-----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, KVwSivbc+Gv6sMBl2ouY4/MsC/eBtti9KCCEWLtZPlzmig28V5ywB+v4fixPvS67 eUnkaOHeeKaDnQCWUAB2rQ== 0000040779-96-000065.txt : 19960808 0000040779-96-000065.hdr.sgml : 19960808 ACCESSION NUMBER: 0000040779-96-000065 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960807 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GENERAL PUBLIC UTILITIES CORP /PA/ CENTRAL INDEX KEY: 0000040779 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 135516589 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-06047 FILM NUMBER: 96605229 BUSINESS ADDRESS: STREET 1: 100 INTERPACE PKWY CITY: PARSIPPANY STATE: NJ ZIP: 07054 BUSINESS PHONE: 2012636500 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: 1934 Act SEC FILE NUMBER: 001-03141 FILM NUMBER: 96605230 BUSINESS ADDRESS: STREET 1: 300 MADISON AVE CITY: MORRISTOWN STATE: NJ ZIP: 079621911 BUSINESS PHONE: 2014558200 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: 1934 Act SEC FILE NUMBER: 001-00446 FILM NUMBER: 96605231 BUSINESS ADDRESS: STREET 1: 2800 POTTSVILLE PIKE STREET 2: MUHLENBERG TOWNSHIP CITY: BERKS COUNTY STATE: PA ZIP: 19605 BUSINESS PHONE: 2159293601 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: 1934 Act SEC FILE NUMBER: 001-03522 FILM NUMBER: 96605232 BUSINESS ADDRESS: STREET 1: 2800 POTTSVILLE PIKE READING STREET 2: MUHLENBERG TOWNSHIP CITY: BERKS COUNTY STATE: PA ZIP: 19640-0001 BUSINESS PHONE: 8145338111 10-Q 1 REPORT DOCUMENT 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 June 30, 1996 OR ___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to _______________ Commission Registrant, State of Incorporation, I.R.S. Employer File Number Address and Telephone Number Identification No. 1-6047 GPU, Inc. 13-5516989 (a Pennsylvania corporation) (formerly General Public Utilities Corporation) 100 Interpace Parkway Parsippany, New Jersey 07054-1149 Telephone (201) 263-6500 1-3141 Jersey Central Power & Light Company 21-0485010 (a New Jersey corporation) 2800 Pottsville Pike Reading, Pennsylvania 19605 Telephone (610) 929-3601 1-446 Metropolitan Edison Company 23-0870160 (a Pennsylvania corporation) 2800 Pottsville Pike Reading, Pennsylvania 19605 Telephone (610) 929-3601 1-3522 Pennsylvania Electric Company 25-0718085 (a Pennsylvania corporation) 2800 Pottsville Pike Reading, Pennsylvania 19605 Telephone (610) 929-3601 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 July 31, 1996, was as follows: Shares Registrant Title Outstanding GPU, Inc. Common Stock, $2.50 par value 120,519,864 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 June 30, 1996 Table of Contents Page PART I - Financial Information Consolidated Financial Statements: GPU, Inc. Balance Sheets 3 Statements of Income 5 Statements of Cash Flows 6 Jersey Central Power & Light Company Balance Sheets 7 Statements of Income 9 Statements of Cash Flows 10 Metropolitan Edison Company Balance Sheets 11 Statements of Income 13 Statements of Cash Flows 14 Pennsylvania Electric Company Balance Sheets 15 Statements of Income 17 Statements of Cash Flows 18 Notes to Financial Statements 19 Management's Discussion and Analysis of Financial Condition and Results of Operations 41 PART II - Other Information 56 Signatures 58 _________________________________ 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. (formerly General Public Utilities Corporation), 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 1995 Annual Report on Form 10-K, filed by the individual registrants with the Securities and Exchange Commission and should be read in conjunction therewith. 2 GPU, INC. AND SUBSIDIARY COMPANIES Consolidated Balance Sheets
In Thousands June 30, December 31, 1996 1995 (Unaudited) ASSETS Utility Plant: In service, at original cost $ 9,459,805 $9,295,630 Less, accumulated depreciation 3,597,647 3,433,240 Net utility plant in service 5,862,158 5,862,390 Construction work in progress 316,762 313,471 Other, net 189,675 193,356 Net utility plant 6,368,595 6,369,217 Other Property and Investments: Nuclear decommissioning trusts, at market 401,341 362,957 GPU International Group investments, net 756,936 288,044 Nuclear fuel disposal fund 95,865 95,393 Other, net 42,136 39,505 Total other property and investments 1,296,278 785,899 Current Assets: Cash and temporary cash investments 51,218 18,422 Special deposits 14,035 14,877 Accounts receivable: Customers, net 286,351 278,643 Other 92,977 69,773 Unbilled revenues 125,562 128,749 Materials and supplies, at average cost or less: Construction and maintenance 197,883 194,769 Fuel 33,285 39,795 Deferred energy costs 2,842 13,208 Deferred income taxes 24,933 27,064 Prepayments 230,000 42,746 Total current assets 1,059,086 828,046 Deferred Debits and Other Assets: Regulatory assets: Three Mile Island Unit 2 deferred costs 365,608 368,712 Unamortized property losses 102,891 105,729 Income taxes recoverable through future rates 501,189 527,584 Other 557,325 437,683 Total regulatory assets 1,527,013 1,439,708 Deferred income taxes 357,402 330,186 Other 127,847 116,642 Total deferred debits and other assets 2,012,262 1,886,536 Total Assets $10,736,221 $9,869,698 The accompanying notes are an integral part of the consolidated financial statements. 3 GPU, INC. AND SUBSIDIARY COMPANIES Consolidated Balance Sheets In Thousands June 30, December 31, 1996 1995 (Unaudited) LIABILITIES AND CAPITAL Capitalization: Common stock $ 314,458 $ 314,458 Capital surplus 748,323 746,449 Retained earnings 2,060,681 2,004,072 Total 3,123,462 3,064,979 Less, reacquired common stock, at cost 88,732 90,345 Total common stockholders' equity 3,034,730 2,974,634 Cumulative preferred stock: With mandatory redemption 114,000 134,000 Without mandatory redemption 98,116 98,116 Subsidiary-obligated mandatorily redeemable preferred securities 330,000 330,000 Long-term debt 2,996,371 2,567,898 Total capitalization 6,573,217 6,104,648 Current Liabilities: Securities due within one year 137,345 131,246 Notes payable 419,432 123,890 Obligations under capital leases 161,582 159,565 Accounts payable 291,082 318,394 Taxes accrued 36,354 46,613 Interest accrued 71,076 69,456 Other 299,087 259,280 Total current liabilities 1,415,958 1,108,444 Deferred Credits and Other Liabilities: Deferred income taxes 1,493,975 1,466,060 Unamortized investment tax credits 139,934 145,375 Three Mile Island Unit 2 future costs 421,059 413,031 Regulatory liabilities 94,419 97,999 Other 597,659 534,141 Total deferred credits and other liabilities 2,747,046 2,656,606 Commitments and Contingencies (Note 1) Total Liabilities and Capital $10,736,221 $9,869,698 The accompanying notes are an integral part of the consolidated financial statements. 4
GPU, INC. AND SUBSIDIARY COMPANIES Consolidated Statements of Income (Unaudited)
In Thousands (Except Per Share Data) Three Months Six Months Ended June 30, Ended June 30, 1996 1995 1996 1995 Operating Revenues $ 912,254 $ 864,648 $1,935,188 $1,778,620 Operating Expenses: Fuel 88,274 81,662 186,769 170,889 Power purchased and interchanged 213,485 222,874 490,882 473,797 Deferral of energy costs, net 6,686 4,091 9,840 5,239 Other operation and maintenance 241,756 226,420 468,353 446,133 Depreciation and amortization 97,921 90,344 194,507 179,885 Taxes, other than income taxes 83,294 78,416 174,783 164,477 Total operating expenses 731,416 703,807 1,525,134 1,440,420 Operating Income Before Income Taxes 180,838 160,841 410,054 338,200 Income taxes 46,085 34,523 114,095 78,222 Operating Income 134,753 126,318 295,959 259,978 Other Income and Deductions: Allowance for other funds used during construction 1,255 1,152 2,484 2,357 Other income/(expense), net 1,271 (3,370) 11,580 (4,170) Income taxes 57 1,268 (3,945) 1,423 Total other income and deductions 2,583 (950) 10,119 (390) Income Before Interest Charges and Preferred Dividends 137,336 125,368 306,078 259,588 Interest Charges and Preferred Dividends: Interest on long-term debt 45,996 47,366 92,608 92,479 Other interest 8,671 8,954 12,979 15,803 Allowance for borrowed funds used during construction (1,962) (1,965) (3,823) (4,072) Dividends on subsidiary-obligated mandatorily redeemable preferred securities 7,222 5,825 14,444 10,372 Preferred stock dividends of subsidiaries 3,784 4,208 7,992 8,529 Total interest charges and preferred dividends 63,711 64,388 124,200 123,111 Net Income $ 73,625 $ 60,980 $ 181,878 $ 136,477 Earnings Per Average Common Share $ .61 $ .53 $ 1.51 $ 1.18 Average Common Shares Outstanding 120,700 115,660 120,670 115,502 Cash Dividends Paid Per Share $ .485 $ .47 $ .955 $ .92 The accompanying notes are an integral part of the consolidated financial statements. 5 GPU, INC. AND SUBSIDIARY COMPANIES Consolidated Statements of Cash Flows (Unaudited) In Thousands Six Months Ended June 30, 1996 1995 Operating Activities: Net income $ 181,878 $ 136,477 Adjustments to reconcile income to cash provided: Depreciation and amortization 202,995 183,300 Amortization of property under capital leases 29,689 30,754 Nuclear outage maintenance costs, net 14,443 14,562 Deferred income taxes and investment tax credits, net 15,181 21,488 Deferred energy costs, net 9,680 5,413 Accretion income (5,805) (6,260) Allowance for other funds used during construction (2,484) (2,357) Changes in working capital: Receivables (25,244) 13,123 Materials and supplies 3,351 (4,524) Special deposits and prepayments (186,303) (179,280) Payables and accrued liabilities (10,992) (75,153) Nonutility generation contract buyout costs (69,450) (1,650) Other, net (25,620) 5,038 Net cash provided by operating activities 131,319 140,931 Investing Activities: Cash construction expenditures (173,018) (229,680) Contributions to decommissioning trusts (20,515) (16,609) GPU International Group investments (488,324) (1,710) Other, net 16,684 (346) Net cash used for investing activities (665,173) (248,345) Financing Activities: Issuance of long-term debt 503,234 168,920 Increase/(Decrease) in notes payable, net 298,352 (77,184) Retirement of long-term debt (71,206) (3,200) Capital lease principal payments (28,698) (27,459) Issuance of common stock - 29,645 Issuance of subsidiary-obligated mandatorily redeemable preferred securities - 121,063 Redemption of preferred stock of subsidiaries (20,000) (6,049) Dividends paid on common stock (115,032) (106,022) Net cash provided by financing activities 566,650 99,714 Net increase/(decrease) in cash and temporary cash investments from above activities 32,796 (7,700) Cash and temporary cash investments, beginning of year 18,422 26,731 Cash and temporary cash investments, end of period $ 51,218 $ 19,031 Supplemental Disclosure: Interest and preferred dividends paid $ 132,441 $ 122,208 Income taxes paid $ 113,083 $ 127,531 New capital lease obligations incurred $ 28,907 $ 34,376 Common stock dividends declared but not paid $ 58,452 $ 54,670 The accompanying notes are an integral part of the consolidated financial statements. 6
JERSEY CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARY COMPANY Consolidated Balance Sheets
In Thousands June 30, December 31, 1996 1995 (Unaudited) ASSETS Utility Plant: In service, at original cost $4,412,680 $4,311,458 Less, accumulated depreciation 1,762,459 1,669,893 Net utility plant in service 2,650,221 2,641,565 Construction work in progress 156,059 157,885 Other, net 120,435 111,023 Net utility plant 2,926,715 2,910,473 Other Property and Investments: Nuclear decommissioning trusts, at market 245,232 225,200 Nuclear fuel disposal fund 95,865 95,393 Other, net 7,706 7,218 Total other property and investments 348,803 327,811 Current Assets: Cash and temporary cash investments 4,653 922 Special deposits 7,069 7,358 Accounts receivable: Customers, net 153,437 150,002 Other 16,306 21,912 Unbilled revenues 72,361 66,389 Materials and supplies, at average cost or less: Construction and maintenance 98,568 95,949 Fuel 11,443 18,693 Deferred income taxes 11,657 8,842 Prepayments 144,013 20,869 Total current assets 519,507 390,936 Deferred Debits and Other Assets: Regulatory assets: Three Mile Island Unit 2 deferred costs 133,761 138,472 Unamortized property losses 97,190 100,176 Income taxes recoverable through future rates 132,038 134,787 Other 431,608 311,293 Total regulatory assets 794,597 684,728 Deferred income taxes 147,124 122,082 Other 21,600 20,359 Total deferred debits and other assets 963,321 827,169 Total Assets $4,758,346 $4,456,389 The accompanying notes are an integral part of the consolidated financial statements. 7 JERSEY CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARY COMPANY Consolidated Balance Sheets In Thousands June 30, December 31, 1996 1995 (Unaudited) LIABILITIES AND CAPITAL Capitalization: Common stock $ 153,713 $ 153,713 Capital surplus 510,769 510,769 Retained earnings 854,899 816,770 Total common stockholder's equity 1,519,381 1,481,252 Cumulative preferred stock: With mandatory redemption 114,000 134,000 Without mandatory redemption 37,741 37,741 Company-obligated mandatorily redeemable preferred securities 125,000 125,000 Long-term debt 1,163,053 1,192,945 Total capitalization 2,959,175 2,970,938 Current Liabilities: Securities due within one year 40,009 35,710 Notes payable 189,569 800 Obligations under capital leases 103,162 90,329 Accounts payable: Affiliates 26,062 31,885 Other 98,467 111,225 Taxes accrued 10,121 10,516 Deferred energy credits/(costs) 10,151 (5,290) Interest accrued 28,572 28,718 Other 85,094 71,769 Total current liabilities 591,207 375,662 Deferred Credits and Other Liabilities: Deferred income taxes 648,440 607,188 Unamortized investment tax credits 63,848 66,874 Three Mile Island Unit 2 future costs 105,290 103,271 Nuclear fuel disposal fee 124,290 121,121 Regulatory liabilities 35,670 37,597 Other 230,426 173,738 Total deferred credits and other liabilities 1,207,964 1,109,789 Commitments and Contingencies (Note 1) Total Liabilities and Capital $4,758,346 $4,456,389 The accompanying notes are an integral part of the consolidated financial statements. 8
JERSEY CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARY COMPANY Consolidated Statements of Income (Unaudited)
In Thousands Three Months Six Months Ended June 30, Ended June 30, 1996 1995 1996 1995 Operating Revenues $ 475,884 $ 453,081 $1,005,158 $ 921,115 Operating Expenses: Fuel 23,939 20,443 52,226 40,809 Power purchased and interchanged: Affiliates 9,640 2,270 13,223 3,368 Others 118,389 143,007 282,249 311,278 Deferral of energy and capacity costs, net 10,521 (1,820) 14,737 (10,391) Other operation and maintenance 120,863 112,743 237,342 226,377 Depreciation and amortization 50,286 48,280 100,238 95,961 Taxes, other than income taxes 55,388 49,883 115,360 105,877 Total operating expenses 389,026 374,806 815,375 773,279 Operating Income Before Income Taxes 86,858 78,275 189,783 147,836 Income taxes 19,108 16,441 44,672 28,775 Operating Income 67,750 61,834 145,111 119,061 Other Income and Deductions: Allowance for other funds used during construction 979 229 1,982 457 Other income/(expense), net (324) 3,367 1,818 6,985 Income taxes (184) (1,343) (1,235) (2,782) Total other income and deductions 471 2,253 2,565 4,660 Income Before Interest Charges and Dividends on Preferred Securities 68,221 64,087 147,676 123,721 Interest Charges and Dividends on Preferred Securities: Interest on long-term debt 22,203 23,461 44,717 45,960 Other interest 4,086 3,530 5,009 5,523 Allowance for borrowed funds used during construction (1,124) (978) (2,277) (2,047) Dividends on company-obligated mandatorily redeemable preferred securities 2,675 1,278 5,350 1,278 Total interest charges and dividends on preferred securities 27,840 27,291 52,799 50,714 Net Income 40,381 36,796 94,877 73,007 Preferred stock dividends 3,162 3,586 6,748 7,285 Earnings Available for Common Stock $ 37,219 $ 33,210 $ 88,129 $ 65,722 The accompanying notes are an integral part of the consolidated financial statements. 9 JERSEY CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARY COMPANY Consolidated Statements of Cash Flows (Unaudited) In Thousands Six Months Ended June 30, 1996 1995 Operating Activities: Net income $ 94,877 $ 73,007 Adjustments to reconcile income to cash provided: Depreciation and amortization 105,803 105,012 Amortization of property under capital leases 15,924 16,712 Nuclear outage maintenance costs, net 9,938 10,821 Deferred income taxes and investment tax credits, net 9,598 29,702 Deferred energy and capacity costs, net 14,732 (10,440) Accretion income (5,805) (6,260) Allowance for other funds used during construction (1,982) (457) Changes in working capital: Receivables (3,800) 6,810 Materials and supplies 4,631 (4,313) Special deposits and prepayments (122,855) (149,122) Payables and accrued liabilities (33,727) (50,539) Nonutility generation contract buyout costs (65,000) - Other, net (521) (6,436) Net cash provided by operating activities 21,813 14,497 Investing Activities: Cash construction expenditures (76,395) (98,623) Contributions to decommissioning trusts (9,303) (9,022) Other, net (2,984) (873) Net cash used for investing activities (88,682) (108,518) Financing Activities: Issuance of long-term debt - 49,625 Increase/(Decrease) in notes payable, net 189,000 (14,600) Retirement of long-term debt (25,701) - Capital lease principal payments (15,527) (13,637) Issuance of company-obligated mandatorily redeemable preferred securities - 121,063 Redemption of preferred stock (20,000) (6,049) Dividends paid on common stock (50,000) (50,000) Contributions from parent corporation - 15,000 Dividends paid on preferred stock (7,172) (7,398) Net cash provided by financing activities 70,600 94,004 Net increase/(decrease) in cash and temporary cash investments from above activities 3,731 (17) Cash and temporary cash investments, beginning of year 922 1,041 Cash and temporary cash investments, end of period $ 4,653 $ 1,024 Supplemental Disclosure: Interest paid $ 53,116 $ 51,355 Income taxes paid $ 55,828 $ 50,799 New capital lease obligations incurred $ 27,984 $ 8,746 The accompanying notes are an integral part of the consolidated financial statements.
