-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, iUV9jUDiOqNemUHMevbq7AfmKiKQ+N/DrvdpErQjS5Z3s5MmDq1RHB2g1k3Ulv9b m8OjqwX27xLJ1yUAJ3NZpA== 0000053456-94-000007.txt : 19940314 0000053456-94-000007.hdr.sgml : 19940314 ACCESSION NUMBER: 0000053456-94-000007 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940311 FILER: COMPANY DATA: COMPANY CONFORMED NAME: JERSEY CENTRAL POWER & LIGHT CO CENTRAL INDEX KEY: 0000053456 STANDARD INDUSTRIAL CLASSIFICATION: 4911 IRS NUMBER: 210485010 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 001-03141 FILM NUMBER: 94515694 BUSINESS ADDRESS: STREET 1: 300 MADISON AVE CITY: MORRISTOWN STATE: NJ ZIP: 079621911 BUSINESS PHONE: 2014558200 10-K 1 REPORT SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1993 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-3141 JERSEY CENTRAL POWER & LIGHT COMPANY (Exact name of registrant as specified in its charter) New Jersey 21-0485010 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 300 Madison Avenue Morristown, New Jersey 07962-1911 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (201) 455-8200 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class Title of each class on which registered Cumulative Preferred Stock, no par value $100 stated value: First Mortgage Bonds: 4 % Series 7 1/8% Series due 2004 New York Stock Exchange 7.88% Series E 6 3/8% Series due 2003 " 7 1/2% Series due 2023 " 6 3/4% Series due 2025 " Securities registered pursuant to Section 12(g) of the Act: None 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 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the registrant's voting stock held by nonaffiliates: None The number of shares outstanding of each of the registrant's classes of voting stock as of February 28, 1994 was as follows: Common Stock, par value $10 per share: 15,371,270 shares outstanding TABLE OF CONTENTS Page Number Part I Item 1. Business 1 Item 2. Properties 25 Item 3. Legal Proceedings 26 Item 4. Submission of Matters to a Vote of Security Holders 26 Part II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 27 Item 6. Selected Financial Data 27 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 27 Item 8. Financial Statements and Supplementary Data 27 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 27 Part III Item 10. Directors and Executive Officers of the Registrant 28 Item 11. Executive Compensation 31 Item 12. Security Ownership of Certain Beneficial Owners and Management 35 Item 13. Certain Relationships and Related Transactions 35 Part IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 36 Signatures 37 Index to Supplementary Data, Financial Statements and Financial Statement Schedules F-1 PART I ITEM 1. BUSINESS. Jersey Central Power & Light Company (the Company), which was incorporated under the laws of New Jersey in 1925, is a wholly owned subsidiary of General Public Utilities Corporation (GPU), a holding company registered under the Public Utility Holding Company Act of 1935 (the 1935 Act). The Company's business consists predominantly of the generation, transmission, distribution and sale of electricity. The Company is affiliated with Metropolitan Edison Company (Met-Ed) and Pennsylvania Electric Company (Penelec). The Company, Met-Ed and Penelec are referred to herein as the "Company and its affiliates." The Company is also affiliated with GPU Service Corporation (GPUSC), a service company; GPU Nuclear Corporation (GPUN), which operates and maintains the nuclear units of the Company and its affiliates; and General Portfolios Corporation (GPC), parent of Energy Initiatives, Inc. (EI), which develops, owns and operates nonutility generating facilities. All of the Company's affiliates are wholly owned subsidiaries of GPU. The Company and its affiliates own all of the common stock of the Saxton Nuclear Experimental Corporation, which owns a small demonstration nuclear reactor that has been partially decommissioned. The Company and its affiliates, GPUSC, GPUN and GPC are referred to as the "GPU System." As a subsidiary of a registered holding company, the Company is subject to regulation by the Securities and Exchange Commission (SEC) under the 1935 Act. The Company's retail rates, conditions of service, issuance of securities and other matters are subject to regulation by the New Jersey Board of Regulatory Commissioners (NJBRC). The Nuclear Regulatory Commission (NRC) regulates the construction, ownership and operation of nuclear generating stations. The Company is also subject to regulation by the Federal Energy Regulatory Commission (FERC) under the Federal Power Act. (See "Regulation.") Industry Developments The Energy Policy Act of 1992 (Energy Act) has made significant changes to the 1935 Act and the Federal Power Act. As a result of this legislation, the FERC is now authorized to order utilities to provide transmission or wheeling service to third parties for wholesale power transactions provided specified reliability and pricing criteria are met. In addition, the legislation amends the 1935 Act to permit the development and ownership of a broad category of independent power production facilities by utilities and nonutilities alike without subjecting them to regulation under the 1935 Act. These and other aspects of the Energy Act are expected to accelerate the changing character of the electric utility industry. The electric utility industry appears to be undergoing a major transition as it proceeds from a traditional rate regulated environment based on cost recovery to some combination of a competitive marketplace and modified regulation of certain market segments. The industry challenges resulting from various instances of competition, deregulation and restructuring thus far have been minor compared with the impact that is expected in the future. The 1 Public Utility Regulatory Policies Act of 1978 (PURPA) facilitated the entry of competitors into the electric generation business. Since then, more competition has been introduced through various state actions to encourage cogeneration and, most recently, the Energy Act. The Energy Act is intended to promote competition among utility and nonutility generators in the wholesale electric generation market, accelerating the industry restructuring that has been underway since the enactment of PURPA. This legislation, coupled with increasing customer demands for lower-priced electricity, is generally expected to stimulate even greater competition in both the wholesale and retail electricity markets. These competitive pressures may create opportunities to compete for new customers and revenues, as well as increase risk which could lead to the loss of customers. Operating in a competitive environment will place added pressures on utility profit margins and credit quality. Utilities with significantly higher cost structures than supportable in the marketplace may experience reduced earnings as they attempt to meet their customers' demands for lower- priced electricity. This prospect of increasing competition in the electric utility industry has already led the major credit rating agencies to address and apply more stringent guidelines in making credit rating determinations. Among its provisions, the Energy Act allows the FERC, subject to certain criteria, to order owners of electric transmission systems, such as the Company and its affiliates, to provide third parties with transmission access for wholesale power transactions. The Energy Act did not give the FERC the authority, however, to order retail transmission access. Movement toward opening the transmission network to retail customers is currently under consideration in several states. The competitive forces have also begun to influence some retail pricing in the industry. In a few instances, industrial customers, threatening to pursue cogeneration, self-generation or relocation to other service territories, have leveraged price concessions from utilities. Recent state regulatory actions, such as in New Jersey, suggest that utilities may have limited success with attempting to shift costs associated with such discounts to other customers. Utilities may have to absorb, in whole or part, the effects of price reductions designed to retain large retail customers. State regulators may put a limit or cap on prices, especially for those customers unable to pursue alternative supply options. Insofar as the Company is concerned, unrecovered costs will most likely be related to generation investment, purchased power contracts, and "regulatory assets", which are deferred accounting transactions whose value rests on the strength of a state regulatory decision to allow future recovery from ratepayers. In markets where there is excess capacity (as there currently is in the region including New Jersey) and many available sources of power supply, the market price of electricity may be too low to support full recovery of capital costs of certain existing power plants, primarily the capital intensive plants such as nuclear units. Another significant exposure in the transition to a competitive market results if the prices of a utility's existing purchase power contracts, consisting primarily of contractual obligations with nonutility generators, are higher than future market prices. Utilities locked into expensive purchase power arrangements may be forced to value the contracts at market prices and recognize certain losses. A third 2 source of exposure is regulatory assets which if not supported by regulators would have no value in a competitive market. Financial Accounting Standard No. 71 (FAS 71), "Accounting for the Effects of Certain Types of Regulation," applies to regulated utilities that have the ability to recover their costs through rates established by regulators and charged to customers. If a portion of the Company's operations continues to be regulated, FAS 71 accounting may only be applied to that portion. Write-offs of utility plant and regulatory assets may result for those operations that no longer meet the requirements of FAS 71. In addition, under deregulation, the uneconomical costs of certain contractual commitments for purchased power and/or fuel supplies may have to be expensed. Management believes that to the extent that the Company no longer qualifies for FAS 71 accounting treatment, a material adverse effect on its results of operations and financial position may result. At this time, it is difficult for management to project the future level of stranded assets or other unrecoverable costs, if any, without knowing what the market price of electricity will be, or if regulators will allow recovery of industry transition costs from customers. Corporate Realignment In February 1994, GPU announced a corporate realignment and related actions as a result of its ongoing strategic planning studies. GPU Generation Corporation (GPU Generation) will be formed to operate and maintain the fossil-fueled and hydroelectric generating units of the Company and its affiliates; ownership of the generating assets will remain with the Company and its affiliates. GPU Generation will also build new generation facilities as needed by the Company and its affiliates in the future. Involvement in the independent power generation market will continue through EI. Additionally, the management and staff of Penelec and Met-Ed will be combined but the two companies will not be merged and will retain their separate corporate existence. This action is intended to increase effectiveness and lower cost. Included in this effort will be a search for parallel opportunities at GPUN and the Company. Completion of these realignment initiatives will be subject to various regulatory reviews and approvals from the SEC, FERC, NJBRC and the Pennsylvania Public Utility Commission (PaPUC). The GPU System is also developing a performance improvement and cost reduction program to help assure ongoing competitiveness, and, among other matters, will also address workforce issues in terms of compensation, size and skill mix. The GPU System is seeking annual cost savings of approximately $80 million by the end of 1996 as a result of these organizational changes. Duquesne Transaction In September 1990, the Company and its affiliates entered into a series of interdependent agreements with Duquesne Light Company (Duquesne) for the purchase of a 50% ownership interest in Duquesne's 300 megawatt (MW) Phillips generating station and the joint construction and ownership of associated high voltage bulk transmission facilities. The Company and its affiliates' share of the total cost of these agreements was estimated to be $500 million, of which the Company's share was $215 million, the major part of which was expected to be incurred after 1994. In addition, the Company and Met-Ed simultaneously entered into a related agreement with Duquesne to purchase 350 MW of capacity and energy from Duquesne for 20 years beginning in 1997. The Company and its affiliates and Duquesne filed several petitions with the 3 PaPUC and the NJBRC seeking certain of the regulatory authorizations required for the transactions. In December 1993, the NJBRC denied the Company's request to participate in the proposed transactions. As a result of this action and other developments, the Company and its affiliates notified Duquesne that they were exercising their rights under the agreements to withdraw from and thereby terminate the agreements. Consequently, the Company wrote off the approximately $9 million it had invested in the project. General The Company is an electric public utility furnishing service entirely within the State of New Jersey. It provides retail service in northern, western and east central New Jersey having an estimated population of approximately 2.4 million. The electric generating and transmission facilities of the Company, Met-Ed and Penelec are physically interconnected and are operated as a single integrated and coordinated system. The transmission facilities are physically interconnected with neighboring nonaffiliated utilities in Pennsylvania, New Jersey, Maryland, New York and Ohio. The Company and its affiliates are members of the Pennsylvania-New Jersey-Maryland Interconnection (PJM) and the Mid-Atlantic Area Council, an organization providing coordinated review of the planning by utilities in the PJM area. The interconnection facilities are used for substantial capacity and energy interchange and purchased power transactions as well as emergency assistance. During 1993, residential sales accounted for approximately 44% of the Company's operating revenues from customers and 40% of kilowatt-hour (kWh) sales to customers; commercial sales accounted for approximately 37% of operating revenues from customers and 37% of kWh sales to customers; industrial sales accounted for approximately 17% of operating revenues from customers and 21% of kWh sales to customers; and sales to a rural electric cooperative, municipalities (primarily for street and highway lighting), and others accounted for approximately 2% of operating revenues from customers and 2% of kWh sales to customers. The Company also makes interchange and spot market sales of electricity to other utilities. The revenues derived from the largest single customer accounted for less than 3% of the electric operating revenues for the year and the 25 largest customers, in the aggregate, accounted for approximately 10% of such revenues. Reference is made to "Company Statistics" on page F-2 for additional information concerning the Company's sales and revenues. The Company and its affiliates along with the other members of the PJM power pool, experienced an electric emergency due to extremely cold temperature from January 18 through January 20, 1994. In order to maintain the electric system and to avoid a total black-out, intermittent black-outs for periods typically of one to two hours were instituted on January 19, 1994 to control peak loads. In February 1994, the NJBRC, the PaPUC and the FERC initiated investigations of the energy emergency, and forwarded data requests to all affected utilities. In addition, the United States House of Representatives' Energy and Power Subcommittee, among others, held hearings on this matter. At this time, management is unable to estimate the impact, if any, from any conclusions that may be reached by the regulators. 4 Competition in the electric utility industry has already played a significant role in wholesale transactions, affecting the pricing of energy sales to electric cooperatives and municipal customers. During 1993, Penelec successfully negotiated power supply agreements with several Company wholesale customers in response to offers made by other utilities seeking to provide electric service at rates lower than those of the Company. Wholesale customers represent a relatively small portion of GPU System sales. Nuclear Facilities The Company has made investments in three major nuclear projects -- Three Mile Island Unit 1 (TMI-1) and Oyster Creek, both of which are operational generating facilities, and Three Mile Island Unit 2 (TMI-2), which was damaged during a 1979 accident. At December 31, 1993, the Company's net investment in TMI-1 and Oyster Creek, including nuclear fuel, was $173 million and $784 million, respectively. TMI-1 and TMI-2 are jointly owned by the Company, Met-Ed and Penelec in the percentages of 25%, 50% and 25%, respectively. Oyster Creek is owned by the Company. Costs associated with the operation, maintenance and retirement of nuclear plants have continued to increase and become less predictable, in large part due to changing regulatory requirements and safety standards and experience gained in the construction and operation of nuclear facilities. The Company and its affiliates may also incur costs and experience reduced output at their nuclear plants because of the design criteria prevailing 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 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 the plants' useful life (whether scheduled or premature), the carrying costs of that investment and retirement costs, is not assured. Management intends, in general, to seek recovery of any such costs described above through the ratemaking process, but recognizes that recovery is not assured. TMI-1 TMI-1, a 786 MW pressurized water reactor, was licensed by the NRC in 1974 for operation through 2008. The NRC has extended the TMI-1 operating license through April 2014, in recognition of the plant's approximate six-year construction period. During 1993, TMI-1 operated at a capacity factor of approximately 87%. A scheduled refueling outage that year lasted 36 days; the next refueling outage is scheduled for late 1995. Oyster Creek The Oyster Creek station, a 610 MW boiling water reactor, received a provisional operating license from the NRC in 1969 and a full-term operating license in 1991. In April 1993, the NRC extended the station's operating license from 2004 to 2009 in recognition of the plant's approximate four-year construction period. The plant operated at a capacity factor of approximately 87% during 1993. A scheduled refueling outage lasted 81 days and the plant returned to service on February 16, 1993. The next refueling outage is scheduled for September 1994. 5 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 NRC approval, TMI-2 entered into long-term monitored storage in December 1993. As a result of the accident and its aftermath, individual claims for alleged personal injury (including claims for punitive damages), which are material in amount, have been asserted against GPU and the Company and its affiliates. Approximately 2,100 of such claims are pending in the U. S. 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. Questions have not yet been resolved as to whether the punitive damage claims are (a) subject to the overall limitation of liability set by the Price-Anderson Act ($560 million at the time of the accident) and (b) outside the primary insurance coverage provided pursuant to that Act (remaining primary coverage of approximately $80 million as of December 1993). If punitive damages are not covered by insurance or are not subject to the Price-Anderson liability limitation, punitive damage awards could have a material adverse effect on the financial position of the Company. In June 1993, the Court agreed to permit pre-trial discovery on the punitive damage claims to proceed. A trial of twelve allegedly representative cases is scheduled to begin in October 1994. In February 1994, the Court held that the plaintiffs' claims for punitive damages are not barred by the Price- Anderson Act to the extent that the funds to pay punitive damages do not come out of the U.S. Treasury. The Court also denied the defendants' motion seeking a dismissal of all cases on the grounds that the defendants complied with applicable Federal safety standards regarding permissible radiation releases from TMI-2 and that, as a matter of law, the defendants therefore did not breach any duty that they may have owed to the individual plaintiffs. The Court stated that a dispute about what radiation and emissions were released cannot be resolved on a motion for summary judgment. 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). See Note 2 to Financial Statements for further information regarding nuclear fuel disposal costs. In 1990, the Company and its affiliates submitted a report, in compliance with NRC regulations, setting forth a funding plan (employing the external sinking fund method) for the decommissioning of their nuclear reactors. Under this plan, the Company and its affiliates intend to complete the funding for Oyster Creek and TMI-1 by the end of the plants' license terms, 2009 and 2014, respectively. The TMI-2 funding completion date is 2014, consistent with TMI-2 remaining in long-term storage and being decommissioned at the same time as TMI-1. Under the NRC regulations, the funding target (in 1993 dollars) for TMI-1 is $143 million, of which the Company's share is $36 million, and for Oyster Creek is $175 million. Based on NRC studies, a comparable funding 6 target for TMI-2 (in 1993 dollars), which takes into account the accident, is $228 million, of which the Company's share is $57 million. The NRC is currently studying the levels of these funding targets. Management cannot predict the effect that the results of this review will have on the funding targets. NRC regulations and a regulatory guide provide mechanisms, including exemptions, to adjust the funding targets over their collection periods to reflect increases or decreases due to inflation and changes in technology and regulatory requirements. The funding targets, while not actual cost estimates, are reference levels designed to assure that licensees demonstrate adequate financial responsibility for decommissioning. While the 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 1988, a consultant to GPUN performed site-specific studies of TMI-1 and Oyster Creek that considered various decommissioning plans and estimated the cost of decommissioning the radiological portions of each plant to range from approximately $205 to $285 million, of which the Company's share is $51 to $71 million, and $220 to $320 million, respectively (adjusted to 1993 dollars). In addition, the studies estimated the cost of removal of nonradiological structures and materials for TMI-1 and Oyster Creek at $72 million, of which the Company's share is $18 million, and $47 million, respectively. The ultimate cost of retiring the Company and its affiliates' nuclear facilities may be materially different from the funding targets and the cost estimates contained in the site-specific studies and cannot now be more reasonably estimated than the level of the NRC funding target because such costs are subject to (a) the type of decommissioning plan selected, (b) the escalation of various cost elements (including, but not limited to, general inflation), (c) the further development of regulatory requirements governing decommissioning, (d) the absence to date of significant experience in decommissioning such facilities and (e) the technology available at the time of decommissioning. The Company charges to expense and contributes to external trusts amounts collected from customers for nuclear plant decommissioning and nonradiological costs. In addition, in 1990 the Company contributed to an external trust an amount not recoverable from customers for nuclear plant decommissioning. TMI-1 and Oyster Creek The Company is collecting revenues for decommissioning, which are expected to result in the accumulation of its share of the NRC funding target for each plant. The Company is also collecting revenues for the cost of removal of nonradiological structures and materials at each plant based on its share ($3.83 million) of an estimated $15.3 million for TMI-1 and $31.6 million for Oyster Creek. Collections from customers for decommissioning expenditures are deposited in external trusts. These external trust funds, including the interest earned, are classified as Decommissioning Funds on the balance sheet. Provision for the future expenditure of these funds has been made in accumulated depreciation, amounting to $13 million for TMI-1 and $80 million for Oyster Creek at December 31, 1993. 7 Management believes that any TMI-1 and Oyster Creek retirement costs, in excess of those currently recognized for ratemaking purposes, should be recoverable through the ratemaking process. TMI-2 The Company has recorded a liability, amounting to $57 million as of December 31, 1993, for its share of the radiological decommissioning of TMI- 2, reflecting the NRC funding target (unadjusted for an immaterial decrease in 1993). The Company records escalations, when applicable, in the liability based upon changes in the NRC funding target. The Company has also recorded a liability in the amount of $5 million for its share of incremental costs specifically attributable to monitored storage. Such costs are expected to be incurred between 1994 and 2014, when decommissioning is forecast to begin. In addition, the Company has recorded a liability in the amount of $18 million for its share of the nonradiological cost of removal. The above amounts for retirement costs and monitored storage are reflected as Three Mile Island Unit 2 Future Costs on the balance sheet. The Company has made a nonrecoverable contribution of $15 million to an external decommissioning trust. The NJBRC has granted the Company decommissioning revenues for the remainder of the NRC funding target and allowances for the cost of removal of nonradiological structures and materials. Management intends to seek recovery for any increases in TMI-2 retirement costs, but recognizes that recovery cannot be assured. As a result of TMI-2's entering long-term monitored storage, the Company is incurring incremental storage costs currently estimated at $.25 million annually. The Company has deferred the $5 million for its share of the total estimated incremental costs attributable to monitored storage through 2014, the expected retirement date of TMI-1. The Company's share of these costs has been recognized in rates by the NJBRC. Insurance The GPU System has insurance (subject to retentions and deductibles) for its operations and facilities including coverage for property damage, liability to employees and third parties, and loss of use and occupancy (primarily incremental replacement power costs). There is no assurance that the GPU System 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 Company. The decontamination liability, premature decommissioning and property damage insurance coverage for the TMI station (TMI-1 and TMI-2 are considered one site for insurance purposes) 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 to stabilize 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 the stations. 8 The Price-Anderson Act limits the GPU System's liability to third parties for a nuclear incident at one of its sites to approximately $9.4 billion. Coverage for the first $200 million of such liability is provided by private insurance. The remaining coverage, or secondary protection, is provided by retrospective premiums payable by all nuclear reactor owners. Under secondary protection, a nuclear incident at any licensed nuclear power reactor in the country, including those owned by the GPU System, could result in assessments of up to $79 million per incident for each of the GPU System's three reactors, subject to an annual maximum payment of $10 million per incident per reactor. In 1993, GPUN requested an exemption from the NRC to eliminate the secondary protection requirements for TMI-2. This matter is pending before the NRC. The Company and its affiliates 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 at decreasing levels beginning at weekly amounts of $1.8 million and $2.6 million for Oyster Creek and TMI-1, respectively. Under its insurance policies applicable to nuclear operations and facilities, the Company is subject to retrospective premium assessments of up to $31 million in any one year, in addition to those payable under the Price-Anderson Act. Nonutility and Other Power Purchases The Company has entered into power purchase agreements with independently owned power production facilities (nonutility generators) for the purchase of energy and capacity for periods up to 25 years. The majority of these agreements are subject to penalties for nonperformance and other contract limitations. While a few of these facilities are dispatchable, most are must- run and generally obligate the Company to purchase all of the power produced up to the contract limits. The agreements have been approved by the NJBRC and permit the Company to recover energy and demand costs from customers through its energy clause. These agreements provide for the sale of approximately 1,194 MW of capacity and energy to the Company by the mid-to-late 1990s. As of December 31, 1993, facilities covered by these agreements having 661 MW of capacity were in service, and 215 MW were scheduled to commence operation in 1994. Payments made pursuant to these agreements were $292 million for 1993 and are estimated to aggregate $325 million for 1994. The price of the energy and capacity to be purchased under these agreements is determined by the terms of the contracts. The rates payable under a number of these agreements are substantially in excess of current market prices. While the Company has been granted full recovery of these costs from customers by the NJBRC, there can be no assurance that the Company will continue to be able to recover these costs throughout the term of the related contracts. The emerging competitive market has created additional uncertainty regarding the forecasting of the GPU System's energy supply needs which, in turn, has caused the Company and its affiliates to change their supply strategy to seek shorter term agreements offering more flexibility. At the same time, the Company is attempting to renegotiate, and in some cases buy out, high cost long-term nonutility generation contracts where opportunities arise. The extent to which the Company may be able to do so, however, or recover associated costs through rates, is uncertain. Moreover, these efforts have led to disputes before the 9 NJBRC, as well as to litigation, and may result in claims against the Company for substantial damages. There can be no assurance as to the outcome of these matters. In July 1993, an NJBRC Advisory Council recommended in a report that all New Jersey electric utilities be required to submit integrated resource plans for review and approval by the NJBRC. The NJBRC has asked all electric utilities in the state to assess the economics of their purchase power contracts with nonutility generators to determine whether there are any candidates for potential buy out or other remedial measures. In response, the Company initially identified a 100 MW project now under development, which it believes is economically undesirable based on current cost projections. In November 1993, the NJBRC directed the Company and the developer to negotiate contract repricing to a level more consistent with the Company's current avoided cost projections or a contract buy out. The parties have been unable to reach agreement and on February 10, 1994 the NJBRC decided to conduct a hearing on the matter. The developer has filed a declaratory judgement action in federal court contesting the NJBRC's jurisdiction in this matter and is seeking to enjoin the NJBRC proceeding. The matter is pending before the District Court and the NJBRC. In November 1993, the NJBRC granted two nonutility generators, having a total of 200 MW under contract with the Company, a one-year extension in the in-service dates for projects which were originally scheduled to be operational in 1997. The Company is awaiting a final written NJBRC order and may appeal this decision. Also in November 1993, the Company received approval from the NJBRC to withdraw its request for proposals for the purchase of 150 MW from nonutility generators. In its petition requesting withdrawal, the Company cited, among other reasons, that solicitations for long-term contracts would have limited its ability to compete in a deregulated environment. As a result of the NJBRC's decision, in January 1994, the Company issued an all source solicitation for the short-term supply of energy and/or capacity to determine and evaluate the availability of competitively priced power supply options. The Company is seeking proposals from utility and nonutility generation suppliers for periods of one to eight years in length and capable of delivering electric power beginning in 1996. Although the intention of the solicitation is to procure short-term and medium-term supplies of electric power, the Company is willing to give some consideration to proposals in excess of eight-year terms. The Company has entered into an arrangement for a peaking generation project. The Company plans to install a gas-fired combustion turbine at its Gilbert Generating station and retire two steam units for an 88 MW net increase in peaking capacity at an expected cost of $50 million. The Company expects to complete the project by 1996. The Company and its affiliates have entered into agreements with other utilities for the purchase of capacity and energy for various periods through 1999. These agreements provide for up to 2,130 MW in 1994, declining to 1,307 MW in 1995 and 183 MW by 1999. Payments pursuant to these agreements are estimated to aggregate $244 million in 1994. The price of the energy 10 purchased under these agreements is determined by contracts providing generally for the recovery by the sellers of their costs. Rate Proceedings In December 1993, the Company filed a proposal with the NJBRC seeking approval to implement a new rate initiative designed to retain and expand the economic base in New Jersey. Under the proposed contract rate service, large retail customers could enter into contracts for existing electric service at prevailing rates, with limitations on their exposure to future rate increases. With this rate initiative, the Company would have to absorb any differential in price resulting from changes in costs not provided for in the contracts. This matter is pending before the NJBRC. Proposed legislation has been introduced in New Jersey which is intended to allow the NJBRC, at the request of an electric or gas utility, to adopt a plan of regulation other than traditional ratemaking methods to encourage economic development and job creation. This legislation would allow electric utilities to be more competitive with nonutility generators who are not subject to NJBRC regulation. Combined with other economic development initiatives, this legislation, if enacted, would provide more flexibility in responding to competitive pressures, but may also serve to accelerate the growth of competitive pressures. The Company's two operating nuclear units are subject to the NJBRC's annual nuclear performance standard. Operation of these units at an aggregate 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. While a capacity factor below 40% would generate no specific monetary charge, it would require the issue to be brought before the NJBRC for review. The annual measurement period, which begins in March of each year, coincides with that used for the Levelized Energy Adjustment Clause (LEAC). The NJBRC has instituted a generic proceeding to address the appropriate recovery of capacity costs associated with electric utility power purchases from nonutility generation projects. The proceeding was initiated, in part, to respond to contentions of the New Jersey Public Advocate, Division of Rate Counsel (Rate Counsel), that by permitting utilities to recover such costs through the LEAC, an excess or "double recovery" may result when combined with the recovery of the utilities' embedded capacity costs through their base rates. In September 1993, the Company and the other New Jersey electric utilities filed motions for summary judgment with the NJBRC requesting that the NJBRC dismiss contentions being made by Rate Counsel that adjustments for alleged "double recovery" in prior periods are warranted. Rate Counsel has filed a brief in opposition to the utilities' summary judgment motions including a statement from its consultant that in his view, the "double recovery" for the Company for the 1988-92 period would be approximately $102 million. Management believes that the position of Rate Counsel is without merit. This matter is pending before the NJBRC. 11 Construction Program General During 1993, the Company had gross plant additions of approximately $203 million attributable principally to improvements and modifications to existing generating stations and additions to the transmission and distribution system. During 1994, the Company contemplates gross plant additions of approximately $275 million. The Company's gross plant additions are expected to total approximately $253 million in 1995. The principal categories of the 1994 anticipated expenditures, which include an allowance for other funds used during construction, are as follows: (In Millions) 1994 Generation - Nuclear $ 74 Nonnuclear 54 Total Generation 128 Transmission & Distribution 135 Other 12 Total $275 In addition, expenditures for maturing debt are expected to be $60 million and $47 million for 1994 and 1995, respectively. Subject to market conditions, the Company intends to redeem during these periods outstanding senior securities pursuant to optional redemption provisions thereof should it prove economical to do so. Management estimates that approximately one-half of the Company's total capital needs for 1994 and approximately three-fourths for 1995 will be satisfied through internally generated funds. The Company expects to obtain the remainder of these funds principally through the sale of first mortgage bonds and preferred stock, subject to market conditions. The Company's bond indenture and charter include provisions that limit the amount of long-term debt, preferred stock and short-term debt the Company may issue. The interest and preferred stock dividend coverage ratios of the Company are currently in excess of indenture or charter restrictions. (See "Limitations on Issuing Additional Securities.") Present plans call for the Company to issue long- term debt and preferred stock during the next three years to finance construction activities and, depending on the level of interest rates, refinance outstanding senior securities. The Company's 1994 construction program includes $19 million in connection with the federal Clean Air Act Amendments of 1990 (Clean Air Act) requirements (see "Environmental Matters - Air"). The 1995 construction program currently includes approximately $16 million for Clean Air Act compliance. The Company's gross plant additions exclude nuclear fuel requirements provided under capital leases that amounted to $13 million in 1993. When consumed, the currently leased material, which amounted to $86 million at December 31, 1993, is expected to be replaced by additional leased material at 12 an average rate of approximately $36 million annually. In the event the replacement nuclear fuel cannot be leased, the associated capital requirements would have to be met by other means. In response to the increasingly competitive business climate and excess capacity of nearby utilities, the GPU System's supply plan places an emphasis on maintaining flexibility. Supply planning focuses increasingly on short- to intermediate-term commitments, reliance on "spot" markets, and avoidance of long-term firm commitments. The Company is expected to experience an average growth rate in sales to customers (exclusive of the loss of its wholesale customers) through 1998 of about 1.6% annually. The Company also expects to experience peak load growth although at a somewhat lesser rate. Through 1998, the Company's plan consists of the continued utilization of most existing generating facilities, retirement of certain older units, present commitments for power purchases and new power purchases (of short or intermediate term duration), construction of a new facility, and the utilization of capacity of its affiliates. The plan also includes the continued promotion of economical energy conservation and load management programs. Given the future direction of the industry, the Company's present strategy includes minimizing the financial exposure associated with new long-term purchase commitments and the construction of new facilities by including projected market prices in the evaluation of these options. The Company will resist efforts to compel it to add or contract for new capacity at costs that may exceed future market prices. In addition, the Company will seek regulatory support to renegotiate or buy out contracts with nonutility generators where the pricing is in excess of projected market prices. Demand-Side Management The regulatory environment in New Jersey encourages the development of new conservation and load management programs. This is evidenced by demand- side management (DSM) incentive regulations adopted in New Jersey in 1992. DSM includes utility sponsored activities designed to improve energy efficiency in customer end-use, and includes load management programs (i.e., peak reduction) and conservation programs (i.e., energy and peak reduction). The NJBRC approved the Company's DSM plan in 1992 reflecting DSM initiatives of 67 MW of summer peak reduction by the end of 1994. Under the approved regulation, qualified Performance Program DSM investments are recovered over a six-year period with a return earned on the unrecovered amounts. Lost revenues will be recovered on an annual basis and the Company can also earn a performance-based incentive for successfully implementing cost effective programs. In addition, the Company will continue to make certain NJBRC mandated Core Program DSM investments which are recovered annually. Financing Arrangements The Company expects to have short-term debt outstanding from time to time throughout the year. The peak in short-term debt is expected to occur in the spring, coinciding with normal cash requirements for New Jersey Unit Tax payments. GPU and the Company and its affiliates have $398 million of credit facilities, which includes a Revolving Credit Agreement (Credit Agreement) with a consortium of banks that permits total borrowing of $150 million 13 outstanding at any one time. The credit facilities generally provide for the payment of a commitment fee on the unborrowed amount of 1/8 of 1% annually. Borrowings under these credit facilities generally bear interest based on the prime rate or money market rates. Notes issued under the Credit Agreement, which expires April 1, 1995, are subject to various covenants and acceleration under certain conditions. In 1993, the Company refinanced higher cost long-term debt in the principal amount of $394 million resulting in an estimated annualized after- tax savings of $4 million. Total long-term debt issued during 1993 amounted to $555 million. In addition, the Company redeemed $50 million of high- dividend rate preferred stock issues. The Company has regulatory authority to issue and sell first mortgage bonds, which may be issued as secured medium-term notes, and preferred stock through June, 1995. Under existing authorization, the Company may issue senior securities in the amount of $275 million, of which $100 million may consist of preferred stock. The Company also has regulatory authority to incur short-term debt, a portion of which may be through the issuance of commercial paper. Under the Company's nuclear fuel lease agreements with nonaffiliated