefit cost 12.8 12.6 12.1
Less, deferred for future recovery (4.1) (5.6) (8.3)
Postretirement benefit cost, net of deferrals $ 8.7 $ 7.0 $ 3.8
The above amounts for 1996 and 1994 do not include a pre-tax charge to
earnings of $13 million and $9 million, respectively, relating to early
retirement programs in both of those years. The amount deferred for future
recovery does not include $2.5 million of allocated postretirement benefit
costs from affiliates for 1996.
(in millions)
Penelec 1996 1995 1994
Service cost-benefits attributed to service
during the period $ 2.7 $ 4.3 $ 4.6
Interest cost on the accumulated postretirement
benefit obligation 14.1 15.6 13.4
Expected return on plan assets (4.6) (4.3) (2.3)
Amortization of transition obligation 5.4 6.2 6.5
Other amortization, net 0.9 0.5 0.8
Net periodic postretirement benefit cost 18.5 22.3 23.0
Net write-off - 1.3 9.0
Postretirement benefit cost $ 18.5 $ 23.6 $ 32.0
The above amounts for 1996 and 1994 do not include a pre-tax charge to
earnings of $13 million and $12 million, respectively, relating to early
retirement programs in both of those years.
The actual return on the plans' assets for the years 1996, 1995 and 1994
resulted in gains as follows:
(in millions)
Company 1996 1995 1994
JCP&L $ 8.0 $ 5.7 $ 0.6
Met-Ed 3.6 3.3 0.4
Penelec 14.7 11.1 0.8
Other 12.3 7.8 0.5
Total $ 38.6 $ 27.9 $ 2.3
F-75
GPU, Inc. and Subsidiary Companies
The funded status of the plans at December 31, 1996 and 1995, was as
follows:
(in millions)
GPU, Inc. and Subsidiary Companies 1996 1995
Accumulated Postretirement Benefit Obligation:
Retirees $ 452.7 $ 361.6
Fully eligible active plan participants 17.1 32.4
Other active plan participants 236.2 232.4
Total accumulated postretirement
benefit obligation (APBO) $ 706.0 $ 626.4
APBO $(706.0) $(626.4)
Plan assets at fair value 303.6 191.3
APBO in excess of plan assets (402.4) (435.1)
Less: Unrecognized net loss 56.6 65.0
Unrecognized prior service cost 1.9 2.3
Unrecognized transition obligation 268.6 295.9
Accrued postretirement benefit liability $ (75.3) $ (71.9)
(in millions)
JCP&L 1996 1995
APBO:
Retirees $ 120.2 $ 89.2
Fully eligible active plan participants 7.7 18.9
Other active plan participants 52.0 53.4
Total APBO $ 179.9 $ 161.5
APBO $(179.9) $(161.5)
Plan assets at fair value 70.7 39.7
APBO in excess of plan assets (109.2) (121.8)
Less: Unrecognized net loss 14.1 12.9
Unrecognized transition obligation 74.4 85.3
Accrued postretirement benefit liability $ (20.7) $ (23.6)
(in millions)
Met-Ed 1996 1995
APBO:
Retirees $ 84.7 $ 80.2
Fully eligible active plan participants 2.1 3.5
Other active plan participants 37.4 39.2
Total APBO $ 124.2 $ 122.9
APBO $(124.2) $(122.9)
Plan assets at fair value 34.7 21.9
APBO in excess of plan assets (89.5) (101.0)
Less: Unrecognized net loss 19.6 17.7
Unrecognized transition obligation 44.7 57.4
Accrued postretirement benefit liability $ (25.2) $ (25.9)
F-76
GPU, Inc. and Subsidiary Companies
(in millions)
Penelec 1996 1995
APBO:
Retirees $ 145.5 $ 139.7
Fully eligible active plan participants 3.7 6.0
Other active plan participants 54.8 79.6
Total APBO $ 204.0 $ 225.3
APBO $(204.0) $(225.3)
Plan assets at fair value 95.6 75.3
APBO in excess of plan assets (108.4) (150.0)
Less: Unrecognized net loss 13.2 25.0
Unrecognized prior service cost 1.6 2.3
Unrecognized transition obligation 83.2 106.1
Accrued postretirement benefit liability $ (10.4) $ (16.6)
Principal actuarial assumptions (%):
Annual long-term rate of return on plan assets 8.5 8.5
Discount rate 7.5 7.5
GPU intends to continue funding amounts for postretirement benefits with
an independent trustee, as deemed appropriate from time to time. The plan
assets include equities and fixed income securities.
In 1996, the APBO increased by $45 million (JCP&L $15 million; Met-Ed $8
million; Penelec $8 million; Other $14 million) as a result of the VERP. The
APBO 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 11% for those not eligible for Medicare and 8% for those eligible for
Medicare, then decreasing gradually to 6% in 2000 and thereafter. These costs
also reflect the implementation of a cost cap of 6% for individuals who retire
after December 31, 1995 and reach age 65. The effect of a 1% annual increase
in these assumed cost trend rates would increase the APBO by approximately
$60 million (JCP&L $14 million; Met-Ed $10 million; Penelec $16 million; Other
$20 million) as of December 31, 1996 and the aggregate of the service and
interest cost components of net periodic postretirement health-care cost by
approximately $5 million (JCP&L $1 million; Met-Ed $1 million; Penelec $2
million; Other $1 million).
In JCP&L's 1993 base rate proceeding, the NJBPU allowed JCP&L to collect
$3 million annually of the incremental postretirement benefit costs, charged
to expense, recognized as a result of FAS 106. Based on the final order and
in accordance with Emerging Issues Task Force (EITF) Issue 92-12, "Accounting
for OPEB Costs by Rate-Regulated Enterprises," JCP&L is deferring the amounts
above that level. A Stipulation of Final Settlement (Final Settlement),
pending before the NJBPU, would allow JCP&L to recover and amortize the
deferred balance at December 31, 1997 over a fifteen-year period. In
addition, the Final Settlement would allow JCP&L to recover current amounts
accrued pursuant to FAS 106, including amortization of the transition
obligation. (See discussion of the Final Settlement in Rate Matters,
Management's Discussion and Analysis.) In January 1997, the NJBPU issued a
generic order providing certain options for recovery of postretirement costs.
This generic order would affect JCP&L only if the Final Settlement is not
F-77
GPU, Inc. and Subsidiary Companies
approved. Met-Ed is deferring the incremental postretirement benefit costs,
charged to expense, 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 1994, the Pennsylvania Commonwealth Court reversed a PaPUC order that
allowed a nonaffiliated utility, outside a base rate proceeding, to defer
certain incremental postretirement benefit costs for future recovery from
customers. As a result of the Court's decision, in 1994, Penelec determined
that its FAS 106 costs, including costs deferred since January 1993, were not
likely to be recovered and charged $18.8 million to expense. In addition,
$4 million of Penelec's unrecognized transition obligation resulting from
employees who elected to participate in the VERP was also written off in 1994.
In 1996 and 1995, Penelec recorded charges to income of approximately $12
million and $9 million, respectively, which represent continued amortization
of the transition obligation along with current accruals of FAS 106 expense
for active employees.
12. JOINTLY OWNED STATIONS
Each participant in a jointly owned station finances its portion of the
investment and charges its share of operating expenses to the appropriate
expense accounts. The GPU Energy companies participated with nonaffiliated
utilities in the following jointly owned stations at December 31, 1996:
Balance (in millions)
% Accumulated
Station Owner Ownership Investment Depreciation
Homer City Penelec 50 $453.7 $157.3
Conemaugh Met-Ed 16.45 146.1 40.7
Keystone JCP&L 16.67 90.3 22.5
Yards Creek JCP&L 50 29.9 6.5
Seneca Penelec 20 16.0 5.1
13. LEASES
GPU's capital leases consist primarily of leases for nuclear fuel.
Nuclear fuel capital leases at December 31, 1996 totaled $139 million (JCP&L
$95 million; Met-Ed $29 million; Penelec $15 million), net of amortization of
$208 million (JCP&L $124 million; Met-Ed $56 million; Penelec $28 million).
Nuclear fuel capital leases at December 31, 1995 totaled $152 million (JCP&L
$88 million; Met-Ed $43 million; Penelec $21 million), net of amortization of
$160 million (JCP&L $98 million; Met-Ed $41 million; Penelec $21 million).
The recording of capital leases has no effect on net income because all
leases, for ratemaking purposes, are considered operating leases.
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GPU, Inc. and Subsidiary Companies
The GPU Energy companies have nuclear fuel lease agreements with
nonaffiliated fuel trusts. In 1995, the GPU Energy companies refinanced the
Oyster Creek and TMI-1 nuclear fuel leases to provide for aggregate borrowings
of up to $210 million ($100 million for Oyster Creek and $110 million for
TMI-1) outstanding at any one time. Reductions in nuclear fuel financing
costs are expected through the new credit facilities. It is contemplated that
when consumed, portions of the presently leased material will be replaced by
additional leased material. The GPU Energy companies are responsible for the
disposal costs of nuclear fuel leased under these agreements. These nuclear
fuel leases have initial terms of three years expiring in November 1998, and
are renewable annually thereafter at the lender's option for a period up to 20
years. Subject to certain conditions of termination, the GPU Energy companies
are required to purchase all nuclear fuel then under lease at a price that
will allow the lessor to recover its net investment. 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, 1996, 1995 and 1994,
these amounts were as follows:
(in millions)
Company 1996 1995 1994
JCP&L $ 32 $ 35 $ 28
Met-Ed 16 15 15
Penelec 8 7 7
Total $ 56 $ 57 $ 50
JCP&L and Met-Ed have sold and leased back substantially all of their
respective ownership interests in the Merrill Creek Reservoir project. The
minimum lease payments under these operating leases, which have remaining
terms of 36 years, average approximately $3 million annually for each company.
14. COMMITMENTS AND CONTINGENCIES
NUCLEAR FACILITIES
The GPU Energy companies have made investments in three major nuclear
projects--TMI-1 and Oyster Creek, both of which are operating generation
facilities, and TMI-2, which was damaged during a 1979 accident. TMI-1 and
TMI-2 are jointly owned by JCP&L, Met-Ed and Penelec in the percentages of
25%, 50% and 25%, respectively. Oyster Creek is owned by JCP&L. At December
31, 1996 and December 31, 1995, the GPU Energy companies' net investment in
TMI-1 and Oyster Creek, including nuclear fuel, was as follows:
Net Investment (in millions)
TMI-1 Oyster Creek
1996
JCP&L $154 $766
Met-Ed 297 -
Penelec 146 -
Total $597 $766
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Net Investment (in millions)
TMI-1 Oyster Creek
1995
JCP&L $166 $782
Met-Ed 318 -
Penelec 156 -
Total $640 $782
The GPU Energy companies' net investment in TMI-2 at December 31, 1996
and 1995 was $90 million and $95 million, respectively (JCP&L $81 million and
$85 million, respectively; Met-Ed $1 million and $2 million, respectively;
Penelec $8 million in both years). JCP&L is collecting revenues for TMI-2 on
a basis which provides for the recovery of its remaining investment in the
plant by 2008. Met-Ed and Penelec are collecting revenues for TMI-2 related
to their wholesale customers.
Costs associated with the operation, maintenance and retirement of
nuclear plants have continued to be significant and less predictable than
costs associated with other sources of generation, in large part due to
changing regulatory requirements, safety standards, availability of nuclear
waste disposal facilities and experience gained in the construction and
operation of nuclear facilities. The GPU Energy companies may also incur
costs and experience reduced output at their nuclear plants because of the
prevailing design criteria at the time of construction and the age of the
plants' systems and equipment. In addition, for economic or other reasons,
operation of these plants for the full term of their operating licenses cannot
be assured. Also, not all risks associated with the ownership or operation of
nuclear facilities may be adequately insured or insurable. Consequently, the
recovery of costs associated with nuclear projects, including replacement
power, any unamortized investment at the end of each plant's useful life
(whether scheduled or premature), the carrying costs of that investment and
retirement costs, is not assured. (See the Competition and the Changing
Regulatory Environment section.)
TMI-2:
The 1979 TMI-2 accident resulted in significant damage to, and
contamination of, the plant and a release of radioactivity to the environment.
A cleanup program was completed in 1990, and after receiving Nuclear
Regulatory Commission (NRC) approval, TMI-2 entered into long-term monitored
storage in 1993.
As a result of the accident and its aftermath, individual claims for
alleged personal injury (including claims for punitive damages), which are
material in amount, have been asserted against GPU, Inc. and the GPU Energy
companies. Approximately 2,100 of such claims were filed in the United States
District Court for the Middle District of Pennsylvania. Some of the claims
also seek recovery for injuries from alleged emissions of radioactivity before
and after the accident.
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
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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 (JCP&L $7.5 million; Met-Ed $5 million;
Penelec $2.5 million).
In October 1995, the U.S. Court of Appeals for the Third Circuit ruled
that the Price-Anderson Act provides coverage under its primary and secondary
levels for punitive as well as compensatory damages, but that punitive damages
could not be recovered against the Federal Government under the third level of
financial protection. In so doing, the Court of Appeals referred to the
"finite fund" (the $560 million of financial protection under the Price-
Anderson Act) to which plaintiffs must resort to get compensatory as well as
punitive damages.
The Court of Appeals also ruled that the standard of care owed by the
defendants to a plaintiff was determined by the specific level of radiation
which was released into the environment, as measured at the site boundary,
rather than as measured at the specific site where the plaintiff was located
at the time of the accident (as the defendants proposed). The Court of
Appeals also held that each plaintiff still must demonstrate exposure to
radiation released during the TMI-2 accident and that such exposure had
resulted in injuries. In 1996, the U.S. Supreme Court denied petitions filed
by GPU, Inc. and the GPU Energy companies to review the Court of Appeals'
rulings.