10 METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANIES Consolidated Balance Sheets
In Thousands June 30, December 31, 1996 1995 (Unaudited) ASSETS Utility Plant: In service, at original cost $2,264,771 $2,240,951 Less, accumulated depreciation 802,136 763,921 Net utility plant in service 1,462,635 1,477,030 Construction work in progress 86,328 83,353 Other, net 38,021 45,587 Net utility plant 1,586,984 1,605,970 Other Property and Investments: Nuclear decommissioning trusts, at market 109,006 95,317 Other, net 11,155 9,899 Total other property and investments 120,161 105,216 Current Assets: Cash and temporary cash investments 1,914 1,810 Special deposits 1,064 1,256 Accounts receivable: Customers, net 60,004 60,739 Other 15,794 22,151 Unbilled revenues 23,857 31,509 Materials and supplies, at average cost or less: Construction and maintenance 40,961 39,337 Fuel 7,143 9,817 Deferred energy costs/(credits) 591 (1,417) Deferred income taxes 6,362 7,595 Prepayments 32,704 6,549 Total current assets 190,394 179,346 Deferred Debits and Other Assets: Regulatory assets: Three Mile Island Unit 2 deferred costs 148,710 149,004 Income taxes recoverable through future rates 157,455 178,513 Other 112,845 112,458 Total regulatory assets 419,010 439,975 Deferred income taxes 102,105 91,356 Other 13,222 13,612 Total deferred debits and other assets 534,337 544,943 Total Assets $2,431,876 $2,435,475 The accompanying notes are an integral part of the consolidated financial statements. 11 METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANIES Consolidated Balance Sheets In Thousands June 30, December 31, 1996 1995 (Unaudited) LIABILITIES AND CAPITAL Capitalization: Common stock $ 66,273 $ 66,273 Capital surplus 370,200 370,200 Retained earnings 265,169 248,434 Total common stockholder's equity 701,642 684,907 Cumulative preferred stock 23,598 23,598 Company-obligated mandatorily redeemable preferred securities 100,000 100,000 Long-term debt 583,270 603,268 Total capitalization 1,408,510 1,411,773 Current Liabilities: Securities due within one year 20,019 15,019 Notes payable 34,988 22,390 Obligations under capital leases 36,746 43,600 Accounts payable: Affiliates 18,093 10,559 Other 79,976 91,538 Taxes accrued 14,760 19,615 Interest accrued 19,768 19,359 Other 48,376 40,362 Total current liabilities 272,726 262,442 Deferred Credits and Other Liabilities: Deferred income taxes 374,343 380,135 Unamortized investment tax credits 32,346 33,387 Three Mile Island Unit 2 future costs 210,479 206,489 Nuclear fuel disposal fee 28,076 27,360 Regulatory liabilities 25,835 26,461 Other 79,561 87,428 Total deferred credits and other liabilities 750,640 761,260 Commitments and Contingencies (Note 1) Total Liabilities and Capital $2,431,876 $2,435,475 The accompanying notes are an integral part of the consolidated financial statements. 12
METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANIES Consolidated Statements of Income (Unaudited)
In Thousands Three Months Six Months Ended June 30, Ended June 30, 1996 1995 1996 1995 Operating Revenues $ 207,058 $ 190,342 $ 444,746 $ 396,091 Operating Expenses: Fuel 22,054 20,401 47,967 42,793 Power purchased and interchanged: Affiliates 4,848 4,942 11,748 13,900 Others 48,849 37,963 102,274 81,477 Deferral of energy costs, net (4,069) 2,837 (1,985) 1,732 Other operation and maintenance 55,609 55,200 106,138 107,841 Depreciation and amortization 24,301 21,761 48,303 44,431 Taxes, other than income taxes 12,445 13,071 28,032 26,730 Total operating expenses 164,037 156,175 342,477 318,904 Operating Income Before Income Taxes 43,021 34,167 102,269 77,187 Income taxes 11,892 5,832 32,748 17,697 Operating Income 31,129 28,335 69,521 59,490 Other Income and Deductions: Allowance for other funds used during construction 44 404 87 859 Other income/(expense), net (52) (1,951) 174 (4,112) Income taxes 114 838 81 1,629 Total other income and deductions 106 (709) 342 (1,624) Income Before Interest Charges and Dividends on Preferred Securities 31,235 27,626 69,863 57,866 Interest Charges and Dividends on Preferred Securities: Interest on long-term debt 11,470 11,522 22,937 22,534 Other interest 932 1,584 2,031 2,573 Allowance for borrowed funds used during construction (223) (347) (448) (742) Dividends on company-obligated mandatorily redeemable preferred securities 2,250 2,250 4,500 4,500 Total interest charges and dividends on preferred securities 14,429 15,009 29,020 28,865 Net Income 16,806 12,617 40,843 29,001 Preferred stock dividends 236 236 472 472 Earnings Available for Common Stock $ 16,570 $ 12,381 $ 40,371 $ 28,529 The accompanying notes are an integral part of the consolidated financial statements. 13 METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANIES Consolidated Statements of Cash Flows (Unaudited) In Thousands Six Months Ended June 30, 1996 1995 Operating Activities: Net income $ 40,843 $ 29,001 Adjustments to reconcile income to cash provided: Depreciation and amortization 46,991 38,538 Amortization of property under capital leases 7,843 7,599 Nuclear outage maintenance costs, net 3,007 2,432 Deferred income taxes and investment tax credits, net 3,410 (3,179) Deferred energy costs, net (1,985) 1,732 Allowance for other funds used during construction (87) (859) Changes in working capital: Receivables 14,744 (3,278) Materials and supplies 1,051 1,067 Special deposits and prepayments (25,964) (14,442) Payables and accrued liabilities 9,360 (26,306) Nonutility generation contract buyout costs (4,450) (1,650) Other, net (12,230) 5,927 Net cash provided by operating activities 82,533 36,582 Investing Activities: Cash construction expenditures (37,355) (63,057) Contributions to decommissioning trusts (8,562) (4,955) Other, net (1,256) 18 Net cash used for investing activities (47,173) (67,994) Financing Activities: Issuance of long-term debt - 59,625 Increase in notes payable, net 12,598 15,973 Retirement of long-term debt (15,000) - Capital lease principal payments (7,382) (7,562) Dividends paid on common stock (25,000) (50,000) Contributions from parent corporation - 10,000 Dividends paid on preferred stock (472) (472) Net cash provided/(required) by financing activities (35,256) 27,564 Net increase/(decrease) in cash and temporary cash investments from above activities 104 (3,848) Cash and temporary cash investments, beginning of year 1,810 9,246 Cash and temporary cash investments, end of period $ 1,914 $ 5,398 Supplemental Disclosure: Interest paid $ 28,550 $ 27,913 Income taxes paid $ 24,975 $ 46,730 New capital lease obligations incurred $ 611 $ 15,261 The accompanying notes are an integral part of the consolidated financial statements. 14
PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES Consolidated Balance Sheets
In Thousands June 30, December 31, 1996 1995 (Unaudited) ASSETS Utility Plant: In service, at original cost $2,705,727 $2,667,842 Less, accumulated depreciation 1,006,708 974,992 Net utility plant in service 1,699,019 1,692,850 Construction work in progress 74,375 72,233 Other, net 26,857 30,876 Net utility plant 1,800,251 1,795,959 Other Property and Investments: Nuclear decommissioning trusts, at market 47,103 42,440 Other, net 6,619 6,545 Total other property and investments 53,722 48,985 Current Assets: Cash and temporary cash investments 4,186 1,367 Special deposits 2,829 2,718 Accounts receivable: Customers, net 72,469 67,454 Other 27,772 29,033 Unbilled revenues 29,344 30,851 Materials and supplies, at average cost or less: Construction and maintenance 52,154 53,237 Fuel 14,699 11,285 Deferred energy costs 12,402 9,335 Deferred income taxes 5,892 4,602 Prepayments 45,207 10,328 Total current assets 266,954 220,210 Deferred Debits and Other Assets: Regulatory assets: Three Mile Island Unit 2 deferred costs 83,137 81,236 Income taxes recoverable through future rates 211,696 214,284 Other 18,573 19,485 Total regulatory assets 313,406 315,005 Deferred income taxes 65,717 78,754 Other 12,837 14,657 Total deferred debits and other assets 391,960 408,416 Total Assets $2,512,887 $2,473,570 The accompanying notes are an integral part of the consolidated financial statements. 15 PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES Consolidated Balance Sheets In Thousands June 30, December 31, 1996 1995 (Unaudited) LIABILITIES AND CAPITAL Capitalization: Common stock $ 105,812 $ 105,812 Capital surplus 285,486 285,486 Retained earnings 349,848 327,814 Total common stockholder's equity 741,146 719,112 Cumulative preferred stock 36,777 36,777 Company-obligated mandatorily redeemable preferred securities 105,000 105,000 Long-term debt 616,475 642,487 Total capitalization 1,499,398 1,503,376 Current Liabilities: Securities due within one year 76,009 75,009 Notes payable 109,225 27,100 Obligations under capital leases 19,309 22,751 Accounts payable: Affiliates 5,322 13,806 Other 51,111 66,687 Taxes accrued 12,472 16,019 Interest accrued 21,082 19,567 Vacations accrued 6,527 9,976 Other 18,964 19,448 Total current liabilities 320,021 270,363 Deferred Credits and Other Liabilities: Deferred income taxes 453,739 462,354 Unamortized investment tax credits 43,740 45,114 Three Mile Island Unit 2 future costs 105,290 103,271 Nuclear fuel disposal fee 14,038 13,680 Regulatory liabilities 32,914 33,941 Other 43,747 41,471 Total deferred credits and other liabilities 693,468 699,831 Commitments and Contingencies (Note 1) Total Liabilities and Capital $2,512,887 $2,473,570 The accompanying notes are an integral part of the consolidated financial statements. 16
PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES Consolidated Statements of Income (Unaudited)
In Thousands Three Months Six Months Ended June 30, Ended June 30, 1996 1995 1996 1995 Operating Revenues $ 246,788 $ 238,451 $ 516,117 $ 491,863 Operating Expenses: Fuel 42,281 40,818 86,576 87,287 Power purchased and interchanged: Affiliates 722 2,643 2 079 4,270 Others 46,247 41,904 106,359 81,042 Deferral of energy costs, net 234 3,074 (2,912) 13,898 Other operation and maintenance 65,916 64,779 125,815 118,925 Depreciation and amortization 23,334 20,303 45,966 39,493 Taxes, other than income taxes 15,461 15,462 31,391 31,870 Total operating expenses 194,195 188,983 395,274 376,785 Operating Income Before Income Taxes 52,593 49,468 120,843 115,078 Income taxes 15,085 12,250 36,675 31,750 Operating Income 37,508 37,218 84,168 83,328 Other Income and Deductions: Allowance for other funds used during construction 232 519 415 1,041 Other income/(expense), net 59 (2,406) (802) (3,629) Income taxes 64 989 62 1,359 Total other income and deductions 355 (898) (325) (1,229) Income Before Interest Charges and Dividends on Preferred Securities 37,863 36,320 83,843 82,099 Interest Charges and Dividends on Preferred Securities: Interest on long-term debt 12,323 12,383 24,954 23,985 Other interest 2,249 2,004 3,269 3,961 Allowance for borrowed funds used during construction (615) (640) (1,098) (1,283) Dividends on company-obligated mandatorily redeemable preferred securities 2,297 2,297 4,594 4,594 Total interest charges and dividends on preferred securities 16,254 16,044 31,719 31,257 Net Income 21,609 20,276 52,124 50,842 Preferred stock dividends 386 386 772 772 Earnings Available for Common Stock $ 21,223 $ 19,890 $ 51,352 $ 50,070 The accompanying notes are an integral part of the consolidated financial statements. 17 PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES Consolidated Statements of Cash Flows (Unaudited) In Thousands Six Months Ended June 30, 1996 1995 Operating Activities: Net income $ 52,124 $ 50,842 Adjustments to reconcile income to cash provided: Depreciation and amortization 44,681 37,529 Amortization of property under capital leases 4,415 4,296 Nuclear outage maintenance costs, net 1,498 1,309 Deferred income taxes and investment tax credits, net 2,516 (4,412) Deferred energy costs, net (3,067) 14,121 Allowance for other funds used during construction (415) (1,041) Changes in working capital: Receivables (2,247) (3,005) Materials and supplies (2,331) (1,278) Special deposits and prepayments (34,990) (19,168) Payables and accrued liabilities (25,950) 13,039 Other, net 7,667 2,285 Net cash provided by operating activities 43,901 94,517 Investing Activities: Cash construction expenditures (59,524) (66,956) Contributions to decommissioning trusts (2,650) (2,632) Other, net (979) - Net cash used for investing activities (63,153) (69,588) Financing Activities: Issuance of long-term debt - 59,670 Increase/(Decrease) in notes payable, net 82,125 (54,657) Retirement of long-term debt (25,000) - Capital lease principal payments (4,282) (4,113) Dividends paid on common stock (30,000) (30,000) Contributions from parent corporation - 5,000 Dividends paid on preferred stock (772) (772) Net cash provided/(required) by financing activities 22,071 (24,872) Net increase in cash and temporary cash investments from above activities 2,819 57 Cash and temporary cash investments, beginning of year 1,367 1,191 Cash and temporary cash investments, end of period $ 4,186 $ 1,248 Supplemental Disclosure: Interest paid $ 30,194 $ 28,765 Income taxes paid $ 30,734 $ 27,489 New capital lease obligations incurred $ 312 $ 7,631 The accompanying notes are an integral part of the consolidated financial statements. 18
GPU, INC. AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS GPU, Inc. (GPU or the Company) (formerly General Public Utilities Corporation), a Pennsylvania corporation, is a holding company registered under the Public Utility Holding Company Act of 1935. The Company does not directly operate any utility properties, but owns all the outstanding common stock of three electric utilities serving customers in New Jersey -- Jersey Central Power & Light Company (JCP&L) -- and Pennsylvania -- Metropolitan Edison Company (Met-Ed) and Pennsylvania Electric Company (Penelec). The business of these subsidiaries (known collectively as GPU Energy) consists predominantly of the generation, transmission, distribution and sale of electricity. The Company also owns all of the common stock of Energy Initiatives, Inc. (known as GPU International, Inc.), EI Power, Inc. (known as GPU Power, Inc.) and EI Energy, Inc. (known as GPU Electric, Inc.), (collectively, the GPU International Group) which develop, own and operate generation, transmission and distribution facilities and supply businesses in the United States and in foreign countries. GPU Service, Inc. (GPUS), a service company; GPU Nuclear, Inc. (GPUN), which operates and maintains the nuclear units of GPU Energy, and GPU Generation, Inc. (Genco), which operates and maintains GPU Energy's fossil-fueled and hydroelectric units, are also wholly-owned subsidiaries of the Company. All of these companies considered together with their subsidiaries are referred to as the "GPU Companies." These notes should be read in conjunction with the notes to consolidated financial statements included in the 1995 Annual Report on Form 10-K. The year-end condensed 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 1995 Annual Report on Form 10-K. 1. COMMITMENTS AND CONTINGENCIES NUCLEAR FACILITIES GPU Energy has made investments in three major nuclear projects--Three Mile Island Unit 1 (TMI-1) and Oyster Creek, both of which are operating generation facilities, and Three Mile Island Unit 2 (TMI-2), which was damaged during a 1979 accident. TMI-1 and TMI-2 are jointly owned by JCP&L, Met-Ed and Penelec in the percentages of 25%, 50% and 25%, respectively. Oyster Creek is owned by JCP&L. At June 30, 1996 and December 31, 1995, the GPU Energy companies' net investment in TMI-1 and Oyster Creek, including nuclear fuel, was as follows: Net Investment (Millions) TMI-1 Oyster Creek June 30, 1996 JCP&L $160 $783 Met-Ed 307 - Penelec 150 - Total $617 $783 19 Net Investment (Millions) TMI-1 Oyster Creek December 31, 1995 JCP&L $166 $785 Met-Ed 318 - Penelec 156 - Total $640 $785 GPU Energy's net investment in TMI-2 at June 30, 1996 was $93 million (JCP&L, Met-Ed and Penelec's shares are $83 million, $2 million, and $8 million, respectively). GPU Energy's net investment in TMI-2 at December 31, 1995 was $95 million (JCP&L, Met-Ed and Penelec's shares are $85 million, $2 million, and $8 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 are collecting revenues for their remaining investments in TMI-2 from their wholesale customers. Costs associated with the operation, maintenance and retirement of nuclear plants have continued to be significant and less predictable than costs associated with other sources of generation, in large part due to changing regulatory requirements, safety standards, availability of nuclear waste disposal facilities and experience gained in the construction and operation of nuclear facilities. GPU Energy may also incur costs and experience reduced output at its nuclear plants because of the prevailing design criteria at the time of construction and the age of the plants' systems and equipment. In addition, for economic or other reasons, operation of these plants for the full term of their now-assumed lives cannot be assured. Also, not all risks associated with the ownership or operation of nuclear facilities may be adequately insured or insurable. Consequently, the ability of electric utilities to obtain adequate and timely recovery of costs associated with nuclear projects, including replacement power, any unamortized investment at the end of each plant's useful life (whether scheduled or premature), the carrying costs of that investment and retirement costs, is not assured (see NUCLEAR PLANT RETIREMENT COSTS). Management intends, in general, to seek recovery of any such costs through the ratemaking process, but recognizes that recovery is not assured (see COMPETITION AND THE CHANGING REGULATORY ENVIRONMENT). TMI-2: The 1979 TMI-2 accident resulted in significant damage to, and contamination of, the plant and a release of radioactivity to the environment. The cleanup program was completed in 1990, and after receiving Nuclear Regulatory Commission (NRC) approval, TMI-2 entered into long-term monitored storage in 1993. As a result of the accident and its aftermath, individual claims for alleged personal injury (including claims for punitive damages), which are material in amount, have been asserted against the Company and GPU Energy. 