ITEM 1. BUSINESS.
GPU, Inc., a Pennsylvania corporation, is a holding company registered under the Public Utility Holding Company Act of 1935 (1935 Act). GPU, Inc. does not directly operate any utility properties, but owns all the outstanding common stock of three domestic electric utilities serving customers in New Jersey -- Jersey Central Power & Light Company (JCP&L) -- and Pennsylvania -- Metropolitan Edison Company (Met-Ed) and Pennsylvania Electric Company (Penelec). The customer service function, transmission and distribution operations and the operations of the remaining non-nuclear generating facilities of these electric utilities are conducting business under the name GPU Energy. JCP&L, Met-Ed and Penelec considered together are referred to as the "GPU Energy companies." The nuclear generation operations of GPU Energy are conducted by GPU Nuclear, Inc. (GPUN). GPU Capital, Inc. and GPU Electric, Inc. and their subsidiaries own, operate and fund the acquisition of electric and gas transmission and distribution systems in foreign countries, and are referred to as "GPU Electric." GPU International, Inc. and GPU Power, Inc. and their subsidiaries develop, own and operate generation facilities in the United States and foreign countries and are referred to as the "GPUI Group." Other subsidiaries of GPU, Inc. include: GPU Advanced Resources, Inc. (GPU AR), which is involved in retail energy sales; GPU Telcom Services, Inc. (GPU Telcom), which is engaged in telecommunications-related businesses; and GPU Service, Inc. (GPUS), which provides legal, accounting, financial and other services to the GPU companies. All of these companies considered together are referred to as "GPU."
GPU is subject to regulation by the Securities and Exchange Commission (SEC) under the 1935 Act. The GPU Energy companies' retail rates, conditions of service, and issuance of securities are subject to regulation in the state in which each utility operates - in New Jersey by the New Jersey Board of Public Utilities (NJBPU) and in Pennsylvania by the Pennsylvania Public Utility Commission (PaPUC). The Nuclear Regulatory Commission (NRC) regulates the ownership and operation of nuclear generating stations. The GPU Energy companies are also subject to wholesale rate and other regulation by the Federal Energy Regulatory Commission (FERC) under the Federal Power Act. In addition, certain foreign subsidiaries and affiliates are subject to rate and other regulation (see REGULATION section).
Financial information with respect to the business segments of GPU is provided in Note 13, Segment Information, of the Combined Notes to the Consolidated Financial Statements.
This Form 10-K contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements made that are not historical facts are forward-looking and, accordingly, involve estimates, forecasts, assumptions, risks and uncertainties that could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements. Although such forward-looking statements have been based on reasonable assumptions, there is no assurance that the expected results will be achieved.
Some of the factors that could cause actual results to differ materially include, but are not limited to: the effects of regulatory decisions; changes in law and other governmental actions and initiatives; the impact of
deregulation and increased competition in the industry; industry restructuring; expected outcomes of legal proceedings; the completion of generation asset divestiture; energy prices and availability; and uncertainties involved with foreign operations including political risks and foreign currency fluctuations.
SIGNIFICANT DEVELOPMENTS ------------------------
Business Outlook - ----------------
In 1999, GPU began implementing its strategy for building shareholder value by focusing on its core business: energy infrastructure service. Part of GPU's strategy has been to divest all of its generation assets. GPU has decided to limit its exposure to fluctuating power prices, because it believes that, in a deregulated environment, only very large generators with the resources to absorb market risk could be successful in this arena. It was GPU's judgment that it did not have sufficient size or resources to compete successfully as a major energy supplier.
In March 1999, Penelec sold its 50% interest in the Homer City Station (Homer City) to a subsidiary of Edison Mission Energy for approximately $900 million. This was followed by the sale of Penelec's 20% undivided ownership interest in the Seneca Pumped Storage Facility to Cleveland Electric Illuminating Company in July 1999 for $43 million, and finally, in November 1999, the sale of substantially all of the GPU Energy companies' remaining fossil and hydroelectric generating assets to Sithe Energies (Sithe) for approximately $1.6 billion. (In February 2000, Penelec agreed to sell its Deep Creek Lake property to the State of Maryland for $17.6 million.)
Then, in December 1999, the GPU Energy companies completed the sale of the Three Mile Island Unit 1 (TMI-1) nuclear generating station to AmerGen Energy Company, LLC (AmerGen), a joint venture of PECO Energy and British Energy, for a total purchase price of approximately $100 million. AmerGen has also agreed to purchase JCP&L's Oyster Creek nuclear generating station (Oyster Creek), for approximately $10 million.
With generation no longer a significant part of GPU's business, GPU will now be able to focus more closely on its lower risk asset base by strengthening the transmission and distribution core of its business. These assets, which remain subject to regulation, are dependable sources of cash flow that GPU will use to reduce outstanding debt, repurchase its common stock and pay common dividends. To this end, in January 1999, the GPU, Inc. Board of Directors authorized the repurchase of up to $350 million of common stock. Through December 1999, 6.4 million shares of common stock, or approximately 5% of the outstanding shares, have been repurchased since the start of the program at an average price of $35.25 per share. GPU recognizes that the key to its future success is the ability to effectively grow its infrastructure business. GPU also sees the potential to expand its infrastructure business in other areas, including telecommunications facilities and other energy service businesses.
In addition to divesting its generation assets, GPU plans to raise at least $500 million in cash by reducing its ownership in non-core and underperforming assets. Since the mid 1990s, GPU has been acquiring regulated businesses abroad. GPU's electric and gas transmission businesses serve 4.6 million customers worldwide; GPU Energy in the United States, Midlands Electricity plc (Midlands) in the United Kingdom (UK), Emdersa in Argentina and GPU PowerNet and GPU GasNet in Australia. In July 1999, GPU purchased from Cinergy Corp. the 50% interest in Midlands which it did not already own.
In December 1999, GPU announced it would seek to sell its Australian subsidiaries - GPU PowerNet, an electric transmission network, acquired in October 1997 and GPU GasNet, a gas transmission pipeline, acquired in June 1999. GPU Electric paid approximately $1.9 billion and $675 million for the businesses, respectively.
The proposed Australian asset sale represents GPU's determination to effectively redeploy its capital. GPU is committed to the sale of under-performing assets in order to retire debt, repurchase common stock (through the $350 million share repurchase program) and invest in higher growth initiatives.
GPU's goal is to achieve a 5% annual growth in earnings per share and is looking to invest in non-regulated growth areas that fit within its utility services focus.
In December 1999, GPU, Inc. agreed to acquire MYR Group Inc. (MYR). MYR, an infrastructure service company based near Chicago, is the fifth largest specialty contractor in the United States. It builds and maintains power lines for electric utilities, telecommunications companies and industrial and commercial facilities. MYR also builds cellular towers for the wireless communications market. GPU, Inc. has agreed to purchase MYR for approximately $215 million, or $30.10 per MYR share, subject to the receipt of regulatory approval, and expects MYR to act as a platform for future growth in the non-regulated construction services area. Other non-regulated activities GPU has targeted include telecommunications and related utility infrastructure services.
GPU is also seeking to improve customer service in domestic markets. In 1999, customer service showed a major opportunity for improvement following the widespread power outages that occurred during the summer's heat storm. In response, GPU Energy has, among other things, committed another $40-50 million to improve the reliability of its service.
GPU has also initiated a program of planned cost reductions of $100 million ($55 million in 2000 and $45 million in 2001). The GPU Energy companies are targeting reductions of $30 million in 2000 and an additional $40 million in 2001. In addition, Midlands plans to make cost reductions of $25 million in 2000 and $5 million in 2001.
Competitive Business Risks - --------------------------
Currently, and increasingly in the future, the GPU Energy companies expect they will be serving customers in markets where there will be capped rates for varying periods and their ability to seek rate increases will be more limited. In addition, inflation could adversely affect the GPU Energy
companies since these increased costs may not be recoverable under existing rate caps. Although the GPU Energy companies have essentially exited the generation business, they will continue to have the obligation to supply energy to customers who do not choose an alternate supplier. This energy supply will largely come from contracted and open market purchases. While management has implemented an energy risk management program to address the market risks associated with these purchases, there can be no assurance that the GPU Energy companies will be able to supply electricity to customers at costs which they will be able to recover.
GPU, Inc. has made significant investments in foreign businesses and facilities through GPU Electric and the GPUI Group. At December 31, 1999, GPU's investment in GPU Electric and the GPUI Group was $1.06 billion and $232 million, respectively. As of that date, GPU, Inc. had also guaranteed up to an additional $1.04 billion and $30 million (including $9 million of guarantees related to domestic operations) of GPU Electric and GPUI Group outstanding obligations, respectively. Although management attempts to mitigate the risks of investing in certain foreign countries by, among other things, securing political risk insurance, GPU faces additional risks inherent to operating in such locations, including foreign currency fluctuations. GPU uses derivative instruments primarily to manage the risk of interest rate, foreign currency and commodity price fluctuations. GPU does not intend to hold or issue derivative instruments for trading purposes.
Restructuring Actions - ---------------------
In May 1999, the NJBPU issued a Summary Order with respect to JCP&L's rate unbundling, stranded cost and restructuring filings. The Summary Order provides for, among other things, customer choice of electric generation supplier beginning August 1, 1999 and full recovery of stranded costs. New Jersey utilities began accepting customer selection of suppliers in October 1999. By year-end, approximately 2.5% of the GPU Energy companies' New Jersey non-residential customers and less than 1% of their residential customers had selected an alternate supplier.
In 1996, Pennsylvania adopted the Customer Choice Act, which provided for the restructuring of the electric utility industry. In 1998, the PaPUC issued Restructuring Orders to Met-Ed and Penelec which, among other things, provide for recovery of a substantial portion of what otherwise would have become stranded costs, subject to the results of the generation divestitures. The Restructuring Orders also gave all Pennsylvania customers the ability to choose their electric generation supplier beginning January 1, 1999. By year-end, approximately 18% (approximately 70% of the energy delivered) of the GPU Energy companies' Pennsylvania non-residential customers and 5% of their residential customers had selected an alternate supplier.
Domestic Energy Supply - ----------------------
As a result of the NJBPU and the PaPUC's restructuring decisions, the GPU Energy companies are required to supply electricity to customers who do not choose an alternate supplier. Given that the GPU Energy companies have largely divested their generation business, there will be increased market risks associated with supplying that electricity, since the GPU Energy companies will have to supply energy to non-shopping customers entirely from
contracted and open market purchases. While JCP&L is permitted to recover reasonably and prudently incurred costs associated with providing basic generation service to non-shopping customers, Met-Ed and Penelec are generally unable to recover their energy costs in excess of established rate caps. While management has implemented an energy risk management program, there can be no assurance that the GPU Energy companies will be able to fully recover the costs to supply electricity to customers who do not choose an alternate supplier.
Currently, the GPU Energy companies have 285 megawatts (MW) of generating capacity remaining to meet customer needs. They also have contracts with nonutility generators totaling 1,606 MW and JCP&L has agreements with other utilities to provide for up to 584 MW of capacity and related energy. The GPU Energy companies have agreed to purchase all of the capacity and energy from TMI-1 through December 31, 2001 and from Oyster Creek (following its sale) through March 31, 2003. In addition, the GPU Energy companies have the right to call on the capacity of the Homer City Station (up to 942 MW) through May 31, 2001 and up to 4,117 MW of capacity from the generating stations sold to Sithe through May 31, 2002 to satisfy the GPU Energy companies' installed capacity obligations. The GPU Energy companies' remaining capacity and energy needs will be met by short- to intermediate-term commitments (one month to three years) during times of expected high energy price volatility and reliance on spot market purchases during other periods.
As noted above, Met-Ed and Penelec's customers have been permitted to choose their generation supplier since January 1, 1999. The PaPUC has approved a competitive bid process to assign provider of last resort (PLR) service for 20% of Met-Ed and Penelec's retail customers on June 1, 2000, 40% on June 1, 2001, 60% on June 1, 2002 and 80% on June 1, 2003, to licensed generation suppliers. This alternative supply service is referred to as Competitive Default Service (CDS). In 1999, Met-Ed and Penelec issued requests for bids to provide PLR service for 20% of their customers, beginning in June 2000, as required by the PaPUC. In February 2000, Met-Ed and Penelec announced that no bids were received in response to their offer and, as a result, they would be increasing their forward purchasing of electric power to accommodate the 20% of customers for whom they will continue to be the default supplier. Met-Ed and Penelec are developing a proposal for a comprehensive solution for default energy supply service in Pennsylvania, which they plan to submit to the PaPUC.
JCP&L is required to provide basic generation service (BGS) to retail customers who choose to remain with JCP&L as generation customers until July 31, 2002. Thereafter, BGS service will be bid out at the pre-established BGS rates. Any payment received or required by JCP&L resulting from the bidding process will be deferred for future refund or recovery. The specific details of the BGS bidding process will be the subject of a future NJBPU proceeding.
INDUSTRY DEVELOPMENTS ---------------------
Electric utility customers have traditionally been served by vertically integrated regulated monopolies. The electric utility industry is moving away from a traditional rate regulated environment based on cost recovery to some combination of a competitive marketplace and modified regulation. The enactment of the Public Utility Regulatory Policies Act of 1978 (PURPA) facilitated the entry of competitors into the electric generation business.
The Energy Policy Act of 1992 (EPAct) furthered competition among utilities and non-utility generators (NUGs) in the wholesale electric generation market, accelerating industry restructuring. The FERC has required utilities to provide open access and comparable transmission service to third parties. Pennsylvania and New Jersey have adopted comprehensive legislation providing for the restructuring of the electric utility industry, and implementing orders have been issued by the PaPUC and the NJBPU.
GPU has been active both on the federal and state levels in helping to shape electric industry restructuring while seeking to protect the interests of its shareholders and customers, and is attempting to assess the impact that these industry changes will have on its financial condition and results of operations.
THE GPU ENERGY COMPANIES ------------------------
The electric generation and transmission facilities of the GPU Energy companies are physically interconnected and are operated as a single integrated and coordinated system serving a population of approximately five million in New Jersey and Pennsylvania. For the year 1999, the GPU Energy companies' revenues were about equally divided between Pennsylvania customers and New Jersey customers. During 1999, sales to customers by customer class were as follows:
% Operating Revenues % KWH Sales ---------------------------- -------------------------- Total JCP&L Met-Ed Penelec Total JCP&L Met-Ed Penelec ----- ----- ------ ------- ----- ----- ------ -------
Residential 47 46 55 46 36 42 36 28 Commercial 36 40 29 32 35 40 29 32 Industrial 15 13 15 18 27 17 34 36 Other* 2 1 1 4 2 1 1 4 --- --- --- --- --- --- --- --- 100 100 100 100 100 100 100 100 === === === === === === === ===
* Rural electric cooperatives, municipalities, street and highway lighting, and others.
The GPU Energy companies also make interchange and spot market sales of electricity to other utilities. Revenues of JCP&L, Met-Ed and Penelec derived from their largest single customers accounted for less than 1.5%, 1% and 1%, respectively, of their electric operating revenues for the year and their 25 largest customers, in the aggregate, accounted for approximately 8%, 5% and 8%, respectively, of such revenues.
The area served by the GPU Energy companies extends from the Atlantic Ocean to Lake Erie, is generally comprised of small communities, rural and suburban areas and includes a wide diversity of industrial enterprises, as well as substantial farming areas. JCP&L provides retail service in northern, western and east central New Jersey, having an estimated population of approximately 2.6 million. Met-Ed provides retail electric service in all or portions of 14 counties, in the eastern and south central parts of Pennsylvania, having an estimated population of almost one million. Met-Ed also sells electricity at wholesale to four municipalities having an estimated population of over 11,400. Penelec provides retail and wholesale electric service within a territory located in western, northern and south central Pennsylvania extending from the Maryland state line northerly to the New York state line, with a population of about 1.2 million, approximately 28% of which
is concentrated in 23 cities and boroughs, all with populations over 5,000. Penelec also provides wholesale service to six municipalities in Pennsylvania, five municipalities in New Jersey, and the Allegheny Electric Cooperative, Inc., which serves 13 rural electric cooperatives in Pennsylvania and one in New Jersey. Penelec, as lessee of the property of the Waverly Electric Light & Power Company, also serves a population of about 13,400 in Waverly, New York and vicinity.
The GPU Energy companies' transmission facilities are physically interconnected with neighboring nonaffiliated utilities in Pennsylvania, New Jersey, Maryland, New York and Ohio. The interconnection facilities are used for substantial capacity and energy interchange and purchased power transactions, as well as emergency assistance. The GPU Energy companies are members of the PJM Power Pool and the Mid-Atlantic Area Council, an organization providing coordinated review of the planning by utilities in the PJM area. The PJM Power Pool is a limited liability company governed by an independent board of managers recognized by the FERC as an Independent System Operator. Also in 1997, the FERC directed the GPU Energy companies to implement a single-system transmission rate, effective April 1, 1998. The implementation of a single-system rate has not affected total transmission revenues; however, it has increased the pricing for transmission service in Met-Ed and Penelec's service territories and reduced the pricing for transmission service in JCP&L's service territory.
