-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, U0WQoL5CDGVEQ1ereNvQCoGk78aEfrU+GR/Bn1RkdFgRnSkc+G354XXQ0FJI2zPX oXx6TlWh8DCUPM30JTYeGA== 0000040779-99-000064.txt : 19991111 0000040779-99-000064.hdr.sgml : 19991111 ACCESSION NUMBER: 0000040779-99-000064 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991110 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GPU INC /PA/ CENTRAL INDEX KEY: 0000040779 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 135516989 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-06047 FILM NUMBER: 99746177 BUSINESS ADDRESS: STREET 1: C/O GPU SERVICE INC STREET 2: 300 MADISON AVE CITY: MORRISTOWN STATE: NJ ZIP: 079621911 BUSINESS PHONE: 9734558200 MAIL ADDRESS: STREET 1: C/O GPU SERVICE INC STREET 2: 300 MADISON AVE CITY: MORRISTOWN STATE: NJ ZIP: 07962 FILER: COMPANY DATA: COMPANY CONFORMED NAME: JERSEY CENTRAL POWER & LIGHT CO CENTRAL INDEX KEY: 0000053456 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 210485010 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-03141 FILM NUMBER: 99746178 BUSINESS ADDRESS: STREET 1: 2800 POTTSVILLE PIKE CITY: READING STATE: PA ZIP: 19640-0001 BUSINESS PHONE: 6109293601 MAIL ADDRESS: STREET 1: C/O GPU ENERGY STREET 2: 2800 POTTSVILLE PIKE CITY: READING STATE: PA ZIP: 19640-0001 FILER: COMPANY DATA: COMPANY CONFORMED NAME: METROPOLITAN EDISON CO CENTRAL INDEX KEY: 0000065350 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 230870160 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 033-51001 FILM NUMBER: 99746179 BUSINESS ADDRESS: STREET 1: 2800 POTTSVILLE PIKE STREET 2: MUHLENBERG TOWNSHIP CITY: READING STATE: PA ZIP: 19640-0001 BUSINESS PHONE: 2159293601 MAIL ADDRESS: STREET 1: C/O ENERGY GPU ENERGY STREET 2: 2800 POTTERVILLE CITY: READING STATE: PA ZIP: 19640-0001 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PENNSYLVANIA ELECTRIC CO CENTRAL INDEX KEY: 0000077227 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 250718085 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-03522 FILM NUMBER: 99746180 BUSINESS ADDRESS: STREET 1: 2800 POTTSVILLE PIKE READING STREET 2: MUHLENBERG TOWNSHIP CITY: BERKS COUNTY STATE: PA ZIP: 19640-0001 BUSINESS PHONE: 6109293601 MAIL ADDRESS: STREET 1: C/O GPU ENERGY STREET 2: 2800 POTTSVILLE PIKE CITY: READING STATE: PA ZIP: 19605-2459 10-Q 1 10-Q 3RD QTR - CO-REGISTRANT FILING UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE - ---- SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1999 -------------------------------------------- OR - --- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from --------------- to --------------- Commission Registrant, State of Incorporation, I.R.S. Employer File Number Address and Telephone Number Identification No. - ----------- ---------------------------- ------------------ 1-6047 GPU, Inc. 13-5516989 (a Pennsylvania corporation) 300 Madison Avenue Morristown, New Jersey 07962-1911 Telephone (973) 455-8200 1-3141 Jersey Central Power & Light Company 21-0485010 (a New Jersey corporation) 2800 Pottsville Pike Reading, Pennsylvania 19640-0001 Telephone (610) 929-3601 1-446 Metropolitan Edison Company 23-0870160 (a Pennsylvania corporation) 2800 Pottsville Pike Reading, Pennsylvania 19640-0001 Telephone (610) 929-3601 1-3522 Pennsylvania Electric Company 25-0718085 (a Pennsylvania corporation) 2800 Pottsville Pike Reading, Pennsylvania 19640-0001 Telephone (610) 929-3601 Indicate by check mark whether the 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 ---- ---- The number of shares outstanding of each of the issuer's classes of voting stock, as of October 31, 1999, was as follows: Shares Registrant Title Outstanding - ------------------------------------ ----------------------------- ------------ GPU, Inc. Common Stock, $2.50 par value 123,424,719 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 GPU, Inc. and Subsidiary Companies Quarterly Report on Form 10-Q September 30, 1999 Table of Contents Page PART I - Financial Information Combined Management's Discussion and Analysis of Financial Condition and Results of Operations 3 Consolidated Financial Statements: GPU, Inc. Balance Sheets 32 Statements of Income 34 Statements of Cash Flows 35 Jersey Central Power & Light Company Balance Sheets 36 Statements of Income 38 Statements of Cash Flows 39 Metropolitan Edison Company Balance Sheets 40 Statements of Income 42 Statements of Cash Flows 43 Pennsylvania Electric Company Balance Sheets 44 Statements of Income 46 Statements of Cash Flows 47 Combined Notes to Consolidated Financial Statements 48 PART II - Other Information 71 Signatures 72 --------------------------------- The financial statements (not examined by independent accountants) reflect all adjustments (which consist of only normal recurring accruals) which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. This combined Quarterly Report on Form 10-Q 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. None of these registrants make any representations as to information relating to the other registrants. This combined Form 10-Q supplements and updates the 1998 Annual Report on Form 10-K, filed by the individual registrants with the Securities and Exchange Commission and should be read in conjunction therewith. This Form 10-Q 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; the completion of generation asset divestiture; fuel prices and availability; the effects of the Year 2000 issue; and uncertainties involved with foreign operations including political risks and foreign currency fluctuations. GPU, Inc. and Subsidiary Companies COMBINED MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GPU, Inc. owns all the outstanding common stock of three domestic electric utilities -- Jersey Central Power & Light Company (JCP&L), Metropolitan Edison Company (Met-Ed) and Pennsylvania Electric Company (Penelec). The customer service, transmission and distribution operations of these electric utilities are conducting business under the name GPU Energy. JCP&L, Met-Ed and Penelec considered together are referred to as the "GPU Energy companies." The generation operations of the GPU Energy companies are conducted by GPU Generation, Inc. (Genco) and GPU Nuclear, Inc. (GPUN). GPU Capital, Inc. and GPU Electric, Inc. and their subsidiaries, own, operate and fund the acquisition of electric and gas transmission and distribution systems in foreign countries, and are referred to as "GPU Electric." GPU International, Inc. and GPU Power, Inc. and their subsidiaries, develop, own and operate generation facilities in the United States and foreign countries and are referred to as the "GPUI Group." Other subsidiaries of GPU, Inc. include GPU Advanced Resources, Inc. (GPU AR), which is involved in retail energy sales; GPU Telcom Services, Inc. (GPU Telcom), which is engaged in telecommunications-related businesses; and GPU Service, Inc. (GPUS), which provides legal, accounting, financial and other services to the GPU companies. All of these companies considered together are referred to as "GPU." GPU RESULTS OF OPERATIONS
EARNINGS PER SHARE CONTRIBUTION: Three Months Ended Nine Months Ended (on a diluted basis) September 30, September 30, ------------------------ -------------------------- 1999 1998 Change 1999 1998 Change ------------------------ -------------------------- Operations: GPU Energy companies * $ 1.31 $ 0.94 $ 0.37 $ 3.04 $ 2.35 $ 0.69 GPU Electric (0.08) 0.05 (0.13) 0.31 0.34 (0.03) GPUI Group 0.06 0.04 0.02 0.08 0.09 (0.01) GPU AR (0.07) -- (0.07) (0.06) (0.01) (0.05) GPU, Inc. (Corporate) (0.04) (0.02) (0.02) (0.08) (0.07) (0.01) ----- ----- ----- ----- ----- ----- Total operations 1.18 1.01 0.17 3.29 2.70 0.59 Non-recurring items: GPU Energy companies -- 1.64 (1.64) (0.32) (0.52) 0.20 GPU Electric -- -- -- 0.08 -- 0.08 ----- ----- ----- ----- ----- ----- Total $ 1.18 $ 2.65 $(1.47) $ 3.05 $ 2.18 $ 0.87 ===== ===== ===== ===== ===== ===== * Includes GPU Telcom GPU's earnings for the third quarter ended September 30, 1999 were $147.5 million, as compared with earnings of $338.1 million for the quarter ended September 30, 1998. Earnings per share on a diluted basis were $1.18 for the third quarter of 1999, compared with earnings per share of $2.65 in the third quarter of 1998. The third quarter 1998 results included the reversal of $266.3 million after-tax, or $2.09 per share, of a non-recurring charge taken in the second quarter of 1998, as a result of amended restructuring rate orders issued to Met-Ed and Penelec by the Pennsylvania Public Utility 3
GPU, Inc. and Subsidiary Companies GPU RESULTS OF OPERATIONS (continued) Commission (PaPUC); the recording of an additional non-recurring charge of $57.0 million after-tax, or $0.45 per share, related to customer rate refunds, the write-off of regulatory assets related to wholesale energy customers and start-up payments to an environmental fund. Excluding these non-recurring items, GPU's third quarter 1998 earnings would have been $128.8 million, or $1.01 per share. The $0.17 per share earnings increase, excluding non-recurring items, was primarily due to the effect of increased sales to other utilities and decreased depreciation expense at the GPU Energy companies. Partially offsetting this increase was higher energy expenses at the GPU Energy companies; higher O&M and depreciation expenses due to the purchase of Midlands; and increased power purchases at GPU AR. For the nine months ended September 30, 1999, GPU's earnings were $385.5 million, or $3.05 per share, as compared with earnings of $276.7 million, or $2.18 per share, for the nine months ended September 30, 1998. If you exclude: a non-recurring gain of $27.8 million after-tax, or $0.22 per share, for the portion of the gain on the sale of Penelec's interest in the Homer City Generating Station (Homer City) related to wholesale operations; a non-recurring charge of $68 million after-tax, or $0.54 per share, resulting from a Summary Restructuring Order (Summary Order) issued to JCP&L by the New Jersey Board of Public Utilities (NJBPU); and a gain on the sale of the Midlands Electricity plc (Midlands) supply business of $9.7 million after-tax, or $0.08 per share, earnings for the nine months ended September 30, 1999 would have been $416.0, or $3.29 per share. Excluding the effect of the PaPUC's rate actions for the nine months ended September 30, 1998, earnings would have been $342.5 million, or $2.70 per share. The $0.59 per share earnings increase, excluding non-recurring items, was primarily due to increased sales to other utilities by the GPU Energy companies and increased profits from operations at Midlands. The Midlands earnings increase was more than offset by the absence of gains realized in 1998 on the sale of GPU Electric's interest in Solaris Power (Solaris) and the sale of AllGas Energy stock. OPERATING REVENUES: Operating revenues for the third quarter ended September 30, 1999, as compared to the third quarter of 1998, increased $255.5 million to $1.42 billion. For the nine months ended September 30, 1999, as compared to the same period last year, revenues increased $158.7 million to $3.39 billion. The components of the changes are as follows: 4 GPU, Inc. and Subsidiary Companies GPU RESULTS OF OPERATIONS (continued) Changes (in millions) ---------------------------------------- Three Months Nine Months Ended Ended September 30, 1999 September 30, 1999 ------------------ ------------------- GPU Energy companies: Kilowatt-hour (KWH) revenues $ (141.0) $(304.1) Energy and restructuring-related revenues 76.1 107.8 Obligation to refund revenues to customers per NJBPU Order - (115.0) Obligation to refund revenues to customers per PaPUC Order 56.4 56.4 Competitive transition charge (CTC) revenues 40.7 99.4 GPU Telcom revenues (5.9) (7.8) Other revenues 14.2 9.5 ----- ----- Total GPU Energy companies 40.5 (153.8) GPU Electric 183.0 240.6 GPUI Group 11.2 18.8 GPU AR 20.8 53.1 ----- ----- Total increase $ 255.5 $ 158.7 ===== ===== GPU Energy companies Kilowatt-hour revenues The decrease for the three and nine month periods was primarily due to lower generation-related revenues as a result of some Pennsylvania customers choosing another electric energy supplier and a decrease in nonutility generation (NUG) revenues for Met-Ed and Penelec (which did not have a significant impact on earnings since NUG-related revenues are being collected through the CTC effective January 1, 1999). Partially offsetting these decreases were increased sales to other utilities, the absence of an earnings cap adjustment (since JCP&L was not in an over earnings position in 1999) which reduced JCP&L's 1998 revenues and higher weather-related sales. Energy and restructuring-related revenues (JCP&L only) The increase for the three and nine month periods was primarily due to a change in the estimate for unbilled revenue and the inclusion of revenues, effective August 1, 1999, for the recovery of stranded costs due to restructuring in New Jersey. Changes in energy and restructuring-related revenues do not affect earnings as they reflect corresponding changes in JCP&L's levelized energy adjustment clause (LEAC) or new mechanisms billed to customers and expensed. Obligation to refund revenues to customers per NJBPU Order The decrease for the nine month period resulted from the NJBPU's Summary Order issued to JCP&L which requires JCP&L to refund customers 5% from rates 5 GPU, Inc. and Subsidiary Companies GPU RESULTS OF OPERATIONS (continued) in effect as of April 30, 1997 for service rendered on and after August 1, 2002 through July 31, 2003. Obligation to refund revenues to customers per PaPUC Order In 1998, as a result of amended PaPUC Restructuring Orders, Met-Ed and Penelec recorded reductions to operating revenue of $56.4 million to reflect their obligation to make refunds to customers from 1998 revenues. Competitive transition charge (CTC) revenues (Met-Ed and Penelec Only) CTC revenues represent Pennsylvania stranded cost recoveries permitted by the PaPUC in accordance with Met-Ed and Penelec's final Restructuring Orders effective January 1, 1999. Changes in CTC revenues do not affect earnings as they are offset by corresponding changes in expense. Other revenues The increase for the three and nine month periods was due primarily to increased transmission revenues at Met-Ed and Penelec as a result of customer shopping in Pennsylvania. GPU Electric The increase for the three and nine month periods was primarily due to the inclusion of revenues from Empresa Distribuidora Electrica Regional, S.A. (Emdersa), an electric distribution business in Argentina, which was acquired by GPU Electric in March 1999. Also contributing to the increase was the inclusion of revenues from the GPU GasNet and Midlands acquisitions, which were acquired in June and July 1999, respectively (see Note 3, Acquisitions). GPUI Group The increase for the three and nine month periods was primarily due to an increase in Empresa Guaracachi S.A. (EGSA) energy and capacity revenues, and the effect of consolidating Onondaga Cogen, L.P. (Onondaga) beginning August 1998, which was partially offset by lower management fee revenues. GPU AR The increase for the three and nine month periods was primarily due to an increase in energy sales to customers who chose GPU AR as their electric energy supplier as part of retail customer choice in Pennsylvania. OPERATING INCOME: Operating income for the third quarter ended September 30, 1999, as compared to the third quarter of 1998, increased $151.0 million to $377 million. For the nine months ended September 30, 1999, operating income, as 6 GPU, Inc. and Subsidiary Companies GPU RESULTS OF OPERATIONS (continued) compared to the same period last year, increased $106.4 million to $807.6 million. The components of the changes are as follows: Changes (in millions) ----------------------------------------- Three Months Nine Months Ended Ended September 30, 1999 September 30, 1999 ------------------ -------------------- GPU Energy companies $ 115.2 $ 54.5 GPU Electric 39.4 54.1 GPUI Group 11.5 10.4 GPU AR (12.7) (8.3) GPU, Inc. (Corporate) (2.4) (4.3) ----- ----- Total increase $ 151.0 $ 106.4 ===== ===== GPU Energy companies The increase for the three and nine month periods was due to lower O&M expenses primarily due to Penelec's sale of its interest in Homer City, lower depreciation expense at the GPU Energy companies due to the effect of the impairment writedown of Three Mile Island Unit 1 nuclear generating facility (TMI-1) in 1998 and the sale of Penelec's interest in Homer City. Partially offsetting the decrease to expenses for the nine month period was lower revenues (see Operating Revenues section for additional information). GPU Electric The increase for the three and nine month periods was due to the inclusion of Emdersa, GPU GasNet and the other 50% of Midlands, which were acquired in 1999. GPUI Group The increase for the three and nine month periods was primarily due to higher revenues (see Operating Revenues section for additional information). Partially offsetting the increase was higher fuel expenses at EGSA. Also contributing to the offset for the nine month period was the effect of consolidating Onondaga beginning August 1998. GPU AR The decrease for the three and nine month periods was primarily due to increased power purchases, partially offset by higher revenues (see Operating Revenues section for additional information). 7 GPU, Inc. and Subsidiary Companies GPU RESULTS OF OPERATIONS (continued) OTHER INCOME AND DEDUCTIONS: Other income and deductions for the third quarter ended September 30, 1999, as compared to the third quarter of 1998, decreased $3.7 million to $12.0 million. For the nine months ended September 30, 1999, other income and deductions, as compared to the same period last year, increased $68.9 million to $156.9 million. The components of the changes are as follows: Changes (in millions) ------------------------------------------ Three Months Nine Months Ended Ended September 30, 1999 September 30, 1999 ------------------ ------------------ GPU Energy companies $ 8.7 $ 67.8 GPU Electric (5.1) 10.7 GPUI Group (7.3) (10.6) GPU, Inc. - 1.0 ---- ---- Total increase/(decrease) $ (3.7) $ 68.9 ==== ==== GPU Energy companies The increase for the nine month period was primarily due to the recognition of the gain on the sale of Penelec's interest in Homer City relating to wholesale operations. Also contributing to the increase for the nine month period was the absence of a charge for start-up payments for the establishment of an environmental fund for Met-Ed and Penelec; and the absence of a charge to terminate a contract with one of Met-Ed's wholesale customers in the second quarter of 1998. GPU Electric The increase for the nine month period was primarily due to the gain on the sale of the Midlands supply business and increased earnings from Midlands' operations. Also contributing to the increase for the nine month period was the gain on the sale of the Enersis Group generation facility in Portugal. Partially offsetting the increase was the absence of gains realized in 1998 from the sale of Solaris and the sale of AllGas Energy stock. GPUI Group The decrease for the nine month period was primarily due to the absence of a gain realized in 1998 from the sale of a 50% interest in the Mid-Georgia cogeneration project. INTEREST CHARGES AND PREFERRED DIVIDENDS: Interest charges and preferred dividends for the third quarter ended September 30, 1999, as compared to the third quarter of 1998, increased $47.8 million to $143.7 million. For the nine months ended September 30, 1999, 8 GPU, Inc. and Subsidiary Companies GPU RESULTS OF OPERATIONS (continued) interest charges and preferred dividends, as compared to the same period last year, increased $41.0 million to $334.6 million. The components of the changes are as follows: Changes (in millions) ---------------------------------------- Three Months Nine Months Ended Ended September 30, 1999 September 30, 1999 ------------------ ------------------ GPU Energy companies $(6.2) $ (13.1) GPU Electric 53.4 55.2 GPUI Group 0.7 1.0 GPU, Inc. (Corporate) (0.1) (2.1) ---- ----- Total increase $47.8 $ 41.0 ==== ===== GPU Energy companies The decrease for the three month period was primarily due to Penelec's redemption of Company-obligated mandatorily redeemable preferred securities. The decrease for the nine month period was primarily due to Penelec's redemption of first mortgage bonds (FMBs), partially offset by Penelec's issuance of senior notes; and a decrease in preferred stock dividends due to the redemption, by Met-Ed and Penelec, of all of their outstanding shares of cumulative preferred stock. As a result of the preferred stock redemptions, a reacquisition loss of $0.5 million and $0.7 million was recorded by Met-Ed and Penelec, respectively. GPU Electric The increase for the three and nine month periods was primarily due to the Emdersa, GPU GasNet and Midlands acquisitions. JCP&L RESULTS OF OPERATIONS JCP&L's earnings for the third quarter ended September 30, 1999 were $100.6 million, compared to 1998 third quarter earnings of $89.3 million. The increase in earnings was due primarily to increased sales to other utilities. For the nine months ended September 30, 1999, earnings were $143.6 million, compared to $177.1 million for the same period last year. The decrease was due to a non-recurring charge of $68 million, as a result of the NJBPU's Summary Order issued to JCP&L. Excluding the non-recurring charge, earnings for the nine months ended September 30, 1999 would have been $211.6 million. The increase in earnings on this basis was primarily due to increased sales to other utilities, higher weather-related sales and a decrease in depreciation expense. 9 GPU, Inc. and Subsidiary Companies JCP&L RESULTS OF OPERATIONS (continued) OPERATING REVENUES: Operating revenues for the third quarter ended September 30, 1999 increased $22.6 million to $670.2 million, as compared to the third quarter of 1998. For the nine months ended September 30, 1999, revenues decreased $20.7 million to $1.58 billion as compared to the same period last year. The components of the changes are as follows: Changes (in millions) --------------------------------------- Three Months Nine Months Ended Ended September 30, 1999 September 30, 1999 ------------------ ------------------ KWH revenues $ (51.6) $ (13.5) Energy and restructuring-related revenues 76.1 107.8 Obligation to refund revenues to customers per NJBPU Order - (115.0) Other revenues (1.9) - ------ ------- Increase/(Decrease) in revenues $ 22.6 $ (20.7) ====== ====== Kilowatt-hour revenues The decrease for the three and nine month periods was due to decreased usage by residential and commercial customers. Partially offsetting the decrease was the absence of an earnings cap adjustment (since JCP&L was not in an over earnings position in 1999) which reduced 1998 revenues. Energy and restructuring-related revenues The increase for the three and nine month periods was primarily due to a change in the estimate for unbilled revenue and the inclusion of revenues, effective August 1, 1999, for the recovery of stranded costs due to restructuring in New Jersey. Changes in energy and restructuring-related revenues do not affect earnings as they reflect corresponding changes in JCP&L's levelized energy adjustment clause (LEAC) or new mechanisms billed to customers and expensed. Obligation to refund revenues to customers per NJBPU Order The decrease for the nine month period resulted from the NJBPU's Summary Order for JCP&L which requires JCP&L to refund to customers 5% from rates in effect as of April 30, 1997 for service rendered on and after August 1, 2002 through July 31, 2003. Other revenues Changes in other revenues do not affect earnings as they are offset by corresponding changes in expense. 