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. 20 At the time of the TMI-2 accident, as provided for in the Price-Anderson Act, GPU Energy had (a) primary financial protection in the form of insurance policies with groups of insurance companies providing an aggregate of $140 million of primary coverage, (b) secondary financial protection in the form of private liability insurance under an industry retrospective rating plan providing for up to an aggregate of $335 million in premium charges under such plan, and (c) an indemnity agreement with the NRC for up to $85 million, bringing its total primary, secondary and tertiary financial protection up to an aggregate of $560 million. Under the secondary level, GPU Energy is subject to a retrospective premium charge of up to $5 million per reactor, or a total of $15 million (JCP&L, Met-Ed and Penelec's shares are $7.5 million, $5 million and $2.5 million, respectively). The insurers of TMI-2 had been providing a defense against all TMI-2 accident-related claims against the Company and GPU Energy and its suppliers under a reservation of rights with respect to any award of punitive damages. However, in 1994 the defendants and the insurers agreed that the insurers would withdraw their reservation of rights with respect to any award of punitive damages. In October 1995, the U.S. Court of Appeals for the Third Circuit ruled that the Price-Anderson Act provides coverage under its primary and secondary levels for punitive as well as compensatory damages, but that punitive damages could not be recovered against the Federal Government under the third level of financial protection. In so doing, the Court of Appeals referred to the "finite fund" (the $560 million of financial protection under the Price- Anderson Act) to which plaintiffs must resort to get compensatory as well as punitive damages. The Court of Appeals also ruled that the standard of care owed by the defendants to a plaintiff was determined by the specific level of radiation which was released into the environment, as measured at the site boundary, rather than as measured at the specific site where the plaintiff was located at the time of the accident (as the defendants proposed). The Court of Appeals also held that each plaintiff still must demonstrate exposure to radiation released during the TMI-2 accident and that such exposure had resulted in injuries. The U.S. Supreme Court has denied petitions filed by the Company and GPU Energy to review the Court of Appeals' rulings. In June 1996, the District Court granted a motion for summary judgment filed by the Company and the GPU Energy companies, and dismissed all of the 2,100 pending claims. The Court ruled that there was no evidence which created a genuine issue of material fact warranting submission of plaintiffs' claims to a jury. It is expected that the plaintiffs will appeal the ruling. Based on the above, the Company and GPU Energy 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. There can be no assurance as to the outcome of this litigation. 21 NUCLEAR PLANT RETIREMENT COSTS Retirement costs for nuclear plants include decommissioning the radiological portions of the plants and the cost of removal of nonradiological structures and materials. The disposal of spent nuclear fuel is covered separately by contracts with the U.S. Department of Energy (DOE). In 1990, GPU Energy submitted a report, in compliance with NRC regulations, setting forth a funding plan (employing the external sinking fund method) for the decommissioning of its nuclear reactors. Under this plan, GPU Energy intends to complete the funding for Oyster Creek and TMI-1 by the end of the plants' license terms, 2009 and 2014, respectively. The TMI-2 funding completion date is 2014, consistent with TMI-2's remaining in long-term storage and being decommissioned at the same time as TMI-1. Based on NRC studies, a comparable funding target was developed for TMI-2 which took the accident into account. The NRC funding targets (in 1996 dollars) are as follows: (Millions) Oyster TMI-1 TMI-2 Creek JCP&L $ 40 $ 64 $194 Met-Ed 81 128 - Penelec 40 64 - Total $161 $256 $194 The NRC continues to study the levels of these funding targets. Management cannot predict the effect that the results of this review will have on the funding targets. The funding targets, while not considered cost estimates, are reference levels designed to assure that licensees demonstrate adequate financial responsibility for decommissioning. While the NRC regulations address activities related to the removal of the radiological portions of the plants, they do not establish residual radioactivity limits nor do they address costs related to the removal of nonradiological structures and materials. In 1995, a consultant to GPUN performed site-specific studies of the TMI site, including both Units 1 and 2, and of Oyster Creek, that considered various decommissioning methods and estimated the cost of decommissioning the radiological portions and the cost of removal of the nonradiological portions of each plant, using the prompt removal/dismantlement method. GPUN management has reviewed the methodology and assumptions used in these studies, is in agreement with them, and believes the results are reasonable. They are as follows (in 1996 dollars): (Millions) Oyster GPU Energy TMI-1 TMI-2 Creek Radiological decommissioning $303 $367 $356 Nonradiological cost of removal 75 37 * 34 Total $378 $404 $390 * Net of $4 million spent as of June 30, 1996. 22 (Millions) Oyster JCP&L TMI-1 TMI-2 Creek Radiological decommissioning $ 76 $ 92 $356 Nonradiological cost of removal 19 9 * 34 Total $ 95 $101 $390 * Net of $1 million spent as of June 30, 1996. (Millions) Met-Ed TMI-1 TMI-2 Radiological decommissioning $151 $183 Nonradiological cost of removal 37 19 * Total $188 $202 * Net of $2 million spent as of June 30, 1996. (Millions) Penelec TMI-1 TMI-2 Radiological decommissioning $76 $ 92 Nonradiological cost of removal 19 9 * Total $95 $101 * Net of $1 million spent as of June 30, 1996. The ultimate cost of retiring GPU Energy's nuclear facilities may be different from the cost estimates contained in these site-specific studies. Such costs are subject to (a) the quarterly escalation of various cost elements (including, but not limited to, general inflation), (b) the further development of regulatory requirements governing decommissioning, (c) the technology available at the time of decommissioning, and (d) the availability of nuclear waste disposal facilities. The GPU Energy companies charge to expense and accrue retirement costs based on amounts being collected from customers and contribute these amounts to external trust funds. In addition, JCP&L has contributed amounts it wrote off for TMI-2 nuclear plant decommissioning in 1990, and Met-Ed and Penelec have contributed amounts they wrote off for TMI-2 nuclear plant decommissioning in 1991, to TMI-2's external trust (see TMI-2 Future Costs). Amounts deposited in external trusts, including the interest earned on these funds, are classified as Nuclear Decommissioning Trusts on the Balance Sheet. Currently, the GPU Energy companies are collecting retirement costs which are less than the estimates in the 1995 site-specific studies, and will not increase their accruals until increased collections are permitted in rates. (See TMI-1 and Oyster Creek and TMI-2 Future Costs for discussion of the Stipulation of Final Settlement for JCP&L.) Accounting for retirement costs may change based upon the FASB Exposure Draft discussed below. The Financial Accounting Standards Board (FASB) has issued an Exposure Draft titled "Accounting for Certain Liabilities Related to Closure or Removal of Long-Lived Assets," which includes nuclear plant retirement costs. If the Exposure Draft is adopted, Oyster Creek and TMI-1 future retirement costs 23 would have to be recognized as a liability immediately, rather than the current industry practice of accruing these costs in accumulated depreciation over the life of the plants. A regulatory asset for amounts probable of recovery through rates would also be established. Any amounts not probable of recovery through rates would have to be charged to expense. For TMI-2, a liability has already been recognized, based on the 1995 site-specific study (in 1996 dollars) since the plant is no longer operating (see TMI-2 Future Costs). The effective date of this accounting change is expected to be January 1, 1998. This Exposure Draft also applies to fossil-fueled and hydroelectric generating plants. For these assets, a liability will have to be recognized when a legal or constructive obligation exists to perform dismantlement or removal activities. TMI-1 and Oyster Creek: The New Jersey Board of Public Utilities (NJBPU) has granted JCP&L annual revenues for TMI-1 and Oyster Creek retirement costs of $2.5 million and $13.5 million, respectively. These annual revenues are based on both the NRC funding targets for radiological decommissioning costs and a site-specific study which was performed in 1988 for nonradiological costs of removal. A Stipulation of Final Settlement (Final Settlement), pending before the NJBPU, allows for annual increases in JCP&L's future collection of retirement costs of $2.7 million and $9 million for TMI-1 and Oyster Creek, respectively, beginning in 1998. These annual increases are based on the 1995 site-specific study estimates. (See discussion of the NJBPU's Final Settlement in RATE MATTERS, Management's Discussion and Analysis.) The Pennsylvania Public Utility Commission (PaPUC) has granted Met-Ed annual revenues for TMI-1 retirement costs of $8.5 million based on both the NRC funding target for radiological decommissioning costs and the 1988 site-specific study for nonradiological costs of removal. The PaPUC also granted Penelec annual revenues of $4.2 million for its share of TMI-1 retirement costs, on a basis consistent with that granted Met-Ed. Provision for the future expenditure of these funds has been made in accumulated depreciation, amounting to $84 million (JCP&L, Met-Ed and Penelec's shares are $26 million, $42 million and $16 million, respectively) for TMI-1 and $152 million for Oyster Creek at June 30, 1996. TMI-1 and Oyster Creek retirement costs are charged to depreciation expense over the expected service life of each nuclear plant, and amounted to $7 million (JCP&L, Met-Ed and Penelec's shares are $1 million, $4 million and $2 million, respectively) and $7 million, respectively, for the six months ended June 30, 1996. Management believes that any TMI-1 and Oyster Creek retirement costs, in excess of those currently recognized for ratemaking purposes, should be recoverable under the current ratemaking process. TMI-2 Future Costs: The estimated liabilities for TMI-2 Future Costs (reflected as Three Mile Island Unit 2 Future Costs on the Balance Sheet) as of June 30, 1996 and December 31, 1995 are as follows: 24 (Millions) GPU JCP&L Met-Ed Penelec June 30, 1996 Radiological Decommissioning $367 $ 92 $183 $ 92 Nonradiological Cost of Removal 37* 9 19 9 Incremental Monitored Storage 17 4 9 4 Total $421 $105 $211 $105 * Net of $4 million (JCP&L, Met-Ed and Penelec's shares are $1 million, $2 million and $1 million, respectively) spent as of June 30, 1996. (Millions) GPU JCP&L Met-Ed Penelec December 31, 1995 Radiological Decommissioning $358 $90 $179 $89 Nonradiological Cost of Removal 37* 9 19 9 Incremental Monitored Storage 18 4 9 5 Total $413 $103 $207 $103 * Net of $3 million spent (JCP&L, Met-Ed and Penelec's shares are $.75 million, $1.5 million and $.75 million, respectively) as of December 31, 1995. Offsetting the $421 million liability at June 30, 1996 is $273 million (JCP&L, Met-Ed and Penelec's shares are $51 million, $147 million and $75 million, respectively) which is probable of recovery from customers and included in Three Mile Island Unit 2 Deferred Costs on the Balance Sheet, and $157 million (JCP&L, Met-Ed and Penelec's shares are $65 million, $64 million and $28 million, respectively) in trust funds for TMI-2 and included in Nuclear Decommissioning Trusts on the Balance Sheet. Earnings on trust fund deposits are included in amounts shown on the Balance Sheet under Three Mile Island Unit 2 Deferred Costs. TMI-2 decommissioning costs charged to depreciation expense for the six months ended June 30, 1996 amounted to $7 million (JCP&L, Met-Ed and Penelec's shares are $1.6 million, $5 million and $0.4 million, respectively). The NJBPU and PaPUC have granted JCP&L and Met-Ed, respectively, decommissioning revenues for the remainder of the NRC funding target and allowances for the cost of removal of nonradiological structures and materials. The Final Settlement pending before the NJBPU adjusts JCP&L's future revenues for retirement costs based on the 1995 site-specific study estimates. Based on Met-Ed's rate order, Penelec has recorded a regulatory asset for that portion of such costs which it believes to be probable of recovery. At June 30, 1996 the accident-related portion of TMI-2 radiological decommissioning costs is considered to be $64 million (JCP&L, Met-Ed and Penelec's shares are $16 million, $32 million and $16 million, respectively), which is the difference between the 1995 TMI-1 and TMI-2 site-specific study estimates (in 1996 dollars) of $303 million and $367 million, respectively (JCP&L, Met-Ed and Penelec's shares are $76 million and $92 million, $151 million and $183 million, and $76 million and $92 million, respectively). 25 In connection with rate case resolutions at the time, JCP&L, Met-Ed and Penelec made contributions to irrevocable external trusts relating to their shares of the accident-related portions of the decommissioning liability. In 1990, JCP&L contributed $15 million and in 1991, Met-Ed and Penelec contributed $40 million and $20 million respectively, to irrevocable external trusts. These contributions were not recovered from customers and have been expensed. The GPU Energy companies will not pursue recovery from customers for any of these amounts contributed in excess of the $64 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. As a result of TMI-2's entering long-term monitored storage in 1993, GPU Energy is incurring incremental storage costs of approximately $1 million (JCP&L, Met-Ed and Penelec's shares are $.25 million, $.5 million, and $.25 million, respectively) annually. GPU Energy estimates that the remaining storage costs will total $17 million through 2014, the expected retirement date of TMI-1. JCP&L's rates reflect its share of these costs. INSURANCE The GPU Companies have insurance (subject to retentions and deductibles) for their operations and facilities including coverage for property damage, liability to employees and third parties, and loss of use and occupancy (primarily incremental replacement power costs). There is no assurance that the GPU Companies will maintain all existing insurance coverages. Losses or liabilities that are not completely insured, unless allowed to be recovered through ratemaking, could have a material adverse effect on the financial position of the GPU 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 the GPU Companies' liability to third parties for a nuclear incident at one of their sites to approximately $8.9 billion. Coverage for the first $200 million of such liability is provided by private insurance. The remaining coverage, or secondary financial protection, is provided by retrospective premiums payable by all nuclear reactor owners. Under secondary financial protection, a nuclear incident at any licensed nuclear power reactor in the country, including those owned by the GPU Companies, could result in assessments of up to $79 million per incident for each of GPU Companies' two operating reactors, subject to an 26 annual maximum payment of $10 million per incident per reactor. In addition to the retrospective premiums payable under Price-Anderson, the GPU Companies are also subject to retrospective premium assessments of up to $68 million (JCP&L, Met-Ed and Penelec's shares are $41 million, $18 million and $9 million, respectively) in any one year under insurance policies applicable to nuclear operations and facilities. The GPU Companies have insurance coverage for incremental replacement power costs resulting from an accident-related outage at their nuclear plants. Coverage commences after the first 21 weeks of the outage and continues for three