The GPU Energy companies have requested the FERC to reconsider its ruling requiring a single-system transmission rate. The Restructuring Orders for Met-Ed and Penelec provide for a transmission and distribution rate cap exception to recover the increase in the transmission rate from Met-Ed and Penelec's retail customers in the event the FERC denies the request for reconsideration of the single-system transmission rate. The FERC's ruling may also have the effect of reducing JCP&L's transmission rates. There can be no assurance as to the outcome of this matter.
Investments in FUCOS and EWGS -----------------------------
GPU, Inc. has SEC authorization to finance investments in foreign utility companies (FUCOs) and exempt wholesale generators (EWGs) up to an aggregate amount equal to 100% of GPU's average consolidated retained earnings, approximately $2.4 billion as of December 31, 1999. At December 31, 1999, GPU, Inc. has remaining authorization to finance approximately $245 million of additional investments in FUCOs and EWGs. GPU, Inc.'s investments in FUCOs and EWGs are made through GPU Electric and the GPUI Group.
GPU Electric ------------
GPU Electric owns electric and gas transmission and distribution businesses in England, Australia and Argentina. Through its ownership in Midlands, GPU Electric also has ownership interests in operating generating facilities located in foreign countries totaling 4,244 MW (of which GPU Electric's equity interest represents 1,163 MW) of capacity. At December 31, 1999, GPU, Inc.'s aggregate investment in GPU Electric was $1.06 billion. GPU, Inc. has also guaranteed up to an additional $1.04 billion of outstanding GPU Electric obligations.
Midlands operated an electricity supply business within and outside its regulated area until June 1999 when Midlands' then owners, GPU and Cinergy Corp. sold the business, including obligations under Midlands' power purchase agreements, for $300 million ($150 million for GPU's share) plus an adjustment for working capital.
Midlands will continue to own and operate its network of power cables and substations.
Midlands' primary business is the distribution of electricity across its authorized area, which has an estimated population of approximately 5 million residents and includes the area of Birmingham, parts of Staffordshire and the rural areas of Gloucestershire, Shropshire and Hereford and Worcester. Although historically industrial, the area's economy is less dominated by heavy manufacturing and has seen increased growth in the commercial sector. Midlands provides service connections to customers as well as for street lighting, traffic lights and other installations from its main networks.
Midlands is also engaged in non-regulated activities, including electricity generation, electrical contracting, metering services and related businesses.
Through its subsidiary Midlands Power International Limited (MPI), Midlands has ownership interests in several generating stations, including a 40% equity interest in the Uch Power Project in Pakistan. As with many other independent power projects in Pakistan, the Uch Power Project has experienced difficulties and delays; however, the plant is currently anticipated to begin commercial operation in 2000. At this time, MPI does not intend to invest in any new generation projects.
GPU GasNet owns and maintains the high pressure gas transmission pipeline network, which serves a total consumption base of approximately 1.3 million residential customers and approximately 40,000 industrial and commercial users throughout Victoria. GPU GasNet's primary responsibility is to transport gas from the Longford gas treatment plant in South East Victoria and from gas fields in the Southwest to the major load centers in Victoria.
The transmission assets consist of two networks - the Principal System and the smaller Western System which are connected by the Southwest pipeline. GPU GasNet's major assets are steel and other pipelines, compressors, regulating and injector stations, transfer meters and a liquefied natural gas storage facility. GPU GasNet has recently completed a number of strategic construction projects to expand and augment its system, improve security of supply and take advantage of expected growth in gas consumption, including completion of a major interconnection between the Victorian and New South Wales transmission systems.
GPU GasNet's business consists of three distinct segments: Gas Transmission, which is regulated by tariff and represents approximately 84% of total revenues; Excluded Services, such as custody transfer metering and LNG services which are regulated but not subject to formula-based price controls and which represent about 15% of total revenues; and Competitive Services, such as engineering and construction services, which are unregulated but account for less than 1% of total revenues.
GPU PowerNet owns and maintains the high voltage electricity transmission system in Victoria covering an area of approximately 87,900 square miles and a population of approximately 4.5 million. Its assets are comprised of overhead transmission lines (ranging from 66KV to 500KV), underground cable, galvanized steel towers and switchyards, terminal and transformer stations.
The primary function of GPU PowerNet is to transport electricity from power stations to the major load centers in greater Melbourne as well as to the neighboring state of New South Wales, and to large industrial users. VNSC provides monitoring, remote control and operational coordination of the transmission network.
Under the current Victorian regulatory regime, GPU PowerNet's operations fall into three separate business segments: Prescribed Services, which are subject to regulation under GPU PowerNet's tariff order; Excluded Services, which are new transmission services not subject to revenue regulation, but which, by law, must be provided on a "fair and reasonable" basis; and Other Services, which represent all other business operations such as telecommunication, asset management and technical services, and are not subject to revenue regulation. Prescribed Services currently make up in excess of 95% of GPU PowerNet's total revenues. This percentage is expected to decline over time, however, with the growth in non-regulated business activities.
GPU Electric acquired Emdersa, an Argentine holding company in March 1999. Emdersa's principal business operations consist of the distribution of electricity through its three operating companies, Edesa, Edelar and Edesal. These companies service approximately 335,000 customers in a 124,300 square mile area in the three north western provinces of San Luis, La Rioja and Salta. The customer base includes residential, commercial, industrial, public lighting and irrigation customers.
Emdersa acquires electricity primarily from the Wholesale Electricity Market. Each of Emdersa's three operating companies distributes electricity to end users and operates on the basis of exclusive contracts to distribute electricity, which have been granted by the respective provincial governments. The operating companies' rates are embodied in and subject to specific tariff structures which are in effect for five years and expire as follows: La Rioja in June 2000; Salta in August 2001; and Edesal in March 2003.
GPUI GROUP ----------
The GPUI Group has ownership interests in six operating cogeneration plants in the U.S. totaling 1,014 MW (of which the GPUI Group's equity interest represents 496 MW) of capacity, and four operating generating facilities located in foreign countries totaling 1,229 MW (of which the GPUI Group's equity interest represents 424 MW) of capacity. At December 31, 1999, GPU, Inc.'s aggregate investment in the GPUI Group was $232 million. GPU, Inc. has also guaranteed up to an additional $29.9 million of outstanding GPUI Group obligations.
In June 1998, Onondaga Cogeneration L.P. (Onondaga), a GPU International subsidiary, and Niagara Mohawk Power Corporation (NIMO) renegotiated their existing power purchase agreement and entered into a 10-year power put indexed swap agreement.
The power put agreement gives Onondaga the right, but not the obligation, to sell energy and capacity to NIMO at a proxy market price up to the specified contract quantity.
Under the indexed swap agreement, Onondaga pays NIMO the market price of energy and capacity and NIMO pays Onondaga a contract price which is fixed for the first two years and then adjusted monthly, according to an indexing formula, for the remaining term. At December 31, 1999 and 1998, the unamortized balance of the swap contract was valued at $55.1 million and $62.4 million, respectively, and was included in Other - Deferred Debits and Other assets on the Consolidated Balance Sheets. This valuation was derived using the discounted estimated cash flows related to payments expected to be received by Onondaga. A corresponding amount was recorded in deferred revenue and will be recognized to income over a period not to exceed 10 years.
Concurrent with the establishment of a competitive market for electricity in New York (Power Exchange) and meeting specific trading volume criteria, certain rights between Onondaga and NIMO expire under the power put agreement. As a result, in 2000, GPU International expects to recognize in income all proceeds from the renegotiated agreements, including the unamortized balance of the deferred revenue from the indexed swap agreement, which will be largely offset by an impairment of the Onondaga facility and a provision for out-of-market gas transportation costs.
CAPITAL PROGRAMS ----------------
GPU Energy Companies - --------------------
The GPU Energy companies' capital spending in 1999 was $291 million (JCP&L $141 million; Met-Ed $66 million; Penelec $78 million; Other $6 million), and was used primarily to expand and improve existing transmission and distribution (T&D) facilities, for new customer connections and to implement an integrated information system. In 2000, capital expenditures are estimated to be $349 million (JCP&L $178 million; Met-Ed $57 million; Penelec $82 million; Other $32 million), primarily for ongoing T&D system development.
GPU Electric - ------------
GPU Electric's capital spending in 1999 was $129 million and was used primarily for improvements to GPU PowerNet, Emdersa and Midlands' facilities. Infrastructure-related capital expenditures are forecasted to be $213 million in 2000.
GPUI Group - ----------
The GPUI Group's capital spending was $32 million in 1999 and was used primarily for construction by one of the GPUI Group's South American subsidiaries. Capital expenditures are forecasted to be $6 million in 2000.
FINANCING ARRANGEMENTS ----------------------
GPU, Inc. - ---------
In January 1999, the GPU, Inc. Board of Directors authorized the repurchase of up to $350 million of GPU, Inc. common stock. Through December 31, 1999, GPU, Inc. has repurchased 6.4 million shares of common stock at an average price of $35.25 per share.
GPU has various credit facilities in place, the most significant of which are discussed below. These credit facilities generally provide GPU bank loans at negotiable market rates.
GPU, Inc. and the GPU Energy companies have available $450 million of short-term borrowing facilities, which include a $250 million revolving credit agreement and various bank lines of credit. In addition, GPU, Inc., JCP&L, Met-Ed and Penelec can issue commercial paper in amounts of up to $100 million, $150 million, $75 million and $100 million, respectively. From these sources, GPU, Inc. has regulatory authority to have $250 million outstanding at any one time. JCP&L, Met-Ed and Penelec are limited by their charters or SEC authorization to $265 million, $150 million and $150 million, respectively, of short-term debt outstanding at any one time.
GPU, Inc. has SEC approval to issue and sell up to $300 million of unsecured debentures through 2001, the proceeds from which could be utilized to repay short-term debt or to finance additional investments. Further significant investments by GPU Electric and/or the GPUI Group, or otherwise, may require GPU, Inc. to issue additional debt and/or common stock.
GPU Energy Companies - --------------------
Met-Ed and Penelec have regulatory approval to issue through December 31, 2000 senior notes and preferred securities in aggregate amounts of $150 million and $275 million, respectively, of which up to $25 million for each company may consist of preferred securities. JCP&L has regulatory approval to issue through December 31, 2000, senior notes in the aggregate amount of $300 million. Met-Ed and JCP&L will be issuing secured senior notes (collateralized by first mortgage bonds (FMBs) issued to the senior note trustee) until such time as more than 80% of the outstanding FMBs are held by the senior note trustee. At that time, the FMBs will be cancelled and the outstanding senior notes will become unsecured obligations. Penelec's senior notes are unsecured.
Current plans call for the GPU Energy companies to issue senior notes during the next three years to fund the redemption of maturing senior securities, refinance outstanding senior securities and finance construction activities. Following the initial issuance of senior notes, the GPU Energy companies would not issue any additional FMBs other than as collateral for the senior notes. The senior note indentures prohibit (subject to certain exceptions) the GPU Energy companies from issuing any debt, which is senior to the senior notes.
In August 1999, JCP&L filed a petition with the NJBPU requesting authorization to issue transition bonds to securitize the recovery of bondable stranded costs attributable to the projected net investment in Oyster Creek at
September 1, 2000. The petition also requests that the NJBPU Order provide for the imposition and collection of a usage-based non-bypassable transition bond charge (TBC) and for the transfer of the bondable transition property relating to the TBC to another entity. JCP&L has amended its petition to include requests to securitize the up-front decommissioning and outage payments it has agreed to make under the Oyster Creek sale agreement.
The GPU Energy companies' bond indentures include provisions that limit the amount of FMBs the companies may issue. The GPU Energy companies' interest coverage ratios are currently in excess of indenture restrictions. JCP&L's certificate of incorporation includes provisions that limit the amount of preferred stock it may issue. JCP&L's preferred dividend coverage ratio is currently in compliance with the charter restrictions.
In 1999, Met-Ed and Penelec redeemed all of their outstanding shares of cumulative preferred stock for $12.5 million and $17.4 million, respectively. Also in 1999, Met-Ed and Penelec redeemed all of their outstanding shares of Subsidiary-obligated mandatorily redeemable preferred securities for $100 million and $105 million, respectively.
In 1999, JCP&L redeemed $30 million stated value of cumulative preferred stock pursuant to mandatory and optional sinking fund provisions.
In 1999, Penelec redeemed $600 million of FMBs with proceeds from the sale of its interest in Homer City and issued $350 million of unsecured senior notes, the proceeds from which were used to redeem or repurchase other outstanding securities, reduce short-term borrowings, fund its construction program and for other corporate purposes.
In 1999, Met-Ed and Penelec each issued $100 million of trust preferred securities, at 7.35% and 7.34%, respectively.
The GPU Energy companies' cost of capital and ability to obtain external financing are affected by their security ratings, which are periodically reviewed by the credit rating agencies. The GPU Energy companies' FMBs are currently rated at an equivalent of "A" or higher by the major credit rating agencies, while the preferred stock, mandatorily redeemable preferred securities and trust preferred securities have been assigned an equivalent of "BBB+" or higher. In addition, the GPU Energy companies' commercial paper is rated as having high credit quality.
At December 31, 1999, Met-Ed and Penelec had retained earnings available to pay common stock dividends of $10 million and $49 million, respectively, net of amounts restricted under the companies' respective FMB indentures. In addition, Met-Ed and Penelec had capital surplus of $400 million and $285 million, respectively, which would also be available to pay common dividends, to the extent authorized by the SEC and as may be permitted under their respective FMB indentures. Met-Ed and Penelec have requested SEC approval to utilize amounts now accounted for as capital surplus to declare and pay common dividends, from time to time through December 31, 2001, so long as their common equity ratios and GPU, Inc.'s common equity ratio are not less than 30% of total capitalization. At December 31, 1999, the common equity ratios of Met-Ed, Penelec and GPU, Inc. were 43.7%, 44.4% and 30.2%, respectively.
Payments for maturing long-term debt were $83 million (JCP&L $3 million; Met-Ed $30 million; Penelec $50 million) in 1999, and are expected to total $101 million (JCP&L $51 million; Met-Ed $50 million) in 2000 and $51 million for JCP&L in 2001. Management estimates that a substantial portion of the GPU Energy companies' 2000 capital outlays will be satisfied through internally generated funds.
Met-Ed Capital Trust and Penelec Capital Trust - ----------------------------------------------
Met-Ed Capital Trust (Met-Ed Trust) was created in May 1999 as a statutory business trust under the laws of the State of Delaware solely for the purpose of issuing trust preferred securities (Trust Preferred Securities) each representing a 7.35% Cumulative Preferred Security (Met-Ed Partnership Preferred Securities) of Met-Ed Capital II, L.P. Met-Ed Capital II, L.P. is the sponsor of Met-Ed Trust. As of December 31, 1999, the assets of Met-Ed Trust consisted solely of 4 million outstanding shares of Met-Ed Partnership Preferred Securities with an aggregate stated liquidation amount of $100 million. Distributions were made on the Trust Preferred Securities during 1999 in the aggregate amount of $3,736,250. Expenses of Met-Ed Trust for 1999 were approximately $15,000, all of which were paid by Met-Ed Preferred Capital II, Inc., the general partner of Met-Ed Capital II, L.P. The Trust Preferred Securities are issued in book-entry form only.
Penelec Capital Trust (Penelec Trust) was created in June 1999 as a statutory business trust under the laws of the State of Delaware solely for the purpose of issuing Trust Preferred Securities each representing a 7.34% Cumulative Preferred Security (Penelec Partnership Preferred Securities) of Penelec Capital II, L.P. Penelec Capital II, L.P. is the sponsor of Penelec Trust. As of December 31, 1999, the assets of Penelec Trust consisted solely of 4 million outstanding shares of Penelec Partnership Preferred Securities with an aggregate stated liquidation amount of $100 million. Distributions were made on the Trust Preferred Securities during 1999 in the aggregate amount of $3,364,167. Expenses of Penelec Trust for 1999 were approximately $15,000, all of which were paid by Penelec Preferred Capital II, Inc., the general partner of Penelec Capital II, L.P. The Trust Preferred Securities are issued in book-entry form only.
GPU Electric - ------------
GPU Capital has a $1 billion 364-day senior revolving credit agreement due in December 2000 supporting the issuance of commercial paper for its $1 billion commercial paper program established to fund GPU Electric acquisitions. GPU, Inc. has guaranteed GPU Capital's obligations under this program. At December 31, 1999, $768 million was outstanding under the commercial paper program, of which $370 million is included in long-term debt on the Consolidated Balance Sheets since it is management's intent to reissue this amount of the commercial paper on a long-term basis.