10 GPU, Inc. and Subsidiary Companies JCP&L RESULTS OF OPERATIONS (continued) OPERATING INCOME: The increase for the three month period was primarily due to higher revenues (see Operating Revenues section for additional information), partially offset by increased purchased power. The decrease for the nine month period was primarily due to lower revenues and increased purchase power during the third quarter. Partially offsetting the decrease was lower depreciation expense primarily due to the effect of the impairment writedown of TMI-1 in 1998. OTHER INCOME AND DEDUCTIONS: No significant variances to explain for the three and nine month periods. INTEREST CHARGES AND PREFERRED DIVIDENDS: No significant variances to explain for the three and nine month periods. MET-ED RESULTS OF OPERATIONS Met-Ed's earnings for the third quarter ended September 30, 1999 were $41.6 million, compared with earnings of $176.8 million for the quarter ended September 30, 1998. The third quarter 1998 results included a reversal of $183.2 million after-tax of a non-recurring charge taken in the second quarter of 1998, as a result of amended PaPUC restructuring rate orders; and the recording of an additional non-recurring charge of $21.9 million after-tax related to customer rate refunds, the write-off of regulatory assets related to its wholesale energy customers and start up payments to an environmental fund. Excluding these non-recurring items, Met-Ed's third quarter 1998 earnings would have been $15.5 million. The increase on this basis was primarily due to increased sales to other utilities and higher residential usage. For the nine months ended September 30, 1999, earnings were $93.0 million, compared with earnings of $32.6 million for the same period last year. Excluding the effect of the PaPUC's rate actions, earnings for the nine months ended September 30, 1998 would have been $58.6 million. This increase in earnings was primarily due to increased sales to other utilities and higher residential usage, partially offset by lower generation-related revenues as a result of some Pennsylvania customers choosing another supplier. OPERATING REVENUES: Operating revenues for the third quarter ended September 30, 1999 increased $51.2 million to $280.2 million, as compared to the third quarter of 1998. For the nine months ended September 30, 1999, revenues increased $17.6 11 GPU, Inc. and Subsidiary Companies MET-ED RESULTS OF OPERATIONS (continued) million to $707.4 million as compared to the same period last year. The components of the changes are as follows: Changes (in millions) ------------------------------------------ Three Months Nine Months Ended Ended September 30, 1999 September 30, 1999 ------------------- -------------------- KWH revenues $(16.6) $(89.1) Obligation to refund revenues to customers per PaPUC Order 27.2 27.2 CTC revenues 28.5 64.6 Other revenues 12.1 14.9 ---- ----- Increase in revenues $ 51.2 $ 17.6 ==== ===== Kilowatt-hour revenues The decrease for the three and nine month periods was primarily due to lower generation-related revenues as a result of some Pennsylvania customers choosing another supplier; a decrease in NUG revenues (which did not have a significant impact on earnings since NUG-related revenues are being collected through the CTC effective January 1, 1999); partially offset by higher weather-related sales, increased usage by residential customers and increased sales to other utilities. Obligation to refund revenues to customers per PaPUC Order In 1998, as a result of amended PaPUC Restructuring Orders, Met-Ed recorded a reduction to operating revenue of $27.2 million to reflect its obligation to make refunds to customers from 1998 revenues. CTC revenues Changes in CTC revenues do not affect earnings as they are offset by corresponding changes in expense. Other revenues The increase for the three and nine month periods was due primarily to increased transmission revenues as a result of customer shopping in Pennsylvania. OPERATING INCOME: The increase for the three and nine month periods was primarily due to higher revenues (see Operating Revenues section for additional information). Partially offsetting the increase was lower depreciation and amortization expense primarily due to the effect of the impairment writedown of TMI-1 in 1998. 12 GPU, Inc. and Subsidiary Companies MET-ED RESULTS OF OPERATIONS (continued) OTHER INCOME AND DEDUCTIONS: The increase for the three and nine month periods was primarily due to the absence of a charge for start-up payments for the establishment of an environmental fund; and the absence of a charge to terminate a contract with one of Met-Ed's wholesale customers in the second quarter of 1998. INTEREST CHARGES AND PREFERRED DIVIDENDS: The increase for the three and nine month periods was primarily due to the issuance of $100 million of Trust preferred securities by Met-Ed, partially offset by a decrease in preferred stock dividends due to the redemption of Met-Ed's outstanding shares of cumulative preferred stock. As a result, a reacquisition loss of $0.5 million was recorded in the first quarter of 1999. PENELEC RESULTS OF OPERATIONS Penelec's earnings for the third quarter ended September 30, 1999 were $22.5 million, compared with earnings of $62.9 million for the quarter ended September 30, 1998. The third quarter 1998 results included a reversal of $83.1 million after-tax of a non-recurring charge taken in the second quarter of 1998, as a result of amended PaPUC restructuring rate orders; the recording of an additional non-recurring charge of $35.1 million after-tax related to customer rate refunds, the write-off of regulatory assets related to its wholesale energy customers and start up payments to an environmental fund. Excluding these non-recurring items, Penelec's third quarter 1998 earnings would have been $14.9 million. The increase on this basis was primarily due to increased sales to other utilities and higher residential usage. For the nine months ended September 30, 1999, earnings were $107.1 million, compared with earnings of $21.1 million for the same period last year. Excluding a non-recurring gain of $27.8 million after-tax for the portion of the gain on the sale of Penelec's interest in Homer City related to wholesale operations, earnings for the nine months ended would have been $79.3 million. Excluding the 1998 year-to-date effect of the PaPUC's rate actions, earnings for the nine months ended September 30, 1998 would have been $60.9 million. This increase in earnings was primarily due to increased sales to other utilities and higher residential usage, partially offset by lower generation-related revenues as a result of some Pennsylvania customers choosing another supplier. OPERATING REVENUES: Operating revenues for the third quarter ended September 30, 1999 decreased $4.7 million to $254.6 million, as compared to the third quarter of 1998. For the nine months ended September 30, 1999, revenues decreased $67.4 13 GPU, Inc. and Subsidiary Companies PENELEC RESULTS OF OPERATIONS (continued) million to $706 million as compared to the same period last year. The components of the changes are as follows: Changes (in millions) ----------------------------------------- Three Months Nine Months Ended Ended September 30, 1999 September 30, 1999 ------------------ ------------------- KWH revenues $(55.1) $(141.1) Obligation to refund revenues to customers per PaPUC Order 29.2 29.2 CTC revenues 12.2 34.8 Other revenues 9.0 9.7 ----- ------ Decrease in revenues $ (4.7) $ (67.4) ===== ====== Kilowatt-hour revenues The decrease for the three and nine month periods was primarily due to lower generation-related revenues as a result of some Pennsylvania customers choosing another supplier; a decrease in NUG revenues (which did not have a significant impact on earnings since NUG-related revenues are being collected through the CTC effective January 1, 1999); partially offset by higher weather-related sales, increased usage by residential customers and increased sales to other utilities. Obligation to refund revenues to customers per PaPUC Order In 1998, as a result of amended PaPUC Restructuring Orders, Penelec recorded a reduction to operating revenue of $29.2 million to reflect its obligation to make refunds to customers from 1998 revenues. CTC revenues Changes in CTC revenues do not affect earnings as they are offset by corresponding changes in expense. Other revenues The increase for the three and nine month periods was due primarily to increased transmission revenues as a result of customer shopping in Pennsylvania. OPERATING INCOME: The increase for the three and nine month periods was primarily due to lower depreciation and amortization expense largely due to the effect of the 1998 impairment writedown of TMI-1 and the sale of Penelec's interest in Homer City in March 1999, partially offset by lower revenues (see Operating Revenues section for additional information). 14 GPU, Inc. and Subsidiary Companies PENELEC RESULTS OF OPERATIONS (continued) OTHER INCOME AND DEDUCTIONS: The increase for the three and nine month periods was primarily due to the absence of a charge for start-up payments for the establishment of an environmental fund. Also contributing to the increase for the nine month period was the recognition of the gain on the sale of Homer City relating to wholesale operations. INTEREST CHARGES AND PREFERRED DIVIDENDS: The decrease for the three month period was primarily due to the redemption of Company-obligated mandatorily redeemable preferred securities. The decrease for the nine month period was primarily due to the redemption of $600 million FMBs, partially offset by the issuance of $350 million senior notes; and a decrease in preferred stock dividends due to the redemption of all Penelec's outstanding shares of cumulative preferred stock. As a result, a reacquisition loss of $0.7 million was recorded in the first quarter of 1999. INVESTMENTS IN FUCOs AND EWGs GPU, Inc. has Securities and Exchange Commission (SEC) authorization to finance investments in foreign utility companies (FUCOs) and exempt wholesale generators (EWGs) up to an aggregate amount equal to 100% of GPU's average consolidated retained earnings, or approximately $2.4 billion as of September 30, 1999. At September 30, 1999, GPU, Inc. has remaining authorization to finance approximately $188 million of additional investments in FUCOs and EWGs. GPU, Inc.'s investments in FUCOs and EWGs are made through GPU Electric and the GPUI Group. GPU ELECTRIC GPU Electric has ownership interests in electric and gas transmission and distribution businesses in England, Australia and Argentina. Through its investment in Midlands, GPU Electric also has ownership interests in operating generating facilities located in foreign countries totaling 4,244 megawatts (MW) (of which GPU Electric's equity interest represents 1,163 MW) of capacity. At September 30, 1999, GPU, Inc.'s aggregate investment in GPU Electric was $711 million. GPU, Inc. has also guaranteed up to an additional $1.39 billion of GPU Electric obligations. In July 1999, GPU Electric acquired Cinergy Corp.'s (Cinergy) 50% ownership interest in Avon Energy Partners Holdings (Avon), which owns Midlands, for 452.5 million British pounds (approximately US $714 million). GPU and Cinergy had jointly formed Avon in 1996 to acquire Midlands, an English regional electric company serving 2.3 million customers. For additional information, see Note 3, Acquisitions. The Office of Gas and 15 GPU, Inc. and Subsidiary Companies Electricity Markets in the United Kingdom has proposed base rate reductions of 22 to 27 percent for Midlands beginning in April 2000. A final decision on the reductions is expected in the fourth quarter of 1999. There can be no assurance as to the outcome of this matter. In June 1999, GPU Electric acquired the business of Transmission Pipelines Australia (TPA), a natural gas transmission business, from the State of Victoria, Australia for A$1.025 billion (approximately US $675 million). TPA (which has since been renamed GPU GasNet) was sold as part of Victoria's privatization of the natural gas industry. The GPU GasNet system encompasses 1,105 miles of transmission pipelines, and consists of two separate networks serving approximately 1.3 million residential customers and about 40,000 industrial and commercial customers throughout Victoria. For additional information, see Note 3, Acquisitions. In March 1999, GPU Electric acquired Emdersa for $375 million. Emdersa owns three electric distribution companies that serve three provinces in northwest Argentina. For additional information, see Note 3, Acquisitions. In June 1999, National Power plc acquired all the assets and liabilities of Midlands' supply business, including obligations under Midlands' power purchase agreements, for $300 million ($150 million for GPU's share) plus an adjustment for working capital. As a result, in the second quarter of 1999 GPU recorded an after-tax gain on the sale of $10 million, or $0.08 per share. Management believes that the acquisitions completed to date have served to establish operational bases for growth. Future acquisitions, if made, would likely be small in size and would serve to expand capabilities to grow the non-regulated businesses or to provide critical mass to the current portfolio of holdings. For additional information, see COMPETITIVE ENVIRONMENT AND RATE MATTERS section of Management's Discussion and Analysis. GPUI GROUP The GPUI Group has ownership interests in nine operating cogeneration plants in the U.S. totaling 1,147 MW (of which the GPUI Group's equity interest represents 501 MW) of capacity and five operating generating facilities located in foreign countries totaling 1,229 MW (of which the GPUI Group's equity interest represents 424 MW) of capacity. At September 30, 1999, GPU, Inc.'s aggregate investment in the GPUI Group was $240 million. GPU, Inc. has also guaranteed up to an additional $43.4 million of GPUI Group obligations. LIQUIDITY AND CAPITAL RESOURCES Capital Expenditures and Investments GPU Energy Companies The GPU Energy companies' capital spending for the nine months ended September 30, 1999 was $212 million (JCP&L $99 million; Met-Ed $43 million; 16 GPU, Inc. and Subsidiary Companies Penelec $66 million; Other $4 million), and was used primarily to expand and improve existing Transmission and Distribution (T&D) facilities, for new customer connections and to implement an integrated information system. For 1999, capital expenditures for the GPU Energy companies are estimated to be $397 million (JCP&L $183 million; Met-Ed $97 million; Penelec $98 million; Other $19 million), primarily for ongoing T&D system development and to implement an integrated information system. Expenditures for maturing obligations are expected to total $83 million (JCP&L $3 million; Met-Ed $30 million; Penelec $50 million) in 1999. Management estimates that a substantial portion of the GPU Energy companies' 1999 capital outlays will be satisfied through internally generated funds. GPU Electric GPU Electric's capital spending for the nine months ended September 30, 1999 was $1.7 billion and was used primarily to acquire Midlands, Emdersa and GPU GasNet, and to improve GPU PowerNet's facilities. Excluding the acquisitions, capital expenditures for 1999 are forecasted to be $19 million and expenditures for maturing obligations are expected to total $453 million. Capital outlays for 1999 will be satisfied through both internally generated funds and external financings. GPUI Group The GPUI Group's capital spending for the nine months ended September 30, 1999 was $32 million and was used primarily for construction activities at one of the GPUI Group's South American investments. For 1999, capital expenditures are forecasted to be $37 million and expenditures for maturing obligations are expected to total $28 million. Capital outlays for 1999 will be satisfied through both internally generated funds and external financings. Financing GPU, Inc. In January 1999, the GPU, Inc. Board of Directors authorized the repurchase of up to $350 million of GPU, Inc. common stock. Through October 28, 1999, GPU, Inc. has repurchased 4.7 million shares of common stock at an average price of $36.86 per share. GPU has $1.8 billion of committed credit facilities, which include various committed lines of credit totaling $207 million, a $250 million Revolving Credit Agreement, and other credit agreements, as discussed below. GPU Capital has entered into a $1 billion 364-day senior revolving credit facility in support of the issuance of commercial paper to fund the GPU Electric acquisitions. GPU Capital is the largest of three issuers ($1 billion) in the $1.45 billion commercial paper program. The other issuers are GPU Australia Holdings, Inc. ($350 million) and GPU, Inc. ($100 million). GPU Capital, along with GPU Australia Holdings, will use the proceeds from the sale of commercial paper to finance investments in FUCOs and EWGs. 17 GPU, Inc. and Subsidiary Companies GPU International has a Credit Agreement providing for borrowings through December 1999 of up to $30 million outstanding at any time. Up to $15 million may be utilized to provide letters of credit. The $250 million Revolving Credit Agreement between GPU, Inc., the GPU Energy companies and a consortium of banks expires May 6, 2001. GPU, Inc. has SEC approval to issue and sell up to $300 million of unsecured debentures through 2001. Further significant investments by GPU Electric and/or the GPUI Group, or otherwise, may require GPU, Inc. to issue additional debt and/or common stock. GPU Energy companies Met-Ed and Penelec have remaining regulatory approval to issue through December 31, 2000 senior notes and preferred securities in aggregate amounts of $150 million and $275 million, respectively, of which up to $25 million for each company may consist of preferred securities. JCP&L has regulatory approval through December 31, 2000 to issue senior notes in the amount of $300 million, and intends to seek regulatory approval to issue up to $200 million of such amount as preferred securities. Met-Ed and JCP&L will be issuing secured senior notes (collateralized by FMBs issued to the senior note trustee) until such time as more than 80% of the issued FMBs are held by the senior note trustee. At that time, the outstanding senior notes and any newly issued senior notes will be unsecured obligations. Penelec's senior notes are currently unsecured. Current plans call for the GPU Energy companies to issue senior notes and preferred securities during the next three years to fund the redemption of maturing senior securities, refinance outstanding senior securities and finance construction activities. Following the initial issuance of senior notes, the GPU Energy companies would not issue any additional FMBs other than as collateral for the senior notes. The senior note indentures prohibit (subject to certain exceptions) the GPU Energy companies from issuing any debt which is senior to the senior notes. The GPU Energy companies' bond indentures include provisions that limit the amount of FMBs the companies may issue. The GPU Energy companies' interest coverage ratios are currently in excess of indenture restrictions. 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. JCP&L's certificate of incorporation includes provisions that limit the amount of preferred stock and short-term debt it may issue. JCP&L's preferred dividend coverage ratio is currently in excess of the charter restrictions. 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 July 1999, Penelec redeemed all of its outstanding shares of Company-obligated mandatorily redeemable preferred securities for $105.4 million. GPU Electric Austran Holdings, Inc. (Austran), a wholly owned subsidiary of GPU Electric, has established a A$500 million (approximately U.S. $306 million) 18 GPU, Inc. and Subsidiary Companies commercial paper program. GPU PowerNet has guaranteed Austran's obligations under this program. As of September 30, 1999, Austran had outstanding approximately A$457 million (approximately U.S. $298 million) under the commercial paper program, the proceeds from which were used to refinance the maturing portion of the senior debt credit facility used to finance the GPU PowerNet acquisition. The Austran borrowings are classified as noncurrent on the Consolidated Balance Sheet since it is management's intent to reissue the commercial paper on a long-term basis. In the third quarter of 1999, Austran refinanced A$220 million (approximately US $142 million) of GPU PowerNet acquisition debt with proceeds from an Australian Dollar medium term note issuance. In connection with this debt refinancing program, a loss of A$20.3 million (approximately US $13.3 million) related to certain interest rate swap positions was reflected in GPU's third quarter 1999 earnings. In October 1999, Austran issued A$50 million (approximately US $32 million) of variable rate and A$120 million of fixed rate (approximately US $77 million) medium term notes, proceeds of which were used to refinance acquisition debt. For information relating to the financing of GPU Electric's acquisition of Midlands, see Note 3, Acquisitions. GPU may further reduce the outstanding commercial paper issued associated with the refinancing of the Midlands acquisition debt in addition to the GPU PowerNet acquisition debt with a portion of the proceeds from the sale of the GPU Energy companies' generating facilities (see COMPETITIVE ENVIRONMENT AND RATE MATTERS section of Management's Discussion and Analysis). Year 2000 Issue GPU has been addressing the Year 2000 issue by undertaking comprehensive reviews of its computers, software and equipment with embedded systems such as microcontrollers (together, "Year 2000 Components"), and of its business relationships with third parties, including key customers, lenders, trading partners, vendors, suppliers and service providers. Remediation plans and corrective actions are substantially complete. The remediation plans included, among other things, the modification or replacement of Year 2000 Components, which were not ready for use beyond 1999. In addition, GPU has completed development of contingency plans for mission-critical systems. GPU's Year 2000 project has not caused any material delay in the GPU information technology services group performing other planned projects. During 1999, an independent consultant retained by GPU conducted several reviews to determine the adequacy of the GPU Energy companies' Year 2000 plans and state of readiness. In the most recent review, the consultant indicated overall that the GPU Energy companies are well on their way to achieving Year 2000 readiness. A final assessment is scheduled in November 1999. Another consultant was retained to perform an independent verification and validation audit of the embedded systems used within the GPU Energy companies' infrastructure operations. This consultant concluded overall that "the T&D Business Unit has completed significant steps to minimize the risk of failures associated with Y2K issues." Within the GPU Electric companies, Midlands was recently the subject of two independent reviews to determine Year 2000 19 GPU, Inc. and Subsidiary Companies readiness both of which reported no significant concerns. The Regulator- General of Australia recently conducted an audit of GPU PowerNet's Year 2000 readiness program, which resulted in no adverse findings. Regulatory Compliance for Year 2000 Readiness The GPU Energy companies have complied with the existing requirements of the PaPUC and NJBPU on the Year 2000 issue. GPU Nuclear has notified the U.S. Nuclear Regulatory Commission (NRC) that TMI-1 and the Oyster Creek nuclear generating station (Oyster Creek) have completed Year 2000 readiness programs. Costs The GPU Energy companies currently expect to spend a total of approximately $44.1 million (JCP&L $19.2 million; Met-Ed $12.3 million; Penelec $12.6 million) on the Year 2000 issue, which includes $8.1 million (JCP&L $2.7 million; Met-Ed $2.7 million; Penelec $2.7 million) that is being spent as a part of the purchase and implementation of a new integrated information system (Project Enterprise), as described below. The $44.1 million also includes $7.4 million (JCP&L $3.4 million; Met-Ed $1.9 million; Penelec $2.1 million) that would have been spent in any event for maintenance and cyclical replacement plans. Approximately 43% of the expected costs involve the modification or replacement of Year 2000 Components; and 57% are for labor (including contract labor) and contingencies. The GPU Energy companies are funding these costs from their operations. Through September 30, 1999, the GPU Energy companies have spent a total of approximately $38.2 million (JCP&L $16.7 million; Met-Ed $10.7 million; Penelec $10.8 million) on the Year 2000 issue, of which $17.5 million (JCP&L $8.0 million; Met-Ed $4.7 million; Penelec $4.8 million) has been spent in 1999. GPU Electric currently expects to spend a total of approximately $15.8 million on the Year 2000 issue. Through September 30, 1999, GPU Electric has spent a total of approximately $11.4 million on the Year 2000 issue, of which $7.6 million has been spent in 1999. The total cost associated with the GPUI Group and GPU AR achieving Year 2000 readiness is not expected to be material to GPU's business operations or financial position. The Project Enterprise system, referenced above, is designed to help the GPU Energy companies manage business growth and meet the requirements of electric utility deregulation. The system became substantially operational for the GPU Energy companies and GPUS in December 1998, with add-on implementation of the work management and customer care system (CCS) modules completed in March and August 1999, respectively. Year 2000 testing of the CCS module was completed in October 1999, with favorable results. GPUN and Genco are not installing the Project Enterprise information system before 2000, but rather have made modifications to their existing legacy information systems to achieve Year 2000 readiness. 