years beginning at $1.8 million for Oyster Creek and $2.6 million for TMI-1 per week for the first year, decreasing to 80 percent of such amounts for years two and three. COMPETITION AND THE CHANGING REGULATORY ENVIRONMENT Nonutility Generation Agreements: Pursuant to the requirements of the federal Public Utility Regulatory Policies Act (PURPA) and state regulatory directives, the GPU Energy companies have entered into power purchase agreements with nonutility generators (NUGs) for the purchase of energy and capacity for periods of up to 25 years each for JCP&L and Penelec, and 26 years for Met-Ed. The majority of these agreements contain certain contract limitations and subject the NUGs to penalties for nonperformance. While a few of these facilities are dispatchable, most are must-run and generally obligate the GPU Energy companies to purchase, at the contract price, the output up to the contract limits. As of June 30, 1996, facilities covered by these agreements having 1,624 MW (JCP&L, Met-Ed and Penelec's shares are 892 MW, 335 MW and 397 MW, respectively) of capacity were in service. Actual payments to NUGs from 1993 through 1995, and estimated payments from 1996 through 2000, assuming that all facilities which have existing agreements, or which have obtained orders granting them agreements, enter service, are as follows: Payments Under NUG Agreements (Millions) Total JCP&L Met-Ed Penelec 1993 $ 491 $ 292 $ 95 $ 104 1994 528 304 101 123 1995 670 381 131 158 * 1996 701 362 157 182 * 1997 697 373 140 184 * 1998 717 380 145 192 * 1999 761 387 143 231 * 2000 810 399 145 266 * Estimate (1996 amounts are comprised of actual payments from January through May and estimates for the remainder of the year.) Of these amounts, payments to the projects which are not in service at June 30, 1996 are estimated as follows: 27 Payments Under NUG Agreements Not In Service (Millions) Total JCP&L Met-Ed Penelec 1997 $ - $ - $ - $ - 1998 3 3 - - 1999 33 3 - 30 2000 59 4 - 55 These amounts for the years 1998 through 2000 do not include estimated payments under purchase power agreements totaling 457 MW being negotiated by Penelec and Met-Ed with the AES Power Company (AES). AES has acquired the interests of the developers of the proposed York County and Blue Mountain facilities, and is negotiating for the interests of the Altoona facility. Met-Ed and Penelec have agreed to pay restructuring costs and conduct negotiations with AES for new, competitively priced power purchase agreements. If these negotiations are unsuccessful, Met-Ed has agreed to pay AES an additional $5 million for the proposed York County facility, and $23 million for the proposed Blue Mountain facility. Penelec has agreed to pay AES up to $8.3 million if negotiations for the proposed 80 MW Altoona facility are unsuccessful. (See Managing Nonutility Generation in Management's Discussion and Analysis). In the year 2000, NUG agreements, in the aggregate, will provide approximately 2,189 MW (JCP&L 902 MW, Met-Ed 712 MW and Penelec 575 MW) of capacity and energy to GPU Energy, at varying prices. The emerging competitive generation market has created uncertainty regarding the forecasting of the companies' energy supply needs which has caused GPU Energy to change its supply strategy to seek shorter-term agreements offering more flexibility. Due to the current availability of excess capacity in the marketplace, the cost of near- to intermediate-term (i.e., one to eight years) energy supply from generation facilities now in service is currently and is expected to continue to be priced below the costs of new supply sources, at least for some time. The projected cost of energy from new generation supply sources has also decreased due to improvements in power plant technologies and reduced forecasted fuel prices. As a result of these developments, the rates under virtually all of GPU Energy's NUG agreements are substantially in excess of current and projected prices from alternative sources. GPU Energy is seeking to reduce the above market costs of these NUG agreements by (1) attempting to convert must-run agreements to dispatchable agreements; (2) attempting to renegotiate prices of the agreements; (3) offering contract buyouts while seeking to recover the costs through the companies' energy adjustment clauses (see Managing Nonutility Generation, in Management's Discussion and Analysis of Financial Condition and Results of Operations) and (4) initiating proceedings before federal and state agencies, and in the courts, where appropriate. In addition, GPU Energy intends to avoid, to the maximum extent practicable, entering into any new NUG agreements 28 that are not needed or not consistent with current market pricing and are supporting legislative efforts to repeal PURPA. These efforts may result in claims against the GPU Companies for substantial damages. There can, however, be no assurance as to the extent to which GPU Energy's efforts will be successful in whole or in part. GPU Energy has been granted recovery of its NUG costs (including substantially all buyout costs) from customers by the PaPUC and NJBPU and expects to continue to pursue such recovery. There can be no assurance that GPU Energy will continue to be able to recover similar costs which may be incurred in the future. The GPU Companies currently estimate that for 1998, when substantially all of these NUG projects are scheduled to be in service, above market payments (benchmarked against the expected cost of electricity produced by a new gas-fired combined cycle facility) will range from $190 million to $280 million (JCP&L $85 to $130 million; Met-Ed $40 million to $60 million; and Penelec $65 million to $90 million). The amount of these estimated above-market payments may increase or decrease substantially based upon, among other things, payment escalations in the contract terms, changes in fuel prices and changes in the capital and operating cost of new generating equipment. Regulatory Assets and Liabilities: In accordance with Statement of Financial Accounting Standards No. 71 (FAS 71), "Accounting for the Effects of Certain Types of Regulation," the GPU Companies' financial statements reflect assets and costs based on current cost-based ratemaking regulation. Continued accounting under FAS 71 requires that the following criteria be met: a) A utility's rates for regulated services provided to its customers are established by, or are subject to approval by, an independent third-party regulator; b) The regulated rates are designed to recover specific costs of providing the regulated services or products; and c) In view of the demand for the regulated services and the level of competition, direct and indirect, it is reasonable to assume that rates set at levels that will recover a utility's costs can be charged to and collected from customers. This criteria requires consideration of anticipated changes in levels of demand or competition during the recovery period for any capitalized costs. A utility's operations can cease to meet those criteria for various reasons, including deregulation, a change in the method of regulation, or a change in the competitive environment for the utility's regulated services. Regardless of the reason, a utility whose operations cease to meet those criteria should discontinue application of FAS 71 and report that discontinuation by eliminating from its Balance Sheet the effects of any actions of regulators that had been recognized as assets and liabilities pursuant to FAS 71, but which would not have been recognized as assets and liabilities by enterprises in general. 29 In accordance with the provisions of FAS 71, the GPU Energy companies have deferred certain costs pursuant to actions of the NJBPU, PaPUC and Federal Energy Regulatory Commission (FERC) and are recovering, or expect to recover, such costs in electric rates charged to customers. Regulatory assets are reflected in the Deferred Debits and Other Assets section of the Consolidated Balance Sheet, and regulatory liabilities are reflected in the Deferred Credits and Other Liabilities section of the Consolidated Balance Sheet. Regulatory assets and liabilities, as of June 30, 1996 and December 31, 1995, were as follows: GPU and Subsidiary Companies Assets (In Thousands) June 30, December 31, 1996 1995 Income taxes recoverable/refundable through future rates $ 501,189 $ 527,584 TMI-2 deferred costs 365,608 368,712 NUG contract termination costs 202,738 84,132 Unamortized property losses 102,891 105,729 Other postretirement benefits 68,457 58,362 N.J. unit tax 48,750 51,518 Unamortized loss on reacquired debt 47,764 50,198 Load and demand-side management programs 45,843 48,071 DOE enrichment facility decommissioning 36,932 38,519 Manufactured gas plant remediation 30,976 29,608 Nuclear fuel disposal fee 24,384 21,946 N.J. low-level radwaste disposal 19,051 21,778 Storm damage 20,621 18,294 Other 11,809 15,257 Total $1,527,013 $1,439,708 Liabilities (In Thousands) June 30, December 31, 1996 1995 Income taxes recoverable/refundable through future rates $91,577 $94,931 Other 2,842 3,068 Total $94,419 $97,999 Assets (In Thousands) JCP&L June 30, December 31, 1996 1995 Income taxes recoverable/refundable through future rates $132,038 $134,787 TMI-2 deferred costs 133,761 138,472 NUG contract termination costs 139,000 17,482 Unamortized property losses 97,190 100,176 Other postretirement benefits 38,148 32,390 N.J. unit tax 48,750 51,518 Unamortized loss on reacquired debt 32,862 34,285 Load and demand side management programs 45,843 48,071 DOE enrichment facility decommissioning 23,508 24,503 Manufactured gas plant remediation 30,976 29,608 Nuclear fuel disposal fee 25,863 23,165 N.J. low-level radwaste disposal 19,051 21,778 Storm damage 20,621 18,294 Other 6,986 10,199 Total $794,597 $684,728 30 Liabilities (In Thousands) JCP&L June 30, December 31, 1996 1995 Income taxes recoverable/refundable through future rates $34,701 $36,343 Other 969 1,254 Total $35,670 $37,597 Assets (In Thousands) Met-Ed June 30, December 31, 1996 1995 Income taxes recoverable/refundable through future rates $157,455 $178,513 TMI-2 deferred costs 148,710 149,004 NUG contract termination costs 63,738 66,650 Unamortized property losses 3,321 3,273 Other postretirement benefits 30,309 25,972 Unamortized loss on reacquired debt 6,584 6,945 DOE enrichment facility decommissioning 8,949 9,344 Nuclear fuel disposal fee (1,146) (1,025) Other 1,090 1,299 Total $419,010 $439,975 Liabilities (In Thousands) June 30, December 31, 1996 1995 Income taxes recoverable/refundable through future rates $24,027 $24,765 Other 1,808 1,696 Total $25,835 $26,461 Assets (In Thousands) Penelec June 30, December 31, 1996 1995 Income taxes recoverable/refundable through future rates $211,696 $214,284 TMI-2 deferred costs 83,137 81,236 Unamortized property losses 2,380 2,280 Unamortized loss on reacquired debt 8,318 8,968 DOE enrichment facility decommissioning 4,475 4,672 Nuclear fuel disposal fee (333) (194) Other 3,733 3,759 Total $313,406 $315,005 Liabilities (In Thousands) June 30, December 31, 1996 1995 Income taxes recoverable/refundable through future rates $32,849 $33,823 Other 65 118 Total $32,914 $33,941 31 Income taxes recoverable/refundable through future rates: Represents amounts deferred due to the implementation of FAS 109, "Accounting for Income Taxes," in 1993. TMI-2 deferred costs: Represents costs that are recoverable through rates for GPU Energy's remaining investment in the plant and fuel core, radiological decommissioning and the cost of removal of nonradiological structures and materials in accordance with the 1995 site-specific study (in 1996 dollars) and JCP&L's share of long-term monitored storage costs. For additional information, see TMI-2 Future Costs. NUG contract termination costs: Represents amounts incurred for terminating power purchase contracts with NUGs, for which rate recovery has been granted or is probable (see Managing Nonutility Generation, in Management's Discussion and Analysis of Financial Condition and Results of Operations). Unamortized property losses: Consists mainly of costs associated with JCP&L's Forked River Project, which are included in rates. Other postretirement benefits: Includes costs associated with the adoption of FAS 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," which are deferred in accordance with Emerging Issues Task Force Issue 92-12, "Accounting for OPEB Costs by Rate-Regulated Enterprises." N.J. unit tax: Represents certain state taxes for which JCP&L received NJBPU approval in 1993 to recover, with interest, over a ten-year period. Unamortized loss on reacquired debt: Represents premiums and expenses incurred in the early redemption of long-term debt. In accordance with FERC regulations, reacquired debt costs are amortized over the remaining original life of the retired debt. Load and demand-side management (DSM) programs: Consists of load management costs that are currently being recovered, with interest, through JCP&L's retail base rates pursuant to a 1993 NJBPU order, and other DSM program expenditures that are recovered annually, with interest. Also includes provisions for lost revenues between base rate cases and performance incentives. DOE enrichment facility decommissioning: Represents payments to the DOE over a 15-year period beginning in 1994, which are currently being collected through the GPU Energy companies' energy adjustment clauses. Manufactured gas plant remediation: Consists of costs which are probable of recovery, with interest, associated with the investigation and remediation of several gas manufacturing plants. For additional information, see ENVIRONMENTAL MATTERS. Nuclear fuel disposal fee: Represents amounts recoverable through rates for estimated future disposal costs for spent nuclear fuel at Oyster Creek and TMI-1 in accordance with the Nuclear Waste Policy Act of 1982. N.J. low-level radwaste disposal: Represents the accrual of the estimated assessment for the siting of a disposal facility for low-level waste from Oyster Creek, less amortization as allowed in JCP&L's rates. 32 Storm damage: Relates to incremental noncapital costs associated with various storms in the JCP&L service territory that are not recoverable through insurance. These amounts were deferred based upon past rate recovery precedent. An annual amortization amount is included in JCP&L's retail base rates and is charged to expense. Amounts related to the decommissioning of TMI-1 and Oyster Creek, which are not included in Regulatory Assets on the Balance Sheet, are separately disclosed in NUCLEAR PLANT RETIREMENT COSTS. GPU Energy continues to be subject to cost-based ratemaking regulation. However, in the event that either all or a portion of its operations are no longer subject to these provisions, the related regulatory assets, net of regulatory liabilities, would have to be written off. In addition, any above market costs of purchased power commitments would have to be expensed (see Nonutility Generation Agreements), and additional depreciation expense would have to be recorded for any differences created by the use of a regulated depreciation method that is different from that which would have been used under generally accepted accounting principles for enterprises in general. Under Financial Accounting Standards No. 121 (FAS 121), "Accounting for the Impairment of Long-Lived Assets," described below, the GPU Companies would be required to recognize impairment losses for long-lived assets (including uneconomical generation plant), identifiable intangibles and capital leases if the carrying amounts of those assets are greater than estimated cash flows expected to be generated from the use and eventual disposition of the assets. The experience gained from the deregulation of the telecommunications industry indicates that substantial write-offs may result with the discontinuation of FAS 71. At this time, the Company is unable to determine when and to what extent FAS 71 may no longer be applicable. In 1995, the FASB issued FAS 121, which is effective for fiscal years beginning after June 15, 1995. FAS 121 requires that regulatory assets meet the recovery criteria of FAS 71 on an ongoing basis in order to avoid a writedown. In addition, FAS 121 requires that long-lived assets, identifiable intangibles, capital leases and goodwill be reviewed for impairment whenever events occur or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. The implementation of FAS 121 by the GPU Companies in 1995 did not have an impact on results of operations because management believes the carrying amounts of all assets are probable of recovery from customers. However, as GPU Energy enters a more competitive environment, some assets could be subject to impairment, thereby necessitating writedowns, which could have a material adverse effect on the GPU Companies' results of operations and financial condition. ENVIRONMENTAL MATTERS As a result of existing and proposed legislation and regulations, and ongoing legal proceedings dealing with environmental matters, including but not limited to acid rain, water quality, air quality, global warming, electromagnetic fields, and storage and disposal of hazardous and/or toxic wastes, the GPU Companies may be required to incur substantial additional 33 costs to construct new equipment, modify or replace existing and proposed