fuel trusts, an aggregate of up to $250 million ($125 million each for Oyster Creek and TMI-I) of nuclear fuel costs may be outstanding at any one time. It is contemplated that when consumed, portions of the currently leased material will be replaced by additional leased material. The Company and its affiliates are responsible for the disposal costs of nuclear fuel leased under these agreements. Limitations on Issuing Additional Securities The Company's first mortgage bond indenture and/or charter include provisions that limit the total amount of securities evidencing secured indebtedness and/or unsecured indebtedness that the Company can issue, the more restrictive of which are described below. The Company's first mortgage bond indenture requires that, for any period of 12 consecutive months out of the 15 calendar months preceeding the issuance of additional bonds, net earnings available for interest shall have been at least twice the interest requirements on bonds to be outstanding immediately after such issuance. Net earnings available for interest generally consist of the excess of gross operating revenues over operating expenses (other than income taxes), plus or minus net nonoperating income or loss with nonoperating income limited to 5% of operating income. Moreover, the Company's first mortgage bond indenture restricts the ratio of the principal amount of first mortgage bonds that can be issued to not more than 60% of bondable value of property additions. In addition, the indenture, in general, permits the Company to issue additional first mortgage bonds against a like principal amount of previously retired bonds. At December 31, 1993, the net earnings requirement under the Company's mortgage indenture, as described above, would have permitted it to issue 14 approximately $821 million of first mortgage bonds at an assumed interest rate of 8%. However, the Company had bondable value of property additions and previously retired bonds that would have permitted it to issue an aggregate of only approximately $334 million of additional first mortgage bonds. Among other restrictions, the Company's charter provides that, without the consent of the holders of two-thirds of the total voting power of the outstanding preferred stock, no additional shares of preferred stock may be issued unless, for any period of 12 consecutive months of the 15 calendar months preceding such issuance, the Company's net after tax earnings available for the payment of interest on indebtedness shall have been at least one and one-half times the aggregate of (a) the annual interest charges on indebtedness and (b) the annual dividend requirements on all shares of preferred stock to be outstanding immediately after such issuance. At December 31, 1993, these earnings restrictions would have permitted the Company to issue approximately $659 million stated value of cumulative preferred stock at an assumed dividend rate of 8%. The Company's ability to effect bank loans and issue commercial paper is limited by the provisions of its charter concerning the ratio of loans to total capitalization. The Company's charter provides that, without the consent of the holders of a majority of the total voting power of the Company's outstanding preferred stock, unsecured indebtedness having an initial maturity of less than 10 years (or within three years of maturity) cannot exceed 10% of the sum of secured indebtedness, capital stock, including premium thereon, and surplus. At December 31, 1993, these restrictions would have permitted the Company to have approximately $277 million of unsecured indebtedness outstanding. The Company has obtained authorization from the SEC to incur short-term debt (including indebtedness under the Credit Agreement, bank credit facilities and commercial paper) up to the Company's charter limitation. Regulation As a registered holding company, GPU is subject to regulation by the SEC under the 1935 Act. The Company, as a subsidiary of GPU, is also subject to regulation under the 1935 Act with respect to accounting, the issuance of securities, the acquisition and sale of utility assets, securities or any other interest in any business, the entering into, and performance of, service, sales and construction contracts, and certain other matters. The SEC has determined that the electric facilities of the Company and its affiliates constitute a single integrated public utility system under the standards of the 1935 Act. The 1935 Act also limits the extent to which the Company may engage in nonutility businesses. The Company's retail rates, conditions of service, issuance of securities and other matters are subject to regulation by the NJBRC. Moreover, with respect to the transmission of electric energy, accounting, the construction and maintenance of hydroelectric projects and certain other matters, the Company is subject to regulation by the FERC under the Federal Power Act. The NRC regulates the construction, ownership and operation of nuclear generating stations and other related matters. The Company is also subject, in certain respects, to regulation by the PaPUC in connection with its participation in the ownership and operation of certain 15 facilities located in Pennsylvania. (See "Electric Generation and the Environment - Environmental Matters" for additional regulation to which the Company is or may be subject.) The rates charged by the Company for electric service are set by regulators under statutory requirements that they be "just and reasonable." As such, they are subject to adjustment, up or down, in the event they vary from that statutory standard. In 1989, the NJBRC issued proposed regulations designed to establish a mechanism to evaluate the earnings of New Jersey utilities to determine whether their rates continue to be just and reasonable. As proposed, the regulations would permit the NJBRC to establish interim rates subject to refund without prior hearing. There has been no activity concerning this matter since the Company filed comments with the NJBRC. Electric Generation and the Environment Fuel Of the portion of its energy requirements supplied by its own generation, the Company utilized fuels in the generation of electric energy during 1993 in approximately the following percentages: Nuclear--72%; Coal--23%; Gas--4%; and Other (primarily Oil)--1%. Approximately 58% of the Company's energy requirements in 1993 was supplied by purchases (including net interchange) from other utilities and nonutility generators. For 1994, the Company estimates that its generation of electric energy will be in the following proportions: Nuclear--64%; Coal--26%; Gas--9%; and Other (primarily Oil)--1%. The anticipated changes in 1994 fuel utilization percentages are principally attributable to the refueling outage scheduled during 1994 for the Oyster Creek nuclear generating station. Approximately 65% of the Company's 1994 energy requirements is expected to be supplied by purchases (including net interchange) from other utilities and nonutility generators. Fossil: The Company has entered into a long-term contract with a nonaffiliated mining company for the purchase of coal for the Keystone generating station of which the Company owns a one-sixth undivided interest. This contract, which expires in 2004, requires the purchase of minimum amounts of the station's coal requirements. The price of the coal is determined by a formula generally providing for the recovery by the mining company of its costs of production. The Company's share of the cost of coal purchased under this agreement is expected to aggregate $21 million for 1994. The Company's portion of the station's estimated coal requirements aggregates approximately 15 million tons over the next 20 years, of which five million tons are expected to be supplied by the nonaffiliated mine-mouth coal company under the long-term contract, with the balance supplied by spot purchases or short-term contracts. At the current time, adequate supplies of fossil fuels are readily available to the Company, but this situation could change rapidly as a result of actions over which it has no control. Nuclear: Preparation of nuclear fuel for generating station use involves various manufacturing stages for which the Company and its affiliates contract 16 separately. Stage I involves the mining and milling of uranium ores to produce natural uranium concentrates. Stage II provides for the chemical conversion of the natural uranium concentrates into uranium hexafluoride. Stage III involves the process of enrichment to produce enriched uranium hexafluoride from the natural uranium hexafluoride. Stage IV provides for the fabrication of the enriched uranium hexafluoride into nuclear fuel assemblies for use in the reactor core at the nuclear generating station. For TMI-1, under normal operating conditions, there is, with minor planned modifications, sufficient on-site storage capacity to accommodate spent nuclear fuel through the end of its licensed life while maintaining the ability to remove the entire reactor core. While Oyster Creek currently has sufficient on-site storage capacity to accommodate, under normal operating conditions, its spent nuclear fuel while maintaining the ability to remove the entire reactor core, additional on-site storage capacity will be required at the Oyster Creek station beginning in 1996 in order to continue operation of the plant. Contract commitments, with an outside vendor, have been made for on-site incremental spent fuel dry storage capacity at Oyster Creek for 1996 and 1998. Currently, public hearings on plans to build an interim spent fuel facility at the plant are underway. Environmental Matters The Company is subject to federal and state water quality, air quality, solid waste disposal and employee health and safety legislation and to environmental regulations issued by the U.S. Environmental Protection Agency (EPA), state environmental agencies and other federal agencies. In addition, the Company is subject to licensing of hydroelectric projects by the FERC and of nuclear power projects by the NRC. Such licensing and other actions by federal agencies with respect to projects of the Company are also subject to the National Environmental Policy Act. As a result of existing and proposed legislation and regulations, and ongoing legal proceedings dealing with environmental matters, including, but not limited to, acid rain, water quality, air quality, global warming, electromagnetic fields, and storage and disposal of hazardous and/or toxic wastes, the Company may be required to incur substantial additional costs to construct new equipment, modify or replace existing and proposed equipment, remediate or clean up waste disposal and other sites currently or formerly used by it, including formerly owned manufactured gas plants, 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. The consequences of environmental issues, which could cause the postponement or cancellation of either the installation or replacement of utility plant are unknown. Management believes the costs described above should be recoverable through the ratemaking process, but recognizes that recovery cannot be assured. Water: The federal Water Pollution Control Act (Clean Water Act) generally requires, with respect to existing steam electric power plants, the application of the best conventional or practicable pollutant control technology available and compliance with state-established water quality standards. With respect to future plants, the Clean Water Act requires the 17 application of the "best available demonstrated control technology, processes, operating methods or other alternatives" to achieve, where practicable, no discharge of pollutants. Congress may amend the Clean Water Act during 1994. The EPA has adopted regulations that establish thermal and other limitations for effluents discharged from both existing and new steam electric generating stations. Standards of performance are developed and enforcement of effluent limitations is accomplished through the issuance by the EPA, or states authorized by the EPA, of discharge permits that specify limitations to be applied. Discharge permits, which have been issued for all of the Company's generating stations, where required, have expired. Timely reapplications for such permits have been filed as required by regulations. Until new permits are issued, the currently expired permits remain in effect. The discharge permit received by the Company for the Oyster Creek station may, among other things, require the installation of a closed-cycle cooling system, such as a cooling tower, to meet New Jersey state water quality-based thermal effluent limitations. Although construction of such a system is not required in order to meet the EPA's regulations setting effluent limitations for the Oyster Creek station (such regulations would accept the use of the once-through cooling system now in operation at this station), a closed-cycle cooling system may be required in order to comply with the water quality standards imposed by the New Jersey Department of Environmental Protection and Energy (NJDEPE) for water quality certification and incorporated in the station's discharge permit. If a cooling tower is required, the capital costs could exceed $150 million. In 1988, the NJDEPE prepared a draft evaluation that assessed the impact of cooling water intake and discharge from Oyster Creek. This evaluation concluded that the thermal impact of water discharge from Oyster Creek operation was small and localized, but that the impact of cooling water intake was inconclusive, requiring further study. In 1993, the NJDEPE advised GPUN that rather than conduct hearings, it will determine water quality standards in the context of renewing the discharge permit. The NJDEPE has indicated that water quality standards (on an interim basis) will be set as requested by GPUN and that physical or operational changes to the intake structure will not be necessary at this time. Final standards will be established based upon results of a study to determine the optimum operational schedule for the dilution pumps. The NJDEPE has proposed thermal and other conditions for inclusion in the discharge permits for the Company's Gilbert and Sayreville generating stations that, among other things, could require the Company to install cooling towers and/or modify the water intake/discharge systems at these facilities. The Company has objected to these conditions and has requested an adjudicatory hearing with respect thereto. Implementation of these permit conditions has been stayed pending action on the Company's hearing request. The Company has made filings with the NJDEPE that the Company believes demonstrate compliance with state water quality standards at the Gilbert generating station and justify the issuance of a thermal variance at the Sayreville generating station to permit the continued use of the current once-through cooling system. Based on the NJDEPE's review of these demonstrations, substantial 18 modifications may be required at these stations, which may result in material capital expenditures. The Company is also subject to environmental and water diversion requirements adopted by the Delaware River Basin Commission and the Susquehanna River Basin Commission as administered by those commissions or the Pennsylvania Department of Environmental Resources (PaDER) and the NJDEPE. Nuclear: Reference is made to "Nuclear Facilities" for information regarding the TMI-2 accident, its aftermath and the Company's other nuclear facilities. New Jersey and Pennsylvania have each established, in conjunction with other states, a low level radioactive waste (radwaste) compact for the construction, licensing and operation of low level radwaste disposal facilities to service their respective areas by the year 2000. New Jersey and Connecticut have established the Northeast Compact. The estimated cost to license and build a low level radwaste disposal facility in New Jersey is approximately $74 million. The Company's expected $29.5 million share of the cost for this facility is to be paid annually over an eight year period ending 1999. In its February 1993 rate order, the NJBRC granted the Company's request to recover these amounts currently from customers. The facility would be available for disposal of low level waste from Oyster Creek. Similarly, Pennsylvania, Delaware, Maryland and West Virginia have established the Appalachian Compact, which will build a single facility to dispose of low level radwaste in their areas, including low level radwaste from TMI-1. The estimated cost to license and build this facility is approximately $60 million, of which the Company and its affiliates' share is $12 million. These payments are considered advance waste disposal fees and will be recovered during the facility's operation. The Company has provided for future contributions to the Decontamination and Decommissioning Fund (part of the Energy Act) for the cleanup of enrichment plants operated by the federal government. The Company's share of the total liability at December 31, 1993 amounted to $29 million. The Company made its initial payment in 1993. The remaining amount recoverable from ratepayers is $28 million at December 31, 1993. Air: The Company is subject to certain state environmental regulations of the NJDEPE, the New Jersey Department of Health and the PaDER. The Company is also subject to certain federal environmental regulations of the EPA. The PaDER, NJDEPE and the EPA have adopted air quality regulations designed to implement Pennsylvania, New Jersey and federal statutes relating to air quality. Current Pennsylvania environmental regulations prescribe criteria that generally limit the sulfur dioxide content of stack gas emissions from generating stations constructed before 1972 and stations constructed after 1971 but before 1978, to 3.7 pounds and 1.2 pounds per million BTUs of heat input, respectively. On a weighted average basis, the Company and its 19 affiliates have been able to obtain coal having a sulfur content meeting these criteria. If, and to the extent that, the Company and its affiliates cannot continue to meet such limitations with processed coal, it may be necessary to retrofit operating stations with sulfur removal equipment that may require substantial capital expenditures as well as substantial additional operating costs. Such retrofitting, if it could be accomplished to permit continued reliable operation of the facilities concerned, would take approximately five years. As a result of the Clean Air Act, which requires substantial reductions in sulfur dioxide and nitrogen oxide (NOx) emissions by the year 2000, it may be necessary for the Company to install and operate emission control equipment at the Keystone station, in which it has a 16.67% ownership interest. To comply with Title IV of the Clean Air Act, the Company expects to expend up to $145 million by the year 2000 for the installation of scrubbers, low NOx burner technology and various precipitator upgrades, of which approximately $2 million had been spent as of December 31, 1993. The capital costs of this equipment and the increased operating costs are expected to be recoverable through the ratemaking process. The current strategy for Phase II compliance under the Clean Air Act is to install scrubbers at the Keystone station. The Company continues to review available options to comply with the Clean Air Act, including those that may result from the development of an emission allowance trading market. The Company's compliance strategy, especially with respect to Phase II, could change as a result of further review, discussions with co-owners of jointly owned stations and changes in federal and state regulatory requirements. The ultimate impact of Title I of the Clean Air Act, which deals with the attainment of ambient air quality standards, is highly uncertain. In particular, this Title has established an ozone transport or emission control region that includes 11 northeast states. Pennsylvania and New Jersey are part of this transport region, and will be required to control NOx emissions to a level that will provide for the attainment of the ozone standard in the northeast. As an initial step, major sources of NOx will be required to implement Reasonably Available Control Technology (RACT) by May 31, 1995. This will affect the Company and its affiliates' steam generating stations. PaDER's RACT regulations have been approved by the Environmental Quality Board and became effective in January 1994. Large coal-fired combustion units are required to comply with a presumptive RACT emission limitation (technology) or may elect to use a case-by-case analysis to establish RACT requirements. NJDEPE's RACT regulations became effective in December 1993. These regulations establish maximum allowable emission rates for utility boilers based on fuel used and boiler type, and on combustion turbines based on fuel used. Existing units are eligible for emissions averaging upon approval of an averaging plan by the NJDEPE. The ultimate impact of Title III of the Clean Air Act, which deals with emissions of hazardous air pollutants, is also highly uncertain. Specifically, the EPA has not completed a Clean Air Act study to determine 20 whether it is appropriate to regulate emissions of hazardous air pollutants from electric utility steam generating units. Both the EPA and PaDER are questioning the attainment of National Ambient Air Quality Standards (NAAQS) for sulfur dioxide in the vicinity of the Chestnut Ridge Energy Complex, which includes the Keystone generating station. The EPA and the PaDER have approved the use of a nonguideline air quality model. This model is more representative and less conservative than the EPA guideline model and will be used in the development of a compliance strategy for all generating stations in the Chestnut Ridge Energy Complex. Significant sulfur dioxide reductions may be required at the Keystone generating station, which could result in material capital and additional operating expenditures. Certain other environmental regulations limit the amount of particulate matter emitted into the environment. The Company and its affiliates have installed equipment at their coal-fired generating stations and may find it necessary to either upgrade or install additional equipment at certain of their stations to consistently meet particulate emission requirements. In the fall of 1993, the Clinton Administration announced its climate change action plan that intends to reduce greenhouse gas emissions to 1990 levels by the year 2000. The climate action plan relies heavily on voluntary action by industry. The Company and its affiliates have notified the DOE that they support the voluntary approach proposed by the President and expressed their intent to work with the DOE. Title IV of the Clean Air Act requires Phase I and Phase II affected units to install a continuous emission monitoring system and quality assure the data for sulfur dioxide, NOx, opacity and volumetric flow. In addition, Title VIII requires all affected sources to monitor carbon dioxide emissions. The Clean Air Act has also expanded the enforcement options available to the EPA and the states and contains more stringent enforcement provisions and penalties. Moreover, citizen suits can seek civil penalties for violations of this Act. In 1988, the Environmental Defense Fund (EDF), the New Jersey Conservation Foundation, the Sierra Club and Pennsylvanians for Acid Rain Control requested that the NJDEPE and the NJBRC seek to reduce sulfur deposition in New Jersey, either by reducing emissions from both in-state and out-of-state sources, or by requiring that certain electricity imported into New Jersey be generated from facilities meeting minimum emission standards. The Company purchases a substantial portion of its net system requirements from out-of-state coal-fired facilities, including the 1,700 MW Keystone station in Pennsylvania. Hearings on the EDF petition were held during 1989 and 1990, and the matter is pending before the NJDEPE and the NJBRC. NJDEPE regulations establish the maximum sulfur content of oil, which may not exceed .3% for most of the Company's generating stations and 1% for the balance. In 1993, the Company made capital expenditures of approximately $2 million in response to environmental considerations and has included 21 approximately $11 million for this purpose in its 1994 construction program. The operating and maintenance costs, including the incremental costs of low-sulfur fuel, for such equipment were approximately $42 million in 1993 and are expected to be approximately $44 million in 1994. Electromagnetic Fields: There have been a number of scientific studies regarding the possibility of adverse health effects from electric and magnetic fields (EMF) that are found everywhere there is electricity. While some of the studies have indicated some association between exposure to EMF and cancer, other studies have indicated no such association. The studies have not shown any causal relationship between exposure to EMF and cancer, or any other adverse health effects. In 1990, the EPA issued a draft report that identifies EMF as a possible carcinogen, although it acknowledges that there is still scientific uncertainty surrounding these fields and their possible link to adverse health effects. On the other hand, a 1992 White House Office of Science and Technology policy report states that "there is no convincing evidence in the published literature to support the contention that exposures to extremely low frequency electric and magnetic fields generated by sources such as household appliances, video display terminals, and local power lines are demonstrable health hazards." Additional studies, which may foster a better understanding of the subject, are currently under way. Certain parties have alleged that exposure to EMF associated with the operation of the Company's transmission and distribution facilities will produce adverse impacts upon public health and safety, and upon property values. Furthermore, regulatory actions under consideration by the NJDEPE and bills introduced in the Pennsylvania legislature could, if enacted, establish a framework under which the intensity of EMF produced by electric transmission and distribution lines would be limited or otherwise regulated. The Company cannot determine at this time what effect, if any, this matter will have on it. Hazardous/Toxic Wastes: Under the Toxic Substances Control Act (TSCA), the EPA has adopted certain regulations governing the use, storage, testing, inspection and disposal of electrical equipment that contains polychlorinated biphenyls (PCBs). Such regulations permit the continued use and servicing of certain electrical equipment (including transformers and capacitors) that contain PCBs. The Company has met all requirements of the TSCA necessary to allow the continued use of equipment containing PCBs, and has taken substantive voluntary actions to reduce the amount of PCB containing electrical equipment. Prior to 1953, the Company owned and operated manufactured gas plants in New Jersey. Wastes associated with the operation and dismantlement of these gas manufacturing plants were disposed of both on-site and off-site. Claims may be asserted against the Company for the cost of investigation and remediation of these waste disposal sites. The amount of such remediation costs and penalties may be significant and may not be covered by insurance. The Company has identified 17 such sites to date. The Company has entered into cost-sharing agreements with New Jersey Natural Gas Company and Elizabethtown Gas Company under which the Company is responsible for 60% of all costs incurred in connection with the remediation of 12 of these sites. 22 The Company has entered into Administrative Consent Orders (ACOs) with the NJDEPE for seven of these sites and has entered into Memorandum of Agreements (MOAs) with the NJDEPE for eight of these sites. The Company anticipates entering into MOAs for the remaining sites. The ACOs specify the agreed upon obligations of both the Company and the NJDEPE for remediation of the sites. The MOAs afford the Company greater flexibility in the schedule for investigation and remediation of sites. The Company is seeking NJDEPE approval of its plans for the remediation of these sites. The NJDEPE has approved the Company's implementation program for five of these sites. At December 31, 1993, the Company has an estimated environmental liability of $35 million recorded on its balance sheet relating to these sites. The estimated liability is based upon ongoing site investigations and remediation efforts, including capping the sites and pumping and treatment of ground water. If the periods over which the remediation is currently expected to be performed are lengthened, the Company believes that it is reasonably possible that the ultimate costs may range as high as $60 million. Estimates of these costs are subject to significant uncertainties: the Company 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 the Company is required to utilize different remediation methods, the costs could be materially in excess of $60 million. In June 1993, the NJBRC approved a mechanism for the recovery of future manufactured gas plant remediation costs through the Company's LEAC when expenditures exceed prior collections. The NJBRC decision provides for interest to be credited to customers until the overrecovery is eliminated and for future costs to be amortized over seven years with interest. At December 31, 1993, the Company has collected from customers $5.2 million in excess of expenditures of $12.8 million. The Company is currently awaiting a final NJBRC order. The Company is pursuing reimbursement of the above costs from its insurance carriers, and will seek to recover costs to the extent not covered by insurance through this mechanism. The federal Resource Conservation and Recovery Act of 1976, the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA) and the Superfund Amendment and Reauthorization Act of 1986 authorize the EPA to issue an order compelling responsible parties to take cleanup action at any location that is determined to present an imminent and substantial danger to the public or to the environment because of an actual or threatened release of one or more hazardous substances. New Jersey has enacted legislation giving similar authority to the NJDEPE. Because of the nature of the Company's business, various by-products and substances are produced and/or handled that are classified as hazardous under one or more of these statutes. The Company generally provides for the treatment, disposal or recycling of such substances through licensed independent contractors, but these statutory provisions also impose potential responsibility for certain cleanup costs on the generators of the wastes. The Company has been notified by the EPA and a state environmental authority that it is among the potentially responsible parties (PRPs) who may be jointly and severally liable to pay for the costs associated with the investigation and remediation at six 23 hazardous and/or toxic waste sites (including the one described below). In addition, the Company has been requested to supply information to the EPA and state environmental authorities on several other sites for which it has not as yet been named as a PRP. The Company received notification in 1986 from the EPA that it is among the more than 800 PRPs under CERCLA who may be liable to pay for the cost associated with the investigation and remediation of the Maxey Flats disposal site, located in Fleming County, Kentucky. The Company is alleged to have contributed approximately 1.55% of the total volume of waste shipped to the Maxey Flats site. On September 30, 1991, the EPA issued a Record of Decision (ROD) advising that a remedial alternative had been selected. The PRPs estimate the cost of the remedial alternative selected and associated activities identified in the ROD at more than $60 million, for which all responsible parties would be jointly and severally liable. The Company has provided for its proportionate share of this cost in its financial statements. The ultimate cost of remediation of these sites will depend upon changing circumstances as site investigations continue, including (a) the technology required for site cleanup, (b) the remedial action plan chosen and (c) the extent of site contamination and the portion attributed to the Company. The Company is unable to estimate the extent of possible remediation and associated costs of additional environmental matters. Management believes the costs described above should be recoverable through the ratemaking process. Franchises The Company operates pursuant to franchises in the territory served by it and has the right to occupy and use the public streets and ways of the State with its poles, wires and equipment upon obtaining the consent in writing of the owners of the soil, and also to occupy the public streets and ways underground with its conduits, cables and equipment, where necessary, for its electric operation. The Company has the requisite legal franchise for the operation of its electric business within the State of New Jersey, including in incorporated cities and towns where designations of new streets, public ways, etc., may be obtained upon application to such municipalities. The Company holds a FERC license expiring in 2013 authorizing it to operate and maintain the Yards Creek pumped storage hydroelectric station in which the Company has a 50% ownership interest. Employee Relations At February 28, 1994, the Company had 3,439 full-time employees. The nonsupervisory production and maintenance employees of the Company and certain of the Company's nonsupervisory clerical employees are represented for collective bargaining purposes by local unions of the International Brotherhood of Electrical Workers (IBEW). The Company's three-year contract with the IBEW expires on October 31, 1994. 24 ITEM 2. PROPERTIES. Generating Stations At December 31, 1993, the generating stations of the Company had an aggregate effective summer capability of 2,849,000 net kilowatts (kW), as follows: Year of Name and Location of Station Installation Net kW Nuclear: Oyster Creek, Lacey Twp., NJ 1969 610,000 Three Mile Island Unit No. 1 Dauphin County, PA (a) 1974 196,000 Gas or Oil: Gilbert, Holland Twp., NJ 1930-1949 117,000 Sayreville, Sayreville, NJ (b) 1930-1958 313,000 Other (18 combustion turbines and 1 combined cycle), various locations 1970-1989 868,000 Oil: E. H. Werner, South Amboy, NJ 1953 58,000 Other (4 combustion turbines and 4 diesel units), various locations 1968-1972 214,000 Coal: Keystone, Indiana, PA (c) 1967-1968 283,000 Pumped Storage: Yards Creek, Blairstown, NJ (d) 1965 190,000 Total 2,849,000 (a) Represents the Company's undivided 25% interest in the station. (b) Effective February 1, 1994, 84,000 kW of capability were retired. (c) Represents the Company's undivided 16.67% interest in the station. (d) Represents the Company's undivided 50% interest in the station, which is a net user rather than a net producer of electric energy. Substantially all of the Company's properties are subject to the lien of its first mortgage bond indenture. The Company's peak load was 4,564,000 kW, reached on July 9, 1993. 25 Transmission and Distribution System At December 31, 1993, the Company owned 299 transmission and distribution substations that had an aggregate installed transformer capacity of 21,810,169 kilovoltamperes (kVA), and 2,572 circuit miles of transmission lines, of which 18 miles were operated at 500 kilovolts (kV), 570 miles at 230 kV, 228 miles at 115 kV and the balance of 1,756 miles at 69 kV and 34.5 kV. The Company's distribution system included 9,707,504 kVA of line transformer capacity, 15,459 pole miles of overhead lines and 6,362 trench miles of underground cables. ITEM 3. LEGAL PROCEEDINGS. Reference is made to "Nuclear Facilities - TMI-2," "Rate Proceedings," and "Environmental Matters" under Item 1 and Note 1 to Financial Statements contained in Item 8 for a description of certain pending legal proceedings involving the Company. See Page F-1 for reference to Notes to Financial Statements. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. 26 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. All of the Company's outstanding common stock is owned by GPU. During 1993, the Company paid $60 million in dividends on its common stock. In accordance with the Company's mortgage indenture, as supplemented, $1.7 million of the balance of retained earnings at December 31, 1993 is restricted as to the payment of dividends on its common stock. ITEM 6. SELECTED FINANCIAL DATA. See page F-1 for reference to Selected Financial Data required by this item. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. See page F-1 for reference to Management's Discussion and Analysis of Financial Condition and Results of Operations required by this item. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. See page F-1 for reference to Financial Statements and Quarterly Financial Data (unaudited) required by this item. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. 27 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Identification of Directors The current directors of the Company, their ages, positions held and business experience during the past five years are as follows: Year First Name Age Position Elected J. R. Leva (a) 61 Chairman and Chief Executive Officer 1986 D. Baldassari (b) 44 President 1982 R. C. Arnold (c) 56 Director 1989 J. G. Graham (d) 55 Vice President and Chief Financial Officer 1986 M. P. Morrell (e) 45 Vice President 1993 G. E. Persson (f) 62 Director 1983 P. H. Preis (g) 60 Vice President and Comptroller 1982 S. C. Van Ness (h) 60 Director 1983 S. B. Wiley (i) 64 Director 1982 (a) Mr. Leva became Chairman of the Board and Chief Executive Officer of the Company in 1992. He became Chairman, President and Chief Executive Officer of GPU in 1992. He is also Chairman, President, Chief Executive Officer and a director of GPUSC, Chairman of the Board, Chief Executive Officer and a director of Met-Ed, Penelec and GPC, and Chairman of the Board and a director of GPUN. Prior to assuming his current positions, Mr. Leva served as President of the Company since 1986. He is also a director of Utilities Mutual Insurance Company, the New Jersey Utilities Association, Chemical Bank NJ and Princeton Bank & Trust Company. (b) Mr. Baldassari became President of the Company and a director of GPUSC and GPUN in February 1992. Prior to assuming his current positions, Mr. Baldassari served as Vice President - Rates and a director of the Company since 1982. He also served as Vice President - Materials and Services of the Company since 1990, and as Treasurer of the Company from October 1979 through December 31, 1989. He is also a director of First Morris Bank and the New Jersey Utilities Association. (c) Mr. Arnold became Executive Vice President - Power Supply of GPUSC in 1990. He was Senior Vice President - Power Supply of GPUSC from 1987 to 1989. He is also a director of GPUSC, Met-Ed and Penelec. (d) Mr. Graham became Senior Vice President in 1989 and Chief Financial Officer of GPU in 1987. He is also Executive Vice President, Chief Financial Officer and a director of GPUSC; Vice President, Chief Financial Officer and a director of Met-Ed and Penelec; Vice President and Chief Financial Officer of GPUN; President and a director of GPC; and a director of EI. 28 (e) Mr. Morrell was elected Vice President - Materials, Services and Regulatory Affairs of the Company and a director of the Company in 1993. Prior to assuming these positions, Mr. Morrell served as Vice President of GPU since 1989 and Treasurer of GPU since 1987, and had also served as Vice President and Treasurer of the Company, GPUSC, Met-Ed and Penelec and as Treasurer of GPUN and GPC. He is also a director of Utilities Mutual Insurance Company. (f) Mrs. Persson is owner and President of Business Dynamics Associates of Farmingdale, NJ. Prior to that, she was owner and operator of a family-owned business in Little Silver and Farmingdale, NJ since 1965. Mrs. Persson is a member of the United States Small Business Administration National Advisory Board, the New Jersey Small Business Advisory Council, the Board of Advisors of Brookdale Community College and the Board of Advisors of Georgian Court College. (g) Mr. Preis became a Vice President and a director of the Company in 1982 and Comptroller in 1979. (h) Mr. Van Ness has been affiliated with the law firm of Pico, Mack, Kennedy, Jaffe, Perrella and Yoskin of Trenton, NJ since July 1990. Prior to that time, he was affiliated with the law firm of Jamison, McCardell, Moore, Peskin and Spicer of Princeton, NJ since 1983. He also served as Commissioner of the Department of the Public Advocate, State of New Jersey, from 1974 to September 1982. Mr. Van Ness is a director of The Prudential Insurance Company of America. (i) Mr. Wiley has been a partner in the law firm of Wiley, Malehorn and Sirota of Morristown, NJ since 1973. He is also Chairman of First Morris Bank. The Company's directors are elected at the annual meeting of stockholder to serve until the next meeting of stockholder and until their respective successors are duly elected and qualified. There are no family relationships among the directors of the Company. Identification of Executive Officers The executive officers of the Company, their ages, positions held and business experience during the past five years are as follows: 29 Year First Name Age Position Elected J. R. Leva (a) 61 Chairman and Chief Executive Officer 1992 D. Baldassari (b) 44 President 1992 C. D. Cudney (c) 55 Vice President 1982 C. R. Fruehling (d) 58 Vice President 1982 J. G. Graham (e) 55 Vice President and Chief Financial Officer 1987 E. J. McCarthy (f) 55 Vice President 1982 M. P. Morrell (g) 45 Vice President 1990 R. W. Muilenburg (h) 60 Vice President 1982 D. W. Myers (i) 49 Vice President and Treasurer 1993 P. H. Preis (j) 60 Vice President and Comptroller 1979 R. J. Toole (k) 51 Vice President 1990 J. J. Westervelt (l) 53 Vice President 1982 R. S. Cohen (m) 51 Secretary and Corporate Counsel 1986 (a) See Note (a) on page 28. (b) See Note (b) on page 28. (c) Mr. Cudney has been Vice President of the Company since 1982. Prior to that time, Mr. Cudney served as Manager - Operations of the Company since May 1975. (d) Mr. Fruehling has been Vice President of the Company since 1982. Prior to that time, Mr. Fruehling served as Director - Transmission & Distribution Engineering of the Company since October 1979. (e) See Note (d) on page 28. (f) Mr. McCarthy has been Vice President of the Company since 1982. Prior to that time, Mr. McCarthy served as Manager - Business Offices of the Company since May 1971. (g) See note (e) on page 29. (h) Mr. Muilenburg has been Vice President of the Company since 1982. Prior to that time, Mr. Muilenburg served as Manager - Corporate Communications of the Company since June 1976. (i) Mr. Myers became Vice President and Treasurer of the Company in 1993. He is also Vice President and Treasurer of GPU, GPUSC, Met-Ed, Penelec, GPUN and GPC. Prior to assuming his current positions, Mr. Myers served as Vice President and Comptroller of GPUN since 1986. (j) See Note (g) on page 29. (k) Mr. Toole has been Vice President of the Company since 1990. He has also been a Vice President of Met-Ed since 1989. Prior to that he served as Director - Generation Operations of Met-Ed and GPUSC and as Operations and Maintenance Director of TMI-1. 