20 GPU, Inc. and Subsidiary Companies Milestones GPU has established Inventory, Assessment, Remediation, Testing and Monitoring of its mission-critical Year 2000 Components as the primary phases for its Year 2000 program. All stages of the Year 2000 program have been completed with the exception of Monitoring, which will be completed by March 31, 2000 for all GPU companies other than GPU Electric and Genco, which will be completed by April 30, 2000 and May 31, 2000, respectively. Third Party Qualification Due to the interdependence of computer systems and the reliance on other organizations for materials, supplies or services, GPU is also addressing the Year 2000 issue as it relates to the readiness of critical third parties. As part of its Year 2000 strategy, GPU has contacted key customers, lenders, trading partners, vendors, suppliers and service providers to assess whether they are adequately addressing the Year 2000 issue. With respect to computer software and equipment with embedded systems, the GPU Energy companies have analyzed where they are dependent upon third party data and have identified several critical areas: (1) the Pennsylvania-New Jersey-Maryland (PJM) Interconnection; (2) electric generation suppliers, such as cogeneration operators and NUGs; (3) Electronic Data Interchange (EDI) with trading partners; (4) Electronic Funds Transfer (EFT) with financial institutions; (5) vendors; and (6) customers. The following summarizes the actions that have been taken by the GPU Energy companies with critical third parties: - PJM - Data link testing with PJM and all PJM member companies has been successfully completed. - Electric generation suppliers - Preliminary readiness information has been received from all critical electric generation suppliers. Based on the information provided, it is anticipated that these suppliers will achieve Year 2000 readiness prior to year-end 1999. - EDI - All critical organizations with which data is exchanged electronically have been contacted and successful testing has been achieved with 90% of them. There are currently two mission-critical EDI partners remaining to be successfully tested. The EDI partners have deferred testing until the fourth quarter of 1999 when they are expected to have upgraded their systems to be Year 2000 ready; however, contingency plans are in place for these systems. - EFT - The testing of the Electronic Funds Transfer System (EFT) encountered Year 2000 date-related issues that were reported to the software vendor. Corrections from the vendor were received in September 1999 and the software will be upgraded and tested during the fourth quarter of 1999; however, contingency plans are in place for this system. 21 GPU, Inc. and Subsidiary Companies - Vendors - Based on the information obtained, it is anticipated that all critical vendors will achieve Year 2000 readiness prior to year-end 1999. - Customers - An assessment of the readiness status of mission-critical customers, that generate an aggregate of approximately $2.5 billion of annual revenue for GPU, is continuing with the expectation of completion prior to year-end 1999. As for GPU Electric, Midlands has stockpiled three months of critical supplies (cable, connectors, etc.) to attempt to ensure that it will not experience shortages of critical items. As a buyer of electricity through the National Grid in the United Kingdom, Midlands has no direct control over its power supply; however, the National Grid has said that it has carried out an extensive Year 2000 program of its own to ensure that there is no disruption of service, but is unable to guarantee this. GPU PowerNet has reviewed all its mission-critical interfaces with distributors, generators and interstate transmitters in Australia and has found them to be Year 2000 ready. GPU GasNet does not anticipate any significant Year 2000-related problems with its two material third party relationships. Emdersa has requested Year 2000 compliance statements from all of its suppliers and has received assurance of Year 2000 compliance from all its critical suppliers. The GPUI Group has received confirmation of Year 2000 readiness from all its critical third parties. GPU AR has completed testing and confirmation of Year 2000 readiness for all its critical third parties. Scenarios and Contingencies GPU believes that its Year 2000 preparations will be effective relative to its mission-critical Year 2000 Components and has established contingency plans to deal with problems that may occur in an expeditious manner. However, due to the interconnected natures of both the electric and gas utility businesses, it is not possible to eliminate the inherent risk involved in relying upon third parties. While GPU cannot predict what effect, if any, the Year 2000 issue will have on its operations, one possible scenario could include, among other things, interruptions in delivering electric and gas service to customers, and a temporary inability to process transactions, provide bills or operate electric generating stations. While GPU does not anticipate any "most reasonably likely worst case Year 2000 scenarios" that would cause a material adverse effect on its results of operations, liquidity and/or financial condition, there can be no assurance as to the outcome of this matter. In June 1999, the GPU Energy companies filed with the North American Electric Reliability Council (NERC) a report containing an overview of their contingency planning strategies, as well as details about certain contingency plans. The GPU Energy companies and Genco successfully participated in Year 2000 drills coordinated by NERC in April and September 1999. The GPU Energy companies also conducted several internal tests with favorable results in conjunction with the drills. In addition, a GPU Energy Year 2000 Event 22 GPU, Inc. and Subsidiary Companies Management Plan has been developed, which provides for the establishment of a Situation Command Center ("SCC") to monitor and control potential Year 2000-related events during critical time frames. All of the GPU Energy companies will be represented in the SCC and they will be supported by various technical and support groups housed inside and outside the SCC. The SCC will remain mobilized until Year 2000-related events that could potentially occur have been fully resolved. Within the GPU Electric companies, Midlands is conducting ongoing contingency rehearsals, although the key mission-critical processes associated with management of the distribution network have already been completed with successful results. Midlands is also planning for extra staffing to deal with any potential problems that may result. GPU PowerNet has conducted scenario workshops and drills to identify critical Year 2000 risks. In addition, GPU PowerNet participated in an industry-wide communication drill in October 1999 with successful results, and will participate in a full "transition rehearsal" on November 30, 1999. A recent Year 2000 contingency planning audit was conducted by the Regulator-General of Australia, the results of which will be published in November 1999. GPU PowerNet is also planning for extra staffing to deal with any potential problems that may result, and key systems will be verified and backed-up. GPU GasNet will continue testing at key sites through November and December 1999 to ensure the viability of back-up systems and contingency plans. GPU GasNet has also identified various potential failure scenarios and developed appropriate responses. The full availability of key personnel during critical time frames has also been ensured. Emdersa has installed new computer technology, which was designed to meet Year 2000 requirements. Therefore, Emdersa's Year 2000 program has been focused on contingency planning, including, the provision of an alternative customer billing system, alternative communications technologies, and having available personnel capable of manual operation of key facilities. The GPUI Group has developed detailed contingency plans for corporate activities, plant operations and third party relationships. These plans prescribe actions to be taken to mitigate material adverse effects in the unlikely event of system failures. GPU AR has developed contingency plans for company activities and third party relationships. These plans identify possible system failures and prescribe actions to be taken to mitigate material adverse effects in the event of such failures. COMPETITIVE ENVIRONMENT AND RATE MATTERS GPU Business Plan Currently, and increasingly in the future, the GPU Energy companies will serve customers in markets where there will essentially be capped rates. Since the GPU Energy companies expect to exit the merchant generation business in the near future, they will need to supply energy largely from contracted purchases and purchases in the open market. Management is in the process of identifying and addressing market risks. There can be no assurance that the GPU Energy companies will be able to supply electricity to customers that it 23 GPU, Inc. and Subsidiary Companies has obtained at reasonable cost to the respective companies, which could have an adverse effect on GPU's results of operations. GPU expects to be in a regulated business (the transmission and distribution of electricity). In the future, GPU's ability to seek rate increases will be more limited than it has been in the past and, notwithstanding increases in costs, rates may be capped for varying periods. Since GPU will be exiting the merchant generation business, it will need to meet capacity obligations and supply energy largely from contracted purchases and open market purchases. In addition, inflation may have various effects on GPU since it will be a factor in revenue calculations in some jurisdictions, but may cause increased operating costs with GPU having a limited ability to pass these costs to its customers because of capped rates in other areas. Management is in the process of identifying and addressing these market risks, however, there can be no assurance that GPU will be able to recover through these capped rates all of the costs of the electricity required to be purchased for customers. In October 1999, GPU initiated a program to enhance shareholder returns through planned cost reductions of $100 million during the next two years, by increasing operating efficiency and by making investments of $40 million to $50 million to improve the reliability of its domestic business. These cost reductions will consist of cuts of $55 million in 2000 and an additional $45 million in 2001. The GPU Energy companies are targeting reductions of $30 million in 2000 and an additional $40 million in 2001. Cost reductions will be achieved by using new tools from its enterprise resource planning system to eliminate significant amounts of operational overhead expense and by improving the productivity of all its operations. Midlands will make cost reductions of $25 million in 2000 and $5 million in 2001. Cost reductions will be achieved by eliminating activities not provided for in its new regulated rate level expected to take effect in the Spring of 2000 and by realizing productivity benefits from its new systems and organization. Furthermore, GPU plans to raise at least $500 million in cash from its current investment portfolio by reducing GPU's ownership in non-core and under- performing assets. The GPU Energy Companies' Supply Plan As the GPU Energy companies prepare to operate in a competitive environment, their supply planning strategy will focus on providing for the needs of existing retail customers who do not choose a competitive supplier and continue to receive energy supplied by the GPU Energy companies and whom the GPU Energy companies continue to have an obligation to serve. After the pending sales of the GPU Energy companies' generating facilities have been completed, GPU will have 200 MW of capacity and related energy from Yards Creek Pumped Storage Facility (Yards Creek) remaining to meet customer needs (see the Oyster Creek section of NUCLEAR FACILITIES for a discussion of the pending sale of Oyster Creek). The GPU Energy companies also have contracts with NUG facilities totaling 1,681 MW and JCP&L has agreements with other utilities to provide for up to 584 MW of capacity and related energy. The GPU Energy companies have agreed to purchase all of the 24 GPU, Inc. and Subsidiary Companies capacity and energy from TMI-1 through December 31, 2001 and from Oyster Creek through March 31, 2003. In addition, the GPU Energy companies have the right to call the capacity of the Homer City station (942 MW) for two years and the capacity of the generating stations being sold to Sithe Energies (Sithe)(4,117 MW) for three years, from the dates of sale. The GPU Energy companies' remaining capacity and energy needs will focus on short- to intermediate-term commitments (one month to three years) during times of expected high energy price volatility and reliance on spot market purchases during other periods. Management is in the process of identifying and addressing the GPU Energy companies' future capacity and energy needs, and the impact of customer shopping and changes in demand. As a result of the NJBPU and the PaPUC's restructuring orders, the GPU Energy companies are required to provide generation service to customers who do not choose an alternate supplier (For additional information, see the Provider of Last Resort and Basic Generation Service sections below.) Given that the GPU Energy companies are divesting their generation business, there will be increased market risks associated with providing generation service since the GPU Energy companies will have to supply energy to non-shopping customers entirely from contracted and open market purchases. GPU Energy may not be able to recover the cost of the energy purchased through rates, which in Pennsylvania are capped for varying periods. However, as part of the Summary Order, JCP&L is permitted to recover reasonable and prudently incurred costs associated with providing basic generation service. Management is in the process of identifying and addressing these market risks, however, there can be no assurance that the GPU Energy companies will be able to supply electricity to customers who do not choose an alternate supplier at a reasonable cost to the respective companies, which would have an adverse effect on GPU's results of operations. Provider of Last Resort Under the PaPUC Restructuring Orders, Met-Ed and Penelec customers have been permitted to shop for their generation supplier since January 1, 1999. A PaPUC approved competitive bid process will assign provider of last resort (PLR) service for 20% of Met-Ed and Penelec's retail customers on June 1, 2000, 40% on June 1, 2001, 60% on June 1, 2002, and 80% on June 1, 2003, to licensed generation suppliers referred to as Competitive Default Service (CDS). If no qualified bids for CDS are received at or below their generation rate caps, Met-Ed and Penelec will continue to provide PLR service at the rate cap levels until 2010 unless modified by the PaPUC. Any retail customers assigned to CDS may return to Met-Ed and Penelec as the default PLR at no additional charge. Met-Ed and Penelec may meet any remaining PLR obligation at rates not less than the lowest rate charged by the winning CDS provider, but no higher than Met-Ed and Penelec's rate cap. Basic Generation Service Provider The NJBPU Summary Order states that JCP&L must provide BGS to those retail customers who choose to remain with JCP&L as generation customers for a three-year period ending July 31, 2002. JCP&L's BGS rates will be pre-determined for the period through July 31, 2003. The responsibility for BGS after July 31, 2002 will be bid out. Bidders will bid for the right to 25 GPU, Inc. and Subsidiary Companies provide BGS during the year commencing August 1, 2002 at the pre-established shopping credits. Any payment received or required by JCP&L resulting from the bidding process will be included in the deferred balance for future refund or recovery. Generation Asset Divestiture In 1997, GPU announced its intention to begin a process to sell, through a competitive bid process, up to all of the fossil-fuel and hydroelectric generating facilities owned by the GPU Energy companies. In March 1999, Penelec sold its 50% interest in Homer City to a subsidiary of Edison Mission Energy for approximately $900 million. In July 1999, Penelec's 20% undivided ownership interest in the Seneca Pumped Storage Facility was sold to Cleveland Electric Illuminating Company for $43 million. These sales have resulted in an after-tax gain of $28.7 million during 1999 for the portion of the gains related to wholesale operations and the deferral as a regulatory liability of the remaining gain of $626.9 million pending Phase II of the Pennsylvania restructuring proceeding. In October 1998, the GPU Energy companies agreed to sell to Sithe all their remaining fossil-fuel and hydroelectric generating facilities other than JCP&L's 50% interest in Yards Creek for a total purchase price of approximately $1.7 billion (JCP&L $442 million; Met-Ed $677 million; Penelec $604 million). The sales are expected to be completed in the fourth quarter 1999. The GPU Energy companies have agreed to assume up to $20 million (JCP&L $7 million; Met-Ed $9 million; Penelec $4 million) of employee severance costs for employees not hired by Sithe. For additional information, see Note 2, Accounting for Extraordinary and Non-recurring items. In October 1998, the GPU Energy companies entered into definitive agreements to sell TMI-1 to AmerGen Energy Company, LLC (AmerGen), which is a joint venture between PECO Energy and British Energy. Terms of the purchase agreements are summarized as follows: - The total cash purchase price is approximately $100 million, which represents $23 million to be paid at closing, and $77 million for the nuclear fuel in the reactor to be paid in five equal annual installments beginning one year after the closing. The purchase price and closing payment are subject to certain adjustments for capital expenditures and other items. - AmerGen will make contingent payments of up to $80 million for the period January 1, 2002 through December 31, 2010 depending on the actual energy market clearing prices through 2010. - GPU will purchase the energy and capacity from TMI-1 from the closing through December 31, 2001, at predetermined rates. - At closing, GPU will make additional deposits into the TMI-1 decommissioning trusts to bring the trust totals up to a maximum of $320 million and AmerGen will then assume all liability and obligation for decommissioning TMI-1. 26 GPU, Inc. and Subsidiary Companies The sale is subject to various conditions, including the receipt of satisfactory federal and state regulatory approvals. There can be no assurance as to the outcome of these matters. In October 1999, JCP&L agreed to sell Oyster Creek to AmerGen for approximately $10 million. As part of the terms of the transaction, AmerGen will assume full responsibility for decommissioning the plant. JCP&L would provide at closing $430 million of decommissioning trust funding as well as funding for the station's outage cost, including the fuel reload for the next refueling outage scheduled for the Fall of 2000. AmerGen will repay these costs (up to approximately $88 million) to JCP&L in nine annual installments without interest, beginning one year after the closing. The sale, which is subject to various conditions including the receipt of satisfactory federal and state regulatory approvals and favorable rulings by the Internal Revenue Service, is expected to close in the Spring of 2000. The net proceeds from these generation asset sales will be used to reduce the capitalization of the respective GPU Energy companies, repurchase GPU, Inc. common stock, fund previously incurred liabilities in accordance with the Pennsylvania settlement, reduce JCP&L's company-owned generation related stranded costs and may also be applied to reduce short-term debt, finance further acquisitions, and reduce acquisition debt of GPU Electric. Recent Regulatory Actions New Jersey Restructuring On May 24, 1999, the NJBPU issued a Summary Order with respect to JCP&L's rate unbundling, stranded cost and restructuring filings. This Summary Order provides for, among other things, the following: - customer choice of electric generation supplier for all consumers beginning August 1, 1999. On October 25, 1999, utilities are to begin accepting customer selection of suppliers; - a 5% rate reduction commencing August 1, 1999; additional reductions of 1% in 2000 and 2% in 2001; and an additional net 3% reduction in 2002 inclusive of a 5% rate refund from rates in effect as of April 30, 1997 for service rendered on and after August 1, 2002, partially offset by a 2% increase in the Market Transition Charge (MTC). The total rate reduction of 11% will remain in effect through July 2003; - the removal from regulation of the costs associated with providing electric generation service. JCP&L must provide basic generation services (BGS) to retail customers who do not choose an alternative generation supplier during the three-year period ending July 31, 2002. BGS after this period will be bid out; - the average shopping credits will range from 5.14 cents per KWH in 1999 to 5.40 cents in 2003; - an average distribution rate of 3.35 cents per KWH; 27 GPU, Inc. and Subsidiary Companies - the ability to recover stranded costs; - the ability to securitize approximately $400 million of stranded costs associated with Oyster Creek (see below for additional information); - effective August 1, 1999, JCP&L is no longer subject to an earnings cap; - the establishment of a non-bypassable societal benefits charge to recover costs associated with nuclear plant decommissioning, demand-side management, manufactured gas plant remediation, universal service fund, and consumer education; and - the NJBPU will conduct an annual review and assessment of the reasonableness and prudency of costs incurred by JCP&L in the procurement of energy and capacity needed to serve BGS load as well as of NUG and utility power purchase agreement stranded costs. In addition, JCP&L will implement a non-bypassable MTC through which JCP&L will collect: - above-market costs associated with long-term NUG and utility power purchase agreements; - any under-recovered deferred costs as of August 1, 1999 resulting from JCP&L's