In June 1996, the District Court granted a motion for summary judgment
filed by GPU, Inc. and the GPU Energy companies, and dismissed all of the
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 have appealed the District Court's ruling to
the Court of Appeals for the Third Circuit. There can be no assurance as to
the outcome of this litigation.
Based on the above, 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. As described in the Nuclear Fuel Disposal Fee
section of Note 1, the disposal of spent nuclear fuel is covered separately by
contracts with the DOE.
In 1990, the GPU Energy companies submitted a report, in compliance with
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NRC regulations, setting forth a funding plan (employing the external sinking
fund method) for the decommissioning of their nuclear reactors. Under this
plan, the GPU Energy companies intend to complete the funding for Oyster Creek
and TMI-1 by the end of the plants' license terms, 2009 and 2014,
respectively. The TMI-2 funding completion date is 2014, consistent with
TMI-2's remaining in long-term storage and being decommissioned at the same
time as TMI-1. Based on NRC studies, a comparable funding target was
developed for TMI-2 which took the accident into account. Under the NRC
regulations, the funding targets (in 1996 dollars) are as follows:
(in millions)
Oyster
TMI-1 TMI-2 Creek
JCP&L $ 43 $ 67 $221
Met-Ed 85 135 -
Penelec 42 68 -
$170 $270 $221
The funding targets, while not considered cost estimates, are reference levels
designed to assure that licensees demonstrate adequate financial
responsibility for decommissioning. While the NRC regulations address
activities related to the removal of the radiological portions of the plants,
they do not establish residual radioactivity limits nor do they address costs
related to the removal of nonradiological structures and materials.
In 1995, a consultant to GPUN performed site-specific studies of the TMI
site, including both Units 1 and 2, and of Oyster Creek, that considered
various decommissioning methods and estimated the cost of decommissioning the
radiological portions and the cost of removal of the nonradiological portions
of each plant, using the prompt removal/dismantlement method. GPUN management
has reviewed the methodology and assumptions used in these studies, is in
agreement with them, and believes the results are reasonable. The retirement
cost estimates under the site-specific studies are as follows (in 1996
dollars):
(in millions)
Oyster
GPU TMI-1 TMI-2 Creek
Radiological decommissioning $311 $378 $366
Nonradiological cost of removal 77 36 * 35
Total $388 $414 $401
* Net of $6.5 million spent as of December 31, 1996.
(in millions)
Oyster
JCP&L TMI-1 TMI-2 Creek
Radiological decommissioning $ 78 $ 95 $366
Nonradiological cost of removal 19 9 * 35
Total $ 97 $104 $401
* Net of $1.6 million spent as of December 31, 1996.
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(in millions)
Met-Ed TMI-1 TMI-2
Radiological decommissioning $155 $189
Nonradiological cost of removal 39 18 *
Total $194 $207
* Net of $3.3 million spent as of December 31, 1996.
(in millions)
Penelec TMI-1 TMI-2
Radiological decommissioning $ 78 $ 94
Nonradiological cost of removal 19 9 *
Total $ 97 $103
* Net of $1.6 million spent as of December 31, 1996.
The ultimate cost of retiring the GPU Energy companies' nuclear
facilities may be different from the cost estimates contained in these site-
specific studies. Such costs are subject to (a) the escalation of various
cost elements (for reasons including, but not limited to, general inflation),
(b) the further development of regulatory requirements governing
decommissioning, (c) the technology available at the time of decommissioning,
and (d) the availability of nuclear waste disposal facilities.
The GPU Energy companies charge to depreciation expense and accrue
retirement costs based on amounts being collected from customers. Currently,
the GPU Energy companies are collecting retirement costs which are less than
the retirement cost estimates in the 1995 site-specific studies, and they do
not intend to increase these accruals until increased collections from
customers are obtained. Customer collections are contributed to external
trust funds. These deposits, including the related earnings, are classified
as Nuclear Decommissioning Trusts on the Balance Sheets. Accounting for
retirement costs may change based upon the Financial Accounting Standards
Board (FASB) Exposure Draft discussed below.
The FASB has issued an Exposure Draft titled "Accounting for Certain
Liabilities Related to Closure or Removal of Long-Lived Assets," which
includes nuclear plant retirement costs. If the Exposure Draft is adopted,
Oyster Creek and TMI-1 future retirement costs would have to be recognized as
a liability immediately, rather than the current industry practice of accruing
these costs in accumulated depreciation over the life of the plants. A
regulatory asset for amounts probable of recovery through rates would also be
established. Any amounts not probable of recovery through rates would have to
be charged to expense. For TMI-2, a liability has already been recognized,
based on the 1995 site-specific study (in 1996 dollars) since the plant is no
longer operating (see TMI-2). The effective date of this accounting change
could be as early as January 1, 1998.
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TMI-1 and Oyster Creek:
The NJBPU has granted JCP&L annual revenues for TMI-1 and Oyster Creek
retirement costs of $2.5 million and $13.5 million, respectively. These
annual revenues are based on both the NRC funding targets for radiological
decommissioning costs and a site-specific study which was performed in 1988
for nonradiological costs of removal. The Final Settlement pending before the
NJBPU would allow for JCP&L's future collection of retirement costs to
increase annually to $5.2 million and $22.5 million for TMI-1 and Oyster
Creek, respectively, beginning in 1998, based on the 1995 site-specific study
estimates. (See discussion of Final Settlement in Rate Matters, Management's
Discussion and Analysis.)
The PaPUC has granted Met-Ed annual revenues for TMI-1 retirement costs
of $8.5 million based on both the NRC funding target for radiological
decommissioning costs and the 1988 site-specific study for nonradiological
costs of removal. The PaPUC also granted Penelec annual revenues of $4.2
million for its share of TMI-1 retirement costs, on a basis consistent with
that granted Met-Ed.
The amounts charged to depreciation expense in 1996 and the provisions
for the future expenditure of these funds, which have been made in accumulated
depreciation, are as follows:
(in millions)
Oyster
TMI-1 Creek
Amount expensed in 1996:
JCP&L $ 2 $ 13
Met-Ed 9 -
Penelec 4 -
$ 15 $ 13
(in millions)
Oyster
TMI-1 Creek
Accumulated depreciation
provision at December 31, 1996:
JCP&L $ 30 $174
Met-Ed 50 -
Penelec 21 -
$101 $174
Management believes that any TMI-1 and Oyster Creek retirement costs, in
excess of those currently recognized for ratemaking purposes, should be
recoverable under the current ratemaking process.
TMI-2:
The estimated liabilities for TMI-2 future retirement costs (reflected as
Three Mile Island Unit 2 future costs on the Consolidated Balance Sheets) as
of December 31, are as follows:
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(in millions)
GPU JCP&L Met-Ed Penelec
1996 $431 $108 $215 $108
1995 $413 $103 $207 $103
These amounts are based upon the 1995 site-specific study estimates (in 1996
and 1995 dollars, respectively) discussed above and an estimate for remaining
incremental monitored storage costs of $17 million (JCP&L $4 million; Met-Ed
$8 million; Penelec $5 million) for 1996 and $18 million (JCP&L $4 million;
Met-Ed $9 million; Penelec $5 million) for 1995, as a result of TMI-2's
entering long-term monitored storage in 1993. The GPU Energy companies are
incurring annual incremental monitored storage costs of approximately $1
million (JCP&L $250 thousand; Met-Ed $500 thousand; Penelec $250 thousand).
Offsetting the $431 million liability at December 31, 1996 is $266 million
(JCP&L $45 million; Met-Ed $143 million; Penelec $78 million) which is
probable of recovery from customers and included in Three Mile Island Unit 2
deferred costs on the Consolidated Balance Sheets, and $181 million (JCP&L $72
million; Met-Ed $78 million; Penelec $31 million) in trust funds for TMI-2 and
included in Nuclear decommissioning trusts on the Consolidated Balance Sheets.
Earnings on trust fund deposits are included in amounts shown on the
Consolidated Balance Sheets under Three Mile Island Unit 2 deferred costs.
TMI-2 decommissioning costs charged to depreciation expense in 1996 amounted
to $14 million (JCP&L $3 million; Met-Ed $10 million; Penelec $1 million).
The NJBPU and PaPUC have granted JCP&L and Met-Ed, respectively, TMI-2
decommissioning revenues for the NRC funding target and allowances for the
cost of removal of nonradiological structures and materials. In addition,
JCP&L is recovering its share of TMI-2's incremental monitored storage costs.
The Final Settlement pending before the NJBPU would adjust JCP&L's future
revenues for retirement costs based on the 1995 site-specific study estimates,
beginning in 1998. Based on Met-Ed's rate order, Penelec has recorded a
regulatory asset for that portion of such costs which it believes to be
probable of recovery.
At December 31, 1996 the accident-related portion of TMI-2 radiological
decommissioning costs is considered to be $67 million (JCP&L $17 million, Met-
Ed $34 million; Penelec $16 million), which is the difference between the 1995
TMI-1 and TMI-2 site-specific study estimates (in 1996 dollars). In
connection with rate case resolutions at the time, JCP&L, Met-Ed and Penelec
made contributions to irrevocable external trusts relating to their shares of
the accident-related portions of the decommissioning liability. In 1990,
JCP&L contributed $15 million and in 1991, Met-Ed and Penelec contributed
$40 million and $20 million, respectively, to irrevocable external trusts.
These contributions were not recovered from customers and have been expensed.
The GPU Energy companies will not pursue recovery from customers for any of
these amounts contributed in excess of the $67 million accident-related
portion referred to above.
JCP&L intends to seek recovery for any increases in TMI-2 retirement costs,
and Met-Ed and Penelec intend to seek recovery for any increases in the
nonaccident-related portion of such costs, but recognize that recovery cannot
be assured.
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INSURANCE
GPU has insurance (subject to retentions and deductibles) for its
operations and facilities including coverage for property damage, liability to
employees and third parties, and loss of use and occupancy (primarily
incremental replacement power costs). There is no assurance that GPU will
maintain all existing insurance coverages. Losses or liabilities that are not
completely insured, unless allowed to be recovered through ratemaking, could
have a material adverse effect on the financial position of GPU.
The decontamination liability, premature decommissioning and property
damage insurance coverage for the TMI station and for Oyster Creek totals
$2.7 billion per site. In accordance with NRC regulations, these insurance
policies generally require that proceeds first be used for stabilization of
the reactors and then to pay for decontamination and debris removal expenses.
Any remaining amounts available under the policies may then be used for repair
and restoration costs and decommissioning costs. Consequently, there can be
no assurance that in the event of a nuclear incident, property damage
insurance proceeds would be available for the repair and restoration of that
station.
The Price-Anderson Act limits GPU's liability to third parties for a
nuclear incident at one of its sites to approximately $8.9 billion. Coverage
for the first $200 million of such liability is provided by private insurance.
The remaining coverage, or secondary financial protection, is provided by
retrospective premiums payable by all nuclear reactor owners. Under secondary
financial protection, a nuclear incident at any licensed nuclear power reactor
in the country, including those owned by the GPU Energy companies, could
result in assessments of up to $79 million per incident for each of the GPU
Energy companies' two operating reactors, subject to an annual maximum payment
of $10 million per incident per reactor. In addition to the retrospective
premiums payable under Price-Anderson, the GPU Energy companies are also
subject to retrospective premium assessments of up to $54 million (JCP&L $32
million; Met-Ed $15 million; Penelec $7 million) in any one year under
insurance policies applicable to nuclear operations and facilities.
The GPU Energy companies have insurance coverage for incremental
replacement power costs resulting from an accident-related outage at their
nuclear plants. Coverage commences after the first 21 weeks of the outage and
continues for three years beginning at $1.8 million for Oyster Creek and
$2.6 million for TMI-1 per week for the first year, decreasing to 80% of such
amounts for years two and three.
COMPETITION AND THE CHANGING REGULATORY ENVIRONMENT
The Emerging Competitive Market and Stranded Costs:
The combination of the current market price of electricity being below that
of utility-owned generation and purchase power commitments, as well as the
ability of some customers to choose their energy suppliers has created the
potential for stranded costs in the electric utility industry. These stranded
costs, while recoverable in a regulated environment, are at risk in a
deregulated and competitive environment. The GPU Energy companies estimate
that their total potential above market costs relating to power purchase
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GPU, Inc. and Subsidiary Companies
commitments, above market generation costs, generating plant decommissioning
costs and regulatory assets at year end 1998, on a present value basis, could
range from $4.5 billion to $8 billion (JCP&L $2.5 billion to $4 billion; Met-
Ed $1 billion to $2 billion; Penelec $1 billion to $2 billion). The estimate
is subject to significant uncertainties including the future market price of
both electricity and other competitive energy sources, as well as the timing
of when these above market costs become stranded due to customers choosing
another supplier. The restructuring legislation in Pennsylvania and the
proposed restructuring plan in New Jersey provide mechanisms for utilities to
recover, subject to regulatory approval, their above market costs. These
regulatory recovery mechanisms in Pennsylvania and New Jersey will differ, but
should allow for the recovery of non-mitigable above market costs through
either distribution charges or separate nonbypassable charges to customers.
In 1996, FERC issued Order 888, which permits electric utilities to recover
their legitimate and verifiable stranded costs incurred when a wholesale
customer purchases power from another supplier using the utility's
transmission system. In addition, Pennsylvania adopted comprehensive
legislation in 1996 which provides for the restructuring of the electric
utility industry and will permit utilities the opportunity to recover their
prudently incurred stranded costs through a PaPUC-approved competitive
transition charge, subject to certain conditions, including that utilities
attempt to mitigate these costs. In 1997, the NJBPU released Phase II of the
New Jersey Energy Master Plan (NJEMP), which proposes that New Jersey electric
utilities should have an opportunity to recover their stranded costs
associated with generating capacity commitments and caused by electric retail
competition, provided that they attempt to mitigate these costs. There can be
no assurance as to the extent that stranded costs will be recoverable. The
inability of the GPU Energy companies to recover their stranded costs in whole
or in part could result in the recording of liabilities for above market
nonutility generation (NUG) costs and writedowns of uneconomic generation
plant and regulatory assets recorded in accordance with FAS 71.