In 1999, GPU Capital sold $373 million of commercial paper to refinance all its outstanding borrowings related to the 1996 acquisition of a 50% interest in Midlands. In addition, in 1999, GPU Capital sold $50 million of commercial paper to partially fund the acquisition of Cinergy's 50% ownership of Midlands. The Emdersa and GPU GasNet acquisitions, in 1999, were also partially funded by commercial paper sales of $323 million and $180 million, respectively.
Also in 1999, GPU Capital borrowed A$750 million (approximately US $495 million) under a senior credit facility to fund the acquisition of GPU GasNet and (pound)245 million (approximately US $382 million) under a term loan to fund its acquisition of the remaining 50% interest in Midlands.
GPU Australia Holdings, Inc. has $270 million available under its senior revolving credit facility which expires in November 2002. This facility, in combination with other GPU, Inc. credit facilities, serves as credit support for GPU Australia Holdings' $350 million commercial paper program. GPU, Inc. has guaranteed GPU Australia Holdings' obligations under this program. GPU Australia Holdings has $182 million outstanding under its commercial paper program as of December 31, 1999. In 1999, GPU Australia Holdings refinanced $350 million of outstanding long-term debt associated with the GPU PowerNet acquisition.
Austran Holdings, Inc. (Austran), a wholly-owned indirect subsidiary of GPU Electric, has a A$500 million (approximately US $328 million) commercial paper program to refinance the maturing portion of the senior debt credit facility used to finance the GPU PowerNet acquisition. GPU PowerNet has guaranteed Austran's obligations under this program. As of December 31, 1999, Austran had outstanding approximately A$420 million (approximately US $275 million) under this program.
In 1999, Austran refinanced A$220 million (approximately US $142 million) of GPU PowerNet acquisition debt with proceeds from an Australian Dollar medium term note issuance. In connection with this debt refinancing program, a loss of A$20.3 million (approximately US $13.3 million) related to certain interest rate swap positions was reflected in GPU's 1999 earnings. In addition, Austran issued A$50 million (approximately US $32 million) of variable rate and A$120 million (approximately US $77 million) of fixed rate medium term notes, proceeds of which were used to refinance acquisition debt.
Midlands maintains a (pound)200 million (approximately US $323 million) syndicated revolving credit facility with a bank for working capital purposes, which matures May 2001. At December 31, 1999, (pound)87 million (approximately US $140 million) was outstanding under this facility.
Payments for maturing long-term debt were $453 million in 1999, and are expected to total $475 million in 2000 and $1 billion in 2001. Capital outlays for 2000 will be satisfied through both internally generated funds and external financings.
GPUI Group - ----------
GPU International has a revolving credit agreement providing for borrowings through December 2000 of up to $30 million outstanding at any one time, of which up to $15 million may be utilized to provide letters of credit. GPU, Inc. has guaranteed GPU International's obligations under this agreement. At December 31, 1999, no borrowings or letters of credit were outstanding under this facility.
Payments for maturing long-term debt were $28 million in 1999, and are expected to total $5 million in 2000 and $7 million in 2001. Capital outlays for 2000 will be satisfied by means of internally generated funds and external financings.
LIMITATIONS ON ISSUING ADDITIONAL SECURITIES --------------------------------------------
The GPU Energy companies' FMB indentures and/or charters contain provisions which limit the total amount of securities evidencing secured indebtedness and/or unsecured indebtedness which the GPU Energy companies may issue, the more restrictive of which are discussed below.
The GPU Energy companies' FMB indentures require that, for a period of any twelve consecutive months out of the fifteen calendar months immediately preceding the issuance of additional FMBs, net earnings (before income taxes, with other income limited to 5% of operating income before income taxes for JCP&L and Met-Ed and 10% for Penelec) available for interest on FMBs shall have been at least twice the annual interest requirements on all FMBs to be outstanding immediately after such issuance. They also restrict the ratio of the principal amount of FMBs which may be issued to not more than 60% of available bondable value of property additions, but in general, permit the GPU Energy companies to issue additional FMBs against a like principal amount of previously issued and retired FMBs.
Penelec issued $350 million of senior notes in 1999. It does not intend to issue any additional FMBs under its Mortgage and Deed of Trust.
At December 31, 1999, net earnings requirements would have permitted JCP&L and Met-Ed to issue $1.3 billion and $879 million, respectively, principal amount of additional FMBs at an assumed 8% interest rate. However, JCP&L had bondable value of property additions sufficient to permit it to issue only approximately $370 million principal amount of additional FMBs, as well as issue approximately $361 million of FMBs against retired FMBs. Met-Ed could issue approximately $121 million of FMBs against retired FMBs.
In general, the FMB indentures permit the GPU Energy companies to direct the trustee to utilize cash on deposit to purchase callable or maturing bonds and to purchase bonds in the market at not more than 105% of their principal amount, plus accrued interest.
Among other restrictions, JCP&L's charter provides that without the consent of the holders of two-thirds of the outstanding preferred stock, no additional shares of preferred stock may be issued unless, for a period of any twelve consecutive months out of the fifteen calendar months immediately preceding such issuance, the after-tax net earnings available for the payment of interest on indebtedness shall have been at least one and one-half times the aggregate of (a) the annual interest charges on indebtedness and (b) the annual dividend requirements on all shares of preferred stock to be outstanding immediately after such issuance. At December 31, 1999, these provisions would have permitted JCP&L to issue $950 million stated value of cumulative preferred stock at an assumed 8.5% dividend rate.
JCP&L's charter also provides that, without the consent of the holders of a majority of the total voting power of JCP&L's outstanding preferred stock, JCP&L may not issue or assume any securities representing short-term unsecured indebtedness, except to refund certain outstanding unsecured securities issued or assumed by JCP&L or to redeem all outstanding preferred stock, if immediately thereafter the total principal amount of all outstanding unsecured debt securities having an initial maturity of less than ten years
(or within three years of maturity for all unsecured indebtedness having original maturities in excess of ten years) would exceed 10% of the aggregate of (a) the total principal amount of all outstanding secured indebtedness issued or assumed by JCP&L and (b) the capital and surplus of JCP&L. At December 31, 1999, these restrictions would have permitted JCP&L to have approximately $265 million of unsecured indebtedness outstanding.
JCP&L has obtained authorization from the SEC to incur short-term debt (including indebtedness under the revolving credit agreement and commercial paper program) up to its charter limitation.
In February 1999, Met-Ed and Penelec redeemed all their cumulative preferred stock. As a result, their charters no longer restrict the amount of preferred stock or unsecured indebtedness they may have outstanding. Met-Ed and Penelec are each limited by SEC authorization to $150 million of short-term debt outstanding at any one time.
REGULATION ----------
As a registered holding company, GPU, Inc. is subject to regulation by the SEC under the 1935 Act. GPU is also subject to regulation under the 1935 Act with respect to accounting, the issuance of securities, the acquisition and sale of utility assets, securities or any other interest in any business, the entering into, and performance of, service, sales and construction contracts, and certain other matters. The SEC has determined that the electric facilities of the GPU Energy companies constitute a single integrated public utility system under the standards of the 1935 Act. The 1935 Act also limits the extent to which GPU may engage in nonutility businesses or acquire additional utility businesses. Each of the GPU Energy companies' retail rates, conditions of service, issuance of securities and other matters are subject to regulation in the state in which each operates - in New Jersey by the NJBPU and in Pennsylvania by the PaPUC. Additionally, Penelec, as lessee, operates the facilities serving the village of Waverly, New York. Penelec's retail rates for New York customers, as well as Penelec's New York operations and property, are subject to regulation by the New York Public Service Commission. With respect to wholesale rates, the transmission of electric energy, accounting, the construction and maintenance of hydroelectric projects and certain other matters, the GPU Energy companies are subject to regulation by the FERC under the Federal Power Act. The NRC regulates the ownership and operation of nuclear generating stations and other related matters. See Electric Generation and Environmental Matters for additional information.
Midlands' distribution operations are regulated under its Public Electricity Supply License (PES License). Accordingly, income generated by the distribution business is subject to a price cap regulatory framework, which provides for an allowed increase in revenue based on increases in the volume of electricity distributed. Under its PES License, Midlands provides distribution services to virtually all electricity customers in its franchise area and, in addition, is obliged to offer electricity supply services to these customers. In June 1999, Midlands sold its supply business to National Power and National Power assumed Midlands' supply obligation under the PES License. An agency agreement with National Power serves as a backstop for the supply tariff Midlands is allowed to charge its customers, since National Power has assumed any risks of the costs of supplying power exceeding the tariff rates.
Midlands' distribution rates are determined in accordance with a formula set by the Director General of Electricity Supply (DGES), which is ordinarily reviewed every five years. The outcome of the most recent review will take effect in April 2000.
GPU PowerNet is presently regulated by the Victorian Office of the Regulator-General according to an incentive-based regulatory mechanism for the period which subjects revenues for prescribed services to a cap. The revenue cap changes annually in accordance with the consumer price index, less a so called X factor set by the regulator (CPI-X). Effective January 1, 2001, regulatory responsibility will be transferred to the Australian Competition and Consumer Commission (ACCC). A revenue reset is scheduled to occur in 2002, with effect from January 1, 2003.
GPU GasNet is presently regulated by the ACCC according to a similar incentive-based regulatory mechanism. GPU GasNet's tariff order establishes an initial tariff and a CPI-X formula, which adjusts that tariff annually through December 31, 2002. The next regulatory review is scheduled for 2002, and will be effective for five years commencing January 1, 2003.
Edesa, Edelar and Edesal operate under a specific tariff structure that may be revised by the provincial regulators every five years in accordance with the Regulatory Framework Law. In general, tariffs for electricity distribution in Argentina are set in accordance with a model that takes four factors into consideration: 1) the pass-through cost of electricity purchased, 2) the cost of electricity losses, 3) distribution cost and 4) quality of service. The rate structure allows distribution companies to retain the benefit of operational efficiencies they are able to achieve until tariffs are reset.
Empresa Guaracachi S.A., the GPUI Group's electric generation company in Bolivia, is subject to regulation under the Electricity Law of 1994. Twice each year, the Superintendency of Electricity recalculates the prices that Empresa Guaracachi S.A. and other electric generators may charge for capacity based upon an estimated cost of constructing a new generating unit. In addition, energy prices are recalculated semi-annually based upon a projected cost of generation, including fuel and nonfuel variable operation and maintenance costs.
NUCLEAR FACILITIES ------------------
In December 1999, the GPU Energy companies sold TMI-1 to AmerGen for approximately $100 million and AmerGen assumed all TMI-1 decommissioning liabilities. In addition, JCP&L has agreed to sell Oyster Creek to AmerGen for $10 million and reimbursement of the cost (estimated at $88 million) of the next refueling outage. Three Mile Island Unit 2 (TMI-2), which was damaged during a 1979 accident, is jointly owned by JCP&L, Met-Ed and Penelec in the percentages of 25%, 50% and 25%, respectively. JCP&L's net investment, including nuclear fuel, in Oyster Creek in 1999 and 1998 was $10 million and $682 million, respectively. The 1999 reduction in net investment reflects the impairment write-down resulting from the proposed sale of the facility to AmerGen. JCP&L's net investment in TMI-2 at December 31, 1999 and 1998 was $61 million and $66 million, respectively. JCP&L is collecting revenues for
TMI-2 on a basis which provides for the recovery of its remaining investment in the plant by 2008. Met-Ed and Penelec's remaining investments in TMI-2 were written off in 1998 after receiving the PaPUC's Restructuring Orders.
Oyster Creek - ------------
The operating license for the Oyster Creek station, a 619 MW boiling water reactor, expires in 2009. In October 1999, JCP&L agreed to sell Oyster Creek to AmerGen. The sale is subject to the receipt of various federal and state regulatory approvals. Highlights of the agreements are presented in the Competitive Environment and Rate Matters section of Management's Discussion and Analysis. For 1999, Oyster Creek operated at a 97% unit capability factor. Its next refueling outage is scheduled to begin in the fall of 2000.
TMI-2 - -----
As a result of the 1979 TMI-2 accident, individual claims for alleged personal injury (including claims for punitive damages), which are material in amount, were asserted against GPU, Inc. and the GPU Energy companies. Approximately 2,100 of such claims were filed in the US District Court for the Middle District of Pennsylvania. Some of the claims also seek recovery for injuries from alleged emissions of radioactivity before and after the accident.
At the time of the TMI-2 accident, as provided for in the Price-Anderson Act, the GPU Energy companies had (a) primary financial protection in the form of insurance policies with groups of insurance companies providing an aggregate of $140 million of primary coverage, (b) secondary financial protection in the form of private liability insurance under an industry retrospective rating plan providing for up to an aggregate of $335 million in premium charges under such plan, and (c) an indemnity agreement with the NRC for up to $85 million, bringing their total financial protection up to an aggregate of $560 million. Under the secondary level, the GPU Energy companies are subject to a retrospective premium charge of up to $5 million per reactor, or a total of $15 million.
In 1995, the US Court of Appeals for the Third Circuit ruled that the Price-Anderson Act provides coverage under its primary and secondary levels for punitive as well as compensatory damages, but that punitive damages could not be recovered against the Federal Government under the third level of financial protection. In so doing, the Court of Appeals referred to the "finite fund" (the $560 million of financial protection under the Price-Anderson Act) to which plaintiffs must resort to get compensatory as well as punitive damages.
The Court of Appeals also ruled that the standard of care owed by the defendants to a plaintiff was determined by the specific level of radiation which was released into the environment, as measured at the site boundary, rather than as measured at the specific site where the plaintiff was located at the time of the accident (as the defendants proposed). The Court of Appeals also held that each plaintiff still must demonstrate exposure to radiation released during the TMI-2 accident and that such exposure had resulted in injuries. In 1996, the US Supreme Court denied petitions filed by GPU, Inc. and the GPU Energy companies to review the Court of Appeals' rulings.
In 1996, the District Court granted a motion for summary judgment filed by GPU, Inc. and the GPU Energy companies, and dismissed the ten initial "test cases," which had been selected for a test case trial as well as all of the remaining 2,100 pending claims. The Court ruled that there was no evidence which created a genuine issue of material fact warranting submission of plaintiffs' claims to a jury. The plaintiffs appealed the District Court's ruling to the Court of Appeals for the Third Circuit. In November 1999, the Third Circuit affirmed the District Court's dismissal of the ten "test cases," but set aside the dismissal of the additional pending claims, remanding them to the District Court for further proceedings. In remanding these claims, the Third Circuit held that the District Court had erred in extending its summary judgment decision to the other plaintiffs and imposing on these plaintiffs the District Court's finding that radiation exposures below 10 rems were too speculative to establish a causal link to cancer. The Court of Appeals stated that the non-test case plaintiffs should be permitted to present their own individual evidence that exposure to radiation from the accident caused their cancers.
GPU, Inc. and the GPU Energy companies believe that the Third Circuit has misinterpreted the record before the District Court as it applies to the non-test case plaintiffs, and in November 1999, filed petitions seeking a rehearing and reconsideration of the Court's decision regarding the remaining claims. The "test case" plaintiffs also requested a rehearing of the Court's decision upholding the dismissal of their claims. In January 2000, the Court of Appeals denied both petitions. The "test case" plaintiffs have stated that they intend to seek, and GPU, Inc. and the GPU Energy companies are considering whether to seek, Supreme Court review of the District Court's decision. There can be no assurance as to the outcome of this litigation.
GPU, Inc. and the GPU Energy companies believe that any liability to which they might be subject by reason of the TMI-2 accident will not exceed their financial protection under the Price-Anderson Act.
NUCLEAR PLANT RETIREMENT COSTS ------------------------------
Retirement costs for nuclear plants include decommissioning the radiological portions of the plants and the cost of removal of nonradiological structures and materials. The disposal of spent nuclear fuel is covered separately by contracts with the US Department of Energy (DOE).
In 1995, a consultant to GPUN performed site-specific studies of TMI-2 and Oyster Creek (updated in 1998), that considered various decommissioning methods and estimated the cost of decommissioning the radiological portions and the cost of removal of the nonradiological portions of each plant, using the prompt removal/dismantlement method. GPUN management has reviewed the methodology and assumptions used in these studies, is in agreement with them, and believes the results are reasonable. Under NRC regulations, JCP&L is making periodic payments to complete the funding for Oyster Creek retirement costs by the end of the plant's license term of 2009. The TMI-2 funding completion date is 2014, consistent with TMI-2's remaining in long-term storage. The NRC may require an acceleration of the decommissioning funding for Oyster Creek if the pending sale is not completed and the plant is retired early. The retirement cost estimates under the 1995 site-specific studies, assuming decommissioning of TMI-2 and Oyster Creek in 2014 and 2009, respectively, are as follows (in 1999 dollars):
(in millions) Oyster GPU TMI-2 Creek - --- ----- -----
Radiological decommissioning $435 $591 Nonradiological cost of removal 34* 32 --- --- Total $469 $623 === ===
* Net of $12.6 million spent as of December 31, 1999.