current levelized energy adjustment clause; - the recovery, over 11 years, of $130 million in early retirement and severance-related costs should Oyster Creek be retired from service in 2000; and - the amortization of Oyster Creek sunk costs, pending securitization. A final Restructuring Order containing a full discussion of the issues is anticipated in the fourth quarter of 1999. In August 1999, JCP&L filed a petition with the NJBPU requesting authorization to issue transition bonds to securitize the recovery of bondable stranded costs attributable to the projected net investment in Oyster Creek at September 1, 2000. The petition also requests that the NJBPU order provide for the imposition and collection of a usage based non-bypassable transition bond charge (TBC) and for the transfer of the bondable transition property relating to the TBC to another entity. Pennsylvania Restructuring In October 1998, the PaPUC issued amended Restructuring Orders approving Settlement Agreements entered into by Met-Ed and Penelec. An appeal by one intervenor in the restructuring proceedings is pending before the Pennsylvania Supreme Court. There can be no assurance as to the outcome of this appeal. The results of Met-Ed and Penelec's sale of their generating facilities (see Generation Asset Divestiture) will be addressed in a Phase II of the 28 GPU, Inc. and Subsidiary Companies Pennsylvania restructuring proceeding. There can be no assurance as to the outcome of these matters. Federal Regulation In November 1997, the Federal Energy Regulatory Commission (FERC) issued an order to the PJM Power Pool which, among other things, directed the GPU Energy companies to implement a single-system transmission rate, effective April 1, 1998. The implementation of the single-system rate has not affected total transmission revenues; however, it has increased the pricing for transmission service in Met-Ed and Penelec's service territories and reduced the pricing for transmission service in JCP&L's service territory. The GPU Energy companies have requested the FERC to reconsider its ruling requiring a single-system transmission rate. The Restructuring Orders for Met-Ed and Penelec provide for a transmission and distribution rate cap exception to recover the increase in the transmission rate from Met-Ed and Penelec's retail customers in the event the FERC denies the request for reconsideration of the single-system transmission rate. The FERC's ruling may also have an effect on JCP&L's distribution rates. There can be no assurance as to the outcome of this matter. Several bills have been introduced in Congress providing for a comprehensive restructuring of the electric utility industry. These bills proposed, among other things, retail choice for all utility customers, the opportunity for utilities to recover their prudently incurred stranded costs in varying degrees, and repeal of both the Public Utility Regulatory Policies Act (PURPA) and the Public Utility Holding Company Act of 1935 (PUHCA). In April 1999, the Clinton administration introduced the Comprehensive Electricity Competition Act, which proposes a flexible mandate for customer choice by January 1, 2003, reliability standards, environmental provisions, and the repeal of both PURPA and PUHCA. The flexible mandate allows states to opt out of the mandate if they believe consumers would be better served by an alternative policy. Nonutility Generation Agreements Pursuant to the mandates of PURPA and state regulatory directives, the GPU Energy companies have been required to enter into power purchase agreements with NUGs for the purchase of energy and capacity which agreements have remaining terms of up to 21 years. As of September 30, 1999, facilities covered by these agreements having 1,681 MW (JCP&L 928 MW; Met-Ed 348 MW; Penelec 405 MW) of capacity were in service. The NJBPU Summary Order and PaPUC Restructuring Orders provide the GPU Energy companies assurance of full recovery of their NUG costs (including above-market NUG costs and certain buyout costs). Accordingly, the GPU Energy companies have recorded a liability of $3.3 billion (JCP&L $1.6 billion; Met-Ed $0.7 billion; Penelec $1 billion) on the Consolidated Balance Sheets for above-market NUG costs which is fully offset by Regulatory assets, net. In addition, JCP&L recorded a liability of $70 million for above-market utility purchase power agreements with a corresponding offset to Regulatory assets, 29 GPU, Inc. and Subsidiary Companies net since there is assurance of full recovery. The GPU Energy companies are continuing efforts to reduce the above-market costs of these agreements and will, where beneficial, attempt to renegotiate the prices of the agreements, offer contract buyouts and attempt to convert must-run agreements to dispatchable agreements. There can be no assurance as to the extent to which these efforts will be successful. See the Competition and the Changing Regulatory Environment section of Note 1 of the Notes to Consolidated Financial Statements.) In 1998, Met-Ed entered into a definitive buyout agreement with Solar Turbines Inc. (Solar), which was contingent upon Met-Ed obtaining a final and non-appealable PaPUC order allowing for full recovery of the buyout payment through retail rates. In September 1999, an amended agreement was executed obligating Solar to refund to Met-Ed any buyout amounts paid if the PaPUC issues an order rescinding its current approval of the buyout which was received as part of Met-Ed's Restructuring Order. In October 1999, in accordance with the amended agreement, Met-Ed paid Solar $51.3 million, which represents the full amount of the buyout costs. ACCOUNTING MATTERS Statement of Financial Accounting Standards No. 71 (FAS 71), "Accounting for the Effects of Certain Types of Regulation," applies to regulated utilities that have the ability to recover their costs through rates established by regulators and charged to customers. In June 1997, the Financial Accounting Standards Board's (FASB) Emerging Issues Task Force (EITF Issue 97-4) concluded that utilities are no longer subject to FAS 71, for the relevant portion of their business, when they know details of their individual transition plans to a competitive electric generation marketplace. The EITF also concluded that utilities can continue to carry previously recorded regulated assets, as well as any newly established regulated assets (including those related to generation), on their balance sheets if regulators have guaranteed a regulated cash flow stream to recover the cost of these assets. On May 24, 1999, the NJBPU issued a Summary Order regarding JCP&L's unbundling, stranded cost and restructuring filings which essentially deregulated the electric generation portion of JCP&L's business. Accordingly, in the second quarter of 1999, JCP&L discontinued the application of FAS 71 and adopted the provisions of Statement of Financial Accounting Standards No. 101 (FAS 101), "Regulated Enterprises Accounting for the Discontinuation of Application of FASB Statement No. 71" and EITF Issue 97-4 with respect to its electric generation operations. In 1998, Met-Ed and Penelec, in conjunction with receiving their Restructuring Orders, discontinued the application of FAS 71 and adopted the provisions of FAS 101 and EITF 97-4 for their generation operation. The transmission and distribution portion of the GPU Energy companies' operations continue to be subject to the provisions of FAS 71. In accordance with the Statement of Financial Accounting Standards No. 121 (FAS 121), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," impairment tests performed by the GPU Energy companies on the net book values of their generation facilities determined that the net investments in TMI-1 and Oyster Creek were impaired. 30 GPU, Inc. and Subsidiary Companies As of September 30, 1999, this resulted in write-downs of $530 million (pre-tax) and $676 million (pre-tax), respectively to reflect TMI-1 and Oyster Creek's fair market values. The majority of the TMI-1 write-down was recorded in 1998 while the Oyster Creek write-down was recorded in the second and third quarters of 1999. Of the amount written down for TMI-1, however, $520 million was reestablished as a regulatory asset because management believes it is probable of recovery in the restructuring process and $10 million (the FERC jurisdictional portion) was charged to expense as an extraordinary item in 1998. The total impairment amount of Oyster Creek has been reestablished as a regulatory asset since the Summary Order provides recovery in the restructuring process. Statement of Financial Accounting Standards No. 133 (FAS 133), "Accounting for Derivative Instruments and Hedging Activities" establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. FAS 133 requires that companies recognize all derivatives as either assets or liabilities on the balance sheet and measure those instruments at fair value. In accordance with FAS 133, GPU will be required to include its derivative transactions on its balance sheet at fair value, and recognize the subsequent changes in fair value as either gains or losses in earnings or report them as a component of other comprehensive income, depending upon the intended use and designation of the derivative as a hedge. FAS 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. GPU will adopt FAS 133 in the first quarter of 2001 and is in the process of evaluating the impact of this statement. 31 GPU, INC. AND SUBSIDIARY COMPANIES Consolidated Balance Sheets In Thousands -------------------------------- September 30, December 31, 1999 1998 ------------ ------------ (Unaudited) ASSETS Utility Plant: Transmission, distribution and general plant $11,286,747 $ 7,579,455 Generation plant 2,401,482 3,445,984 ---------- ---------- Utility plant in service 13,688,229 11,025,439 Accumulated depreciation (5,484,955) (4,460,341) ---------- ---------- Net utility plant in service 8,203,274 6,565,098 Construction work in progress 164,373 94,005 Other, net 98,481 145,792 ---------- ---------- Net utility plant 8,466,128 6,804,895 ---------- ---------- Other Property and Investments: Equity investments 88,697 667,998 Goodwill, net 2,781,270 545,262 Nuclear decommissioning trusts, at market (Note 1) 757,237 716,274 Nuclear fuel disposal trust, at market 118,132 116,871 Other, net 513,625 253,538 ---------- ---------- Total other property and investments 4,258,961 2,299,943 ---------- ---------- Current Assets: Cash and temporary cash investments 241,309 72,755 Special deposits 42,956 62,673 Accounts receivable: Customers, net 381,868 286,278 Other 292,484 126,088 Unbilled revenues 133,377 144,076 Materials and supplies, at average cost or less: Construction and maintenance 149,909 155,827 Fuel 26,072 42,697 Investments held for sale 47,818 48,473 Deferred income taxes 24,560 47,521 Prepayments 218,057 76,021 ---------- ---------- Total current assets 1,558,410 1,062,409 ---------- ---------- Deferred Debits and Other Assets: Regulatory assets, net (Note 1) 5,537,251 3,906,228 Deferred income taxes 2,333,768 2,004,278 Other 510,670 210,356 ---------- ---------- Total deferred debits and other assets 8,381,689 6,120,862 ---------- ---------- Total Assets $22,665,188 $16,288,109 ========== ========== The accompanying notes are an integral part of the consolidated financial statements. 32 GPU, INC. AND SUBSIDIARY COMPANIES Consolidated Balance Sheets In Thousands September 30, December 31, ------------------------------ 1999 1998 ------------ ------------ (Unaudited) LIABILITIES AND CAPITALIZATION Capitalization: Common stock $ 331,958 $ 331,958 Capital surplus 1,031,063 1,011,310 Retained earnings 2,482,862 2,230,425 Accumulated other comprehensive income/(loss) (Note 6) (13,220) (31,304) ---------- ---------- Total 3,832,663 3,542,389 Reacquired common stock, at cost (232,549) (77,741) ---------- ---------- Total common stockholders' equity 3,600,114 3,464,648 Cumulative preferred stock: With mandatory redemption 81,500 86,500 Without mandatory redemption 37,741 66,478 Subsidiary-obligated mandatorily redeemable preferred securities 225,000 330,000 Trust preferred securities 200,000 - Long-term debt 6,876,126 3,825,584 ---------- ---------- Total capitalization 11,020,481 7,773,210 ---------- ---------- Current Liabilities: Securities due within one year 381,809 563,683 Notes payable 823,500 368,607 Obligations under capital leases 125,936 126,480 Accounts payable 506,387 394,815 Taxes accrued 385,321 92,339 Interest accrued 92,070 81,931 Deferred energy credits 47,741 2,411 Other 637,395 377,594 ---------- ---------- Total current liabilities 3,000,159 2,007,860 ---------- ---------- Deferred Credits and Other Liabilities: Deferred income taxes 3,556,621 3,044,947 Unamortized investment tax credits 96,772 114,308 Three Mile Island Unit 2 future costs 493,551 483,515 Power purchase contract loss liability 3,392,798 1,803,820 Other 1,104,806 1,060,449 ---------- ---------- Total deferred credits and other liabilities 8,644,548 6,507,039 ---------- ---------- Commitments and Contingencies (Note 1) Total Liabilities and Capitalization $22,665,188 $16,288,109 ========== ========== The accompanying notes are an integral part of the consolidated financial statements. 33 GPU, INC. AND SUBSIDIARY COMPANIES
Consolidated Statements of Income (Unaudited) In Thousands (Except Per Share Data) Three Months Nine Months Ended September 30, Ended September 30, ------------------- ------------------- 1999 1998 1999 1998 ---- ---- ---- ---- Operating Revenues $1,424,286 $1,168,779 $3,385,689 $3,226,975 --------- --------- --------- --------- Operating Expenses: Fuel 86,448 119,692 255,367 316,745 Power purchased and interchanged 446,671 338,275 959,461 857,490 Deferral of energy and capacity costs, net (23,194) (7,585) (23,050) (18,915) Other operation and maintenance 347,144 308,836 860,495 810,064 Depreciation and amortization 139,799 127,592 382,894 389,608 Taxes, other than income taxes 50,448 56,019 142,892 170,777 --------- --------- --------- --------- Total operating expenses 1,047,316 942,829 2,578,059 2,525,769 --------- --------- --------- --------- Operating Income 376,970 225,950 807,630 701,206 --------- --------- --------- --------- Other Income and Deductions: Allowance for other funds used during construction 52 188 217 737 Equity in undistributed earnings of affiliates, net 2,871 12,038 79,370 42,882 Other income, net 9,049 3,465 77,283 44,377 --------- --------- --------- --------- Total other income and deductions 11,972 15,691 156,870 87,996 --------- --------- --------- --------- Income Before Interest Charges and Preferred Dividends 388,942 241,641 964,500 789,202 --------- --------- --------- --------- Interest Charges and Preferred Dividends: Long-term debt 126,929 78,309 285,768 240,243 Trust preferred securities 3,673 - 4,673 - Subsidiary-obligated mandatorily redeemable preferred securities 5,308 7,222 19,752 21,666 Other interest 6,758 8,933 18,769 26,776 Allowance for borrowed funds used during construction (1,343) (1,201) (2,987) (3,548) Preferred stock dividends of subsidiaries, inclusive of $1,268 loss on reacquisition (1st Qtr. 1999) 2,338 2,624 8,628 8,516 --------- --------- --------- --------- Total interest charges and preferred dividends 143,663 95,887 334,603 293,653 --------- --------- --------- --------- Income Before Income Taxes and Minority Interest 245,279 145,754 629,897 495,549 Income taxes 98,284 56,355 242,573 191,684 Minority interest net income (552) 708 1,796 1,457 --------- --------- --------- --------- Income Before Extraordinary Item 147,547 88,691 385,528 302,408 Extraordinary item (net of income taxes of $178,790 and $16,300) - 249,355 - ( 25,755) --------- --------- --------- --------- Net Income $ 147,547 $ 338,046 $ 385,528 $ 276,653 ========= ========= ========= ========= Basic - Earnings Per Avg. Common Share Before Extraordinary Item $ 1.18 $ 0.69 $ 3.06 $ 2.38 Extraordinary Item - 1.96 - (0.20) --------- --------- --------- ----------- Basic - Earnings Per Avg. Common Share $ 1.18 $ 2.65 $ 3.06 $ 2.18 ========= ========= ========= ========= Avg. Common Shares Outstanding 125,046 127,940 126,123 126,796 ========= ========= ========= ========= Diluted - Earnings Per Avg. Common Share Before Extraordinary Item $ 1.18 $ 0.69 $ 3.05 $ 2.38 Extraordinary Item - 1.96 - (0.20) --------- --------- --------- ----------- Diluted - Earnings Per Avg. Common Share $ 1.18 $ 2.65 $ 3.05 $ 2.18 ========= ========= ========= ========= Avg. Common Shares Outstanding 125,307 128,068 126,383 127,019 ========= ========= ========= ========= Cash Dividends Paid Per Share $ .530 $ .515 $ 1.575 $ 1.53 ========= ========= ========= ========= The accompanying notes are an integral part of the consolidated financial statements. 34
GPU, INC. AND SUBSIDIARY COMPANIES Consolidated Statements of Cash Flows (Unaudited) In Thousands --------------------------- Nine Months Ended September 30, ---------------------------- 1999 1998 ---- ---- Operating Activities: Net income $ 385,528 $ 276,653 Extraordinary item (net of income tax benefit of $16,300) - 25,755 ---------- -------- Income before extraordinary item 385,528 302,408 Adjustments to reconcile income to cash provided: Depreciation and amortization 401,340 414,688 Amortization of property under capital leases 37,538 40,323 NJBPU restructuring rate order 115,000 - PaPUC restructuring rate orders - 68,500 Gain on sale of investments (40,209) (43,600) Equity in undistributed earnings of affiliates, net of distributions received (75,724) (30,025) Nuclear outage maintenance costs, net (7,184) 12,461 Deferred income taxes and investment tax credits, net (436,712) (123,004) Deferred energy and capacity costs, net (22,767) (17,835) Allowance for other funds used during construction (217) (737) Changes in working capital: Receivables (65,913) (2,986) Materials and supplies 5,205 5,480 Special deposits and prepayments (84,240) (57,113) Payables and accrued liabilities 237,482 17,479 Nonutility generation contract buyout costs (41,500) (21,667) Other, net 10,603 8,428 ---------- -------- Net cash provided by operating activities 418,230 572,800 ---------- -------- Investing Activities: Capital expenditures and investments (1,947,151) (262,582) Proceeds from sale of investments 937,540 163,768 Contributions to decommissioning trusts (26,531) (38,057) Other, net 79,290 14,256 ---------- -------- Net cash required by investing activities (956,852) (122,615) ---------- -------- Financing Activities: Issuance of trust preferred securities 193,070 - Issuance of long-term debt 1,792,828 227,855 Increase/(decrease) in notes payable, net 788,200 (54,821) Retirement of long-term debt (1,540,183) (476,389) Capital lease principal payments (36,185) (38,695) Reacquisition of common stock (160,112) - Issuance of common stock - 269,448 Redemption of subsidiary-obligated mandatorily redeemable preferred securities (105,383) - Dividends paid on common stock (199,023) (192,149) Redemption of preferred stock of subsidiaries (35,004) (15,000) ---------- -------- Net cash provided/(required) by financing activities 698,208 (279,751) ---------- -------- Effect of exchange rate changes on cash 8,968 (7,257) ---------- -------- Net increase in cash and temporary cash investments from above activities 168,554 163,177 Cash and temporary cash investments, beginning of year 72,755 85,099 ---------- -------- Cash and temporary cash investments, end of period $ 241,309 $ 248,276 ========== ======== Supplemental Disclosure: Interest and preferred dividends paid $ 322,348 $ 295,338 ========== ======== Income taxes paid $ 345,254 $ 254,411 ========== ======== New capital lease obligations incurred $ 36,962 $ 30,587 ========== ======== Common stock dividends declared but not paid $ - $ - ========== ========= The accompanying notes are an integral part of the consolidated financial statements. 35
JERSEY CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARY COMPANY Consolidated Balance Sheets In Thousands -------------------------------- September 30, December 31, 1999 1998 ------------ ------------ (Unaudited) ASSETS Utility Plant: Transmission, distribution, and general plant $3,160,308 $3,108,697 Generation plant 1,068,374 1,646,576 --------- --------- Utility plant in service 4,228,682 4,755,273 Accumulated depreciation (2,349,995) (2,217,108) --------- --------- Net utility plant in service 1,878,687 2,538,165 Construction work in progress 71,775 48,126 Other, net 38,636 98,491 --------- --------- Net utility plant 1,989,098 2,684,782 --------- --------- Other Property and Investments: Nuclear decommissioning trusts, at market (Note 1) 461,387 422,277 Nuclear fuel disposal trust, at market 118,132 116,871 Other, net 1,796 9,596 --------- --------- Total other property and investments 581,315 548,744 --------- --------- Current Assets: Cash and temporary cash investments 1,070 1,850 Special deposits 3,461 6,047 Accounts receivable: Customers, net 231,727 152,120 Other 48,071 32,562 Unbilled revenues 82,946 56,391 Materials and supplies, at average cost or less: Construction and maintenance 20,603 79,863 Fuel 10,203 13,144 Deferred income taxes 3,465 20,812 Prepayments 68,280 27,648 --------- --------- Total current assets 469,826 390,437 --------- --------- Deferred Debits and Other Assets: Regulatory assets, net (Note 1) 3,014,096 763,500 Deferred income taxes 191,741 179,237 Other 15,078 15,422 --------- --------- Total deferred debits and other assets 3,220,915 958,159 --------- --------- Total Assets $6,261,154 $4,582,122 ========= ========= The accompanying notes are an integral part of the consolidated financial statements. 36
JERSEY CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARY COMPANY Consolidated Balance Sheets In Thousands -------------------------------- September 30, December 31, 1999 1998 ------------ ------------ (Unaudited) LIABILITIES AND CAPITALIZATION Capitalization: Common stock $ 153,713 $ 153,713 Capital surplus 510,769 510,769 Retained earnings 886,621 893,016 Accumulated other comprehensive income/(loss)(Note 6) (425) (425) --------- --------- Total common stockholder's equity 1,550,678 1,557,073 Cumulative preferred stock: With mandatory redemption 81,500 86,500 Without mandatory redemption 37,741 37,741 Company-obligated mandatorily redeemable preferred securities 125,000 125,000 Trust preferred securities - - Long-term debt 1,133,700 1,173,532 --------- --------- Total capitalization 2,928,619 2,979,846 --------- --------- Current Liabilities: Securities due within one year 42,513 2,512 Notes payable 84,000 122,344 Obligations under capital leases 71,947 85,366 Accounts payable: Affiliates 68,435 40,861 Other 92,960 80,233 Taxes accrued 32,582 5,559 Interest accrued 28,326 26,678 Deferred energy credits 47,741 2,411 Other 67,301 104,408 --------- --------- Total current liabilities 535,805 470,372 --------- --------- Deferred Credits and Other Liabilities: Deferred income taxes 585,953 670,961 Unamortized investment tax credits 46,884 50,225 Three Mile Island Unit 2 future costs 123,395 120,904 Nuclear fuel disposal fee 146,229 141,270 Power purchase contract loss liability 1,657,939 - Other 236,330 148,544 --------- --------- Total deferred credits and other liabilities 2,796,730 1,131,904 --------- --------- Commitments and Contingencies (Note 1) Total Liabilities and Capitalization $6,261,154 $4,582,122 ========= ========= The accompanying notes are an integral part of the consolidated financial statements. 37