equipment, remediate, decommission or clean up waste disposal and other sites currently or formerly used by it, including formerly owned manufactured gas plants, mine refuse piles and generating facilities, and with regard to electromagnetic fields, postpone or cancel the installation of, or replace or modify, utility plant, the costs of which could be material. To comply with the federal Clean Air Act Amendments of 1990 (Clean Air Act), GPU Energy expects to spend up to $410 million (JCP&L, Met-Ed and Penelec's shares are $42 million, $163 million, and $205 million, respectively) for air pollution control equipment by the year 2000, of which approximately $238 million (JCP&L, Met-Ed and Penelec's shares are $42 million, $95 million, and $101 million, respectively) has already been spent. In developing their least-cost plan to comply with the Clean Air Act, the GPU Companies will continue to evaluate major capital investments compared to participation in the emission allowance market and the use of low-sulfur fuel or retirement of facilities. In 1994, the Ozone Transport Commission (OTC), consisting of representatives of 12 northeast states (including New Jersey and Pennsylvania) and the District of Columbia, proposed reductions in nitrogen oxide (Nox) emissions it believes necessary to meet ambient air quality standards for ozone and the statutory deadlines set by the Clean Air Act. GPU Energy expects that the U.S. Environmental Protection Agency (EPA) will approve state implementation plans consistent with the proposal, and that as a result, it will spend an estimated $60 million (Met-Ed and Penelec's shares are $14 million and $46 million, respectively) (included in the Clean Air Act total), beginning in 1997, to meet the seasonal reductions agreed upon by the OTC. The OTC has stated that it anticipates that additional Nox reductions will be necessary to meet the Clean Air Act's 2005 National Ambient Air Quality Standard for ozone. However, the specific requirements that will have to be met at that time have not been finalized. GPU Energy is unable to determine what additional costs, if any, will be incurred. The GPU Companies have been formally notified by the EPA and state environmental authorities that they are among the potentially responsible parties (PRPs) who may be jointly and severally liable to pay for the costs associated with the investigation and remediation at 11 hazardous and/or toxic waste sites, broken down by company as follows. (In some cases, more than one GPU Company is named for a given site): JCP&L MET-ED PENELEC GPUN GPU PRPs 6 4 2 1 1 In addition, the GPU Energy 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. The GPU Energy companies have also been named in lawsuits requesting damages for hazardous and/or toxic substances allegedly released into the environment. The ultimate cost of remediation will depend upon changing circumstances as site investigations continue, including (a) the existing technology required for site cleanup, (b) the remedial action plan chosen and (c) the extent of site contamination and the portion attributed to the GPU Companies. 34 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 Consent Order, which became effective April 21, 1995, and is negotiating with the PaDEP to determine a schedule for long-term remediation based on future operating scenarios, including reboilering the station using fluidized bed combustion technology. This remediation approach would allow the existing refuse piles to be mixed with the ash produced by the reboilered station, at an estimated cost of approximately $2.25 million. Negotiations with the PaDEP indicate that this approach would be acceptable, and as of June 30, 1996, Penelec recorded an estimated environmental liability of $2.25 million on its Balance Sheet. If the station is not reboilered using such technology, remediation of the site is estimated to range from $12 million to $25 million. These costs are subject to uncertainties based on the extent of remediation required and available technologies. If Penelec decides against reboilering the station using fluidized bed combustion technology, an additional liability of $9.75 million will be booked at that time. No decision has been made to reboiler Seward station, and the associated capital expenditure has not been included in the GPU Companies' capital forecasts. Penelec is required to notify the PaDEP by December 31, 1997 whether or not it will reboiler the station. JCP&L has entered into agreements with the New Jersey Department of Environmental Protection (NJDEP) for the investigation and remediation of 17 formerly owned manufactured gas plant (MGP) sites. JCP&L has also entered into various cost-sharing agreements with other utilities for most of the sites. As of June 30, 1996, JCP&L has spent approximately $21 million in connection with these sites. In addition to funds already spent, JCP&L has recorded an estimated environmental liability of $28.5 million relating to future costs of these sites, as well as two other properties. The additional estimated liability is based upon ongoing site investigations and remediation efforts, including capping the sites and pumping and treatment of ground water. However, if the periods over which the remediation is currently expected to be performed are lengthened, JCP&L believes that it is reasonably possible that the additional future costs may increase from $28.5 million to $50 million. Estimates of these costs are subject to significant uncertainties because JCP&L does not presently own or control most of these sites; the environmental standards have changed in the past and are subject to future change; the accepted technologies are subject to further development; and the related costs for these technologies are uncertain. If JCP&L is required to utilize different remediation methods, the additional costs could be materially in excess of $50 million. In 1993, the NJBPU approved a mechanism similar to JCP&L's Levelized Energy Adjustment Clause (LEAC) for the recovery of future MGP remediation costs. However, the NJBPU later directed that recovery of MGP remediation costs cease until such costs equaled the funds already collected from customers. At June 30, 1996, remediation costs exceeded collections by approximately $3 million. JCP&L will continue to defer these remediation costs and accrue interest as previously authorized by the NJBPU. The Final Settlement pending before the NJBPU allows JCP&L to continue this accounting treatment and establish an adjustment clause for the recovery of remediation costs in the future. 35 JCP&L is pursuing reimbursement of the remediation costs from its insurance carriers. In 1994, JCP&L filed a complaint with the Superior Court of New Jersey against several of its insurance carriers, relative to these MGP sites. JCP&L requested the Court to order the insurance carriers to reimburse JCP&L for all amounts it has paid, or may be required to pay, in connection with the remediation of the sites. Pretrial discovery has begun in this case. OTHER COMMITMENTS AND CONTINGENCIES In June and July 1996, management offered voluntary enhanced retirement programs to more than 750 bargaining and 400 non-bargaining employees. If between 60% and 80% of the eligible employees accept the offer, depending on the age and years of service of those employees, the program could result in a 1996 pre-tax charge to earnings of between $90 million and $125 million in the third quarter. The GPU Companies' construction programs, for which substantial commitments have been incurred and which extend over several years, contemplate expenditures of $471 million (JCP&L, Met-Ed, Penelec and GPUS's shares are $242 million, $88 million, $124 million and $17 million, respectively) during 1996. As a consequence of reliability, licensing, environmental and other requirements, additions to utility plant may be required relatively late in their expected service lives. If such additions are made, current depreciation allowance methodology may not make adequate provision for the recovery of such investments during their remaining lives. Management intends to seek recovery of such costs through the ratemaking process, but recognizes that recovery is not assured. GPU Energy has entered into long-term contracts with nonaffiliated mining companies for the purchase of coal for certain generating stations in which it has ownership interests. The contracts, which expire at various dates between 1996 and 2004, require the purchase of either fixed or minimum amounts of the stations' coal requirements. The price of the coal under the contracts is based on adjustments of indexed cost components. One of Penelec's contracts for the Homer City station also includes a provision for the payment of postretirement benefit costs. GPU Energy's share of the cost of coal purchased under these agreements is expected to aggregate $116 million (JCP&L, Met-Ed and Penelec's shares are $22 million, $18 million and $76 million, respectively) for 1996. JCP&L has entered into agreements with other utilities to purchase capacity and energy for various periods through 2004. These agreements will provide for up to 734 MW in 1996, declining to 527 MW in 1999 and 345 MW in 2004. Payments pursuant to these agreements are estimated to be $164 million in 1996, $145 million in 1997, $128 million in 1998, $104 million in 1999 and $84 million in 2000. In June 1996, JCP&L entered into an eight year agreement with Cleveland Electric Illuminating Corporation (CEI) to lease CEI's 351 MW share of the Seneca Pumped Storage Hydro Electric plant. Penelec owns 20% of the Seneca plant. The future minimum rental payments under the lease are fixed and 36 escalate over the lease term based on expected inflation. Rental payments over the next five years are as follows: $11 million in 1996, $19 million in 1997, $19 million in 1998, $20 million in 1999 and $20 million in 2000. Through the lease term, future minimum rental payments will total approximately $184 million. For the six months ended June 30, 1996, rent expense associated with this lease was $1.5 million. Genco is constructing a 141 MW gas-fired combustion turbine at JCP&L's Gilbert generating station. This estimated $50 million project, of which $36 million has been spent, is expected to be in service by the end of 1996. In 1995, the NJDEP issued an air permit for the facility based, in part, on the NJBPU's 1994 order which found that New Jersey's Electric Facility Need Assessment Act is not applicable and that construction of this facility, without a market test, is consistent with New Jersey energy policies. An industry trade group representing NUGs has appealed the NJDEP's issuance of the air permit and the NJBPU's order to the Appellate Division of the New Jersey Superior Court. There can be no assurance as to the outcome of this proceeding. In 1993, the NJBPU instituted a generic proceeding to address the appropriate recovery of capacity costs associated with electric utility power purchases from NUG projects. The proceeding was initiated, in part, to respond to contentions of the Division of the Ratepayer Advocate that by permitting utilities to recover such costs through the levelized energy adjustment clause (LEAC), an excess or "double" recovery may result when combined with the recovery of the utilities' embedded capacity costs through their base rates. In 1994, the NJBPU ruled that the LEAC periods prior to March 1991 were considered closed but subsequent LEAC periods remain open for further investigation. JCP&L estimates that the potential refund liability for the LEAC periods from March 1991 through February 1996, the end of the most recent LEAC period, is $55 million. JCP&L, the NJBPU staff and the Ratepayer Advocate have entered into a Final Settlement of this proceeding, which is now pending before the NJBPU (See RATE MATTERS in Management's Discussion and Analysis). There can be no assurance as to the outcome of this proceeding. JCP&L's two operating nuclear units are subject to the NJBPU's annual nuclear performance standard. Operation of these units at an aggregate annual generating capacity factor below 65% or above 75% would trigger a charge or credit based on replacement energy costs. At current cost levels, the maximum annual effect on net income of the performance standard charge at a 40% capacity factor would be approximately $10 million before tax. While a capacity factor below 40% would generate no specific monetary charge, it would require the issue to be brought before the NJBPU for review. The annual measurement period, which begins in March of each year, coincides with that used for the LEAC. Legislation has been proposed in New Jersey which would require the NJBPU to conduct a formal investigation whenever a nuclear plant is, or is anticipated to be, out of service for more than three months, to determine whether costs associated with the outage should be excluded from rates. As of June 30, 1996, approximately 52% of the GPU Companies' workforce was represented by unions for collective bargaining purposes. JCP&L employees' collective bargaining agreement, covering 44% of the GPU Companies' union employees, is due to expire in October 1996. 37 Niagara Mohawk Power Corporation (NIMO) has filed with the New York Public Service Commission a proposed restructuring plan that it claims may be needed to avoid seeking reorganization under Chapter XI of the Bankruptcy Code. GPU International, Inc. has ownership interests, with an aggregate book value of approximately $33 million, in three NUG projects which have long-term purchase power agreements with NIMO. In the restructuring plan, NIMO has insisted on renegotiating all of its contracts with NUGs, and has claimed that it has the right to use eminent domain to condemn NUG facilities, if such negotiations are not successful. There can be no assurance as to the outcome of this matter. NIMO has also initiated actions in federal and state court seeking to invalidate numerous NUG contracts or limit the amount of annual generation produced by the NUG, and is withholding allegedly "excess" payments made in respect of "over generation" under these contracts, including the contracts for one of the GPU International, Inc.'s projects. NIMO alleges to have overpaid GPU International, Inc. approximately $7 million for the years 1993 through 1995. GPU International, Inc. has filed motions to dismiss the complaint and is vigorously defending these actions. There can be no assurance as to the outcome of these proceedings. At June 30, 1996, the GPU International Group had investments totaling $638 million in facilities located in several foreign countries. Although management attempts to mitigate the risk of investing in certain foreign countries by securing political risk insurance, the GPU International Group faces additional risks inherent to operating in such locations, including foreign currency fluctuations (see GPU INTERNATIONAL GROUP in Management's Discussion and Analysis of Financial Condition and Results of Operations). During the normal course of the operation of their businesses, in addition to the matters described above, the GPU Companies are from time to time involved in disputes, claims and, in some cases, as defendants in litigation in which compensatory and punitive damages are sought by the public, customers, contractors, vendors and other suppliers of equipment and services and by employees alleging unlawful employment practices. While management does not expect that the outcome of these matters will have a material effect on the GPU Companies' financial position or results of operations, there can be no assurance that this will continue to be the case. 2. ACQUISITION OF MIDLANDS ELECTRICITY PLC In May 1996, GPU and Cinergy Corp. (Cinergy) formed Avon Energy Partners plc (Avon), a wholly owned subsidiary of Avon Energy Partners Holdings, Inc. (Holdings). Holdings is a 50/50 joint venture formed to acquire Midlands Electricity plc (Midlands), an English regional electric company (REC). Avon has made a successful cash tender offer of approximately $2.6 billion for the outstanding shares of Midlands. GPU's 50% interest in Holdings is held by EI UK Holdings, Inc. (EI UK), a wholly-owned subsidiary of GPU Electric, Inc. EI UK and Cinergy have each invested approximately $500 million in Holdings. EI UK has borrowed approximately $500 million through a GPU guaranteed five-year bank term loan facility to fund its investment in Holdings. Holdings has borrowed approximately $1.6 billion through a non- recourse term loan and revolving credit facility to provide for the balance of the acquisition price. 