Decommissioning costs, for which a liability and corresponding regulatory
asset is recorded for amounts recoverable from customers, could also be
subject to writedowns. The inability to recover these stranded costs would
have a material adverse effect on GPU's results of operations. (See
additional discussion of stranded costs in Competitive Environment,
Management's Discussion and Analysis).
Nonutility Generation Agreements:
Pursuant to the requirements of the federal Public Utility Regulatory
Policies Act (PURPA) and state regulatory directives, the GPU Energy companies
have entered into power purchase agreements with NUGs for the purchase of
energy and capacity for periods of up to 26 years (JCP&L 25 years; Met-Ed 26
years; Penelec 25 years). The following table shows actual payments from 1994
through 1996, and estimated payments from 1997 through 2001.
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Payments Under NUG Agreements
(in Millions)
Total JCP&L Met-Ed Penelec
* 1994 $528 $304 $101 $123
* 1995 670 381 131 158
* 1996 739 370 177 192
1997 672 336 146 190
1998 691 340 152 199
1999 706 344 152 210
2000 804 347 196 261
2001 873 353 225 295
* Actual. The 1996 amounts are reflected in the rates currently being
charged by the GPU Energy companies.
While a few of these facilities are dispatchable, most are must-run and
generally obligate the GPU Energy companies to purchase, at the contract
price, the output up to the contract limits. As of December 31, 1996,
facilities covered by these agreements having 1,631 MW (JCP&L 891 MW; Met-Ed
340 MW; Penelec 400 MW) of capacity were in service.
The emerging competitive generation market has created uncertainty
regarding the forecasting of the companies' energy supply needs, which has
caused the GPU Energy companies to change their supply strategy to seek
shorter-term agreements offering more flexibility. The cost of near- to
intermediate-term (i.e., one to four years) energy supply from generation
facilities now in service is currently and is expected to continue to be
priced below the costs of new supply sources, at least for some time. The
projected cost of energy from new generation supply sources has also decreased
due to improvements in power plant technologies and lower forecasted fuel
prices. As a result of these developments, the rates under virtually all of
the GPU Energy companies' NUG agreements for facilities currently in operation
are substantially in excess of current and projected prices from alternative
sources.
The GPU Energy companies are seeking to reduce the above market costs of
these NUG agreements by: (1) attempting to convert must-run agreements to
dispatchable agreements; (2) attempting to renegotiate prices of the
agreements; (3) offering contract buyouts (see Managing Nonutility Generation,
Management's Discussion and Analysis); and (4) initiating proceedings before
federal and state agencies, and in the courts, where appropriate. In addition,
the GPU Energy companies intend to avoid, to the maximum extent practicable,
entering into any new NUG agreements that are not needed or not consistent
with current market pricing, and are supporting legislative efforts to repeal
PURPA. These efforts may result in claims against GPU for substantial
damages. There can be no assurance as to the extent these efforts will be
successful in whole or in part.
From 1997 through 2002, JCP&L has contracts to purchase between 5,100 GWH
and 5,200 GWH of electric generation per year at prices which are estimated to
escalate approximately 1.2% annually on a unit cost (cents/KWH) basis during
this period. From 2003 through 2008, JCP&L has contracts to purchase between
4,700 GWH and 5,100 GWH of electric generation per year at an average annual
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GPU, Inc. and Subsidiary Companies
cost of $369 million. The prices during this period are estimated to escalate
approximately 1.5% annually. After 2008, when major contracts begin to
expire, purchases steadily decline to approximately 865 GWH in 2014. The
contract unit cost is estimated to escalate approximately 4.0% annually from
2009 through 2014, with a total average annual cost of $193 million during
this period. All of JCP&L's contracts will have expired by the end of 2017.
During this entire period, the NUG fuel mix averages approximately 95% natural
gas.
From 1997 through 1999, Met-Ed has contracts to purchase between 2,000
GWH and 2,100 GWH of electric generation per year at prices which are
estimated to escalate approximately 0.6% annually on a unit cost basis during
this period. From 2000 through 2008, Met-Ed has contracts to purchase between
2,900 GWH and 4,300 GWH of electric generation per year at an average annual
cost of $241 million. The prices during this period are estimated to escalate
approximately 2.5% annually on a unit cost basis. From 2009 through 2012,
Met-Ed is forecast to purchase between 1,500 GWH and 1,900 GWH of electric
generation per year at an average annual cost of $169 million. During this
period, the prices are estimated to escalate approximately 3.4% annually on a
unit cost basis. After 2012, Met-Ed's remaining contracts expire rapidly
through 2015; thereafter, they remain constant until the expiration of the
last contract in 2020. During this entire period, the NUG fuel mix averages
approximately 50% to 75% coal/waste coal.
From 1997 through 2000, Penelec has contracts to purchase between 3,000
GWH and 4,000 GWH of electric generation per year at prices which are
estimated to escalate approximately 1.4% annually on a unit cost basis during
this period. From 2001 through 2008, Penelec has contracts to purchase
between 3,900 GWH and 5,000 GWH of electric generation per year at an average
annual cost of $297 million. The prices during this period are estimated to
escalate approximately 1.5% annually on a unit cost basis. From 2009 through
2017, purchases decline from approximately 3,000 GWH to approximately 1,500
GWH in 2017. The contract unit cost is estimated to escalate approximately
3.4% annually from 2009 through 2017, with a total average annual cost of
$211 million during this period. After 2017, Penelec's remaining contracts
expire rapidly through 2020. During this entire period, the NUG fuel mix
averages approximately 65% to 95% coal/waste coal.
This discussion of "Nonutility Generation Agreements" contains estimates
which are based on current knowledge and expectations of the outcome of future
events. The estimates are subject to significant uncertainties, including
changes in fuel prices, improvements in technology, the changing regulatory
environment and the deregulation of the electric utility industry.
The GPU Energy companies have been granted recovery of their NUG costs
(including certain buyout costs) from customers by the PaPUC and NJBPU and
expect to continue to pursue such recovery. Although the recently enacted
legislation in Pennsylvania and the NJEMP in New Jersey both include
provisions for the recovery of costs under NUG agreements and certain NUG
buyout costs, there can be no assurance that the GPU Energy companies will
continue to be able to recover similar costs which may be incurred in the
future. (See Competitive Environment, Management's Discussion and Analysis
for additional discussion.)
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Regulatory Assets and Liabilities:
Regulatory assets and liabilities, as reflected in the December 31, 1996
and 1995 Consolidated Balance Sheets in accordance with the provisions of FAS
71, were as follows:
GPU Assets (in thousands)
December 31, December 31,
1996 1995
Income taxes recoverable through
future rates $ 527,385 $ 527,584
TMI-2 deferred costs 356,517 368,712
Nonutility generation contract buyout costs 242,481 84,132
Unamortized property losses 100,310 105,729
Other postretirement benefits 76,569 58,362
Manufactured gas plant (MGP) remediation 49,596 29,608
N.J. unit tax 45,877 51,518
Unamortized loss on reacquired debt 45,378 50,198
Load and demand-side management programs 40,770 48,071
N.J. low-level radwaste disposal 37,525 21,778
DOE enrichment facility decommissioning 36,352 38,519
Nuclear fuel disposal fee 21,552 21,946
Environmental remediation (non-MGP sites) 20,864 -
Storm damage 20,226 18,294
Other 31,870 15,257
Total $1,653,272 $1,439,708
Liabilities (in thousands)
December 31, December 31,
1996 1995
Income taxes refundable through
future rates $ 87,735 $ 94,931
Other 2,080 3,068
Total $ 89,815 $ 97,999
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GPU, Inc. and Subsidiary Companies
JCP&L Assets (in thousands)
December 31, December 31,
1996 1995
Income taxes recoverable through
future rates $ 142,726 $ 134,787
TMI-2 deferred costs 126,448 138,472
Nonutility generation contract buyout costs 139,000 17,482
Unamortized property losses 94,767 100,176
Other postretirement benefits 44,024 32,390
Manufactured gas plant (MGP) remediation 49,596 29,608
N.J. unit tax 45,877 51,518
Unamortized loss on reacquired debt 31,469 34,285
Load and demand-side management programs 40,770 48,071
N.J. low-level radwaste disposal 37,525 21,778
DOE enrichment facility decommissioning 23,150 24,503
Nuclear fuel disposal fee 23,319 23,165
Environmental remediation (non-MGP sites) 698 -
Storm damage 20,226 18,294
Other 9,966 10,199
Total $ 829,561 $ 684,728
Liabilities (in thousands)
December 31, December 31,
1996 1995
Income taxes refundable through
future rates $ 32,567 $ 36,343
Other 683 1,254
Total $ 33,250 $ 37,597
Met-Ed Assets (in thousands)
December 31, December 31,
1996 1995
Income taxes recoverable through
future rates $ 174,636 $ 178,513
TMI-2 deferred costs 144,782 149,004
Nonutility generation contract buyout costs 86,781 66,650
Unamortized property losses 3,113 3,273
Other postretirement benefits 32,545 25,972
Unamortized loss on reacquired debt 6,336 6,945
DOE enrichment facility decommissioning 8,801 9,344
Nuclear fuel disposal fee (1,282) (1,025)
Environmental remediation (non-MGP sites) 2,575 -
Other 4,096 1,299
Total $ 462,383 $ 439,975
Liabilities (in thousands)
December 31, December 31,
1996 1995
Income taxes refundable through
future rates $ 23,486 $ 24,765
Other 2,495 1,696
Total $ 25,981 $ 26,461
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GPU, Inc. and Subsidiary Companies
Penelec Assets (in thousands)
December 31, December 31,
1996 1995
Income taxes recoverable through
future rates $ 210,023 $ 214,284
TMI-2 deferred costs 85,287 81,236
Nonutility generation contract buyout costs 16,700 -
Unamortized property losses 2,430 2,280
Other postretirement benefits - -
Unamortized loss on reacquired debt 7,686 8,968
DOE enrichment facility decommissioning 4,401 4,672
Nuclear fuel disposal fee (485) (194)
Environmental remediation (non-MGP sites) 17,591 -
Other 18,805 3,759
Total $ 362,438 $ 315,005
Liabilities (in thousands)
December 31, December 31,
1996 1995
Income taxes refundable through
future rates $ 31,682 $ 33,823
Other 12 118
Total $ 31,694 $ 33,941
Income taxes recoverable/refundable through future rates: Represents amounts
deferred due to the implementation of FAS 109, "Accounting for Income Taxes,"
in 1993.
TMI-2 deferred costs: Represents costs that are recoverable through rates for
the GPU Energy companies' remaining investment in the plant and fuel core,
radiological decommissioning and the cost of removal of nonradiological
structures and materials in accordance with the 1995 site-specific study (in
1996 dollars) and JCP&L's share of long-term monitored storage costs. For
additional information, see TMI-2 Future Costs.
Nonutility generation contract buyout costs: Represents amounts incurred for
terminating power purchase contracts with NUGs, for which rate recovery has
been granted or is probable (see Managing Nonutility Generation, in
Management's Discussion and Analysis).
Unamortized property losses: Consists mainly of costs associated with JCP&L's
Forked River project, which are included in rates.
Other postretirement benefits: Includes costs associated with the adoption of
FAS 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions," which are deferred in accordance with Emerging Issues Task Force
Issue 92-12, "Accounting for OPEB Costs by Rate-Regulated Enterprises."
Manufactured gas plant remediation: Consists of costs which are probable of
recovery, with interest, associated with the investigation and remediation of
several gas manufacturing plants. For additional information, see the
Environmental Matters section.
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GPU, Inc. and Subsidiary Companies
N.J. unit tax: Represents certain state taxes, with interest, for which JCP&L
received NJBPU approval in 1993 to recover over a ten-year period.
Unamortized loss on reacquired debt: Represents premiums and expenses incurred
in the early redemption of long-term debt. In accordance with FERC
regulations, reacquired debt costs are amortized over the remaining original
life of the retired debt.
Load and demand-side management (DSM) programs: Consists of load management
costs and other DSM program expenditures that are currently being recovered,
with interest, through JCP&L's retail base rates. Also includes provisions
for lost revenues between base rate cases and performance incentives.
N.J. low-level radwaste disposal: Represents the estimated assessment for the
siting of a disposal facility for low-level waste from Oyster Creek, less
amortization, as allowed in JCP&L's rates.
DOE enrichment facility decommissioning: Represents payments to the DOE over
a 15-year period beginning in 1994. For additional information, see Note 1,
Summary of Significant Accounting Policies.
Nuclear fuel disposal fee: Represents amounts recoverable through rates for
estimated future disposal costs for spent nuclear fuel at Oyster Creek and
TMI-1 in accordance with the Nuclear Waste Policy Act of 1982.
Environmental remediation: Represents amounts related to the remediation of
Penelec's Seward station property and various ash disposal sites for all three
GPU Energy companies (see the Environmental Matters section).
Storm damage: Relates to incremental noncapital costs associated with various
storms in the JCP&L service territory that are not recoverable through
insurance. These amounts were deferred based upon past rate recovery
precedent. An annual amortization amount is included in JCP&L's retail base
rates and is charged to expense.
Amounts related to the decommissioning of TMI-1 and Oyster Creek, which
are not included in Regulatory Assets on the Balance Sheet, are separately
disclosed in the Nuclear Plant Retirement Costs section.