JERSEY CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARY COMPANY Consolidated Statements of Income (Unaudited) In Thousands --------------------------------------------- Three Months Nine Months Ended September 30, Ended September 30, ----------------------- ----------------------- 1999 1998 1999 1998 ---- ---- ---- ---- Operating Revenues $ 670,245 $ 647,625 $1,578,159 $1,598,853 -------- -------- --------- --------- Operating Expenses: Fuel 31,399 29,709 75,114 72,453 Power purchased and interchanged: Affiliates 53,831 31,320 111,419 46,388 Others 220,614 193,237 518,972 501,942 Deferral of energy and capacity costs, net (23,194) (7,585) (23,050) (18,915) Other operation and maintenance 114,211 140,632 329,956 354,392 Depreciation and amortization 59,859 55,435 186,917 187,114 Taxes, other than income taxes 18,679 27,796 59,573 75,330 -------- -------- --------- --------- Total operating expenses 475,399 470,544 1,258,901 1,218,704 -------- -------- --------- ---------- Operating Income 194,846 177,081 319,258 380,149 -------- -------- --------- --------- Other Income and Deductions: Allowance for other funds used during construction - 184 123 652 Other income, net 1,693 2,314 9,175 7,232 -------- -------- ---------- --------- Total other income and deductions 1,693 2,498 9,298 7,884 -------- -------- ---------- --------- Income Before Interest Charges 196,539 179,579 328,556 388,033 -------- -------- --------- --------- Interest Charges: Long-term debt 21,792 21,814 65,404 65,455 Company-obligated mandatorily redeemable preferred securities 2,675 2,675 8,025 8,025 Other interest 3,112 3,058 7,626 8,645 Allowance for borrowed funds used during construction (633) (418) (1,319) (1,336) -------- -------- --------- --------- Total interest charges 26,946 27,129 79,736 80,789 -------- -------- --------- --------- Income Before Income Taxes 169,593 152,450 248,820 307,244 Income taxes 66,690 60,843 98,075 122,536 -------- -------- --------- --------- Net Income 102,903 91,607 150,745 184,708 Preferred stock dividends 2,338 2,330 7,140 7,633 -------- -------- --------- --------- Earnings Available for Common Stock $ 100,565 $ 89,277 $ 143,605 $ 177,075 ======== ======== ========= ========= The accompanying notes are an integral part of the consolidated financial statements. 38
JERSEY CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARY COMPANY Consolidated Statements of Cash Flows (Unaudited) In Thousands ------------------------- Nine Months Ended September 30, -------------------------- 1999 1998 ---- ---- Operating Activities: Net income $ 150,745 $ 184,708 Adjustments to reconcile income to cash provided: Depreciation and amortization 209,045 206,758 Amortization of property under capital leases 22,659 22,010 NJBPU restructuring rate order 115,000 - Nuclear outage maintenance costs, net (3,673) 5,393 Deferred income taxes and investment tax credits, net (29,932) (37,052) Deferred energy and capacity costs, net (22,767) (17,835) Allowance for other funds used during construction (123) (652) Changes in working capital: Receivables (121,671) (43,577) Materials and supplies 15,518 2,580 Special deposits and prepayments (38,046) ( 51,259) Payables and accrued liabilities 67,938 62,009 Nonutility generation contract buyout costs (35,500) (15,000) Other, net 8,046 25,127 -------- -------- Net cash provided by operating activities 337,239 343,210 -------- -------- Investing Activities: Capital expenditures and investments (99,526) (111,704) Contributions to decommissioning trusts (19,777) (20,775) Other, net 1,743 (6,214) -------- -------- Net cash used for investing activities (117,560) (138,693) -------- -------- Financing Activities: Decrease in notes payable, net (38,344) (42,761) Retirement of long-term debt (12) - Capital lease principal payments (20,057) (21,965) Dividends paid on common stock (150,000) (110,000) Dividends paid on preferred stock (7,046) (7,939) Redemption of preferred stock (5,000) (15,000) --------- -------- Net cash required by financing activities (220,459) (197,665) -------- -------- Net increase/(decrease) in cash and temporary cash investments from above activities (780) 6,852 Cash and temporary cash investments, beginning of year 1,850 2,994 -------- -------- Cash and temporary cash investments, end of period $ 1,070 $ 9,846 ======== ======== Supplemental Disclosure: Interest and preferred dividends paid $ 85,460 $ 83,893 ======== ======== Income taxes paid $ 84,130 $ 139,334 ======== ======== New capital lease obligations incurred $ 9,239 $ 30,515 ======== ======== The accompanying notes are an integral part of the consolidated financial statements. 39
METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANIES Consolidated Balance Sheets In Thousands -------------------------------- September 30, December 31, 1999 1998 ------------ ------------ (Unaudited) ASSETS Utility Plant: Transmission, distribution and general plant $1,508,471 $1,481,958 Generation plant 762,059 765,669 --------- --------- Utility plant in service 2,270,530 2,247,627 Accumulated depreciation (1,051,531) (1,008,438) --------- --------- Net utility plant in service 1,218,999 1,239,189 Construction work in progress 22,776 19,380 Other, net 36,509 27,819 --------- --------- Net utility plant 1,278,284 1,286,388 --------- --------- Other Property and Investments: Nuclear decommissioning trusts, at market (Note 1) 213,523 211,194 Other, net 6,167 11,742 --------- --------- Total other property and investments 219,690 222,936 --------- --------- Current Assets: Cash and temporary cash investments 44,949 442 Special deposits 214 1,062 Accounts receivable: Customers, net 64,631 60,012 Other 50,587 41,895 Unbilled revenues 24,922 43,687 Materials and supplies, at average cost or less: Construction and maintenance 18,289 24,727 Fuel 10,260 12,218 Deferred income taxes 1,954 2,945 Prepayments 24,588 20,616 --------- --------- Total current assets 240,394 207,604 --------- --------- Deferred Debits and Other Assets: Regulatory assets, net (Note 1) 1,566,514 1,615,726 Deferred income taxes 641,318 714,202 Other 19,517 18,113 --------- --------- Total deferred debits and other assets 2,227,349 2,348,041 --------- --------- Total Assets $3,965,717 $4,064,969 ========= ========= The accompanying notes are an integral part of the consolidated financial statements. 40
METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANIES Consolidated Balance Sheets In Thousands -------------------------------- September 30, December 31, 1999 1998 ----------- ------------ (Unaudited) LIABILITIES AND CAPITALIZATION Capitalization: Common stock $ 66,273 $ 66,273 Capital surplus 400,200 370,200 Retained earnings 272,081 234,066 Accumulated other comprehensive income (Note 6) 19,401 16,520 --------- --------- Total common stockholder's equity 757,955 687,059 Cumulative preferred stock - 12,056 Company-obligated mandatorily redeemable preferred securities 100,000 100,000 Trust preferred securities 100,000 - Long-term debt 496,882 546,904 --------- --------- Total capitalization 1,454,837 1,346,019 --------- --------- Current Liabilities: Securities due within one year 80,025 30,024 Notes payable - 79,540 Obligations under capital leases 35,696 27,135 Accounts payable: Affiliates 124,094 75,933 Other 17,015 102,390 Taxes accrued 13,672 19,463 Interest accrued 10,973 16,747 Other 82,388 42,598 --------- --------- Total current liabilities 363,863 393,830 --------- --------- Deferred Credits and Other Liabilities: Deferred income taxes 995,417 1,010,982 Unamortized investment tax credits 25,681 27,157 Three Mile Island Unit 2 future costs 246,690 241,707 Nuclear fuel disposal fee 33,032 31,912 Power purchase contract loss liability 759,565 787,440 Other 86,632 225,922 --------- --------- Total deferred credits and other liabilities 2,147,017 2,325,120 --------- --------- Commitments and Contingencies (Note 1) Total Liabilities and Capitalization $3,965,717 $4,064,969 ========= ========= The accompanying notes are an integral part of the consolidated financial statements. 41
METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANIES Consolidated Statements of Income (Unaudited) In Thousands ------------------------------------------------------- Three Months Nine Months Ended September 30, Ended September 30, ------------------------ ---------------------------- 1999 1998 1999 1998 Operating Revenues $ 280,235 $ 229,051 $ 707,402 $ 689,829 -------- -------- --------- -------- Operating Expenses: Fuel 26,162 28,079 75,305 80,322 Power purchased and interchanged: Affiliates 863 7,122 3,071 12,540 Others 84,541 68,413 171,538 168,896 Other operation and maintenance 58,155 68,586 164,072 175,871Depreciation and amortization 19,004 29,879 57,324 82,597 Taxes, other than income taxes 10,253 13,368 33,960 44,421 -------- -------- --------- --------- Total operating expenses 198,978 215,447 505,270 564,647 -------- -------- --------- --------- Operating Income 81,257 13,604 202,132 125,182 -------- -------- --------- --------- Other Income and Deductions: Allowance for other funds used during construction 52 4 94 85 Other income/(expense), net (679) (5,417) 2,357 (14,798) -------- -------- --------- -------- Total other income and deductions (627) (5,413) 2,451 (14,713) -------- -------- --------- -------- Income Before Interest Charges 80,630 8,191 204,583 110,469 -------- -------- --------- -------- Interest Charges: Long-term debt 10,622 10,623 31,869 31,870 Trust preferred securities 1,838 - 2,532 - Company-obligated mandatorily redeemable preferred securities 2,250 2,250 6,750 6,750 Other interest 1,300 2,017 5,020 6,570 Allowance for borrowed funds used during construction (332) (151) (790) (591) -------- -------- --------- --------- Total interest charges 15,678 14,739 45,381 44,599 -------- -------- --------- ---------- Income/(Loss) Before Income Taxes 64,952 (6,548) 159,202 65,870 Income taxes 23,330 (3,004) 65,606 26,136 --------- -------- --------- --------- Income/(Loss) Before Extraordinary Item 41,622 (3,544) 93,596 39,734 Extraordinary item (net of income taxes of $128,102 and $4,708) - 180,475 - (6,805) -------- -------- --------- --------- Net Income 41,622 176,931 93,596 32,929 Preferred stock dividends - 120 66 362 Loss on preferred stock reacquisition - - 542 - -------- -------- --------- ---------- Earnings Available for Common Stock $ 41,622 $ 176,811 $ 92,988 $ 32,567 ======== ======== ========= ========= The accompanying notes are an integral part of the consolidated financial statements. 42
METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANIES Consolidated Statements of Cash Flows (Unaudited) In Thousands ------------------------ Nine Months Ended September 30, ------------------------ 1999 1998 ---- ---- Operating Activities: Net income $ 93,596 $ 32,929 Extraordinary item (net of income tax benefit of $4,708) - 6,805 -------- -------- Income before extraordinary item 93,596 39,734 Adjustments to reconcile income to cash provided: Depreciation and amortization 59,942 87,025 Amortization of property under capital leases 9,921 11,011 PaPUC restructuring rate orders - 32,900 Nuclear outage maintenance costs, net (2,338) 4,709 Deferred income taxes and investment tax credits, net 34,929 (36,848) Allowance for other funds used during construction (94) (85) Changes in working capital: Receivables (13,310) (19,474) Materials and supplies 8,395 2,162 Special deposits and prepayments (3,124) (5,251) Payables and accrued liabilities (8,989) (16,513) Nonutility generation contract buyout costs (2,500) (6,667) Other, net (55,591) 12,698 -------- --------- Net cash provided by operating activities 120,837 105,401 -------- -------- Investing Activities: Capital expenditures and investments (43,368) (33,356) Contributions to decommissioning trusts (1,488) (13,328) Other, net (46) 44 -------- -------- Net cash required by investing activities (44,902) (46,640) -------- -------- Financing Activities: Issuance of trust preferred securities 96,535 - Increase/(decrease) in notes payable, net (79,540) 8,921 Retirement of long-term debt (23) (22) Capital lease principal payments (10,736) (9,956) Contribution from parent corporation 30,000 - Dividends paid on common stock (55,000) (60,000) Dividends paid on preferred stock (66) (362) Redemption of preferred stock (12,598) - -------- --------- Net cash required by financing activities (31,428) (61,419) -------- -------- Net increase/(decrease) in cash and temporary cash investments from above activities 44,507 (2,658) Cash and temporary cash investments, beginning of year 442 6,116 -------- -------- Cash and temporary cash investments, end of period $ 44,949 $ 3,458 ======== ======== Supplemental Disclosure: Interest and preferred dividends paid $ 50,087 $ 50,146 ======== ======== Income taxes paid $ 25,564 $ 60,189 ======== ======== New capital lease obligations incurred $ 18,482 $ 39 ======== ======== The accompanying notes are an integral part of the consolidated financial statements. 43
PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES Consolidated Balance Sheets In Thousands -------------------------------- September 30, December 31, 1999 1998 ------------ ------------ (Unaudited) ASSETS Utility Plant: Transmission, distribution and general plant $1,789,420 $1,768,621 Generation plant 571,049 1,033,739 --------- --------- Utility plant in service 2,360,469 2,802,360 Accumulated depreciation (1,022,941) (1,175,842) --------- --------- Net utility plant in service 1,337,528 1,626,518 Construction work in progress 34,964 18,862 Other, net 23,336 19,482 --------- --------- Net utility plant 1,395,828 1,664,862 --------- --------- Other Property and Investments: Nuclear decommissioning trusts, at market (Note 1) 82,327 82,803 Other, net 1,518 7,705 --------- --------- Total other property and investments 83,845 90,508 --------- --------- Current Assets: Cash and temporary cash investments 22,253 2,750 Special deposits 223 2,632 Accounts receivable: Customers, net 67,449 69,887 Other 33,481 28,893 Unbilled revenues 25,509 43,998 Materials and supplies, at average cost or less: Construction and maintenance 17,105 39,452 Fuel 5,401 17,107 Deferred income taxes 7,589 7,589 Prepayments 24,825 31,551 --------- --------- Total current assets 203,835 243,859 --------- --------- Deferred Debits and Other Assets: Regulatory assets, net (Note 1) 956,641 1,561,603 Deferred income taxes 1,161,846 951,471 Other 14,125 12,504 --------- --------- Total deferred debits and other assets 2,132,612 2,525,578 --------- --------- Total Assets $3,816,120 $4,524,807 ========= ========= The accompanying notes are an integral part of the consolidated financial statements. 44
PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES Consolidated Balance Sheets In Thousands --------------------------------- September 30, December 31, 1999 1998 ------------ ------------ (Unaudited) LIABILITIES AND CAPITALIZATION Capitalization: Common stock $ 105,812 $ 105,812 Capital surplus 285,486 285,486 Retained earnings 94,723 367,653 Accumulated other comprehensive income (Note 6) 9,726 8,353 --------- --------- Total common stockholder's equity 495,747 767,304 Cumulative preferred stock - 16,681 Company-obligated mandatorily redeemable preferred securities - 105,000 Trust preferred securities 100,000 - Long-term debt 424,595 626,434 --------- --------- Total capitalization 1,020,342 1,515,419 --------- --------- Current Liabilities: Securities due within one year 13 50,012 Notes payable - 86,023 Obligations under capital leases 18,293 13,979 Accounts payable: Affiliates 36,994 47,164 Other 22,911 47,795 Taxes accrued 168,090 32,755 Interest accrued 11,382 19,700 Other 36,459 37,272 --------- --------- Total current liabilities 294,142 334,700 --------- --------- Deferred Credits and Other Liabilities: Deferred income taxes 1,257,119 1,338,235 Unamortized investment tax credits 24,207 36,926 Three Mile Island Unit 2 future costs 123,466 120,904 Nuclear fuel disposal fee 16,516 15,956 Power purchase contract loss liability 975,293 1,016,380 Other 105,035 146,287 --------- --------- Total deferred credits and other liabilities 2,501,636 2,674,688 --------- --------- Commitments and Contingencies (Note 1) Total Liabilities and Capitalization $3,816,120 $4,524,807 ========= ========= The accompanying notes are an integral part of the consolidated financial statements. 45
PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES Consolidated Statements of Income (Unaudited) In Thousands ----------------------------------------------------- Three Months Nine Months Ended September 30, Ended September 30, ------------------------ ---------------------------- 1999 1998 1999 1998 Operating Revenues $ 254,609 $ 259,354 $ 705,955 $ 773,364 -------- -------- --------- --------- Operating Expenses: Fuel 18,399 48,418 71,652 133,519 Power purchased and interchanged: Affiliates 1,444 74 5,997 1,227 Others 105,651 73,820 199,642 178,632 Other operation and maintenance 57,807 81,097 172,425 206,210 Depreciation and amortization 18,389 29,332 59,849 82,716 Taxes, other than income taxes 11,306 14,854 37,126 50,875 -------- -------- --------- --------- Total operating expenses 212,996 247,595 546,691 653,179 -------- -------- --------- --------- Operating Income 41,613 11,759 159,264 120,185 -------- -------- --------- --------- Other Income and Deductions: Other income/(expense), net 790 (6,045) 46,891 (4,312) -------- -------- --------- --------- Total other income and deductions 790 (6,045) 46,891 (4,312) -------- -------- --------- --------- Income Before Interest Charges 42,403 5,714 206,155 115,873 -------- -------- --------- --------- Interest Charges: Long-term debt 6,513 11,948 25,324 35,922 Trust preferred securities 1,835 - 2,141 - Company-obligated mandatorily redeemable preferred securities 383 2,297 4,977 6,891 Other interest 764 2,192 3,289 6,651 Allowance for borrowed funds used during construction (378) (632) (878) (1,621) -------- -------- --------- --------- Total interest charges 9,117 15,805 34,853 47,843 -------- -------- --------- --------- Income/(Loss) Before Income Taxes 33,286 (10,091) 171,302 68,030 Income taxes 10,771 (4,231) 63,352 27,494 -------- -------- --------- --------- Income/(Loss) Before Extraordinary Item 22,515 (5,860) 107,950 40,536 Extraordinary item (net of income taxes of $50,688 and $11,592) - 68,880 - (18,950) -------- -------- --------- --------- Net Income 22,515 63,020 107,950 21,586 Preferred stock dividends - 174 154 521 Loss on preferred stock reacquisition - - 726 - -------- -------- --------- ---------- Earnings Available for Common Stock $ 22,515 $ 62,846 $ 107,070 $ 21,065 ======== ======== ========= ========= The accompanying notes are an integral part of the consolidated financial statements. 46
PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES Consolidated Statements of Cash Flows (Unaudited)
In Thousands -------------------------- Nine Months Ended September 30, --------------------------- 1999 1998 Operating Activities: Net income $ 107,950 $ 21,586 Extraordinary item (net of income tax benefit of $11,592) - 18,950 -------- -------- Income before extraordinary item 107,950 40,536 Adjustments to reconcile income to cash provided: Depreciation and amortization 58,776 80,097 Amortization of property under capital leases 4,958 6,324 PaPUC restructuring rate orders - 35,600 Gain on sale of investment (40,209) - Nuclear outage maintenance costs, net (1,173) 2,359 Deferred income taxes and investment tax credits, net (301,604) (19,382) Changes in working capital: Receivables (2,150) 6,583 Materials and supplies 34,053 721 Special deposits and prepayments 9,135 (5,992) Payables and accrued liabilities 91,151 12,766 Nonutility generation contract buyout costs (3,500) - Other, net (56,662) (17,098) -------- -------- Net cash provided/(required) by operating activities (99,275) 142,514 -------- -------- Investing Activities: Capital expenditures and investments (65,779) (64,869) Proceeds from sale of investment 937,540 - Contributions to decommissioning trusts (5,266) (3,954) Other, net 1,945 (39) -------- -------- - Net cash provided/(used) for investing activities 868,440 (68,862) -------- -------- Financing Activities: Issuance of trust preferred securities 96,535 - Issuance of long-term debt 348,172 - Increase/(decrease) in notes payable, net (86,023) 2,019 Retirement of long-term debt (600,011) (30,011) Capital lease principal payments (5,392) (5,796) Dividends paid on common stock (380,000) (35,000) Dividends paid on preferred stock (154) (521) Redemption of company-obligated mandatorily redeemable preferred securities (105,383) - Redemption of preferred stock (17,406) - -------- --------- Net cash required by financing activities (749,662) (69,309) -------- -------- - Net increase in cash and temporary cash investments from above activities 19,503 4,343 Cash and temporary cash investments, beginning of year 2,750 - -------- --------- Cash and temporary cash investments, end of period $ 22,253 $ 4,343 ======== ========= Supplemental Disclosure: Interest and preferred dividends paid $ 42,167 $ 58,549 ======== ========= Income taxes paid $ 245,574 $ 53,178 ======== ========= New capital lease obligations incurred $ 9,241 $ 33 ======== ========= The accompanying notes are an integral part of the consolidated financial statements. 47