30 (l) Mr. Westervelt has been Vice President of the Company since 1982. Prior to that time, Mr. Westervelt served as Director - Human Resources of the Company since April 1979. (m) Mr. Cohen has been Secretary and Corporate Counsel of the Company since 1986. The Company's executive officers are elected each year at the first meeting of the Board of Directors held following the annual meeting of stockholder. Executive officers hold office until the next meeting of directors following the annual meeting of stockholder and until their respective successors are duly elected and qualified. There are no family relationships among the Company's executive officers. ITEM 11. EXECUTIVE COMPENSATION. Remuneration of Executive Officers SUMMARY COMPENSATION TABLE Long-Term Annual Compensation Compensation Other Awards All Name and Annual Restricted Other Principal Compen- Stock/Unit Compen- Position Year Salary Bonus sation(1) Awards(2) sation J. R. Leva Chairman and Chief Executive Officer (3) (3) (3) (3) (3) (3) D. Baldassari 1993 $253,750 $57,000 $ - $41,850 $11,192(4) President 1992 211,480 50,000 - 35,100 8,985 1991 117,600 18,500 - 12,190 9,227 M. P. Morrell 1993(5) 144,200 26,000 1,932 15,500 5,768(6) Vice Presi- 1992 137,500 24,900 1,166 14,560 5,267 dent 1991 128,750 21,000 547 12,650 5,150 C. D. Cudney 1993 137,675 24,000 - 14,260 7,573(7) Vice Presi- 1992 132,400 20,900 - 14,300 5,741 dent 1991 125,800 19,000 - 13,340 4,994 P. H. Preis 1993 135,900 22,500 - 14,260 4,881(8) Vice Presi- 1992 130,725 20,600 - 13,780 4,285 dent and 1991 125,825 19,000 - 12,190 3,794 Comptroller E. J. McCarthy 1993 125,825 22,500 - 13,020 5,033(6) Vice Presi- 1992 121,125 19,100 - 13,000 4,845 dent 1991 116,625 18,000 - 11,270 2,744 31 (1) "Other Annual Compensation" is composed entirely of the above-market interest accrued on the preretirement portion of deferred compensation. (2) Number and value of aggregate restricted shares/units at the end of 1993 (dividends are paid or accrued on these restricted shares/units and reinvested): Aggregate Aggregate Shares/Units Value D. Baldassari 3,500 $95,114 M. P. Morrell 1,910 $49,348 C. D. Cudney 1,880 $48,316 P. H. Preis 1,810 $46,646 E. J. McCarthy 1,680 $43,264 (3) As noted above, Mr. Leva is Chairman and Chief Executive Officer of the Company and its affiliates, as well as Chairman and Chief Executive Officer of GPU and GPUSC. Mr. Leva is compensated by GPUSC for his overall services on behalf of the GPU System and, accordingly, is not compensated directly by the Company for his services. Information with respect to Mr. Leva's compensation is included on pages 13 to 15 of GPU's 1994 definitive proxy statement, which are incorporated herein by reference. (4) Consists of the Company's matching contributions under the Savings Plan ($9,427) and the imputed interest on employer-paid premiums for split- dollar life insurance ($1,765). (5) Mr. Morrell was elected Vice President-Materials, Services and Regulatory Affairs of the Company effective January 15, 1993. Prior to assuming this position, Mr. Morrell served as Vice President and Treasurer of the Company. (6) Consists of the Company's matching contributions under the Savings Plan. (7) Consists of the Company's matching contributions under the Savings Plan ($4,847) and above-market interest accrued on the retirement portion of deferred compensation ($2,726). (8) Consists of the Company's matching contributions under the Savings Plan ($3,805) and above-market interest accrued on the retirement portion of deferred compensation ($1,076). 32 LONG-TERM INCENTIVE PLANS - AWARDS IN LAST FISCAL YEAR Performance Estimated future payouts Number of or other under nonstock price- shares, period until based plans(1) units or maturation Name other rights or payout Target ($ or #) D. Baldassari 1,350 5 years $29,177 M. P. Morrell 500 5 years 10,806 C. D. Cudney 460 5 years 9,942 P. H. Preis 460 5 years 9,942 E. J. McCarthy 420 5 years 9,077 (1) The 1990 Stock Plan for Employees of General Public Utilities Corporation and Subsidiaries also provides for a Performance Cash Incentive Award in the event that the annualized GPU Total Shareholder Return exceeds the annualized Industry Total Return (Edison Electric Institute's Investor- Owned Electric Utility Index) for the period between the award and vesting dates. These payments are designed to compensate recipients of restricted stock/unit awards for the amount of federal and state income taxes that will be payable upon the restricted stock/units that are vesting for the recipient. The amount is computed by multiplying the applicable gross-up percentage by the amount of gross income the recipient recognizes for federal income tax purposes when the restrictions lapse. The estimated amounts above are computed based on the number of restricted units awarded for 1993 multiplied by the 1993 year-end market value of $30.875. Actual payments would be based on the market value of GPU common stock at the time the restrictions lapse, and may be different from those indicated above. Proposed Remuneration of Executive Officers No executive officer of the Company has an employment contract with the Company. The compensation of the Company's executive officers is determined from time to time by the Board of Directors of the Company. Retirement Plans The GPU System pension plans provide for pension benefits, payable for life after retirement, based upon years of creditable service with the GPU System and the employee's career average annual compensation as defined below. Under federal law, an employee's pension benefits that may be paid from a qualified trust under a qualified pension plan such as the GPU System plans are subject to certain maximum amounts. The GPU System companies also have adopted nonqualified plans providing that the portion of a participant's pension benefits that, by reason of such limitations or source, cannot be paid from such a qualified trust shall be paid directly on an unfunded basis by the participant's employer. 33 The following table illustrates the amount of aggregate annual pension from funded and unfunded sources resulting from employer contributions to the qualified trust and direct payments payable upon retirement in 1994 (computed on a single life annuity basis) to persons in specified salary and years of service classifications: Estimated Annual Retirement Benefits(2)(3)(4) Based Upon Career Average Compensation (1994 Retirement) 15 Years 20 Years 25 Years 30 Years 35 Years 40 Years of Service of Service of Service of Service of Service of Service Career Average Compensation (1) $100,000 $ 29,114 $ 38,819 $ 48,524 $ 58,229 $ 67,934 $ 76,956 150,000 44,114 58,819 73,524 88,229 102,934 116,556 200,000 59,114 78,819 98,524 118,229 137,934 156,156 250,000 74,114 98,819 123,524 148,229 172,934 195,756 300,000 89,114 118,819 148,524 178,229 207,934 235,356 350,000 104,114 138,819 173,524 208,229 242,934 274,956 400,000 119,114 158,819 198,524 238,229 277,934 314,556 (1) Career Average Compensation is the average annual compensation received from January 1, 1984 to retirement and includes Base Salary, Deferred Compensation and Incentive Compensation Plan awards. The Career Average Compensation amounts for the following named executive officers differ by more than 10% from the three- year average annual compensation set forth in the Summary Compensation Table and are as follows: Messrs. Baldassari - $140,376; Morrell - $117,030; Cudney - $117,193; Preis - $124,340; and McCarthy - $115,745. (2) Years of creditable service: Messrs. Baldassari - 24; Morrell - 22; Cudney - 32; Preis - 33; and McCarthy - 33. (3) Based on an assumed retirement at age 65 in 1994. To reduce the above amounts to reflect a retirement benefit assuming a continual annuity to a surviving spouse equal to 50% of the annuity payable at retirement, multiply the above benefits by 90%. The estimated annual benefits are not subject to any reduction for Social Security benefits or other offset amounts. (4) Annual retirement benefit cannot exceed 55% of the average compensation received during the last three years prior to retirement. Remuneration of Directors Nonemployee directors receive annual compensation of $13,000, a fee of $1,000 for each Board meeting attended and a fee of $1,000 for each Committee meeting attended. The Company has in effect a deferred remuneration plan pursuant to which outside directors may elect to defer all or a portion of current remuneration. 34 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. All of the Company's 15,371,270 outstanding shares of common stock are owned beneficially and of record by the Company's parent, General Public Utilities Corporation, 100 Interpace Parkway, Parsippany, New Jersey 07054. The following table sets forth, as of February 1, 1994, the beneficial ownership of equity securities of the Company and other GPU System companies of each of the Company's directors and each of the executive officers named in the Summary Compensation Table, and of all directors and officers of the Company as a group. The shares owned by all directors and executive officers as a group constitute less than 1% of the total shares outstanding. Title of Amount and Nature of Name Security Beneficial Ownership(1) J. R. Leva GPU Common Stock 3,912 shares - Direct D. Baldassari GPU Common Stock 945 shares - Direct R. C. Arnold GPU Common Stock 6,751 shares - Direct C. D. Cudney GPU Common Stock 1,445 shares - Direct J. G. Graham GPU Common Stock 6,411 shares - Direct 1,780 shares - Indirect E. J. McCarthy GPU Common Stock 897 shares - Direct M. P. Morrell GPU Common Stock 1,003 shares - Direct G. E. Persson GPU Common Stock None P. H. Preis GPU Common Stock 1,305 shares - Direct S. C. Van Ness GPU Common Stock None S. B. Wiley GPU Common Stock None All Directors and GPU Common Stock 28,658 shares - Direct Officers as a group 1,780 shares - Indirect (1) The number of shares owned and the nature of such ownership, not being within the knowledge of the Company, have been furnished by each individual. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. None. 35 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) See page F-1 for reference to Financial Statement Schedules required by this item. 1. Exhibits: 3-A Restated Certificate of Incorporation of Jersey Central Power & Light Company, as amended to date. 3-B Jersey Central Power & Light Company By-Laws, as amended. 10-A 1990 Stock Plan for Employees of General Public Utilities Corporation and Subsidiaries, incorporated by reference to Exhibit 10-B of the GPU Annual Report on Form 10-K for 1993 - SEC File No. 1-6047. 10-B Form of Restricted Units Agreement under the 1990 Stock Plan, incorporated by reference to Exhibit 10-C of the GPU Annual Report on Form 10-K for 1993 - SEC File No. 1-6047. 10-C Incentive Compensation Plan for Officers of GPU System Companies, incorporated by reference to Exhibit 10-E of the GPU Annual Report on Form 10-K for 1993 - SEC File No. 1-6047. 12 Statements Regarding Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends. 23 Consent of Independent Accountants. (b) Reports on Form 8-K: For the month of December 1993, dated December 10, 1993, under Item 5 (Other Events). For the month of February 1994, dated February 16 and February 28, 1994, under Item 5 (Other Events). 36 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. JERSEY CENTRAL POWER & LIGHT COMPANY Dated: March 10, 1994 BY: /s/ D. Baldassari D. Baldassari, President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature and Title Date /s/ J. R. Leva March 10, 1994 J. R. Leva, Chairman (Principal Executive Officer) and Director /s/ D. Baldassari March 10, 1994 D. Baldassari, President (Principal Operating Officer) and Director /s/ R. C. Arnold March 10, 1994 R. C. Arnold, Director /s/ J. G. Graham March 10, 1994 J. G. Graham, Vice President (Principal Financial Officer) and Director /s/ M. P. Morrell March 10, 1994 M. P. Morrell, Vice President and Director /s/ P. H. Preis March 10, 1994 P. H. Preis, Vice President-Comptroller (Principal Accounting Officer) and Director /s/ G. E. Persson March 10, 1994 G. E. Persson, Director /s/ S. C. Van Ness March 10, 1994 S. C. Van Ness, Director /s/ S. B. Wiley March 10, 1994 S. B. Wiley, Director 37 JERSEY CENTRAL POWER & LIGHT COMPANY INDEX TO SUPPLEMENTARY DATA, FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES Supplementary Data Page Company Statistics F-2 Selected Financial Data F-3 Management's Discussion and Analysis of Financial Condition and Results of Operations F-4 Quarterly Financial Data F-16 Financial Statements Report of Independent Accountants F-17 Statements of Income for the Years Ended December 31, 1993, 1992 and 1991 F-19 Balance Sheets as of December 31, 1993 and 1992 F-20 Statements of Retained Earnings for the Years Ended December 31, 1993, 1992 and 1991 F-22 Statement of Capital Stock as of December 31, 1993 F-22 Statements of Cash Flows for the Years Ended December 31, 1993, 1992 and 1991 F-23 Statement of Long-Term Debt as of December 31, 1993 F-24 Notes to Financial Statements F-25 Financial Statement Schedules Schedule V - Property, Plant and Equipment for the Years 1991-1993 F-45 Schedule VI - Accumulated Depreciation and Amortization of Property, Plant and Equipment for the Years 1991-1993 F-47 Schedule VIII - Valuation and Qualifying Accounts for the Years 1991-1993 F-50 Schedule IX - Short-Term Borrowings for the Years 1991-1993 F-51 Schedules other than those listed above have been omitted since they are not required, are inapplicable or the required information is presented in the Financial Statements or Notes thereto. F-1 Jersey Central Power & Light Company COMPANY STATISTICS
For the Years Ended December 31, 1993 1992 1991 1990 1989 1988 Capacity at Company Peak (in MW): Company-owned 2 839 2 826 2 836 2 821 2 823 2 757 Contracted 2 033 2 364 1 995 1 600 1 661 1 294 Total capacity (a) 4 872 5 190 4 831 4 421 4 484 4 051 Hourly Peak Load (in MW): Summer peak 4 564 4 149 4 376 4 047 3 972 4 161 Winter peak 3 129 3 135 3 222 2 879 3 189 3 124 Reserve at Company peak (%) 6.7 25.1 10.4 9.2 12.9 (2.6) Load factor (%) (b) 49.1 51.7 49.3 51.3 53.3 50.2 Sources of Energy: Energy sales (in thousands of MWh): Net generation 8 594 8 514 7 354 8 649 8 372 8 965 Power purchases and interchange 12 073 12 447 13 077 10 854 11 109 9 803 Total sources of energy 20 667 20 961 20 431 19 503 19 481 18 768 Company use, line loss, etc. (2 026) (2 075) (1 799) (1 404) (1 641) (1 592) Total 18 641 18 886 18 632 18 099 17 840 17 176 Energy mix (%): Coal 10 10 9 9 10 11 Nuclear 30 30 21 29 22 26 Utility purchases and interchange 35 34 47 46 50 51 Nonutility purchases 23 25 18 10 7 1 Other (gas, hydro & oil) 2 1 5 6 11 11 Total 100 100 100 100 100 100 Energy cost (in mills per KWh): Coal 14.06 13.08 14.66 13.75 13.18 12.74 Nuclear 6.80 6.48 7.34 7.28 8.74 7.00 Utility purchases and interchange 18.35 18.72 20.50 22.30 22.32 21.69 Nonutility purchases 60.49 59.99 60.45 64.13 63.20 65.26 Other (gas & oil) 43.26 37.99 31.57 37.40 36.60 32.81 Average 25.34 25.57 25.07 22.33 23.09 18.93 Electric Energy Sales (in thousands of MWh): Residential 6 983 6 568 6 757 6 497 6 615 6 638 Commercial 6 474 6 207 6 243 6 104 6 003 5 775 Industrial 3 689 3 723 3 816 3 790 3 899 3 960 Other 369 389 383 382 388 393 Sales to customers 17 515 16 887 17 199 16 773 16 905 16 766 Sales to other utilities 1 126 1 999 1 433 1 326 935 410 Total 18 641 18 886 18 632 18 099 17 840 17 176 Operating Revenues (in thousands): Residential $ 835 242 $ 735 003 $ 750 408 $ 665 259 $ 651 015 $ 628 830 Commercial 698 641 629 884 619 516 558 833 528 547 483 347 Industrial 320 455 305 836 308 423 281 474 278 812 264 898 Other 40 415 39 918 39 313 36 651 38 165 37 287 Revenues from customers 1 894 753 1 710 641 1 717 660 1 542 217 1 496 539 1 414 362 Sales to other utilities 30 775 53 292 45 647 53 593 43 276 19 763 Total electric revenues 1 925 528 1 763 933 1 763 307 1 595 810 1 539 815 1 434 125 Other revenues 10 381 10 138 9 912 9 152 9 273 7 956 Total $1 935 909 $1 774 071 $1 773 219 $1 604 962 $1 549 088 $1 442 081 Price per KWh (in cents): Residential 11.90 11.15 11.11 10.24 9.84 9.47 Commercial 10.78 10.08 9.93 9.16 8.80 8.37 Industrial 8.70 8.20 8.08 7.43 7.15 6.69 Total sales to customers 10.80 10.09 9.99 9.19 8.85 8.44 Total sales 10.31 9.30 9.47 8.82 8.63 8.35 Kilowatt-hour Sales per Residential Customer 8 669 8 264 8 585 8 303 8 534 8 696 Customers at Year-End (in thousands) 911 897 887 881 871 860 (a) Summer ratings at December 31, 1993 of owned and contracted capacity were 2,849 MW and 1,913 MW, respectively. (b) The ratio of the average hourly load in kilowatts supplied during the year to the peak load occurring during the year. Certain reclassifications of prior years' data have been made to conform with current presentation. F-2 Jersey Central Power & Light Company SELECTED FINANCIAL DATA (In Thousands) For the Years Ended December 31, 1993 1992 1991* 1990 1989 1988 Operating revenues $1 935 909 $1 774 071 $1 773 219 $1 604 962 $1 549 088 $1 442 081 Other operation and maintenance expense 460 128 424 285 433 562 398 598 403 174 395 621 Net income 158 344 117 361 153 523 126 532 131 902 146 626 Earnings available for common stock 141 534 96 757 134 083 110 219 121 027 135 751 Net utility plant in service 2 558 160 2 429 756 2 365 987 2 234 243 2 082 104 1 902 617 Cash construction expenditures 197 059 218 874 241 774 271 588 270 255 253 640 Total assets 4 269 155 3 886 904 3 695 645 3 531 898 3 290 650 3 041 815 Long-term debt 1 215 674 1 116 930 1 022 903 927 686 899 058 790 852 Long-term obligations under capital leases 6 966 4 645 5 471 4 459 2 886 2 338 Cumulative preferred stock with mandatory redemption 150 000 150 000 100 000 100 000 - - Return on average common equity 11.1% 8.0% 11.9% 10.5% 12.5% 14.6% * Results for 1991 reflect an increase in earnings available for common stock of $27.1 million for an accounting change recognizing unbilled revenues and a decrease in earnings of $5.7 million for estimated TMI-2 costs.
F-3 Jersey Central Power & Light Company Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations In 1993, earnings available for common stock increased $44.8 million to $141.5 million principally due to additional revenues resulting from a February 1993 retail base rate increase and higher customer sales due primarily to the significantly warmer-than-normal summer temperatures as compared with the mild weather in 1992. Also contributing to the increase in earnings was reduced reserve capacity expense. The increase in earnings was partially offset by increased other operation and maintenance expense, the write-off of approximately $9 million of costs related to the cancellation of proposed energy-related agreements, and higher depreciation expense and financing costs associated with additions to utility plant. Financing costs reflect benefits derived from the early redemption of first mortgage bonds and preferred stock. Earnings available for common stock decreased $37.3 million to $96.8 million in 1992 principally due to a reduction in customer sales resulting from the mild summer weather in 1992 as compared with 1991 when the Company's service territory experienced significantly warmer-than-normal temperatures. The earnings comparison also reflects the absence in 1992 of a nonrecurring credit with respect to a change in accounting policy resulting in the recognition of unbilled revenues in 1991 of $27.1 million. Also contributing to the decrease in earnings were increased financing costs and depreciation expense associated with additions to utility plant. These decreases in earnings were partially offset by an increase in revenues from new residential and commercial customers, a slight increase in nonweather- related usage and lower reserve capacity expense. Results for 1991 also include the recognition of certain Three Mile Island Unit 2 (TMI-2) costs. The Company's return on average common equity was 11.1% for 1993 as compared with 8.0% and 11.9% for 1992 and 1991, respectively. REVENUES: Total revenues increased 9.1% to $1.9 billion in 1993 after remaining relatively flat at $1.8 billion in 1992. The components of these changes are as follows: (In Millions) 1993 1992 Kilowatt-hour (KWh) revenues increase (decrease) (excluding energy portion) $ 37.5 $(27.1) Rate increase 108.2 - Energy revenues 13.4 28.6 Other revenues 2.7 (0.6) Increase in revenues $161.8 $ 0.9 F-4 Kilowatt-hour revenues KWh revenues increased in 1993 principally due to higher third quarter sales resulting from the significantly warmer-than-normal summer temperatures as compared with the milder weather during the same period in 1992. An increase in nonweather-related usage in the residential and commercial sectors, and a 1.4% increase in the average number of customers also contributed to the increase in kWh revenues. New customer growth occurred primarily in the residential sector, and was partially offset by a reduction in the number of industrial customers. In 1992, kWh revenues decreased primarily due to mild weather during the third quarter of 1992 as compared with warmer-than-normal weather during the same period in 1991. This decrease was partially offset by a 1.0% increase in the average number of customers and a slight increase in nonweather-related usage. New customer growth occurred in the residential and commercial categories. The increase in nonweather-related usage was reflected primarily in the residential and commercial sectors. Rate increase In February 1993, the New Jersey Board of Regulatory Commissioners (NJBRC) authorized a $123 million increase in retail base rates, or approximately 7% annually. 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. Energy revenues increased in 1993 as a result of increased kWh sales to ultimate customers partially offset by decreased sales to other utilities. In 1992, energy revenues increased as a result of the March 1992 increase in the energy cost rates in effect and a significant increase in kWh sales to other utilities. These increases were partially offset by a decrease in kWh sales in all other customer categories. The increase in 1992 reflects a 24% increase in energy revenues associated with electric 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. F-5 OPERATING EXPENSES: Power purchased and interchanged Generally, changes in the energy component of power purchased and interchanged expense do not significantly affect earnings as they are substantially recovered through the Company's energy clause. Earnings in 1993, however, were favorably impacted by a reduction in reserve capacity expense resulting from the expiration of a purchase contract with another utility and a reduction in purchases from another utility. Power purchased and interchanged also decreased in 1993 due to a decrease in nonutility generation purchases. In 1992, power purchased and interchanged increased due to an increase in nonutility generation purchases offset partially by reductions in energy and capacity purchases from other utilities and a decrease in interchange received. Other operation and maintenance Other operation and maintenance expense increased in 1993 primarily due to emergency and storm-related activities and higher-than-normal tree trimming expense. Other operation and maintenance expense also increased due to the recognition of current and previously deferred demand side management expenses as directed in the Company's rate orders, an increase in the accrual of nuclear outage maintenance costs and an increase in the amortization of previously deferred nuclear expenses. The decrease in 1992 is due to the absence of $6.8 million of estimated costs recognized in 1991 for preparing the TMI-2 plant for long-term monitored storage and $2.5 million of previously deferred cleanup costs. Excluding these amounts, other operation and maintenance expense remained relatively stable. Depreciation and amortization Depreciation and amortization expense increased in 1993 due to additions to utility plant and the recognition of additional amortization expense for deferred assets as a result of the rate case completed in 1993. The 1992 increase was due to additions to utility plant. These additions consist primarily of additions to existing generating facilities to enhance system reliability and additions to the transmission and distribution system related to new customer growth. 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. F-6 OTHER INCOME AND DEDUCTIONS: Other income, net The reduction in other income, net in 1993 is principally due to the write-off of approximately $9 million of costs related to the cancellation of proposed energy-related agreements between the Company and its affiliates and Duquesne Light Company (Duquesne). The decrease is also due to the absence of carrying charges on certain tax payments made by the Company in 1992, which are now being recovered through rates. The increase in other income, net in 1992 is mainly attributable to an increase in miscellaneous income related to the anticipated recovery of carrying charges, offset partially by a reduction in interest income resulting from the 1991 collection of federal income tax refunds. INTEREST CHARGES AND PREFERRED DIVIDENDS: Interest on long-term debt increased in 1993 and 1992 primarily due to the issuance of additional long-term debt, offset partially by decreases associated with the refinancing of higher cost debt at lower interest rates. Other interest was favorably affected by lower short-term interest rates and a reduction in the average levels of short-term borrowings outstanding in both years. The decrease in other interest in 1992, however, was mainly the result of a lower federal income tax deficiency accrual level as tax deficiency payments relating to the 1983 and 1984 tax years were made in 1991. Preferred dividends decreased in 1993 primarily due to the redemption of an aggregate $50 million of preferred stock. Preferred dividends increased in 1992 primarily due to the issuance of preferred stock in mid-1992, partially offset by the effect of a redemption in the latter part of 1992. Liquidity and Capital Resources CAPITAL NEEDS: The Company's capital needs were $212 million in 1993, consisting of cash construction expenditures of $197 million and amounts for maturing obligations of $15 million. During 1993, construction funds were primarily used to continue to maintain and improve existing generating facilities and add to the transmission and distribution system. GPU System cash construction expenditures are estimated to be $663 million in 1994, of which the Company's share is $275 million. The expenditures consist mainly of $231 million for ongoing system development and $19 million for clean air requirements. Expenditures for maturing debt are expected to be $60 million for 1994 and $47 million for 1995. In the mid-1990s, construction expenditures may include substantial amounts for clean air requirements, the construction of new generation facilities and other Company needs. Management estimates that approximately one-half of the Company's 1994 capital needs will be satisfied through internally generated funds. F-7 The Company and its affiliates' capital leases consist primarily of leases for nuclear fuel. These nuclear fuel leases are renewable annually, subject to certain conditions. An aggregate of up to $250 million ($125 million each for Oyster Creek and Three Mile Island Unit 1) of nuclear fuel costs may be outstanding at any one time. The Company's share of nuclear fuel capital leases at December 31, 1993 totaled $86 million. When consumed, portions of the currently leased material will be replaced by additional leased material at a rate of approximately $36 million annually. In the event this nuclear fuel cannot be leased, the associated capital requirements would have to be met by other means. FINANCING: In 1993, the Company refinanced higher cost long-term debt in the principal amount of $394 million, resulting in an estimated annualized after- tax savings of $4 million. Total long-term debt issued during 1993 amounted to $555 million. In addition, the Company redeemed $50 million of high- dividend preferred stock issues. The Company has regulatory authority to issue and sell first mortgage bonds, which may be issued as secured medium-term notes, and preferred stock through June 1995. Under existing authorization, the Company may issue senior securities in the amount of $275 million, of which $100 million may consist of preferred stock. The Company also has regulatory authority to incur short- term debt, a portion of which may be through the issuance of commercial paper. The Company's cost of capital and ability to obtain external financing is affected by its security ratings, which continue to remain above minimum investment grade. The Company's first mortgage bonds are currently rated at an equivalent of an A- rating by the three major credit rating agencies, while an equivalent of a BBB+ rating is assigned to the preferred stock issues. In addition, the Company's commercial paper is rated as having good to very good credit quality. During 1993, Standard & Poor's revised its financial benchmarking standards for rating the debt of electric utilities to reflect the changing risk profiles resulting primarily from the intensifying competitive pressures in the industry. These guidelines now include an assessment of a company's business risk. Standard & Poor's new rating structure changed the business outlook for the debt ratings of approximately one-third of the industry, including the Company, which moved from "A-stable" to "A-negative," meaning their credit ratings may be lowered. The Company was classified as "below average" in its business risk position due to the perceived credit risk associated with large purchased power requirements, relatively high rates and a sluggish local economy. Moody's announced that it expects to reduce its average credit ratings for the electric utility industry within the next three years to take into account the effects of the new competitive environment. Duff & Phelps also indicated that it intends to introduce a forecast element to its quantitative analysis to, among other things, "alert investors to the possibility of equity value reduction and credit quality deterioration." F-8 The Company's bond indenture and articles of incorporation include provisions that limit the amount of long-term debt, preferred stock and short-term debt the Company can issue. The Company's interest and preferred stock coverage ratios are currently in excess of indenture or charter restrictions. The ability to issue securities in the future will depend on coverages at that time. Current plans call for the Company to issue long- term debt and preferred stock during the next three years to finance construction activities and, depending on the level of interest rates, refinance outstanding senior securities. CAPITALIZATION: The Company supports its credit quality rating by maintaining capitalization ratios that permit access to capital markets at a competitive cost. The targets and actual capitalization ratios are as follows: Capitalization Target Range 1993 1992 1991 Common equity 47-50% 47% 47% 47% Preferred stock 7-10 7 9 9 Notes payable and long-term debt 46-40 46 44 44 100% 100% 100% 100% Recent evaluations of the industry by credit rating agencies indicate that the Company may have to increase its equity ratio to maintain its current credit ratings. COMPETITIVE ENVIRONMENT: The Push Toward Competition The electric utility industry appears to be undergoing a major transition as it proceeds from a traditional rate regulated environment based on cost recovery to some combination of competitive marketplace and modified regulation of certain market segments. The industry challenges resulting from various instances of competition, deregulation and restructuring thus far have been minor compared with the impact that is expected in the future. The Public Utility Regulatory Policies Act of 1978 (PURPA) facilitated the entry of competitors into the electric generation business. Since then, more competition has been introduced through various state actions to encourage cogeneration and, most recently, through the federal Energy Policy Act of 1992 (Energy Act). The Energy Act is intended to promote competition among utility and nonutility generators in the wholesale electric generation market, accelerating the industry restructuring that has been underway since the enactment of PURPA. This legislation, coupled with increasing customer demands for lower-priced electricity, is generally expected to stimulate even greater competition in both the wholesale and retail electricity markets. These competitive pressures may create opportunities to compete for new customers and revenues, as well as increase risk that could lead to the loss of customers. F-9 Operating in a competitive environment will place added pressures on utility profit margins and credit quality. Utilities with significantly higher cost structures than supportable in the marketplace may experience reduced earnings as they attempt to meet their customers' demands for lower- priced electricity. This prospect of increasing competition in the electric utility industry has already led the credit rating agencies to address and apply more stringent guidelines in making credit rating determinations. Among its provisions, the Energy Act allows the Federal Energy Regulatory Commission (FERC), subject to certain criteria, to order owners of electric transmission systems, such as the Company and its affiliates, to provide third parties transmission access for wholesale power transactions. The Energy Act did not give the FERC the authority, however, to order retail transmission access. That authority lies with the individual states, and movement toward opening the transmission network to retail customers is currently under consideration in several states. Recent Events Competition in the electric utility industry has already played a significant role in wholesale transactions, affecting the pricing of energy sales to electric cooperatives and municipal customers. During 1993, Penelec successfully negotiated power supply agreements with the Company's wholesale customers in response to offers made by other utilities seeking to provide electric service at rates lower than those of the Company. The Company will continue its efforts to retain and add customers by offering competitive rates. The competitive forces have also begun to influence some retail pricing in the industry. In a few instances, industrial customers, threatening to pursue cogeneration, self-generation or relocation to other service territories, have leveraged price concessions from utilities. Recent state regulatory actions, such as in New Jersey, suggest that utilities may have limited success with attempting to shift costs associated with such discounts to other customers. Utilities may have to absorb, in whole or part, the effects of price reductions designed to retain large retail customers. State regulators may put a limit or cap on prices, especially for those customers unable to pursue alternative supply options. In December 1993, the Company filed a proposal with the NJBRC seeking approval to implement a new rate initiative designed to retain and expand the economic base in New Jersey. Under the proposed contract rate service, large retail customers could enter into contracts for existing electric service at prevailing rates, with limitations on their exposure to future rate increases. With this rate initiative, the Company will have to absorb any differential in price resulting from changes in costs not provided for in the contracts. This matter is pending before the NJBRC. Proposed legislation has been introduced in New Jersey that is intended to allow the NJBRC, at the request of an electric or gas utility, to adopt a plan of regulation other than traditional ratemaking methods to encourage economic development and job creation. This flexible ratemaking would allow electric utilities to be more competitive with nonutility generators, who are F-10 not subject to NJBRC regulation. Combined with other economic development initiatives, this legislation, if enacted, would provide more flexibility in responding to competitive pressures, but may also serve to accelerate the growth of competitive pressures. Financial Exposure In the transition from a regulated to competitive environment, there can be a significant change in the economic value of a utility's assets. Traditional utility regulation provides an opportunity for recovery of the cost of plant assets, along with a return on investment, through ratemaking. In a competitive market, the value of an asset may be determined by the market price of the services derived from that asset. If the cost of operating existing assets results in above-market prices, a utility may be unable to recover all of its costs, resulting in "stranded assets" and other unrecoverable costs. This may result in write-downs to remove stranded assets from a utility's balance sheet in recognition of their reduced economic value and the recognition of other losses. Unrecovered costs will most likely be related to generation investment, purchased power contracts, and "regulatory assets," which are deferred accounting transactions whose value rests on the strength of a state regulatory decision to allow future recovery from ratepayers. In markets where there is excess capacity (as there currently is in the region including New Jersey) and many available sources of power supply, the market price of electricity may be too low to support full recovery of capital costs of certain existing power plants, primarily the capital intensive plants such as nuclear units. Another significant exposure in the transition to a competitive market results if the prices of a utility's existing purchase power contracts, consisting primarily of contractual obligations with nonutility generators, are higher than future market prices. Utilities locked into expensive purchase power arrangements may be forced to value the contracts at market prices and recognize certain losses. A third source of exposure is regulatory assets, that if not supported by regulators, would have no value in a competitive market. Financial Accounting Standard No. 71 (FAS 71), "Accounting for the Effects of Certain Types of Regulation," applies to regulated utilities that have the ability to recover their costs through rates established by regulators and charged to customers. If a portion of the Company's operations continues to be regulated, FAS 71 accounting may be applied only to that portion. Write-offs of utility plant and regulatory assets may result for those operations that no longer meet the requirements of FAS 71. In addition, under deregulation, the uneconomical costs of certain contractual commitments for purchased power and/or fuel supplies may have to be expensed. Management believes that to the extent that the Company no longer qualifies for FAS 71 accounting treatment, a material adverse effect on its results of operations and financial position may result. At this time, it is difficult for management to project the future level of stranded assets or other unrecoverable costs, if any, without knowing what the market price of electricity will be, or if regulators will allow recovery of industry transition costs from customers. F-11 Positioning the GPU System The typical electric utility today is vertically integrated, operating its plant assets to serve all customers within a franchised service territory. In the future, franchised service territories may be replaced by markets whose boundaries are defined by price, available capacity and transmission access. This may result in changes to the organizational structure of utilities and an emphasis on certain segments of the business among generation, transmission and distribution. In order to achieve a strong competitive position in a less regulated future, the GPU System has in place a strategic planning process. In the initial phases of the program, task forces are defining the principal challenges facing the GPU System, exploring opportunities and risks, and defining and evaluating strategic alternatives. Management is now analyzing issues associated with various competitive and regulatory scenarios to determine how best to position the GPU System for a competitive environment. An initial outcome of the GPU System ongoing strategic planning process was a realignment proposed in February 1994, of certain system operations. Subject to necessary regulatory approval, a new subsidiary, GPU Generation Corporation, will be formed to operate and maintain the GPU System's fossil-fueled and hydroelectric generating stations, which are now owned and operated by the Company and its affiliates. It is also intended to combine the remaining Met-Ed and Penelec operations without merging the two companies. The GPU System is also developing a performance improvement and cost reduction program to help assure ongoing competitiveness, and, among other matters, will also address workforce issues in terms of compensation, size and skill mix. MEETING ENERGY DEMANDS: In response to the increasingly competitive business climate and excess capacity of nearby utilities, the GPU System's supply plan places an emphasis on maintaining flexibility. Supply planning focuses increasingly on short- term to intermediate-term commitments, reliance on "spot" markets, and avoidance of long-term firm commitments. The Company is expected to experience an average growth rate in sales to customers (exclusive of the loss of its wholesale customers) through 1998 of about 1.6% annually. The Company also expects to experience peak load growth although at a somewhat lesser rate. Through 1998, the Company's plan consists of the continued utilization of existing generating facilities combined with present commitments for power purchases and new power purchases (of short-term or intermediate-term duration), the construction of a new facility, and the utilization of capacity of its affiliates. The plan also includes the continued promotion of economical energy conservation and load management programs. Given the future direction of the industry, the Company's present strategy includes minimizing the financial exposure associated with new long-term purchase commitments and the construction of new facilities by including projected market prices in the evaluation of these options. The Company will resist efforts to compel it to add new capacity at costs that may exceed future market prices. In addition, the Company will seek regulatory support to renegotiate or buy out contracts with nonutility generators where the pricing is in excess of projected avoided costs. F-12 New Energy Supplies The Company's supply plan includes the addition of 533 MW of currently contracted capacity by 1998 from nonutility generation suppliers, and reflects the construction of a new peaking unit. The Company currently has uncommitted capacity needs by 1998 of approximately 500 MW, which represents essentially all the uncommitted needs of the GPU System. These capacity needs may be filled by a combination of utility and nonutility purchases (of short-term or intermediate-term duration) as well as company-owned facilities. Additions are principally to replace expiring purchase arrangements rather than to serve new customer load. In July 1993, an NJBRC Advisory Council recommended in a report that all New Jersey electric utilities be required to submit integrated resource plans for review and approval by the NJBRC. The NJBRC has asked all electric utilities in the state to assess the economics of their purchase power contracts with nonutility generators to determine whether there are any candidates for potential buy-out or other remedial measures. The Company identified a 100-MW project now under development, which it believes is economically undesirable based on current cost projections. In November 1993, the NJBRC directed the Company and the developer to negotiate contract repricing to a level more consistent with the Company's current avoided cost projections or a contract buy-out. The developer has filed a federal court action contesting the NJBRC's jurisdiction in this matter. In November 1993, the NJBRC granted two nonutility generators, having a total of 200 MW under contract with the Company, a one-year extension in the in-service date for projects originally scheduled to be operational in 1997. The Company is awaiting a final written NJBRC order. Also in November 1993, the Company received approval from the NJBRC to withdraw the Company's request for proposals for the purchase of 150 MW from nonutility generators. In its petition, the Company cited, among other reasons, that solicitations for long-term contracts would have limited its ability to compete in a deregulated environment. The Company has entered into an arrangement for a peaking generation project whereby it plans to install a gas-fired combustion turbine at its Gilbert Generating station and retire two steam units for an 88-MW net increase in capacity at an expected cost of $50 million. The Company expects to complete the project by 1996. F-13 In December 1993, the NJBRC denied the Company's petition to participate in the proposed power supply and transmission facilities agreements between the Company and its affiliates and Duquesne. As a result of this action and other developments, the Company and its affiliates notified Duquesne that they were exercising their rights under the agreements to withdraw from and thereby terminate the agreements. The capital costs of the GPU System's share of these transactions would have totaled approximately $500 million, of which the Company's share would have been $215 million. In January 1994, the Company issued an all source solicitation for the short-term supply of energy and/or capacity to determine and evaluate the availability of competitively priced power supply options. The Company is seeking proposals from utility and nonutility generation suppliers, for periods of one to eight years in length, that are capable of delivering electric power beginning in 1996. This solicitation is expected to fulfill a significant part of the uncommitted sources identified in the Company's supply plan. Conservation and Load Management The regulatory environment in New Jersey encourages the development of new conservation and load management programs. This is evidenced by demand- side management (DSM) incentive regulations adopted in New Jersey in 1992. DSM includes utility-sponsored activities designed to improve energy efficiency in customer end-use, and includes load management programs (i.e., peak reduction) and conservation programs (i.e., energy and peak reduction). The NJBRC approved the Company's DSM plan in 1992 reflecting DSM initiatives of 67 MW of summer peak reduction by the end of 1994. Under the approved regulation, qualified Performance Program DSM investments are recovered over a six-year period with a return earned on the unrecovered amounts. Lost revenues will be recovered on an annual basis, and the Company can also earn a performance-based incentive for successfully implementing cost-effective programs. In addition, the Company will continue to make certain NJBRC-mandated Core Program DSM investments, which are recovered annually. ENVIRONMENTAL ISSUES: The Company is committed to complying with all applicable environmental regulations in a responsible manner. Compliance with the federal Clean Air Act Amendments of 1990 (Clean Air Act) and other environmental needs will present a major challenge to the Company through the late 1990s. The Clean Air Act will require substantial reductions in sulfur dioxide and nitrogen oxide emissions by the year 2000. The Company's current plan includes installing and operating emission control equipment at the Keystone station in which the Company has a 16.67% ownership interest. To comply with F-14 the Clean Air Act, the Company expects to expend up to $145 million by the year 2000 for air pollution control equipment. The GPU System reviews its plans and alternatives to comply with the Clean Air Act on a least-cost basis taking into account advances in technology and the emission allowance market, and assesses the risk of recovering capital investments in a competitive environment. The GPU System may be able to defer substantial capital investments while attaining the required level of compliance if an alternative such as increased participation in the emission allowance market is determined to result in the least-cost plan. This and other compliance alternatives may result in the substitution of increased operating expenses for capital costs. At this time, costs associated with the capital invested in this pollution control equipment and the increased operating costs of the affected station are expected to be recoverable through the ratemaking process, but management recognizes that recovery is not assured. For more information, see the Environmental Matters section of Note 1 to the Financial Statements. LEGAL MATTERS - TMI-2 ACCIDENT CLAIMS: As a result of the TMI-2 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 its affiliates and GPU and are still pending. For more information, see Note 1 to the Financial Statements. EFFECTS OF INFLATION: The Company is affected by inflation since the regulatory process results in a time lag during which increased operating expenses are not fully recovered in rates. Inflation may have an even greater effect in a period of increasing competition and deregulation as the Company and the utility industry attempt to keep rates competitive. Inflation also affects the Company in the form of higher replacement costs of utility plant. In the past, the Company anticipated the recovery of these cost increases through the ratemaking process. However, as competition and deregulation accelerate throughout the industry, there can be no assurance of the recovery of these increased costs. The Company is committed to long-term cost control and is continuing to seek measures to reduce or limit the growth in operating expenses. The prudent expenditure of capital and debt refinancing programs have kept down increases in capital costs and debt levels. ACCOUNTING ISSUES: In May 1993, the Financial Accounting Standards Board issued FAS 115, "Accounting for Certain Investments in Debt and Equity Securities," which is effective for fiscal years beginning after December 15, 1993. FAS 115 requires the recording of unrealized gains and losses with a corresponding offsetting entry to earnings or shareholder's equity. The impact on the Company's financial position is expected to be immaterial, and there will be no impact on the results of operations. FAS 115 will be implemented in 1994. F-15 Jersey Central Power & Light Company QUARTERLY FINANCIAL DATA (Unaudited)