Accounting Matters:
Statement of Financial Accounting Standards No. 101, "Regulated
Enterprises- Accounting for the Discontinuation of Application of FASB
Statement No. 71", applies when a utility fails to continue to meet the
provisions of FAS 71. (See Regulatory Accounting under Note 1 and Regulatory
Assets and Liabilities above.) Although the GPU Energy companies continue to
be subject to cost-based ratemaking regulation, in the event that either all
or a portion of their operations are no longer subject to FAS 71 provisions,
the related regulatory assets, net of regulatory liabilities, would have to be
written off and charged to expense. In addition, any above market costs of
power purchase commitments would have to be expensed, and additional
depreciation expense would have to be recorded for any differences created by
the use of a regulated depreciation method that is different from that which
would have been used under generally accepted accounting principles for
enterprises in general. The experience gained from the deregulation of the
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GPU, Inc. and Subsidiary Companies
telecommunications industry indicates that substantial write-offs may result
with the discontinuation of FAS 71. At this time, GPU is unable to determine
when and to what extent FAS 71 will no longer be applicable.
In 1995, the FASB issued Statement of Financial Accounting Standards No.
121 (FAS 121), "Accounting for the Impairment of Long-Lived Assets," which
requires that regulatory assets meet the recovery criteria of FAS 71 on an
ongoing basis in order to avoid a writedown. In addition, FAS 121 requires
that long-lived assets, identifiable intangibles, capital leases and goodwill
be reviewed for impairment whenever events occur or changes in circumstances
indicate that the carrying amount of the assets may not be recoverable. FAS
121 also requires the recognition of impairment losses when the carrying
amounts of those assets are greater than the estimated cash flows expected to
be generated from the use and eventual disposition of the assets. The effects
of FAS 121 have not been material to GPU's results of operations. However, as
GPU enters a more competitive environment, some assets could be subject to
impairment, thereby necessitating writedowns, which could have a material
adverse effect on GPU's results of operations and financial condition.
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, coal mine refuse
piles and generation facilities. With regard to electromagnetic fields, GPU
may be required to postpone or cancel the installation of, or replace or
modify, utility plant, the costs of which could be material.
To comply with the federal Clean Air Act Amendments of 1990 (Clean Air
Act), the GPU Energy companies expect to spend up to $277 million for air
pollution control equipment by the year 2000 (JCP&L $46 million; Met-Ed $117
million; Penelec $114 million), of which approximately $240 million has
already been spent (JCP&L $43 million; Met-Ed $95 million; Penelec $102
million). In developing their least-cost plan to comply with the Clean Air
Act, the GPU Energy companies will continue to evaluate major capital
investments compared to participation in the sulfur dioxide (SO2) emission
allowance market, the expected nitrogen oxide (NOx) emissions trading market
and the use of low-sulfur fuel or retirement of facilities. In 1994, the
Ozone Transport Commission (OTC), consisting of representatives of 12
northeast states (including New Jersey and Pennsylvania) and the District of
Columbia, proposed reductions in NOx emissions it believes necessary to meet
ambient air quality standards for ozone and the statutory deadlines set by the
Clean Air Act. The GPU Energy companies expect that the U.S. Environmental
Protection Agency (EPA) will approve state implementation plans consistent
with the proposal, and that as a result, they will spend an estimated $17
million (included in the Clean Air Act total), beginning in 1997, to meet the
1999 seasonal reductions agreed upon by the OTC (JCP&L $1 million; Met-Ed $9
million; Penelec $7 million). The OTC has stated that it anticipates that
additional NOx reductions will be necessary to meet the Clean Air Act's 2005
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GPU, Inc. and Subsidiary Companies
National Ambient Air Quality Standard (NAAQS) for ozone. However, the
specific requirements that will have to be met at that time have not been
finalized. In addition, the EPA has recently proposed changes to the NAAQS
for ozone, particulate matter and regional haze. The GPU Energy companies are
unable to determine what additional costs, if any, will be incurred.
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
5 4 2 1 1 10
In addition, certain of the GPU companies have been requested to
participate in the remediation or supply information to the EPA and state
environmental authorities on several other sites for which they have not been
formally named as PRPs, although the EPA and state authorities may
nevertheless consider them as PRPs. Certain of the GPU companies have also
been named in lawsuits requesting damages for hazardous and/or toxic
substances allegedly released into the environment. The ultimate cost of
remediation will depend upon changing circumstances as site investigations
continue, including (a) the existing technology required for site cleanup,
(b) the remedial action plan chosen and (c) the extent of site contamination
and the portion attributed to the GPU companies involved.
Pursuant to federal environmental monitoring requirements, Penelec has
reported to the Pennsylvania Department of Environmental Protection (PaDEP)
that contaminants from coal mine refuse piles were identified in storm water
run-off at Penelec's Seward station property. Penelec signed a modified
Consent Order, which became effective December 1996, that establishes a
schedule for long-term remediation, based on future operating scenarios,
including reboilering the station using fluidized bed combustion technology.
Penelec currently estimates that the remediation of the Seward station
property will range from $12 to $25 million and has recorded a liability of
$12 million at December 31, 1996. These cost estimates are subject to
uncertainties based on continuing discussions with the PaDEP as to the method
of remediation, the extent of remediation required and available cleanup
technologies. Penelec will seek, and expects, recovery of these remediation
costs in its restructuring plan to be filed with the PaPUC (see Competitive
Environment, Management's Discussion and Analysis), and has recorded a
corresponding regulatory asset of approximately $12 million at December 31,
1996.
The GPU Energy companies are required to submit applications for re-
permitting seven operating ash disposal sites to the PaDEP by July 1997,
including projected site closure procedures and related cost estimates.
Applications have been filed with the PaDEP for five of these sites. The cost
estimates for the closure of these five sites range from approximately $9
million to $14 million, and a liability of $9 million (JCP&L $1 million; Met-
Ed $2 million; Penelec $6 million) is reflected in the Consolidated Balance
Sheet at December 31, 1996. JCP&L's share of these costs is deferred based on
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GPU, Inc. and Subsidiary Companies
past rate recovery precedent, and Penelec and Met-Ed expect recovery through
their restructuring plans to be filed with the PaPUC (see Competitive
Environment, Management's Discussion and Analysis). As a result, a regulatory
asset of $9 million is reflected in the Consolidated Balance Sheet at December
31, 1996.
JCP&L has entered into agreements with the New Jersey Department of
Environmental Protection (NJDEP) for the investigation and remediation of 17
formerly owned manufactured gas plant (MGP) sites. JCP&L has also entered
into various cost-sharing agreements with other utilities for most of the
sites. As of December 31, 1996, JCP&L has spent approximately $23 million in
connection with the cleanup of these sites. In addition, JCP&L has recorded an
estimated environmental liability of $45 million relating to expected future
costs of these sites (as well as two other properties). This estimated
liability is based upon ongoing site investigations and remediation efforts,
which generally involve capping the sites and pumping and treatment of ground
water. Moreover, the cost to clean up these sites could be materially in
excess of $45 million due to significant uncertainties, including changes in
acceptable remediation methods and technologies.
In 1994, the NJBPU approved a mechanism similar to JCP&L's LEAC for the
recovery of future MGP remediation costs. However, the NJBPU has also
directed that recovery of MGP remediation costs cease until such expenditures
equaled the funds already collected from customers. At December 31, 1996,
JCP&L had recorded on its Balance Sheet a regulatory asset of $49.6 million,
which included approximately $45 million related to expected future costs
discussed above and approximately $4 million for remediation expenditures in
excess of collections from customers (including interest) (see Regulatory
Assets and Liabilities). JCP&L is continuing to defer these remediation
expenditures and accrue interest as previously authorized by the NJBPU, and is
continuing to defer estimated future remediation costs. JCP&L has requested
the establishment of an adjustment clause for the recovery of future
remediation costs in its Remediation Adjustment Clause (RAC) filing, which is
currently under NJBPU review. The Final Settlement pending before the NJBPU
would allow JCP&L to continue its accounting treatment for remediation costs
and would also provide for the RAC proceeding to remain open for future
review.
JCP&L is pursuing reimbursement from its insurance carriers for
remediation costs already spent and for future estimated costs. In 1994,
JCP&L filed a complaint with the Superior Court of New Jersey against several
of its insurance carriers, relative to these MGP sites. Pretrial discovery
has begun in this case.
OTHER COMMITMENTS AND CONTINGENCIES
GPU International Group:
At December 31, 1996, the GPU International Group had investments
totaling approximately $787 million in facilities located in foreign
countries. Although management attempts to mitigate the risk of investing in
certain foreign countries by securing political risk insurance, the GPU
International Group faces additional risks inherent to operating in such
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GPU, Inc. and Subsidiary Companies
locations, including foreign currency fluctuations (see GPU International
Group in Management's Discussion and Analysis).
At December 31, 1996, GPU, Inc.'s aggregate investment in the GPU
International Group was $211 million; GPU, Inc. has also guaranteed up to an
additional $893 million of GPU International Group obligations. Of this
amount, $680 million is included in Long-term debt in the Consolidated Balance
Sheet at December 31, 1996 (see Note 3, Long-Term Debt); $30 million relates
to a GPU International, Inc. revolving credit agreement (see Note 2, Short-
Term Borrowing Arrangements); and $183 million relates to various other
obligations of the GPU International Group.
Niagara Mohawk Power Corporation (NIMO) has filed with the New York
Public Service Commission a proposed restructuring plan that it claims may be
needed to avoid seeking reorganization under Chapter XI of the Bankruptcy
Code. GPU International, Inc. has ownership interests, with an aggregate book
value of approximately $36 million, in three NUG projects which have long-term
power purchase agreements with NIMO. In August 1996, NIMO proposed to buy out
or restructure 44 of its NUG power purchase agreements, including those for
the three GPU International, Inc. projects. GPU International, Inc., in
conjunction with the other NUG developers, is discussing the proposal with
NIMO. There can be no assurance as to the outcome of this matter.
NIMO has also initiated an action in federal court seeking to invalidate
numerous NUG contracts, including those for the GPU International, Inc.
projects. GPU International, Inc. has filed motions to dismiss the complaint.
There can be no assurance as to the outcome of these proceedings.
The Labour Party in the United Kingdom has proposed a windfall tax on
privatized utilities and other companies as part of its election campaign
platform. General elections in the United Kingdom are required to be held no
later than May 1997. If the Labour Party wins the general election, and the
tax is enacted as currently proposed, a charge to Midlands' earnings, which is
estimated to range from $110 million to $350 million (GPU's 50% share being
$55 million to $175 million), would be recorded in 1997, perhaps as early as
the second quarter. Due to the fact that (1) the Labour Party may not win the
election; (2) the windfall tax may not be enacted as currently proposed;
(3) the amount of the proposed tax may change; and (4) the Labour Party may
change its current platform, there is no certainty that this tax, if levied,
would be enacted as currently proposed.
Other:
In 1996, 493 bargaining employees (JCP&L 265; Met-Ed 90; Penelec 133;
Other 5) and 347 nonbargaining employees (JCP&L 76; Met-Ed 73; Penelec 32;
Other 166) accepted voluntary enhanced retirement programs, resulting in an 8%
reduction in GPU's total workforce and a third quarter pre-tax charge to
earnings of $122.7 million (JCP&L $62.9 million; Met-Ed $26.2 million; Penelec
$33.6 million). The charges for these programs are included in Other
Operation and Maintenance on the Income Statement.
GPU's construction programs, for which substantial commitments have been
incurred and which extend over several years, contemplate expenditures of $402
million during 1997 (JCP&L $185 million; Met-Ed $90 million; Penelec $120
million; Other $7 million). As a consequence of reliability, licensing,
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GPU, Inc. and Subsidiary Companies
environmental and other requirements, additions to utility plant may be
required relatively late in their expected service lives. If such additions
are made, current depreciation allowance methodology may not make adequate
provision for the recovery of such investments during their remaining lives.
The GPU Energy companies have entered into long-term contracts with
nonaffiliated mining companies for the purchase of coal for certain generating
stations in which they have ownership interests. The contracts, which expire
at various dates between 1997 and 2004, require the purchase of either fixed
or minimum amounts of the stations' coal requirements. The price of the coal
under the contracts is based on adjustments of indexed cost components. One
of Penelec's contracts for the Homer City station also includes a provision
for the payment of postretirement benefit costs. The GPU Energy companies'
share of the cost of coal purchased under these agreements is expected to
aggregate $133 million for 1997 (JCP&L $23 million; Met-Ed $29 million;
Penelec $81 million).
JCP&L has entered into agreements with other utilities to purchase
capacity and energy for various periods through 2004. These agreements will
provide for up to 745 MW in 1997, declining to 527 MW in 1999 and 345 MW in
2004. Payments pursuant to these agreements are estimated to be $145 million
in 1997, $128 million in 1998, $104 million in 1999, $84 million in 2000 and
$99 million in 2001.
In October 1996, JCP&L was named as a defendant in a breach of contract
lawsuit against Freehold Cogeneration Associates (Freehold) brought by Nestle
Beverage Company (Nestle) in the New Jersey Superior Court. The lawsuit
relates to the April 1996 agreement under which JCP&L agreed to buy out the
power purchase agreement for the proposed 110 MW Freehold cogeneration
project. Nestle is seeking damages of at least $75 million for Freehold's
alleged breach of its steam sales agreement with Nestle and approximately
$412 million in damages against JCP&L for alleged unlawful interference with
that agreement. Nestle has also requested punitive damages in an unspecified
amount. JCP&L believes the claims against it are without merit. There can be
no assurance as to the outcome of this matter.
In 1993, the NJBPU instituted a generic proceeding to respond to
contentions of the Division of the Ratepayer Advocate that by permitting
utilities to recover NUG capacity costs through the LEAC, an excess or
"double" recovery may result when combined with the recovery of the utilities'
embedded capacity costs through their base rates. In 1994, the NJBPU ruled
that LEAC periods after March 1991 were open for further investigation. JCP&L
estimates that the potential refund liability through February 1997, the end
of the most recent LEAC period, is $45 million. The Final Settlement which is
now pending before the NJBPU would resolve all remaining issues in this
proceeding. (See Rate Matters in Management's Discussion and Analysis).