GPU, Inc. and Subsidiary Companies COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS GPU, Inc. owns all the outstanding common stock of three domestic electric utilities -- Jersey Central Power & Light Company (JCP&L), Metropolitan Edison Company (Met-Ed) and Pennsylvania Electric Company (Penelec). The customer service, transmission and distribution operations of these electric utilities are conducting business under the name GPU Energy. JCP&L, Met-Ed and Penelec considered together are referred to as the "GPU Energy companies." The generation operations of the GPU Energy companies are conducted by GPU Generation, Inc. (Genco) and GPU Nuclear, Inc. (GPUN). GPU Capital, Inc. and GPU Electric, Inc. and their subsidiaries, own, operate and fund the acquisition of electric and gas transmission and distribution systems in foreign countries, and are referred to as "GPU Electric." GPU International, Inc. and GPU Power, Inc. and their subsidiaries, develop, own and operate generation facilities in the United States and foreign countries and are referred to as the "GPUI Group." Other subsidiaries of GPU, Inc. include GPU Advanced Resources, Inc. (GPU AR), which is involved in retail energy sales; GPU Telcom Services, Inc. (GPU Telcom), which is engaged in telecommunications-related businesses; and GPU Service, Inc. (GPUS), which provides legal, accounting, financial and other services to the GPU companies. All of these companies considered together are referred to as "GPU." These notes should be read in conjunction with the notes to consolidated financial statements included in the 1998 Annual Report on Form 10-K. The December 31, 1998 balance sheet data contained in the attached financial statements was derived from audited financial statements. For disclosures required by generally accepted accounting principles, see the 1998 Annual Report on Form 10-K. 1. COMMITMENTS AND CONTINGENCIES COMPETITION AND THE CHANGING REGULATORY ENVIRONMENT Generation Asset Divestiture: In 1997, GPU announced its intention to begin a process to sell, through a competitive bid process, up to all of the fossil-fuel and hydroelectric facilities owned by the GPU Energy companies. GPU subsequently announced that it would consider selling the Three Mile Island Unit 1 nuclear generating facility (TMI-1) and the Oyster Creek nuclear generating station (Oyster Creek). In March and July of 1999, GPU completed the sales of its interests in the Homer City and Seneca Pumped Storage Stations, respectively. For additional information on the completed sales, see Note 2, Accounting for Extraordinary and Non-recurring items. In October 1998, the GPU Energy companies agreed to sell TMI-1 to AmerGen Energy Company, LLC (AmerGen), for approximately $100 million. Of the $100 million, $23 million will be paid at closing and $77 million, which is for the nuclear fuel in the reactor, will be paid in five equal annual installments beginning one year after closing. The sale is subject to various conditions, including the receipt of satisfactory federal and state regulatory approvals. There can be no assurance as to the outcome of these matters. Highlights of the agreements are presented in the Competitive Environment and Rate Matters section of Management's Discussion and Analysis. 48 GPU, Inc. and Subsidiary Companies Also in October 1998, the GPU Energy companies agreed to sell to Sithe Energies (Sithe) all their remaining fossil-fuel and hydroelectric generating facilities, other than JCP&L's 50% interest in the Yards Creek Pumped Storage Facility (Yards Creek) for a total purchase price of approximately $1.7 billion (JCP&L $442 million; Met-Ed $677 million; Penelec $561 million). The sales to Sithe are expected to be completed in the fourth quarter of 1999. In October 1999, JCP&L agreed to sell Oyster Creek to AmerGen for approximately $10 million and reimbursement of the cost (estimated at about $88 million) of the next scheduled refueling outage. This transaction is subject to the receipt of various federal and state regulatory approvals. Highlights of the agreements are presented in the Competitive Environment and Rate Matters section of Management's Discussion and Analysis. JCP&L and Public Service Electric & Gas Company (PSE&G) each hold a 50% undivided ownership interest in Yards Creek. In December 1998, JCP&L filed a petition with the New Jersey Board of Public Utilities (NJBPU) seeking a declaratory order that PSE&G's right of first refusal to purchase JCP&L's ownership interest at its current book value under a 1964 agreement between the companies is void and unenforceable. Management believes that the fair market value of JCP&L's ownership interest in Yards Creek is substantially in excess of its September 30, 1999 book value of $22 million. There can be no assurance of the outcome of this matter. Stranded Costs and Regulatory Restructuring Orders: With the current market price of electricity being below the cost of some utility-owned generation and power purchase commitments, and the ability of customers to choose their energy suppliers, certain costs, which generally would be recoverable in a regulated environment, may not be recoverable in a competitive environment. These costs are generally referred to as stranded costs. In June and October 1998, the Pennsylvania Public Utility Commission (PaPUC) issued Restructuring Orders to Met-Ed and Penelec. The amended PaPUC Restructuring Orders provides for Met-Ed and Penelec's recovery of a substantial portion of what otherwise would have become stranded costs, and provided for a Phase II proceeding following the completion of their generation divestitures to make a final determination of the extent of that stranded cost recovery. An appeal by one intervenor in the restructuring proceedings is pending before the Pennsylvania Supreme Court. There can be no assurance as to the outcome of these matters. In April 1999, JCP&L entered into a settlement agreement with several parties to its stranded cost and rate unbundling proceedings, pending before the NJBPU. In May 1999, the NJBPU issued a Summary Order (Summary Order), which approved the settlement with certain modifications. Among other things, the Summary Order provides for full recovery of JCP&L's stranded costs, and requires a separate review and approval of JCP&L's pending sales of its interest in its non-nuclear generation assets and in TMI-1. In October 1999, the NJBPU approved the sales of JCP&L's non-nuclear generating assets. There can be no assurance as to the outcome of the TMI-1 review. The Summary Order did not address the pending sale of Oyster Creek, because at the time the 49 GPU, Inc. and Subsidiary Companies Summary Order was issued, it was uncertain whether the plant would be sold or retired early. For details of the Summary Order, see Competitive Environment and Rate Matters section of Management's Discussion and Analysis. As a result of the NJBPU's actions, in the second quarter of 1999, JCP&L recorded a reduction in operating revenues of $115 million reflecting JCP&L's obligation to make refunds to customers. JCP&L anticipates that the NJBPU will issue a Final Order in the fourth quarter of 1999. For additional information, see Note 2, Accounting for Extraordinary and Non-recurring Items. Under the NJBPU and the PaPUC restructuring orders, the GPU Energy companies are required to provide generation service to customers who do not choose an alternate supplier. As noted above, the GPU Energy companies have agreed to sell substantially all of their generation assets. Consequently, there will be increased market risks associated with providing generation service since the GPU Energy companies will have to supply energy almost entirely from contracted and open market purchases. Under the Summary Order, JCP&L is permitted to recover reasonable and prudently incurred costs associated with providing basic generation service and to defer the portion of these costs that cannot be recovered currently. The PaPUC's Restructuring Orders, however, generally do not allow Met-Ed and Penelec to recover their costs, including their energy costs in excess of established rate caps. An inability of the GPU Energy companies to supply electricity to customers who do not choose an alternate supplier at a cost recoverable under their capped rates, would have an adverse effect, which may be material, on GPU's results of operations. Highlights of generation service obligations are presented in the Competitive Environment and Rate Matters section of Management's Discussion and Analysis. Generation Agreements: The emerging competitive generation market has created uncertainty regarding the forecasting of the GPU Energy companies' energy supply needs, which has caused the GPU Energy companies to seek shorter-term agreements offering more flexibility. The GPU Energy companies' supply plan focuses on short- to intermediate-term commitments (one month to three years) covering times of expected high energy price volatility (that is, peak demand periods) and reliance on spot market purchases during other periods. Pursuant to the mandates of the federal Public Utility Regulatory Policies Act and state regulatory directives, the GPU Energy companies have been required to enter into power purchase agreements with nonutility generators (NUGs) for the purchase of energy and capacity which have remaining terms of up to 21 years. The rates under virtually all of the GPU Energy companies' NUG agreements are substantially in excess of current and projected prices from alternative sources. The projected cost of energy from new generation supply sources has also decreased due to improvements in power plant technologies and lower forecasted fuel prices. The following table shows actual payments from 1997 through September 30, 1999, and estimated payments thereafter through 2004. 50 GPU, Inc. and Subsidiary Companies Payments Under NUG Agreements ----------------------------- (in millions) Total JCP&L Met-Ed Penelec ----- ----- ------ ------- 1997 759 384 172 203 1998 788 403 174 211 1999 780 392 171 217 2000 794 405 157 232 2001 778 410 154 214 2002 799 422 158 219 2003 802 413 163 226 2004 808 407 168 233 The NJBPU Summary Order and PaPUC Restructuring Orders provide the GPU Energy companies assurance of full recovery of their NUG costs (including above-market NUG costs and certain buyout costs). Accordingly, the GPU Energy companies have recorded, on a present value basis, a liability for above-market NUG costs of $3.3 billion (JCP&L $1.6 billion; Met-Ed $0.7 billion; Penelec $1 billion) on the Consolidated Balance Sheets which is fully offset by Regulatory assets, net. In addition, JCP&L recorded a liability of $70 million for above-market utility purchase power agreements with a corresponding offset to Regulatory assets, net, since there is also assurance of full recovery of these costs. The GPU Energy companies are continuing efforts to reduce the above-market costs of these agreements and will, where beneficial, attempt to renegotiate the prices of the agreements, offer contract buyouts and attempt to convert must-run agreements to dispatchable agreements. There can be no assurance as to the extent to which these efforts will be successful. In 1997, the NJBPU approved a Stipulation of Final Settlement which, among other things, provides for the recovery of costs associated with the buyout of the Freehold Cogeneration project (Freehold buyout). The Stipulation of Final Settlement provides for recovery through the levelized energy adjustment clause of: (1) buyout costs up to $130 million, and (2) 50% of any costs from $130 million to $140 million, over a seven-year period for the termination of the Freehold power purchase agreement. The NJBPU approved the cost recovery on an interim basis subject to refund, pending further review by the NJBPU. The NJBPU's Summary Order provides for the continued recovery of the Freehold buyout in the market transition charge, but has not altered the interim nature of such recovery. There can be no assurance as to the outcome of this matter. ACCOUNTING MATTERS JCP&L, in the second quarter of 1999, and Met-Ed and Penelec in 1998, discontinued the application of Statement of Financial Accounting Standards No. 71 (FAS 71), "Accounting for the Effects of Certain Types of Regulation," and adopted the provisions of Statement of Financial Accounting Standards No. 101 (FAS 101), "Regulated Enterprises - Accounting for the Discontinuation of Application of FASB Statement No. 71, and Emerging Issues Task Force Issue 97-4 (EITF Issue 97-4), Deregulation of the Pricing of Electricity - Issues Related to the Application of FASB Statement No. 71 "Accounting for the 51
GPU, Inc. and Subsidiary Companies Effects of Certain Types of Regulation" and No. 101 "Regulated Enterprises Accounting for the Discontinuation of Application of FASB Statement No. 71," with respect to their electric generation operations. The transmission and distribution portion of the GPU Energy companies' operations continue to be subject to the provisions of FAS 71. Regulatory assets, net as reflected in the September 30, 1999 and December 31, 1998 Consolidated Balance Sheets in accordance with the provisions of FAS 71 and EITF Issue 97-4 were as follows: GPU, Inc. and Subsidiary Companies (in thousands) ------------------------------- September 30, December 31, 1999 1998 ------------- ------------- Market transition charge (MTC) / basic generation service (NJ) $2,457,120 $ - Competitive transition charge (CTC) (PA) 947,587 1,023,815 Reserve for generation divestiture 769,835 1,527,985 Power purchase contract loss not in CTC (PA) 369,290 369,290 Costs recoverable through distribution rates (NJ) 298,546 - Income taxes recoverable through future rates, net 267,370 396,937 Net divestiture proceeds recoverable through MTC (NJ) 170,427 - Three Mile Island Unit 2 (TMI-2) decommissioning costs 100,828 119,571 Societal benefits charge (NJ) 88,003 - Other postretirement benefits 25,822 73,770 Nonutility generation contract buyout costs - 123,208 Unamortized property losses (NJ) - 80,287 Net investment in TMI-2 (NJ) - 65,787 Environmental remediation (NJ) - 50,214 Other, net 42,423 109,965 --------- --------- Total regulatory assets, net $5,537,251 $3,940,829 ========= ========= JCP&L (in thousands) ------------------------------- September 30, December 31, 1999 1998 ------------- ------------- Market transition charge (MTC) / basic generation service $2,457,120 $ - Costs recoverable through distribution rates 298,546 - Net divestiture proceeds recoverable through MTC 170,427 - Societal benefits charge 88,003 - Reserve for generation divestiture - 146,419 Income taxes recoverable through future rates, net - 137,217 Nonutility generation contract buyout costs - 120,708 Unamortized property losses - 80,287 Net investment in TMI-2 - 65,787 Environmental remediation - 50,214 Other, net - 162,868 --------- --------- Total regulatory assets, net $3,014,096 $ 763,500 ========= ========= 52
GPU, Inc. and Subsidiary Companies Met-Ed (in thousands) ------------------------------- September 30, December 31, 1999 1998 ------------- ------------- Competitive transition charge $ 645,072 $ 680,213 Reserve for generation divestiture 444,177 435,386 Power purchase contract loss not in CTC 271,270 271,270 Income taxes recoverable through future rates, net 113,190 122,781 TMI-2 decommissioning costs 66,255 68,091 Other, net 26,550 37,985 --------- --------- Total regulatory assets, net $1,566,514 $1,615,726 ========= ========= Penelec (in thousands) ------------------------------- September 30, December 31, 1999 1998 ------------ ------------- Reserve for generation divestiture $ 325,658 $ 946,181 Competitive transition charge 302,515 343,602 Income taxes recoverable through future rates, net 154,180 136,939 Power purchase contract loss not in CTC 98,020 98,020 Other, net 76,268 36,861 --------- --------- Total regulatory assets, net $ 956,641 $1,561,603 ========= ========= In accordance with the Statement of Financial Accounting Standards No. 121 (FAS 121), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," impairment tests performed by the GPU Energy companies on the net book values of their generation facilities determined that the net investments in TMI-1 and Oyster Creek were impaired. As of September 30, 1999, this resulted in write-downs of $530 million and $676 million, respectively, to reflect TMI-1 and Oyster Creek's fair market values. The majority of the TMI-1 write-down was recorded in 1998 while the Oyster Creek write-down was recorded in the second and third quarters of 1999. Of the amount written down for TMI-1, however, $520 million was reestablished as a regulatory asset because management believes it is probable of recovery in the restructuring process, and $10 million (the Federal Energy Regulatory Commission jurisdictional portion) was charged to expense as an extraordinary item in 1998. The total impairment amount of Oyster Creek has been reestablished as a regulatory asset since the Summary Order provides for its recovery in the restructuring process. Statement of Financial Accounting Standards No. 133 (FAS 133), "Accounting for Derivative Instruments and Hedging Activities," establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. FAS 133 requires that companies recognize all derivatives as either assets or liabilities on the balance sheet and measure those instruments at fair value. GPU will be required to include its derivative transactions on its balance sheet at fair value, and recognize the subsequent changes in fair value as either gains or losses in earnings or report them as a component of other comprehensive income, depending upon the intended use and designation of the derivative as a hedge. FAS 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. GPU will adopt FAS 53
GPU, Inc. and Subsidiary Companies 133 in the first quarter of 2001 and is in the process of evaluating the impact of this statement. NUCLEAR FACILITIES Investments: 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. GPU has agreed to sell TMI-1 and Oyster Creek to AmerGen. Highlights of the agreements are presented in the Competitive Environment and Rate Matters section of Management's Discussion and Analysis. JCP&L's net investment in TMI-2 at September 30, 1999 and December 31, 1998 was $62 million and $66 million, respectively. JCP&L is collecting revenues for TMI-2 on a basis which provides for the recovery of its remaining investment in the plant by 2008. Met-Ed and Penelec's remaining investments in TMI-2 were written off in 1998 after receiving the PaPUC's Restructuring Orders. Costs associated with the operation, maintenance and retirement of nuclear plants have continued to be significant and less predictable than costs associated with other sources of generation, in large part due to changing regulatory requirements, safety standards, availability of nuclear waste disposal facilities and experience gained in the construction and operation of nuclear facilities. 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. If the GPU Energy companies do not complete the pending sales of their nuclear facilities, in addition to the above, they may experience added costs and reduced output at these facilities because of the prevailing design criteria at the time of construction and the age of the plants' systems and equipment. TMI-2: As a result of the 1979 TMI-2 accident, individual claims for alleged personal injury (including claims for punitive damages), which are material in amount, were asserted against GPU, Inc. and the GPU Energy companies. Approximately 2,100 of such claims were filed in the 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 54 GPU, Inc. and Subsidiary Companies of insurance policies with groups of insurance companies providing an aggregate of $140 million of primary coverage, (b) secondary financial protection in the form of private liability insurance under an industry retrospective rating plan providing for up to an aggregate of $335 million in premium charges under such plan, and (c) an indemnity agreement with the Nuclear Regulatory Commission (NRC) for up to $85 million, bringing their total financial protection up to an aggregate of $560 million. Under the secondary level, the GPU Energy companies are subject to a retrospective premium charge of up to $5 million per reactor, or a total of $15 million. In 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 1996, the District Court granted a motion for summary judgment filed by GPU, Inc. and the GPU Energy companies, and dismissed the ten initial "test cases," which had been selected for a test case trial as well as all of the remaining 2,100 pending claims. The Court ruled that there was no evidence which created a genuine issue of material fact warranting submission of plaintiffs' claims to a jury. The plaintiffs appealed the District Court's ruling to the Court of Appeals for the Third Circuit. On November 2, 1999, the Third Circuit affirmed the District Court's dismissal of the ten "test cases," but set aside the dismissal of the additional pending claims, remanding them to the District Court for further proceedings. In remanding these claims, the Third Circuit held that the District Court had erred in extending its summary judgment decision to the other plaintiffs and imposing on these plaintiffs the District Court's finding that radiation exposures below 10 rems were too speculative to establish a causal link to cancer. The Court of Appeals stated that the non-test case plaintiffs should be permitted to present their own individual evidence that exposure to radiation from the accident caused their cancers. GPU, Inc. and the GPU Energy companies believe that the Third Circuit has misinterpreted the record before the District Court, as it applies to the non-test case plaintiffs, and are considering asking the Third Circuit for reconsideration or rehearing of its decision. There can be no assurance as to the outcome of this litigation. 55 GPU, Inc. and Subsidiary Companies 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). In 1995, a consultant to GPUN performed site-specific studies of TMI-1, TMI-2 and Oyster Creek (updated in 1998), that considered various decommissioning methods and estimated the cost of decommissioning the radiological portions and the cost of removal of the nonradiological portions of each plant, using the prompt removal/dismantlement method. GPUN management has reviewed the methodology and assumptions used in these studies, is in agreement with them, and believes the results are reasonable. Under NRC regulations, the GPU Energy companies intend to complete the funding for Oyster Creek and TMI-1 retirement costs 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. The NRC may require an acceleration of the decommissioning funding for Oyster Creek if the pending sale is not completed and the plant is retired early. The retirement cost estimates under the 1995 site-specific studies, assuming decommissioning at the end of the plants' license terms, are as follows (in 1999 dollars): (in millions) Oyster TMI-1 TMI-2 Creek ----- ----- ----- Radiological decommissioning $358 $435 $591 Nonradiological cost of removal 88 34* 32 --- --- --- Total $446 $469 $623 === === === * Net of $12.6 million spent as of September 30, 1999. Each of the GPU Energy companies is responsible for retirement costs in proportion to its respective ownership percentage. The ultimate cost of retiring the GPU Energy companies' nuclear facilities may be different from the cost estimates contained in these site-specific studies. Also, the cost estimates contained in these site specific studies are significantly greater than the decommissioning funding targets established by the NRC. The 1995 Oyster Creek site-specific study was updated in 1998 in response to the previously announced potential early closure of the plant in the year 2000. An early shutdown would increase the retirement costs shown above to $632 million ($600 million for radiological decommissioning and $32 million for nonradiological cost of removal). Both estimates include substantial spending for an on-site dry storage facility for spent nuclear fuel and 56 GPU, Inc. and Subsidiary Companies significant costs for storing the fuel until the DOE complies with the Nuclear Waste Policy Act of 1982. See OTHER COMMITMENTS AND CONTINGENCIES section for further information. The agreements to sell TMI-1 to AmerGen provide, among other things, that upon financial closing, the GPU Energy companies will transfer up to $320 million in decommissioning trust funds to AmerGen, which will assume all TMI-1 decommissioning liabilities. The agreements to sell Oyster Creek to AmerGen provide, among other things, that upon financial closing, JCP&L will transfer up to $430 million in decommissioning trust funds to AmerGen, which will assume all liability for decommissioning Oyster Creek. The GPU Energy companies charge to depreciation expense and accrue retirement costs based on amounts being collected from customers. Customer collections are contributed to external trust funds. These deposits, including the related earnings, are classified as Nuclear decommissioning trusts, at market on the Consolidated Balance Sheets. The NJBPU has granted JCP&L annual revenues for TMI-1 and Oyster Creek retirement costs of $5.2 million and $22.5 million, respectively, based on the 1995 site-specific studies. The recovery of Oyster Creek retirement cost escalates to $34.4 million in August 2000 if the plant were to be retired in 2000. In the Restructuring Orders, the PaPUC granted Met-Ed and Penelec recovery of TMI-1 decommissioning costs of $103.4 million and $67.8 million, respectively, as part of the Competitive Transition Charge (CTC). These amounts, which are computed on a present value basis, are based on the 1995 site-specific study and will be adjusted in Phase II of Met-Ed and Penelec's restructuring proceedings, once the net proceeds from the generation asset divestiture are determined. In the event the GPU Energy companies do not complete the pending sales of their nuclear plants, management believes that any TMI-1 and Oyster Creek retirement costs, in excess of those currently recognized for ratemaking purposes, should be recoverable from customers. The estimated liabilities for TMI-2 future retirement costs (reflected as Three Mile Island Unit 2 future costs on the Consolidated Balance Sheets) as of September 30, 1999 and December 31, 1998 are as follows: (in millions) GPU JCP&L Met-Ed Penelec --- ----- ------ ------- September 30, 1999 $494 $124 $246 $124 December 31, 1998 $484 $121 $242 $121 These amounts are based upon the 1995 site-specific study estimates (in 1999 and 1998 dollars, respectively) discussed above and an estimate for remaining incremental monitored storage costs of $28 million (JCP&L $7 million; Met-Ed $14 million; Penelec $7 million) as of September 30, 1999 and $29 million 57 GPU, Inc. and Subsidiary Companies (JCP&L $7 million; Met-Ed $15 million; Penelec $7 million) as of December 31, 1998, as a result of TMI-2's entering long-term monitored storage in 1993. The GPU Energy companies are incurring annual incremental monitored storage costs of approximately $1.8 million (JCP&L $450 thousand; Met-Ed $900 thousand; Penelec $450 thousand). Offsetting the $494 million liability at September 30, 1999 is $252 million (JCP&L $16 million; Met-Ed $152 million; Penelec $84 million) which management believes is probable of recovery from customers and included in Regulatory assets, net