Each of the GPU Energy companies is responsible for retirement costs in proportion to its respective ownership percentage. The ultimate cost of retiring the GPU Energy companies' nuclear facilities may be different from the cost estimates contained in these site-specific studies. Also, the cost estimates contained in these site-specific studies are significantly greater than the decommissioning funding targets established by the NRC.
The 1995 Oyster Creek site-specific study was updated in 1998 in response to the previously announced potential early closure of the plant in 2000. An early shutdown would increase the retirement costs shown above to $632 million ($600 million for radiological decommissioning and $32 million for nonradiological cost of removal). Both estimates include substantial spending for an on-site dry storage facility for spent nuclear fuel and significant costs for storing the fuel until the DOE complies with the Nuclear Waste Policy Act of 1982. For additional information, see OTHER COMMITMENTS AND CONTINGENCIES section of Note 12, Commitments and Contingencies, of the Combined Notes to the Consolidated Financial Statements.
The agreements to sell Oyster Creek to AmerGen provide, among other things, that upon financial closing, JCP&L will transfer $430 million in decommissioning trust funds to AmerGen, which will assume all liability for decommissioning Oyster Creek.
The NJBPU has granted JCP&L annual revenues for Oyster Creek retirement costs of $22.5 million based on the 1995 site-specific study. In August 2000, the recovery of Oyster Creek retirement costs escalates to $34.4 million annually if the plant is retired in 2000.
In the event JCP&L does not complete the pending sale of Oyster Creek, management believes that any retirement costs, in excess of those currently recognized for ratemaking purposes, should be recoverable from customers.
The estimated liabilities for TMI-2 future retirement costs (reflected as Three Mile Island Unit 2 future costs on the Consolidated Balance Sheets) as of December 31, 1999 and 1998 are $497 million (JCP&L $124 million; Met-Ed $249 million; Penelec $124 million) and $484 million (JCP&L $121 million; Met-Ed $242 million; Penelec $121 million), respectively. These amounts are based upon the 1995 site-specific study estimates (in 1999 and 1998 dollars, respectively) discussed above and an estimate for remaining incremental monitored storage costs of $27 million (JCP&L $7 million; Met-Ed $13 million; Penelec $7 million) for 1999 and $29 million (JCP&L $7 million; Met-Ed $15 million; Penelec $7 million) for 1998, as a result of TMI-2's entering long-term monitored storage in 1993.
Offsetting the $497 million liability at December 31, 1999 is $193 million (JCP&L $14 million; Met-Ed $144 million; Penelec $35 million) which management believes is probable of recovery from customers and included in Regulatory assets, net on the Consolidated Balance Sheets, and $355 million (JCP&L $114 million; Met-Ed $144 million; Penelec $97 million) in trust funds for TMI-2 and is included in Nuclear decommissioning trusts, at market on the Consolidated Balance Sheets.
The NJBPU has granted JCP&L revenues for TMI-2 retirement costs based on the 1995 site-specific estimates. In addition, JCP&L is recovering its share of TMI-2 incremental monitored storage costs. The PaPUC Restructuring Orders granted Met-Ed and Penelec recovery of TMI-2 decommissioning costs as part of the competitive transition charge (CTC), but also allowed Met-Ed and Penelec to defer as a regulatory asset those amounts that are above the level provided for in the CTC.
At December 31, 1999, the accident-related portion of TMI-2 radiological decommissioning costs is considered to be $77 million (JCP&L $19 million; Met-Ed $39 million; Penelec $19 million), which is based on the 1995 site-specific study estimates (in 1999 dollars).
JCP&L intends to seek recovery for any increases in TMI-2 retirement costs, and Met-Ed and Penelec intend to seek recovery for any increases in the nonaccident-related portion of such costs, but recognize that recovery cannot be assured.
INSURANCE ---------
GPU has insurance (subject to retentions and deductibles) for its operations and facilities including coverage for property damage, liability to employees and third parties, and loss of use and occupancy (primarily incremental replacement power costs). There is no assurance that GPU will maintain all existing insurance coverages. Losses or liabilities that are not completely insured, unless allowed to be recovered through ratemaking, could have a material adverse effect on the financial position of GPU.
The decontamination liability, premature decommissioning and property damage insurance coverage for Oyster Creek totals $2.75 billion. In addition, GPU has purchased property and decontamination insurance coverage for TMI-2 totaling $150 million. In accordance with NRC regulations, these insurance policies generally require that proceeds first be used for stabilization of the reactors and then to pay for decontamination and debris removal expenses. Any remaining amounts available under the policies may then be used for repair and restoration costs and decommissioning costs. Consequently, there can be no assurance that in the event of a nuclear incident, property damage insurance proceeds would be available for the repair and restoration of that station.
The Price-Anderson Act limits GPU's liability to third parties for a nuclear incident at Oyster Creek to approximately $9.5 billion. Coverage for the first $200 million of such liability is provided by private insurance. The remaining coverage, or secondary financial protection, is provided by retrospective premiums payable by all nuclear reactor owners. Under secondary financial protection, a nuclear incident at any licensed nuclear power reactor in the country, including Oyster Creek, could result in an assessment of up to
$88 million per incident, subject to an annual maximum payment of $10 million per incident per reactor. Although TMI-2 is exempt from this assessment, the plant is still covered by the provisions of the Price-Anderson Act. In addition to the retrospective premiums payable under the Price-Anderson Act, the GPU Energy companies are also subject to retrospective premium assessments of up to $10.5 million for insurance policies currently in effect applicable to nuclear operations and facilities. The GPU Energy companies are also subject to other retrospective premium assessments related to policies applicable to TMI-1 prior to the sale of the plant to AmerGen.
JCP&L has insurance coverage for incremental replacement power costs should an accident-related outage at Oyster Creek occur. Coverage would commence after a 12-week waiting period at $2.1 million per week for 52 weeks, decreasing to 80% of such amount for the next 110 weeks.
ELECTRIC GENERATION AND ENVIRONMENTAL MATTERS ---------------------------------------------
Approximately 47% (JCP&L 59%; Met-Ed 33%; Penelec 53%) of the GPU Energy companies' total energy requirements in 1999 were supplied by utility contracts, NUG purchases, and interchange. The balance was provided by GPU Energy owned generation. Substantially all of the GPU Energy companies' 2000 energy requirements will be supplied by external sources.
In 1999, the GPU Energy companies completed the sales of TMI-1 and substantially all of their fossil and hydroelectric generating stations. For additional information, see Note 6, Accounting for Extraordinary and Non-Recurring Items in the Combined Notes to Consolidated Financial Statements.
Nuclear fuel disposal: In accordance with the Nuclear Waste Policy Act of --------------------- 1982 (NWPA), the GPU Energy companies have entered into contracts with, and have been paying fees to, the DOE for the future disposal of spent nuclear fuel in a repository or interim storage facility. AmerGen has assumed all liability for disposal costs related to spent fuel generated after its purchase of TMI-1 and has agreed to assume this liability for Oyster Creek following its purchase of that plant. In 1996, the DOE notified the GPU Energy companies and other standard contract holders that it would be unable to begin acceptance of spent nuclear fuel for disposal by 1998, as mandated by the NWPA. The DOE's inability to accept spent nuclear fuel could have a material impact on GPU's results of operations, as additional costs may be incurred to build and maintain interim on-site storage at Oyster Creek. In June 1997, a consortium of electric utilities, including GPUN, filed a license application with the NRC seeking permission to build an interim storage facility for spent nuclear fuel in Utah. The NRC is not expected to make a decision whether to approve construction of an interim storage facility until late 2001. There can be no assurance as to the outcome of these matters.
Environmental Matters - ---------------------
GPU is subject to a broad range of federal, state and local environmental and employee health and safety legislation and regulations. In addition, the GPU Energy companies are subject to licensing of hydroelectric projects by the FERC and of nuclear power projects by the NRC. Such licensing and other actions by federal agencies with respect to GPU's domestic operations are also subject to the National Environmental Policy Act.
As a result of existing and proposed legislation and regulations, and ongoing legal proceedings dealing with environmental matters, including but not limited to acid rain, water quality, ambient air quality, global warming, electromagnetic fields, and storage and disposal of hazardous and/or toxic wastes, GPU may be required to incur substantial additional costs to construct new equipment, modify or replace existing and proposed equipment, remediate, decommission or cleanup waste disposal and other sites currently or formerly used by it, including formerly owned manufactured gas plants (MGP), coal mine refuse piles and generation facilities.
GPU records liabilities (on an undiscounted basis) where it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated, and adjusts these liabilities as required to reflect changes in circumstances. At December 31, 1999, GPU has liabilities recorded on its balance sheets for environmental matters, as follows:
Company Amount (in millions) ------- -------------------- JCP&L $56.2 Met-Ed 0.7 Penelec 8.3 GPUN 0.5 GPU, Inc. 3.5 ---- Total $69.2 ====
Under the agreements entered into for the purchase of the GPU Energy companies' generating facilities, the buyers, in general, have agreed to assume all on-site environmental liabilities other than up to $6 million of the remediation costs associated with contaminants from certain coal mine refuse piles at the Seward Station, which liability Penelec has retained. Penelec expects recovery of these remediation costs in Phase II of its restructuring proceeding and has recorded a corresponding regulatory asset at December 31, 1999.
Nuclear: Reference is made to the NUCLEAR FACILITIES section for ------- information regarding the TMI-2 accident, its aftermath and the GPU Energy companies' other nuclear facilities.
The GPU Energy companies have provided for future contributions to the Decontamination and Decommissioning Fund for the cleanup of uranium enrichment plants operated by the Federal Government. GPU's total liability at December 31, 1999 amounted to $25 million (JCP&L $15 million; Met-Ed $7 million; Penelec $3 million). JCP&L is recovering these costs from customers through its BGS and market transition charge rates while Met-Ed and Penelec anticipate recovery in Phase II of their restructuring proceedings which began in early 2000.
Air: With respect to air quality, the GPU-owned generating stations are --- subject to certain state environmental regulations of the New Jersey Department of Environmental Protection (NJDEP) and the Pennsylvania Department of Environmental Protection (PaDEP). The stations are also subject to certain federal environmental regulations of the Environmental Protection Agency (EPA). One of the major sets of regulations that governs air quality is the Federal Clean Air Act of 1970.
Electromagnetic Fields (EMF): There have been a number of studies ----------------------------- regarding the possibility of adverse health effects from electric and power frequency magnetic fields that are found everywhere there is electricity. While some of the studies have indicated some association between exposure to magnetic fields and cancer, other studies have indicated no such association. The studies have not shown any causal relationship between exposure to magnetic fields and cancer, or any other adverse health effects. In 1996, the National Research Council of the National Academy of Sciences released a report which concluded that, "Based on a comprehensive evaluation of published studies relating to the effects of power-frequency electric and magnetic fields on cells, tissues and organisms (including humans), ... the current body of evidence does not show that exposure to these fields presents a human-health hazard. Specifically, no conclusive and consistent evidence shows that exposure to residential electric and magnetic fields produce cancer, adverse neurobehavioral effects, or reproductive and developmental effects." In June 1999, the National Institutes of Environmental Health Sciences issued a report on the health effects from exposure to power-line electric and magnetic fields. The report notes that EMF exposure would not be included as an agent "reasonably anticipated to be a human carcinogen", but recommends that inexpensive and safe reductions in field exposure levels should be encouraged, until stronger evidence provides that there is no link between exposures and health effects.
Certain parties have alleged that exposure to electric and magnetic fields associated with the operation of transmission and distribution facilities will produce adverse impacts upon public health and safety and upon property values. Furthermore, regulatory actions under consideration by the New Jersey Committee on Radiation Protection, could, if enacted, establish a framework under which the intensity of the fields produced by electric transmission and distribution lines would be limited or otherwise regulated.
The GPU Energy companies cannot determine at this time what effect, if any, this matter will have on their results of operations and financial position.
Hazardous/Toxic Wastes: Under the Toxic Substances Control Act (TSCA), the ---------------------- EPA has adopted certain regulations governing the use, storage, testing, inspection and disposal of electrical equipment that contain polychlorinated biphenyls (PCBs). Such regulations permit the continued use and servicing of certain electrical equipment (including transformers and capacitors) that contain PCBs. GPU has met all requirements of the TSCA to allow the continued use of equipment containing PCBs and has taken substantive voluntary actions to reduce the amount of PCB-containing electrical equipment.
Prior to 1953, the GPU Energy companies owned and operated MGP sites in New Jersey and Pennsylvania. Waste contamination associated with the operation and dismantlement of these MGP sites is, or may be, present both on-site and off-site. Claims have been asserted against the GPU Energy companies for the cost of investigation and remediation of these sites. The amount of such remediation costs and penalties may be significant and may not be covered by insurance. JCP&L has entered into agreements with the NJDEP for the investigation and remediation of 17 formerly owned MGP sites. JCP&L has also entered into various cost-sharing agreements with other utilities for
most of the sites. As of December 31, 1999, JCP&L has spent approximately $36 million in connection with the cleanup of these sites. In addition, JCP&L has recorded an estimated environmental liability of $52 million relating to expected future costs of these sites (as well as two other properties). This estimated liability is based upon ongoing site investigations and remediation efforts, which generally involve capping the sites and pumping and treatment of ground water. Moreover, the cost to clean up these sites could be materially in excess of the $52 million due to significant uncertainties, including changes in acceptable remediation methods and technologies. In addition, federal and state law provides for payment by responsible parties for damage to natural resources.
In 1997, the NJBPU approved JCP&L's request to establish a Remediation Adjustment Clause for the recovery of MGP remediation costs. As a result of the NJBPU's Summary Order, effective August 1, 1999, the recovery of these costs was transferred to the Societal Benefits Charge. At December 31, 1999, JCP&L had recorded on its Consolidated Balance Sheet a regulatory asset of $44 million. JCP&L is continuing to pursue reimbursement from its insurance carriers for remediation costs already spent and for future estimated costs. In 1994, JCP&L filed a complaint with the Superior Court of New Jersey against several of its insurance carriers, relative to these MGP sites, and has settled with all but one of those insurance companies.
In 1997, the EPA filed a complaint against GPU, Inc. in the US District Court for the District of Delaware for enforcement of its Unilateral Order (Order) issued against GPU, Inc. to clean up the former Dover Gas Light Company (Dover) manufactured gas production site (Site) in Dover, Delaware. Dover was part of the AGECO/AGECORP group of companies from 1929 until 1942; GPU, Inc. emerged from the AGECO/AGECORP reorganization proceedings in 1946. All of Dover's common stock, which was sold in 1942 to an unaffiliated entity, was subsequently acquired by Chesapeake Utilities Corporation (Chesapeake), which merged with Dover in 1960. Chesapeake is currently performing the cleanup at the Site. According to the complaint, the EPA is seeking (1) enforcement of the Order against GPU; (2) recovery of its past response costs, (3) a declaratory judgment that GPU is liable for any remaining cleanup costs of the Site and (4) statutory penalties for noncompliance with the Order. The EPA has stated that it has incurred approximately $1 million of past response costs as of December 31, 1999. The EPA estimates the total Site cleanup costs at approximately $4.2 million. Consultants to Chesapeake have estimated the remaining remediation groundwater costs at approximately $10.5 million. In accordance with its penalty policy, and in discussions with GPU, the EPA has demanded penalties calculated at a daily rate of $8,800, rather than the statutory maximum of $27,500 per day. At December 31, 1999, if the statutory maximum is applied, the total amount of penalties would be approximately $34 million. GPU believes that it has meritorious defenses to the imposition of penalties, or that if a penalty is assessed, it should be at a lower daily rate. Chesapeake has also sued GPU, Inc. for contribution to the cleanup of the Dover Site. The United States District Court for the District of Delaware has consolidated the case filed by Chesapeake with the case filed by the EPA and discovery is proceeding. There can be no assurance as to the outcome of these proceedings.
The Federal Resource Conservation and Recovery Act of 1976, the Comprehensive Environmental Response, Compensation and Liability Act of 1980
(CERCLA) and the Superfund Amendment and Reauthorization Act of 1986 authorize the EPA to issue orders compelling responsible parties to take cleanup action at any location that is determined to present an imminent and substantial danger to the public or to the environment because of an actual or threatened release of one or more hazardous substances. Pennsylvania and New Jersey have enacted legislation giving similar authority to the PaDEP and the NJDEP, respectively. In addition, federal and state law provides for payment by responsible parties for damage to natural resources. Because of the nature of the GPU Energy companies' business, various by-products and substances are produced and/or handled that are classified as hazardous under one or more of these statutes. GPU generally provides for the treatment, disposal or recycling of such substances through licensed independent contractors, but these statutory provisions also impose potential responsibility for certain cleanup costs on the generators of the wastes. GPU has been formally notified by the EPA and state environmental authorities that it is among the potentially responsible parties (PRPs) who may be jointly and severally liable to pay for the costs associated with the investigation and remediation at hazardous and/or toxic waste sites in the following number of instances (in some cases, more than one company is named for a given site):
JCP&L MET-ED PENELEC GPUN GPU, INC. TOTAL ----- ------ ------- ---- --------- -----
6 4 2 1 1 11
In addition, certain of the GPU companies have been requested to participate in the remediation or supply information to the EPA and state environmental authorities on several other sites for which they have not been formally named as PRPs, although the EPA and state authorities may nevertheless consider them as PRPs. Certain of the GPU companies have also been named in lawsuits requesting damages (which are material in amount) for hazardous and/or toxic substances allegedly released into the environment. As of December 31, 1999, a liability of approximately $6 million was recorded for 9 PRP sites where it is probable that a loss has been incurred and the amount could be reasonably estimated.