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 December 1996, the DOE notified the GPU Energy
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GPU, Inc. and Subsidiary Companies
companies and other standard contract holders that it will be unable to begin
acceptance of spent nuclear fuel for disposal by 1998, as mandated by the
NWPA. The DOE has requested recommendations for handling the delay. In
January 1997, the GPU Energy companies, along with other electric utilities
and state agencies, petitioned the U.S. Court of Appeals to, among other
things, permit utilities to cease payments into the Federal Nuclear Waste Fund
until the DOE complies with the NWPA. The DOE's inability to accept spent
nuclear fuel by 1998 could have a material impact on GPU's results of
operations, as additional costs may be incurred to build and maintain interim
on-site storage at Oyster Creek. TMI-1 has sufficient on-site storage
capacity to accommodate spent nuclear fuel through the end of its licensed
life. There can be no assurance as to the outcome of this matter.
New Jersey and Connecticut have established the Northeast Compact, to
construct a low-level radioactive waste disposal facility in New Jersey, which
should commence operation by the end of 2003. GPUN's total share of the cost
for developing, constructing, and licensing the facility is estimated to be
$58 million, which will be paid through 2002. Through December 1996, $6
million has been paid. As a result, at December 31, 1996, a liability of $52
million is reflected on the Consolidated Balance Sheet. JCP&L is recovering
these costs from customers, and a regulatory asset has also been recorded.
(See the Regulatory Assets and Liabilities section.)
JCP&L's two operating nuclear units are subject to the NJBPU's annual
nuclear performance standard. Operation of these units at an aggregate annual
generating capacity factor below 65% or above 75% would trigger a charge or
credit based on replacement energy costs. At current cost levels, the maximum
annual effect on net income of the performance standard charge at a 40%
capacity factor would be approximately $11.7 million before tax. While a
capacity factor below 40% would generate no specific monetary charge, it would
require the issue to be brought before the NJBPU for review. The annual
measurement period, which begins in March of each year, coincides with that
used for the LEAC.
Many of GPU's computer systems must be modified due to certain
programming limitations in recognizing dates beyond 1999. GPU currently
estimates that it will cost approximately $20 million to $35 million to modify
these systems. These costs will be expensed as incurred.
As of December 31, 1996, approximately 52% of GPU's workforce was
represented by unions for collective bargaining purposes. In 1996, JCP&L
entered into a new collective bargaining agreement, which expires in 1999.
Met-Ed and Penelec's collective bargaining agreements expire in 1997 and 1998,
respectively.
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 the GPU's financial
position or results of operations, there can be no assurance that this will
continue to be the case.
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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, 1996
Allowance for doubtful
accounts $8,182 $17,501 $5,304(a) $22,327(b) $8,660
Allowance for inventory
obsolescence 3,373 650 2,207(e) 3,974(c) 2,256
Year ended December 31, 1995
Allowance for doubtful
accounts $7,430 $14,634 $5,789(a) $19,671(b) $8,182
Allowance for inventory
obsolescence 4,923 - - 1,550(c) 3,373
Year ended December 31, 1994
Allowance for doubtful
accounts $7,361 $14,105 $5,031(a) $19,067(b) $7,430
Allowance for inventory
obsolescence 5,681 - 814(d) 1,572(c) 4,923
(a) Recovery of accounts previously written off.
(b) Accounts receivable written off.
(c) Inventory written off.
(d) Sale of inventory previously written off by Met-Ed ($466) and reestablishment of zero
value inventory by JCP&L ($348).
(e) Sale of inventory previously written off by Met-Ed ($4) and JCP&L ($4) and
reestablishment of zero value inventory by JCP&L ($2,199).
F-100
Jersey Central Power & Light Company and Subsidiary Company
COMPANY STATISTICS
For The Years Ended December 31, 1996 1995 1994 1993 1992 1991
Capacity at Company Peak (in MW):
Company owned 2,850 2,749 2,765 2,839 2,826 2,836
Contracted 2,497 2,462 2,403 2,033 2,364 1,995
Total capacity (a) 5,347 5,211 5,168 4,872 5,190 4,831
Hourly Peak Load (in MW):
Summer peak 4,130 4,554 4,292 4,564 4,149 4,376
Winter peak 3,173 3,260 3,242 3,129 3,135 3,222
Reserve at company peak (%) 29.5 14.4 20.4 6.7 25.1 10.4
Load factor (%) (b) 53.9 47.1 50.8 49.1 51.7 49.3
Sources of Energy (in thousands of MWH):
Coal 2,105 1,929 1,738 1,983 1,985 1,926
Nuclear 6,114 6,791 5,275 6,151 6,259 4,362
Gas, hydro & oil 535 861 757 460 270 1,066
Net generation 8,754 9,581 7,770 8,594 8,514 7,354
Utility purchases and interchange 6,608 6,304 6,966 7,253 7,173 9,498
Nonutility purchases 5,439 5,850 4,920 4,820 5,274 3,579
Total sources of energy 20,801 21,735 19,656 20,667 20,961 20,431
Company use, line loss, etc (2,127) (1,749) (1,405) (2,026) (2,075) (1,799)
Total electric energy sales 18,674 19,986 18,251 18,641 18,886 18,632
Fuel Expense (in millions):
Coal $ 30 $ 26 $26 $28 $26 $ 28
Nuclear 40 44 35 42 41 32
Gas & oil 31 31 34 29 18 41
Total $101 $101 $95 $99 $85 $101
Power Purchased and Interchanged (in millions):
Utility purchases and interchange $246 $279 $295 $310 $325 $390
Nonutility purchases 370 382 304 292 316 216
Total $616 $661 $599 $602 $641 $606
Electric Energy Sales (in thousands of MWH):
Residential 7,266 7,112 7,094 6,983 6,568 6,757
Commercial 6,829 6,611 6,586 6,474 6,207 6,243
Industrial 3,497 3,562 3,673 3,689 3,723 3,816
Other 78 77 76 369 389 383
Sales to customers 17,670 17,362 17,429 17,515 16,887 17,199
Sales to other utilities 1,004 2,624 822 1,126 1,999 1,433
Total 18,674 19,986 18,251 18,641 18,886 18,632
Operating Revenues (in millions):
Residential $ 895 $ 881 $ 855 $ 835 $ 735 $ 750
Commercial 775 742 721 699 630 620
Industrial 311 315 322 321 306 309
Other 21 21 21 40 40 39
Sales to customers 2,002 1,959 1,919 1,895 1,711 1,718
Sales to other utilities 35 62 19 31 53 45
Total electric energy sales 2,037 2,021 1,938 1,926 1,764 1,763
Other revenues 21 15 15 10 10 10
Total $2,058 $2,036 $1,953 $1,936 $1,774 $1,773
Price per KWH (in cents):
Residential 12.40 12.31 12.06 11.90 11.15 11.11
Commercial 11.38 11.20 10.92 10.78 10.08 9.93
Industrial 8.92 8.45 8.78 8.70 8.20 8.08
Total sales to customers 11.38 11.24 11.00 10.80 10.09 9.99
Total electric energy sales 10.96 10.08 10.61 10.31 9.30 9.47
Kilowatt-hour Sales per Residential Customer 8,637 8,559 8,690 8,669 8,264 8,585
Customers at Year-End (in thousands) 954 940 924 911 897 887
(a) Summer ratings at December 31, 1996 of owned and contracted capacity were 2,718 MW and 2,226 MW, respectively.
(b) The ratio of the average hourly load in kilowatts supplied during the year to the peak load occurring during the year.
F-101
Jersey Central Power & Light Company and Subsidiary Company
SELECTED FINANCIAL DATA
(In Thousands)
For the Years Ended December 31, 1996* 1995 1994** 1993 1992 1991***
Operating revenues $2,057,918 $2,035,928 $1,952,425 $1,935,909 $1,774,071 $1,773,219
Other operation and
maintenance expense 556,086 475,448 526,623 460,128 424,285 433,562
Net income 156,303 199,089 162,841 158,344 117,361 153,523
Earnings available
for common stock 143,231 184,632 148,046 141,534 96,757 134,083
Net utility plant
in service 2,717,056 2,641,565 2,620,212 2,558,160 2,429,756 2,365,987
Total assets 4,709,919 4,456,389 4,336,640 4,269,155 3,886,904 3,695,645
Long-term debt 1,173,091 1,192,945 1,168,444 1,215,674 1,116,930 1,022,903
Long-term obligations
under capital leases 933 2,402 4,362 6,966 4,645 5,471
Company-obligated mandatorily
redeemable preferred securities 125,000 125,000 - - - -
Cumulative preferred stock
with mandatory redemption 114,000 134,000 150,000 150,000 150,000 100,000
Capital expenditures 199,823 217,805 243,878 197,059 218,874 241,774
Return on average
common equity 9.5% 13.1% 11.2% 11.1% 8.0% 11.9%
Number of employees 2,538 3,111 3,077 3,447 3,434 3,466
* Results for 1996 reflect a decrease in earnings of $39.4 million (after-tax) for costs related to voluntary enhanced
retirement programs.
** Results for 1994 reflect a net decrease in earnings of $23.0 million (after-tax) due to charges for costs related to
early retirement programs ($30.4 million); and net interest income from refunds of previously paid federal income taxes
related to the tax retirement of TMI-2 ($7.4 million).
*** Results for 1991 reflect an increase in earnings of $27.1 million (after-tax) for an accounting change recognizing
unbilled revenues and a decrease in earnings of $5.7 million (after-tax) for estimated
TMI-2 costs.
F-102
Jersey Central Power & Light Company and Subsidiary Company
QUARTERLY FINANCIAL DATA (UNAUDITED)
First Quarter Second Quarter
In Thousands 1996 1995 1996 1995
Operating revenues $529,274 $468,034 $475,884 $453,081
Operating income 77,361 57,227 67,750 61,834
Net income 54,496 36,211 40,381 36,796
Earnings available for common stock 50,910 32,512 37,219 33,210
Third Quarter Fourth Quarter
In Thousands 1996* 1995 1996 1995
Operating revenues $578,274 $625,479 $474,486 $489,334
Operating income 53,452 119,457 58,743 52,702
Net income 27,519 95,447 33,907 30,635
Earnings available for common stock 24,357 91,861 30,745 27,049
* Results for the third quarter of 1996 reflect charges of $39.4 million (after-tax)
for costs related to voluntary enhanced retirement programs.
F-103
Jersey Central Power & Light Company and Subsidiary Company
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Jersey Central Power & Light Company
Reading, Pennsylvania
We have audited the consolidated financial statements and financial statement
schedule of Jersey Central Power & Light Company and Subsidiary Company as
listed in the index on page F-1 of this Form 10-K. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Jersey Central
Power & Light Company and Subsidiary Company as of December 31, 1996 and 1995,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1996 in conformity with
generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule referred to above, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly,
in all material respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
New York, New York
February 5, 1997
F-104
Jersey Central Power & Light Company and Subsidiary Company
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands)
For The Years Ended December 31, 1996 1995 1994
Operating Revenues $2,057,918 $2,035,928 $1,952,425
Operating Expenses:
Fuel 101,357 101,110 94,503
Power purchased and interchanged:
Affiliates 27,058 17,950 18,661
Others 589,396 642,858 579,948
Deferral of energy and capacity costs, net 19,441 (5,949) (19,448)
Other operation and maintenance 556,086 475,448 526,623
Depreciation and amortization 207,309 194,976 191,042
Taxes, other than income taxes 228,885 226,994 231,070
Total operating expenses 1,729,532 1,653,387 1,622,399
Operating Income Before Income Taxes 328,386 382,541 330,026
Income taxes 71,080 91,321 75,748
Operating Income 257,306 291,220 254,278
Other Income and Deductions:
Allowance for other funds used during construction 1,536 1,803 893
Other income/(expense), net 7,202 14,889 21,995
Income taxes (3,357) (5,905) (9,372)
Total other income and deductions 5,381 10,787 13,516
Income Before Interest Charges and
Dividends on Preferred Securities 262,687 302,007 267,794
Interest Charges and Dividends
on Preferred Securities:
Interest on long-term debt 89,648 92,602 93,477
Other interest 11,147 9,709 14,726
Allowance for borrowed funds used during
construction (5,111) (6,021) (3,250)
Dividends on company-obligated mandatorily
redeemable preferred securities 10,700 6,628 -
Total interest charges and dividends
on preferred securities 106,384 102,918 104,953
Net Income 156,303 199,089 162,841
Preferred stock dividends 13,072 14,457 14,795
Earnings Available for Common Stock $ 143,231 $ 184,632 $ 148,046
The accompanying notes are an integral part of the consolidated financial statements.
F-105
Jersey Central Power & Light Company and Subsidiary Company
CONSOLIDATED BALANCE SHEETS
(In Thousands)
December 31, 1996 1995
ASSETS
Utility Plant:
In service, at original cost $4,528,676 $4,311,458
Less, accumulated depreciation 1,811,620 1,669,893
Net utility plant in service 2,717,056 2,641,565
Construction work in progress 106,512 157,885
Other, net 111,116 111,023
Net utility plant 2,934,684 2,910,473
Other Property and Investments:
Nuclear decommissioning trusts, at market 278,342 225,200
Nuclear fuel disposal trust, at market 101,661 95,393
Other, net 8,305 7,218
Total other property and investments 388,308 327,811
Current Assets:
Cash and temporary cash investments 1,321 922
Special deposits 6,939 7,358
Accounts receivable:
Customers, net 135,655 150,002
Other 33,228 21,912
Unbilled revenues 56,522 66,389
Materials and supplies, at average cost or less:
Construction and maintenance 92,761 95,949
Fuel 19,257 18,693
Deferred income taxes 22,509 8,842
Prepayments 21,150 20,869
Total current assets 389,342 390,936
Deferred Debits and Other Assets:
Regulatory assets:
Income taxes recoverable through future rates 142,726 134,787
Nonutility generation contract buyout costs 139,000 17,482
Three Mile Island Unit 2 deferred costs 126,448 138,472
Unamortized property losses 94,767 100,176
Other 326,620 293,811
Total regulatory assets 829,561 684,728
Deferred income taxes 138,903 122,082
Other 29,121 20,359
Total deferred debits and other assets 997,585 827,169
Total Assets $4,709,919 $4,456,389
The accompanying notes are an integral part of the consolidated financial statements.