(In Thousands) First Quarter Second Quarter Third Quarter Fourth Quarter 1993 1992 1993 1992 1993 1992 1993* 1992 Operating revenues $448 634 $442 937 $463 354 $420 925 $576 268 $489 445 $447 653 $420 764 Operating income 51 411 52 393 57 053 41 365 98 552 61 141 49 914 38 955 Net income 30 830 32 987 31 551 23 000 75 239 42 765 20 724 18 609 Earnings available for common stock 26 124 28 127 26 845 17 762 71 540 36 965 17 025 13 903 * Results for the fourth quarter of 1993 reflect a decrease in earnings of $6.0 million (net of income taxes of $3.3 million) for the write-off of the Duquesne transactions. F-16
REPORT OF INDEPENDENT ACCOUNTANTS To The Board of Directors Jersey Central Power & Light Company Morristown, New Jersey We have audited the financial statements and financial statement schedules of Jersey Central Power & Light Company as listed in the index on page F-1 of this Form 10-K. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Jersey Central Power & Light Company as of December 31, 1993 and 1992, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1993 in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein. F-17 As more fully discussed in Note 1 to financial statements, the Company is unable to determine the ultimate consequences of the contingency which has resulted from the accident at Unit 2 of the Three Mile Island Nuclear Generating Station. The matter which remains uncertain is the excess, if any, of amounts which might be paid in connection with claims for damages resulting from the accident over available insurance proceeds. As discussed in Notes 5 and 7 to the financial statements, the Company was required to adopt the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes", and the provisions of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" in 1993. Also, as discussed in Note 2 to the financial statements, the Company changed its method of accounting for unbilled revenues in 1991. Parsippany, New Jersey COOPERS & LYBRAND February 2, 1994 F-18 Jersey Central Power & Light Company STATEMENTS OF INCOME (In Thousands) For the Years Ended December 31, 1993 1992 1991 Operating Revenues $1 935 909 $1 774 071 $1 773 219 Operating Expenses: Fuel 98 683 84 851 100 758 Power purchased and interchanged: Affiliates 23 681 24 281 30 040 Others 578 131 616 418 576 217 Deferral of energy and capacity costs, net 28 726 4 232 (27) Other operation and maintenance 460 128 424 285 433 562 Depreciation and amortization 182 945 167 022 159 747 Taxes, other than income taxes 228 690 215 507 219 611 Total operating expenses 1 600 984 1 536 596 1 519 908 Operating Income Before Income Taxes 334 925 237 475 253 311 Income taxes 77 995 43 621 50 779 Operating Income 256 930 193 854 202 532 Other Income and Deductions: Allowance for other funds used during construction 2 471 4 015 3 136 Other income, net 6 281 21 519 20 664 Income taxes (2 847) (8 268) (8 459) Total other income and deductions 5 905 17 266 15 341 Income Before Interest Charges 262 835 211 120 217 873 Interest Charges: Interest on long-term debt 100 246 92 942 85 420 Other interest 6 530 4 873 11 540 Allowance for borrowed funds used during construction (2 285) (4 056) (5 547) Total interest charges 104 491 93 759 91 413 Income Before Cumulative Effect of Accounting Change 158 344 117 361 126 460 Cumulative effect as of January 1, 1991 of accounting change for unbilled revenues, net of income taxes of $13,942 - - 27 063 Net Income 158 344 117 361 153 523 Preferred stock dividends 16 810 20 604 19 440 Earnings Available for Common Stock $ 141 534 $ 96 757 $ 134 083 The accompanying notes are an integral part of the financial statements. F-19 Jersey Central Power & Light Company BALANCE SHEETS (In Thousands) December 31, 1993 1992 ASSETS Utility Plant: In service, at original cost $3 938 700 $3 692 318 Less, accumulated depreciation 1 380 540 1 262 562 Net utility plant in service 2 558 160 2 429 756 Construction work in progress 102 178 178 902 Other, net 116 751 130 307 Net utility plant 2 777 089 2 738 965 Current Assets: Cash and temporary cash investments 17 301 140 Special deposits 7 124 8 190 Accounts receivable: Customers, net 133 407 117 755 Other 31 912 26 401 Unbilled revenues 57 943 53 588 Materials and supplies, at average cost or less: Construction and maintenance 102 659 101 187 Fuel 11 886 23 576 Deferred income taxes 28 650 57 327 Prepayments 58 057 29 727 Total current assets 448 939 417 891 Deferred Debits and Other Assets: Three Mile Island Unit 2 deferred costs 146 284 153 912 Unamortized property losses 109 478 108 825 Deferred income taxes 110 794 59 599 Income taxes recoverable through future rates 121 509 - Decommissioning funds 139 279 114 650 Special deposits 82 103 76 807 Other 333 680 216 255 Total deferred debits and other assets 1 043 127 730 048 Total Assets $4 269 155 $3 886 904 The accompanying notes are an integral part of the financial statements. F-20 Jersey Central Power & Light Company BALANCE SHEETS (In Thousands) December 31, 1993 1992 LIABILITIES AND CAPITAL Capitalization: Common stock $ 153 713 $ 153 713 Capital surplus 435 715 435 715 Retained earnings 724 194 644 899 Total common stockholder's equity 1 313 622 1 234 327 Cumulative preferred stock: With mandatory redemption 150 000 150 000 Without mandatory redemption 37 741 87 877 Long-term debt 1 215 674 1 116 930 Total capitalization 2 717 037 2 589 134 Current Liabilities: Debt due within one year 60 008 14 485 Notes payable - 5 700 Obligations under capital leases 89 631 107 331 Accounts payable: Affiliates 34 538 54 618 Other 95 509 99 666 Taxes accrued 119 337 127 406 Deferred energy credits 23 633 1 257 Interest accrued 33 804 33 294 Other 50 950 53 967 Total current liabilities 507 410 497 724 Deferred Credits and Other Liabilities: Deferred income taxes 569 966 425 157 Unamortized investment tax credits 79 902 86 021 Three Mile Island Unit 2 future costs 79 967 80 000 Other 314 873 208 868 Total deferred credits and other liabilities 1 044 708 800 046 Commitments and Contingencies (Note 1) Total Liabilities and Capital $4 269 155 $3 886 904 The accompanying notes are an integral part of the financial statements. F-21 Jersey Central Power & Light Company STATEMENTS OF RETAINED EARNINGS
(In Thousands) For the Years Ended December 31, 1993 1992 1991 Balance, beginning of year $644 899 $580 523 $486 440 Add, net income 158 344 117 361 153 523 Total 803 243 697 884 639 963 Deduct, Cash dividends on capital stock: Cumulative preferred stock (at the annual rates indicated below): 4% Series ($4.00 a share) 500 500 500 8.12% Series ($8.12 a share) 1 015 2 030 2 030 8% Series ($8.00 a share) 1 000 2 000 2 000 7.88% Series E ($7.88 a share) 1 970 1 970 1 970 8.75% Series H ($2.19 a share) - 3 281 4 375 8.48% Series I ($8.48 a share) 4 240 4 240 4 240 8.65% Series J ($8.65 a share) 4 325 4 325 4 325 7.52% Series K ($7.52 a share) 3 760 2 258 - Common stock (not declared on a per share basis) 60 000 30 000 40 000 Other adjustments 2 239 2 381 - Total 79 049 52 985 59 440 Balance, end of year $724 194 $644 899 $580 523 Jersey Central Power & Light Company STATEMENT OF CAPITAL STOCK December 31, 1993 (In Thousands) Cumulative preferred stock, without par value, 15,600,000 shares authorized (1,875,000 shares issued and outstanding) (a), (b) & (c): Cumulative preferred stock - no mandatory redemption: 125,000 shares, 4% Series, callable at $106.50 a share $ 12 500 250,000 shares, 7.88% Series E, callable at $103.65 a share 25 000 Premium on cumulative preferred stock 241 Total cumulative preferred stock - no mandatory redemption, including premium $ 37 741 Cumulative preferred stock - with mandatory redemption (d): 500,000 shares, 8.48% Series I $ 50 000 500,000 shares, 8.65% Series J 50 000 500,000 shares, 7.52% Series K 50 000 Total cumulative preferred stock - with mandatory redemption $150 000 Common stock, par value $10 a share, 16,000,000 shares authorized, 15,371,270 shares issued and outstanding $153 713 (a) During 1992, the Company issued a 7.52% series of cumulative preferred stock with mandatory redemption provisions. The 7.52% series is callable beginning in the year 2002 at various prices above its stated value and is to be redeemed ratably over 20 years beginning in the year 1998. The Company also has outstanding an 8.48% and an 8.65% series of cumulative preferred stock with mandatory redemption provisions. The 8.48% series is not callable. The 8.65% series is callable beginning in the year 2000 at various prices above its stated value. The 8.48% series is to be redeemed ratably over five years beginning in 1996 and the 8.65% series ratably over six years beginning in the year 2000. Each issue of cumulative preferred stock with mandatory redemption provisions provides that the Company may, at its option, redeem an amount of shares equal to its mandatory sinking fund requirement at such time as the mandatory sinking fund redemption is made. Expenses of $.5 million incurred in connection with the issuance of the 7.52% cumulative preferred stock were charged to Capital Surplus on the balance sheet. No shares of preferred stock other than the 7.52% series were issued in the three years ended December 31, 1993. (b) During 1993, the Company redeemed all of its outstanding 8.12% series of cumulative preferred stock (aggregate stated value of $25 million), at a total cost of $26.1 million. Also during 1993, the Company redeemed all of its outstanding 8% series of cumulative preferred stock (aggregate stated value of $25 million), at a total cost of $26.3 million. These redemptions resulted in a net $2.2 million charge to retained earnings. During 1992, the Company redeemed all of its outstanding 8.75% series of cumulative preferred stock (aggregate stated value of $50 million), at a total cost of $51.6 million. This resulted in a $1.6 million charge to retained earnings. Additional preferred stock expenses of $.8 million were charged to retained earnings. No other shares of preferred stock were redeemed in the three years ended December 31, 1993. (c) If dividends on any of the preferred stock are in arrears for four quarters, the holders of preferred stock, voting as a class, are entitled to elect a majority of the board of directors until all dividends in arrears have been paid. No redemptions of preferred stock may be made unless dividends on all preferred stock for all past quarterly dividend periods have been paid or declared and set aside for payment. Stated value of the Company's cumulative preferred stock is $100 per share. (d) The Company's aggregate liability with regard to redemption provisions on its cumulative preferred stock for the years 1994 through 1998, based on issues outstanding at December 31, 1993, is $32.5 million. All redemptions are at stated value of the shares, plus accrued dividends. The accompanying notes are an integral part of the financial statements. F-22 Jersey Central Power & Light Company STATEMENTS OF CASH FLOWS (In Thousands) For the Years Ended December 31, 1993 1992 1991 Operating Activities: Income before preferred dividends $ 158 344 $ 117 361 $ 153 523 Adjustments to reconcile income to cash provided: Depreciation and amortization 199 201 177 245 173 503 Amortization of property under capital leases 34 333 35 137 26 341 Cumulative effect of accounting change - - (27 063) Nuclear outage maintenance costs, net 1 323 9 144 (15 237) Deferred income taxes and investment tax credits, net 39 139 14 630 3 426 Deferred energy and capacity costs, net 29 305 4 135 192 Accretion income (14 500) (15 400) (16 200) Allowance for other funds used during construction (2 471) (4 015) (3 136) Changes in working capital: Receivables (25 579) 934 41 352 Materials and supplies 10 218 (2 737) (7 223) Special deposits and prepayments (24 672) (12 818) 3 331 Payables and accrued liabilities (111 061) (3 687) (14 492) Other, net (26 938) (22 682) 2 067 Net cash provided by operating activities 266 642 297 247 320 384 Investing Activities: Cash construction expenditures (197 059) (218 874) (241 774) Contributions to decommissioning trust (18 896) (19 008) (18 019) Other, net (7 695) (15 660) (20 487) Net cash used for investing activities (223 650) (253 542) (280 280) Financing Activities: Issuance of long-term debt 548 600 367 396 148 963 Decrease in notes payable, net (5 700) (38 100) (70 542) Retirement of long-term debt (408 527) (282 717) (34 488) Capital lease principal payments (30 011) (38 029) (25 906) Issuance of preferred stock - 50 000 - Redemption of preferred stock (52 375) (51 635) - Dividends paid on common stock (60 000) (30 000) (40 000) Dividends paid on preferred stock (17 818) (20 758) (19 440) Net cash required by financing activities (25 831) (43 843) (41 413) Net increase (decrease) in cash and temporary cash investments from above activities 17 161 (138) (1 309) Cash and temporary cash investments, beginning of year 140 278 1 587 Cash and temporary cash investments, end of year $ 17 301 $ 140 $ 278 Supplemental Disclosure: Interest paid (net of amount capitalized) $ 129 868 $ 103 845 $ 112 382 Income taxes paid $ 42 605 $ 51 714 $ 89 284 New capital lease obligations incurred $ 18 919 $ 35 617 $ 18 839 The accompanying notes are an integral part of the financial statements. F-23 Jersey Central Power & Light Company STATEMENT OF LONG-TERM DEBT December 31, 1993 (In Thousands) First Mortgage Bonds - Series as noted (a), (b) & (c): 8.85% Series due 1994 $20 000 7 1/8% Series due 2004 160 000 8.70% Series due 1994 20 000 6.78% Series due 2005 50 000 8.65% Series due 1994 20 000 8.25% Series due 2006 50 000 4 7/8% Series due 1995 17 430 7.90% Series due 2007 40 000 8.64% Series due 1995 5 000 7 1/8% Series due 2009 6 300 8.70% Series due 1995 25 000 7.10% Series due 2015 12 200 6 1/8% Series due 1996 25 701 9.20% Series due 2021 50 000 6.90% Series due 1997 30 000 8.55% Series due 2022 30 000 6 5/8% Series due 1997 25 874 8.82% Series due 2022 12 000 6.70% Series due 1997 20 000 8.85% Series due 2022 38 000 7 1/4% Series due 1998 24 191 8.32% Series due 2022 40 000 6.04% Series due 2000 40 000 7.98% Series due 2023 40 000 9% Series due 2002 50 000 7 1/2% Series due 2023 125 000 6 3/8% Series due 2003 150 000 6 3/4% Series due 2025 150 000 Subtotal 1 276 696 Amount due within one year (60 000) $1 216 696 Other long-term debt, net (b) 3 076 Unamortized net discount on long-term debt (4 098) Total long-term debt $1 215 674 (a) These amounts do not include $125 million of 10 1/8% First Mortgage Bonds as a result of depositing with the trustee, in 1993, an amount needed for their early redemption in April 1994. (b) For the years 1994, 1995, 1996, 1997 and 1998 the Company has long-term debt maturities of $60.0 million, $47.4 million, $25.7 million, $75.9 million and $24.2 million, respectively. (c) Substantially all of the utility plant owned by the Company is subject to the lien of its mortgage. The accompanying notes are an integral part of the financial statements. F-24
NOTES TO FINANCIAL STATEMENTS Jersey Central Power & Light Company (the Company), which was incorporated under the laws of New Jersey in 1925, is a wholly owned subsidiary of General Public Utilities Corporation (GPU), a holding company registered under the Public Utility Holding Company Act of 1935. The Company is affiliated with Metropolitan Edison Company (Met-Ed) and Pennsylvania Electric Company (Penelec). The Company, Met-Ed and Penelec are referred to herein as the "Company and its affiliates." The Company is also associated with GPU Service Corporation (GPUSC), a service company; GPU Nuclear Corporation (GPUN), which operates and maintains the nuclear units of the Company and its affiliates; and General Portfolios Corporation (GPC), parent of Energy Initiatives, Inc., which develops, owns and operates nonutility generating facilities. All of the Company's affiliates are wholly owned subsidiaries of GPU. The Company and its affiliates, GPUSC, GPUN and GPC are referred to as the "GPU System." 1. COMMITMENTS AND CONTINGENCIES NUCLEAR FACILITIES The Company has made investments in three major nuclear projects -- Three Mile Island Unit 1 (TMI-1) and Oyster Creek, both of which are operational generating facilities, and Three Mile Island Unit 2 (TMI-2), which was damaged during a 1979 accident. At December 31, 1993, the Company's net investment in TMI-1 and Oyster Creek, including nuclear fuel, was $173 million and $784 million, respectively. TMI-1 and TMI-2 are jointly owned by the Company, Met-Ed and Penelec in the percentages of 25%, 50% and 25%, respectively. Oyster Creek is owned by the Company. Costs associated with the operation, maintenance and retirement of nuclear plants have continued to increase and become less predictable, in large part due to changing regulatory requirements and safety standards and experience gained in the construction and operation of nuclear facilities. The Company and its affiliates may also incur costs and experience reduced output at their nuclear plants because of the design criteria prevailing 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 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 the plants' useful life (whether scheduled or premature), the carrying costs of that investment and retirement costs, is not assured. Management intends, in general, to seek recovery of any such costs described above through the ratemaking process, but recognizes that recovery is not assured. 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. After receiving Nuclear Regulatory Commission (NRC) approval, TMI-2 entered into long-term monitored storage in December 1993. F-25 As a result of the accident and its aftermath, individual claims for alleged personal injury (including claims for punitive damages), which are material in amount, have been asserted against GPU and the Company and its affiliates. Approximately 2,100 of such claims are pending in the U. S. 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. Questions have not yet been resolved as to whether the punitive damage claims are (a) subject to the overall limitation of liability set by the Price-Anderson Act ($560 million at the time of the accident) and (b) outside the primary insurance coverage provided pursuant to that Act (remaining primary coverage of approximately $80 million as of December 31, 1993). If punitive damages are not covered by insurance or are not subject to the Price-Anderson liability limitation, punitive damage awards could have a material adverse effect on the financial position of the Company. In June 1993, the Court agreed to permit pre-trial discovery on the punitive damage claims to proceed. A trial of twelve allegedly representative cases is scheduled to begin in October 1994. In February 1994, the Court held that the plaintiffs' claims for punitive damages are not barred by the Price- Anderson Act to the extent that the funds to pay punitive damages do not come out of the U.S. Treasury. The Court also denied the defendants' motion seeking a dismissal of all cases on the grounds that the defendants complied with applicable Federal safety standards regarding permissible radiation releases from TMI-2 and that, as a matter of law, the defendants therefore did not breach any duty that they may have owed to the individual plaintiffs. The Court stated that a dispute about what radiation and emissions were released cannot be resolved on a motion for summary judgment. NUCLEAR PLANT RETIREMENT COSTS Retirement costs for nuclear plants include decommissioning the radiological portions of the plants and the cost of removal of nonradiological structures and materials. As described in the Nuclear Fuel Disposal Fee section of Note 2, the disposal of spent nuclear fuel is covered separately by contracts with the U.S. Department of Energy (DOE). In 1990, the Company and its affiliates submitted a report, in compliance with NRC regulations, setting forth a funding plan (employing the external sinking fund method) for the decommissioning of their nuclear reactors. Under this plan, the Company and its affiliates intend to complete the funding for Oyster Creek and TMI-1 by the end of the plants' license terms, 2009 and 2014, respectively. The TMI-2 funding completion date is 2014, consistent with TMI-2 remaining in long-term storage and being decommissioned at the same time as TMI-1. Under the NRC regulations, the funding target (in 1993 dollars) for TMI-1 is $143 million, of which the Company's share is $36 million, and for Oyster Creek is $175 million. Based on NRC studies, a comparable funding target for TMI-2 (in 1993 dollars), which takes into account the accident, is $228 million, of which the Company's share is $57 million. The NRC is currently studying the levels of these funding targets. Management cannot predict the effect that the results of this review will have on the funding targets. NRC regulations and a regulatory guide provide mechanisms, including exemptions, to adjust the funding targets over their collection periods to reflect increases or decreases due to inflation and changes in technology and regulatory requirements. The funding targets, while not actual cost estimates, are reference levels designed to assure that licensees demonstrate F-26 adequate financial responsibility for decommissioning. While the 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 1988, a consultant to GPUN performed site-specific studies of TMI-1 and Oyster Creek that considered various decommissioning plans and estimated the cost of decommissioning the radiological portions of each plant to range from approximately $205 to $285 million, of which the Company's share is $51 to $71 million, and $220 to $320 million, respectively (adjusted to 1993 dollars). In addition, the studies estimated the cost of removal of nonradiological structures and materials for TMI-1 and Oyster Creek at $72 million, of which the Company's share is $18 million, and $47 million, respectively. The ultimate cost of retiring the Company and its affiliates' nuclear facilities may be materially different from the funding targets and the cost estimates contained in the site-specific studies and cannot now be more reasonably estimated than the level of the NRC funding target because such costs are subject to (a) the type of decommissioning plan selected, (b) the escalation of various cost elements (including, but not limited to, general inflation), (c) the further development of regulatory requirements governing decommissioning, (d) the absence to date of significant experience in decommissioning such facilities and (e) the technology available at the time of decommissioning. The Company charges to expense and contributes to external trusts amounts collected from customers for nuclear plant decommissioning and nonradiological costs. In addition, in 1990 the Company contributed to an external trust an amount not recoverable from customers for nuclear plant decommissioning. TMI-1 and Oyster Creek: The Company is collecting revenues for decommissioning, which are expected to result in the accumulation of its share of the NRC funding target for each plant. The Company is also collecting revenues for the cost of removal of nonradiological structures and materials at each plant based on its share ($3.83 million) of an estimated $15.3 million for TMI-1 and $31.6 million for Oyster Creek. Collections from customers for decommissioning expenditures are deposited in external trusts and are classified as Decommissioning Funds on the balance sheet, which includes the interest earned on these funds. Provision for the future expenditure of these funds has been made in accumulated depreciation, amounting to $13 million for TMI-1 and $80 million for Oyster Creek at December 31, 1993. Management believes that any TMI-1 and Oyster Creek retirement costs, in excess of those currently recognized for ratemaking purposes, should be recoverable through the ratemaking process. TMI-2: The Company and its affiliates have recorded a liability, amounting to $229 million, of which the Company's share is $57 million as of December 31, F-27 1993, for the radiological decommissioning of TMI-2, reflecting the NRC funding target (unadjusted for an immaterial decrease in 1993). The Company and its affiliates record escalations, when applicable, in the liability based upon changes in the NRC funding target. The Company and its affiliates have also recorded a liability in the amount of $20 million, of which the Company's share is $5 million, for incremental costs specifically attributable to monitored storage. Such costs are expected to be incurred between 1994 and 2014, when decommissioning is forecast to begin. In addition, the Company and its affiliates have recorded a liability in the amount of $71 million, of which the Company's share is $18 million, for nonradiological cost of removal. The Company's share of the above amounts for retirement costs and monitored storage are reflected as Three Mile Island Unit 2 Future Costs on the balance sheet. The Company has made a nonrecoverable contribution of $15 million to an external decommissioning trust. The New Jersey Board of Regulatory Commissioners (NJBRC) has granted the Company decommissioning revenues for the remainder of the NRC funding target and allowances for the cost of removal of nonradiological structures and materials. Management intends to seek recovery for any increases in TMI-2 retirement costs, but recognizes that recovery cannot be assured. Upon TMI-2's entering long-term monitored storage, the Company and its affiliates will incur currently estimated incremental annual storage costs of $1 million, of which the Company's share is $.25 million. The Company and its affiliates have deferred the $20 million, of which the Company's share is $5 million, for the total estimated incremental costs attributable to monitored storage. The Company's share of these costs has been recognized in rates by the NJBRC. INSURANCE The GPU System has insurance (subject to retentions and deductibles) for its operations and facilities including coverage for property damage, liability to employees and third parties, and loss of use and occupancy (primarily incremental replacement power costs). There is no assurance that the GPU System 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 Company. The decontamination liability, premature decommissioning and property damage insurance coverage for the TMI station (TMI-1 and TMI-2 are considered one site for insurance purposes) 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 to stabilize 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 the stations. The Price-Anderson Act limits the GPU System's liability to third parties for a nuclear incident at one of its sites to approximately $9.4 billion. Coverage for the first $200 million of such liability is provided by private F-28 insurance. The remaining coverage, or secondary protection, is provided by retrospective premiums payable by all nuclear reactor owners. Under secondary protection, a nuclear incident at any licensed nuclear power reactor in the country, including those owned by the GPU System, could result in assessments of up to $79 million per incident for each of the GPU System's three reactors, subject to an annual maximum payment of $10 million per incident per reactor. In 1993, GPUN requested an exemption from the NRC to eliminate the secondary protection requirements for TMI-2. This matter is pending before the NRC. The Company and its affiliates 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 at decreasing levels beginning at $1.8 million for Oyster Creek and $2.6 million for TMI-1, per week. Under their insurance policies applicable to nuclear operations and facilities, the Company and its affiliates are subject to retrospective premium assessments of up to $52 million in any one year, of which the Company's share is $31 million, in addition to those payable under the Price-Anderson Act. 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 Company may be required to incur substantial additional costs to construct new equipment, modify or replace existing and proposed equipment, remediate or clean up waste disposal and other sites currently or formerly used by it, including formerly owned manufactured gas plants, and with regard to electromagnetic fields, postpone or cancel the installation of, or replace or modify, utility plant, the cost of which could be material. Management intends to seek recovery through the ratemaking process for any additional costs, but recognizes that recovery cannot be assured. To comply with the federal Clean Air Act Amendments of 1990, the Company and its affiliates expect to expend up to $590 million for air pollution control equipment by the year 2000, of which the Company's share is approximately $145 million. Costs associated with the capital invested in this equipment and the increased operating costs of the Company's affected station should be recoverable through the ratemaking process. The Company has been notified by the Environmental Protection Agency (EPA) and a state environmental authority that it is among the potentially responsible parties (PRPs) who may be jointly and severally liable to pay for the costs associated with the investigation and remediation at six hazardous and/or toxic waste sites. In addition, the Company has been requested to supply information to the EPA and state environmental authorities on several other sites for which it has not yet been named as a PRP. 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 Company. F-29 The Company has entered into agreements with the New Jersey Department of Environmental Protection and Energy for the investigation and remediation of 17 formerly owned manufactured gas plant sites. One of these sites has been repurchased by the Company. The Company has also entered into various cost sharing agreements with other utilities for some of the sites. At December 31, 1993, the Company has an estimated environmental liability of $35 million recorded on its balance sheet relating to these sites. The estimated liability is based upon ongoing site investigations and remediation efforts, including capping the sites and pumping and treatment of ground water. If the periods over which the remediation is currently expected to be performed are lengthened, the Company believes that it is reasonably possible that the ultimate costs may range as high as $60 million. Estimates of these costs are subject to significant uncertainties as the Company 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 the Company is required to utilize different remediation methods, the costs could be materially in excess of $60 million. In June 1993, the NJBRC approved a mechanism for the recovery of future manufactured gas plant remediation costs through the Company's Levelized Energy Adjustment Clause (LEAC) when expenditures exceed prior collections. The NJBRC decision provides for interest to be credited to customers until the overrecovery is eliminated and for future costs to be amortized over seven years with interest. At December 31, 1993, the Company has collected from customers $5.2 million in excess of expenditures of $12.8 million. The Company is currently awaiting a final NJBRC order. The Company is pursuing reimbursement of the above costs from its insurance carriers, and will seek to recover costs to the extent not covered by insurance through this mechanism. The Company is unable to estimate the extent of possible remediation and associated costs of additional environmental matters. Also unknown are the consequences of environmental issues, which could cause the postponement or cancellation of either the installation or replacement of utility plant. Management believes the costs described above should be recoverable through the ratemaking process. OTHER COMMITMENTS AND CONTINGENCIES The NJBRC has instituted a generic proceeding to address the appropriate recovery of capacity costs associated with electric utility power purchases from nonutility generation projects. The proceeding was initiated, in part, to respond to contentions of the New Jersey Public Advocate, Division of Rate Counsel (Rate Counsel), that by permitting utilities to recover such costs through the LEAC, an excess or "double recovery" may result when combined with the recovery of the utilities' embedded capacity costs through their base rates. In September 1993, the Company and the other New Jersey electric utilities filed motions for summary judgment with the NJBRC requesting that the NJBRC dismiss contentions being made by Rate Counsel that adjustments for alleged "double recovery" in prior periods are warranted. Rate Counsel has filed a brief in opposition to the utilities' summary judgment motions including a statement from its consultant that in his view, the "double recovery" for the Company for the 1988-92 period would be approximately F-30 $102 million. Management believes that the position of Rate Counsel is without merit. This matter is pending before the NJBRC. The Company's two operating nuclear units are subject to the NJBRC'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. While a capacity factor below 40% would generate no specific monetary charge, it would require the issue to be brought before the NJBRC for review. The annual measurement period, which begins in March of each year, coincides with that used for the LEAC. In December 1993, the NJBRC denied the Company's request to participate in the proposed power supply and transmission facilities agreements between the Company and its affiliates and Duquesne Light Company (Duquesne). As a result of this action and other developments, the Company and its affiliates notified Duquesne that they were exercising their rights under the agreements to withdraw from and thereby terminate the agreements. Consequently, the Company and its affiliates wrote off the $25 million, of which the Company's share was $9 million, they had invested in the project. The Company's construction programs, for which substantial commitments have been incurred and which extend over several years, contemplate expenditures of $275 million during 1994. As a consequence of reliability, licensing, environmental and other requirements, substantial 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 any such costs through the ratemaking process, but recognizes that recovery is not assured. As a result of the Energy Policy Act of 1992 (Energy Act) and actions of regulatory commissions, the electric utility industry appears to be moving toward a combination of competition and a modified regulatory environment. In accordance with Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation" (FAS 71), the Company's financial statements reflect assets and costs based on current cost- based ratemaking regulations. 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. F-31 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 certain 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. If a portion of the Company's operations continues to be regulated and meets the above criteria, FAS 71 accounting may only be applied to that portion. Write-offs of utility plant and regulatory assets may result for those operations that no longer meet the requirements of FAS 71. In addition, under deregulation, the uneconomical costs of certain contractual commitments for purchased power and/or fuel supplies may have to be expensed. Management believes that to the extent that the Company no longer qualifies for FAS 71 accounting treatment, a material adverse effect on its results of operations and financial position may result. The Company has entered into a long-term contract with a nonaffiliated mining company for the purchase of coal for the Keystone generating station of which the Company owns a one-sixth undivided interest. This contract, which expires in 2004, requires the purchase of minimum amounts of the station's coal requirements. The price of the coal is determined by a formula providing for the recovery by the mining company of its costs of production. The Company's share of the cost of coal purchased under this agreement is expected to aggregate $21 million for 1994. The Company and its affiliates have entered into agreements with other utilities for the purchase of capacity and energy for various periods through 1999. These agreements provide for up to 2130 MW in 1994, declining to 1307 MW by 1995 and 183 MW by 1999. Payments pursuant to these agreements are estimated to aggregate $244 million in 1994. The price of the energy purchased under these agreements is determined by contracts providing generally for the recovery by the sellers of their costs. The Company has also entered into power purchase agreements with independently owned power production facilities (nonutility generators) for the purchase of energy and capacity for periods up to 25 years. The majority of these agreements are subject to penalties for nonperformance and other contract limitations. While a few of these facilities are dispatchable, most are must-run and generally obligate the Company to purchase all of the power produced up to the contract limits. The agreements have been approved by the NJBRC and permit the Company to recover energy and demand costs from customers through its energy clause. These agreements provide for the sale of approximately 1,194 MW of capacity and energy to the Company by the mid-to- late 1990s. As of December 31, 1993, facilities covered by these agreements having 661 MW of capacity were in service, and 215 MW were scheduled to commence operation in 1994. Payments made pursuant to these agreements were $292 million, $316 million and $216 million for 1993, 1992 and 1991, F-32 respectively, and are estimated to aggregate $325 million for 1994. The price of the energy and capacity to be purchased under these agreements is determined by the terms of the contracts. The rates payable under a number of these agreements are substantially in excess of current market prices. While the Company has been granted full recovery of these costs from customers by the NJBRC, there can be no assurance that the Company will continue to be able to recover these costs throughout the terms of the related contracts. The emerging competitive market has created additional uncertainty regarding the forecasting of the GPU System's energy supply needs which, in turn, has caused the Company and its affiliates to change their supply strategy to seek shorter term agreements offering more flexibility. At the same time, the Company and its affiliates are attempting to renegotiate, and in some cases buy out, high cost long-term nonutility generation contracts where opportunities arise. The extent to which the Company and its affiliates may be able to do so, however, or recover associated costs through rates, is uncertain. Moreover, these efforts have led to disputes before the NJBRC, as well as to litigation, and may result in claims against the Company for substantial damages. There can be no assurance as to the outcome of these matters. During the normal course of the operation of its business, in addition to the matters described above, the Company is from time to time involved in disputes, claims and, in some cases, as a defendant in litigation in which compensatory and punitive damages are sought by customers, contractors, vendors and other suppliers of equipment and services and by both current and former employees alleging unlawful employment practices. It is not expected that the outcome of these matters will have a material effect on the Company's financial position or results of operations. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES SYSTEM OF ACCOUNTS The Company's accounting records are maintained in accordance with the Uniform System of Accounts prescribed by the Federal Energy Regulatory Commission and adopted by the NJBRC. Certain reclassifications of prior years' data have been made to conform with current presentation. REVENUES The Company recognizes electric operating revenues for services rendered and, beginning in 1991, an estimate of unbilled revenues to record services provided to the end of the respective accounting period. F-33 DEFERRED ENERGY COSTS Energy costs are recognized in the period in which the related energy clause revenues are billed. UTILITY PLANT It is the policy of the Company to record additions to utility plant (material, labor, overhead and an allowance for funds used during construction) at cost. The cost of current repairs and minor replacements is charged to appropriate operating and maintenance expense and clearing accounts, and the cost of renewals is capitalized. The original cost of utility plant retired or otherwise disposed of is charged to accumulated depreciation. DEPRECIATION The Company provides for depreciation at annual rates determined and revised periodically, on the basis of studies, to be sufficient to depreciate the original cost of depreciable property over estimated remaining service lives, which are generally longer than those employed for tax purposes. The Company used depreciation rates that, on an aggregate composite basis, resulted in annual rates of 3.59%, 3.51% and 3.51% for the years 1993, 1992 and 1991, respectively. ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION (AFUDC) The Uniform System of Accounts defines AFUDC as "the net cost for the period of construction of borrowed funds used for construction purposes and a reasonable rate on other funds when so used." AFUDC is recorded as a charge to construction work in progress, and the equivalent credits are to interest charges for the pretax cost of borrowed funds and to other income for the allowance for other funds. While AFUDC results in an increase in utility plant and represents current earnings, it is realized in cash through depreciation or amortization allowances only when the related plant is recognized in rates. On an aggregate composite basis, the annual rates utilized were 7.80%, 8.19% and 8.64% for the years 1993, 1992 and 1991, respectively. AMORTIZATION POLICIES Accounting for TMI-2 and Forked River Investments: The Company is collecting annual revenues for the amortization of TMI-2 of $9.6 million. This level of revenue will be sufficient to recover the remaining investment by the year 2008. At December 31, 1993, $97 million is included in Unamortized property losses on the balance sheet for the Forked River project. The Company is collecting annual revenues for the amortization of this project of $11.2 million, which will be sufficient to recover its remaining investment by the year 2006. Because the Company has not been provided revenues for a return on the unamortized balances of its share of the damaged TMI-2 facility and the cancelled Forked River project, these F-34 investments are being carried at their discounted present values. The related annual accretion, which represents the carrying charges that are accrued as the asset is written up from its discounted value, is recorded in Other income, net. Nuclear Fuel: Nuclear fuel is amortized on a unit of production basis. Rates are determined and periodically revised to amortize the cost over the useful life. The Company has provided for future contributions to the Decontamination and Decommissioning Fund (part of the Energy Act) for the cleanup of enrichment plants operated by the federal government. The total liability at December 31, 1993 amounted to $29 million, and is primarily reflected in Deferred Credits and Other Liabilities - Other. Utilities with nuclear plants will contribute a total of $150 million annually, based on an assessment computed on prior enrichment purchases, over a 15-year period up to a total of $2.3 billion (in 1993 dollars). The Company made its initial payment to this fund in 1993. The Company has recorded an asset for remaining amounts recoverable from ratepayers of $28 million at December 31, 1993 in Deferred Debits and Other Assets - Other. NUCLEAR OUTAGE MAINTENANCE COSTS The Company accrues incremental nuclear outage maintenance costs anticipated to be incurred during scheduled nuclear plant refueling outages. NUCLEAR FUEL DISPOSAL FEE The Company is providing for estimated future disposal costs for spent nuclear fuel at Oyster Creek and TMI-1 in accordance with the Nuclear Waste Policy Act of 1982. The Company entered into contracts in 1983 with the DOE for the disposal of spent nuclear fuel. The total liability under these contracts, including interest, at December 31, 1993, all of which relates to spent nuclear fuel from nuclear generation through April 1983, amounted to $110 million, and is reflected in Deferred Credits and Other Liabilities - Other. As the actual liability is substantially in excess of the amount recovered to date from ratepayers, the Company has reflected such excess of $25 million at December 31, 1993 in Deferred Debits and Other Assets - Other. The rates currently charged to customers provide for the collection of these costs, plus interest, over a remaining period of 13 years. The Company is collecting 1 mill per kilowatt-hour from its customers for spent nuclear fuel disposal costs resulting from nuclear generation subsequent to April 1983. These amounts are remitted quarterly to the DOE. F-35 INCOME TAXES The GPU System files a consolidated federal income tax return, and all participants are jointly and severally liable for the full amount of any tax, including penalties and interest, that may be assessed against the group. Each subsidiary is allocated the tax reduction attributable to GPU expenses, in proportion to the average common stock equity investment of GPU in such subsidiary, during the year. In addition, each subsidiary will receive in current cash payments the benefit of its own net operating loss carrybacks to the extent that the other subsidiaries can utilize such net operating loss carrybacks to offset the tax liability they would otherwise have on a separate return basis (after taking into account any investment tax credits they could utilize on a separate return basis). This method of allocation does not allow any subsidiary to pay more than its separate return liability. Deferred income taxes, which result primarily from New Jersey unit tax, liberalized depreciation methods, deferred energy costs, discounted Forked River and TMI-2 investments, and unbilled revenues, are provided for differences between book and taxable income. Investment tax credits (ITC) are amortized over the estimated service lives of the related facilities. Effective January 1, 1993, the Company implemented Statement of Financial Accounting Standards No. 109 (FAS 109), "Accounting for Income Taxes," which requires the use of the liability method of financial accounting and reporting for income taxes. Under FAS 109, deferred income taxes reflect the impact of temporary differences between the amount of assets and liabilities recognized for financial reporting purposes and the amounts recognized for tax purposes. STATEMENTS OF CASH FLOWS For the purpose of the statements of cash flows, temporary investments include all unrestricted liquid assets, such as cash deposits and debt securities, with maturities generally of three months or less. 3. SHORT-TERM BORROWING ARRANGEMENTS At December 31, 1993, the Company had no short-term notes outstanding issued under bank lines of credit (credit facilities). GPU and the Company and its affiliates have $398 million of credit facilities, which includes a Revolving Credit Agreement (Credit Agreement) with a consortium of banks that permits total borrowing of $150 million outstanding at any one time. The credit facilities generally provide for the payment of a commitment fee on the unborrowed amount of 1/8 of 1% annually. Borrowings under these credit facilities generally bear interest based on the prime rate or money market rates. Notes issued under the Credit Agreement, which expires April 1, 1995, are subject to various covenants and acceleration under certain conditions. F-36 4. FAIR VALUE OF FINANCIAL INSTRUMENTS The estimated fair values of the Company's financial instruments, as of December 31, 1993 and 1992, are as follows: (In Millions) Carrying Fair Amount Value December 31, 1993: Cumulative preferred stock with mandatory redemption $ 150 $ 161 Long-term debt 1 216 1 276 December 31, 1992: Cumulative preferred stock with mandatory redemption 150 148 Long-term debt 1 117 1 158 The fair values of the Company's cumulative preferred stock with mandatory redemption provisions and long-term debt are estimated based on the quoted market prices for the same or similar issues or on the current rates offered to the Company for instruments of the same remaining maturities. 5. INCOME TAXES Effective January 1, 1993, the Company implemented FAS 109 "Accounting for Income Taxes". In 1993, the cumulative effect on net income of this accounting change was immaterial. Also in 1993, the federal income tax rate changed from 34% to 35%, retroactive to January 1, 1993, resulting in an increase in the deferred tax assets of $5 million and an increase in the deferred tax liabilities of $20 million. The tax rate change did not have a material effect on net income as the changes in deferred taxes were substantially offset by the recording of regulatory assets and liabilities. The balance sheet effect as of December 31, 1993 of implementing FAS 109 resulted in a regulatory asset for income taxes recoverable through future rates of $122 million (related to liberalized depreciation), and a regulatory liability for income taxes refundable through future rates of $43 million (related to unamortized ITC), substantially due to the recognition of amounts not previously recorded. F-37 A summary of the components of deferred taxes as of December 31, 1993 follows: (In Millions) Deferred Tax Assets Deferred Tax Liabilities Current: Noncurrent: New Jersey unit tax $ 12 Liberalized Unbilled revenue 9 depreciation: Deferred energy 8 previously flowed Total $ 29 through $80 future revenue requirements 42 $122 Noncurrent: Unamortized ITC $ 43 Decommissioning 19 Liberalized Contribution in aid depreciation 364 of construction 17 Forked River 30 Other 32 Other 54 Total $111 Total $570 The reconciliations from net income to book income subject to tax and from the federal statutory rate to combined federal and state effective tax rates are as follows: (In Millions) 1993 1992 1991 Net income $158 $117 $153 Income tax expense 81 52 73 Book income subject to tax $239 $169 $226 Federal statutory rate 35% 34% 34% Effect of difference between tax and book depreciation for which deferred taxes were not provided 2 2 2 Amortization of ITC (3) (4) (3) Other - (1) (1) Effective income tax rate 34% 31% 32% F-38 Federal and state income tax expense is comprised of the following: (In Millions) 1993 1992 1991 Provisions for taxes currently payable $42 $37 $56 Deferred income taxes: Liberalized depreciation 19 24 23 Gain/loss on reacquired debt 9 4 - Deferral of energy costs (8) - 2 Abandonment loss - Forked River (4) (4) (4) Nuclear outage maintenance costs - (3) 5 Accretion income 6 6 7 Unbilled revenues 5 (2) 8 Information system costs capitalized - 6 - New Jersey unit tax 32 3 (7) Other (14) (12) (10) Deferred income taxes, net 45 22 24 Amortization of ITC (6) (7) (7) Income tax expense $81 $52 $73 The Internal Revenue Service (IRS) has completed its examinations of the GPU System's federal income tax returns through 1986. The GPU System and the IRS have reached an agreement to settle the GPU System's claim that TMI-2 has been retired for tax purposes. When approved by the Joint Congressional Committee on Taxation, this settlement will provide refunds for previously paid taxes. The GPU System estimates that the Company and its affiliates would receive net refunds totaling $17 million, of which the Company's share is approximately $4 million, which would be credited to the Company's customers. The Company and its affiliates would also be entitled to receive net interest estimated to total $45 million (before income taxes), of which the Company's share is approximately $11 million, through December 31, 1993, which the Company would credit to income. The years 1987, 1988 and 1989 are currently under audit. 6. SUPPLEMENTARY INCOME STATEMENT INFORMATION Maintenance expense and other taxes charged to operating expenses consisted of the following: (In Millions) 1993 1992 1991 Maintenance $135 $125 $117 Other taxes: New Jersey unit tax $202 $197 $201 Real estate and personal property 6 7 7 Other 21 12 12 Total $229 $216 $220 F-39 For the years 1993, 1992 and 1991, the cost to the Company of services rendered to it by GPUSC amounted to approximately $39 million, $37 million and $36 million, respectively, of which approximately $29 million, $28 million and $27 million, respectively, was charged to income. For the years 1993, 1992 and 1991, the cost to the Company of services rendered to it by GPUN amounted to approximately $227 million, $247 million and $274 million, respectively, of which approximately $184 million, $170 million and $181 million, respectively, was charged to income. For the years 1993, 1992 and 1991, the Company purchased $23 million, $22 million and $21 million, respectively, in energy from a cogeneration project in which an affiliate has a 50 percent partnership interest. 7. EMPLOYMENT BENEFITS Pension Plans: The Company maintains defined benefit pension plans covering substantially all employees. The Company's policy is to currently fund net pension costs within the deduction limits permitted by the Internal Revenue Code. A summary of the components of net periodic pension cost follows: (In Millions) 1993 1992 1991 Service cost-benefits earned during the period $ 8.7 $ 8.1 $ 8.1 Interest cost on projected benefit obligation 29.4 27.6 25.7 Expected return on plan assets (32.1) (29.1) (27.9) Amortization (.4) (.6) (.6) Net periodic pension cost $ 5.6 $ 6.0 $ 5.3 The actual returns on the plans' assets for the years 1993, 1992 and 1991 were gains of $48.0 million, $17.5 million and $62.7 million, respectively. F-40 The funded status of the plans and related assumptions at December 31, 1993 and 1992 were as follows: (In Millions) 1993 1992 Accumulated benefit obligation (ABO): Vested benefits $ 310.7 $ 260.3 Nonvested benefits 36.2 28.2 Total ABO 346.9 288.5 Effect of future compensation levels 61.8 65.1 Projected benefit obligation (PBO) $ 408.7 $ 353.6 PBO $(408.7) $(353.6) Plan assets at fair value 425.2 384.6 PBO less than plan assets 16.5 31.0 Unrecognized net gain (10.1) (28.6) Unrecognized prior service cost 4.0 4.1 Unrecognized net transition asset (4.3) (4.8) Prepaid pension costs $ 6.1 $ 1.7 Principal actuarial assumptions(%): Annual long-term rate of return on plan assets 8.5 8.5 Discount rate 7.5 8.5 Annual increase in compensation levels 5.0 6.0 Changes in assumptions in 1993 primarily due to reducing the discount rate assumption from 8.5% to 7.5% resulted in a $36 million change in the PBO as of December 31, 1993. The assets of the plans are held in a Master Trust and generally invested in common stocks, fixed income securities and real estate equity investments. The unrecognized net gain represents actual experience different from that assumed, which is deferred and not included in the determination of pension cost until it exceeds certain levels. The unrecognized prior service cost resulting from retroactive changes in benefits is being amortized as a charge to pension cost, while the unrecognized net transition asset arising out of the adoption of Statement of Financial Accounting Standards No. 87 is being amortized as a credit to pension cost over the average remaining service periods for covered employees. Savings Plans: The Company also maintains savings plans for substantially all employees. These plans provide for employee contributions up to specified limits. The Company's savings plans provide for various levels of matching contributions. The matching contributions for the Company for 1993, 1992 and 1991 were $2.4 million, $2.1 million and $1.4 million, respectively. Postretirement Benefits Other than Pensions: The Company provides certain retiree health care and life insurance benefits for substantially all employees who reach retirement age while working for the Company. Health care benefits are administered by various organizations. A portion of the costs are borne by the participants. For 1992 and 1991, the annual premium costs associated with providing these benefits totaled approximately $4.5 million and $4.4 million, respectively. F-41 Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 106 (FAS 106), "Employers' Accounting for Postretirement Benefits Other Than Pensions." FAS 106 requires that the estimated cost of these benefits, which are primarily for health care, be accrued during the employee's active working career. The Company has elected to amortize the unfunded transition obligation existing at January 1, 1993, over a period of 20 years. A summary of the components of the net periodic postretirement benefit cost for 1993 follows: (In Millions) Service cost-benefits attributed to service during the period $ 3.4 Interest cost on the accumulated postretirement benefit obligation 10.4 Expected return on plan assets (.7) Amortization of transition obligation 5.7 Net periodic postretirement benefit cost 18.8 Deferred for future recovery (9.6) Postretirement benefit cost, net of deferrals $ 9.2 The actual return on the plans' assets for the year 1993 was a gain of $.9 million. The funded status of the plans at December 31, 1993, was as follows: Accumulated Postretirement Benefit Obligation (APBO): Retirees $ 52.7 Fully eligible active plan participants 28.8 Other active plan participants 58.2 Total accumulated postretirement benefit obligation $ 139.7 APBO $(139.7) Plan assets at fair value 10.3 APBO in excess of plan assets (129.4) Unrecognized net loss 7.5 Unrecognized transition obligation 108.3 Accrued postretirement benefit liability $ (13.6) Principal actuarial assumptions (%): Annual long-term rate of return on plan assets 8.5 Discount rate 7.5 The Company intends to continue funding amounts for postretirement benefits collected from customers and other amounts with an independent trustee, as deemed appropriate from time to time. The plan assets include equities and fixed income securities. F-42 In the Company's most recent base rate proceeding, the NJBRC allowed the Company to collect $3 million annually of the incremental postretirement benefit costs, charged to expense, recognized as a result of FAS 106. Based on the final order and in accordance with Emerging Issues Task Force Issue Number 92-12, "Accounting for OPEB Costs by Rate-Regulated Enterprises," the Company is deferring the amounts above that level. A portion of the increase in annual costs recognized under FAS 106 of approximately $9.6 million is being deferred and should be recoverable through the ratemaking process. The accumulated postretirement benefits obligation was determined by application of the terms of the medical and life insurance plans, including the effects of established maximums on covered costs, together with relevant actuarial assumptions and health-care cost trend rates of 14% for those not eligible for Medicare and 11% for those eligible for Medicare for 1994, decreasing gradually to 7% in 2000 and thereafter. These costs also reflect the implementation of a cost cap of 6% for individuals who retire after December 1, 1995. The effect of a 1% annual increase in these assumed cost trend rates would increase the accumulated postretirement benefit obligation by approximately $14 million and the aggregate of the service and interest cost components of net postretirement health-care cost for 1994 by approximately $1 million. Postemployment Benefits: In November 1992, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits" (FAS 112) which addresses accounting by employers who provide benefits to former or inactive employees after employment but before retirement, which is effective for fiscal years beginning after December 15, 1993. The Company adopted the accrual method required under FAS 112 during 1993, which did not have a material impact on the financial position or results of operations of the Company. 8. JOINTLY OWNED STATIONS Each participant in a jointly owned station finances its portion of the investment and charges its share of operating expenses to the appropriate expense accounts. The Company participated with affiliated and nonaffiliated utilities in the following jointly owned stations at December 31, 1993: Balance (In Millions) % Accumulated Station Ownership Investment Depreciation Three Mile Island 25 $207.2 $57.5 Keystone 16.67 77.9 20.8 Yards Creek 50 24.3 6.3 F-43 9. LEASES The Company's capital leases consist primarily of leases for nuclear fuel. Nuclear fuel capital leases at December 31, 1993 and 1992 totaled $86 million and $105 million, respectively (net of amortization of $137 million and $108 million, respectively). The recording of capital leases has no effect on net income because all leases, for ratemaking purposes, are considered operating leases. The Company and its affiliates have nuclear fuel lease agreements with nonaffiliated fuel trusts. An aggregate of up to $250 million ($125 million each for Oyster Creek and TMI-1) of nuclear fuel costs may be outstanding at any one time. It is contemplated that when consumed, portions of the currently leased material will be replaced by additional leased material. The Company and its affiliates are responsible for the disposal costs of nuclear fuel leased under these agreements. These nuclear fuel leases are renewable annually. Lease expense consists of an amount designed to amortize the cost of the nuclear fuel as consumed plus interest costs. For the years ended December 31, 1993, 1992 and 1991 these amounts were $34 million, $36 million and $29 million, respectively. The leases may be terminated at any time with at least five months notice by either party prior to the end of the current period. Subject to certain conditions of termination, the Company and its affiliates are required to purchase all nuclear fuel then under lease at a price that will allow the lessor to recover its net investment. The Company has sold and leased back substantially all of its ownership interest in the Merrill Creek Reservoir project. The minimum lease payments under this operating lease, which has a remaining term of 39 years, average approximately $3 million annually. F-44 JERSEY CENTRAL POWER & LIGHT COMPANY SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT (In Thousands)
For the Years Ended December 31, 1991 1992(a) 1993 Column A Column F Classification Balance at end of period Utility Plant (at original cost): Electric: Plant in service: Intangibles $ 13 070 $ 20 013 $ 23 502 Production: Steam 194 468 199 034 202 547 Nuclear 971 618 992 215 1 108 692 Pumped Storage 19 926 19 930 19 940 Combustion 253 889 259 616 259 402 Total Production 1 439 901 1 470 795 1 590 581 Transmission 561 141 591 786 604 961 Distribution 1 361 949 1 447 543 1 542 272 General 151 769 162 181 177 384 Construction work in progress 146 992 178 902 102 178 Held for future use 15 510 15 517 15 685 Total Electric Utility Plant 3 690 332 3 886 737 4 056 563 Nuclear fuel, at original cost 2 456 2 814 4 503 Property under capital leases, net 111 496 111 976 96 597 Total Utility Plant 3 804 284 4 001 527 4 157 663 Other physical property, at original cost 937 818 818 Total Property, Plant and Equipment $3 805 221 $4 002 345 $4 158 481 The information required by Columns B, C, D and E are omitted since neither the total additions nor the total deductions during the period amount to more than 10% of the closing balance of total property, plant and equipment. Total Total Total Column C, Additions, at cost.... $ 240 009 $ 226 079 $ 203 217 Column D, Retirements........... $ 20 500 $ 35 565 $ 26 271 Column E, Other Changes......... $ (5 418)(b)$ 6 610(c) $ (20 810)(d) F-45 JERSEY CENTRAL POWER & LIGHT COMPANY SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT (continued) (In Thousands) See Note 2 to Financial Statements contained in Item 8 for information concerning the cost of property, plant and equipment and the depreciation and amortization methods used during the three years ended December 31, 1993. Also, see Note 9 to Financial Statements contained in Item 8 for information concerning capital lease agreements. (a) Reflects a reclassification of $26,925 of nuclear fuel costs associated with decontamination of the government's enrichment plants to Deferred Debits and Other Assets - Other to conform with current presentation. (b) Includes a reduction in property under capital leases of $7,502, which is comprised of additions and amortization of $18,839 and $26,341, respectively. (c) Includes an increase in property under capital leases of $480, which is comprised of additions and amortization of $35,617 and $35,137, respectively. (d) Includes a reduction in property under capital leases of $15,379, which is comprised of additions and amortization of $18,919 and $34,298, respectively, and a decrease of $6,160 due to the write-off of prior years' expenditures related to the Duquesne project. F-46 JERSEY CENTRAL POWER & LIGHT COMPANY SCHEDULE VI - ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT for the Year Ended December 31, 1991 (In Thousands) Column A Column B Column C Column D Column E Column F Balance Additions at Charged to Other Balance Beginning Costs and Changes- at End Description of Period Expenses Retirements Add(Deduct) of Period ACCUMULATED DEPRECIATION AND AMORTIZATION OF UTILITY PLANT $1 059 829 $134 155(a) $ 34 825(b)$ 2 684(c) $1 161 843 ACCUMULATED DEPRECIATION OF OTHER PHYSICAL PROPERTY $ 57 $ 6 $ - $ - $ 63 (a) Reconciliation to depreciation and amortization expense in statement of income: Total additions charged to depreciation $134 155 Amortization of property losses 22 131 Decommissioning expense 3 046 Other 415 Total $159 747 (b) Includes net cost of removal. (c) Other Changes: Decommissioning trust funding$ 2 448 Charged to clearing accounts 645 Adjustment to reserve (573) Amortization of leasehold improvements 354 Decommissioning expenditures - Saxton (190) Total $ 2 684 F-47 JERSEY CENTRAL POWER & LIGHT COMPANY SCHEDULE VI - ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT for the Year Ended December 31, 1992 (In Thousands) Column A Column B Column C Column D Column E Column F Balance Additions at Charged to Other Balance Beginning Costs and Changes- at End Description of Period Expenses Retirements Add(Deduct) of Period ACCUMULATED DEPRECIATION AND AMORTIZATION OF UTILITY PLANT $1 161 843 $141 295(a) $ 45 304(b) $ 4 728(c) $1 262 562 ACCUMULATED DEPRECIATION OF OTHER PHYSICAL PROPERTY $ 63 $ 9 $ - $ - $ 72 (a) Reconciliation to depreciation and amortization expense in statement of income: Total additions charged to depreciation $141 295 Amortization of property losses 22 061 Decommissioning expense 3 240 Other 426 Total $167 022 (b) Includes net cost of removal. (c) Other Changes: Decommissioning trust funding$ 3 147 Charged to clearing accounts 747 Adjustment to reserve 792 Amortization of leasehold improvements 355 Decommissioning expenditures - Saxton (313) Total $ 4 728 F-48 JERSEY CENTRAL POWER & LIGHT COMPANY SCHEDULE VI - ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT for the Year Ended December 31, 1993 (In Thousands) Column A Column B Column C Column D Column E Column F Balance Additions at Charged to Other Balance Beginning Costs and Changes- at End Description of Period Expenses Retirements Add(Deduct) of Period ACCUMULATED DEPRECIATION AND AMORTIZATION OF UTILITY PLANT $1 262 562 $152 217(a) $39 260(b) $ 5 021(c) $1 380 540 ACCUMULATED AMORTIZATION OF NUCLEAR FUEL $ - $ 34 $ - $ - $ 34 ACCUMULATED DEPRECIATION OF OTHER PHYSICAL PROPERTY $ 72 $ 10 $ - $ - $ 82 (a) Reconciliation to depreciation and amortization expense in statement of income: Total additions charged to depreciation $152 217 Amortization of property losses 22 639 Decommissioning expense 3 224 Amortization of unit tax carrying costs 6 070 Other (1 205) Total $182 945 (b) Includes net cost of removal. (c) Other Changes: Decommissioning trust funding $ 3 864 Charged to clearing accounts 793 Adjustment to reserve 9 Amortization of leasehold improvements 355 Total $ 5 021 F-49 JERSEY CENTRAL POWER & LIGHT COMPANY SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS (In Thousands) Column A Column B Column C Column D Column E Additions Balance (1) (2) at Charged to Charged Balance Beginning Costs and to Other at End Description of Period Expenses Accounts Deductions of Period Year Ended December 31, 1993 Allowance for Doubtful Accounts $1 320 $5 274 $1 748(a) $7 199(b) $1 143 Allowance for Inventory Obsolescence 857 - 32(c) 889(d) - Year Ended December 31, 1992 Allowance for Doubtful Accounts 918 5 745 1 720(a) 7 063(b) 1 320 Allowance for Inventory Obsolescence 2 220 - 163(c) 1 526(d) 857 Year Ended December 31, 1991 Allowance for Doubtful Accounts 852 5 797 1 180(a) 6 911(b) 918 Allowance for Inventory Obsolescence 4 220 98 83(c) 2 181(d) 2 220 (a) Recovery of accounts previously written off. (b) Accounts receivable written off. (c) Sale of inventory previously written off. (d) Inventory written off. F-50 JERSEY CENTRAL POWER & LIGHT COMPANY SCHEDULE IX - SHORT-TERM BORROWINGS (In Thousands) Column A Column B Column C Column D Column E Column F Maximum Average Weighted Balance Weighted Amount Amount Average at End Average Outstanding Outstanding Interest Category of Aggregate of Interest During the During the Rate During Short-Term Borrowings(a) Period Rate(d) Period(b) Period(c) the Period(d) Year ended December 31, 1993 Notes payable to banks - - $78 400 $27 457 3.3% Commercial paper - - 59 751 16 760 3.4 Year ended December 31, 1992 Notes payable to banks $ 5 700 3.3% 57 300 30 400 4.1 Commercial paper - - 99 343 34 722 4.4 Year Ended December 31, 1991 Notes payable to banks 11 800 4.8 64 800 41 458 6.4 Commercial paper 31 828 5.1 86 716 46 683 6.5 (a) See Note 3 to Financial Statements contained in Item 8. (b) Maximum amount outstanding at any month-end. (c) Computed by dividing the total of the daily outstanding balances for the year by the number of days in the year. (d) Column C is computed by dividing the annualized interest expense on the year-end balance by the outstanding year-end balance. Column F is computed by dividing total interest expense for the year by the average daily balance outstanding. Rate excludes the commitment fees on the Revolving Credit Agreement, which were $107,000, $101,000 and $115,000 for the years 1993, 1992 and 1991, respectively. Rate also excludes the commitment fees on bank lines of credit, which were $108,000, $151,000 and $119,000 for the years 1993, 1992 and 1991, respectively. F-51
EX-99 2 EXHIBIT INDEX Exhibits to be Filed by EDGAR 3-A Restated Certificate of Incorporation of Jersey Central Power & Light Company, as amended to date 3-B Jersey Central Power & Light Company By-Laws, as amended. 12 Statements Showing Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends. 23 Consent of Independent Accountants. EX-3.(I) 3 EXHIBIT 3-A RESTATED CERTIFICATE OF INCORPORATION OF JERSEY CENTRAL POWER & LIGHT COMPANY Dated: May 26, 1982 Filed and Recorded: May 27, 1982 1 RESTATED CERTIFICATE OF INCORPORATION OF JERSEY CENTRAL POWER & LIGHT COMPANY WHEREAS, pursuant to N.J.S.A. 14A:9-5, a corporation may restate and integrate in a single certificate the provisions of its certificate of incorporation as theretofore amended, including any provisions effected by a merger or consolidation; and WHEREAS, provided the restated certificate does not include any substantive amendments to the original Certificate of Incorporation theretofore amended, it may be adopted by the Board of Directors; and WHEREAS, the original Certificate of Incorporation of Jersey Central Power & Light Company is dated March 24, 1925, was filed and recorded in the office of the New Jersey Secretary of State on March 27, 1925, and subsequently has been amended on many occasions since its original adoption; and WHEREAS, Jersey Central Power & Light Company has succeeded to the privileges, powers, and franchises, of a public as well as of a private nature, of each of certain previously merged and consolidated corporations, namely, the Central Jersey Power & Light Company, City Gas Light Company, Consolidated Gas Company of New Jersey, Jersey Central Power & Light Company, Lakewood and Coast Electric Company, Monmouth Lighting Company, Shore Lighting Company, Toms River Electric Company, Tri-County Electric Company, The Coast Gas Company, The Lakewood Gas Company, The Shore Gas Company, Cape Island Gas Company, Boonton Gas Light and Improvement Company, Ocean Gas Company, New Jersey Gas and Electric Company, Cape May Gas Company, Red Bank Gas Light Company, Agincourt Land Corporation, Yards Creek Pumped Storage Power Company, and New Jersey Power & Light Company. WHEREAS, the Board of Directors of Jersey Central Power & Light Company have determined to adopt this Restated Certificate of Incorporation by a resolution adopted on May 20, 1982. Now, therefore, Jersey Central Power & Light Company hereby restates its Certificate of Incorporation to read in full as follows: ARTICLE I. The name of this corporation is Jersey Central Power & Light Company (hereinafter referred to as the "Company") which shall have and possess all the rights, franchises, privileges, powers, immunities and capacities which were or had been granted to or conferred upon or possessed or enjoyed by certain corporations previously merged with the Company under and by virtue of any of the laws of the State of New Jersey. 2 ARTICLE II. The purpose of the Company is to engage in any lawful activity for which corporations may be organized pursuant to the New Jersey Business Corporation Act, N.J.S. 14A:1-1, and such other laws of the State of New Jersey as may be applicable. ARTICLE III. The number of directors of the Company constituting the current board of directors is nine and their names and places of residence are as follows: Names Places of Residence Dennis Baldassari 154 Lake Road, Morristown, N.J. Verner H. Condon Post House Road, Morristown, N.J. Herman M. Dieckamp 29 Crystal Road, Mountain Lakes, N.J. Fred D. Hafer 5 Brandywine Court, Scotch Plains, N.J. William G. Kuhns 100 Essex Drive, Tenafly, N.J. Gordon P. Mundrane Green Knolls Road, Convent Station, N.J. Paul H. Preis 23 Christopher Street, Dover, N.J. Robert H. Sims 19 Oak Park Drive, Convent Station, N.J. William A. Verrochi 4D Dorado Drive Morristown, N.J. ARTICLE IV. The location of the principal office of the Company is at Madison Avenue at Punch Bowl Road, Township of Morris, County of Morris, and State of New Jersey, and the name of the Registered Agent upon whom process against the Company may be served is Robert O. Brokaw. 3 ARTICLE V. The existence of the Company shall be perpetual. ARTICLE VI. FIRST: The total authorized capital stock of the Company shall consist of: (A) Sixteen million (16,000,000) shares of common stock of the par value of Ten ($10) Dollars each; and (B) Fifteen million six hundred thousand (15,600,000) shares of cumulative preferred stock, without par value, and having a maximum aggregate stated value of three hundred million ($300,000,000) dollars. From time to time the capital stock of the Company may be issued and sold in such amounts and proportions and for such consideration as may be fixed by the Board of Directors of the Company, and as may be permitted by law and all capital stock so issued and sold shall be deemed fully paid and nonassessable and the holder of any shares shall not be liable to the Company or its creditors in respect thereof. SECOND: The Board of Directors is hereby empowered to issue the cumulative preferred stock in one or more series with such variations as the Board of Directors may determine, pursuant to applicable law, prior to the first issue of any series thereof respecting: (1) the annual dividend rate and the date from which dividends shall be cumulative on shares issued on or prior to the record date for the first dividend; (2) the terms on which the same may be redeemed; (3) the amount or amounts payable to the holders thereof in case of any voluntary or involuntary liquidation, dissolution or winding up, which amounts may differ for voluntary and for involuntary liquidation, dissolution or winding up; (4) the terms or amount of any sinking fund provided for the purchase or redemption thereof; (5) the conversion, participating or other special rights thereof, if any, and (6) the stated value per share, which was $100 per share for each of the seven issues aggregating 1,600,000 shares of cumulative preferred stock and $25 per share for one issue aggregating 2,000,000 shares of cumulative preferred stock, all issued prior to the adoption of this Restated Certificate of Incorporation and, in the case of each share of cumulative preferred stock of subsequent series, shall be an amount equal to the consideration received by the Company upon issuance thereof and shall also be equal to the preferential claim of such share in the event of involuntary liquidation, dissolution or winding up of the Company. In all other respects the stock of each such series of the cumulative preferred stock shall be equal. THIRD: (A) The holders of each series of the cumulative preferred stock at the time outstanding shall be entitled to receive, but only when and as declared by the Board of Directors, out of funds legally available for the 4 payment of dividends, cumulative preferential dividends at the annual dividend rate for the particular series fixed as herein provided, and no more, payable quarter-yearly on the first days of February, May, August and November in each year, to stockholders of record on the date, not exceeding thirty (30) days and not less than ten (10) days preceding such dividend payment date, to be fixed by the Board of Directors, before any dividends shall be declared or paid upon or set apart for the common stock of the Company. No such dividends shall be declared at any time upon any series of the cumulative preferred stock unless there shall likewise be declared on all shares of all series of such preferred stock at the time outstanding like proportionate dividends, ratably, in proportion to the respective annual dividend rates fixed therefor, in respect of the same dividend period, to the extent that such shares are entitled to receive dividends for such dividend period or periods. (B) So long as any shares of the cumulative preferred stock of any series are outstanding, (1) no dividend shall be declared upon the common stock of the Company unless full dividends on the shares of all series of the cumulative preferred stock, at the time outstanding, for all past dividend periods and for the current quarterly dividend period, but without interest on cumulative dividends, shall have been paid or set apart for payment, and (2) no dividend (other than dividends payable in common stock of the Company or in any other stock of the Company subordinate to the cumulative preferred stock as to assets and dividends) shall be paid or any distribution made upon stock of the Company other than the cumulative preferred stock and no such subordinate stock shall be acquired by the Company by purchase or otherwise for value, if after giving effect of such payment, distribution, purchase or acquisition, the aggregate amount of such dividends, distributions, purchases and acquisitions paid or made since the authorization of the cumulative preferred stock (including the amount so proposed to be expended for such purpose) together with all other charges to earned surplus since April 30, 1946, exceeds the sums of (a) all credits to earned surplus since April 30, 1946, and (b) all amounts credited to capital surplus after April 30, 1946, arising from (i) the donation to the Company of cash or securities (excluding, however, the donation of securities so subordinate to the cumulative preferred stock) or (ii) transfers of amounts from earned surplus to capital surplus, and (3) if and so long as the Common Stock Equity, as hereinafter defined, at the end of the calendar month immediately preceding the date on which a dividend on common stock is declared is, or as a result of such dividend would become, less than twenty per centum (20%) of Total Capitalization, as defined, the Company shall not declare dividends on the common stock in an amount which, together with all other dividends on common stock declared within the year ending with (and including) the date of such dividend declaration, exceeds fifty per centum (50%) of the Net Income of the Company Available for Dividends on the Common Stock, as defined, for the twelve full calendar months immediately preceding the month in which such dividends are declared, and 5 (4) if and so long as the Common Stock Equity at the end of the calendar month immediately preceding the date on which a dividend on common stock is declared is, or as a result of such dividend would become, less than twenty-five per centum (25%) but not less than twenty per centum (20%) of Total Capitalization, the Company shall not declare dividends on the common stock in an amount which, together with all other dividends on common stock declared within the year ending with (and including) the date of such dividend declaration, exceeds seventy-five per centum (75%) of Net Income of the Company Available for Dividends on the Common Stock for the twelve full calendar months immediately preceding the month in which such dividends are declared, and (5) at any time when the Common Stock Equity is twenty-five per centum (25%) or more of Total Capitalization, the Company may not pay dividends on shares of the common stock which would reduce the Common Stock Equity below twenty-five per centum (25%) of Total Capitalization; provided, however, that even though the payment of such dividends would reduce the Common Stock Equity below twenty-five per centum (25%) of Total Capitalization, such dividends may be declared to the extent that the same together with all dividends on common stock declared within the year ending with (and including) the date of such dividend declaration, do not exceed seventy-five per centum (75%) of the Net Income of the Company Available for Dividends on the Common Stock for the twelve full calendar months immediately preceding the month in which such dividends are declared. In computing the amount available for any dividend, distribution, purchase or acquisition, charges and credits to earned surplus shall be made in accordance with sound accounting practice. For the purpose of this subparagraph (B): The word "dividends" when used with reference to the common stock shall include dividends or other distributions on or the purchase or other acquisition for value of shares of common stock, but shall not include any portion of dividends payable in shares of the common stock. The term "Common Stock Equity" shall mean the sum of the amount of the par or stated value of the issued and outstanding shares of the common stock and the surplus (including capital or paid-in surplus) and premium on common stock of the Company less the amount known, or estimated if not known, to represent the excess, if any, of recorded value over original cost of used and useful utility plant and other property, and less any items set forth on the asset side of the balance sheet as a result of accounting convention such as unamortized debt discount and expense, capital stock discount and expense, and the excess, if any, of the aggregate amount payable on involuntary dissolution, liquidation or winding up of the Company upon all outstanding shares of cumulative preferred stock of all series over the aggregate stated value of such shares, unless such amount or items so to be deducted in the determination of the Common Stock Equity are being amortized, depreciated, or 6 otherwise disposed of. The term "Total Capitalization" shall mean the aggregate of the par or