The ultimate cost of remediation of all these and other hazardous waste sites will depend upon changing circumstances as site investigations continue, including (a) the existing technology required for site cleanup, (b) the remedial action plan chosen and (c) the extent of site contamination and the portion attributed to the GPU company involved.
FRANCHISES AND CONCESSIONS --------------------------
JCP&L operates pursuant to franchises in the territory served by it and has the right to occupy and use the public streets and ways of the state with its poles, wires and equipment upon obtaining the consent in writing of the owners of the soil, and also to occupy the public streets and ways underground with its conduits, cables and equipment, where necessary, for its electric operation. JCP&L has the requisite legal franchise for the operation of its electric business within the State of New Jersey, including in incorporated cities and towns where designations of new streets, public ways, etc., may be obtained upon application to such municipalities. JCP&L holds a FERC license expiring in 2013 authorizing it to operate and maintain the Yards Creek Station in which JCP&L has a 50% ownership interest.
Met-Ed and Penelec have the necessary franchise rights to furnish electric service in the various respective municipalities or territories in which each company now supplies such services. These electric franchise rights, which are generally nonexclusive rights, consist generally of (a) charter rights and (b) certificates of public convenience issued by the PaPUC and/or "grandfather rights". Such electric franchise rights are free from unduly burdensome restrictions and unlimited as to time, except in a few relatively minor cases and except as otherwise described below. The secondary franchise granted by the Borough of Boyertown to Met-Ed contains a provision that the Borough shall have the right at any time to purchase the electric system in the Borough at a valuation to be fixed by appraisers. Met-Ed holds a FERC license expiring in 2014 for the continued operation and maintenance of the York Haven hydroelectric project.
EMPLOYEE RELATIONS ------------------
GPU, Inc. and consolidated affiliates have approximately 10,800 employees worldwide, of which 6,100 are employed in the US and 3,700 are employed in the United Kingdom. The majority of the US workforce is employed by the GPU Energy companies, of which approximately 4,000 are represented by unions for collective bargaining purposes. In the United Kingdom, approximately 2,800 Midlands employees are represented by unions; terms and conditions of the various bargaining agreements are generally reviewed annually, on the first of April. Approximately 225 GPU PowerNet and 70 GPU GasNet employees are covered by Enterprise Agreements regarding their terms and conditions of employment. These agreements generally extend for one year and in practice continue to apply until replaced. JCP&L, Met-Ed and Penelec's collective bargaining agreements with the International Brotherhood of Electrical Workers expire on October 31, 2002, April 30, 2000 and May 14, 2002, respectively. Penelec's collective bargaining agreement with the Utility Workers Union of America expires on June 30, 2001.
ITEM 2.
ITEM 2. PROPERTIES.
GPU Energy Companies' Generating Stations - -----------------------------------------
At December 31, 1999, the generating stations of the GPU Energy companies had an aggregate effective capability of 904,000 net kilowatts (KW), as follows:
Name of GPU Energy Year of Net KW Station Company Installation (Summer) ------- ---------- ------------ --------
NUCLEAR: Oyster Creek JCP&L 1969 619,000
GAS/OIL-FIRED: Combustion Turbines JCP&L 1989 66,000
HYDROELECTRIC: York Haven Met-Ed 1905-1930 19,000
PUMPED STORAGE:(a) Yards Creek JCP&L 1965 200,000 --------- TOTAL 904,000 =========
(a) Represents JCP&L's undivided interest in this station, which is a net user rather than a net producer of electric energy.
Substantially all of the GPU Energy companies' properties are subject to the lien of their respective FMB indentures.
The all-time peak loads of the GPU Energy companies are as follows:
(In KW) Company Date Peak Load -------- ------------- ---------
GPU Energy companies Jul. 06, 1999 10,075,000* JCP&L Jul. 06, 1999 5,180,000 Met-Ed Jul. 19, 1999 2,384,000 Penelec Jan. 19, 1997 2,652,000
* System peak load.
GPU Electric Generating Facilities - ---------------------------------- At December 31, 1999, GPU Electric had ownership interests in 5 operating natural gas-fired power production facilities located internationally, with an aggregate capability of 4,244,500 KW as follows:
Name of Year of Ownership Facility Location Installation Total KW Interest (KW) - -------- -------- ------------ ---------- -------------
Teesside England 1993 1,875,000 498,800 Redditch* England 1991 29,000 29,000 Hereford England 1980 15,000 15,000 Humber England 1997-1999 1,261,500 237,200 Marmara Turkey 1999 478,000 148,200 Uch Pakistan ** 586,000 234,400 --------- --------- Total 4,244,500 1,162,600 ========= =========
* Sold in January 2000.
** Expected to begin commercial operation in 2000.
GPUI Group Generating Facilities - -------------------------------- At December 31, 1999, the GPUI Group had ownership interests in 10 operating natural gas-fired cogeneration and other nonutility power production facilities located both domestically and internationally, with an aggregate capability of 2,243,300 KW as follows:
Name of Year of Ownership Facility Location Installation Total KW Interest (KW) - -------- -------- ------------ ---------- -------------
U.S. Facilities ---------------
Mid Georgia GA 1998 300,000 150,000 Selkirk* NY 1992-94 350,000 69,600 Lake FL 1993 110,000 109,900 Pasco FL 1993 109,000 54,400 Onondaga NY 1993 80,000 80,000 PELP (Marcal) NJ 1989 65,000 32,500 --------- --------- Total 1,014,000 496,400 --------- ---------
Foreign Facilities ------------------
Termobarran- quilla Colombia 1972-98 890,000 254,500 Guaracachi Bolivia 1975-99 287,700 143,900 Aranjuez Bolivia 1974-94 36,900 18,500 Karachipampa Bolivia 1982 14,700 7,400 --------- --------- Total 1,229,300 424,300 --------- ---------
Total capability 2,243,300 920,700 ========= =========
* The GPUI Group does not have operating responsibility for this facility.
Transmission and Distribution System - ------------------------------------
At December 31, 1999, the GPU Energy companies owned the following transmission and distribution facilities:
JCP&L Met-Ed Penelec Total ----------- ---------- ---------- ----------
Transmission and Distribution
Substations 302 248 472 1,022 ========== ========== ========== ==========
Aggregate Installed Transformer Capacity of Substations
(in kilovoltamperes - KVA) 18,882,066 9,639,466 13,109,009 41,630,541 ========== ========== ========== ==========
Transmission System (estimate): - -------------------
Lines (In Circuit Miles):
500 KV 18 188 235 441 345 KV - - 149 149 230 KV 570 383 650 1,603 138 KV - 3 11 14 115 KV 232 385 1,330 1,947 69 KV, 46 KV and 34.5 KV 1,769 469 364 2,602 ---------- ---------- ---------- ---------- Total 2,589 1,428 2,739 6,756 ========== ========== ========== ==========
Distribution System (estimate): - -------------------
Line Transformer Capacity (KVA) 10,348,078 6,176,550 7,031,077 23,555,705 ========== ========== ========== ==========
Pole Miles of Overhead Lines 16,080 12,613 22,656 51,349 ========== ========== ========== ==========
Trench Miles of Underground
Cable 7,311 2,287 2,013 11,611 ========== ========== ========== ==========
Foreign Utility Companies
Electric Transmission and Distribution: - --------------------------------------
In addition, Midlands, which provides service to 2.3 million customers in a 5,135 square mile area in England, owns a total of 39,544 miles of overhead and underground lines and has over 33,000 transformers mounted on
poles and over 13,800 ground mounted transformers. GPU PowerNet, which serves all of Victoria, Australia covering an area of approximately 87,900 square miles and a population of 4.5 million, owns a total of 4,062 miles of overhead and underground lines. Emdersa, which owns three electric distribution companies servicing three provinces in northwest Argentina with approximately 335,000 customers within 206,340 square miles, has over 7,000 transformers, and owns 6,238 and 55 miles of overhead and underground lines, respectively.
Gas Transmission: - ----------------
GPU GasNet, a natural gas transmission business, encompasses 1,239 miles of pipeline consisting of two separate networks, the Principal System and the Western System, which supply all of the natural gas consumed in Victoria, Australia. The two networks service approximately 1.3 million residential customers and approximately 40,000 industrial and commercial customers throughout Victoria.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS.
Reference is made to Significant Developments - Competitive Business Risks; Restructuring Actions; and Domestic Energy Supply under Item 1 and to Note 12, Commitments and Contingencies, of the Combined Notes to the Consolidated Financial Statements contained in Item 8 for a description of certain pending legal proceedings involving GPU.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
All of JCP&L, Met-Ed and Penelec's outstanding common stock is owned by GPU, Inc. During 1999, JCP&L, Met-Ed and Penelec paid dividends on their common stock to GPU, Inc. in the following amounts: JCP&L $335 million, Met-Ed $315 million and Penelec $460 million.
In general, the JCP&L, Met-Ed and Penelec FMB indentures restrict the payment of dividends or distributions on or with respect to their common stock to amounts credited to earned surplus since approximately the dates of the indentures. At such dates, the GPU Energy companies had balances in their earned surplus accounts (which would not be available for dividends or other distributions) as follows: JCP&L - $1.7 million; Met-Ed - $3.4 million; and Penelec - $10.1 million. Met-Ed and Penelec have requested authorization from the SEC to declare and pay common dividends from amounts now accounted for as capital surplus, subject to their FMB indentures and other conditions. See the Financing Arrangements section in Item 1 for additional information.
Stock Trading
GPU, Inc. is listed as GPU on the New York Stock Exchange. On March 15, 2000, there were 34,986 registered holders of GPU, Inc. common stock.
Dividends
GPU, Inc. common stock dividend declaration dates are the first Thursdays of December, April, June and October. Dividend payment dates fall on the last Wednesday of February, May, August and November. Dividend declarations and quarterly stock price ranges for 1999 and 1998 are set forth below.
Common Stock ------------
Dividends Declared Price Ranges* - ------------------------- ---------------------------------------------- 1999 1998 1999 1998 Quarter High/Low High/Low ----- ----- ------- ------------------ ------------------
April $.53 $.515 First $45 $37 1/4 $44 11/16 $38 11/16 June .53 .515 Second 44 5/8 36 1/2 44 7/16 36 1/2 October .53 .515 Third 42 9/16 32 43 5/16 35 3/16 December .53 .515 Fourth 34 13/16 28 3/4 47 3/16 41 3/8
* Based on New York Stock Exchange Composite Transactions as reported in the Wall Street Journal.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA.
See pages and for references to each registrant's Selected Financial Data required by this item.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
See pages and for references to each registrant's Management's Discussion and Analysis of Financial Condition and Results of Operations required by this item.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
See pages through for references to GPU, Inc.'s Quantitative and Qualitative Disclosures About Market Risk required by this item.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See pages and for references to each registrant's Financial Statements and Quarterly Financial Data (unaudited) required by this item.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Identification of Directors - ---------------------------
Information regarding GPU, Inc.'s directors is incorporated by reference to the BOARD OF DIRECTORS section of GPU, Inc.'s Proxy Statement for the 2000 Annual Meeting of Stockholders. The current directors of JCP&L, Met-Ed and Penelec, their ages, positions held and business experience during the past five years are as follows:
Year First Elected --------------------- Name Age Position JCP&L Met-Ed Penelec - ---- --- -------- ----- ------ -------
JCP&L/Met-Ed/Penelec: - -------------------- F. D. Hafer (a) 59 Chairman of the Board and 1996 1978 1994 Chief Executive Officer
R. L. Wise (b) 56 President 1999 1999 1999 M. P. O'Flynn (c) 54 Vice President - Finance 1999 1999 1999 and Rates and Comptroller
C. B. Snyder (d) 54 Director 1997 1997 1997
JCP&L only: - ---------- G. E. Persson (e) 67 Director 1983 S. C. Van Ness (f) 65 Director 1983 S. B. Wiley (g) 69 Director 1982
(a) Mr. Hafer is Chairman, Chief Executive Officer and President of GPU, Inc. and GPUS (which he also serves as a director). He became President and Chief Operating Officer of GPU and GPUS in July 1996 and was elected to the additional positions of Chairman and Chief Executive Officer in May 1997. He is also Chairman of the Board, Chief Executive Officer, and a director of JCP&L, Met-Ed and Penelec (which do business as GPU Energy); Chairman of the Board and a director of GPUN; Chairman, Chief Executive Officer and a director of GPU AR; Chairman and a director of GPU Capital, Inc. (GPU Capital); a director of GPU International, Inc. (GPUI), GPU Power, Inc. (GPU Power), GPU Electric, Inc. (GPU Electric), Avon Energy Partners Holdings (Avon), Midlands, GPU Telcom and Saxton Nuclear Experimental Corporation (Saxton), all subsidiaries of GPU, Inc. He is President and Chief Executive Officer of the GPU Foundation. Mr. Hafer, who has been associated with the GPU companies since 1962, served as President of Met-Ed from 1986 to 1996 and as President of Penelec from 1994 to 1996. Mr. Hafer is also a director of the U.S. Chamber of Commerce and Utilities Mutual Insurance Company, a director and past president of the Manufacturers Association of Berks County and a director and past Chairman of the Board of the Pennsylvania Electric Association. He is a director of the Reading Hospital and Medical Center, a trustee of the Caron Foundation and immediate past chairman and a member of the Board of Trustees of Drug-Free Pennsylvania.
(b) Mr. Wise was elected President of JCP&L, Met-Ed and Penelec in 1999. Mr. Wise is also President, Chief Executive Officer and a director of GPU Telcom; and President-Operations Division and a director of GPUS, President and a director of Waverly Electric Light and Power Company and a director of GPUN and Saxton. Prior to assuming these positions he served as President and a director of GPUI, GPU Power and GPU Electric from December 1998 to October 1999. From June 1996 to November 1999, Mr. Wise served as President and a director of GPU Generation, Inc. Prior to that, Mr. Wise served as President and a director of Penelec since 1986. He is also a director of US Bancorp Trust Company, US Bancorp, Inc., U.S. National Bank of Johnstown, PA. and Utilities Mutual Insurance Company.
(c) Mr. O'Flynn was elected Vice President - Finance and Rates and Comptroller of JCP&L, Met-Ed and Penelec in 1999. From February 1997 to August 1999, he served as a self-employed consultant in the energy field. Prior to that, he held various positions with Columbia Energy from 1970 to 1997.
(d) Mrs. Snyder was elected Executive Vice President - Corporate Affairs of GPUS in 1998. She is also a director of GPUS, GPU AR and Midlands. Previously, she served as Senior Vice President - Corporate Affairs of GPUS, Vice President - Public Affairs of JCP&L since 1996 and Vice President - Public Affairs of Met-Ed and Penelec since 1994.
(e) Mrs. Persson has served in the N.J. Division of Consumer Affairs Elder Fraud Investigation Unit since 1999. She previously served as liaison (Special Assistant Director) between the N.J. Division of Consumer Affairs and various state boards. Prior to 1995, she was owner and President of Business Dynamics Associates of Red Bank, NJ. Mrs. Persson is a member of the United States Small Business Administration National Advisory Board, the New Jersey Small Business Advisory Council, the Board of Advisors of Brookdale Community College and the Board of Advisors of Georgian Court College.
(f) Mr. Van Ness is Of Counsel in the firm of Hubert, Van Ness, Gayri and Goodell of Princeton, NJ since 1998. Prior to that he was affiliated with the law firm of Pico, Mack, Kennedy, Jaffe, Perrella and Yoskin of Trenton, NJ since 1990. He is also a director of The Prudential Insurance Company of America.
(g) Mr. Wiley has been a partner in the law firm of Wiley, Malehorn and Sirota of Morristown, NJ since 1973. He is also Chairman of First Morris Bank of Morristown, NJ.
The directors of the GPU companies are elected at their respective annual meetings of stockholders to serve until the next meeting of stockholders and until their respective successors are duly elected and qualified. There are no family relationships among the directors of the GPU companies.