38 Midlands, one of 12 RECs in the United Kingdom, distributes and supplies electricity to 2.2 million customers in England in an area with a population of five million. Midlands also owns a generation business that produces electricity domestically and internationally and a gas supply company that provides natural gas service to 8,000 customers in England. EI UK accounts for its 50% investment in Holdings using the equity method of accounting (see Note 3 - GPU INTERNATIONAL GROUP EQUITY INVESTMENTS). Accordingly, EI UK's investment is reported on GPU's consolidated balance sheet in GPU International Group investments, net, and its proportionate share of earnings from Holdings is reflected on the consolidated income statement in Other Income and Deductions. Avon beneficially owned approximately 28% and 100% of the outstanding common stock of Midlands at May 31, and June 30, respectively. As of June 30, 1996, Avon had purchased Midlands shares at a cost of approximately $2.5 billion. Accordingly, EI UK has recorded its proportionate share of Holdings' second quarter income, which is reflected in GPU's results of operations. The acquisition of Midlands by Avon is accounted for under the purchase method of accounting. The total acquisition cost will exceed the preliminary estimated value of net assets by approximately $1.7 billion. This excess amount is considered goodwill and is amortized to expense by Avon on a straight line basis over 40 years. The amount of goodwill will be revised by the end of 1996 when the final valuation of net assets is completed. 3. GPU INTERNATIONAL GROUP EQUITY INVESTMENTS The GPU International Group has investments in joint ventures and affiliates involved in power production, transmission and distribution in the United States and foreign countries. The GPU International Group uses the equity method of accounting for its investments in which it has the ability to exercise significant influence (generally evidenced by a 20% to 50% ownership interest). Brooklyn Energy, LP, in which the GPU International Group currently has a 75% ownership interest, is being accounted for under the equity method of accounting because of agreements that may reduce the GPU International Group's ownership interest to 27% based on actual plant performance. Investments accounted for under the equity method follow: Ownership Investment Location of Operations Percentage Brooklyn Energy, LP Canada 75% Avon Energy Partners Holdings, Inc. (Midlands) United Kingdom 50% Solaris Power Australia 50% Prime Energy, LP United States 50% Onondaga Cogen, LP United States 50% Pasco Cogen, Ltd. United States 50% Lake Cogen, Ltd. United States 42% FPB Cogeneration Partners, LP United States 30% Termobarranquilla S.A. Colombia 29% Polsky Energy Corporation United States & Canada 25% Selkirk Cogeneration Partners, LP United States 19% EnviroTech Investment Fund United States 10% Project Orange Associates, LP United States 4% Ada Cogeneration, LP United States 1% OLS Power, LP United States 1% 39 Summarized financial information for the GPU International Group's equity investments, including both the GPU International Group's ownership interests and the non-ownership interests, is as follows: (In Thousands) Balance Sheet Data 6/30/96 12/31/95 Current Assets $ 738,886 $ 248,012 Noncurrent Assets 5,848,621 1,962,238 Current Liabilities (1,213,774) (220,796) Noncurrent Liabilities (4,125,426) (1,693,669) Net Assets 1,248,307 295,785 GPU International Group's Equity in Net Assets $ 615,276 $ 25,341 (In Thousands) Six Months Ended Earnings Data 6/30/96 6/30/95 Revenue $ 1,451,068 $ 194,932 Operating Income 208,093 36,344 Net Income/(Loss) 233,321 (4,084) GPU International Group's Equity in Net Income/(Loss) $ 2,595 $ (1,110) As of June 30, 1996, the amount of investments accounted for under the equity method included goodwill in the amount of approximately $1.7 billion, which is amortized to expense over periods not exceeding 40 years. 40 GPU, Inc. and Subsidiary Companies Management's Discussion and Analysis of Financial Condition and Results of Operations GPU, Inc. (GPU or the Company) (formerly General Public Utilities Corporation) owns all the outstanding common stock of three electric utilities -- Jersey Central Power & Light Company (JCP&L), Metropolitan Edison Company (Met-Ed) and Pennsylvania Electric Company (Penelec) (collectively GPU Energy). The Company also owns all the common stock of Energy Initiatives, Inc. (known as GPU International, Inc.), EI Power, Inc. (known as GPU Power, Inc.) and EI Energy, Inc. (known as GPU Electric, Inc.) (collectively GPU International Group); GPU Service, Inc. (GPUS); GPU Nuclear, Inc. (GPUN); and GPU Generation, Inc. (Genco). All of these companies considered together with their subsidiaries are referred to as the "GPU Companies". The GPU International Group is engaged in the development, ownership and operation of generation, transmission and distribution facilities in the United States and foreign countries. The GPU International Group has 50% ownership interests in distribution and supply businesses serving 2.2 million customers in England (See Note 2 to GPU's Consolidated Financial Statements), and 230,000 customers in Australia. The GPU International Group also has ownership interests in eleven operating combined-cycle cogeneration plants located in the United States totaling 932 MW of capacity and twelve operating generating facilities located in foreign countries totaling 2,514 MW of capacity. The following is management's discussion of significant factors that affected the interim financial condition and results of operations. This should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations included in the GPU Companies' combined 1995 Annual Report on Form 10-K. GPU RESULTS OF OPERATIONS GPU's earnings for the second quarter ended June 30, 1996, were $73.6 million, or $0.61 per share, compared to 1995 second quarter earnings of $61.0 million or $0.53 per share. The increase in second quarter earnings was due primarily to higher weather-related sales this year compared to last, an increase in new customer sales and lower reserve capacity expense primarily due to declining power purchases by JCP&L from Pennsylvania Power & Light Company (PP&L). This was partially offset by higher depreciation expense due to plant additions and higher operation and maintenance (O&M) expense due in part to increased emergency and storm repair work. For the six months ended June 30, 1996, GPU's earnings were $181.9 million, or $1.51 per share, compared to earnings of $136.5 million, or $1.18 per share, for the same period last year. The same factors affecting the quarterly results also affected the results for the six month period. In addition, earnings for the current six month period versus last year benefitted from gains on the sales of securities. 41 OPERATING REVENUES: Total revenues for the second quarter of 1996 increased 5.5% to $912.3 million, as compared to the second quarter of 1995. For the six months ended June 30, 1996, revenues increased 8.8% to $1.94 billion, as compared to the same period last year. The components of the changes are as follows: (In Millions) Three Months Six Months Ended Ended June 30, 1996 June 30, 1996 Kilowatt-hour (KWH) revenues (excluding energy portion) $ 36.0 $ 66.0 Energy revenues 5.6 72.3 Other revenues 6.0 18.3 Increase in revenues $ 47.6 $156.6 Kilowatt-hour revenues The increase in KWH revenues for the three and six month periods was due primarily to higher weather-related sales to residential customers and increased new customer sales. Energy revenues Changes in energy revenues do not affect earnings as they reflect corresponding changes in the energy cost rates billed to customers and expensed. The increase in energy revenues for the three and six month periods was due primarily to higher energy cost rates in effect and increased customer sales. For the three month period, this increase was substantially offset by lower sales to other utilities. Other revenues Generally, changes in other revenues do not affect earnings as they are offset by corresponding changes in expense, such as taxes other than income taxes. OPERATING EXPENSES: Power purchased and interchanged Generally, changes in the energy component of power purchased and interchanged (PP&I) expense do not significantly affect earnings since these cost increases are substantially recovered through the GPU Energy companies' energy adjustment clauses. However, lower reserve capacity expense (which is a component of PP&I) contributed to the three and six month period earnings increases. 42 Fuel and Deferral of energy costs, net Generally, changes in fuel expense and deferral of energy costs do not affect earnings as they are offset by corresponding changes in energy revenues. However, earnings for the six month period increased due to a $6.3 million (pre-tax) performance award earned by JCP&L for the efficient operation of its nuclear generating stations. Other operation and maintenance The increase in other O&M for the three and six month periods was due partially to higher emergency and storm repair work. Depreciation and amortization The increase in depreciation and amortization expense for the three and six month periods was due primarily to additions to plant in service and higher depreciation rates for Met-Ed and Penelec. Taxes, other than income taxes Generally, changes in taxes other than income taxes do not significantly affect earnings as they are substantially recovered in revenues. OTHER INCOME AND DEDUCTIONS: Other income, net The increase in other income for the three month period was due primarily to higher GPU International Group pre-tax income. The six month period increase was due primarily to gains on the sales of securities held by the GPU International Group of $10 million (pre-tax). INTEREST CHARGES AND PREFERRED DIVIDENDS: Other interest The decrease in other interest expense for the six month period was due primarily to lower short-term debt levels. Dividends on subsidiary-obligated mandatorily redeemable preferred securities The increase for the three and six month periods was due to JCP&L issuing in May 1995, through a special-purpose finance subsidiary, $125 million stated value of monthly income preferred securities. 43 JCP&L RESULTS OF OPERATIONS JCP&L's earnings for the second quarter ended June 30, 1996 were $37.2 million, compared to 1995 second quarter earnings of $33.2 million. The increase in second quarter earnings was due to higher weather-related and new customer sales this year as compared to last year and lower reserve capacity expense primarily due to declining power purchases from PP&L. This was partially offset by increased depreciation expense mainly due to plant additions and higher O&M expense due in part to increased emergency and storm repair work. For the six months ended June 30, 1996 earnings were $88.1 million, compared to $65.7 million for the same period last year. The same factors affecting the quarterly results also affected the results for the six month period. In addition, earnings compared to last year benefitted from a performance award for the efficient operation of JCP&L's nuclear generating stations. OPERATING REVENUES: Total revenues for the second quarter of 1996 increased 5.0% to $475.9 million, as compared to the second quarter of 1995. For the six months ended June 30, 1996, revenues increased 9.1% to $1 billion, as compared to the same period last year. The components of the changes are as follows: (In Millions) Three Months Six Months Ended Ended June 30, 1996 June 30, 1996 Kilowatt-hour (KWH) revenues (excluding energy portion) $ 17.8 $ 33.6 Energy revenues 1.6 40.1 Other revenues 3.4 10.3 Increase in revenues $ 22.8 $ 84.0 Kilowatt-hour revenues The increase in KWH revenues for the three and six month periods was due primarily to higher weather-related sales to residential customers and increased new customer sales. Energy revenues Changes in energy revenues do not affect earnings as they reflect corresponding changes in the energy cost rates billed to customers and expensed. The increase in energy revenues for the three and six month periods was due primarily to higher energy cost rates in effect and increased sales to customers. For the three month period, the increase was mostly offset by lower sales to other utilities. 44 JCP&L RESULTS OF OPERATIONS (continued) Other revenues Generally, changes in other revenues do not affect earnings as they are offset by corresponding changes in expense, such as taxes other than income taxes. OPERATING EXPENSES: Power purchased and interchanged Generally, changes in the energy component of PP&I expense do not significantly affect earnings since these cost increases are substantially recovered through JCP&L's energy adjustment clause. However, lower reserve capacity expense (which is a component of PP&I) due to lower power purchases from PP&L contributed to the three and six month periods earnings increases. Fuel and Deferral of energy and capacity costs, net Generally, changes in fuel expense and deferral of energy and capacity costs do not affect earnings as they are offset by corresponding changes in energy revenues. However, earnings for the six month period increased due to a $6.3 million (pre-tax) performance award for the efficient operation of JCP&L's nuclear generating stations. Other operation and maintenance The increase in other O&M for the three and six month periods was due partially to higher emergency and storm repair work. Depreciation and amortization The increase in depreciation and amortization expense for the three month and six month periods was due primarily to additions to plant in service. Taxes, other than income taxes Generally, changes in taxes other than income taxes do not significantly affect earnings as they are substantially recovered in revenues. OTHER INCOME AND DEDUCTIONS: Other income/(expense), net The decrease in other income for the three and six month periods was due primarily to the write-off of nonutility generation (NUG) buyout costs for the Crown/Vista project (see Rate Matters) not deemed recoverable through ratemaking. 45 INTEREST CHARGES AND DIVIDENDS ON PREFERRED SECURITIES: Interest on long-term debt The decrease in interest on long-term debt for the three and six month periods was due to lower levels of long-term debt. Dividends on company-obligated mandatorily redeemable preferred securities The increase for the three and six month periods was due to JCP&L issuing in May 1995, through a special-purpose finance subsidiary, $125 million stated value of monthly income preferred securities MET-ED RESULTS OF OPERATIONS Met-Ed's earnings for the second quarter ended June 30, 1996 were $16.6 million, compared to 1995 second quarter earnings of $12.4 million. The increase in second quarter earnings was due primarily to higher weather- related sales and new customer sales this year compared to last year. For the six months ended June 30, 1996, Met-Ed's earnings were $40.4 million, compared to earnings of $28.5 million for the same period last year. The same factors affecting the quarterly results also affected the results for the six month period. In addition, the current six month period benefitted from lower reserve capacity expense. OPERATING REVENUES: Total revenues for the second quarter of 1996 increased 8.8% to $207.1 million, as compared to the second quarter of 1995. For the six months ended June 30, 1996, revenues increased 12.3% to $444.7 million, as compared to the same period last year. The components of the changes are as follows: (In Millions) Three Months Six Months Ended Ended June 30, 1996 June 30, 1996 Kilowatt-hour (KWH) revenues (excluding energy portion) $ 7.8 $ 15.6 Energy revenues 5.9 27.3 Other revenues 3.1 5.8 Increase in revenues $ 16.8 $ 48.7 Kilowatt-hour revenues The increase in KWH revenues for the three and six month periods was due primarily to higher weather-related residential sales and increased new customer sales. 46 MET-ED RESULTS OF OPERATIONS (continued) Energy revenues Changes in energy revenues do not affect earnings as they reflect corresponding changes in the energy cost rates billed to customers and expensed. The increase in energy revenues for the three and six month periods was due primarily to higher energy cost rates in effect. For the six month period, the increase was also due to higher sales to customers and to other utilities. Other revenues Generally, changes in other revenues do not affect earnings as they are offset by corresponding changes in expense, such as taxes other than income taxes. OPERATING EXPENSES: Power purchased and interchanged Generally, changes in the energy component of PP&I expense do not significantly affect earnings since these cost increases are substantially recovered through Met-Ed's energy adjustment clause. However, lower reserve capacity expense (which is a component of PP&I) contributed to the three and six month periods earnings increases. Fuel and Deferral of energy costs, net Generally, changes in fuel expense and deferral of energy costs do not affect earnings as they are offset by corresponding changes in energy revenues. Depreciation and amortization The increase in depreciation and amortization expense for the three and six month periods was due primarily to additions to plant in service and higher depreciation rates. Taxes, other than income taxes Generally, changes in taxes other than income taxes do not significantly affect earnings as they are substantially recovered in revenues. 