on the Consolidated Balance Sheets, and $288 million (JCP&L $112 million; Met-Ed $130 million; Penelec $46 million) in trust funds for TMI-2 and included in Nuclear decommissioning trusts, at market on the Consolidated Balance Sheets. Earnings on trust fund deposits are included in amounts shown on the Consolidated Balance Sheets under Regulatory assets, net. TMI-2 decommissioning costs charged to depreciation expense for the nine months ended September 30, 1999 amounted to $3.7 million (JCP&L $1.7 million; Met-Ed $1.4 million; Penelec $0.6 million). The NJBPU has granted JCP&L revenues for TMI-2 retirement costs based on the 1995 site-specific estimates. In addition, JCP&L is recovering its share of TMI-2 incremental monitored storage costs. The PaPUC Restructuring Orders granted Met-Ed and Penelec recovery of TMI-2 decommissioning costs as part of the CTC, but also allowed Met-Ed and Penelec to defer as a regulatory asset those amounts that are above the level provided for in the CTC. At September 30, 1999, the accident-related portion of TMI-2 radiological decommissioning costs is considered to be $77 million (JCP&L $19 million; Met-Ed $39 million; Penelec $19 million), which is the difference between the 1995 TMI-1 and TMI-2 site-specific study estimates (in 1999 dollars). In connection with rate case resolutions at the time, JCP&L, Met-Ed and Penelec have made contributions to irrevocable external trusts relating to their shares of the accident-related portions of the decommissioning liability in the amounts of $15 million, $40 million and $20 million, respectively. These contributions were not recoverable from customers and have been expensed. The GPU Energy companies will not pursue recovery from customers for any amounts contributed in excess of the $77 million accident-related portion referred to above. JCP&L intends to seek recovery for any increases in TMI-2 retirement costs, and Met-Ed and Penelec intend to seek recovery for any increases in the nonaccident-related portion of such costs, but recognize that recovery cannot be assured. INSURANCE GPU has insurance (subject to retentions and deductibles) for its operations and facilities including coverage for property damage, liability to employees and third parties, and loss of use and occupancy (primarily incremental replacement power costs). There is no assurance that GPU will maintain all existing insurance coverages. Losses or liabilities that are not completely insured, unless allowed to be recovered through ratemaking, could have a material adverse effect on the financial position of GPU. 58 GPU, Inc. and Subsidiary Companies 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 $9.7 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 $88 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 the Price-Anderson Act, the GPU Energy companies are also subject to retrospective premium assessments of up to $26.0 million (JCP&L $16.3 million; Met-Ed $6.5 million; Penelec $3.2 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 a 12-week waiting period at $1.8 million and $2.6 million per week for 52 weeks for Oyster Creek and TMI-1, respectively, decreasing to 80% of such amounts for the next 110 weeks. ENVIRONMENTAL MATTERS As a result of existing and proposed legislation and regulations, and ongoing legal proceedings dealing with environmental matters, including but not limited to acid rain, water quality, ambient air quality, global warming, electromagnetic fields, and storage and disposal of hazardous and/or toxic wastes, GPU may be required to incur substantial additional costs to construct new equipment, modify or replace existing and proposed equipment, remediate, decommission or cleanup waste disposal and other sites currently or formerly used by it, including formerly owned manufactured gas plants (MGP), coal mine refuse piles and generation facilities. In 1997 and 1998 the U.S. Environmental Protection Agency (EPA) adopted new, more stringent rules on ozone and particulate matter. Several groups have filed suit in the U.S. Court of Appeals to overturn these new air quality standards on the grounds that, among other things, they are based on inadequate scientific evidence. The GPU Energy companies are unable to determine what additional costs, if any, will be incurred if the EPA rules are 59 GPU, Inc. and Subsidiary Companies upheld. Moreover, the timing and amounts of expenditures under Titles I and IV of the federal Clean Air Act Amendments of 1990 will be dependent upon the timing of the sales of the related generating facilities. GPU has been formally notified by the EPA and state environmental authorities that it is among the potentially responsible parties (PRPs) who may be jointly and severally liable to pay for the costs associated with the investigation and remediation at hazardous and/or toxic waste sites (in some cases, more than one company is named for a given site): JCP&L MET-ED PENELEC GPUN GPU, INC. TOTAL ----- ------ ------- ---- --------- ----- 8 4 2 1 1 13 In addition, certain of the GPU companies have been requested to participate in the remediation or supply information to the EPA and state environmental authorities on several other sites for which they have not been formally named as PRPs, although the EPA and state authorities may nevertheless consider them as PRPs. Certain of the GPU companies have also been named in lawsuits requesting damages (which are material in amount) for hazardous and/or toxic substances allegedly released into the environment. The ultimate cost of remediation will depend upon changing circumstances as site investigations continue, including (a) the existing technology required for site cleanup, (b) the remedial action plan chosen and (c) the extent of site contamination and the portion attributed to the GPU companies involved. In 1997, the EPA filed a complaint against GPU, Inc. in the United States District Court for the District of Delaware for enforcement of its unilateral order issued against GPU, Inc. to clean up the former Dover Gas Light Company (Dover) manufactured gas production site in Dover, Delaware. Dover was part of the AGECO/AGECORP group of companies from 1929 until 1942 and GPU, Inc. emerged from the AGECO/AGECORP reorganization proceedings. All of the common stock of Dover was sold in 1942 by a member of the AGECO/AGECORP group to an unaffiliated entity, and was subsequently acquired by Chesapeake Utilities Corporation (Chesapeake). According to the complaint, the EPA is seeking up to $0.5 million in past costs, $4.2 million for the cleanup of the Dover site and approximately $19 million in penalties. GPU, Inc. has responded to the EPA complaint stating that such claims should be dismissed because, among other things, they are barred by the operation of the Final Decree entered by the United States District Court for the Southern District of New York at the conclusion of the 1946 reorganization proceedings of AGECO/AGECORP. Chesapeake has also sued GPU, Inc. for a contribution to the cleanup of the Dover site. The United States District Court for the District of Delaware has refused to dismiss the complaints and discovery is proceeding. There can be no assurance as to the outcome of these proceedings. 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, and a third Amendment in December 1998, that establish a schedule for submitting a plan for long-term 60 GPU, Inc. and Subsidiary Companies remediation, based on future operating scenarios. Penelec currently estimates that the remediation of the Seward station property will range from $12 million to $20 million and has a recorded liability of $12 million at September 30, 1999. 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 in Phase II of its restructuring proceeding and has recorded a corresponding regulatory asset of approximately $12 million at September 30, 1999. In 1997, the GPU Energy companies filed with the PaDEP applications for re-permitting seven (JCP&L one; Met-Ed - three; Penelec - three) operating ash disposal sites, including projected site closure procedures and related cost estimates. The cost estimates for the closure of these sites range from approximately $17 million to $22 million, and a liability of $17 million (JCP&L $1 million; Met-Ed $4 million; Penelec $12 million) is reflected on the Consolidated Balance Sheets at September 30, 1999. Met-Ed and Penelec expect to be granted recovery of these costs in Phase II of their restructuring proceedings. As a result, a regulatory asset of $17 million (JCP&L $1 million; Met-Ed $4 million; Penelec $12 million) is reflected on the Consolidated Balance Sheets at September 30, 1999. There can be no assurance as to the outcome of these proceedings. JCP&L has entered into agreements with the New Jersey Department of Environmental Protection for the investigation and remediation of 17 formerly owned manufactured gas plant (MGP) sites. JCP&L has also entered into various cost-sharing agreements with other utilities for most of the sites. As of September 30, 1999, JCP&L has spent approximately $34 million in connection with the cleanup of these sites. In addition, JCP&L has recorded an estimated environmental liability of $53 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 $53 million due to significant uncertainties, including changes in acceptable remediation methods and technologies. In addition, federal and state law provides for payment by responsible parties for damage to natural resources. In 1997, JCP&L's request to establish a Remediation Adjustment Clause for the recovery of MGP remediation costs was approved by the NJBPU. At September 30, 1999, JCP&L had recorded on its Consolidated Balance Sheet a regulatory asset of $44 million. JCP&L is continuing to pursue reimbursement from its insurance carriers for remediation costs already spent and for future estimated costs. In 1994, JCP&L commenced litigation in the New Jersey Superior Court against several of its insurance carriers, relative to these MGP sites and has settled with all but one of those insurance companies. OTHER COMMITMENTS AND CONTINGENCIES Class Action Litigation: In July 1999, New Jersey experienced a severe heat wave that resulted in major power outages and temporary service interruptions including JCP&L's 61 GPU, Inc. and Subsidiary Companies service territory. As a result, the NJBPU has initiated an investigation into the reliability of the transmission and distribution systems of all New Jersey utilities and their response to power outages. In addition, two lawsuits were filed in New Jersey Superior Court (Court) against GPU, Inc., JCP&L and certain of their affiliates seeking class action certification for all individuals including customers, businesses and employees, who incurred financial losses, including both compensatory and punitive damages. In October 1999, the GPU defendants' motion to dismiss the complaints was denied and the two proceedings were consolidated and certified as class actions. The GPU defendants have filed a motion for leave to appeal the Court's decision. GPU has notified its insurance carriers who have reserved their rights to contest coverage under GPU's insurance policies for losses which GPU may incur. There can be no assurance as to the outcome of these matters. As a result of the fire and explosion in September 1998, at the Longford natural gas plant in Victoria, Australia, three class actions have been brought in Australian Federal Court against Esso Australia Limited and its affiliate (Esso), the owner and operator of the plant, for losses suffered due to the lack of natural gas supply and related damages. Plaintiffs claim that Esso was negligent in designing, maintaining and operating the Longford plant and also assert claims under various Australian fair trade practices laws. Esso has joined as additional defendants the State of Victoria (State) and various State-owned entities which operated the Victorian gas industry prior to its privatization, including Transmission Pipelines Australia (TPA) and its subsidiary Transmission Pipelines (Assets) Australia (TPAA). GPU, Inc. acquired the assets of TPA (renamed GPU GasNet) and TPAA from the State of Victoria in June 1999. Esso has named GPU GasNet as an additional defendant. Under the acquisition agreement with the State, GPU GasNet has indemnified TPA against third party claims. Esso is seeking contribution and indemnity from the third party defendants for any damages for which Esso may be found liable. In addition, Esso has asserted several separate claims against the State and the former State-owned entities for damages, and contends that GPU GasNet assumed TPA's liabilities as part of the State's privatization process. GPU GasNet has filed an answer denying liability and has moved to dismiss portions of Esso's claims. GPU GasNet has also notified its insurance carriers of this action. The insurers have reserved their rights to deny coverage. There can be no assurance as to the outcome of this matter. GPU, Inc. Investments and Guarantees: GPU, Inc. has made significant investments in foreign businesses and facilities through its subsidiaries, GPU Electric and the GPUI Group. At September 30, 1999, GPU, Inc.'s investment in GPU Electric and the GPUI Group was $711 million and $240 million, respectively. As of that date, GPU, Inc. has also guaranteed up to an additional $1.39 billion and $43.4 million (including $22.1 million of guarantees related to domestic operations) of GPU Electric and GPUI Group obligations, respectively. Although management attempts to mitigate the risks of investing in certain foreign countries by, among other things, securing political risk insurance, GPU faces additional 62 GPU, Inc. and Subsidiary Companies risks inherent to operating in such locations, including foreign currency fluctuations. As a result of GPU's purchase from Cinergy Corp. (Cinergy) of the 50% interest in Midlands Electricity plc (Midlands), which GPU did not own, effective in the third quarter of 1999, GPU began accounting for its Midlands investment as a consolidated entity. As a result of this change in accounting, GPU's equity investments as of September 30, 1999 are no longer presented in the Combined Notes to Consolidated Financial Statements since these investments are considered immaterial to GPU's results of operations or financial condition. GPU Electric The Office of Gas and Electricity Markets in the United Kingdom has proposed base rate reductions of 22 to 27 percent for Midlands beginning in April 2000. A final decision on the reductions is expected in the fourth quarter of 1999. There can be no assurance as to the outcome of this matter. Midlands has a 40% ownership interest in a 586 MW power project in Pakistan (the Uch Power Project) which was originally scheduled to begin commercial operation in late 1998, but testing and commercial operation have been delayed. On June 30, 1999, the Project lenders issued a notice of default to the project sponsors (including Midlands) for failure to obtain permanent financing and repay the construction debt by the original loan due date. In November 1999, the Project sponsors reached an agreement with the Project lenders under which the construction loan terms will be extended, principal and interest payments will be deferred and the Project sponsors have agreed to fund completion of the plant through their remaining equity contribution commitments. Midlands' current investment in the Uch Power Project is approximately $75 million, and its share of the completion costs could represent an additional $12 million investment. Testing and commercial operations of the plant is now anticipated for the beginning of 2000. As part of GPU's purchase of Cinergy's 50% ownership interest in Midlands, Cinergy has agreed to fund up to an aggregate of $20 million of the required capital contributions and/or certain future "cash losses" which GPU could incur on the Uch Power Project. (For further information on the Midlands' purchase, See Note 3, Acquisitions.) There can be no assurance as to the outcome of this matter. Other: GPU's capital programs, for which substantial commitments have been incurred and which extend over several years, contemplate expenditures of $453 million (JCP&L $183 million; Met-Ed $97 million; Penelec $98 million; Other $75 million) during 1999. 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 63 GPU, Inc. and Subsidiary Companies interest in Keystone; and Met-Ed - 16.45% ownership interest in Conemaugh). The GPU Energy companies' share of the cost of coal purchased under these agreements is expected to aggregate $135 million (JCP&L $27 million; Met-Ed $57 million; Penelec $51 million) for 1999. These contracts will be assumed by Sithe, upon the closings of the sales of the GPU Energy companies' fossil generation facilities. JCP&L has entered into agreements with other utilities to purchase capacity and energy for various periods through 2004. Payments pursuant to these agreements are estimated to be $114 million in 1999, $91 million in 2000, $99 million in 2001, $109 million in 2002, and $113 million in 2003 and $48 million in 2004. GPU AR has entered into contracts to supply electricity to retail customers through December 31, 2000 and estimates that it will spend approximately $21 million to purchase energy and capacity related to these contracts. GPU AR has firm purchase commitments which obligate it to pay approximately $11 million for energy and capacity and has the option to purchase additional amounts under various agreements. GPU, Inc. has guaranteed up to $19 million if GPU AR fails to meet its contractual payment obligations. 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. Following its purchase of TMI-1 and Oyster Creek, AmerGen will assume all liability for disposal costs related to spent fuel generated after such sales. In 1996, the DOE notified the GPU Energy companies and other standard contract holders that it will be unable to begin acceptance of spent nuclear fuel for disposal by 1998, as mandated by the NWPA. The DOE requested recommendations from contract holders for handling the delay. The DOE's inability to accept spent nuclear fuel could have a material impact on GPU's results of operations, as additional costs may be incurred to build and maintain interim on-site storage at Oyster Creek. TMI-1 has sufficient on-site storage capacity to accommodate spent nuclear fuel through the end of its licensed life. In June 1997, a consortium of electric utilities, including GPUN, filed a license application with the NRC seeking permission to build an interim above-ground disposal facility for spent nuclear fuel in northwestern Utah. There can be no assurance as to the outcome of these matters. GPU, Inc. and consolidated affiliates have approximately 13,000 employees worldwide, of which nearly 8,100 are employed in the U.S and approximately 3,900 are employed primarily in the United Kingdom. The majority of the U.S. workforce is employed by the GPU Energy companies, of which approximately 4,300 are represented by unions for collective bargaining purposes. Met-Ed and Penelec's collective bargaining agreements with the International Brotherhood of Electrical Workers (IBEW) expire on April 30, 2000 and May 14, 2002, respectively. JCP&L's collective bargaining agreement with the IBEW expired on October 31, 1999 and a new agreement is currently under negotiation. There can be no assurance as to the outcome of these negotiations. Penelec's collective bargaining agreement with the Utility Workers Union of America expires on June 30, 2001. 64 GPU, Inc. and Subsidiary Companies During the normal course of the operation of its businesses, in addition to the matters described above, GPU is from time to time involved in disputes, claims and, in some cases, as a defendant in litigation in which compensatory and punitive damages are sought by the public, customers, contractors, vendors and other suppliers of equipment and services and by employees alleging unlawful employment practices. While management does not expect that the outcome of these matters will have a material effect on GPU's financial position or results of operations, there can be no assurance that this will continue to be the case. 2. ACCOUNTING FOR EXTRAORDINARY AND NON-RECURRING ITEMS JCP&L Restructuring Write-off: In May 1999, the NJBPU issued a Summary Order regarding JCP&L's unbundling, stranded cost and restructuring filings. Accordingly, JCP&L discontinued the application of FAS 71 and has adopted the provisions of FAS 101 and EITF 97-4 with respect to its electric generation operations, effective with the second quarter of 1999. The transmission and distribution portion of the GPU Energy companies' operations continue to be subject to the provisions of FAS 71. For the quarter ended June 30, 1999, JCP&L recorded a reduction in operating revenues of $115 million relating to the Summary Order which resulted in an after-tax charge to earnings of $68 million, or $0.54 per share. This reduction reflects JCP&L's obligation to refund to customers 5% from rates in effect as of April 30, 1997 for service rendered on and after August 1, 2002 through July 31, 2003. Since JCP&L is no longer subject to FAS 71 for the generation portion of its business, GPU performed an impairment test on Oyster Creek in accordance with FAS 121. This test determined that JCP&L's net investment in Oyster Creek, including plant, nuclear fuel and materials and supplies inventories, was impaired. This investment was written down by a total of $676 million (pre-tax) in the second and third quarters of 1999 to reflect its fair market value. This impairment, which was recorded as an extraordinary deduction, was reversed and reestablished as a regulatory asset since the Summary Order provides for rate recovery. Generation Asset Divestiture: In 1997, GPU announced its intention to begin a process to sell, through a competitive bid process, up to all of the fossil-fuel and hydroelectric facilities owned by the GPU Energy companies. In March 1999, Penelec sold its 50% interest in the Homer City Station to a subsidiary of Edison Mission Energy for approximately $900 million. As a result, Penelec recorded an after-tax gain of $27.8 million in the first quarter of 1999 for the portion of the gain related to wholesale operations and deferred as a regulatory liability the remaining gain of $596.7 million pending Phase II of the Pennsylvania restructuring proceeding. 65 GPU, Inc. and Subsidiary Companies In July 1999, Penelec sold its 20% interest in the Seneca Pumped Storage Hydroelectric Generating Station to The Cleveland Electric Illuminating Company for $43 million. The sale resulted in the recording of an after-tax gain of $0.9 million in the third quarter of 1999 for the portion of the gain related to wholesale operations and the deferral of the remaining gain of $30.2 million as a regulatory liability pending Phase II of the Pennsylvania restructuring proceeding. For information on the GPU Energy companies' pending generation asset sales, see Note 1, Commitments and Contingencies. 