Identification of Executive Officers - ------------------------------------
The current executive officers of GPU, Inc., JCP&L, Met-Ed and Penelec, their ages, positions held and business experience during the past five years are as follows:
Year First Name Age Position Elected - ---- --- -------- --------- GPU, Inc.: - --------- F. D. Hafer (a) 59 Chairman, President and Chief 1996 Executive Officer R. L. Wise (b) 56 President, JCP&L, Met-Ed and Penelec 1999 I. H. Jolles (c) 61 Senior Vice President and General 1990 Counsel B. L. Levy (d) 44 Senior Vice President and Chief 1998 Financial Officer and President, GPU Capital, Inc. P. E. Maricondo (e) 53 Vice President, Comptroller and 1998 Chief Accounting Officer T. G. Howson (f) 51 Vice President and Treasurer 1994 S. L. Guibord (g) 51 Secretary 1999 T. G. Broughton (h) 54 President, GPUN 1996 C. B. Snyder (i) 54 Executive Vice President - 1997 Corporate Affairs, GPUS
Year First Elected Name Age Position JCP&L Met-Ed Penelec - ---- --- -------- ----- ------ ------- JCP&L/Met-Ed/Penelec: - -------------------- F. D. Hafer (a) 59 Chairman and Chief 1996 1978 1994 Executive Officer R. L. Wise (b) 56 President and Chief 1999 1999 1999 Operating Officer I. H. Jolles (c) 61 Vice President and 1996 1996 1996 General Counsel B. L. Levy (d) 44 Vice President and 1998 1998 1998 Chief Financial Officer T. G. Howson (f) 51 Vice President 1994 1994 1994 and Treasurer S. L. Guibord (g) 51 Secretary 1996 1996 1996 C. Brooks (j) 50 Vice President - Human and 1997 1997 1997 Technical Resources C. A. Mascari (k) 52 Vice President - Power 1997 1997 1997 Services M. P. O'Flynn (l) 54 Vice President - 1999 1999 1999 Finance and Rates and Comptroller M. B. Roche (m) 48 Vice President - 1999 2000 2000 Customer Services and Sr. Vice President - New Jersey Operations R. S. Zechman (n) 56 Vice President - 1996 1990 1994 Engineering and Operations
(a) See Note (a) on page 33.
(b) See Note (b) on page 34.
(c) Mr. Jolles is also Executive Vice President, General Counsel and a director of GPUS, General Counsel of GPUN and a director of GPUS, GPUI, GPU Power, GPU Capital, GPU Electric and Midlands. He is also a director of Utilities Mutual Insurance Company.
(d) Mr. Levy is also a director of GPUS, GPUI, GPU Power, GPU Capital, GPU Electric, Avon and Midlands. Mr. Levy is also President of GPU Capital. Prior to assuming his current position, Mr. Levy served as President, Chief Executive Officer and director of GPUI since 1991.
(e) Mr. Maricondo was elected Vice President, Comptroller and Chief Accounting Officer of GPU, Inc. and GPUS in 1998 and Vice President and Comptroller of GPU Capital in 1999. Prior to that he served as Vice President - Internal Auditing of GPUS since 1997 and as Vice President and Comptroller of GPUN from 1993.
(f) Mr. Howson is also Vice President and Treasurer of GPUN, GPU AR, Saxton and GPU Telcom.
(g) Mr. Guibord has also served as Corporate Compliance Auditing Director of GPUS since 1994. Mr. Guibord also serves as Secretary of GPUS, GPUN, GPU AR, GPU Telcom and Saxton.
(h) Mr. Broughton is also a director of GPUN. He previously served as Executive Vice President of GPUN since 1995. Prior to that, he served as Vice President - TMI of GPUN since 1991.
(i) See Note (d) on Page 34.
(j) Mr. Brooks previously served as Vice President - Collect and Disburse Money of GPU Generation, Inc. since 1996. Prior to that, he was Vice President - Materials and Services of GPUS since 1990.
(k) Mr. Mascari previously served as Vice President - System Planning of GPUS since 1994.
(l) See Note (c) on page 34.
(m) Prior to assuming his current position, Mr. Roche served as Vice President - Oyster Creek since June 1995.
(n) Mr. Zechman has also served as Vice President - Administrative Services of Met-Ed since 1992.
The executive officers of the GPU companies are elected each year by their respective Boards of Directors at the first meeting of the Board held following the annual meeting of stockholders. Executive officers hold office until the next meeting of directors following the annual meeting of stockholders and until their respective successors are duly elected and qualified. There are no family relationships among the executive officers.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item with respect to GPU, Inc. is incorporated by reference to the EXECUTIVE COMPENSATION section of GPU, Inc.'s Proxy Statement for the 2000 Annual Meeting of Stockholders. The following table sets forth remuneration paid, as required by this Item, to the Chief Executive Officer and the five other most highly compensated executive officers of JCP&L, Met-Ed and Penelec for the year ended December 31, 1999.
Aggregate Units Aggregate Value --------------- ---------------
F. D. Hafer see note (3) see note (3) R. L. Wise see note (4) see note (4) R. S. Zechman 6,722 $199,980 C. A. Mascari 7,926 235,799 D. J. Howe 4,811 143,127
(3) Mr. Hafer was compensated by GPUS for his overall service on behalf of GPU and accordingly was not compensated directly by the other subsidiary companies for his services. Information with respect to Mr. Hafer's compensation is included in the EXECUTIVE COMPENSATION section of GPU, Inc.'s Proxy Statement for the 2000 Annual Meeting of Stockholders, which is incorporated herein by reference.
(4) Information with respect to Mr. Wise's compensation is included in the EXECUTIVE COMPENSATION section of GPU, Inc.'s Proxy Statement for the 2000 Annual Meeting of Stockholders, which is incorporated herein by reference.
(5) Consists of GPU's matching contributions under the Savings Plan ($6,400), matching contributions under the non-qualified deferred compensation plan ($2,800), above-market interest accrued on the retirement portion of deferred compensation ($351), and earnings on LTIP compensation not paid in the current year ($12,532).
(6) Consists of GPU's matching contributions under the Savings Plan ($6,400), matching contributions under the non-qualified deferred compensation plan ($2,400), above-market interest accrued on the retirement portion of deferred compensation ($3,314), and earnings on LTIP compensation not paid in the current year ($14,976).
(7) Consists of GPU's matching contributions under the Savings Plan ($6,400), matching contributions under the non-qualified deferred compensation plan ($2,600), above-market interest accrued on the retirement portion of deferred compensation ($901), and earnings on LTIP compensation not paid in the current year ($8,703).
Option Grants In Last Fiscal Year - ---------------------------------
The following table summarizes option grants made during 1999 to the Named Executive Officers. All of these options were granted with an exercise price equal to the fair market value of GPU stock on the date of grant.
Aggregated Option Exercises In Last Fiscal Year And Fiscal Year-End Option Value
The following table summarizes the number and value of all unexercised options held by the Named Executive Officers. In 1999, no options were exercised by any Named Executive Officer.
Number of Securities Underlying Value of Unexercised Unexercised Options at In-the-Money Options Fiscal Year-End (#) at Fiscal Year-End ($) -------------------------- --------------------------
Name Exercisable Unexercisable Exercisable Unexercisable - ---- ----------- ------------- ----------- -------------
F. D. Hafer (3) (3) (3) (3) R. L. Wise (4) (4) (4) (4) R. S. Zechman 1,617 4,633 0 0 C. A. Mascari 1,617 4,633 0 0 D. J. Howe 1,617 4,633 0 0
LONG-TERM INCENTIVE PLANS - AWARDS IN LAST FISCAL YEAR ------------------------------------------------------
This table shows the LTIP awards made to the Named Executive Officers for the performance period January 1, 1999 through December 31, 2003.
Performance Estimated future payouts Number of or other under non-stock price- shares, period until based plans(1) units or maturation Threshold Target Maximum Name other rights or payout (#) (#) (#) ---- ------------- ------------- ----------- ---- ------
F. D. Hafer (2) (2) (2) (2) (2) R. L. Wise (2) (2) (2) (2) (2) R. S. Zechman 1,100 5 year vesting 550 1,100 2,200 C. A. Mascari 1,100 5 year vesting 550 1,100 2,200 D. J. Howe 1,100 5 year vesting 550 1,100 2,200
(1) The restricted units awarded in 1999 under the 1990 Stock Plan provide for a performance adjustment to the aggregate number of units vesting for the recipient, including the accumulated reinvested dividend equivalents, based on the annualized GPU Total Shareholder Return (TSR) percentile ranking against all companies in the Standard & Poor's Electric Utility Index for the period between the award and vesting dates. With a 55th percentile ranking, the performance adjustment would be 100% as reflected in the "Target" column. In the event that the percentile ranking is below the 55th percentile, the performance adjustment would be reduced in steps reaching 0% below the 40th percentile. The minimum payout or "Threshold" begins at the 40th percentile, which results in a payout of 50% of target. A ranking below the 40th percentile would result in no award. Should the TSR percentile ranking exceed the 59th percentile, then the performance adjustment would be increased in steps reaching 200% at the 90th percentile as reflected in the "Maximum" column. Under the 1990 Stock Plan, regular quarterly dividends are reinvested in additional units that are subject to the vesting restrictions of the award. Actual payouts under the Plan would be based on the aggregate number of units awarded and the units accumulated through dividend reinvestment at the time the restrictions lapse.
(2) Information with respect to Mr. Hafer's and Mr. Wise's long-term incentive plans is included in the EXECUTIVE COMPENSATION section of GPU, Inc.'s Proxy Statement for the 2000 Annual Meeting of Stockholders, which is incorporated herein by reference.
Proposed Remuneration of Executive Officers - -------------------------------------------
None of the Named Executive Officers in the Summary Compensation Table has an employment contract. The compensation of executive officers is determined from time to time by the Personnel & Compensation Committee of the GPU, Inc. Board of Directors.
Retirement Plans - ----------------
The GPU companies' pension plans provide for pension benefits, payable for life after retirement, based upon years of creditable service with the GPU companies and the employee's career average compensation as defined below. Federal law limits the amount of an employee's pension benefits that may be paid from a qualified trust established pursuant to a qualified pension plan (such as the GPU companies' plans). The GPU companies also have adopted non-qualified plans providing that the portion of a participant's pension benefits which, by reason of such limitations, cannot be paid from such a qualified trust shall be paid directly on an unfunded basis by the participant's employer.
The following table illustrates the amount of aggregate annual pension from funded and unfunded sources resulting from employer contributions to the qualified trust and direct payments payable upon retirement in 2000 (computed on a single life annuity basis) to persons in specified compensation and years of service classifications:
ESTIMATED ANNUAL RETIREMENT BENEFITS (2) (3) (4) BASED UPON CAREER AVERAGE COMPENSATION
(2000 Retirement)
Career Average Compen- Years of Service sation(1) ------------------------------------------------------- 15 20 25 30 35 40 --------- -------- -------- -------- -------- -------- ------ $ 50,000 $ 13,810 $18,413 $ 23,016 $27,620 $ 32,223 $ 36,585 100,000 28,810 38,413 48,016 57,620 67,223 76,185 150,000 43,810 58,413 73,016 87,620 102,223 115,785 200,000 58,810 78,413 98,016 117,620 137,223 155,385
250,000 73,810 98,413 123,016 147,620 172,223 194,985 300,000 88,810 118,413 148,016 177,620 207,223 234,585 350,000 103,810 138,413 173,016 207,620 242,223 274,185 400,000 118,810 158,413 198,016 237,620 277,223 313,785
450,000 133,810 178,413 223,016 267,620 312,223 353,385 500,000 148,810 198,413 248,016 297,620 347,223 392,985 550,000 163,810 218,413 273,016 327,620 382,223 432,585 600,000 178,810 238,413 298,016 357,620 417,223 472,185
650,000 193,810 258,413 323,016 387,620 452,223 511,785 700,000 208,810 278,413 348,016 417,620 487,223 551,385 750,000 223,810 298,413 373,016 447,620 522,223 590,985 800,000 238,810 318,413 398,016 477,620 557,223 630,585
(1) Career Average Compensation is the average annual compensation received from January 1, 1984 to retirement and includes Salary and Bonus. The career average compensation amounts for the following Named Executive Officers differ by more than 10% from the three year average annual compensation set forth in the Summary Compensation Table and are as follows: Messrs. Hafer - $414,320; Wise - $304,694; Zechman - $139,754; Mascari - $138,924; and Howe - $119,362.
(2) Years of Creditable Service at December 31, 1999: Messrs. Hafer - 37 years; Wise - 36 years; Zechman - 30 years; Mascari - 26 years; and Howe - 23 years.
(3) Based on an assumed retirement at age 65 in 1999. To reduce the above amounts to reflect a retirement benefit assuming a continual annuity to a surviving spouse equal to 50% of the annuity payable at retirement, multiply the above benefits by 90%. The estimated annual benefits are not subject to any reduction for Social Security benefits or other offset amounts.
(4) Annual retirement benefits under the basic pension per the above table cannot exceed 55%, as defined in the pension plan, of the average compensation during the highest paid 36 calendar months. As of December 31, 1999, none of the Named Executive Officers exceed the 55% limit.
Remuneration of JCP&L Directors - -------------------------------
Nonemployee directors receive an annual retainer of $15,000, a fee of $1,000 for each Board meeting attended, and a fee of $1,000 for each Committee meeting attended.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item for GPU, Inc. is incorporated by reference to the SECURITY OWNERSHIP section of GPU, Inc.'s Proxy Statement for the 2000 Annual Meeting of Stockholders.
All of the outstanding shares of JCP&L (15,371,270), Met-Ed (859,500) and Penelec (5,290,596) common stock are owned beneficially and of record by their parent, GPU, Inc., 300 Madison Avenue, Morristown, NJ 07962.
The following table sets forth, as of February 1, 2000, the beneficial ownership of equity securities (and stock-equivalent units) of each of the directors and each of the executive officers named in the Summary Compensation Table, and of all directors and executive officers of each of the respective GPU Energy companies as a group. The shares of Common Stock owned by all directors and executive officers as a group constitute less than 1% of the total shares outstanding.
Amount and Nature of Beneficial Ownership Shares(1) Stock-Equivalent Name Title of Security Direct Indirect Units(2) ---- ------------------ ----- ------- -------
JCP&L/Met-Ed/Penelec:
F. D. Hafer GPU Common Stock 12,421 154 34,547 R. L. Wise GPU Common Stock 4,111 - 23,370 R. S. Zechman GPU Common Stock 1,914 - 6,722 C. A. Mascari GPU Common Stock - 6 7,926 D. J. Howe GPU Common Stock - 481 4,811 C. B. Snyder GPU Common Stock 955 - 7,726 JCP&L Only: - ----------- G. E. Persson GPU Common Stock None S. C. Van Ness GPU Common Stock None S. B. Wiley GPU Common Stock None
All Directors and Executive Officers as a Group GPU Common Stock 43,095 3,442 142,530
(1) The number of shares owned and the nature of such ownership, not being within the knowledge of GPU, have been furnished by each individual.
(2) Restricted units, which do not have voting rights, represent rights (subject to vesting) to receive shares of Common Stock under the 1990 Stock Plan for Employees of GPU, Inc. and Subsidiaries (the "1990 Stock Plan"). These amounts also include restricted units, which have vested under the 1990 Stock Plan, but which were deferred pursuant to that Plan by the following officers: Mr. Wise - 6,765 units, Mr. Zechman - 689 units, and Mr. Mascari - 2,001 units. See Summary Compensation Table above.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
GPU and its subsidiaries have business arrangements with organizations with which certain GPU directors and certain owners of 5% or more of GPU stock are affiliated. These arrangements are conducted in the ordinary course of business, at arms-length, and on standard commercial terms and conditions.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) See pages and for references to Financial Statements and Financial Statement Schedules required by this item.
1. Exhibits:
3-A Articles of Incorporation of GPU, as amended through March 27, 1990 - Incorporated by reference to Exhibit 3-A, 1989 Annual Report on Form 10-K, SEC File No. 1-6047.
3-A-1 Articles of Amendment to Articles of Incorporation of GPU dated May 5, 1995 - Incorporated by reference to Exhibit A-4, Certificate Pursuant to Rule 24, SEC File No. 70-8569.
3-A-2 Articles of Incorporation of GPU, Inc. as amended August 1, 1996 - Incorporated by reference to Exhibit 3-A-2, 1996 Annual Report on Form 10-K, SEC File No. 1-6047.
3-B By-Laws of GPU, Inc. as amended May 6, 1999.
3-C Restated Certificate of Incorporation of JCP&L, as amended - Incorporated by reference to Exhibit 3-A, 1990 Annual Report on Form 10-K, SEC File No. 1-3141.
3-C-1 Certificate of Amendment to Restated Certificate of Incorporation of JCP&L, dated June 19, 1992 - Incorporated by reference to Exhibit A-2(a), Certificate Pursuant to Rule 24, SEC File No. 70-7949.