47 PENELEC RESULTS OF OPERATIONS Penelec's earnings for the second quarter ended June 30, 1996 were $21.2 million, compared to 1995 second quarter earnings of $19.9 million. Earnings in the quarter increased due primarily to higher weather-related sales this year compared to last year, partially offset by higher depreciation expense. For the six months ended June 30, 1996, Penelec's earnings were $51.4 million, compared to earnings of $50.1 million for the same period last year. The same factors affecting the quarterly results also affected the results for the six month period. In addition, earnings for the six month period were reduced due to higher other O&M expense, partially offset by lower reserve capacity expense. OPERATING REVENUES: Total revenues for the second quarter of 1996 increased 3.5% to $246.8 million, as compared to the second quarter of 1995. Total revenues for the six months ended June 30, 1996 increased 4.9% to $516.1 million compared with the same period in 1995. The components of the changes are as follows: (In Millions) Three Months Six Months Ended Ended June 30, 1996 June 30, 1996 Kilowatt-hour (KWH) revenues (excluding energy portion) $ 12.6 $ 18.3 Energy revenues .7 8.2 Other revenues (4.9) (2.2) Increase in revenues $ 8.4 $ 24.3 Kilowatt-hour revenues The increase in KWH revenues for the three and six month periods was due primarily to higher weather-related residential sales and increased new customer sales. Energy revenues Changes in energy revenues do not affect earnings as they reflect corresponding changes in the energy cost rates billed to customers and expensed. The increase in energy revenues for the six month period was due primarily to higher energy cost rates in effect and increased sales to customers. Other revenues Generally, changes in other revenues do not affect earnings as they are offset by corresponding changes in expense, such as taxes other than income taxes. 48 PENELEC RESULTS OF OPERATIONS (continued) OPERATING EXPENSES: Power purchased and interchanged Generally, changes in the energy component of PP&I expense do not significantly affect earnings since these cost increases are substantially recovered through Penelec's energy adjustment clause. However, lower reserve capacity expense (which is a component of PP&I) contributed to the six month period earnings. Fuel and Deferral of energy costs, net Generally, changes in fuel expense and deferral of energy costs do not affect earnings as they are offset by corresponding changes in energy revenues. Other operation and maintenance The increase in other O&M for the six month period was due partially to increased emergency and storm repair work. Depreciation and amortization The increase in depreciation and amortization expense for the three and six month periods was due to additions to plant in service and higher depreciation rates. Taxes, other than income taxes Generally, changes in taxes other than income taxes do not significantly affect earnings as they are substantially recovered in revenues. OTHER INCOME AND DEDUCTIONS: Other income/(expense), net The increase in other income for the three and six month periods was due to the write-off in 1995 of $2.5 million of deferred postretirement benefit (OPEB) costs related to wholesale customers which were deemed not recoverable through ratemaking. 49 GPU INTERNATIONAL GROUP Through June 30, 1996, GPU's aggregate investment in the GPU International Group was $209 million; GPU has also guaranteed an additional $809 million of GPU International Group obligations, including amounts for the acquisition of Midlands Electricity plc, discussed below. GPU has obtained Securities and Exchange Commission (SEC) approval to finance investments in foreign utility companies (FUCO) and exempt wholesale generators (EWG) (both domestically and internationally) up to an aggregate amount equal to 50% of GPU's average consolidated retained earnings. GPU has remaining SEC authorization at June 30, 1996 to finance up to $113 million of additional investments in FUCOs and EWGs. In May 1996, GPU and Cinergy Corp. (Cinergy) formed Avon Energy Partners plc (Avon), a wholly owned subsidiary of Avon Energy Partners Holdings, Inc. (Holdings). Holdings is a 50/50 joint venture formed to acquire Midlands Electricity plc (Midlands), an English regional electric company (REC). Avon has made a successful cash tender offer of approximately $2.6 billion, for the outstanding shares of Midlands. GPU's 50% interest in Holdings is held by EI UK Holdings, Inc., a wholly owned subsidiary of GPU Electric, Inc. For more information, see Notes 2 and 3 to GPU's Consolidated Financial Statements. The GPU International Group is continuing to pursue investment opportunities and has commitments, both domestically and internationally, in five generating facilities under construction totaling 2,866 MW of capacity, and in a 180 MW gas-fired project in Wisconsin for which a long-term power purchase agreement has been executed. The following sections of MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS are being presented for the GPU Companies on a combined basis. LIQUIDITY AND CAPITAL RESOURCES Capital Needs The GPU Companies' capital needs for the six months ended June 30, 1996 consisted of cash construction expenditures of $173 million (JCP&L $76 million; Met-Ed $37 million; Penelec $60 million). Construction expenditures for the year are forecasted to be $471 million (JCP&L $242 million; Met-Ed $88 million; Penelec $124 million). Expenditures for maturing obligations will total $131 million (JCP&L $36 million; Met-Ed $15 million; Penelec $75 million; Other $5 million) in 1996. GPU and the GPU Energy companies estimate that a substantial portion of their anticipated capital needs in 1996 will be satisfied through internally generated funds. 50 Financing The GPU Energy companies have regulatory authority to issue and sell first mortgage bonds (FMBs), which may be issued as secured medium-term notes, and preferred stock through various periods into 1997. Under existing authorizations, JCP&L, Met-Ed and Penelec may issue these senior securities in aggregate amounts of $225 million, $190 million and $160 million, respectively, of which $100 million for each company may consist of preferred stock. The GPU Energy companies have regulatory authority to incur short-term debt, a portion of which may be through the issuance of commercial paper. On May 1, 1996, JCP&L redeemed $20 million stated value of 8.48% cumulative preferred stock pursuant to mandatory and optional sinking fund provisions. The GPU Energy companies' bond indentures and articles of incorporation include provisions that limit the amount of long-term debt, preferred stock and short-term debt each company may issue. The GPU Energy companies' interest and preferred dividend coverage ratios are currently in excess of indenture and charter restrictions. GPU is seeking SEC approval to issue and sell up to $300 million aggregate principal amount of unsecured debentures through December 31, 2001. The net proceeds from the sale of the debentures will be used by the Company to: 1) finance or refinance acquisitions and investments by the GPU International Group, 2) make cash capital contributions to the Company's subsidiaries, which in turn will apply such funds a) to repay outstanding indebtedness, b) to redeem outstanding senior securities in open market transactions, c) for construction purposes, d) for other corporate purposes, or e) to reimburse their treasuries for funds previously expended therefrom for such purposes, 3) reimburse the Company's treasury for funds previously expended therefrom for such purposes, 4) repay outstanding indebtedness of the Company, and 5) for other Company corporate purposes. Moodys and Duff & Phelps credit rating agencies have assigned ratings of Baa2 and BBB+ to the proposed sale of debentures, respectively. GPU has also requested SEC approval to issue up to 7 million shares of additional common stock through 1998. The net proceeds of the sale of the additional common stock will be used by the Company to repay a portion of indebtedness incurred by the GPU International Group to acquire Midlands (see Note 2 to GPU's Consolidated Financial Statements). Net proceeds may also be used to: 1) make cash capital contributions to the Company's subsidiaries, which in turn will apply such funds a) to repay outstanding indebtedness, b) to redeem outstanding senior securities or reacquire such securities in open market transactions, c) for construction purposes, d) for other corporate purposes or e) to reimburse their treasuries for funds previously expended therefrom for such purposes, 2) reimburse the Company's treasury for funds previously expended therefrom for such purposes, 3) repay outstanding indebtedness of the Company, and 4) for other Company corporate purposes. COMPETITIVE ENVIRONMENT: In April 1996, the Federal Energy Regulatory Commission (FERC) issued Order 888 (Order) adopting the rules proposed in its Notice of Proposed Rulemaking on open access nondiscriminatory transmission services by utilities. The Order provides open access to the interstate transmission 51 network and thereby encourages a fully competitive wholesale electric power market. The Order requires electric utilities to, among other things: 1) file nondiscriminatory open access transmission tariffs which would be available to all wholesale sellers and buyers of electricity; 2) accept service under these new tariffs for their own wholesale transactions; and 3) be permitted to recover their legitimate and verifiable "stranded costs" incurred when a franchise customer purchases power from another supplier using the utility's transmission system. In addition, while the Order does not require "corporate unbundling," which the FERC defines as the disposing of ancillary services or creating separate affiliates to manage transmission services, it does call for "functional unbundling" of transmission and ancillary services. In July 1996, GPU Energy filed pro forma tariffs offering both point-to- point and network service in accordance with Order 888. These tariffs became effective on July 9, 1996. In July 1996, GPU Energy, along with six other electric utility members of the Pennsylvania-New Jersey-Maryland (PJM) Power Pool, filed with the FERC a transmission tariff and agreements that would create by year-end 1996, a new wholesale energy market to meet the requirements of FERC Order 888, and to increase competition in the Mid-Atlantic region. The Mid-Atlantic energy agreements include: 1) the requirements and standards under which an independent system operator (ISO) will operate the energy market and transmission system; 2) a transmission owners agreement and tariff that provides pool-wide transmission service with ten zones, each reflecting an existing PJM company's transmission costs, and an average transmission rate for service across or out of the power pool; 3) establishment of a Mid- Atlantic spot energy market; and 4) requiring the ownership of, or contracting for, of sufficient transmission and generation capacity, including the sharing of generating capacity reserves, to meet reliability requirements. The proposed PJM tariff and agreements, if accepted for filing by FERC, would be effective January 1, 1997, and would supersede the tariffs filed by GPU Energy in July 1996, in accordance with Order 888. In June 1996, the Senate Banking Committee approved S.1317 which, if adopted, would repeal the Public Utility Holding Company Act (PUHCA) and implement other reform recommendations contained in a 1995 report by the SEC staff. In July 1996, Representative Schaefer introduced comprehensive electric utility restructuring legislation in the House of Representatives. Among the provisions, the proposed legislation would give all electric utility retail customers the right to purchase electric energy services from any provider by no later than December 15, 2000. If the states failed to implement retail choice with basic federal standards, the FERC would be directed to do so for them. Among other things, this legislation also provides for the repeal of both the Public Utility Regulatory Policies Act of 1978 (PURPA) and of PUHCA, when all customers have supplier choice. Pennsylvania has adopted legislation that clarifies the Pennsylvania Public Utility Commission's (PaPuc) authority to permit electric utilities to recover in rates the costs of restructuring, buying out or buying down contracts with NUGs. 52 Legislation has been introduced in the Pennsylvania legislature that would allow all consumers to choose their electric provider, with transition periods ranging from 1998 to 2002. In July 1996, the PaPUC issued a report on electric competition recommending that 1) all retail customers be permitted to choose their electric generation provider by the year 2005; 2) electric transmission and distribution continue to be regulated; 3) utilities be permitted to recover non-mitigable stranded assets and establish a competitive transition charge for consumers who choose alternative generation suppliers; 4) flexible and performance-based rates be encouraged; and 5) public purpose programs such as energy efficiency and renewable energy be continued. As part of this transition to retail choice, the PaPUC has urged electric utilities to file voluntary retail access pilot programs for approval. These pilot programs would include all classes of customers, and utilities would be required to commit about 5% of peak load to retail access programs and unbundle their tariffs. The PaPUC will issue an order containing general guidelines for program design and is seeking to have legislation passed to make these programs mandatory. Implementation of these programs could occur as early as April 1997, when all Pennsylvania electric utilities are expected to have filed program proposals with the PaPUC. In June and July 1996, management offered voluntary enhanced retirement programs to more than 750 bargaining and 400 non-bargaining employees. If between 60% and 80% of the eligible employees accept the offer, depending on the age and years of service of those employees, the program could result in a 1996 pre-tax charge to earnings of between $90 million and $125 million in the third quarter of 1996. RATE MATTERS: In June 1996, the New Jersey Board of Public Utilities (NJBPU) approved a provisional settlement for a combined levelized energy adjustment clause (LEAC) and Demand Side Factor (DSF) increase of $27.9 million annually. Also in June 1996, JCP&L, the staff of the NJBPU and the Division of Ratepayer Advocate reached an agreement on a variety of pending rate-related issues (Final Settlement). An Administrative Law Judge (ALJ) has issued a decision recommending approval of the Final Settlement and the matter is awaiting NJBPU approval, tentatively scheduled for September 1996. Provisions of the Final Settlement include a further annual increase of $7 million in the LEAC in addition to those noted above and an annual reduction of $9 million in base rates. Base rates would be frozen at that level until the year 2000, and the LEAC rate frozen through the year 1999. JCP&L could seek a LEAC rate increase if the deferred LEAC balance is projected to exceed $40 million, or a base rate increase under certain other conditions, such as a major change in the current regulatory environment. The Final Settlement provides for recovery in base rates beginning in 1998 of all OPEB costs recorded in accordance with Statement of Financial Accounting Standards No. 106 including amounts previously deferred and an increase in decommissioning expense to reflect the radiological decommissioning and nonradiological cost of removal costs estimated in the 1995 site specific studies performed for GPUN (See Nuclear Plant Retirement Costs of Note 1 to GPU's Consolidated Financial Statements). Also included in base rates would be recovery of the remaining investments in the 58 MW Werner Unit 4 and 72 MW Gilbert Unit 3 generating plants, scheduled to be retired in 1996. 53 The Final Settlement also provides for recovery through the LEAC of: 1) buyout costs up to $130 million, and 50% of any costs from $130 million to $135 million, over a seven-year period for the termination of the power purchase agreement with Freehold Cogeneration Associates, and 2) $14 million of the $17 million buyout costs, over a two year period, for the termination of the agreement to purchase power from the proposed 200 MW Crown/Vista project. JCP&L wrote-off the remaining $3 million of buyout costs for the Crown/Vista project in the second quarter of 1996. In addition, the Final Settlement resolves the NJBPU's generic proceeding regarding recovery of capacity costs associated with electric power purchases from NUG projects which the Division of the Ratepayer Advocate claimed to result in a double recovery. JCP&L would not have to refund any amounts previously collected. The Final Settlement also provides that if JCP&L's return on equity exceeds 12.2 percent, excluding demand side management and nuclear performance incentives, the excess would be used to reduce both customer energy rates and certain regulatory assets. In accordance with the Final Settlement, effective January 1, 1996, nuclear depreciation was increased by $17 million annually, including amounts for forecasted additions to nuclear plant, offset by decreases in depreciation for transmission, distribution and general plant totaling $12 million annually. THE GPU SUPPLY PLAN: Managing Nonutility Generation The GPU Energy companies have contracts and anticipated commitments with NUG suppliers under which a total of 1,624 MW (JCP&L 892 MW; Met-Ed 335 MW; Penelec 397 MW) of capacity are currently in service and an additional 565 MW (JCP&L 10 MW; Met-Ed 377 MW; Penelec 178 MW) are currently scheduled to be in service by 2000. GPU Energy is seeking to reduce the above market costs of NUG agreements, including (1) attempting to convert must-run agreements to dispatchable agreements; (2) attempting to renegotiate prices of the agreements; (3) offering contract buyouts while seeking to recover the costs through their energy adjustment clauses and (4) initiating proceedings before federal and state administrative agencies, and in the courts, where appropriate. In addition, GPU Energy intends to avoid, to the maximum extent practicable, entering into any new NUG agreements that are not needed or not consistent with current market pricing and are supporting legislative efforts to repeal PURPA. These efforts may result in claims against the GPU Companies for substantial damages. There can, however, be no assurance as to what extent GPU Energy's efforts will be successful in whole or in part. In April 1996, JCP&L entered into an agreement with Freehold Cogeneration Associates (Freehold), the developers of a proposed 100 MW gas-fired cogeneration project, that terminates JCP&L's long-term obligation to purchase power from the project. JCP&L expects that the buyout will save customers $1.2 billion over the term of the power purchase contract based on the projected cost of alternative sources of energy. JCP&L will pay Freehold $125 million over three years, beginning in 1996. Associated with this buyout are certain payments to third parties, the amounts of which are currently being negotiated and could be material in amount. As part of the Final Settlement (See Rate Matters), JCP&L would recover buyout costs up to $130 million, and 50% of any costs from $130 million to $135 million, over a seven-year period, related to the termination of this purchase power agreement. 