stated value of the issued and outstanding shares of stock of all classes of the Company and the surplus (including capital or paid-in surplus) and premium on capital stock of the Company, plus the principal amount of all outstanding debt maturing more than twelve months from the date of the determination of Total Capitalization. The term "Net Income of the Company Available for Dividends on the Common Stock" shall mean for any twelve months period an amount equal to the sum of the operating revenues and income from investments and other miscellaneous income for such period, less all deductions (including accruals) for operating expenses for such period, including maintenance and provision for depreciation or amortization, income and excess profits and other taxes, interest charges, other amortization charges and other income deductions, all as shall be determined in accordance with sound accounting practice, and less also current and accrued dividends on all outstanding shares of stock of the Company ranking prior to the common stock as to dividends or assets. For the purpose of determining Net Income of the Company Available for Dividends on the Common Stock the deduction on account of provision for depreciation shall be in the amount therefor shown on the books of the Company but shall not be less than 15% of the gross operating revenues of the Company during such period after deducting from such revenues an amount equal to the aggregate cost of electricity or manufactured or natural gas purchased during such period for the purpose of resale in connection with the operation of the Company's operating property, less an amount equal to the aggregate of the charges to operating expense during such period for current repairs and maintenance of such operating property. If at any time when any calculation of Common Stock Equity, Total Capitalization or Net Income of the Company Available for Dividends is required to be made the Company shall have one or more subsidiaries whose accounts may properly be consolidated with the accounts of the Company, such calculation shall be made for the Company with such subsidiaries on a consolidated basis in accordance with sound accounting practice. FOURTH: (A) The cumulative preferred stock may be called for redemption in whole or in part at any time or from time to time by mailing notice thereof to the holders of record of the shares to be redeemed at least thirty (30) days, but not more than ninety (90) days, prior to the date stated in such notice and upon which dividends shall cease to accrue upon or for such shares. Such notice may be published concurrently with the mailing thereof at least once in a newspaper published in the English language and of general circulation in the Borough of Manhattan in the City of New York, in which case no failure to mail any such notice and no defect therein or in the mailing thereof shall affect the validity of the proceedings for the redemption of the shares so to be redeemed. (B) Upon or after the giving of such notice the Company may deposit, 7 with a bank or trust company in good standing and organized under the laws of the United States of America or of the State of New York and doing business in the Borough of Manhattan in the City of New York, in trust for the account of the holders of the shares so to be redeemed, and so as to be and continue to be available therefor, the redemption price of the shares so to be redeemed, together in the case of each share, with a sum of money equivalent to dividends at the annual dividend rate for the series of which such share is a part, from the date from which dividends on such share became cumulative to the date fixed for the redemption thereof, less the amount of dividends theretofore paid thereon. Upon, from and after such deposit of the redemption funds in trust as aforesaid, the shares so to be redeemed shall no longer be deemed to be outstanding, the right to receive dividends thereon shall cease to accrue and all rights with respect to such shares shall forthwith cease and terminate except only the right of the holders thereof to receive, at any time thereafter, out of the funds so deposited, the amount payable upon the redemption thereof without interest. (C) Unless the moneys for the redemption price and dividends as aforesaid are so deposited and the shares so called for redemption thereupon redeemed, the Company shall, on or before the date fixed in such notice of redemption, set aside, separate and apart from its other funds, in trust for the account of the holders of the shares so to be redeemed, and so as to be and continue to be available therefor, the redemption price of the shares so to be redeemed together with a sum equal to the dividends, payable on such shares to the redemption date fixed in said notice, and from and after such date (unless default shall be made in so providing the redemption funds) the shares so to be redeemed shall no longer be deemed to be outstanding, the right to receive dividends thereon shall cease to accrue and all rights with respect to such shares shall forthwith cease and terminate except only the right of the holders thereof to receive, at any time thereafter, out of the funds so set aside, the amount payable upon the redemption thereof without interest. (D) In case of the redemption of a part only of any series of the cumulative preferred stock at the time outstanding, the shares of cumulative preferred stock to be redeemed shall be selected by lot, in such manner as the Board of Directors may determine, by a bank or trust company selected for that purpose by the Board of Directors. (E) Nothing herein contained shall limit any right of the Company to purchase or otherwise acquire shares of the cumulative preferred stock provided that if, at any time, the Company has failed to pay dividends in full on any outstanding shares of cumulative preferred stock, thereafter and until dividends in full on all such shares of cumulative preferred stock have been paid, or declared and set apart for payment, for all past quarter-yearly dividend periods, the Company shall not redeem any cumulative preferred stock unless all the shares of cumulative preferred stock outstanding are redeemed and shall not purchase or otherwise acquire for value any shares of cumulative preferred stock except in accordance with an offer (which may vary with 8 respect to shares of different series) made to all holders of shares of cumulative preferred stock. FIFTH: (A) Before any amount shall be paid to, or any assets distributed among, the holders of the common stock upon any liquidation, dissolution or winding up of the Company, and after paying or providing for the payment of all creditors of the Company, the holders of each series of the cumulative preferred stock at the time outstanding shall be entitled to be paid in cash the amount for the particular series fixed therefor as herein provided, together with a sum in the case of each share of each series, computed at the annual dividend rate for the series of which the particular share is a part, from the date from which dividends on such share became cumulative to the date fixed for the payment of such distributive amount, less the aggregate of the dividends theretofore or on such date paid thereon; but no payments on account of such distributive amounts shall be made to the holders of any series of the cumulative preferred stock unless there shall likewise be paid at the same time to the holders of each other series of the cumulative preferred stock at the time outstanding like proportionate distributive amounts, ratably, in proportion to full distributive amounts to which they are respectively entitled as herein provided. (B) All assets and funds of the Company remaining after paying or providing for the payment of all creditors of the Company and after paying or providing for the payment to the holders of shares of all series of the cumulative preferred stock of the full distributive amounts to which they are respectively entitled as herein provided, shall be divided among and paid to the holders of the common stock according to their respective rights and interests. SIXTH: The holders of the cumulative preferred stock shall not be entitled to any payment by way of dividends or otherwise, or have any rights in the property of the Company or in the distribution thereof, other than as is specifically provided in the preceding paragraphs. SEVENTH: (A) Shares of the cumulative preferred stock shall not entitle the holder thereof to vote at any election of directors or, except as otherwise required by law or subsequent paragraphs hereof, on any other matter submitted to the stockholders, provided that if and whenever four (4) quarterly dividends payable on any part of the cumulative preferred stock shall be in arrears in whole or in part, the holders of the cumulative preferred stock voting as a class shall have the exclusive right to elect the smallest number of directors necessary to constitute a majority of the full Board of Directors and the common stock voting separately as a class shall be entitled to elect the remaining number of directors of the Company. The terms of office of all persons who may be directors of the Company at the time shall terminate upon the election of a majority of the Board of Directors by the holders of shares of the cumulative preferred stock whether or not the holders of shares of the common stock shall then have elected the remaining directors of the Company. 9 (B) If and when all dividends then in default on the shares of the cumulative preferred stock then outstanding shall be paid (and such dividends shall be declared and paid out of any funds legally available therefor as soon as reasonably practicable), the holders of the shares of the cumulative preferred stock shall be divested of any special right with respect to the election of Directors provided in subparagraph (A) of this paragraph SEVENTH and the voting power of the holders of the shares of the cumulative preferred stock and the holders of the shares of the common stock shall revert to the status existing before the first dividend payment date on which dividends on the shares of the cumulative preferred stock were not paid in full; but always subject to the same provisions for vesting such special rights in the holders of the shares of the cumulative preferred stock in case of further like default or defaults on dividends thereon as provided in subparagraph (A) of this paragraph SEVENTH. Upon the termination of any such special right upon payment of all accumulated and defaulted dividends on the shares of the cumulative preferred stock, the terms of office of all persons who may have been elected Directors of the Company by vote of the holders of the shares of the cumulative preferred stock, as a class, pursuant to such special right shall forthwith terminate, and the resulting vacancies shall be filled by the vote of a majority of the remaining Directors. (C) In case of any vacancy in the office of a Director occurring among Directors elected by the holders of the shares of the cumulative preferred stock, as a class, pursuant to the foregoing provisions of subparagraph (A) of this paragraph SEVENTH, the remaining Directors elected by the holders of the shares of cumulative preferred stock, by affirmative vote of a majority thereof, or the remaining Director so elected if there be but one, may elect a successor or successors to hold office for the unexpired terms of the Director or Directors whose place or places shall be vacant. Likewise in case of any vacancy in the office of a Director occurring among the Directors elected by the holders of the shares of the common stock pursuant to the foregoing provisions of subparagraph (A) of this paragraph SEVENTH, the remaining Directors elected by the holders of the common stock, by affirmative vote of a majority thereof, or the remaining Director so elected if there be but one, may elect a successor or successors to hold office for the unexpired term of the Director or Directors whose place or places shall be vacant. (D) Whenever under the provision of subparagraph (A) of this paragraph SEVENTH, the right shall have accrued to the holders of the shares of the cumulative preferred stock to elect Directors, the Board of Directors shall, within ten (10) days after delivery to the Company at its principal office of a request to such effect signed by any holder of shares of the cumulative preferred stock entitled to vote, call a special meeting of the stockholders to be held within forty (40) days from the delivery of such request for the purpose of electing Directors. At all meetings of stockholders held for the purpose of electing Directors during such time as the holders of the shares of cumulative preferred stock shall have the special right, voting separately and as a class, to elect Directors pursuant to subparagraph (A) of this paragraph SEVENTH, the presence in person or by proxy of the holders of a majority of 10 the outstanding shares of the common stock shall be required to constitute a quorum of such class for the election of Directors, and the presence in person or by proxy of the holders of a majority of the total voting power of the outstanding shares of the cumulative preferred stock shall be required to constitute a quorum of such class for the election of Directors; provided, however, that the absence of a quorum of the holders of stock of either such class shall not prevent the election at any such meeting or adjournment thereof of Directors by the other such class if the necessary quorum of the holders of stock of such class is present in person or by proxy at such meeting; and provided further, however, that in the absence of a quorum of the holders of stock of either such class, a majority of the total voting power of those holders of the stock of such class who are present in person or by proxy shall have power to adjourn the election of the Directors to be elected by such class from time to time without notice other than announcement at the meeting until the requisite amount of holders of such class shall be present in person or by proxy, but such adjournment shall not be made to a date beyond the date for the mailing of notice of the next annual meeting of the Company or special meeting in lieu thereof. EIGHTH: (A) So long as any shares of the cumulative preferred stock remain outstanding the Company shall not, without the consent (given as provided in subparagraph (C) of this paragraph EIGHTH) of the holders of at least two-thirds of the total voting power of shares of cumulative preferred stock of all series then outstanding, either (1) create or authorize any class or kind of stock ranking prior to the cumulative preferred stock with respect to participation in the assets, surplus or earnings of the Company, either by way of dividends or other distribution, or create or authorize any security or contract convertible into shares of any such class or kind; (2) alter, amend, change or repeal any of the express terms of the cumulative preferred stock or of any series thereof, at the time outstanding, in any manner prejudicial to the holders thereof; provided, that if any such alteration, amendment, change or repeal would be prejudicial to the holders of the shares of one or more, but not all, of the series of the cumulative preferred stock at the time outstanding, such consent shall be required only from the holders of two-thirds of the total voting power of shares of all series so affected then outstanding; or (3) issue any shares of the cumulative preferred stock, in addition to the current series aggregating 3,600,000 shares thereof, (a) unless for any twelve (12) consecutive calendar months within the fifteen (15) calendar months immediately preceding the calendar month within which such additional shares of cumulative preferred stock shall be issued, the net earnings of the Company available for the payment of interest charges on the Company's indebtedness, determined after provision for depreciation (in an amount not less than the minimum specified in subparagraph (B) of paragraph THIRD above in the definition of Net Income of the Company Available for Dividends on the Common Stock), amortization of utility plant acquisition adjustment accounts, and all taxes and in accordance with sound accounting practice, shall have been at least one and one-half (1 1/2) times the aggregate for a twelve (12) months' period of the interest charges on indebtedness of the Company and the dividend requirements on all shares of the cumulative preferred stock to be outstanding immediately after the proposed issue of such additional shares thereof, provided that there shall be excluded 11 from the foregoing computation, interest charges on all indebtedness and dividends on all stock which are to be retired in connection with the issue of such additional shares of cumulative preferred stock, and also provided that, where such additional shares of cumulative preferred stock are to be issued in connection with the acquisition of new property, the net earnings of the property to be so acquired may be included on a pro forma basis in the foregoing computation, computed on the same basis as the net earnings of the Company, and (b) unless the aggregate of the capital of the Company applicable to the common stock and the surplus of the Company shall be not less than the amount payable upon involuntary dissolution to the holders of the cumulative preferred stock to be outstanding immediately after the proposed issue of such additional cumulative preferred stock, excluding from the foregoing computation all indebtedness and stock which are to be retired in connection with the issue of such additional shares of cumulative preferred stock, provided that no portion of the surplus of the Company which shall be used to meet the requirements of this clause (b) shall, after the issue of such additional shares of cumulative preferred stock and until such additional shares or a like number of other shares of cumulative preferred stock shall have been retired, be available for dividends or other distribution upon the common stock. (B) So long as any shares of the cumulative preferred stock remain outstanding, the Company shall not, without the consent (given as provided in subparagraph (C) of this paragraph EIGHTH) of the holders of a majority of the total voting power of shares of cumulative preferred stock of all series then outstanding, either: (1) merge or consolidate with or into any other corporation or corporations, unless merger or consolidation, or the issuance and assumption of all securities to be issued or assumed in connection with any such merger or consolidation, shall have been ordered, approved or permitted under the provisions of the Public Utility Holding Company Act of 1935 by the Securities and Exchange Commission or by any successor commission or regulatory authority of the United States of America having jurisdiction in the premises; provided that the provisions of this subparagraph (B) (1) shall not apply to a purchase, or acquisition in any other manner which does not involve a merger or consolidation, by the Company of the franchises (including franchises and rights granted by corporate charter) or assets of another corporation; or (2) issue, assume or otherwise become liable for the payment of any unsecured notes, debentures or other securities representing unsecured indebtedness (other than for the purpose of refunding or renewing outstanding unsecured securities issued or assumed by the Company resulting in equal or longer maturities or redeeming or otherwise retiring all outstanding shares of the Company's preferred stock) if immediately after such issue or assumption and the application of the proceeds of the securities thus issued or assumed: (a) the total outstanding principal amount of all unsecured notes, debentures and other securities representing unsecured indebtedness of the Company will thereby exceed twenty percent (20%) of the aggregate of (i) the total principal amount of all bonds and other securities representing secured 12 indebtedness issued or assumed by the Company and then to be outstanding and (ii) the capital stock, premiums thereon, and surplus of the Company, as stated on its books, or (b) the total outstanding principal amount of all unsecured notes, debentures and other securities representing unsecured indebtedness of the Company of maturities of less than ten years will thereby exceed ten percent (10%) of such aggregate referred to in subparagraph (B) (2) (a). For the purpose of this subparagraph (B) (2), the payment due upon the maturity of a security representing unsecured indebtedness which had an original single maturity in excess of ten (10) years or the payment due upon a security representing unsecured indebtedness which was a part of any serial indebtedness which had original maturities in excess of ten years shall not be regarded as unsecured indebtedness of a maturity of less than ten (10) years until such payment shall be required to be made within three (3) years. (C) Any consent required by this paragraph EIGHTH shall either be given in writing or expressed by vote at a meeting of the holders of shares of cumulative preferred stock, or such series thereof as may be requisite, called for the purpose as hereinafter provided. NINTH: (A) From time to time, without limitation of other rights and powers of the Company as provided by law, the Company may reclassify its capital stock and may create or authorize one or more classes or kinds of stock ranking prior to or on a parity with or subordinate to the cumulative preferred stock or may increase the authorized amount of cumulative preferred stock or of the common stock or of any other class of stock of the Company or may amend, alter, change or repeal any of the rights, privileges, terms and conditions of the shares of cumulative preferred stock or of any series thereof then outstanding, or of the common stock, or of any other class of stock of the Company, upon the vote, given at a meeting called for that purpose, of the holders of a majority of the total voting power of the shares of stock then entitled to vote thereon or upon such other vote of the holders of the shares of stock then entitled to vote thereon as may then be provided by law; provided that the consent of the holders of the shares of the cumulative preferred stock (or of any series thereof) required by the provisions of the two paragraphs next above, if any such consent be so required, shall have been obtained and provided further that the rights, privileges, terms and conditions of the shares of the common stock shall not be subject to amendment, alteration, change or repeal without the consent (given in writing or by vote at a meeting called for that purpose) of the holders of a majority of the total number of shares of the common stock then outstanding. (B) Shares of the cumulative preferred stock of the Company shall not entitle the holder thereof to any preemptive right of subscription or purchase with respect to any shares of any class of stock of the Company or securities convertible into or evidencing the right to purchase any such shares (whether now or hereafter authorized) notwithstanding that such shares may have 13 preference or priority as to assets or dividends over the cumulative preferred stock; and any and all shares of capital stock of any class of the Company and securities convertible into or evidencing the right to purchase such shares (whether now or hereafter authorized) may in the discretion of the Board of Directors be offered and sold to the holders of any one or more classes of stock of the Company or to others to the exclusion of the holders of the cumulative preferred stock. Shares of the common stock of the Company shall entitle the holder thereof to preemptive rights of subscription to all shares of capital stock of the Company, other than shares having priority or preference over the common stock as to distribution of assets and earnings of the Company, and to all securities convertible into or evidencing any rights to subscribe to or purchase any such shares; and any and all shares of capital stock of any class of the Company and securities convertible into or evidencing the right to purchase such shares (whether now or hereafter authorized), other than shares or securities to which the holders of the common stock shall have the right of subscription as aforesaid, may in the discretion of the Board of Directors be offered and sold to the holders of one or more classes of stock of the Company or to others, to the exclusion of the holders of the common stock. TENTH: (A) Except when some provision of applicable law shall require otherwise, except also as otherwise set forth above, and, with respect to the special rights of any series of the cumulative preferred stock except as otherwise provided when such series is created, whenever shares of two or more series of cumulative preferred stock are outstanding, no particular series of the cumulative preferred stock shall be entitled to vote as a separate series on any matter, and all shares of all series shall be deemed to constitute but one class for any purpose for which a vote of the stockholders by classes may now or hereafter be required. (B) Any meeting of holders of shares of the cumulative preferred stock (or of one or more series thereof), other than a meeting held pursuant to the provisions of paragraph SEVENTH hereof, shall be called by order of the Board of Directors on at least ten (10) days' notice in writing mailed to those holders thereof who are entitled to vote at such meeting at their respective addresses as shown on the books of the Company. (C) At all meetings of holders of shares of the cumulative preferred stock (or of one or more series thereof) the presence in person or by proxy of a majority in interest of the total voting power of those shares entitled to vote thereat shall be required to constitute a quorum, but less than a quorum may adjourn such meeting from time to time, without notice other than by announcement at the meeting, until such time as a quorum may attend. ELEVENTH: Each share of the common stock shall be equal in all respects to every other share of common stock and all rights to vote and all voting power shall be solely vested, except as hereinbefore otherwise provided, in the common stock and the holders thereof shall have one vote for each share held by them. 14 TWELFTH: (A) The relative voting power of each share of cumulative preferred stock for purposes of all votes or consents hereunder or pursuant to provisions of law shall be in the same proportion to all the outstanding shares of cumulative preferred stock as the ratio of (i) the stated value of such share to (ii) the aggregate stated value of all then outstanding shares of cumulative preferred stock; and (B) for purposes of computation (1) in voting by holders of cumulative preferred stock as a class or by series, each share of cumulative preferred stock having the lowest stated value then outstanding shall have one vote and each share of cumulative preferred stock having a stated value other than the lowest stated value then outstanding shall have that number of votes which is proportionate to such one vote as determined pursuant to subparagraph (B) hereof, and (2) in voting by holders of cumulative preferred stock together with holders of common stock, each share of common stock shall have one vote, each share of cumulative preferred stock having a stated value of $100 shall have one vote and each share of cumulative preferred stock having a stated value of other than $100 shall have that number of votes which is proportionate to such one vote as determined pursuant to subparagraph (B) hereof. ARTICLE VII. Pursuant to paragraph SECOND of ARTICLE VI, the Board of Directors have heretofore issued cumulative preferred stock in one or more series as set forth below: FIRST: (A) 125,000 shares of the authorized but unissued cumulative preferred stock of the stated value of $100 per share of the Company are hereby designated as a series of such preferred stock which shall be known as Cumulative Preferred Stock, 4% Series (also referred to as "Series A"). (B) Except as stated in the subparagraph (C) herein below, the relative rights, preferences and limitations of such class and series shall be those applicable to all shares of cumulative preferred stock as set forth in ARTICLE VI of the Restated Certificate of Incorporation. (C) That the description and terms of the Cumulative Preferred Stock, 4% Series, in respect of which the shares of such series may vary from shares of other series of the cumulative preferred stock shall be as follows: (1) The annual dividend rate for such series shall be 4% per annum from May 1, 1946, and be payable on February 1, May 1, August 1 and November 1 in each year. (2) The redemption price for such series shall be $106.50 per share plus all accumulated and accrued and unpaid dividends on the shares so called 15 for redemption to the date fixed for such redemption. (3) The preferential amounts to which the holders of shares of such series shall be entitled upon any liquidation, dissolution or winding up of the Company shall be: (a) $106.50 per share, upon any voluntary liquidation, dissolution or winding up of the Company, or (b) $100 per share, in the event of any involuntary liquidation, dissolution or winding up of the Company. (4) There shall not be any sinking fund provided for the purchase or redemption of shares of such series. (5) There shall not be any conversion, participating or other special rights to which the shares of such series entitle the holder thereof. SECOND: (A) 250,000 shares of the authorized but unissued cumulative preferred stock of the stated value of $100 per share of this Company are hereby designated as a series of such preferred stock which shall be known as Cumulative Preferred Stock, 9.36% Series (also referred to as "Series B"). (B) Except as stated in the subparagraph (C) hereinbelow, the relative rights, preferences and limitations of such class and series shall be those applicable to all shares of cumulative preferred stock as set forth in ARTICLE VI of the Restated Certificate of Incorporation. (C) That the description and terms of the Cumulative Preferred Stock, 9.36% Series, in respect of which the shares of such series may vary from shares of other series of the cumulative preferred stock shall be as follows: (1) The annual dividend rate for such series shall be 9.36% per annum. Dividends will accrue from October 14, 1970, and be payable on February 1, May 1, August 1 and November 1 in each year. (2) The redemption prices for such series shall be $111.10 per share if redeemed on or prior to October 1, 1975, $108.76 per share if redeemed on or prior to October 1, 1980, $106.42 per share if redeemed on or prior to October 1, 1985, and $104.08 per share thereafter, in each case together with all accumulated and accrued and unpaid dividends on the shares so called for redemption to the date fixed for such redemption. Prior to October 1, 1975, none of said shares may be redeemed at the option of the Company if the moneys for such redemption are obtained by the Company directly or indirectly from or in anticipation of borrowings by or for the account of the Company or the proceeds of any issue of any stock ranking prior to or on a parity with said shares at an interest or dividend cost (calculated after adjustment, in accordance with generally accepted financial practice, for any premium received or discount granted) of 9.336% per annum or less, except for any merger or consolidation to which the Company may be a party. 16 (3) The preferential amounts to which the holders of shares of such series shall be entitled upon any liquidation, dissolution or winding up of the Company shall be: (a) upon any voluntary liquidation, dissolution or winding up of the Company, the amount at which such shares could at the time be redeemed as set forth in (2) above, or (b) $100 per share, in the event of any involuntary liquidation, dissolution or winding up of the Company. (4) There shall not be any sinking fund provided for the purchase or redemption of shares of such series. (5) There shall not be any conversion, participating or other special rights to which the shares of such series entitle the holder thereof. THIRD: (A) 250,000 shares of the authorized but unissued cumulative preferred stock of the stated value of $100 per share of this Company are hereby designated as a series of such preferred stock which shall be known as Cumulative Preferred Stock, 8.12% Series (also referred to as "Series C"). (B) Except as stated in the subparagraph (C) hereinbelow, the relative rights, preferences and limitations of such class and series shall be those applicable to all shares of cumulative preferred stock as set forth in ARTICLE VI of the Restated Certificate of Incorporation. (C) That the description and terms of the Cumulative Preferred Stock, 8.12% Series, in respect of which the shares of such series may vary from shares of other series of the cumulative preferred stock shall be as follows: (1) The annual dividend rate for such series shall be 8.12% per annum. Dividends will accrue from February 24, 1971, and be payable on February 1, May 1, August 1 and November 1 in each year. (2) The redemption prices for such series shall be $109.62 per share if redeemed on or prior to March 1, 1976, $107.59 per share if redeemed on or prior to March 1, 1981, $105.56 per share if redeemed on or prior to March 1, 1986, and $103.53 per share thereafter, in each case together with all accumulated and accrued and unpaid dividends on the shares so called for redemption to the date fixed for such redemption. Prior to March 1, 1976, none of said shares may be redeemed at the option of the Company if the moneys for such redemption are obtained by the Company directly or indirectly from or in anticipation of borrowings by or for the account of the Company or the proceeds of any issue of any stock ranking prior to or on a parity with said shares at an interest or dividend cost (calculated after adjustment, in accordance with generally accepted financial practice, for any premium received or discount granted) of 8.1176% per annum or less, except for any merger or consolidation to which the Company may be a party. 17 (3) The preferential amounts to which the holders of shares of such series shall be entitled upon any liquidation, dissolution or winding up of the Company shall be: (a) upon any voluntary liquidation, dissolution or winding up of the Company, the amount at which such shares could at the time be redeemed as set forth in (2) above, or (b) $100 per share, in the event of any involuntary liquidation, dissolution or winding up of the Company. (4) There shall not be any sinking fund provided for the purchase or redemption of shares of such series. (5) There shall not be any conversion, participating or other special rights to which the shares of such series entitle the holder thereof. FOURTH: (A) 250,000 shares of the authorized but unissued cumulative preferred stock of the stated value of $100 per share of the Company are hereby designated as a series of such preferred stock which shall be known as Cumulative Preferred Stock, 8% Series (also referred to as "Series D"). (B) Except as stated in subparagraph (C) hereinbelow, the relative rights, preferences and limitations of such class and series shall be those applicable to all shares of cumulative preferred stock as set forth in ARTICLE VI of the Restated Certificate of Incorporation. (C) That the description and terms of the Cumulative Preferred Stock, 8% Series, in respect of which the shares of such series may vary from shares of other series of the cumulative preferred stock shall be as follows: (1) The annual dividend rate for such series shall be 8% per annum. Dividends will accrue from November 17, 1971, and be payable on February 1, May 1, August 1 and November 1 in each year. (2) The redemption prices for such series shall be $109.91 per share if redeemed on or prior to November 1, 1976, $107.91 per share if redeemed on or prior to November 1, 1981, $105.91 per share if redeemed on or prior to November 1, 1986, and $103.91 per share thereafter, in each case together with all accumulated and accrued and unpaid dividends on the shares so called for redemption to the date fixed for such redemption. Prior to November 1, 1976, none of said shares may be redeemed at the option of the Company if the moneys for such redemption are obtained by the Company directly or indirectly from or in anticipation of borrowings by or for the account of the Company or the proceeds of any issue of any stock ranking prior to or on a parity with said shares at an interest or dividend cost (calculated after adjustment, in accordance with generally accepted financial practice, for any premium received or discount granted) of less than 7.85% per annum, except for any merger or consolidation to which the Company may be a party and then only if the ratio of (i) the stated value of the Cumulative Preferred Stock, 8% 18 Series, so redeemed to (ii) the total stated value of the cumulative preferred stock of all series so redeemed does not exceed the ratio of (i) the aggregate stated value of the Cumulative Preferred Stock, 8% Series, then outstanding to (ii) the aggregate stated value of the cumulative preferred stock of all series then outstanding. (3) The preferential amounts to which the holders of such series shall be entitled upon any liquidation, dissolution or winding up of the Company shall be: (a) upon any voluntary liquidation, dissolution or winding up of the Company, the amount at which such shares could at the time be redeemed as set forth in (2) above, or (b) $100 per share, in the event of any involuntary liquidation, dissolution or winding up of the Company. (4) There shall not be any sinking fund provided for the purchase or redemption of shares of such series. (5) There shall not be any conversion, participating or other special rights to which the shares of such series entitle the holder thereof. FIFTH: (A) 250,000 shares of the authorized but unissued cumulative preferred stock of the stated value of $100 per share of this Company are hereby designated as a series of such preferred stock which shall be known as Cumulative Preferred Stock, 7.88% Series E. (B) Except as stated in subparagraph (C) hereinbelow, the relative rights, preferences and limitations of such class and series shall be those applicable to all shares of cumulative preferred stock as set forth in ARTICLE VI of the Restated Certificate of Incorporation. (C) That the description and terms of the Cumulative Preferred Stock, 7.88% Series E, in respect of which the shares of such series may vary from shares of other series of the cumulative preferred stock shall be as follows: (1) The annual dividend rate for such series shall be 7.88% per annum. Dividends will accrue from March 23, 1972, and be payable on February 1, May 1, August 1 and November 1 in each year. (2) The redemption prices for such series shall be $109.56 per share if redeemed on or prior to March 1, 1977, $107.59 per share if redeemed on or prior to March 1, 1982, $105.62 per share if redeemed on or prior to March 1, 1987, and $103.65 per share thereafter, in each case together with all accumulated and accrued and unpaid dividends on the shares so called for redemption to the date fixed for such redemption. Prior to March 1, 1977, none of said shares may be redeemed at the option of the Company if the moneys for such redemption are obtained by the Company directly or indirectly from or in anticipation of borrowings by or for the account of the Company or the 19 proceeds of any issue of any stock ranking prior to or on a parity with said shares at an interest or dividend cost (calculated after adjustment, in accordance with generally accepted financial practice, for any premium received or discount granted) of less than 7.75% per annum, except for any merger or consolidation to which the Company may be a party and then only if the ratio of (i) the stated value of the Cumulative Preferred Stock, 7.88% Series E, so redeemed to (ii) the total stated value of the cumulative preferred stock of all series so redeemed does not exceed the ratio of (i) the aggregate stated value of the Cumulative Preferred Stock, 7.88% Series E, then outstanding to (ii) the aggregate stated value of the cumulative preferred stock of all series then outstanding. (3) The preferential amounts to which the holders of shares of such series shall be entitled upon any liquidation, dissolution or winding up of the Company shall be: (a) upon any voluntary liquidation, dissolution or winding up of the Company, the amount at which such shares could at the time be redeemed as set forth in (2) above, or (b) $100 per share, in the event of any involuntary liquidation, dissolution or winding up of the Company. (4) There shall not be any sinking fund provided for the purchase or redemption of shares of such series. (5) There shall not be any conversion, participating or other special rights to which the shares of such series entitle the holder thereof. SIXTH: (A) 250,000 shares of the authorized but unissued cumulative preferred stock of the stated value of $100 per share of this Company are hereby designated as a series of such preferred stock which shall be known as Cumulative Preferred Stock, 13.50% Series F. (B) Except as stated in subparagraph (C) hereinbelow, the relative rights, preferences and limitations of such class and series shall be those applicable to all shares of cumulative preferred stock as set forth in ARTICLE VI of the Restated Certificate of Incorporation. (C) That the description and terms of the Cumulative Preferred Stock, 13.50% Series F, in respect of which the shares of such series may vary from shares of other series of the cumulative preferred stock shall be as follows: (1) The annual dividend rate for such series shall be 13.50% per annum. Dividends will accrue from December 24, 1974, but from February 1, 1975, for shares issued subsequent to the record date for the first dividend. Dividends will be payable on February 1, May 1, August 1 and November 1 in each year. (2) Beginning on December 1, 1975, and on each December 1 thereafter, the Company will annually redeem at a price of $100 per share together with all accumulated, accrued and unpaid dividends on the shares so called for 20 redemption on the date of redemption, 12,500 shares of such series; provided, however, that the Company may reduce or satisfy such requirement for redemption, in whole or in part, by the number of shares of such series theretofore purchased, redeemed or otherwise acquired by the Company (otherwise than pursuant to the foregoing redemption obligation) and not theretofore made the basis for such reduction or satisfaction. No such mandatory redemption of the shares of such series or of any additional series of cumulative preferred stock may be made unless and until any and all dividends accrued to the date of such redemption on all outstanding shares of all series of cumulative preferred stock have been paid or declared and set aside for payment. (3) The optional redemption prices for such series shall be $113.50 per share if redeemed on or prior to December 1, 1984, $106.75 per share if redeemed on or prior to December 1, 1989, and $103.38 per share thereafter, in each case together with all accumulated and accrued and unpaid dividends on the shares so called for redemption to the date fixed for such redemption. Prior to December 1, 1979, none of such shares may be redeemed at the option of the Company if the moneys for such redemption are obtained by the Company directly or indirectly from or in anticipation of borrowings by or for the account of the Company or the proceeds of any issue of any stock ranking prior to or on a parity with said shares at an interest or dividend cost (calculated after adjustment, in accordance with generally accepted financial practice, for any premium received or discount granted) of less than 13.50% per annum, except in connection with any merger or consolidation to which the Company may be a party and then only if the ratio of (i) the stated value of the Cumulative Preferred Stock, 13.50% Series F, so redeemed to (ii) the total stated value of the cumulative preferred stock of all series so redeemed does not exceed the ratio of (i) the aggregate stated value of the Cumulative Preferred Stock, 13.50% Series F, then outstanding to (ii) the aggregate stated value of the cumulative preferred stock of all series then outstanding. (4) The holders of the shares of such series shall not be entitled to voting rights in the event of a failure of the Company to make a payment in mandatory redemption as set forth in (2) above. (5) The preferential amounts to which the holders of shares of such series shall be entitled upon any liquidation, dissolution or winding up of the Company shall be: (a) upon any voluntary liquidation, dissolution or winding up of the Company, the amount at which such shares could at the time be redeemed as set forth in (3) above, or (b) $100 per share, in the event of any involuntary liquidation, dissolution or winding up of the Company. (6) No dividend may be paid upon or set apart for the common stock of the Company unless and until payments in mandatory redemption of the shares of such series, to and including the preceding annual mandatory redemption period, have been paid, or declared and set aside for payment. 