3-C-2 Certificate of Amendment to Restated Certificate of Incorporation of JCP&L, dated June 19, 1992 - Incorporated by reference to Exhibit A-2(a)(i), Certificate Pursuant to Rule 24, SEC File No. 70-7949.
3-D By-Laws of JCP&L, as amended - Incorporated by reference to Exhibit 3-B, 1993 Annual Report on Form 10-K, SEC File No. 1-3141.
3-E Restated Articles of Incorporation of Met-Ed dated March 8, 1999.
3-F By-Laws of Met-Ed dated July 27, 1995, as amended - Incorporated by reference to Exhibit 3-F, 1995 Annual Report on Form 10-K, SEC File No. 1-446.
3-F-1 By-Laws of Met-Ed dated May 22, 1997 - Incorporated by reference to Exhibit B-35 to GPU, Inc.'s Annual Report on Form U5S, SEC File No. 30-126.
3-G Restated Articles of Incorporation of Penelec dated March 8, 1999.
3-H By-Laws of Penelec dated May 22 1997, as amended - Incorporated by reference to Exhibit B-45, 1997 Annual Report of GPU on Form U5S, SEC File No. 30-126.
4-A Indenture of JCP&L, dated March 1, 1946, between JCP&L and United States Trust Company of New York, Successor Trustee, as amended and supplemented by eight supplemental indentures dated December 1, 1948 through June 1, 1960 - Incorporated by reference to JCP&L's Instruments of Indebtedness Nos. 1 to 7, inclusive, and 9 and 10 filed as part of Amendment No. 1 to 1959 Annual Report of GPU on Form U5S, SEC File Nos. 30-126 and 1-3292.
4-A-1 Ninth Supplemental Indenture of JCP&L, dated November 1, 1962 - Incorporated by reference to Exhibit 2-C, Registration No. 2-20732.
4-A-2 Tenth Supplemental Indenture of JCP&L, dated October 1, 1963 - Incorporated by reference to Exhibit 2-C, Registration No. 2-21645.
4-A-3 Eleventh Supplemental Indenture of JCP&L, dated October 1, 1964 - Incorporated by reference to Exhibit 5-A-3, Registration No. 2-59785.
4-A-4 Twelfth Supplemental Indenture of JCP&L, dated November 1, 1965 - Incorporated by reference to Exhibit 5-A-4, Registration No. 2-59785.
4-A-5 Thirteenth Supplemental Indenture of JCP&L, dated August 1, 1966 - Incorporated by reference to Exhibit 4-C, Registration No. 2-25124.
4-A-6 Fourteenth Supplemental Indenture of JCP&L, dated September 1, 1967 - Incorporated by reference to Exhibit 5-A-6, Registration No. 2-59785.
4-A-7 Fifteenth Supplemental Indenture of JCP&L, dated October 1, 1968 - Incorporated by reference to Exhibit 5-A-7, Registration No. 2-59785.
4-A-8 Sixteenth Supplemental Indenture of JCP&L, dated October 1, 1969 - Incorporated by reference to Exhibit 5-A-8, Registration No. 2-59785.
4-A-9 Seventeenth Supplemental Indenture of JCP&L, dated June 1, 1970 - Incorporated by reference to Exhibit 5-A-9, Registration No. 2-59785.
4-A-10 Eighteenth Supplemental Indenture of JCP&L, dated December 1, 1970 - Incorporated by reference to Exhibit 5-A-10, Registration No. 2-59785.
4-A-11 Nineteenth Supplemental Indenture of JCP&L, dated February 1, 1971 - Incorporated by reference to Exhibit 5-A-11, Registration No. 2-59785.
4-A-12 Twentieth Supplemental Indenture of JCP&L, dated November 1, 1971 - Incorporated by reference to Exhibit 5-A-12, Registration No. 2-59875.
4-A-13 Twenty-first Supplemental Indenture of JCP&L, dated August 1, 1972 - Incorporated by reference to Exhibit 5-A-13, Registration No. 2-59785.
4-A-14 Twenty-second Supplemental Indenture of JCP&L, dated August 1, 1973 - Incorporated by reference to Exhibit 5-A-14, Registration No. 2-59785.
4-A-15 Twenty-third Supplemental Indenture of JCP&L, dated October 1, 1973 - Incorporated by reference to Exhibit 5-A-15, Registration No. 2-59785.
4-A-16 Twenty-fourth Supplemental Indenture of JCP&L, dated December 1, 1973 - Incorporated by reference to Exhibit 5-A-16, Registration No. 2-59785.
4-A-17 Twenty-fifth Supplemental Indenture of JCP&L, dated November 1, 1974 - Incorporated by reference to Exhibit 5-A-17, Registration No. 2-59785.
4-A-18 Twenty-sixth Supplemental Indenture of JCP&L, dated March 1, 1975 - Incorporated by reference to Exhibit 5-A-18, Registration No. 2-59785.
4-A-19 Twenty-seventh Supplemental Indenture of JCP&L, dated July 1, 1975 - Incorporated by reference to Exhibit 5-A-19, Registration No. 2-59785.
4-A-20 Twenty-eighth Supplemental Indenture of JCP&L, dated October 1, 1975 - Incorporated by reference to Exhibit 5-A-20, Registration No. 2-59785.
4-A-21 Twenty-ninth Supplemental Indenture of JCP&L, dated February 1, 1976 - Incorporated by reference to Exhibit 5-A-21, Registration No. 2-59785.
4-A-22 Supplemental Indenture No. 29A of JCP&L, dated May 31, 1976 - Incorporated by reference to Exhibit 5-A-22, Registration No. 2-59785.
4-A-23 Thirtieth Supplemental Indenture of JCP&L, dated June 1, 1976 - Incorporated by reference to Exhibit 5-A-23, Registration No. 2-59785.
4-A-24 Thirty-first Supplemental Indenture of JCP&L, dated May 1, 1977 - Incorporated by reference to Exhibit 5-A-24, Registration No. 2-59785.
4-A-25 Thirty-second Supplemental Indenture of JCP&L, dated January 20, 1978 - Incorporated by reference to Exhibit 5-A-25, Registration No. 2-60438.
4-A-26 Thirty-third Supplemental Indenture of JCP&L, dated January 1, 1979 - Incorporated by reference to Exhibit A-20(b), Certificate Pursuant to Rule 24, SEC File No. 70-6242.
4-A-27 Thirty-fourth Supplemental Indenture of JCP&L, dated June 1, 1979 - Incorporated by reference to Exhibit A-28, Certificate Pursuant to Rule 24, SEC File No. 70-6290.
4-A-28 Thirty-sixth Supplemental Indenture of JCP&L, dated October 1, 1979 - Incorporated by reference to Exhibit A-30, Certificate Pursuant to Rule 24, SEC File No. 70-6354.
4-A-29 Thirty-seventh Supplemental Indenture of JCP&L, dated September 1, 1984 - Incorporated by reference to Exhibit A-1(cc), Certificate Pursuant to Rule 24, SEC File No. 70-7001.
4-A-30 Thirty-eighth Supplemental Indenture of JCP&L, dated July 1, 1985 - Incorporated by reference to Exhibit A-1(dd), Certificate Pursuant to Rule 24, SEC File No. 70-7109.
4-A-31 Thirty-ninth Supplemental Indenture of JCP&L, dated April 1, 1988 - Incorporated by reference to Exhibit A-1(a), Certificate Pursuant to Rule 24, SEC File No. 70-7263.
4-A-32 Fortieth Supplemental Indenture of JCP&L, dated June 14, 1988 - Incorporated by reference to Exhibit A-1(ff), Certificate Pursuant to Rule 24, SEC File No. 70-7603.
4-A-33 Forty-first Supplemental Indenture of JCP&L, dated April 1, 1989 - Incorporated by reference to Exhibit A-1(gg), Certificate Pursuant to Rule 24, SEC File No. 70-7603.
4-A-34 Forty-second Supplemental Indenture of JCP&L, dated July 1, 1989 - Incorporated by reference to Exhibit A-1(hh), Certificate Pursuant to Rule 24, SEC File No. 70-7603.
4-A-35 Forty-third Supplemental Indenture of JCP&L, dated March 1, 1991 - Incorporated by reference to Exhibit 4-A-35, Registration No. 33-45314.
4-A-36 Forty-fourth Supplemental Indenture of JCP&L, dated March 1, 1992 - Incorporated by reference to Exhibit 4-A-36, Registration No. 33-49405.
4-A-37 Forty-fifth Supplemental Indenture of JCP&L, dated October 1, 1992 - Incorporated by reference to Exhibit 4-A-37, Registration No. 33-49405.
4-A-38 Forty-sixth Supplemental Indenture of JCP&L, dated April 1, 1993 - Incorporated by reference to Exhibit C-15, 1992 Annual Report of GPU on Form U5S, SEC File No. 30-126.
4-A-39 Forty-seventh Supplemental Indenture of JCP&L, dated April 10, 1993 - Incorporated by reference to Exhibit C-16, 1992 Annual Report of GPU on Form U5S, SEC File No. 30-126.
4-A-40 Forty-eighth Supplemental Indenture of JCP&L, dated April 15, 1993 - Incorporated by reference to Exhibit C-17, 1992 Annual Report of GPU on Form U5S, SEC File No. 30-126.
4-A-41 Forty-ninth Supplemental Indenture of JCP&L, dated October 1, 1993 - Incorporated by reference to Exhibit C-18, 1993 Annual Report of GPU on Form U5S, SEC File No. 30-126.
4-A-42 Fiftieth Supplemental Indenture of JCP&L, dated August 1, 1994 - Incorporated by reference to Exhibit C-19, 1994 Annual Report of GPU on Form U5S, SEC File No. 30-126.
4-A-43 Fifty-first Supplemental Indenture of JCP&L, dated August 15, 1996 - Incorporated by reference to Exhibit 4-A-43, 1996 Annual Report on Form 10-K, SEC File No. 1-6047.
4-A-44 Fifty-second Supplemental Indenture of JCP&L dated July 1, 1999 - Incorporated by reference to Item 16 Exhibit 4-B-44 Registration No. 333-88783.
4-A-45 Fifty-third Supplemental Indenture of JCP&L dated November 1, 1999.
4-A-46 Subordinated Debenture Indenture of JCP&L dated May 1, 1995 - Incorporated by reference to Exhibit A-8(a), Certificate Pursuant to Rule 24, SEC File No. 70-8495.
4-B Indenture of Met-Ed, dated November 1, 1944 with United States Trust Company of New York, Successor Trustee, as amended and supplemented by fourteen supplemental indentures dated February 1, 1947 through May 1, 1960 - Incorporated by reference to Met-Ed's Instruments of Indebtedness Nos. 1 to 14, inclusive and 16, filed as part of Amendment No. 1 to 1959 Annual Report of GPU on Form U5S, SEC File Nos. 30-126 and 1-3292.
4-B-1 Supplemental Indenture of Met-Ed, dated December 1, 1962 - Incorporated by reference to Exhibit 2-E(1), Registration No. 2-59678.
4-B-2 Supplemental Indenture of Met-Ed, dated March 20, 1964 - Incorporated by reference to Exhibit 2-E(2), Registration No. 2-59678.
4-B-3 Supplemental Indenture of Met-Ed, dated July 1, 1965 - Incorporated by reference to Exhibit 2-E(3), Registration No. 2-59678.
4-B-4 Supplemental Indenture of Met-Ed, dated June 1, 1966 - Incorporated by reference to Exhibit 2-B-4, Registration No. 2-24883.
4-B-5 Supplemental Indenture of Met-Ed, dated March 22, 1968 - Incorporated by reference to Exhibit 4-C-5, Registration No. 2-29644.
4-B-6 Supplemental Indenture of Met-Ed, dated September 1, 1968 - Incorporated by reference to Exhibit 2-E(6), Registration No. 2-59678.
4-B-7 Supplemental Indenture of Met-Ed, dated August 1, 1969 - Incorporated by reference to Exhibit 2-E(7), Registration No. 2-59678.
4-B-8 Supplemental Indenture of Met-Ed, dated November 1, 1971 - Incorporated by reference to Exhibit 2-E(8), Registration No. 2-59678.
4-B-9 Supplemental Indenture of Met-Ed, dated May 1, 1972 - Incorporated by reference to Exhibit 2-E(9), Registration No. 2-59678.
4-B-10 Supplemental Indenture of Met-Ed, dated December 1, 1973 - Incorporated by reference to Exhibit 2-E(10), Registration No. 2-59678.
4-B-11 Supplemental Indenture of Met-Ed, dated October 30, 1974 - Incorporated by reference to Exhibit 2-E(11), Registration No. 2-59678.
4-B-12 Supplemental Indenture of Met-Ed, dated October 31, 1974 - Incorporated by reference to Exhibit 2-E(12), Registration No. 2-59678.
4-B-13 Supplemental Indenture of Met-Ed, dated March 20, 1975 - Incorporated by reference to Exhibit 2-E(13), Registration No. 2-59678.
4-B-14 Supplemental Indenture of Met-Ed, dated September 25, 1975 - Incorporated by reference to Exhibit 2-E(15), Registration No. 2-59678.
4-B-15 Supplemental Indenture of Met-Ed, dated January 12, 1976 - Incorporated by reference to Exhibit 2-E(16), Registration No. 2-59678.
4-B-16 Supplemental Indenture of Met-Ed, dated March 1, 1976 - Incorporated by reference to Exhibit 2-E(17), Registration No. 2-59678.
4-B-17 Supplemental Indenture of Met-Ed, dated September 28, 1977 - Incorporated by reference to Exhibit 2-E(18), Registration No. 2-62212.
4-B-18 Supplemental Indenture of Met-Ed, dated January 1, 1978 - Incorporated by reference to Exhibit 2-E(19), Registration No. 2-62212.
4-B-19 Supplemental Indenture of Met-Ed, dated September 1, 1978 - Incorporated by reference to Exhibit 4-A(19), Registration No. 33-48937.
4-B-20 Supplemental Indenture of Met-Ed, dated June 1, 1979 - Incorporated by reference to Exhibit 4-A(20), Registration No. 33-48937.
4-B-21 Supplemental Indenture of Met-Ed, dated January 1, 1980 - Incorporated by reference to Exhibit 4-A(21), Registration No. 33-48937.
4-B-22 Supplemental Indenture of Met-Ed, dated September 1, 1981 - Incorporated by reference to Exhibit 4-A(22), Registration No. 33-48937.
4-B-23 Supplemental Indenture of Met-Ed, dated September 10, 1981 - Incorporated by reference to Exhibit 4-A(23), Registration No. 33-48937.
4-B-24 Supplemental Indenture of Met-Ed, dated December 1, 1982 - Incorporated by reference to Exhibit 4-A(24), Registration No. 33-48937.
4-B-25 Supplemental Indenture of Met-Ed, dated September 1, 1983 - Incorporated by reference to Exhibit 4-A(25), Registration No. 33-48937.
4-B-26 Supplemental Indenture of Met-Ed, dated September 1, 1984 - Incorporated by reference to Exhibit 4-A(26), Registration No. 33-48937.
4-B-27 Supplemental Indenture of Met-Ed, dated March 1, 1985 - Incorporated by reference to Exhibit 4-A(27), Registration No. 33-48937.
4-B-28 Supplemental Indenture of Met-Ed, dated September 1, 1985 - Incorporated by reference to Exhibit 4-A(28), Registration No. 33-48937.
4-B-29 Supplemental Indenture of Met-Ed, dated June 1, 1988 - Incorporated by reference to Exhibit 4-A(29), Registration No. 33-48937.
4-B-30 Supplemental Indenture of Met-Ed, dated April 1, 1990 - Incorporated by reference to Exhibit 4-A(30), Registration No. 33-48937.
4-B-31 Amendment dated May 22, 1990 to Supplemental Indenture of Met-Ed, dated April 1, 1990 - Incorporated by reference to Exhibit 4-A(31), Registration No. 33-48937.
4-B-32 Supplemental Indenture of Met-Ed, dated September 1, 1992 - Incorporated by reference to Exhibit 4-A(32)(a), Registration No. 33-48937.
4-B-33 Supplemental Indenture of Met-Ed, dated December 1, 1993 - Incorporated by reference to Exhibit C-58, 1993 Annual Report of GPU on Form U5S, SEC File No. 30-126.
4-B-34 Supplemental Indenture of Met-Ed dated July 15, 1995 - Incorporated by reference to Exhibit 4-B-35, 1995 Annual Report on Form 10-K, SEC File No. 1-446.
4-B-35 Supplemental Indenture of Met-Ed dated August 15, 1996 - Incorporated by reference to Exhibit 4-B-35, 1996 Annual Report on Form 10-K, SEC File No. 1-446.
4-B-36 Supplemental Indenture of Met-Ed dated May 1, 1997 - Incorporated by reference to Exhibit 4-B-36, 1997 Annual Report on Form 10-K, SEC File No. 1-446.