F-106
Jersey Central Power & Light Company and Subsidiary Company
CONSOLIDATED BALANCE SHEETS
(In Thousands)
December 31, 1996 1995
LIABILITIES AND CAPITAL
Capitalization:
Common stock $ 153,713 $ 153,713
Capital surplus 510,769 510,769
Retained earnings 825,001 816,770
Total common stockholder's equity 1,489,483 1,481,252
Cumulative preferred stock:
With mandatory redemption 114,000 134,000
Without mandatory redemption 37,741 37,741
Company-obligated mandatorily redeemable
preferred securities 125,000 125,000
Long-term debt 1,173,091 1,192,945
Total capitalization 2,939,315 2,970,938
Current Liabilities:
Securities due within one year 110,075 35,710
Notes payable 31,800 800
Obligations under capital leases 96,150 90,329
Accounts payable:
Affiliates 71,761 31,885
Other 94,258 111,225
Taxes accrued 2,063 10,516
Deferred energy credits/(costs) 15,559 (5,290)
Interest accrued 28,350 28,718
Other 80,195 71,769
Total current liabilities 530,211 375,662
Deferred Credits and Other Liabilities:
Deferred income taxes 664,440 607,188
Unamortized investment tax credits 59,893 66,874
Three Mile Island Unit 2 future costs 107,652 103,271
Nuclear fuel disposal fee 127,543 121,121
Regulatory liabilities 33,250 37,597
Other 247,615 173,738
Total deferred credits and other liabilities 1,240,393 1,109,789
Commitments and Contingencies (Note 14)
Total Liabilities and Capital $4,709,919 $4,456,389
The accompanying notes are an integral part of the consolidated financial statements.
F-107
Jersey Central Power & Light Company and Subsidiary Company
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(In Thousands)
For the Years Ended December 31, 1996 1995 1994
Balance at beginning of year $ 816,770 $ 772,240 $ 724,194
Net income 156,303 199,089 162,841
Total 973,073 971,329 887,035
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) (1,970) (1,970) (1,970)
8.48% Series I ($8.48 a share) (2,968) (4,240) (4,240)
8.65% Series J ($8.65 a share) (4,325) (4,325) (4,325)
7.52% Series K ($7.52 a share) (3,309) (3,422) (3,760)
Common stock (not declared on a
per share basis) (135,000) (140,000) (100,000)
Total (148,072) (154,457) (114,795)
Other adjustments, net - (102) -
Balance at end of year $ 825,001 $ 816,770 $ 772,240
The accompanying notes are an integral part of the consolidated financial statements.
F-108
Jersey Central Power & Light Company and Subsidiary Company
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
For The Years Ended December 31, 1996 1995 1994
Operating Activities:
Net income $ 156,303 $ 199,089 $ 162,841
Adjustments to reconcile income to cash provided:
Depreciation and amortization 217,225 212,609 209,823
Amortization of property under capital leases 28,339 31,963 27,876
Voluntary enhanced retirement programs 62,909 - 46,862
Nuclear outage maintenance costs, net (15,392) 16,239 (16,182)
Deferred income taxes and investment tax
credits, net 4,056 (3,264) 35,426
Deferred energy and capacity costs, net 19,436 (6,511) (19,166)
Accretion income (11,610) (12,520) (13,541)
Allowance for other funds used during
construction (1,536) (1,803) (893)
Changes in working capital:
Receivables 12,897 (35,318) 24,579
Materials and supplies 2,624 (2,642) 1,221
Special deposits and prepayments 138 22,261 20,282
Payables and accrued liabilities (62,157) (47,634) (103,485)
Nonutility generation contract buyout costs (65,000) (17,000) -
Other, net (6,334) (12,816) (19,537)
Net cash provided by operating activities 341,898 342,653 356,106
Investing Activities:
Cash construction expenditures (199,823) (217,805) (243,878)
Contributions to decommissioning trusts (18,004) (18,793) (17,237)
Other, net (10,253) (7,114) (15,417)
Net cash used for investing activities (228,080) (243,712) (276,532)
Financing Activities:
Issuance of long-term debt 79,550 49,625 -
Increase/(Decrease) in notes payable, net 31,000 (109,700) 110,500
Retirement of long-term debt (25,710) (47,439) (60,008)
Capital lease principal payments (29,763) (26,991) (31,531)
Issuance of company-obligated mandatorily
redeemable preferred securities - 121,063 -
Redemption of preferred stock (20,000) (6,049) -
Dividends paid on preferred stock (13,496) (14,569) (14,795)
Dividends paid on common stock (135,000) (140,000) (100,000)
Contribution from parent corporation - 75,000 -
Net cash required by
financing activities (113,419) (99,060) (95,834)
Net increase/(decrease) in cash and temporary cash
investments from above activities 399 (119) (16,260)
Cash and temporary cash investments, beginning of year 922 1,041 17,301
Cash and temporary cash investments, end of year $ 1,321 $ 922 $ 1,041
Supplemental Disclosure:
Interest paid $ 106,264 $ 106,673 $ 109,094
Income taxes paid $ 90,960 $ 93,662 $ 44,619
New capital lease obligations incurred $ 32,694 $ 18,264 $ 37,699
The accompanying notes are an integral part of the consolidated financial statements.
F-109
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, 1996
Allowance for doubtful
accounts $1,958 $5,080 $1,680(a) $7,048(b) $1,670
Allowance for inventory
obsolescence 197 - 4(e) 2,194(c) 206
2,199(d)
Year ended December 31, 1995
Allowance for doubtful
accounts $1,359 $5,076 $2,480(a) $6,957(b) $1,958
Allowance for inventory
obsolescence 348 - - 151(c) 197
Year ended December 31, 1994
Allowance for doubtful
accounts $1,143 $5,447 $1,972(a) $7,203(b) $1,359
Allowance for inventory
obsolescence - - 348(d) - 348
(a) Recovery of accounts previously written off.
(b) Accounts receivable written off.
(c) Inventory written off.
(d) Reestablishment of zero value inventory.
(e) Sale of inventory previously written off.
F-110
Metropolitan Edison Company and Subsidiary Companies
COMPANY STATISTICS
<caption
For The Years Ended December 31, 1996 1995 1994 1993 1992 1991
Capacity at Company Peak (in MW):
Company owned 1,705 1,604 1,602 1,602 1,602 1,613
Contracted 853 492 499 676 609 677
Total capacity (a) 2,558 2,096 2,101 2,278 2,211 2,290
Hourly Peak Load (in MW):
Summer peak 2,017 2,186 2,000 1,944 1,845 1,978
Winter peak 2,114 2,012 1,954 1,940 1,834 1,842
Reserve at company peak (%) 21.0 (4.1) 5.1 17.2 19.8 15.8
Load factor (%) (b) 66.3 61.4 66.6 67.2 67.6 63.2
Sources of Energy (in thousands of MWH):
Coal 4,760 4,334 4,547 4,283 4,809 4,829
Nuclear 3,550 3,194 3,294 2,975 3,460 2,824
Gas, hydro & oil 182 253 194 42 64 85
Net generation 8,492 7,781 8,035 7,300 8,333 7,738
Utility purchases and interchange 2,021 3,087 2,295 3,398 3,319 3,477
Nonutility purchases 2,406 2,066 1,654 1,623 1,333 1,135
Total sources of energy 12,919 12,934 11,984 12,321 12,985 12,350
Company use, line loss, etc (718) (856) (660) (884) (479) (982)
Total electric energy sales 12,201 12,078 11,324 11,437 12,506 11,368
Fuel Expense (in millions):
Coal $69 $61 $71 $64 $72 $ 88
Nuclear 20 20 20 16 19 19
Gas & oil 5 6 3 2 2 2
Total $94 $87 $94 $82 $93 $109
Power Purchased and Interchanged (in millions):
Utility purchases and interchange $ 54 $ 84 $ 80 $108 $105 $122
Nonutility purchases 177 131 101 95 78 66
Total $231 $215 $181 $203 $183 $188
Electric Energy Sales (in thousands of MWH):
Residential 4,135 3,925 3,921 3,800 3,567 3,542
Commercial 3,144 3,011 2,921 2,794 2,638 2,618
Industrial 4,033 3,957 3,861 3,664 3,589 3,502
Other 213 209 211 284 329 320
Sales to customers 11,525 11,102 10,914 10,542 10,123 9,982
Sales to other utilities 676 976 410 895 2,383 1,386
Total 12,201 12,078 11,324 11,437 12,506 11,368
Operating Revenues (in millions):
Residential $365 $339 $327 $322 $306 $301
Commercial 247 229 215 209 201 197
Industrial 243 228 215 207 213 209
Other 14 13 12 18 22 21
Sales to customers 869 809 769 756 742 728
Sales to other utilities 20 26 12 27 63 45
Total electric energy sales 889 835 781 783 805 773
Other revenues 21 20 20 18 17 15
Total $910 $855 $801 $801 $822 $788
Price per KWH (in cents):
Residential 8.90 8.54 8.39 8.42 8.60 8.45
Commercial 7.88 7.54 7.38 7.46 7.63 7.51
Industrial 6.04 5.74 5.55 5.68 5.95 5.96
Total sales to customers 7.58 7.23 7.07 7.16 7.34 7.27
Total electric energy sales 7.33 6.86 6.92 6.83 6.45 6.78
Kilowatt-hour Sales per Residential Customer 10,012 9,609 9,741 9,573 9,139 9,203
Customers at Year-End (in thousands) 470 465 458 451 445 437
(a) Winter ratings at December 31, 1996 of owned and contracted capacity were 1,705 MW and 823 MW, respectively.
(b) The ratio of the average hourly load in kilowatts supplied during the year to the peak load occurring during the year.
F-111
Metropolitan Edison Company and Subsidiary Companies
SELECTED FINANCIAL DATA
(In Thousands)
For the Years Ended December 31, 1996* 1995** 1994*** 1993 1992 1991****
Operating revenues $ 910,408 $ 854,674 $ 801,303 $ 801,487 $ 821,823 $ 788,462
Other operation and
maintenance expense 249,993 229,559 258,656 210,822 208,756 224,315
Net income 69,067 148,540 731 77,875 73,077 62,341
Earnings available
for common stock 71,845 147,596 (2,229) 70,915 62,788 52,052
Net utility plant
in service 1,455,702 1,477,030 1,437,250 1,361,409 1,290,628 1,226,436
Total assets 2,472,978 2,437,165 2,236,279 2,172,543 1,811,689 1,726,388
Long-term debt 563,252 603,268 529,783 546,319 496,440 386,404
Long-term obligations
under capital leases 380 1,032 2,174 3,557 2,643 2,555
Company-obligated mandatorily
redeemable preferred securities 100,000 100,000 100,000 - - -
Capital expenditures 76,660 112,554 159,717 142,380 130,641 121,840
Return on average
common equity 10.3% 23.5% (0.4%) 12.2% 11.8% 9.4%
Number of employees 2,093 2,166 2,000 2,322 2,328 2,322
* Results for 1996 reflect a decrease in earnings of $15.4 million (after tax) for costs related to voluntary enhanced retirement
programs.
** Results for 1995 reflect the reversal of $72.8 million (after-tax) of certain future TMI-2 retirement costs written off in
1994. The reversal of this write-off resulted from a 1995 Pennsylvania Supreme Court decision that overturned a 1994 lower
court order, and restored a 1993 PaPUC order allowing for the recovery of such costs. Partially offsetting this increase was a
charge to income of $5.7 million (after-tax) of TMI-2 monitored storage costs deemed not probable of recovery through
ratemaking.
*** Results for 1994 reflect a net decrease in earnings of $79.9 million (after-tax) due to a write-off of certain future TMI-2
retirement costs ($72.8 million); charges for costs related to early retirement programs ($20.1 million); and net interest
income from refunds of previously paid federal income taxes related to the tax retirement of TMI-2 ($13.0 million).
**** Results for 1991 reflect an increase in earnings of $14.9 million (after-tax) for an accounting change recognizing unbilled
revenues and a decrease in earnings of $33.5 million (after-tax) for estimated TMI-2 costs.
F-112
Metropolitan Edison Company and Subsidiary Companies
QUARTERLY FINANCIAL DATA (UNAUDITED)
First Quarter Second Quarter
In Thousands 1996 1995 1996 1995
Operating revenues $237,688 $205,749 $207,058 $190,342
Operating income 38,392 31,155 31,129 28,335
Net income 24,037 16,384 16,806 12,617
Earnings available for common stock 23,801 16,148 16,570 12,381
Third Quarter Fourth Quarter
In Thousands 1996* 1995** 1996 1995
Operating revenues $243,077 $241,664 $222,585 $216,919
Operating income 23,575 35,121 33,804 37,194
Net income 8,382 97,391 19,842 22,148
Earnings available for common stock 8,146 97,155 23,328 21,912
* Results for the third quarter of 1996 reflect charges of $15.4 million (after-tax)
for costs related to voluntary enhanced retirement programs.
** Results for the third quarter of 1995 reflect the reversal of $72.8 million (after-tax)
of certain future TMI-2 retirement costs written off in the second quarter of 1994. The
reversal of this write-off resulted from a 1995 Pennsylvania Supreme Court decision that
overturned a 1994 lower court order, and restored a 1993 PaPUC order allowing for the
recovery of such costs. Partially offsetting this increase was a charge to income of
$5.7 million (after-tax) of TMI-2 monitored storage costs deemed not probable of recovery
through ratemaking.