54 In 1993, the PaPUC ordered Penelec to enter into long-term contracts to purchase a total of 160 MW from two NUGs commencing in 1997 or later. Penelec's subsequent appeal of the PaPUC order to the Commonwealth Court was denied, but the case was remanded back to the PaPUC to recalculate the avoided costs to be paid. In January 1996, an ALJ issued a decision recommending a levelized avoided cost which is in excess of current market prices. In June 1996, the Pennsylvania Supreme Court reaffirmed the PaPUC and Commonwealth Court decisions requiring Penelec to enter into these contracts. Penelec has filed an application for reargument with the Pennsylvania Supreme Court. In July 1996, Penelec entered into agreements with the developers of a proposed 80 MW cogeneration facility in Altoona, Pennsylvania and AES Power Corporation (AES). Under the agreements, AES will purchase the interests of the developers, and Penelec and AES will attempt to negotiate a new, competitively priced power purchase agreement by early October, 1996. If negotiations to execute a new power purchase agreement are unsuccessful, Penelec has agreed to pay AES up to $8.3 million. Penelec would seek energy cost rate (ECR) recovery for any of these buyout costs paid to AES. In July 1996, Met-Ed entered into agreements with the developers of the proposed 150 MW Blue Mountain cogeneration facility and AES. Under the agreements, AES purchased the interests of the developers. Met-Ed has paid AES $18.5 million and has agreed to conduct negotiations with AES for a new power purchase agreement that is competitively priced. If these negotiations are unsuccessful, Met-Ed would pay AES an additional $23 million. Met-Ed intends to seek ECR recovery for these buyout costs. In September 1995, Met-Ed and the developers of a proposed 227 MW York County coal-fired cogeneration plant entered into an agreement whereby, Met-Ed will pay the developer up to $30 million to terminate the coal-fired facility, and an additional $5 million if the agreement cannot be restructured to provide for the development of a gas-fired facility. In January 1996, Met-Ed was notified by the developers that they had assigned to AES their rights under the terms of the restructuring agreement. In February 1996, Met-Ed filed a petition with the PaPUC requesting recovery of the costs associated with the buyout through energy cost rates. A settlement agreement permitting Met-Ed to recover up to $35 million in buyout costs over three years, beginning in 1997, is awaiting an ALJ recommendation. 55 PART II ITEM 1 - LEGAL PROCEEDINGS Information concerning the current status of certain legal proceedings instituted against the Company and GPU Energy as a result of the March 28, 1979 nuclear accident at Unit 2 of the Three Mile Island nuclear generating station discussed in Part I of this report in Notes to Consolidated Financial Statements is incorporated herein by reference and made a part hereof. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the Annual Meeting of Stockholders held on May 2, 1996, Theodore H. Black was reelected as a director of the Company for a three year term expiring at the 1999 annual meeting by a vote of 101,996,489 for and 882,363 withheld. Paul R. Roedel, Carlisle A. H. Trost, and Patricia K. Woolf, whose terms expire at the 1997 annual meeting, and Henry F. Henderson, Jr., James R. Leva, John M. Pietruski, and Catherine A. Rein, whose terms expire at the 1998 annual meeting, continue to serve as directors following the meeting. At the Annual Meeting, stockholders approved by a vote of 95,620,809 shares for, 6,286,980 shares against and 971,062 shares abstaining, amendments to the Restricted Stock Plan for Outside Directors. Stockholders rejected by a vote of 7,914,008 shares for, 79,676,934 shares against and 4,073,620 shares abstaining, a stockholder proposal requesting that the Company issue a report on carbon dioxide emissions and the costs thereof. Stockholders also ratified at the Annual Meeting the selection of Coopers & Lybrand L.L.P. as independent auditor for the year 1996 by a vote of 102,130,220 shares for, 350,582 shares against and 398,050 shares abstaining. ITEM 5 - OTHER EVENTS As previously announced, effective July 1, 1996, Fred D. Hafer was elected President, Chief Operating Officer and a director of the Company. Mr. Hafer, who had been President, Chief Operating Officer and a director of both Metropolitan Edison Company and Pennsylvania Electric Company, is expected to be elected to the additional posts of Chairman and Chief Executive Officer when James R. Leva retires in May 1997. 56 PART II ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits (27) Financial Data Schedule (b) Reports on Form 8-K: GPU, Inc.: Dated May 8, 1996, under Item 5 (Other Events). Dated June 10, 1996, under Item 5 (Other Events). Dated August 2, 1996, under Item 5 (Other Events). Jersey Central Power & Light Company: Dated June 11, 1996, under Item 5 (Other Events). Metropolitan Edison Company: Dated June 11, 1996, under Item 5 (Other Events). Pennsylvania Electric Company: Dated June 11, 1996, under Item 5 (Other Events). 57 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. August 7, 1996 By: /s/ J. G. Graham J. G. Graham, Senior Vice President (Chief Financial Officer) August 7, 1996 By: /s/ F. A. Donofrio F. A. Donofrio, Vice President and Comptroller (Chief Accounting Officer) JERSEY CENTRAL POWER & LIGHT COMPANY METROPOLITAN EDISON COMPANY PENNSYLVANIA ELECTRIC COMPANY August 7, 1996 By: /s/ D. Baldassari D. Baldassari, President August 7, 1996 By: /s/ D. W. Myers D. W. Myers, Vice President - Finance and Rates & Comptroller (Principal Accounting Officer) 58 EX-99 2 EXHIBIT 12A Exhibit 12 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
Six Months Ended June 30, June 30, 1996 1995 OPERATING REVENUES $1,935,188 $1,778,620 OPERATING EXPENSES 1,525,134 1,440,420 Interest portion of rentals (A) 13,245 11,668 Interest on funded indebtedness and other interest of service company subsidiaries (B) 1,637 1,799 Net expense 1,510,252 1,426,953 OTHER INCOME: Allowance for funds used during construction 6,307 6,429 Other income/(expense), net 11,580 (4,170) Interest on funded indebtedness and other interest of GPU International Group (C) 7,499 - Total other income 25,386 2,259 EARNINGS AVAILABLE FOR FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (excluding taxes based on income) $ 450,322 $ 353,926 FIXED CHARGES: Interest on funded indebtedness $ 101,093 $ 93,987 Other interest (D) 28,074 26,466 Interest portion of rentals (A) 13,245 11,668 Total fixed charges $ 142,412 $ 132,121 RATIO OF EARNINGS TO FIXED CHARGES 3.16 2.68 Preferred stock dividend requirement $ 7,992 $ 8,529 Ratio of income before provision for income taxes to net income (E) 162.2% 153.0% Preferred stock dividend requirement on a pretax basis 12,963 13,049 Fixed charges, as above 142,412 132,121 Total fixed charges and preferred stock dividends $ 155,375 $ 145,170 RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS 2.90 2.44 Exhibit 12 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) The Company has included the equivalent of the interest portion of all rentals charged to income as fixed charges for this statement and has excluded such components from Operating Expenses. (B) Represents fixed charges of GPU Service, Inc. and GPU Nuclear, Inc., which are accounted for as Operating Expenses in the Company's consolidated income statement. (C) Represents fixed charges of the GPU International Group, which are accounted for as Other Income and Deductions in the Company's consolidated income statement. (D) Includes dividends on subsidiary-obligated mandatorily redeemable preferred securities of $14,444 and $10,372 for the six month periods ended June 30, 1996 and 1995, respectively. (E) Represents income before provision for income taxes and preferred stock dividends of $307,910 and $221,805 for the six month periods ended June 30, 1996 and 1995, respectively, divided by income before preferred stock dividends of $189,870 and $145,006, respectively for the same periods.
EX-99 3 EXHIBIT 12B Exhibit 12 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
Six Months Ended June 30, June 30, 1996 1995 OPERATING REVENUES $1,005,158 $921,115 OPERATING EXPENSES 815,375 773,279 Interest portion of rentals (A) 5,761 6,429 Net expense 809,614 766,850 OTHER INCOME: Allowance for funds used during construction 4,259 2,504 Other income, net 1,818 6,985 Total other income 6,077 9,489 EARNINGS AVAILABLE FOR FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (excluding taxes based on income) $ 201,621 $163,754 FIXED CHARGES: Interest on funded indebtedness $ 44,717 $ 45,960 Other interest (B) 10,359 6,801 Interest portion of rentals (A) 5,761 6,429 Total fixed charges $ 60,837 $ 59,190 RATIO OF EARNINGS TO FIXED CHARGES 3.31 2.77 Preferred stock dividend requirement $ 6,748 $ 7,285 Ratio of income before provision for income taxes to net income (C) 148.4% 143.2% Preferred stock dividend requirement on a pretax basis 10,014 10,432 Fixed charges, as above 60,837 59,190 Total fixed charges and preferred stock dividends $ 70,851 $ 69,622 RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS 2.85 2.35 Exhibit 12 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 dividends on company-obligated mandatorily redeemable preferred securities of $5,350 and $1,278 for the six month periods ended June 30, 1996 and 1995, respectively. (C) Represents income before provision for income taxes of $140,784 and $104,564 for the six month periods ended June 30, 1996 and 1995, respectively, divided by net income of $94,877 and $73,007, respectively for the same periods.
EX-99 4 EXHIBIT 12C Exhibit 12 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
Six Months Ended June 30, June 30, 1996 1995 OPERATING REVENUES $444,746 $396,091 OPERATING EXPENSES 342,477 318,904 Interest portion of rentals (A) 2,700 2,547 Net expense 339,777 316,357 OTHER INCOME: Allowance for funds used during construction 535 1,601 Other income/(expense), net 174 (4,112) Total other income 709 (2,511) EARNINGS AVAILABLE FOR FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (excluding taxes based on income) $105,678 $ 77,223 FIXED CHARGES: Interest on funded indebtedness $ 22,937 $ 22,534 Other interest (B) 6,531 7,073 Interest portion of rentals (A) 2,700 2,547 Total fixed charges $ 32,168 $ 32,154 RATIO OF EARNINGS TO FIXED CHARGES 3.29 2.40 Preferred stock dividend requirement $ 472 $ 472 Ratio of income before provision for income taxes to net income (C) 180.0% 155.4% Preferred stock dividend requirement on a pretax basis 850 733 Fixed charges, as above 32,168 32,154 Total fixed charges and preferred stock dividends $ 33,018 $ 32,887 RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS 3.20 2.35 Exhibit 12 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 dividends on company-obligated mandatorily redeemable preferred securities of $4,500 for the six month periods ended June 30, 1996 and 1995, respectively. (C) Represents income before provision for income taxes of $73,510 and $45,069 for the six month periods ended June 30, 1996 and 1995, respectively, divided by net income of $40,843 and $29,001, respectively for the same periods.
EX-99 5 EXHIBIT 12 Exhibit 12 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
Six Months Ended June 30, June 30, 1996 1995 OPERATING REVENUES $516,117 $491,863 OPERATING EXPENSES 395,274 376,785 Interest portion of rentals (A) 2,468 1,067 Net expense 392,806 375,718 OTHER INCOME: Allowance for funds used during construction 1,513 2,324 Other expense, net (802) (3,629) Total other income 711 (1,305) EARNINGS AVAILABLE FOR FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (excluding taxes based on income) $124,022 $114,840 FIXED CHARGES: Interest on funded indebtedness $ 24,954 $ 23,985 Other interest (B) 7,863 8,555 Interest portion of rentals (A) 2,468 1,067 Total fixed charges $ 35,285 $ 33,607 RATIO OF EARNINGS TO FIXED CHARGES 3.52 3.42 Preferred stock dividend requirement $ 772 $ 772 Ratio of income before provision for income taxes to net income (C) 170.2% 159.8% Preferred stock dividend requirement on a pretax basis 1,314 1,234 Fixed charges, as above 35,285 33,607 Total fixed charges and preferred stock dividends $ 36,599 $ 34,841 RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS 3.39 3.30 Exhibit 12 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 dividends on company-obligated mandatorily redeemable preferred securities of $4,594 for the six month periods ended June 30, 1996 and 1995, respectively. (C) Represents income before provision for income taxes of $88,737 and $81,233 for the six month periods ended June 30, 1996 and 1995, respectively, divided by net income of $52,124 and $50,842, respectively for the same periods.
EX-27 6 FINANCIAL DATA SCHEDULE GPU
UT 0000040779 GPU, INC. 1,000 US DOLLARS 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 1 PER-BOOK 6,368,595 1,296,278 1,059,086 2,012,262 0 10,736,221 314,458 748,323 2,060,681 3,034,730 444,000 98,116 2,996,371 291,040 0 128,392 127,345 10,000 8,945 161,582 3,435,700 10,736,221 1,935,188 114,095 1,525,134 1,639,229 295,959 10,119 306,078 124,200 181,878 0 181,878 115,032 188,450 131,319 1.51 1.51 INCLUDES REACQUIRED COMMON STOCK OF $88,732. INCLUDES SUBSIDIARY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF $330,000. INCLUDES DIVIDENDS ON SUBSIDIARY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF $14,444 AND PREFERRED STOCK DIVIDENDS OF SUBSIDIARIES OF $7,992.
EX-27 7 FINANCIAL DATA SCHEDULE JERSEY CENTRAL WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
UT 0000053456 JERSEY CENTRAL POWER & LIGHT COMPANY 1,000 US DOLLARS 06-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 1 PER-BOOK 2,926,715 348,803 519,507 963,321 0 4,758,346 153,713 510,769 854,899 1,519,381 239,000 37,741 1,163,053 121,000 0 68,569 30,009 10,000 1,628 103,162 1,464,803 4,758,346 1,005,158 44,672 815,375 860,047 145,111 2,565 147,676 52,799 94,877 6,748 88,129 50,000 91,359 21,813 0 0 INCLUDES COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF $125,000. INCLUDES DIVIDENDS ON COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF $5,350. REPRESENTS COMMON STOCK DIVIDENDS PAID TO PARENT CORPORATION.
EX-27 8 FINANCIAL DATA SCHEDULE MET-ED
UT 0000065350 METROPOLITAN EDISON COMPANY 1,000 US DOLLARS 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 1 PER-BOOK 1,586,984 120,161 190,394 534,337 0 2,431,876 66,273 370,200 265,169 701,642 100,000 23,598 583,270 26,490 0 8,498 20,019 0 653 36,746 930,960 2,431,876 444,746 32,748 342,477 375,225 69,521 342 69,863 29,020 40,843 472 40,371 25,000 46,247 82,533 0 0 REPRESENTS COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES. INCLUDES DIVIDENDS ON COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF $4,500. REPRESENTS COMMON STOCK DIVIDENDS PAID TO PARENT CORPORATION.
EX-27 9 FINANCIAL DATA SCHEDULE PENELEC
UT 0000077227 PENNSYLVANIA ELECTRIC COMPANY 1,000 US DOLLARS 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 1 PER-BOOK 1,800,251 53,722 266,954 391,960 0 2,512,887 105,812 285,486 349,848 741,146 105,000 36,777 616,475 57,900 0 51,325 76,009 0 4,666 19,309 804,280 2,512,887 516,117 36,675 395,274 431,949 84,168 (325) 83,843 31,719 52,124 772 51,352 30,000 50,844 43,901 0 0 REPRESENTS COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES. INCLUDES DIVIDENDS ON COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF $4,594. REPRESENTS COMMON STOCK DIVIDENDS PAID TO PARENT CORPORATION.
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