21 (7) Except as may be provided in (2) above, there shall not be any sinking fund provided for the purchase or redemption of shares of such series. (8) There shall not be any conversion, participating or other special rights to which the shares of such series entitle the holder thereof. SEVENTH: (A) 250,000 shares of the authorized but unissued cumulative preferred stock of the stated value of $100 per share of this Company are hereby designated as a series of such preferred stock which shall be known as Cumulative Preferred Stock, 11% Series G. (B) Except as stated in the subparagraph (C) hereinbelow, the relative rights, preferences and limitations of such class and series shall be those applicable to all shares of cumulative preferred stock as set forth in ARTICLE VI of the Restated Certificate of Incorporation. (C) That the description and terms of the Cumulative Preferred Stock, 11% Series G, in respect of which the shares of such series may vary from shares of other series of the cumulative preferred stock shall be as follows: (1) The annual dividend rate for such series shall be 11% per annum. Dividends will accrue from June 24, 1975, and be payable on February 1, May 1, August 1 and November 1 in each year. (2) Beginning on June 1, 1980, and on each June 1 thereafter, the Company will annually redeem at a price of $100 per share together with all accumulated, accrued and unpaid dividends on the shares so called for redemption to the date of redemption, 12,500 shares of such series; provided, however, that the Company may reduce or satisfy such requirement for redemption, in whole or in part, by the number of shares of such series theretofore purchased, redeemed or otherwise acquired by the Company (otherwise than pursuant to the foregoing redemption obligation) and not theretofore made the basis of such reduction or satisfaction. No such mandatory redemption of the shares of such series or of any additional series of cumulative preferred stock may be made unless and until any and all dividends accrued to the date of such redemption on all outstanding shares of all series of cumulative preferred stock have been paid or declared and set aside for payment. (3) The optional redemption prices for such series shall be $111.00 per share if redeemed on or prior to June 1, 1980, $108.00 per share if redeemed thereafter through June 1, 1985, $105.00 per share if redeemed thereafter through June 1, 1990, and $101.00 per share thereafter, in each case together with all accumulated and accrued and unpaid dividends on the shares so called for redemption to the date fixed for such redemption. Prior to June 1, 1980, none of such shares may be redeemed at the option of the Company if the moneys for such redemption are obtained by the Company directly or indirectly from or in anticipation of borrowings by or for the account of the Company or the proceeds of any issue of any stock ranking prior to or on a parity with said shares at an interest or dividend cost (calculated after adjustment, in 22 accordance with generally accepted financial practice, for any premium received or discount granted) of less than 11% per annum, except in connection with any merger or consolidation to which the Company may be a party and then only if the ratio of (i) the stated value of the Cumulative Preferred Stock, 11% Series G, so redeemed to (ii) the total stated value of the cumulative preferred stock of all series so redeemed does not exceed the ratio of (i) the aggregate stated value of the Cumulative Preferred Stock, 11% Series G, outstanding prior to such redemption to (ii) the aggregate stated value of the cumulative preferred stock of all series outstanding prior to such redemption. (4) The holders of the shares of such series shall not be entitled to voting rights in the event of a failure of the Company to make a payment in mandatory redemption as set forth in (2) above. (5) The preferential amounts to which the holders of shares of such series shall be entitled upon any liquidation, dissolution or winding up of the Company shall be: (a) upon any voluntary liquidation, dissolution or winding up of the Company, the amount at which such shares could at the time be redeemed as set forth in (3) above, or (b) $100 per share, in the event of any involuntary liquidation, dissolution or winding up of the Company. (6) No dividend may be paid upon or set apart for the common stock of the Company unless and until payments in mandatory redemption of the shares of such series, to and including the preceding annual mandatory redemption period, have been paid, or declared and set aside for payment. (7) Except as may be provided in (2) above, there shall not be any sinking fund provided for the purchase or redemption of shares of such series. (8) There shall not be any conversion, participating or other special rights to which the shares of such series entitle the holder thereof. EIGHTH: (A) 2,000,000 shares of the authorized but unissued cumulative preferred stock of the stated value of $25 per share of this Company are hereby designated as a series of such preferred stock which shall be known as Cumulative Preferred Stock, 8.75% Series H. (B) Except as stated in subparagraph (C) hereinbelow, the relative rights, preferences and limitations of such class and series shall be those applicable to all shares of cumulative preferred stock as set forth in ARTICLE VI of the Restated Certificate of Incorporation. (C) That the description and terms of the Cumulative Preferred Stock, 8.75% Series H, in respect of which the shares of such series may vary from shares of other series of the cumulative preferred stock shall be as follows: (1) The annual dividend rate for such series shall be 8.75% per annum. 23 Dividends will accrue from October 25, 1977, and be payable on February 1, May 1, August 1 and November 1 in each year except that the first dividend for such series will be payable on February 1, 1978. (2) The redemption prices for such series shall be $27.19 per share if redeemed on or prior to October 1, 1982, $26.65 per share if redeemed thereafter through October 1, 1987, $26.10 per share if redeemed thereafter through October 1, 1992, and $25.55 per share thereafter, in each case together with all accumulated and accrued and unpaid dividends on the shares so called for redemption to the date fixed for such redemption. Prior to October 1, 1982, none of such shares may be redeemed at the option of the Company if the moneys for such redemption are obtained by the Company directly or indirectly from or in anticipation of borrowings by or for the account of the Company or from the proceeds of any issue of any stock ranking prior to or on a parity with said shares at an interest or dividend cost (calculated after adjustment, in accordance with generally accepted financial practice, for any premium received or discount granted) of less than 8.75% per annum, except in connection with any merger or consolidation to which the Company may be a party and then only if the ratio of (i) the aggregate stated value of the Cumulative Preferred Stock, 8.75% Series H, so redeemed to (ii) the total stated value of the cumulative preferred stock of all series so redeemed does not exceed the ratio of (i) the aggregate stated value of the Cumulative Preferred Stock, 8.75% Series H, outstanding prior to such redemption to (ii) the aggregate stated value of the cumulative preferred stock of all series so outstanding prior to such redemption. (3) The preferential amounts to which the holders of such series shall be entitled upon any liquidation, dissolution or winding up of the Company shall be: (a) upon any voluntary liquidation, dissolution or winding up of the Company, the amount at which such shares could at the time be redeemed as set forth in (2) above, or (b) $25 per share, in the event of any involuntary liquidation, dissolution or winding up of the Company. (4) There shall not be any sinking fund provided for the purchase or redemption of shares of such series. (5) There shall not be any conversion, participating or other special rights to which the shares of such series entitle the holder thereof. ARTICLE VIII. The directors of the Company shall be chosen annually at the annual meeting of the stockholders to be held in accordance with law and the By-Laws of the Company as they may be from time to time. Vacancies on the Board of Directors of the Company shall be filled and officers of the Company shall be elected or appointed in such manner as shall from time to time be provided for in the By-Laws of the Company and as permitted by law. 24 ARTICLE IX. In addition to and in furtherance of, and not in restriction of or limitation upon, the powers otherwise conferred, the Company shall have power and authority, such power and authority to be exercised by and through its Board of Directors to the extent from time to time permitted by law: (A) to purchase, hold, sell, assign, transfer, mortgage, pledge or otherwise dispose of shares of capital stock of, or bonds, securities or evidences of indebtedness created by, other corporations, and to exercise and enjoy all the rights, powers and privileges of ownership thereof, including the right to vote thereon; and, in any manner approved by its Board of Directors, to give financial aid or assistance to any such corporation or to make advances to the same; and to guarantee the payment of dividends on shares of capital stock of any corporation in which it is financially interested, directly or indirectly, or to guarantee the payment of principal and interest of any bonds, securities or evidences of indebtedness of any such corporation; (B) to issue, and sell, bonds, notes, certificates or other evidences of indebtedness, any or all of which may be convertible into capital stock of the Company, and to secure the same by mortgage on or pledge of all or any part of its property, assets and franchises; to acquire and hold and re-dispose of, in any lawful manner, its stock, bonds and other securities; (C) to conduct its business in any one or more of its aspects both in and outside of the State of New Jersey, and in connection therewith to have one or more offices or other places of business and hold, purchase, lease, mortgage and convey real or personal property, or any interest, either whole or partial, divided or undivided, direct or indirect, in such place or places in the several states and territories of the United States, colonial possessions or territorial acquisitions of the United States and in foreign countries, as shall from time to time be found necessary, desirable or convenient for the purposes of the Company's business; (D) to appoint from the directors an executive committee of the Board, of which committee a majority shall constitute a quorum, which committee, to such extent as shall be permitted by law and as shall not be otherwise provided in the By-Laws, shall have and may exercise all or any of the powers of the Board of Directors, including power to cause the seal of the Company to be affixed to instruments and papers as may be requisite; (E) to fix and determine, and from time to time to vary, the amount to be reserved as working capital, and the use and disposition of any surplus or net profits over and above the capital stock of the Company, and, in their sole discretion, to determine whether any, and if any, what part of any, surplus or net profits shall be declared as dividends and paid to the stockholders, and to fix and regulate the time and manner of the payment of dividends, with power to cause the stock transfer books to be closed as may be convenient; 25 (F) from time to time to determine whether and to what extent, and at what times and places, and under what conditions and regulations, the books and accounts of the Company, or any of them, shall be open to the inspection of stockholders (except as may be otherwise required by law); (G) from time to time add to, alter, amend or repeal the By-Laws of the Company, or any of them, subject, however, to the powers of the stockholders in this respect; (H) to construct, purchase, lease, or otherwise acquire, own, maintain, improve, repair and operate dams, embankments, reservoirs, aqueducts, culverts, bridges, canals, raceways, locks, weirs, gates, turbines, pumps, pump-turbine devices, generators, motors, outlet works, channels, shafts, tunnels, penstocks, facilities for pumping, storing, releasing, recapturing, circulating or recirculating water, buildings, structures, machinery, apparatus and such other instrumentalities, facilities, devices and works as may from time to time be found necessary, desirable or convenient for the purposes of developing, generating, transmitting, distributing and selling electricity for light, heat or power, or for any one of such purposes, or for any other purpose of the Company's business, and to acquire by condemnation any waters, streams, lands or interests therein, property, materials or franchises as may from time to time be found necessary, desirable or convenient for any of such purposes. IN WITNESS WHEREOF, said Jersey Central Power & Light Company has made this Restated Certificate of Incorporation this 26th day of May 1982 under its seal and the hands of its President and Secretary. JERSEY CENTRAL POWER & LIGHT COMPANY /s/ W. A. Verrochi W. A. Verrochi President /s/ R. O. Brokaw R. O. Brokaw Secretary Attest: /s/ C. A. Marks C. A. Marks Assistant Secretary 26 (SEAL) 27 CERTIFICATE OF ADOPTION OF RESTATED CERTIFICATE OF INCORPORATION OF JERSEY CENTRAL POWER & LIGHT COMPANY Jersey Central Power & Light Company (hereinafter referred to as the "Company"), a corporation organized and existing under the laws of the State of New Jersey, by its President and Secretary does hereby certify: 1. The principal office of the Company is at Madison Avenue at Punch Bowl Road, Township of Morris, County of Morris and State of New Jersey, and the Registered Agent therein and in charge thereof against whom process against the Company may be served is Robert O. Brokaw. 2. The Board of Directors of the Company, at a meeting duly called and held on May 20, 1982, adopted the following resolution: "Resolved that the Restated Certificate of Incorporation of Jersey Central Power & Light Company, identified as Document No. 11, is hereby adopted pursuant to N.J.S. 14A:9-5(2)." IN WITNESS WHEREOF, said Jersey Central Power & Light Company has made this Certificate this 26th day of May 1982 under its seal and the hands of its President and Secretary. JERSEY CENTRAL POWER & LIGHT COMPANY /s/ W. A. Verrochi W. A. Verrochi President /s/ R. O. Brokaw R. O. Brokaw Secretary Attest: /s/ C. A. Marks C. A. Marks Assistant Secretary (SEAL) FILED SEP 23 1987 JANE BURGIO Secretary of State CORRECTED CERTIFICATE OF AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION OF JERSEY CENTRAL POWER & LIGHT COMPANY Jersey Central Power & Light Company (hereinafter referred to as the "Company") a corporation organized and existing under the laws of the State of New Jersey, by its President and Assistant Secretary does hereby certify: 1. The following statement of amendment is presented as required by law: (a) The name of the corporation is Jersey Central Power & Light company. (b) The following amendment has been adopted in accordance with N.J.S.A. 14A:9-2(4). ARTICLE X of the Restated Certificate of Incorporation is added, as follows: "ARTICLE X: Except as otherwise required by law, directors and officers shall not be personally liable to the Corporation or its stockholders for damages for breach of any duty owed to the Corporation or its stockholders. Unless otherwise permitted by law, the provisions of this Article X shall not relieve a director or officer from liability for any breach of duty based upon an act or omission (a) in breach of such person's duty of loyalty to the Corporation or its stockholders, (b) not in good faith or involving a knowing violation of law or (c) resulting in receipt by such person of an improper personal benefit." (c) The date of the adoption of the foregoing amendment by the shareholders was August 14, 1987. (d) The only shares of stock entitled to vote thereon were the shares of common stock of the Company of which there were outstanding 15,371,270 shares and the number of shares entitled to vote thereon was 15,371,270 shares. (e) The number of shares voted for such amendment was 15,371,270 shares and the number of shares voted 29 against such amendment was zero. 2. The purpose of such amendment was to limit the personal liability of directors and officers to the Company or its stockholders for damages under certain circumstances as permitted by law. 3. The adoption of the amendment was approved by the Board of Directors at a meeting thereof held April 28, 1987 and thereafter by the shareholders by unanimous consent in lieu of a meeting as authorized by N.J.S.A. 14A:5-6(1). IN WITNESS WHEREOF, said Jersey Central Power & Light Company has made this Certificate this 18th day of September, 1987 under its seal and the hands of its President and Assistant Secretary. JERSEY CENTRAL POWER & LIGHT COMPANY By /s/ J. R. Leva J. R. Leva, President ATTEST: /s/ C. A. Marks C. A. Marks, Assistant Secretary FILED MAY 3 1990 JOAN HABERLE Secretary of State JERSEY CENTRAL POWER & LIGHT COMPANY CERTIFICATE OF AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION Jersey Central Power & Light Company (hereinafter referred to as the "Company") a corporation organized and existing under the laws of the State of New Jersey, by its President and Secretary does hereby certify: 1. The principal office of the Company is at Madison Avenue at Punch Bowl Road, Township of Morris, County of Morris and State of New Jersey, and the agent therein and in charge thereof upon whom process against the Company may be served is Richard S. Cohen. 2. The following statement of amendment is presented as required by law: (a) The name of this Corporation is Jersey Central Power & Light Company. (b) The following resolutions of the Board of Directors, acting through a duly authorized committee thereof, have been adopted in accordance with NJS 14A:7-2(3): "RESOLVED, that 500,000 shares of the authorized but unissued cumulative preferred stock of the stated value of $100 per share of this corporation are hereby designated as a series of such preferred stock which shall be known as Cumulative Preferred Stock, 8.48% Series I; "RESOLVED, that, except as stated in the next following resolution, the relative rights, preferences and limitations of such class and series shall be those applicable to all shares of cumulative preferred stock as set forth in Article VI of the Restated Certificate of Incorporation; "RESOLVED, that the description and terms of the Cumulative Preferred Stock, 8.48% Series I, in respect of which the shares of such series may vary from shares of other series of the cumulative preferred stock shall be as follows: "(a) The annual dividend rate for such series shall be 8.48% per annum. Dividends will accrue from May 8, 1990 and be payable in February 1, May 1, August 1 and November 1 in each year; "(b) Beginning on May 1, 1966, and on each May 1 thereafter, the Company will annually redeem at a price of $100 per share together with all accumulated, accrued and unpaid dividends on the shares so called 4 for redemption to the date of redemption, 100,000 shares of such series; provided, however, that the Company may at its option redeem at a price of $100 per share together with all accumulated, accrued and unpaid dividends on the shares called for redemption, an additional 100,000 shares of such series on any such date; provided, further, however, that the Company may reduce or satisfy such requirement for any such mandatory or optional redemption, in whole or in part, by the number of shares of such series theretofore purchased or otherwise acquired by the Company (otherwise than pursuant to the foregoing redemption provisions) and not theretofore made the basis for such reduction or satisfaction. No such mandatory or optional redemption of the shares of such series or of any additional series of cumulative preferred stock may be made unless and until any and all dividends accrued to the date of such redemption on all outstanding shares of all series of cumulative preferred stock have been paid or declared and set aside for payment. "(c) Except as otherwise provided in paragraph (b) above, none of such shares of such series may be redeemed at the option of the Company except in connection with any merger or consolidation to which the Company may be a party and then only if the ratio of (i) the stated value of the Cumulative Preferred Stock, 8.48% Series I, so redeemed to (ii) the total stated value of the cumulative preferred stock of all series so redeemed does not exceed the ratio of (i) the aggregate stated value of the Cumulative Preferred Stock, 8.48% Series I, outstanding prior to such redemption to (ii) the aggregate stated value of the cumulative preferred stock of all series outstanding prior to such redemption. "(d) The holders of the shares of such series shall not be entitled to voting rights in the event of a failure of the Company to make a payment in mandatory or optional redemption as set forth in paragraph (b) above. "(e) The preferential amounts to which the holders of shares of such series shall be entitled upon any liquidation, dissolution or winding up of the Company shall be: "(1) upon any voluntary liquidation, dissolution or winding up of the Company, $100 per share, or "(2) $100 per share, in the event of any involuntary liquidation, dissolution or winding up of the Company; "(f) No dividend may be paid upon or set apart for the common stock of the Company unless and until payments in mandatory redemption of the shares of such series, to and including the preceding annual mandatory redemption period, have been paid, or declared and set aside for payment. 3 "(g) Except as may be provided in paragraph (b) above, there shall not be any sinking fund provided for the purchase or redemption of shares of such series; "(h) There shall not be any conversion, participating or other special rights to which the shares of such series entitle the holder thereof." (c) The date of the adoption of the foregoing resolutions was May 1, 1990. (d) The Restated Certificate of Incorporation is amended so that the designation and number of shares of the class and series acted upon in the resolution, and the relative rights, preferences and limitations of each such class and series, are as stated in the resolutions set forth in 2(b) above. IN WITNESS WHEREOF, said Jersey Central Power & Light Company has made this Certificate this 2nd day of May, 1990 under its seal and the hands of one of its Vice Presidents and an Assistant Secretary. JERSEY CENTRAL POWER & LIGHT COMPANY By /s/ P. H. Preis P. H. Preis, Vice President ATTEST: /s/ C. A. Marks C. A. Marks, Assistant Secretary FILED JUL 12 1990 JOAN HABERLE Secretary of State JERSEY CENTRAL POWER & LIGHT COMPANY CERTIFICATE OF AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION Jersey Central Power & Light Company (hereinafter referred to as the "Company"), a corporation organized and existing under the laws of the State of New Jersey, by one of its Vice Presidents and one of its Assistant Secretaries does hereby certify: 1. The principal office of the Company is at Madison Avenue at Punch Bowl Road, Township of Morris, County of Morris and State of New Jersey, and the agent therein and in charge thereof upon whom process against the Company may be served is Richard S. Cohen. 2. The following statement of amendment is presented as required by law: (a) The name of the Company is Jersey Central Power & Light Company. (b) The following resolutions of the Board of Directors, acting through a duly authorized committee thereof, have been adopted in accordance with NJS 14A:7-2(3): "RESOLVED, that 500,000 shares of the authorized but unissued cumulative preferred stock of the stated value of $100 per share of this corporation are hereby designated as a series of such preferred stock which shall be known as Cumulative Preferred Stock, 8.65% Series J; "RESOLVED, that, except as stated in the next following resolution, the relative rights, preferences and limitations of such class and series shall be those applicable to all shares of cumulative preferred stock as set forth in Article VI of the Restated Certificate of Incorporation; "RESOLVED, that the description and terms of the Cumulative Preferred Stock, 8.65% Series J, in respect of which the shares of such series may vary from shares of other series of the cumulative preferred stock shall be as follows: "(a) The annual dividend rate for such series shall be 8.65% per annum. Dividends will accrue from July 17, 1990 and be payable on February 1, May 1, August 1 and November 1 in each year except that the first dividend for such series will be payable on November 1, 1990; "(b) Beginning on July 1, 2000, and on each July 1 thereafter, 5 the Company will annually redeem at a price of $100 per share together with all accumulated, accrued and unpaid dividends on the shares so called for redemption to the date of redemption, 83,333 shares of such series, except that the number of shares to be so redeemed by the Company pursuant to such mandatory sinking fund requirement shall be 83,335 shares on the redemption date on which the Company would otherwise retire such series in full; provided, however, that the Company may at its option redeem at a price of $100 per share together with all accumulated, accrued and unpaid dividends on the shares called for redemption, an additional 83,333 shares of such series on any such date; provided, further, however, that the Company may reduce or satisfy such requirement for any such mandatory or optional redemption, in whole or in part, by the number of shares of such series theretofore purchased or otherwise acquired by the Company (otherwise than pursuant to the foregoing redemption provisions) and not theretofore made the basis for such reduction or satisfaction. No such mandatory or optional redemption of the shares of such series or of any additional series of cumulative preferred stock may be made unless and until any and all dividends accrued to the date of such redemption on all outstanding shares of all series of cumulative preferred stock have been paid or declared and set aside for payment. "(c) The optional redemption prices for such series shall be $102.16 per share if redeemed prior to July 1, 2001, $101.30 per share if redeemed thereafter and prior to July 1, 2002, $100.87 per share if redeemed thereafter and prior to July 1, 2003, and $100.00 per share thereafter, in each case together with all accumulated, accrued and unpaid dividends on the shares so called for redemption to the date fixed for such redemption. Prior to July 1, 2000, however, none of such shares of such series may be redeemed at the option of the Company except in connection with any merger or consolidation to which the Company may be a party in which event shares of such series may be redeemed at the option of the Company at a price of $108.65 per share prior to July 1, 1995 and $104.33 per share thereafter and prior to July 1, 2000, in each case, together with all accumulated, accrued and unpaid dividends on such series so called for redemption to the date of redemption but only if the ratio of (i) the stated value of the Cumulative Preferred Stock, 8.65% Series J, so redeemed to (ii) the total stated value of the cumulative preferred stock of all series so redeemed does not exceed the ratio of (i) the aggregate stated value of the Cumulative Preferred Stock, 8.65% Series J, outstanding prior to such redemption to (ii) the aggregate stated value of the cumulative preferred stock of all series outstanding prior to such redemption. "(d) The holders of the shares of such series shall not be entitled to voting rights in the event of a failure of the Company to make a payment in mandatory or optional redemption as set forth in paragraphs (b) and (c) above. 3 "(e) The preferential amounts to which the holders of shares of such series shall be entitled upon any liquidation, dissolution or winding up of the Company shall be: "(1) upon any voluntary liquidation, dissolution or winding up of the Company, $100 per share, or "(2) $100 per share, in the event of any involuntary liquidation, dissolution or winding up of the Company; "(f) No dividend may be paid upon or set apart for the common stock of the Company unless and until payments in mandatory redemption of the shares of such series, to and including the preceding annual mandatory redemption period, have been paid, or declared and set aside for payment. "(g) Except as may be provided in paragraph (b) above, there shall not be any sinking fund provided for the purchase or redemption of shares of such series; "(h) There shall not be any conversion, participating or other special rights to which the shares of such series entitle the holder thereof." (c) The date of the adoption of the foregoing resolutions was July 10, 1990. (d) The Restated Certificate of Incorporation is amended so that the designation and number of shares of the class and series acted upon in the resolution, and the relative rights, preferences and limitations of each such class and series, are as stated in the resolutions set forth in 2 above. IN WITNESS WHEREOF, said Jersey Central Power & Light Company has made this Certificate this 12th day of July, 1990 under its seal and the hands of one of its Vice Presidents and an Assistant Secretary. JERSEY CENTRAL POWER & LIGHT COMPANY By /s/ D. Baldassari D. Baldassari, Vice President ATTEST: /s/ C. A. Marks C. A. Marks, Assistant Secretary 4 FILED JUN 19 1992 DANIEL J. DALTON Secretary of State JERSEY CENTRAL POWER & LIGHT COMPANY CERTIFICATE OF AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION Jersey Central Power & Light Company (hereinafter referred to as the "Company"), a corporation organized and existing under the laws of the State of New Jersey, by one of its Vice Presidents and one of its Assistant Secretaries does hereby certify: 1. The principal office of the Company is at 300 Madison Avenue, Township of Morris, County of Morris and State of New Jersey, and the agent therein and in charge thereof upon whom process against the Company may be served is Richard S. Cohen. 2. The following statement of amendment is presented as required by law: (a) The name of the Company is Jersey Central Power & Light Company. (b) The following resolutions of the Board of Directors, acting through a duly authorized committee thereof, have been adopted in accordance with NJS 14A:7-2(3): "RESOLVED, that 500,000 shares of the authorized but unissued cumulative preferred stock of the stated value of $100 per share of this corporation are hereby designated as a series of such preferred stock which shall be known as Cumulative Preferred Stock, 7.52% Series K; "RESOLVED, that, except as stated in the next following resolution, the relative rights, preferences and limitations of such class and series shall be those applicable to all shares of cumulative preferred stock as set forth in Article VI of the Restated Certificate of Incorporation; "RESOLVED, that the description and terms of the Cumulative Preferred Stock, 7.52% Series K, in respect of which the shares of such series may vary from shares of other series of the cumulative preferred stock shall be as follows: "(a) The annual dividend rate for such series shall be 7.52% per annum. Dividends will accrue from June 25, 1992 and be payable on February 1, May 1, August 1 and November 1 in each year commencing August 1, 1992; 6 "(b) Beginning on June 1, 1998, and on each June 1 thereafter, the Company will annually redeem at a price of $100 per share together with all accumulated, accrued and unpaid dividends on the shares so called for redemption to the date of redemption, 25,000 shares of such series; provided, however, that the Company may at its option redeem at a price of $100 per share together with all accumulated, accrued and unpaid dividends on the shares called for redemption, an additional 25,000 shares of such series on any such date; provided, further, however, that the Company may reduce or satisfy such requirement for any such mandatory or optional redemption, in whole or in part, by the number of shares of such series theretofore purchased or otherwise acquired by the Company (otherwise than pursuant to the foregoing redemption provisions) and not theretofore made the basis for such reduction or satisfaction. No such mandatory or optional redemption of the shares of such series or of any additional series of cumulative preferred stock may be made unless and until any and all dividends accrued to the date of such redemption on all outstanding shares of all series of cumulative preferred stock have been paid or declared and set apart for payment; "(c) The optional redemption prices for such series shall be $102.51 per share if redeemed prior to June 1, 2003, $102.01 per share if redeemed thereafter and prior to June 1, 2004, $101.50 per share if redeemed thereafter and prior to June 1, 2005, $101.00 per share if redeemed thereafter and prior to June 1, 2006, $100.50 per share if redeemed thereafter and prior to June 1, 2007, and thereafter $100 per share without premium, in each case together with all accumulated, accrued and unpaid dividends on the shares so called for redemption to the date fixed for such redemption. Prior to June 1, 2002, however, no shares of such series may be redeemed at the option of the Company except in connection with any merger or consolidation to which the Company may be a party in which event shares of such series may be redeemed at the option of the Company at a price of $107.52 per share prior to June 1, 1997 and $103.76 per share thereafter and prior to June 1, 2002, in each case, together with any accumulated, accrued and unpaid dividends on such series so called for redemption to the date of redemption, but only if the ratio of (i) the stated value of the Cumulative Preferred Stock, 7.52% Series K, so redeemed to (ii) the aggregate stated value of the cumulative preferred stock of all series so redeemed does not exceed the ratio of (i) the aggregate stated value of the Cumulative Preferred Stock, 7.52% Series K, outstanding prior to such redemption to (ii) the aggregate stated value of the cumulative preferred stock of all series outstanding prior to such redemption; "(d) The holders of the shares of such series shall not be entitled to voting rights in the event of a failure of the Company to make a payment in mandatory or optional redemption as set forth in paragraphs (b) and (c) above; "(e) The preferential amounts to which the holders of shares of 3 such series shall be entitled upon any liquidation, dissolution or winding up of the Company shall be: "(1) upon any voluntary liquidation, dissolution or winding up of the Company, $100 per share, or "(2) $100 per share, in the event of any involuntary liquidation, dissolution or winding up of the Company; "(f) No dividend may be paid upon or set apart for the common stock of the Company unless and until payments in mandatory redemption of the shares of such series, to and including the preceding annual mandatory redemption period, have been paid, or declared and set apart for payment; "(g) Except as may be provided in paragraph (b) above, there shall not be any sinking fund provided for the purchase or redemption of shares of such series; and "(h) There shall not be any conversion, participating or other special rights to which the shares of such series entitle the holder thereof." (c) The date of the adoption of the foregoing resolutions was June 18, 1992. (d) The Restated Certificate of Incorporation is amended so that the designation and number of shares of the class and series acted upon in the resolution, and the relative rights, preferences and limitations of each such class and series, are as stated in the resolutions set forth in 2 above. IN WITNESS WHEREOF, said Jersey Central Power & Light Company has made this Certificate this 19th day of June, 1992 under its seal and the hands of one of its Vice Presidents and an Assistant Secretary. JERSEY CENTRAL POWER & LIGHT COMPANY By /s/ P. H. Preis P. H. Preis, Vice President ATTEST: /s/ C. A. Marks C. A. Marks, Assistant Secretary FILED JUN 19 1992 DANIEL J. DALTON Secretary of State JERSEY CENTRAL POWER & LIGHT COMPANY CERTIFICATE OF AMENDMENT OF THE RESTATED CERTIFICATE OF INCORPORATION The undersigned corporation, organized under the laws of the State of New Jersey, to further amend its Restated Certificate of Incorporation, as amended, in accordance with Chapter 9 of the New Jersey Business Corporation Act, hereby certifies: FIRST: The name of the corporation is JERSEY CENTRAL POWER & LIGHT COMPANY. SECOND: To eliminate the limitation of $300,000,000 aggregate stated value of cumulative preferred stock the corporation is authorized to issue, Article VI. First: (B) of the corporation's Restated Certificate of Incorporation is amended to read in its entirety as follows: "(B) Fifteen million six hundred thousand (15,600,000) shares of cumulative preferred stock, without par value, and with such stated value as may be determined by the Board of Directors." THIRD: The foregoing amendment to the Restated Certificate of Incorporation was adopted by the sole holder of the common stock of the corporation on June 16, 1992. FOURTH: The number of shares entitled to vote on the amendment is 15,371,270. FIFTH: The number of shares voted for the amendment was 15,371,270 and no shares were voted against the amendment. SIXTH: The foregoing amendment of the Restated Certificate of Incorporation shall be effective upon the filing of this Certificate with the New Jersey Secretary of State. IN WITNESS WHEREOF, JERSEY CENTRAL POWER & LIGHT COMPANY has caused its duly authorized officer to execute this Certificate this 19th day of June, 1992 JERSEY CENTRAL POWER & LIGHT COMPANY By /s/ P. H. Preis P. H. Preis, Vice President 5 ATTEST: /s/ C. A. Marks C. A. Marks, Assistant Secretary EX-3.(II) 4 EXHIBIT 3-B BY-LAWS JERSEY CENTRAL POWER & LIGHT COMPANY (As Amended May 25, 1993) JERSEY CENTRAL POWER & LIGHT COMPANY BY-LAWS OFFICES 1. The principal office of the corporation shall be located at Madison Avenue at Punch Bowl Road, in the Township of Morris, County of Morris, State of New Jersey or such other place within the State of New Jersey as the Board of Directors by a two-thirds vote may from time to time designate. The corporation may also have offices at such other places, either within or without the State of New Jersey, as the Board of Directors may from time to time designate or the business of the corporation may require. SEAL 2. The corporate seal shall have inscribed thereon the name of the corporation, the year of its organization and the words "CORPORATE SEAL, N.J.". The corporate seal may be affixed to any certificates of stock, bonds, debentures, notes or other engraved, lithographed or printed instruments, by engraving, lithographing or printing thereon such seal or a facsimile thereof, and such seal or facsimile thereof so engraved, lithographed or printed thereon shall have the same force and effect, for all purposes, as if such corporate seal had been affixed thereto by indentation. STOCKHOLDERS' MEETINGS 3. All meetings of the stockholders shall be held at Amended by the principal office of the corporation or at such other place Board of in the same municipality in which the principal office is Directors located as may from time to time be designated by the Board of 9-7-72 Directors, or in New York City, at a place therein to be designated from time to time by the Board of Directors and stated in the notice of the meeting. All meetings of the stockholders shall be presided over by the Chairman of the Board if the Board of Directors has elected such Chairman as provided herein, or, if there has been no such appointment or in the event of his absence or disability, by the President or, if he be absent or disabled, by any Vice President, except when by statute, the Certificate of Incorporation or any amendment thereof the election of a presiding officer by the stockholders present at the meeting is required. 4. The annual meeting of stockholders shall be held on the third Tuesday in May of each year, if not a legal holiday, and if a legal holiday, then on the next business day following, at 11:30 o'clock A.M. At the annual meeting the stockholders shall elect a Board of Directors of the corporation and transact such other business as may properly be brought before the meeting. Notice of the time and place thereof shall be given by mail at least ten (10) days prior to the meeting, to each stockholder of record entitled to vote thereat, at his address as the same shall appear on the books of the corporation. 5. The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall be requisite for and shall constitute a quorum at all meetings of the stockholders for the transaction of business, except as otherwise provided by law, by the Certificate of Incorporation or any amendment thereto, or by these By-Laws. If, however, the holders of a majority of such stock shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or by proxy, shall have power, by a majority vote of those present, to adjourn the meeting from time to time not exceeding ten (10) days at any one time without notice other than announcement at the meeting, until the holders of the amount of stock requisite to constitute a quorum shall be present in person or by proxy. At any adjourned meeting at which a quorum shall be present, in person or by proxy, any business may be transacted which might have been transacted at the meeting as originally noticed. 6. At all meetings of the stockholders each stockholder having the right to vote shall be entitled to vote in person or by proxy appointed by an instrument executed in writing by such stockholder, or by his duly appointed attorney, but no proxy shall be voted upon after three years from its date. Each holder of record of stock having voting power shall be entitled to one vote for each share of stock standing in his name on the books of the corporation; provided, however, that (except where the transfer books of the corporation shall have been closed, or a date shall have been fixed as a record date for the determination of the stockholders entitled to vote, as hereinafter provided), no share of stock shall be voted at any election of directors which has been transferred on the books of the corporation within twenty (20) days next preceding such election. The vote for directors, and upon the demand of any stockholder or his duly authorized proxy, the vote upon any question before the meeting, shall be by ballot. All elections shall be determined and all questions decided by a plurality vote, except when by statute or the Certificate of Incorporation or any amendments thereto a larger vote of the stockholders shall be required. 7. A complete list of the stockholders entitled to vote at the ensuing election, arranged in alphabetical order, with the 2 residence of each, and the number of voting shares held by each, shall be prepared by the Secretary and filed in the office where the election is to be held at least ten (10) days before every election, and shall at all times, during the usual hours for business, and during the whole time of said election, be open to the examination of any stockholder. 