F-113
Metropolitan Edison Company and Subsidiary Companies
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Metropolitan Edison Company
Reading, Pennsylvania
We have audited the consolidated financial statements and financial statement
schedule of Metropolitan Edison Company and Subsidiary Companies as listed in
the index on page F-1 of this Form 10-K. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Metropolitan
Edison Company and Subsidiary Companies as of December 31, 1996 and 1995, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1996 in conformity with
generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule referred to above, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly,
in all material respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
New York, New York
February 5, 1997
F-114
Metropolitan Edison Company and Subsidiary Companies
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands)
For The Years Ended December 31, 1996 1995 1994
Operating Revenues $910,408 $854,674 $801,303
Operating Expenses:
Fuel 93,881 87,477 94,260
Power purchased and interchanged:
Affiliates 20,724 31,411 17,834
Others 209,831 184,319 162,693
Deferral of energy costs, net (448) (1,041) (15,518)
Other operation and maintenance 249,993 229,559 258,656
Depreciation and amortization 98,364 99,588 86,063
Taxes, other than income taxes 61,319 54,870 51,817
Total operating expenses 733,664 686,183 655,805
Operating Income Before Income Taxes 176,744 168,491 145,498
Income taxes 49,844 36,686 34,002
Operating Income 126,900 131,805 111,496
Other Income and Deductions:
Allowance for other funds used during
construction 540 1,304 1,978
Other income/(expense), net 1,220 129,660 (98,953)
Income taxes (489) (55,364) 42,748
Total other income and deductions 1,271 75,600 (54,227)
Income Before Interest Charges and
Dividends on Preferred Securities 128,171 207,405 57,269
Interest Charges and Dividends on Preferred Securities:
Interest on long-term debt 45,373 45,844 43,270
Other interest 5,436 5,147 11,937
Allowance for borrowed funds used during
construction (705) (1,126) (1,869)
Dividends on company-obligated mandatorily
redeemable preferred securities 9,000 9,000 3,200
Total interest charges and dividends
on preferred securities 59,104 58,865 56,538
Net Income 69,067 148,540 731
Preferred stock dividends 944 944 2,960
Gain on preferred stock reacquisition 3,722 - -
Earnings/(Loss) Available for Common Stock $ 71,845 $147,596 $ (2,229)
The accompanying notes are an integral part of the consolidated financial statements.
F-115
Metropolitan Edison Company and Subsidiary Companies
CONSOLIDATED BALANCE SHEETS
(In Thousands)
December 31, 1996 1995
ASSETS
Utility Plant:
In service, at original cost $2,297,100 $2,240,951
Less, accumulated depreciation 841,398 763,921
Net utility plant in service 1,455,702 1,477,030
Construction work in progress 98,171 83,353
Other, net 31,000 45,587
Net utility plant 1,584,873 1,605,970
Other Property and Investments:
Nuclear decommissioning trusts, at market 131,475 95,317
Other, net 11,261 9,899
Total other property and investments 142,736 105,216
Current Assets:
Cash and temporary cash investments 1,901 1,810
Special deposits 1,052 1,256
Accounts receivable:
Customers, net 61,522 60,739
Other 17,368 22,151
Unbilled revenues 27,019 31,509
Materials and supplies, at average cost or less:
Construction and maintenance 39,739 39,337
Fuel 11,026 9,817
Deferred income taxes 7,073 7,868
Prepayments 17,254 6,549
Total current assets 183,954 181,036
Deferred Debits and Other Assets:
Regulatory assets:
Income taxes recoverable through future rates 174,636 178,513
Three Mile Island Unit 2 deferred costs 144,782 149,004
Nonutility generation contract buyout costs 86,781 66,650
Other 56,184 45,808
Total regulatory assets 462,383 439,975
Deferred income taxes 85,169 91,356
Other 13,863 13,612
Total deferred debits and other assets 561,415 544,943
Total Assets $2,472,978 $2,437,165
The accompanying notes are an integral part of the consolidated financial statements.
F-116
Metropolitan Edison Company and Subsidiary Companies
CONSOLIDATED BALANCE SHEETS
(In Thousands)
December 31, 1996 1995
LIABILITIES AND CAPITAL
Capitalization:
Common stock $ 66,273 $ 66,273
Capital surplus 370,200 370,200
Retained earnings 264,044 248,434
Total common stockholder's equity 700,517 684,907
Cumulative preferred stock 12,056 23,598
Company-obligated mandatorily redeemable
preferred securities 100,000 100,000
Long-term debt 563,252 603,268
Total capitalization 1,375,825 1,411,773
Current Liabilities:
Securities due within one year 40,020 15,019
Notes payable 50,667 22,390
Obligations under capital leases 29,964 43,600
Accounts payable:
Affiliates 27,556 10,559
Other 89,857 91,538
Taxes accrued 11,222 19,615
Deferred energy credits - 1,417
Interest accrued 18,279 19,359
Other 45,825 40,635
Total current liabilities 313,390 264,132
Deferred Credits and Other Liabilities:
Deferred income taxes 401,104 380,135
Three Mile Island Unit 2 future costs 215,204 206,489
Unamortized investment tax credits 31,584 33,387
Nuclear fuel disposal fee 28,811 27,360
Regulatory liabilities 25,981 26,461
Other 81,079 87,428
Total deferred credits and other liabilities 783,763 761,260
Commitments and Contingencies (Note 14)
Total Liabilities and Capital $2,472,978 $2,437,165
The accompanying notes are an integral part of the consolidated financial statements.
F-117
Metropolitan Edison Company and Subsidiary Companies
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(In Thousands)
For the Years Ended December 31, 1996 1995 1994
Balance at beginning of year $ 248,434 $ 190,742 $ 229,677
Net income 69,067 148,540 731
Total 317,501 339,282 230,408
Cash dividends on capital stock:
Cumulative preferred stock
(at the annual rates
indicated below):
3.90% Series ($3.90 a share) (459) (459) (459)
4.35% Series ($4.35 a share) (145) (145) (145)
3.85% Series ($3.85 a share) (112) (112) (112)
3.80% Series ($3.80 a share) (69) (69) (69)
4.45% Series ($4.45 a share) (159) (159) (159)
7.68% Series G ($7.68 a share) - - (2,016)
Common stock (not declared on a
per share basis) (60,000) (95,000) (35,000)
Total (60,944) (95,944) (37,960)
Net unrealized gain/(loss) on investments 4,027 5,119 (489)
Gain on preferred stock reacquisition 3,722 - -
Other adjustments, net (262) (23) (1,217)
Balance at end of year $ 264,044 $ 248,434 $ 190,742
The accompanying notes are an integral part of the consolidated financial statements.
F-118
Metropolitan Edison Company and Subsidiary Companies
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
For The Years Ended December 31, 1996 1995 1994
Operating Activities:
Net income $ 69,067 $ 148,540 $ 731
Adjustments to reconcile income to cash provided:
Depreciation and amortization 104,820 84,848 80,501
Amortization of property under capital leases 15,704 13,667 14,795
Three Mile Island Unit 2 costs - (118,209) 127,640
Voluntary enhanced retirement programs 26,204 - 35,246
Nuclear outage maintenance costs, net 6,215 (5,931) 5,895
Deferred income taxes and investment tax
credits, net 25,168 68,827 (53,993)
Deferred energy costs, net (448) (1,041) (15,518)
Accretion income - - (1,114)
Allowance for other funds used during
construction (540) (1,304) (1,978)
Changes in working capital:
Receivables 8,490 (19,130) 5,498
Materials and supplies (1,611) 7,053 944
Special deposits and prepayments (10,501) 1,615 (4,593)
Payables and accrued liabilities (17,714) 11,478 28,364
Nonutility generation contract buyout costs (43,318) (21,499) -
Other, net (15,964) (36,318) 7,753
Net cash provided by operating activities 165,572 132,596 230,171
Investing Activities:
Cash construction expenditures (76,660) (112,554) (159,717)
Contributions to decommissioning trusts (17,057) (13,485) (10,633)
Other, net (1,087) (300) 79
Net cash used for investing activities (94,804) (126,339) (170,271)
Financing Activities:
Issuance of long-term debt - 87,911 49,687
Increase/(Decrease) in notes payable, net 28,277 22,390 (81,600)
Retirement of long-term debt (15,019) (40,519) (26,016)
Capital lease principal payments (15,171) (12,531) (15,168)
Issuance of company-obligated mandatorily
redeemable preferred securities - - 96,732
Redemption of preferred stock (7,820) - (36,595)
Dividends paid on preferred stock (944) (944) (3,632)
Dividends paid on common stock (60,000) (95,000) (35,000)
Contribution from parent corporation - 25,000 -
Net cash required by
financing activities (70,677) (13,693) (51,592)
Net increase/(decrease) in cash and temporary cash
investments from above activities 91 (7,436) 8,308
Cash and temporary cash investments, beginning of year 1,810 9,246 938
Cash and temporary cash investments, end of year $ 1,901 $ 1,810 $ 9,246
Supplemental Disclosure:
Interest paid $ 59,697 $ 57,606 $ 77,636
Income taxes paid $ 39,278 $ 47,343 $ 15,179
New capital lease obligations incurred $ 1,417 $ 22,316 $ 3,126
The accompanying notes are an integral part of the consolidated financial statements.
F-119
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, 1996
Allowance for doubtful
accounts $3,072 $6,460 $1,651(a) $8,011(b) $3,172
Allowance for inventory
obsolescence 3,176 - 4(c) 1,316(d) 1,864
Year ended December 31, 1995
Allowance for doubtful
accounts $4,889 $3,040 $1,793(a) $6,650(b) $3,072
Allowance for inventory
obsolescence 4,575 - - 1,399(d) 3,176
Year ended December 31, 1994
Allowance for doubtful
accounts $4,889 $5,525 $1,573(a) $7,098(b) $4,889
Allowance for inventory
obsolescence 5,681 - 466(c) 1,572(d) 4,575
(a) Recovery of accounts previously written off.
(b) Accounts receivable written off.
(c) Sale of inventory previously written off.
(d) Inventory written off.
F-120
Pennsylvania Electric Company and Subsidiary Companies
COMPANY STATISTICS
For The Years Ended December 31, 1996 1995 1994 1993 1992 1991
Capacity at Company Peak (in MW):
Company owned 2,365 2,365 2,369 2,369 2,371 2,512
Contracted 782 868 778 636 418 224
Total capacity (a) 3,147 3,233 3,147 3,005 2,789 2,736
Hourly Peak Load (in MW):
Summer peak 2,410 2,495 2,309 2,208 2,140 2,153
Winter peak 2,574 2,589 2,514 2,342 2,355 2,325
Reserve at company peak (%) 22.3 24.9 25.2 28.3 18.4 17.7
Load factor (%) (b) 71.1 67.6 69.4 70.5 69.3 70.6
Sources of Energy (in thousands of MWH):
Coal 11,268 11,237 10,263 10,703 11,329 11,187
Nuclear 1,775 1,597 1,647 1,488 1,730 1,412
Gas, hydro & oil 95 (95) 120 73 75 36
Net generation 13,138 12,739 12,030 12,264 13,134 12,635
Utility purchases and interchange 2,268 3,071 2,468 2,219 2,723 2,197
Nonutility purchases 3,201 2,796 2,236 1,940 1,463 1,220
Total sources of energy 18,607 18,606 16,734 16,423 17,320 16,052
Company use, line loss, etc (2,932) (2,751) (2,248) (2,256) (2,289) (1,992)
Total electric energy sales 15,675 15,855 14,486 14,167 15,031 14,060
Fuel Expense (in millions):
Coal $164 $164 $163 $174 $168 $169
Nuclear 10 10 10 8 9 9
Gas & oil 2 1 2 1 1 1
Total $176 $175 $175 $183 $178 $179
Power Purchased and Interchanged (in millions):
Utility purchases and interchange $ 18 $ 43 $ 35 $ 31 $ 51 $ 45
Nonutility purchases 192 158 123 104 77 61
Total $210 $201 $158 $135 $128 $106
Electric Energy Sales (in thousands of MWH):
Residential 3,897 3,765 3,773 3,715 3,590 3,553
Commercial 4,044 3,922 3,794 3,651 3,488 3,475
Industrial 4,563 4,463 4,449 4,346 4,589 4,718
Other 814 857 958 568 585 666
Sales to customers 13,318 13,007 12,974 12,280 12,252 12,412
Sales to other utilities 2,357 2,848 1,512 1,887 2,779 1,648
Total 15,675 15,855 14,486 14,167 15,031 14,060
Operating Revenues (in millions):
Residential $ 339 $322 $321 $308 $298 $290
Commercial 302 287 279 261 248 244
Industrial 249 237 237 227 233 236
Other 36 39 45 31 27 32
Sales to customers 926 885 882 827 806 802
Sales to other utilities 53 68 36 52 62 43
Total electric energy sales 979 953 918 879 868 845
Other revenues 41 28 27 29 28 21
Total $1,020 $981 $945 $908 $896 $866
Price per KWH (in cents):
Residential 8.70 8.52 8.51 8.30 8.27 8.16
Commercial 7.48 7.29 7.34 7.17 7.11 7.01
Industrial 5.44 5.33 5.32 5.24 5.08 4.99
Total sales to customers 6.95 6.79 6.80 6.74 6.58 6.46
Total electric energy sales 6.24 6.00 6.34 6.21 5.77 6.00
Kilowatt-hour Sales per Residential Customer 7,857 7,620 7,678 7,607 7,393 7,369
Customers at Year-End (in thousands) 573 571 567 563 559 555
(a) Winter ratings at December 31, 1996 of owned and contracted capacity were 2,365 MW and 866 MW, respectively.
(b) The ratio of the average hourly load in kilowatts supplied during the year to the peak load occurring during the year.