3. ACQUISITIONS GPU Electric Empresa Distribuidora Electrica Regional, S.A. In March 1999, GPU Electric acquired Empresa Distribuidora Electrica Regional, S.A. (Emdersa) for US $375 million. The fair value of the assets acquired totaled approximately $253.4 million and the amount of liabilities assumed totaled approximately $146.7 million. Emdersa owns three electric distribution companies that serve three provinces in northwest Argentina. The acquisition was financed through the issuance of commercial paper by GPU Capital, guaranteed by GPU, Inc. and a $50 million contribution from GPU, Inc. The acquisition has been accounted for under the purchase method of accounting. The total acquisition cost exceeded the estimated value of net assets by $268 million. This excess is considered goodwill and is being amortized on a straight-line basis over 40 years. Transmission Pipelines Australia In June 1999, GPU Electric acquired TPA, a natural gas transmission business, from the State of Victoria, Australia for A$1.025 billion (approximately US $675 million). TPA has been renamed GPU GasNet. The fair value of the assets acquired totaled approximately US $586 million and the amount of liabilities assumed totaled approximately US $103 million. The acquisition was financed through: (1) an A$750 million (approximately US $495 million) senior credit facility, which is non-recourse to GPU, Inc.; and (2) an equity contribution from GPU Capital of A$275 million (approximately US $180 million) provided through the issuance of commercial paper guaranteed by GPU, Inc. The acquisition has been accounted for under the purchase method. The total acquisition cost exceeded the estimated value of net assets acquired by $188.6 million. This excess is considered goodwill and is being amortized on a straight-line basis over 40 years. Midlands Electricity plc In July 1999, GPU Electric acquired Cinergy's 50% ownership interest in Avon Energy Partners Holdings (Avon), which owns Midlands, for 452.5 million British pounds (approximately US $714 million). GPU and Cinergy had jointly 66 GPU, Inc. and Subsidiary Companies formed Avon in 1996 to acquire Midlands. The fair value of the assets acquired by Avon totaled approximately US $4.2 billion and the liabilities totaled approximately US $3 billion. GPU Electric financed the acquisition primarily through a combination of equity and debt. The equity was funded from: (1) a US $250 million contribution from GPU, Inc., and (2) the issuance of US $50 million of commercial paper by GPU Capital, which is guaranteed by GPU, Inc. The debt has been provided through a two-year 245 million British pounds (approximately US $382 million) credit agreement entered into by EI UK Holdings, of which GPU, Inc. has guaranteed approximately US $100 million. As a result of GPU's purchase of Cinergy's 50% ownership in Midlands, effective in the third quarter of 1999, GPU began accounting for Midlands as a consolidated entity, rather than under the equity method of accounting as was previously the practice. Consequently, Goodwill, net on the Consolidated Balance Sheet increased by approximately $1.7 billion in the third quarter of 1999. Of this amount, $1.6 billion relates to the previous 1996 acquisition of Midlands by GPU and Cinergy and $121 million represents goodwill as a result of GPU's purchase of Cinergy's 50% share of Midlands. The goodwill is being amortized on a straight-line basis over 40 years. 4. ACCOUNTING FOR DERIVATIVE INSTRUMENTS GPU's use of derivative financial and commodity instruments is intended to manage risk. GPU does not intend to hold or issue derivative financial or commodity instruments for trading purposes. Interest Rate Swap Agreements: GPU Electric uses interest rate swap agreements to manage the risk of increases in variable interest rates. At September 30, 1999, these agreements covered approximately $1.7 billion of debt, including commercial paper, and are scheduled to expire on various dates through November 2007. GPU Electric records amounts paid and received under the agreements as adjustments to the interest expense of the underlying debt since the swaps are related to specific assets, liabilities or anticipated transactions of GPU Electric. For the quarter ended September 30, 1999, fixed rate interest expense exceeded variable rate interest by approximately $17.4 million. For additional information, see GPU Electric and the GPUI Group section of Management's Discussion and Analysis. In the third quarter of 1999, Austran Holdings (Austran), a wholly owned subsidiary of GPU Electric, refinanced A$220 million (US $142 million) of GPU PowerNet acquisition debt with proceeds from an Australian Dollar medium term notes issuance. In connection with this debt refinancing program, a loss of A$20.3 million (approximately US $13.3 million) related to certain interest rate swap positions was reflected in GPU's third quarter 1999 earnings. Indexed Swap Agreement: In 1998, GPU International entered into a 10-year indexed swap agreement with Niagara Mohawk Power Corporation which, among other things, provides GPU 67 GPU, Inc. and Subsidiary Companies International a fixed revenue stream (over the life of the swap agreement) on its investment in the Onondaga Cogeneration project. At September 30, 1999, the indexed swap agreement is valued at $56.9 million and is included in Other Deferred Debits and Other Assets on the Consolidated Balance Sheets. 5. SEGMENT INFORMATION The following is presented in accordance with Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information." GPU's reportable segments are strategic business units that are managed separately due to their different operating and regulatory environments. GPU's management evaluates the performance of its business units based upon net income before extraordinary and non-recurring items. For the purpose of providing segment information, domestic electric utility operations (GPU Energy) is comprised of the three electric utility operating companies serving customers in New Jersey and Pennsylvania, as well as Genco, GPUN, GPU Telcom and GPUS. For further information on GPU's organizational structure and businesses, see preface to the Combined Notes to Consolidated Financial Statements. 68
GPU, Inc. and Subsidiary Companies Business Segment Data (in thousands) Depreciation Investments Operating and Financing Net Total and Capital Revenues Amortization Charges Income(a) Assets(b) Expenditures -------- ------------ ------- --------- --------- ------------ For the nine months ended September 30, 1999 Domestic Segments: Electric Utility Operations (GPU Energy) $2,856,087 $ 304,323 $ 168,598 $ 383,942 $14,323,232 $ 212,436 Independ Power Prod (GPU International) 62,681 7,045 803 3,923 384,176 1,011 Electric Retail Energy Sales (GPU AR) 61,402 - - (6,783) 22,505 - --------- --------- --------- --------- ---------- ---------- Subtotal 2,980,170 311,368 169,401 381,082 14,729,913 213,447 --------- --------- --------- --------- ---------- ----------- Foreign Segments: Electric/Gas Utility Operations: (GPU Electric) Electric Distribution - United Kingdom 119,041 21,587 50,617 44,792 4,529,688 642,453 Electric Distribution - Argentina 93,700 9,453 15,603 2,590 538,251 399,125 Electric Transmission - Australia 144,678 32,348 77,994 (4,957) 1,890,968 5,199 Gas Transmission - Australia 19,373 3,744 16,719 (3,255) 783,413 652,392 Independ Power Prod - S. America (GPU Power) 28,727 4,394 2,476 6,150 236,208 30,517 --------- --------- --------- --------- ---------- ---------- Subtotal 405,519 71,526 163,409 45,320 7,978,528 1,729,686 --------- --------- --------- --------- ---------- ---------- Corporate and Eliminations - - 1,793 (10,336) (43,253) - --------- --------- --------- --------- ---------- ----------- ---------- Consolidated Total $3,385,689 $ 382,894 $ 334,603 $ 416,066 $22,665,188 $1,943,133 ========= ========= ========= ========= ========== =========== For the nine months ended September 30, 1998 Domestic Segments: Electric Utility Operations (GPU Energy) $3,009,856 $ 352,427 $ 181,747 $ 298,118 $13,298,257 $ 213,132 Independ Power Prod (GPU International) 50,459 2,067 460 10,477 397,523 21,203 Electric Retail Energy Sales (GPU AR) 8,337 - - (1,428) 2,651 22 --------- --------- --------- --------- ---------- ---------- Subtotal 3,068,652 354,494 182,207 307,167 13,698,431 234,357 --------- --------- --------- --------- ---------- ---------- Foreign Segments: Electric/Gas Utility Operations: (GPU Electric) Electric Distribution - United Kingdom 319 273 23,743 18,863 617,737 - Electric Transmission - Australia 135,886 30,455 81,979 24,019 1,788,877 16,930 Independ Power Prod - S. America (GPU Power) 23,480 4,386 3,317 1,563 237,162 11,295 --------- --------- --------- --------- ---------- ----------- Subtotal 159,685 35,114 109,039 44,445 2,643,776 28,225 --------- --------- --------- --------- ---------- ----------- Corporate and Eliminations (1,362) - 2,407 (9,127) (54,098) - --------- --------- --------- --------- ---------- ----------- ---------- Consolidated Total $3,226,975 $ 389,608 $ 293,653 $ 342,485 $16,288,109 $ 262,582 ========= ========= ========= ========= ========== =========== (a) Represents net income before extraordinary and non-recurring items as discussed in Management's Discussion and Analysis of Financial Condition and Results of Operations. (b) The comparative 1998 Total Assets column is as of December 31, 1998. 69
GPU, Inc. and Subsidiary Companies 6. COMPREHENSIVE INCOME For the nine months ended September 30, 1999 and 1998, comprehensive income is summarized below. (in thousands) Nine months Ended September 30, GPU, Inc. and Subsidiary Companies 1999 1998 - ---------------------------------- ---- ----- Net income $385,528 $ 276,653 ------- -------- Other comprehensive income/(loss), net of tax: Net unrealized gains/(losses) on investments (5,291) 728 Foreign currency translation gains/(losses) 23,375 (15,175) ------- -------- Total other comprehensive income/(loss) 18,084 (14,447) ------- -------- Comprehensive income $403,612 $ 262,206 ======= ======== JCP&L Net income $150,745 $ 184,708 ------- -------- Other comprehensive income, net of tax - - Comprehensive ------- -------- income $150,745 $ 184,708 ======= ======== Met-Ed Net income $ 93,596 $ 32,929 ------- -------- Other comprehensive income/(loss), net of tax: Net unrealized gains/(losses) on investments 2,881 (892) ------- -------- Comprehensive income $ 96,477 $ 32,037 ======= ======== Penelec Net income $107,950 $ 21,586 ------- -------- Other comprehensive income/(loss), net of tax: Net unrealized gains/(losses) on investments 1,373 (470) ------- -------- Comprehensive income $109,323 $ 21,116 ======= ======== 70
GPU, Inc. and Subsidiary Companies PART II ITEM 1 - LEGAL PROCEEDINGS Information concerning the current status of certain legal proceedings instituted against GPU, Inc. and the GPU Energy companies discussed in Part I of this report in Combined Notes to Consolidated Financial Statements is incorporated herein by reference and made a part hereof. ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits (12) 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 A - GPU, Inc. and Subsidiary Companies B - JCP&L C - Met-Ed D - Penelec (27) Financial Data Schedules A - GPU, Inc. and Subsidiary Companies B - JCP&L C - Met-Ed D - Penelec (b) Reports on Form 8-K GPU, Inc. Dated August 13, 1999, under Item 5 (Other Events). Dated August 16, 1999, under Item 5 (Other Events). Dated September 15, 1999, under Item 5 (Other Events). Dated October 19, 1999, under Item 5 (Other Events). Dated November 5, 1999, under Item 5 (Other Events). Jersey Central Power & Light Company Dated September 15, 1999, under Item 5 (Other Events). Dated October 19, 1999, under Item 5 (Other Events). Dated November 5, 1999, under Item 5 (Other Events). Metropolitan Edison Company Dated August 16, 1999, under Item 5 (Other Events). Dated August 18, 1999, under Item 5 (Other Events). Dated November 5, 1999, under Item 5 (Other Events). Pennsylvania Electric Company Dated August 16, 1999, under Item 5 (Other Events). Dated November 5, 1999, under Item 5 (Other Events). 71 GPU, Inc. and Subsidiary Companies Signatures ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized. GPU, INC. November 10, 1999 By: /s/ B. L. Levy ---------------------------------------- B. L. Levy, Senior Vice President (Chief Financial Officer) November 10, 1999 By: /s/ P. E. Maricondo --------------------------------------- P. E. Maricondo, Vice President and Comptroller (Chief Accounting Officer) JERSEY CENTRAL POWER & LIGHT COMPANY METROPOLITAN EDISON COMPANY PENNSYLVANIA ELECTRIC COMPANY November 10, 1999 By: /s/ R. L. Wise --------------------------------------- R. L. Wise, President (Principal Operating Officer) November 10, 1999 By: /s/ M. P. O'Flynn --------------------------------------- M. P. O'Flynn, Vice President- Finance and Rates & Comptroller (Principal Accounting Officer) 72 EX-99 2 EXHIBIT INDEX EXHIBITS TO BE FILED BY EDGAR Exhibits (12) 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 A - GPU, Inc. and Subsidiary Companies B - JCP&L C - Met-Ed D - Penelec (27) Financial Data Schedules A - GPU, Inc. and Subsidiary Companies B - JCP&L C - Met-Ed D - Penelec EX-12 3 EXHIBIT 12A
Exhibit 12A 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) UNAUDITED Nine Months Ended -------------------------------- September 30, September 30, 1999 1998 ------------ ------------ OPERATING REVENUES $3,385,689 $3,226,975 --------- --------- OPERATING EXPENSES 2,578,059 2,525,769 Interest portion of rentals (A) 24,969 21,424 Fixed charges of service company subsidiaries (B) 4,165 1,891 --------- --------- Net expense 2,548,925 2,502,454 --------- --------- OTHER INCOME AND DEDUCTIONS: Allowance for funds used during construction 3,204 4,285 Equity in undistributed earnings of affiliates, net 79,370 42,882 Other income, net 77,283 44,377 Minority interest net income (1,796) (1,457) --------- ------- Total other income and deductions 158,061 90,087 --------- -------- EARNINGS AVAILABLE FOR FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (excluding taxes based on income) $ 994,825 $ 814,608 ========= ========= FIXED CHARGES: Interest on funded indebtedness $ 286,672 $ 241,264 Other interest (C) 46,455 49,312 Preferred stock dividends of subsidiaries on a pretax basis (E) 13,934 13,762 Interest portion of rentals (A) 24,969 21,424 --------- --------- Total fixed charges $ 372,030 $ 325,762 ========= ========= RATIO OF EARNINGS TO FIXED CHARGES 2.67 2.50 ==== ==== RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (D) 2.67 2.50 ==== ====
Exhibit 12A 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) UNAUDITED NOTES: (A) GPU 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 GPU's consolidated income statement. GPU 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) Includes amount for subsidiary-obligated mandatorily redeemable preferred securities of $19,752 and $21,666 for the nine month periods ended September 30, 1999 and 1998, respectively and amount for trust preferred securities of $4,673 for the nine month period ended September 30, 1999. (D) 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. (E) Calculation of preferred stock dividends of subsidiaries on a pretax basis is as follows: Nine Months Ended -------------------------------- September 30, September 30, 1999 1998 --------- ----------- Income before provision for income taxes and preferred stock dividends of subsidiaries $636,729 $502,608 Income before extraordinary item in 1998 and preferred stock dividends of subsidiaries 394,156 310,924 Pretax earnings ratio 161.5% 161.6% Preferred stock dividends of subsidiaries 8,628 8,516 Preferred stock dividends of subsidiaries on a pretax basis 13,934 13,762
EX-12 4 EXHIBIT 12B Exhibit 12B 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) UNAUDITED Nine Months Ended September 30, September 30, 1999 1998 ----------- ------------ OPERATING REVENUES $1,578,159 $1,598,853 --------- --------- OPERATING EXPENSES 1,258,901 1,218,704 Interest portion of rentals (A) 10,899 7,573 --------- ----------- Net expense 1,248,002 1,211,131 --------- --------- OTHER INCOME: Allowance for funds used during construction 1,442 1,988 Other income, net 9,175 7,232 --------- --------- Total other income 10,617 9,220 --------- --------- EARNINGS AVAILABLE FOR FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (excluding taxes based on income) $ 340,774 $ 396,942 ========= ========= FIXED CHARGES: Interest on funded indebtedness $ 65,404 $ 65,455 Other interest (B) 15,651 16,670 Interest portion of rentals (A) 10,899 7,573 --------- --------- Total fixed charges $ 91,954 $ 89,698 ========= ========= RATIO OF EARNINGS TO FIXED CHARGES 3.71 4.43 ==== ==== Preferred stock dividend requirement $ 7,140 $ 7,633 Ratio of income before provision for income taxes to net income (C) 165.1% 66.3% --------- -------- Preferred stock dividend requirement on a pretax basis 11,788 12,694 Fixed charges, as above 91,954 89,698 --------- --------- Total fixed charges and preferred stock dividends $ 103,742 $ 102,392 ========= ========= RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS 3.28 3.88 ==== ====
Exhibit 12B 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) UNAUDITED NOTES: (A) JCP&L 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 amount for company-obligated mandatorily redeemable preferred securities of $8,025 for the nine month periods ended September 30, 1999 and 1998, respectively. (C) Represents income before provision for income taxes of $248,820 and $307,244 for the nine month periods ended September 30, 1999 and 1998, respectively, divided by net income of $150,745 and $184,708, respectively for the same periods. EX-12 5 EXHIBIT 12C
Exhibit 12C 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) UNAUDITED Nine Months Ended September 30, September 30, 1999 1998 ----------- ----------- OPERATING REVENUES $707,402 $689,829 ------- ------- OPERATING EXPENSES 505,270 564,647 Interest portion of rentals (A) 3,473 7,560 ------- ------- Net expense 501,797 557,087 ------- ------- OTHER INCOME AND DEDUCTIONS: Allowance for funds used during construction 884 676 Other income/(expense), net 2,357 (14,798) ------- ------- Total other income and deductions 3,241 (14,122) ------- ------- EARNINGS AVAILABLE FOR FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (excluding taxes based on income) $208,846 $118,620 ======= ======= FIXED CHARGES: Interest on funded indebtedness $ 31,869 $ 31,870 Other interest (B) 14,302 13,320 Interest portion of rentals (A) 3,473 7,560 ------- ------- Total fixed charges $ 49,644 $ 52,750 ======= ======= RATIO OF EARNINGS TO FIXED CHARGES 4.21 2.25 ==== ==== Preferred stock dividend requirement $ 66 $ 362 Ratio of income before provision for income taxes to net income (C) 170.1% 165.8% ------- ------- Preferred stock dividend requirement on a pretax basis 112 600 Fixed charges, as above 49,644 52,750 ------- ------- Total fixed charges and preferred stock dividends $ 49,756 $ 53,350 ======= ======= RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS 4.20 2.22 ==== ====
Exhibit 12C 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) UNAUDITED NOTES: (A) Met-Ed 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 amount for company-obligated mandatorily redeemable preferred securities of $6,750 for the nine month periods ended September 30, 1999 and 1998, respectively, and amount for trust preferred securities of $2,532 for the nine month period ended September 30, 1999. (C) Represents income before provision for income taxes of $159,202 and $65,870 for the nine month periods ended September 30, 1999 and 1998, respectively, divided by net income of $93,596 and $39,734, respectively for the same periods. EX-12 6 EXHIBIT 12D
Exhibit 12D 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) UNAUDITED Nine Months Ended September 30, September 30, 1999 1998 ----------- ------------ OPERATING REVENUES $705,955 $773,364 ------- ------- OPERATING EXPENSES 546,691 653,179 Interest portion of rentals (A) 3,288 3,729 ------- ------- Net expense 543,403 649,450 ------- ------- OTHER INCOME AND DEDUCTIONS: Allowance for funds used during construction 878 1,621 Other income/(expense), net 6,682 (4,312) ------- ------- Total other income and deductions 7,560 (2,691) ------- ------- EARNINGS AVAILABLE FOR FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (excluding taxes based on income) $170,112 $121,223 ======= ======= FIXED CHARGES: Interest on funded indebtedness $ 25,324 $ 35,922 Other interest (B) 10,407 13,542 Interest portion of rentals (A) 3,288 3,729 ------- ------- Total fixed charges $ 39,019 $ 53,193 ======= ======= RATIO OF EARNINGS TO FIXED CHARGES 4.36 2.28 ==== ==== Preferred stock dividend requirement $ 154 $ 521 Ratio of income before provision for income taxes to net income (C) 158.7% 167.8% ------- ------- Preferred stock dividend requirement on a pretax basis 244 874 Fixed charges, as above 39,019 53,193 ------- ------- Total fixed charges and preferred stock dividends $ 39,263 $ 54,067 ======= ======= RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS 4.33 2.24 ==== ====
Exhibit 12D 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) UNAUDITED NOTES: (A) Penelec 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 amount for company-obligated mandatorily redeemable preferred securities of $4,977 and $6,891 for the nine month periods ended September 30, 1999 and 1998, respectively, and amount for trust preferred securities of $2,141 for the nine month period ended September 30, 1999. (C) Represents income before provision for income taxes of $171,302 and $68,030 for the nine month periods ended September 30, 1999 and 1998, respectively, divided by net income of $107,950 and $40,536, respectively for the same periods. EX-27 7 GPU FDS 27A
UT 0000040779 GPU, INC. 1,000 US DOLLARS 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 1 PER-BOOK 8,466,128 4,258,961 1,558,410 8,381,689 0 22,665,188 331,958 1,031,063 2,469,642 3,600,114 506,500 37,741 6,876,126 739,500 0 84,000 379,309 2,500 2,268 125,936 10,311,194 22,665,188 3,385,689 208,179 2,578,059 2,786,238 599,451 122,476 721,927 334,603 385,528 0 385,528 0 166,833 414,212 3.06 3.05 INCLUDES ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS) OF ($13,220). INCLUDES REACQUIRED COMMON STOCK OF $232,549. INCLUDES AMOUNTS FOR SUBSIDIARY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF $225,000 AND TRUST PREFERRED SECURITIES OF $200,000. INCLUDES AMOUNT FOR SUBSIDIARY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF $19,752, PREFERRED STOCK DIVIDENDS OF SUBSIDIARIES OF $7,360, LOSS ON PREFERRED STOCK REACQUISITION OF $1,268, AND TRUST PREFERRED SECURITIES OF $4,673. INCLUDES MINORITY INTEREST NET (INCOME)/LOSS OF ($1,796).
EX-27 8 JCP&L FDS 27B
UT 0000053456 JERSEY CENTRAL POWER & LIGHT COMPANY 1,000 US DOLLARS 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 1 PER-BOOK 1,989,098 581,315 469,826 3,220,915 0 6,261,154 153,713 510,769 886,196 1,550,678 206,500 37,741 1,133,700 0 0 84,000 40,013 2,500 0 71,947 3,134,075 6,261,154 1,578,159 94,237 1,258,901 1,353,138 225,021 5,460 230,481 79,736 150,745 7,140 143,605 150,000 87,210 337,239 0 0 INCLUDES ACCUMULATED OTHER COMPREHENSIVE LOSS OF $425. INCLUDES AMOUNT FOR COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF $125,000. INCLUDES AMOUNT FOR COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF $8,025. REPRESENTS COMMON STOCK DIVIDENDS PAID TO PARENT CORPORATION.
EX-27 9 MET-ED FDS 27C
UT 0000065350 METROPOLITAN EDISON COMPANY 1,000 US DOLLARS 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 1 PER-BOOK 1,278,284 219,690 240,394 2,227,349 0 3,965,717 66,273 400,200 291,482 757,955 200,000 0 496,882 0 0 0 80,025 0 0 35,696 2,395,159 3,965,717 707,402 65,027 505,270 570,297 137,105 1,872 138,977 45,381 93,596 66 92,988 55,000 42,492 120,837 0 0 INCLUDES ACCUMULATED OTHER COMPREHENSIVE INCOME OF $19,401. REPRESENTS COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF $100,000 AND TRUST PREFERRED SECURITIES OF $100,000. INCLUDES AMOUNT FOR COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF $6,750 AND TRUST PREFERRED SECURITIES OF $2,532. INCLUDES LOSS ON PREFERRED STOCK REACQUISITION OF $542. REPRESENTS COMMON STOCK DIVIDENDS PAID TO PARENT CORPORATION.
EX-27 10 PENELEC FDS 27D
UT 0000077227 PENNSYLVANIA ELECTRIC COMPANY 1,000 US DOLLARS 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 1 PER-BOOK 1,395,828 83,845 203,835 2,132,612 0 3,816,120 105,812 285,486 104,449 495,747 100,000 0 424,595 0 0 0 13 0 2,268 18,293 2,775,204 3,816,120 705,955 37,808 546,691 584,499 121,456 21,347 142,803 34,853 107,950 154 107,070 380,000 37,131 (99,275) 0 0 INCLUDES ACCUMULATED OTHER COMPREHENSIVE INCOME OF $9,726. REPRESENTS TRUST PREFERRED SECURITIES OF $100,000. INCLUDES AMOUNT FOR COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF $4,977 AND TRUST PREFERRED SECURITIES OF $2,141. INCLUDES LOSS ON PREFERRED STOCK REACQUSITION OF $726. REPRESENTS COMMON STOCK DIVIDENDS PAID TO PARENT CORPORATION.
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