8. Special meetings of the stockholders for any purpose or purposes, unless otherwise prescribed by statute or by the Certificate of Incorporation or any amendment thereto, may be called by the President, or by a majority of the Board of Directors or by a majority of the Executive Committee, and shall be called by the President or the Secretary at the request in writing of the stockholders holding a majority in amount of the entire capital stock of the corporation issued and outstanding and entitled to vote, upon ten (10) days' written or printed notice to each stockholder of record entitled to vote thereat, stating the place, day and hour of such meeting and the business proposed to be transacted thereat. No business shall be transacted at such meetings except with respect to matters specified in the notice, provided however, that if all the stockholders of the corporation entitled to vote shall be present in person or by proxy any business pertaining to the affairs of the corporation may be transacted. DIRECTORS 9. The property and business of the corporation shall Amended by be managed by its Board of Directors, which shall consist of Board of not less than five (5) nor more than eleven (11) directors as Directors shall be fixed from time to time by a resolution adopted by a 9-27-82 majority of the entire Board of Directors; provided, however, that no decrease in the number of directors constituting the entire Board of Directors shall shorten the term of any incumbent director. Directors need not be stockholders. Each director shall be elected to serve until the next annual meeting of stockholders and until his successor shall be elected and shall qualify. 10. In addition to the powers and authorities by these Amended by By-Laws expressly conferred upon them, the Board may exercise Board of all such powers of the corporation and do all such lawful acts Directors and things as are not by statute or by the Certificate of 2-23-93 Incorporation or any amendment thereto or by these By-Laws directed or required to be exercised or done by the stockholders. Unless otherwise required by law, in the absence of fraud no contract or transaction between the corporation and one or more of its directors or officers, or between the corporation and 3 any domestic or foreign corporation, firm or association of any type or kind in which one or more of its directors are directors or are otherwise interested, shall be void or voidable solely by reason of such common directorship or interest, or solely because such director or directors are present at or participate in the meeting of the Board or committee thereof which authorizes the contract or transaction, or solely because his or their votes are counted for such purposes if: (a) the contract or transaction is fair and reasonable as to the corporation as at the time it is authorized, approved or ratified; or (b) the fact of the common directorship or interest is disclosed or known to the Board or committee and the Board or committee authorizes, approves, or ratifies the contract or transaction by unanimous written consent, provided at least one director so consenting is disinterested, or by affirmative vote of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (c) the fact of common directorship or interest is disclosed or known to the stockholders, and they authorize, approve or ratify the contract or transaction. The interest of any director or officer in any such contract or transaction shall be fully disclosed at such meeting and a director who is so interested may be counted at any such meeting for the purpose of determining the existence of a quorum to consider and vote upon any contract or transaction in which he is so interested. No director or officer shall be liable to account to the corporation for any profit realized by him from or through any such contract or transaction of the corporation by reason of his interest as aforesaid in such contract or transaction if such contract or transaction shall be authorized, approved or ratified as aforesaid. Nothing herein shall create liability in any of the events described in this Section 10 or prevent the authorization, ratification or approval, in any other manner provided by law, of any contract or transaction described in this Section 10. MEETINGS OF THE BOARD 11. At all meetings of the Board of Directors, a Amended by majority of the directors shall constitute a quorum for the Board of transaction of business, and the act of a majority of the Directors directors present at any meeting at which there is a quorum 9-26-78 4 shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute or by the Certificate of Incorporation or any amendment thereto or by these By-Laws. Any or all directors may participate in a meeting of the Amended by Board by means of conference telephone or any means of Board of communication by which all persons participating in the meeting Directors are able to hear each other and when so participating shall be 5-10-77 deemed to be present. 12. The first meeting of the Board of Directors held next after the annual meeting of stockholders at which directors shall have been elected, shall be held for the purpose of organization, the election of officers and the transaction of any other business which may come before the meeting. 13. Regular meetings of the Board of Directors shall be held at such time and place and on such notice as the Board of Directors may from time to time determine. 14. Special meetings of the Board of Directors may be Amended by called by the Chairman of the Board or by the President or, in Stockholders the absence or disability of the Chairman of the Board and the 5-15-56 President, by a Vice President, or by any two directors, and may be held at the time and place designated in the call and notice of the meeting. The Secretary, or other officer performing his duties, shall give notice either personally or by mail or by telegram at least twenty-four hours before the meeting. Meetings may be held at any time and place without such notice if all the directors are present or if those not present waive notice in writing, either before or after the meeting. 15. Any regular or special meeting may be adjourned to any other time at the same or any other place by a majority of the directors present at the meeting, whether or not a quorum shall be present at such meeting, and no notice of the adjourned meeting shall be required other than announcement at the meeting. COMPENSATION AND REIMBURSEMENT OF DIRECTORS AND MEMBERS OF THE EXECUTIVE COMMITTEE 16. Directors, other than salaried officers of the GPU Amended by System shall receive compensation for their services as Board of directors, at such rate, as shall be fixed from time to time Directors by the Board, and shall be reimbursed for their reasonable 11-8-82 expenses, if any, of attendance at each regular or special meeting of the Board of Directors. Such directors may participate in any business travel accident insurance plan and voluntary group accident insurance plan maintained by the 5 corporation for its employees, and the corporation may make premium contributions for directors under any such plan on the same basis as for officers of the corporation. Such directors who are members of any committee of the Board shall receive compensation for their services as such members as shall be fixed from time to time by the Board and shall be reimbursed for their reasonable expenses, if any, in attending meetings of such committee or otherwise performing their duties as members of such committee. COMMITTEES 17. The Board of Directors may by vote of a majority of Amended by the whole Board create an Executive Committee consisting of Board of three or more of their own number to hold office for such Directors period as the Board shall determine. The Chairman of the Board 9-7-72 and the President shall be members of the Executive Committee and the Chairman of the Board shall be Chairman thereof. The remaining member or members shall be elected by a majority vote of the whole Board of Directors. The Board by a majority vote of the whole Board may fill any vacancies in the Executive Committee and may designate one or more alternate members who shall serve on the Executive Committee in the absence of any regular member or members of such Committee. Such Executive Committee shall advise with and aid the officers of the corporation in all matters concerning its interest and the management of its business, and shall, between meetings of the Board of Directors, have all the power of the Board of Directors in the management of the business and affairs of the corporation, and shall have power to authorize the seal of the corporation to be affixed to all papers which may require it. The taking of any action by the Executive Committee shall be conclusive evidence that the Board of Directors was not at the time of such action in session. The Executive Committee shall cause to be kept regular minutes Corrected by of its proceedings, which may be transcribed in the regular Stockholders minute book of the corporation, and all such proceedings shall 5-15-56 be reported to the Board of Directors at its next succeeding meeting, and shall be subject to revision or alteration by the Board of Directors, provided that no rights of third persons shall be affected by such revision or alteration. A majority of the Executive Committee shall constitute a quorum at any meeting. The Executive Committee may, from time to time, subject to the approval of the Board of Directors, prescribe rules and regulations for the calling and conduct of meetings of the Committee, and other matters relating to its procedure and the 6 exercise of its powers. Any or all members of the Executive Amended by Committee may participate in a meeting thereof by means of Board of conference telephone or any means of communication by which Directors all persons participating in the meeting are able to hear each 5-10-77 other and when so participating shall be deemed to be present. From time to time the Board of Directors may appoint any Amended by other committee or committees for any purpose or purposes, Board of which committee or committees shall have such powers and such Directors tenure of office as shall be specified in the resolution of 9-24-85 appointment. The chief executive officer of the corporation shall be a member ex officio of all committees of the Board, unless the resolution appointing a particular committee specifically excludes such ex officio membership by the chief executive officer. OFFICERS 18. The officers of the corporation shall be chosen by Amended by the Board of Directors and shall be a Chairman of the Board Board of (if one be elected as provided herein), a President, one or Directors more Vice Presidents, a Secretary, one or more Assistant 9-7-72 Secretaries, a Treasurer, one or more Assistant Treasurers, and a Comptroller. The Board of Directors may also choose one or more Assistant Comptrollers. The Board of Directors may at any regular or special meeting elect from among their own number, a Chairman of the Board. 19. The Board of Directors, at its first meeting after Amended by the election of Directors by the stockholders, shall choose a Stockholders President from among their own number, and a Secretary, a 5-23-63 Treasurer, a Comptroller and such Vice Presidents, Assistant Secretaries, Assistant Treasurers and Assistant Comptrollers as it shall deem necessary, none of whom need be members of the Board of Directors. Such officers of the corporation shall hold office until the first meeting of the Board of Directors after the next succeeding annual meeting of stockholders and until their successors are chosen and qualified in their stead. The President may not occupy any other such office. Except as to the President, any two of such offices may be occupied by the same person, but no officer shall execute, acknowledge or verify any instrument in more than one capacity. 20. The Board of Directors may appoint such other officers and agents as it shall deem necessary, who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors. 7 21. The salary or other compensation of the officers Amended by other than assistant officers shall be fixed by the Board of Board of Directors. The salaries or other compensation of the assistant Directors officers and all other employees shall, in the absence of any 12-19-89 action by the Board, be fixed by the President or such other officers or executives as may be designated by the President. 22. Any officers or agents elected or appointed by the Board of Directors may be removed at any time, with or without cause, by vote of a majority of the whole Board of Directors. CHAIRMAN OF THE BOARD 23. In the event that the Board of Directors shall Amended by elect a Chairman of the Board as herein provided, he shall, Board of unless otherwise directed by the Board of Directors, be the Directors chief executive officer of the corporation with authority, 9-7-72 among other things, to sign in the name and on behalf of the corporation any and all contracts, agreements and other instruments and documents pertaining to matters which arise in the normal conduct or ordinary course of business of the corporation, shall hold office until the next annual meeting of stockholders, shall preside at all meetings of the Board of Directors and shall have and exercise such other powers and perform such other duties as may be assigned and conferred upon him by these By-Laws or by the Board of Directors. PRESIDENT 24. The President, in the absence, or during the Amended by disability, of a Chairman of the Board functioning as the Board of chief executive officer of the corporation, shall be the chief Directors executive officer of the corporation. He shall, except as 9-7-72 otherwise provided herein or by law, preside at all meetings of the Board of Directors, the Executive Committee and the stockholders. Subject to the control of the Board of Directors and any Chairman of the Board functioning as chief executive officer of the corporation, he shall have general supervision, direction and control of the business and affairs of the corporation. He shall have such powers and duties as are usually vested in the office of President of a corporation, and shall perform such other and further duties as may from time to time be assigned to him by the Board of Directors. He may sign in the name and on behalf of the corporation any and all contracts, agreements and other instruments and documents pertaining to matters which arise in the normal conduct or ordinary course of business of the corporation. 8 VICE PRESIDENT OR VICE PRESIDENTS 25. If there be one Vice President he shall, at the Amended by request or in the absence or disability of the President, have Board of supervision, direction and control of the business of the Directors corporation and exercise the duties and functions of the 6-26-58 President. He shall also have such powers and perform such other duties as may be prescribed from time to time by law, the Certificate of Incorporation or any amendment thereof, the By-Laws, the Board of Directors or the President. If there be more than one Vice President, the Board of Directors shall assign to each of them the general scope of their respective duties, subject to detailed specification thereof made from time to time, by the President, and the Board shall designate which Vice President shall exercise the duties and functions of the President during his absence or disability, and the Board may designate such Vice President as the Executive Vice President. Any Vice President may sign in the name and on behalf of the corporation contracts, agreements or other instruments, and documents pertaining to matters which arise in the normal conduct or ordinary course of business of the corporation, except in cases where the signing thereof shall be expressly and exclusively delegated by the Board of Directors or the Executive Committee to some other officer or agent of the corporation. SECRETARY 26. The Secretary shall attend all meetings of the Board of Directors, the Executive Committee, and the stockholders, and shall record all votes and the minutes of all proceedings in a book or books to be kept by him for that purpose, and shall perform like duties for the standing committees when required. He shall give, or cause to be given, notice of all meetings of the stockholders, the Board of Directors and the Executive Committee, and shall perform such other duties as may be prescribed by the Board of Directors or President. He shall be sworn to the faithful discharge of his duty. Any records kept by him shall be the property of the corporation in case of his death, resignation, retirement or removal from office. He shall be the custodian of the seal of the corporation and when authorized by the Board of Directors or by the President or a Vice President, shall affix the seal to all instruments requiring it and shall attest the same and/or the execution of such instruments as required. He shall have control of the stock ledger, stock certificate book and other formal records and documents relating to the corporate affairs of the corporation. The Assistant Secretary or Assistant Secretaries shall assist the Secretary in the performance of his duties, and shall 9 exercise and perform his powers and duties in his absence or disability, and shall also exercise such powers and duties as may be conferred or required by the Board of Directors, or by the President. TREASURER 27. The Treasurer shall have the custody of the corporate funds and securities, shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation, and shall deposit all moneys and other valuable effects in the name and to the credit of the corporation in such depositories as may be designated by the Board of Directors. He shall disburse the funds of the corporation in such manner as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the President and directors at the regular meetings of the Board of Directors, or whenever they may require it, a report of cash receipts and disbursements and an account of all his transactions as Treasurer. He shall give the corporation a bond, in such sum and with such sureties as may be satisfactory to the Board of Directors, for the faithful performance of the duties of his office, and for the restoration to the corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the corporation. The Assistant Treasurer or Assistant Treasurers shall assist the Treasurer in the performance of his duties, and shall exercise and perform his powers and duties in his absence or disability and shall also exercise and perform such duties as may be conferred or required by the Board of Directors, or by the President. COMPTROLLER AND ASSISTANT COMPTROLLERS 28. The Comptroller of the corporation shall have full Adopted by control of all the books of account of the corporation and keep Stockholders a true and accurate record of all property owned by it, of its 5-23-63 debts and its revenues and expenses and shall keep all accounting records of the corporation, other than the records of receipts and disbursements and those relating to the deposit or custody of money and securities of the corporation which shall be kept by the Treasurer, and shall also make reports to the President and directors whenever they may require them. 10 The Assistant Comptroller or Assistant Comptrollers shall assist the Comptroller in the performance of his duties and shall exercise and perform his powers and duties in his absence or disability and shall also exercise such powers and perform such duties as may be conferred or required by the Board of Directors, or by the President. VACANCIES 29. If the office of any director becomes vacant by reason of death, resignation, retirement, disqualification, or otherwise, the directors then in office, although less than a quorum, by a majority vote, may choose a successor or successors, who shall hold office for the unexpired term in respect of which such vacancy occurred. If the office of any officer of the corporation shall become vacant for any reason, the Board of Directors by a majority vote of those present at any meeting at which a quorum is present, may choose a successor or successors, who shall hold office for the unexpired term in respect of which such vacancy occurred. RESIGNATIONS 30. Any officer or any director of the corporation may resign at any time, such resignation to be made in writing and to take effect from the time of its receipt by the corporation, unless some time be fixed in the resignation, and then from that time. DUTIES OF OFFICERS MAY BE DELEGATED 31. In case of the absence of any officer of the corporation, or for any other reason the Board of Directors may deem sufficient, the Board of Directors may delegate, for the time being, the powers or duties, or any of them, of such officer to any other officer. INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES 32. (a) The corporation shall indemnify any person who Amended by was or is a party or is threatened to be made a party to any Board of threatened, pending or completed civil, criminal, administrative Directors or arbitrative action, suit or proceeding, and any appeal 4-28-87 therein and any inquiry or investigation which could lead to such action, suit or proceeding, other than a proceeding by or in the right of the corporation, by reason of the fact that he was a 11 director, officer or employee of the corporation (and may indemnify any person who was an agent of the corporation), or a person serving at the request of the corporation as a director, officer, trustee, employee or agent of another corporation, partnership, joint venture, sole proprietorship, trust, employee benefit plan or other enterprise, whether or not for profit, to the fullest extent permitted by law, including without limitation indemnification against liabilities (amounts paid or incurred in satisfaction of settlements, judgments, fines and penalties) and expenses (reasonable costs, disbursements and counsel fees) incurred by such person in connection with such proceeding, if (i) such person acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interest of the corporation; and (ii) with respect to any criminal proceeding, such person had no reasonable cause to believe his conduct was unlawful. The termination of any proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, shall not of itself create a presumption that such person did not meet the applicable standards of conduct set forth in Section 32(a)(i) or in Section 32(a)(ii). (b) The corporation shall pay the expenses of a person in connection with any proceeding by or in the right of the corporation to procure a judgment in its favor which involves such person by reason of his being or having been a director, officer or employee of the corporation (and may pay the expenses of an agent of the corporation) if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation. However, in such proceeding no indemnification shall be provided in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation, unless and only to the extent that the Superior Court or the court in which such proceeding was brought shall determine upon application that despite the adjudication of liability, but in view of all circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses as the Superior Court or such other court shall deem proper. (c) The corporation shall indemnify a corporate agent, as defined in N.J.S. 14A:3-5(1), against expenses to the extent that such corporate agent has been successful on the merits or otherwise in any proceeding referred to in Section 32 (a) and (b) or in defense of any claim, issue or matter therein. 12 (d) Any indemnification under Section 32 (a) and, unless ordered by a court, under Section 32 (b), may be made by the corporation only as authorized in a specific case upon a determination that indemnification is proper in the circumstances because the director, officer, employee or agent met the applicable standard conduct set forth therein. Unless otherwise provided in the Certificate of Incorporation or By-Laws, such determination shall be made (i) by the Board of Directors or a committee thereof, acting by a majority vote of a quorum consisting of directors who were not parties to or otherwise involved in the proceeding; or (ii) if such a quorum is not obtainable, or, even if obtainable and such quorum of the Board of Directors or committee by a majority vote of the disinterested directors so directs, by independent legal counsel, in a written opinion, such counsel to be designated by the Board of Directors. (e) Expenses incurred by a director, officer or Amended by employee in connection with such a proceeding shall (and Board of expenses incurred by an agent in connection with such a Directors proceeding may) be paid by the corporation in advance of the 5-25-93 final disposition of the proceeding as authorized by the Board of Directors upon receipt of an undertaking by or on behalf of such person to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified as provided in this section. (f) The indemnification and advancement of Amended by expenses provided by or granted pursuant to the other Board of subsections of this section shall not exclude any other rights, Directors including the right to be indemnified against liabilities and 5-25-93 expenses incurred in proceedings by or in the right of the corporation, to which a person may be otherwise entitled provided that no indemnification shall be made to or on behalf of a person if a judgment or other final adjudication adverse to such person establishes that his acts or omissions (a) were in breach of his duty of loyalty to the corporation or its shareholders, as defined in subsection (3) of N.J.S. 14A:2-7, (b) were not in good faith or involved a knowing violation of law or (c) resulted in receipt by the corporate agent of an improper personal benefit. (g) The corporation shall have the power to purchase and maintain insurance on behalf of any director, officer, employee or agent of the corporation against any expenses incurred in any proceeding and any liabilities asserted against him by reason of his being or having been such, whether or not the corporation would have the power to indemnify him against 13 such expenses and liabilities under the provisions of this section. The corporation may purchase such insurance from, or such insurance may be reinsured in whole or in part by, an insurer owned by or otherwise affiliated with the corporation, whether or not such insurer does business with other insureds. (h) For purposes of this section: (i) the corporation shall be deemed to have requested an officer, director, employee or agent to serve as fiduciary with respect to an employee benefit plan where the performance by such person of duties to the corporation also imposes duties on, or otherwise involves services by, such person as a fiduciary with respect to the plan; (ii) excise taxes assessed with respect to any transaction with an employee benefit plan shall be deemed "fines"; and (iii) action taken or omitted by such person with respect to an employee benefit plan in the performance of duties for a purpose reasonably believed to be in the interest of the participants and beneficiaries of the plan shall be deemed to be for a purpose which is not opposed to the best interests of the corporation. (i) All rights of indemnification under this section shall be deemed a contract between the corporation and the person entitled to indemnification under this section pursuant to which the corporation and each such person intend to be legally bound. Any repeal, amendment or modification thereof shall be prospective only and shall not limit, but may expand, any rights or obligations in respect of any proceeding whether commenced prior to or after such change to the extent such proceeding pertains to actions or failures to act occurring prior to such change. (j) The indemnification and advancement of expenses provided by, or granted pursuant to, this section shall continue as to a person who has ceased to be an officer, director, employee or agent in respect of matters arising prior to such time, and shall inure to the benefit of the heirs, executors and administrators of such person. STOCK OF OTHER CORPORATIONS 33. The Board of Directors shall have the right to authorize any officer or other person on behalf of the corporation to attend, act and vote at meetings of the stockholders of any corporation in which the corporation shall hold or own stock, and to exercise thereat any and all the rights and powers incident to the ownership of such stock and to execute waivers of notice of such meetings and calls therefor; and authority may be given to exercise the same either on one or more designated occasions, or generally on all occasions until revoked 14 by the Board of Directors. In the event that the Board of Directors shall fail to give such authority, such authority may be exercised by the President in person or by proxy appointed by him on behalf of the corporation. CERTIFICATES OF STOCK 34. (a) Shares of the stock of the corporation shall Amended by be represented by certificates or, except as limited by law, Board of uncertificated shares. Directors 2-23-93 (b) The certificates of stock of the corporation shall be numbered and shall be entered in the books of the corporation as they are issued. They shall be in a form approved by the Board of Directors. They shall exhibit the holder's name and number of shares and shall be signed by the President or a Vice President and the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary, and the seal of the corporation shall be affixed thereto. Such certificates may, in addition to the foregoing, be signed by a transfer agent or an assistant transfer agent or by a transfer clerk on behalf of the corporation and by a registrar, who shall have been duly appointed for the purpose by the Board of Directors. When such certificates are signed by a transfer agent or an assistant transfer agent or by a transfer clerk on behalf of the corporation and by a registrar, the signature of the President, Vice President, Treasurer, Assistant Treasurer, Secretary or Assistant Secretary upon any such certificates may be affixed by engraving, lithographing, or printing thereon a facsimile of such signature, in lieu of actual signature, and such facsimile signature so engraved, lithographed or printed thereon shall have the same force and effect, as if such officer had actually signed the same. In case any officer who has signed, or whose facsimile signature has been affixed to, any such certificate shall cease to be such officer before such certificate shall have been delivered by the corporation, such certificate may nevertheless be issued and delivered as though the person who signed such certificate, or whose facsimile signature has been affixed thereto, had not ceased to be such officer of the corporation. (c) Uncertificated shares may be issued upon initial issuance of shares or upon transfer of certificated shares after surrender thereof to the corporation. Within a reasonable time after the issuance or transfer of uncertificated shares, the corporation shall send to the registered owner thereof a written notice containing the information required to be set forth or stated on certificates by subsections 14A:7-11(2) and 14A:7-11(3), and if required, 14A:7-12(2), of the New Jersey Business Corporation Act as the same may be amended from time to time. 15 TRANSFERS OF STOCK 35. Transfers of stock shall be made on the books of the corporation, only by the person named in the certificate or by attorney, lawfully constituted in writing, and upon surrender of the certificate therefor. CLOSING OF TRANSFER BOOKS OR FIXING RECORD DATE 36. The Board of Directors may close the stock transfer books of the corporation for a period not exceeding fifty days preceding the date of any meetings of stockholders, or the date for the payment of any dividend, or the date for the allotment of rights, or the date when any change or conversion or exchange of capital stock shall go into effect, during which period no transfer of stock shall be made on the books of the corporation. In lieu of so closing the stock transfer books, the Board of Directors may fix in advance a date, not exceeding fifty days preceding the date of any meeting of stockholders, or the date for the payment of any dividend, or the date for the allotment of rights, or the date when any change or conversion or exchange of capital stock shall go into effect, as a record date for the determination of stockholders entitled to notice of, and to vote at, any such meeting and any adjournment thereof, or entitled to receive payment of any such dividend, or to any such allotment of rights, or to exercise the rights in respect to any such change, conversion or exchange of capital stock, and in such case only stockholders (of the class or classes entitled to vote or participate in such dividend, allotment of rights, or change, conversion or exchange of capital stock, as the case may be), of record on the date so fixed shall be entitled to such notice of, and to vote at, such meeting and any adjournment thereof, or to receive payment of such dividend, or to receive such allotment of rights, or to exercise such rights, as the case may be, notwithstanding any transfer of stock on the books of the corporation, or the original issue of any such stock, after any such record date fixed as aforesaid. REGISTERED STOCKHOLDERS 37. The corporation shall be entitled to treat the holder of record of any share or shares of stock as the holder in fact thereof and accordingly shall not be bound to recognize any equitable or other claim to, or interest in, such share on the part of any other person, whether or not it shall have express or other notice thereof, save as expressly provided by the statutes of the State of New Jersey. 16 LOST CERTIFICATES 38. Any person claiming a certificate of a stock to be lost or destroyed shall make an affidavit or affirmation of that fact, whereupon a new certificate may be issued of the same tenor and for the same number of shares as the one alleged to be lost or destroyed; provided, however, that the Board of Directors may require, as a condition to the issuance of a new certificate, a bond of indemnity in an amount sufficient to indemnify the corporation against any claim that may be made against it on account of the alleged loss or destruction of any such certificate or the issuance of any such new certificate, and may also require the advertisement of such loss in such manner as the Board of Directors may prescribe. INSPECTION OF BOOKS 39. The Board of Directors shall have power to determine whether and to what extent, and at what time and places and under what conditions and regulations, the accounts and books of the corporation (other than the books required by statute to be open to the inspection of stockholders), or any of them, shall be open to the inspection of stockholders, and no stockholders shall have any right to inspect any account or book or document of the corporation, except as such right may be conferred by the statutes of the State of New Jersey or by resolution of the Board of Directors or of the stockholders. CHECKS, NOTES, BONDS, DEBENTURES AND OTHER INSTRUMENTS 40. All checks or demands for money (other than transfer Amended by to other bank accounts of the company or its affiliates) and Board of notes of the corporation shall be signed by such person or Directors persons (who may but need not be an officer or officers of the 7-31-63 corporation) as the Board of Directors may from time to time and designate, either directly or through such officers of the 4-23-70 corporation as shall, by resolution of the Board of Directors, be authorized to designate such person or persons. If authorized by the Board of Directors, the signatures of such persons, or any of them, upon any checks for the payment of money may be made by engraving, lithographing or printing thereon a facsimile of such signatures, in lieu of actual signatures, and such facsimile signatures shall have the same force and effect as the manual signatures of such persons. If authorized by the Board of Directors, transfers of funds between bank accounts of the company or between bank accounts of the company and bank accounts of its affiliates may be effected without signatures or in any 17 other manner deemed appropriate, and such transfers shall have the same force and effect as if executed with manual or facsimile signatures. All bonds, debentures, mortgages and other instruments requiring a seal, when authorized by the Board of Directors, shall be signed on behalf of the corporation by the President or a Vice President, and the seal of the corporation shall be thereunto affixed and attested by the signature of the Secretary or an Assistant Secretary. When a bond or debenture bears a trustee's certificate of authentication, the signatures of such officers, or of any of them, upon any such instrument may be made by engraving, lithographing or printing a facsimile thereof, in lieu of manual signatures, and such facsimile signatures so engraved, lithographed or printed thereon shall have the same force and effect as the manual signatures of such officers. Interest coupons on bonds and debentures shall be signed on behalf of the corporation by the Treasurer or an Assistant Treasurer. Such signatures may be made by engraving, lithographing or printing a facsimile thereof, and such facsimile signatures shall have the same force and effect as the manual signatures of such officers. In case any officer who has signed, or whose facsimile signature has been affixed to any instrument shall cease to be such officer before said instrument shall have been delivered by the corporation, the instrument may nevertheless be issued and delivered as though the person who signed it or whose facsimile signature has been affixed thereto, had not ceased to be such officer of the corporation. RECEIPT FOR SECURITIES 41. All receipts for stocks, bonds or other securities received by the corporation shall be signed by the Treasurer or an Assistant Treasurer, or by such other person or persons as the Board of Directors or Executive Committee shall designate. FISCAL YEAR 42. The fiscal year shall begin the first day of January in each year. DIVIDENDS 43. Dividends upon the capital stock of the corporation may be declared by the Board of Directors at any regular or 18 special meeting, out of surplus or net profits of the corporation legally available for such purpose. The Board of Directors shall have power to fix and determine, and from time to time to vary, the amount to be reserved as working capital; to determine whether any, and if any, what part of any, surplus shall be declared and paid as dividends, to determine the date or dates for the declaration or payment of dividends; and to direct and determine the use and disposition of any surplus. Before payment of any dividend or making any distribution of surplus there may be set aside out of the surplus of the corporation such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve fund to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the directors shall think conducive to the interests of the corporation. DIRECTORS' ANNUAL STATEMENT 44. As soon as practicable after the close of each fiscal year the Board of Directors shall submit to the stockholders a full and clear statement of the business and result of operations of the corporation for such previous fiscal year and of its financial condition at the end of such year. NOTICES 45. Whenever under the provisions of these By-Laws notice is required to be given to any director, officer or stockholder, it shall not be construed to require personal notice, but such notice may be given in writing, by mail, by depositing a copy of the same in a post office, letter box or mail chute maintained by the Post Office Department, in a postpaid sealed wrapper, addressed to such stockholder, officer or director at his address as the same appears on the books or records of the corporation. Such notice shall be deemed to given as of the date of such deposit as herein provided. A stockholder, director or officer may waive any notice required to be given to him under these By-Laws. INSPECTORS OF ELECTION 46. At every meeting of the stockholders for the election of directors, two inspectors shall be appointed to conduct such election. No candidate for the office of director shall act as 19 inspector at any such election. The inspectors so appointed shall, before entering upon the discharge of their duties, be sworn to faithfully execute the duties of inspector at such meeting. AMENDMENTS 47. These By-Laws may be added to, altered, amended or repealed by the stockholders at any annual or special meeting, or by the Board of Directors at any regular or special meeting; provided, however, that any By-Laws made by the Board of Directors may be altered or repealed by the stockholders. May 25, 1993 20 EX-12 5 EXHIBIT 12 Exhibit 12 Page 1 of 2 JERSEY CENTRAL POWER & LIGHT COMPANY STATEMENTS SHOWING COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS BASED ON SEC REGULATION S-K, ITEM 503 (In Thousands)
Twelve Months Ended December 31, December 31, December 31, December 31, December 31, 1989 1990 1991 1992 1993 OPERATING REVENUES $1 549 088 $1 604 962 $1 773 219 $1 774 071 $1 935 909 OPERATING EXPENSES 1 295 155 1 358 796 1 519 908 1 536 596 1 600 984 Interest portion of rentals (A) 16 374 15 925 13 085 12 414 10 944 Net expense 1 278 781 1 342 871 1 506 823 1 524 182 1 590 040 OTHER INCOME: Allowance for funds used during construction 10 345 9 300 8 683 8 071 4 756 Other income, net 23 142 24 519 20 664 21 519 6 281 Total other income 33 487 33 819 29 347 29 590 11 037 EARNINGS AVAILABLE FOR FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (excluding taxes based on income) $ 303 794 $ 295 910 $ 295 743 $ 279 479 $ 356 906 FIXED CHARGES: Interest on funded indebtedness $ 76 364 $ 78 196 $ 85 420 $ 92 942 $ 100 246 Other interest 13 935 14 945 11 540 4 873 6 530 Interest portion of rentals (A) 16 374 15 925 13 085 12 414 10 944 Total fixed charges $ 106 673 $ 109 066 $ 110 045 $ 110 229 $ 117 720 RATIO OF EARNINGS TO FIXED CHARGES 2.85 2.71 2.69 2.54 3.03 Preferred stock dividend requirement 10 875 16 313 19 440 20 604 16 810 Ratio of income before provision for income taxes to net income (B) 149.4% 147.7% 146.8% 144.2% 151.1% Preferred stock dividend requirement on a pretax basis 16 247 24 094 28 538 29 711 25 400 Fixed charges, as above 106 673 109 066 110 045 110 229 117 720 Total fixed charges and preferred stock dividends $ 122 920 $ 133 160 $ 138 583 $ 139 940 $ 143 120 RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS 2.47 2.22 2.13 2.00 2.49 Exhibit 12 Page 2 of 2 JERSEY CENTRAL POWER & LIGHT COMPANY STATEMENTS SHOWING COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS BASED ON SEC REGULATION S-K, ITEM 503 (In Thousands) NOTES: (A) The Company has included the equivalent of the interest portion of all rentals charged to income as fixed charges for this statement and has excluded such components from Operating Expenses. (B) Represents income before provision for income taxes of $239,187, $169,250, $185,698, $186,844 and $197,121 for the years 1993 through 1989, respectively, divided by income before cumulative effect of accounting change of $158,344, $117,361, $126,460, $126,532 and $131,902, respectively.
EX-23 6 EXHIBIT 23 Exhibit 23 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of Jersey Central Power & Light Company on Forms S-3 (File No. 33-49463 and File No. 33-47499) of our report dated February 2, 1994, on our audits of the financial statements and financial statement schedules of Jersey Central Power & Light Company as of December 31, 1993 and 1992, and for each of the three years in the period ended December 31, 1993, which report is included in this Annual Report on Form 10-K for the year ended December 31, 1993. Our report on the audits of the financial statements and financial statement schedules of Jersey Central Power & Light Company as of December 31, 1993 and 1992, and for each of the three years in the period ended December 31, 1993, contains explanatory paragraphs related to a contingency which has resulted from the accident at Unit 2 of the Three Mile Island Nuclear Generating Station, the adoption of the provisions of Financial Accounting Standards Board's Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes", and SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" in 1993, and the change in the method of accounting for unbilled revenues in 1991. COOPERS & LYBRAND Parsippany, New Jersey March 10, 1994 -----END PRIVACY-ENHANCED MESSAGE-----