F-121
Pennsylvania Electric Company and Subsidiary Companies
SELECTED FINANCIAL DATA
(In Thousands)
For the Years Ended December 31, 1996* 1995** 1994*** 1993 1992 1991****
Operating revenues $1,019,645 $ 981,329 $ 944,744 $ 908,280 $ 896,337 $ 865,552
Other operation and
maintenance expense 293,868 266,347 294,316 241,252 226,179 234,648
Net income 69,809 111,010 31,799 95,728 99,744 106,595
Earnings available
for common stock 73,872 109,466 28,862 90,741 94,080 100,406
Net utility plant
in service 1,715,670 1,692,850 1,621,818 1,542,276 1,473,293 1,419,726
Total assets 2,535,065 2,473,570 2,381,054 2,301,340 1,892,715 1,862,249
Long-term debt 656,459 642,487 616,490 524,491 582,647 542,392
Long-term obligations
under capital leases 4,129 5,277 6,741 7,745 7,691 8,260
Company-obligated mandatorily
redeemable preferred securities 105,000 105,000 105,000 - - -
Capital expenditures 114,672 130,512 174,464 150,252 110,629 101,328
Return on average
common equity 10.0% 15.8% 4.2% 13.5% 14.5% 15.1%
Number of employees 2,071 2,665 3,031 3,539 3,551 3,537
* Results for 1996 reflect a decrease in earnings of $19.7 million (after-tax) due to charges related to voluntary
enhanced retirement programs ($33.6 million).
** Results for 1995 reflect a the reversal of $32.1 million (after-tax) of certain TMI-2 retirement costs written off in
1994. The reversal of this write-off resulted from a 1995 Pennsylvania Supreme Court decision that overturned a 1994
lower court order, and restored a 1993 PaPUC order allowing for the recovery of such costs. Partially offsetting this
increase was a charge to income of $2.7 million (after-tax) of TMI-2 monitored storage costs deemed not probable of
recovery through ratemaking.
*** Results for 1994 reflect a net decrease in earnings of $61.8 million (after-tax) due to a write-off of certain future
TMI-2 retirement costs ($32.1 million); charges for costs related to early retirement programs ($25.6 million); a
write-off of postretirement benefit costs believed not probable of recovery in rates ($10.6 million); and net interest
income from refunds of previously paid federal income taxes related to the tax retirement of TMI-2 ($6.5 million).
**** Results for 1991 reflect an increase in earnings of $16.2 million (after-tax) for an accounting change recognizing
unbilled revenues and a decrease in earnings of $16.8 million (after-tax) for estimated TMI-2 costs.
F-122
Pennsylvania Electric Company and Subsidiary Companies
QUARTERLY FINANCIAL DATA (UNAUDITED)
First Quarter Second Quarter
In Thousands 1996 1995 1996 1995
Operating revenues $269,329 $253,412 $246,788 $238,451
Operating income 46,660 46,110 37,508 37,218
Net income 30,515 30,566 21,609 20,276
Earnings available for common stock 30,129 30,180 21,223 19,890
Third Quarter Fourth Quarter
In Thousands 1996* 1995** 1996 1995
Operating revenues $256,143 $249,234 $247,385 $240,232
Operating income 19,230 30,911 30,311 27,822
Net income 2,865 50,015 14,820 10,153
Earnings available for common stock 2,479 49,629 20,041 9,767
* Results for the third quarter of 1996 reflect charges of $19.7 million (after-tax)
for costs related to voluntary enhanced retirement programs.
** Results for the third quarter of 1995 reflect the reversal of $32.1 million (after-tax)
of certain future TMI-2 retirement costs written off in the second quarter of 1994. The
reversal of this write-off resulted from a 1995 Pennsylvania Supreme Court decision that
overturned a 1994 lower court order, and restored a 1993 PaPUC order allowing for the
recovery of such costs. Partially offsetting this increase was a charge to income of
$2.7 million (after-tax) of TMI-2 monitored storage costs deemed not probable of recovery
through ratemaking.
F-123
Pennsylvania Electric Company and Subsidiary Companies
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Pennsylvania Electric Company
Reading, Pennsylvania
We have audited the consolidated financial statements and financial statement
schedule of Pennsylvania Electric Company and Subsidiary Companies as listed
in the index on page F-1 of this Form 10-K. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Pennsylvania
Electric Company and Subsidiary Companies as of December 31, 1996 and 1995,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1996 in conformity with
generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule referred to above, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly,
in all material respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
New York, New York
February 5, 1997
F-124
Pennsylvania Electric Company and Subsidiary Companies
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands)
For The Years Ended December 31, 1996 1995 1994
Operating Revenues $1,019,645 $981,329 $944,744
Operating Expenses:
Fuel 176,158 174,624 175,071
Power purchased and interchanged:
Affiliates 3,529 5,927 6,310
Others 206,403 195,184 151,919
Deferral of energy costs, net 795 1,088 5,941
Other operation and maintenance 293,868 266,347 294,316
Depreciation and amortization 94,580 83,086 76,600
Taxes, other than income taxes 64,955 67,064 66,058
Total operating expenses 840,288 793,320 776,215
Operating Income Before Income Taxes 179,357 188,009 168,529
Income taxes 45,648 45,948 42,297
Operating Income 133,709 142,061 126,232
Other Income and Deductions:
Allowance for other funds used during construction 173 2,006 1,841
Other income/(expense), net (825) 56,454 (71,287)
Income taxes 99 (24,431) 31,369
Total other income and deductions (553) 34,029 (38,077)
Income Before Interest Charges and
Dividends on Preferred Securities 133,156 176,090 88,155
Interest Charges and Dividends
on Preferred Securities
Interest on long-term debt 49,654 49,875 46,439
Other interest 7,112 8,428 7,421
Allowance for borrowed funds used during
construction (2,607) (2,411) (1,996)
Dividends on company-obligated mandatorily
redeemable preferred securities 9,188 9,188 4,492
Total interest charges and dividends
on preferred securities 63,347 65,080 56,356
Net Income 69,809 111,010 31,799
Preferred stock dividends 1,503 1,544 2,937
Gain on preferred stock reacquisition 5,566 - -
Earnings Available for Common Stock $ 73,872 $109,466 $ 28,862
The accompanying notes are an integral part of the consolidated financial statements.
F-125
Pennsylvania Electric Company and Subsidiary Companies
CONSOLIDATED BALANCE SHEETS
(In Thousands)
December 31, 1996 1995
ASSETS
Utility Plant:
In service, at original cost $2,738,223 $2,667,842
Less, accumulated depreciation 1,022,553 974,992
Net utility plant in service 1,715,670 1,692,850
Construction work in progress 72,757 72,233
Other, net 22,910 30,876
Net utility plant 1,811,337 1,795,959
Other Property and Investments:
Nuclear decommissioning trusts, at market 54,194 42,440
Other, net 7,271 6,545
Total other property and investments 61,465 48,985
Current Assets:
Cash and temporary cash investments - 1,367
Special deposits 2,348 2,718
Accounts receivable:
Customers, net 73,190 67,454
Other 15,151 29,033
Unbilled revenues 31,350 30,851
Materials and supplies, at average cost or less:
Construction and maintenance 49,007 53,237
Fuel 9,924 11,285
Deferred energy costs - 9,335
Deferred income taxes - 4,602
Prepayments 36,930 10,328
Total current assets 217,900 220,210
Deferred Debits and Other Assets:
Regulatory assets:
Three Mile Island Unit 2 deferred costs 85,287 81,236
Income taxes recoverable through future rates 210,023 214,284
Other 67,128 19,485
Total regulatory assets 362,438 315,005
Deferred income taxes 67,099 78,754
Other 14,826 14,657
Total deferred debits and other assets 444,363 408,416
Total Assets $2,535,065 $2,473,570
The accompanying notes are an integral part of the consolidated financial statements.
F-126
Pennsylvania Electric Company and Subsidiary Companies
CONSOLIDATED BALANCE SHEETS
(In Thousands)
December 31, 1996 1995
LIABILITIES AND CAPITAL
Capitalization:
Common stock $ 105,812 $ 105,812
Capital surplus 285,486 285,486
Retained earnings 363,702 327,814
Total common stockholder's equity 755,000 719,112
Cumulative preferred stock 16,681 36,777
Company-obligated mandatorily redeemable
preferred securities 105,000 105,000
Long-term debt 656,459 642,487
Total capitalization 1,533,140 1,503,376
Current Liabilities:
Securities due within one year 26,010 75,009
Notes payable 107,680 27,100
Obligations under capital leases 15,881 22,751
Accounts payable:
Affiliates 20,432 13,806
Other 53,424 66,687
Taxes accrued 11,223 16,019
Interest accrued 19,192 19,567
Vacations accrued 5,172 9,976
Other 12,052 19,448
Total current liabilities 271,066 270,363
Deferred Credits and Other Liabilities:
Deferred income taxes 473,268 462,354
Unamortized investment tax credits 42,095 45,114
Three Mile Island Unit 2 future costs 107,652 103,271
Nuclear fuel disposal fee 14,406 13,680
Regulatory liabilities 31,694 33,941
Other 61,744 41,471
Total deferred credits and other liabilities 730,859 699,831
Commitments and Contingencies (Note 14)
Total Liabilities and Capital $2,535,065 $2,473,570
The accompanying notes are an integral part of the consolidated financial statements.
F-127
Pennsylvania Electric Company and Subsidiary Companies
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(In Thousands)
For the Years Ended December 31, 1996 1995 1994
Balance at beginning of year $ 327,814 $ 290,786 $ 328,290
Net income 69,809 111,010 31,799
Total 397,623 401,796 360,089
Cash dividends on capital stock:
Cumulative preferred stock
(at the annual rates
indicated below):
4.40% Series B ($4.40 a share) (244) (250) (250)
3.70% Series C ($3.70 a share) (351) (359) (359)
4.05% Series D ($4.05 a share) (251) (258) (258)
4.70% Series E ($4.70 a share) (132) (135) (135)
4.50% Series F ($4.50 a share) (188) (193) (193)
4.60% Series G ($4.60 a share) (337) (349) (349)
8.36% Series H ($8.36 a share) - - (1,393)
Common stock (not declared on a
per share basis) (40,000) (75,000) (65,000)
Total (41,503) (76,544) (67,937)
Gain on preferred stock reacquisition 5,566 - -
Net unrealized gain / (loss) on investments 2,014 2,593 (278)
Other adjustments, net 2 (31) (1,088)
Balance at end of year $ 363,702 $ 327,814 $ 290,786
The accompanying notes are an integral part of the consolidated financial statements.
F-128
Pennsylvania Electric Company and Subsidiary Companies
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
For The Years Ended December 31, 1996 1995 1994
Operating Activities:
Net income $ 69,809 $ 111,010 $ 31,799
Adjustments to reconcile income to cash provided:
Depreciation and amortization 89,021 77,635 69,615
Amortization of property under capital leases 8,733 7,777 8,553
Three Mile Island Unit 2 costs - (51,796) 56,304
Voluntary enhanced retirement programs 33,626 - 44,856
Nuclear outage maintenance costs, net 3,099 (2,901) 2,862
Deferred income taxes and investment tax
credits, net 19,208 42,514 (50,451)
Deferred energy costs, net 731 1,491 6,221
Accretion income - - (200)
Allowance for other funds used during
construction (173) (2,006) (1,842)
Changes in working capital:
Receivables 7,648 (7,713) (15,945)
Materials and supplies 5,591 4,912 (1,849)
Special deposits and prepayments (26,232) (5,078) 1,644
Payables and accrued liabilities (52,958) 8,241 (12,804)
Nonutility generation contract buyout costs (11,700) - -
Other, net (7,746) 1,178 12,803
Net cash provided by operating activities 138,657 185,264 151,566
Investing Activities:
Cash construction expenditures (114,672) (130,512) (174,464)
Contributions to decommissioning trusts (5,263) (5,263) (5,705)
Other, net (684) (323) 134
Net cash used for investing activities (120,619) (136,098) (180,035)
Financing Activities:
Issuance of long-term debt 39,513 197,997 129,100
Increase/(Decrease) in notes payable, net 80,580 (83,952) 8,774
Retirement of long-term debt (75,009) (99,319) (108,008)
Capital lease principal payments (8,418) (7,172) (8,734)
Issuance of company-obligated mandatorily
redeemable preferred securities - - 101,185
Redemption of preferred stock (14,527) - (26,168)
Dividends paid on preferred stock (1,544) (1,544) (3,111)
Dividends paid on common stock (40,000) (75,000) (65,000)
Contribution from parent corporation - 20,000 -
Net cash required by
financing activities (19,405) (48,990) 28,038
Net decrease in cash and temporary cash
investments from above activities (1,367) 176 (431)
Cash and temporary cash investments, beginning of year 1,367 1,191 1,622
Cash and temporary cash investments, end of year $ - $ 1,367 $ 1,191
Supplemental Disclosure:
Interest paid $ 63,162 $ 60,524 $ 55,221
Income taxes paid $ 43,098 $ 43,685 $ 59,881
New capital lease obligations incurred $ 715 $ 11,160 $ 2,400
The accompanying notes are an integral part of the consolidated financial statements.
F-129
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, 1996
Allowance for doubtful
accounts $3,152 $5,961 $1,973(a) $7,268(b) $3,818
Allowance for inventory
obsolescence - 650 - 464(c) 186
Year ended December 31, 1995
Allowance for doubtful
accounts $1,182 $6,518 $1,516(a) $6,064(b) $3,152
Allowance for inventory
obsolescence - - - - -
Year ended December 31, 1994
Allowance for doubtful
accounts $1,329 $3,133 $1,486(a) $4,766(b) $1,182
Allowance for inventory
obsolescence - - - - -
(a) Recovery of accounts previously written off.
(b) Accounts receivable written off.
(c) Inventory written off.
F-130