4-B-37 Indenture between Met-Ed and United States Trust Company of New York dated May 1, 1999 - Incorporated by reference to Exhibit A-11(a), Certificate Pursuant to Rule 24, SEC File No. 70-9329.
4-B-38 Supplemental Indenture between Met-Ed and United States Trust Company of New York dated July 1, 1999.
4-C Mortgage and Deed of Trust of Penelec dated January 1, 1942 between Penelec and United States Trust Company of New York, Successor Trustee, and indentures supplemental thereto dated March 7, 1942 through May 1, 1960 - Incorporated by reference to Penelec's Instruments of Indebtedness Nos. 1-20, inclusive, filed as a part of Amendment No. 1 to 1959 Annual Report of GPU on Form U5S, SEC File Nos. 30-126 and 1-3292.
4-C-1 Supplemental Indentures to Mortgage and Deed of Trust of Penelec dated May 1, 1961 through December 1, 1977 - Incorporated by reference to Exhibit 2-D(1) to 2-D(19), Registration No. 2-61502.
4-C-2 Supplemental Indenture of Penelec dated June 1, 1978 - Incorporated by reference to Exhibit 4-A(2), Registration No. 33-49669.
4-C-3 Supplemental Indenture of Penelec dated June 1, 1979 - Incorporated by reference to Exhibit 4-A(3), Registration No. 33-49669.
4-C-4 Supplemental Indenture of Penelec dated September 1, 1984 - Incorporated by reference to Exhibit 4-A(4), Registration No. 33-49669.
4-C-5 Supplemental Indenture of Penelec dated December 1, 1985 - Incorporated by reference to Exhibit 4-A(5), Registration No. 33-49669.
4-C-6 Supplemental Indenture of Penelec dated December 1, 1986 - Incorporated by reference to Exhibit 4-A(6), Registration No. 33-49669.
4-C-7 Supplemental Indenture of Penelec dated May 1, 1989 - Incorporated by reference to Exhibit 4-A(7), Registration No. 33-49669.
4-C-8 Supplemental Indenture of Penelec dated December 1, 1990-Incorporated by reference to Exhibit 4-A(8), Registration No. 33-45312.
4-C-9 Supplemental Indenture of Penelec dated March 1, 1992 - Incorporated by reference to Exhibit 4-A(9), Registration No. 33-45312.
4-C-10 Supplemental Indenture of Penelec, dated June 1, 1993 - Incorporated by reference to Exhibit C-73, 1993 Annual Report of GPU on Form U5S, SEC File No. 30-126.
4-C-11 Supplemental Indenture of Penelec dated November 1, 1995 - Incorporated by reference to Exhibit 4-C-11, 1995 Annual Report on Form 10-K, SEC File No. 1-3522.
4-C-12 Supplemental Indenture of Penelec dated August 15, 1996 - Incorporated by reference to Exhibit 4-C-12, 1996 Annual Report on Form 10-K, SEC File No. 1-3522.
4-C-13 Senior Note Indenture between Penelec and United States Trust Company of New York dated April 1, 1999.
4-C-14 Indenture between Penelec and United States Trust Company of New York dated June 1, 1999 - Incorporated by reference to Exhibit A-11(a), Certificate Pursuant to Rule 24, SEC File No. 70-9327.
4-D Amended and Restated Limited Partnership Agreement of JCP&L Capital, L.P., dated May 11, 1995 - Incorporated by reference to Exhibit A-5(a), Certificate Pursuant to Rule 24, SEC File No. 70-8495.
4-E Action Creating Series A Preferred Securities of JCP&L Capital, L.P., dated May 11, 1995 - Incorporated by reference to Exhibit A-6(a), Certificate Pursuant to Rule 24, SEC File No. 70-8495.
4-F Payment and Guarantee Agreement of JCP&L, dated May 18, 1995 - Incorporated by reference to Exhibit B-1(a), Certificate Pursuant to Rule 24, SEC File No. 70-8495.
4-G Payment and Guarantee Agreement of Met-Ed, dated May 28, 1999 - Incorporated by reference to Exhibit B-1(a), Certificate Pursuant to Rule 24, SEC No. 70-9329.
4-H Amendment No. 1 to Payment and Guarantee Agreement of Met-Ed, dated November 23, 1999.
4-I Payment and Guarantee Agreement of Penelec, dated June 16, 1999 - Incorporated by reference to Exhibit B-1(a), Certificate Pursuant to Rule 24, SEC File No. 70-9327.
4-J Amendment No. 1 to Payment and Guarantee Agreement of Penelec, dated November 23, 1999.
4-K Form of Rights Agreement between GPU, Inc. and ChaseMellon Shareholder Services, L.L.C. - Incorporated by reference to Exhibit 4, June 30, 1998 Quarterly Report on Form 10-Q, SEC File No. 1-6047.
10-A GPU System Companies Deferred Compensation Plan dated June 5, 1997 - Incorporated by reference to Exhibit 10-A, 1997 Annual Report on Form 10-K, SEC File No. 1-6047, 1-3141, 1-446 and 1-3522.
10-B Employee Incentive Compensation Plan of JCP&L dated April 1, 1995 - Incorporated by reference to Exhibit 10-D, 1995 Annual Report on Form 10-K, SEC File No. 1-3141.
10-C Employee Incentive Compensation Plan of Met-Ed dated April 1, 1995 - Incorporated by reference to Exhibit 10-E, 1995 Annual Report on Form 10-K, SEC File No. 1-446.
10-D Employee Incentive Compensation Plan of Penelec dated April 1, 1995 - Incorporated by reference to Exhibit 10-F, 1995 Annual Report on Form 10-K, SEC File No. 1-3522.
10-E Incentive Compensation Plan for Elected Officers of JCP&L dated February 6, 1997 - Incorporated by reference to Exhibit 10-G, 1997 Annual Report on Form 10-K, SEC File No. 1-3141.
10-F Incentive Compensation Plan for Elected Officers of Met-Ed dated February 6, 1997 - Incorporated by reference to Exhibit 10-H, 1997 Annual Report on Form 10-K, SEC File No. 1-446.
10-G Incentive Compensation Plan for Elected Officers of Penelec dated February 6, 1997 - Incorporated by reference to Exhibit 10-I, 1997 Annual Report on Form 10-K, SEC File No. 1-3522.
10-H Deferred Remuneration Plan for Outside Directors of JCP&L dated June 5, 1997 - Incorporated by reference to Exhibit 10-J, 1997 Annual Report on Form 10-K, SEC File No. 1-3141.
10-I JCP&L Supplemental and Excess Benefits Plan dated June 5, 1997 - Incorporated by reference to Exhibit 10-K, 1997 Annual Report on Form 10-K, SEC File No. 1-3141.
10-J Met-Ed Supplemental and Excess Benefits Plan dated June 5, 1997 - Incorporated by reference to Exhibit 10-L, 1997 Annual Report on Form 10-K, SEC File No. 1-446.
10-K Penelec Supplemental and Excess Benefits Plan dated June 5, 1997 - Incorporated by reference to Exhibit 10-M, 1997 Annual Report on Form 10-K, SEC File No. 1-3522.
10-L Letter agreement dated August 7, 1997 relating to terms of employment and pension benefits for I.H. Jolles - Incorporated by reference to Exhibit 10-O, 1997 Annual Report on Form 10-K, SEC File No. 1-6047.
10-M GPU, Inc. Restricted Stock Plan for Outside Directors dated June 4, 1998 - Incorporated by reference to Exhibit 10-O, 1998 Annual Report on Form 10-K, SEC File No. 1-6047.
10-N Retirement Plan for Outside Directors of GPU, Inc. dated June 5, 1997 - Incorporated by reference to Exhibit 10-R, 1997 Annual Report on Form 10-K, SEC File No. 1-6047.
10-O Deferred Remuneration Plan for Outside Directors of GPU, Inc. dated October 8, 1997 - Incorporated by reference to Exhibit 10-R, 1997 Annual Report on Form 10-S, SEC File No. 1-6047.
10-P Second Amended and Restated Nuclear Material Lease Agreement, dated as of November 5, 1998, between Oyster Creek Fuel Corp. and JCP&L - Incorporated by reference to Exhibit 10-S, 1998 Annual Report on Form 10-K, SEC File No. 1-3141.
10-Q Letter Agreement, dated as of November 5, 1998, from JCP&L relating to Oyster Creek Nuclear Material Lease Agreement - Incorporated by reference to Exhibit 10-S, 1998 Annual Report on Form 10-K, SEC File No. 1-3141.
10-R Form of 1998 Stock Option Agreement under the 1990 Stock Plan for Employees of GPU, Inc. and Subsidiaries - Incorporated by reference to Exhibit 10-O, 1997 Annual Report on Form 10-K, SEC File No. 1-6047.
10-S Form of 1998 Performance Units Agreement under the 1990 Stock Plan for Employees of GPU, Inc. and Subsidiaries- Incorporated by reference to Exhibit 10-O, 1997 Annual Report on Form 10-K, SEC File No. 1-6047.
10-T Amended and Restated GPU System Companies Master Directors' Benefits Protection Trust effective June 1, 1999.
10-U Amended and Restated GPU System Companies Master Executives' Benefits Protection Trust effective June 1, 1999.
10-V GPU, Inc. 1990 Stock Plan for Employees of GPU, Inc. and Subsidiaries as amended and restated to reflect amendments through June 3, 1999.
10-W Form of 1999 Stock Option Agreement under the 1990 Stock Plan for Employees of GPU, Inc. and Subsidiaries.
10-X Form of 1999 Performance Units Agreement under the 1990 Stock Plan for Employees of GPU, Inc. and Subsidiaries.
10-Y Letter agreement dated February 23, 2000 relating to terms and conditions of the supplemental pension for Robert L. Wise.
10-Z Severance Protection Agreement for Thomas G. Broughton, dated November 5, 1998 - Incorporated by reference to Exhibit C-26 to GPU, Inc.'s Annual Report on Form U5S for the year 1998, SEC File No. 30-126.
10-AA Severance Protection Agreement for Fred D. Hafer, dated November 5, 1998 - Incorporated by reference to Exhibit C-24 to GPU, Inc.'s Annual Report on Form U5S for the year 1998, SEC File No. 30-126.
10-BB Severance Protection Agreement for Ira H. Jolles, dated November 5, 1998- Incorporated by reference to Exhibit C-25 to GPU, Inc.'s Annual Report on Form U5S for the year 1998, SEC File No. 30-126.
10-CC Severance Protection Agreement for Bruce L. Levy, dated December 16, 1998 - Incorporated by reference to Exhibit C-28 to GPU, Inc.'s Annual Report on Form U5S for the year 1998, SEC File No. 30-126.
10-DD Severance Protection Agreement for Carole B. Snyder, dated November 30, 1998 - Incorporated by reference to Exhibit C-27 to GPU, Inc.'s Annual Report on Form U5S for the year 1998, SEC File No. 30-126.
10-EE Severance Protection Agreement for Robert L. Wise, as amended and restated, dated February 23, 2000.
10-FF GPU Companies Supplemental Executive Retirement Plan, as adopted effective July 1, 1999.
10-GG Oyster Creek Nuclear Generating Station Purchase and Sale Agreement by and among GPU Nuclear, Inc. and JCP&L, as sellers, and AmerGen Energy Company, LLC, as buyer, dated as of October 15, 1999.
10-HH Agreement and Plan of Merger by and among GPU, Inc., MYR Group Inc. and GPX Acquisition Corp. - Incorporated by reference to Exhibit (c) (1) to GPU Inc.'s. Schedule 14D-1 Tender Offer Statement, SEC File No. 1-6047.
10-II Letter Agreement with Charles M. Brennan III and Byron D. Nelson, dated December 21, 1999 - Incorporated by reference to exhibit (c) (2) to GPU, Inc.'s Schedule 14D-1 Tender Offer Statement, SEC File No. 1-6047.
10-JJ Forms of Estate Enhancement Program Agreements.
12 Statements Showing Computation of Ratio of Earnings to Fixed Charges and Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends.
A - GPU, Inc. and Subsidiary Companies
B - JCP&L
C - Met-Ed D - Penelec
21 Subsidiaries of the Registrants
A - JCP&L
B - Met-Ed C - Penelec
23 Consent of Independent Accountants
A - GPU, Inc.
B - JCP&L
C - Met-Ed D - Penelec
27 Financial Data Schedules
A - GPU, Inc. and Subsidiary Companies
B - JCP&L
C - Met-Ed D - Penelec
(b) Reports on Form 8-K:
GPU, Inc.: ---------
Dated December 2, 1999, under Item 2 (Acquisition or Disposition of Assets) and Item 5 (Other Events).
Dated December 22, 1999, under Item 5 (Other Events). Dated December 27, 1999, under Item 2 (Acquisition or Disposition of Assets). Dated December 27, 1999, under Item 5 (Other Events). Dated December 29, 1999, under Item 5 (Other Events). Dated February 4, 2000, under Item 5 (Other Events). Dated March 3, 2000, under Item 7 (Financial Statements, Pro Forma Financial Information and Exhibits).
Jersey Central Power & Light Company: ------------------------------------
Dated November 18, 1999, under Item 5 (Other Events). Dated December 2, 1999, under Item 2 (Acquisition or Disposition of Assets) and Item 5 (Other Events). Dated December 27, 1999, under Item 2 (Acquisition or Disposition of Assets).
Metropolitan Edison Company: ---------------------------
Dated December 2, 1999, under Item 2 (Acquisition or Disposition of Assets) and Item 5 (Other Events).
Dated December 27, 1999, under Item 2 (Acquisition or Disposition of Assets).
Dated February 4, 2000, under Item 5 (Other Events).
Pennsylvania Electric Company: -----------------------------
Dated December 2, 1999, under Item 2 (Acquisition or Disposition of Assets) and Item 5 (Other Events).
Dated December 27, 1999, under Item 2 (Acquisition or Disposition of Assets).
Dated February 4, 2000, under Item 5 (Other Events).
GPU, INC.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
GPU, INC.
Dated: March 20, 2000 BY: /s/ F. D. Hafer --------------- F. D. Hafer, Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature and Title Date
/s/ F. D. Hafer March 20, 2000 - ---------------------------------------------- F. D. Hafer, Chairman (Chief Executive Officer) and President and Director
/s/ B. L. Levy March 20, 2000 - ---------------------------------------------- B. L. Levy, Senior Vice President (Chief Financial Officer)
/s/ P. E. Maricondo March 20, 2000 - ---------------------------------------------- P. E. Maricondo, Vice President and Comptroller (Chief Accounting Officer)
/s/ T. H. Black March 20, 2000 - ---------------------------------------------- T. H. Black, Director
/s/ T. B. Hagen March 20, 2000 - ---------------------------------------------- T. B. Hagen, Director
/s/ H. F. Henderson, Jr. March 20, 2000 - ---------------------------------------------- H. F. Henderson, Jr., Director
/s/ J. M. Pietruski March 20, 2000 - ---------------------------------------------- J. M. Pietruski, Director
/s/ C. A. Rein March 20, 2000 - ---------------------------------------------- C. A. Rein, Director
/s/ B. S. Townsend March 20, 2000 - ---------------------------------------------- B. S. Townsend, Director
/s/ C. A. H. Trost March 20, 2000 - ---------------------------------------------- C. A. H. Trost, Director
/s/ K. L. Wolfe March 20, 2000 - ---------------------------------------------- K. L. Wolfe, Director
/s/ P. K. Woolf March 20, 2000 - ---------------------------------------------- P. K. Woolf, Director
JERSEY CENTRAL POWER & LIGHT COMPANY
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. The Signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof.
JERSEY CENTRAL POWER & LIGHT COMPANY
Dated: March 20, 2000 BY: /s/ R. L. Wise -------------- R. L. Wise, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature and Title Date
/s/ F. D. Hafer March 20, 2000 - ---------------------------------------------- F. D. Hafer, Chairman (Principal Executive Officer) and Director
/s/ R. L. Wise March 20, 2000 - ---------------------------------------------- R. L. Wise, President (Principal Operating Officer) and Director
/s/ B. L. Levy March 20, 2000 - ---------------------------------------------- B. L. Levy, Vice President (Principal Financial Officer)
/s/ M. P. O'Flynn March 20, 2000 - ---------------------------------------------- M. P. O'Flynn, Vice President-Finance and Rates & Comptroller and Director (Principal Accounting Officer)
/s/ C. B. Snyder March 20, 2000 - ---------------------------------------------- C. B. Snyder, Director
/s/ G. E. Persson March 20, 2000 - ---------------------------------------------- G. E. Persson, Director
/s/ S. C. Van Ness March 20, 2000 - ---------------------------------------------- S. C. Van Ness, Director
/s/ S. B. Wiley March 20, 2000 - ---------------------------------------------- S. B. Wiley, Director
METROPOLITAN EDISON COMPANY
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. The Signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof.
METROPOLITAN EDISON COMPANY
Dated: March 20, 2000 BY: /s/ R. L. Wise -------------- R. L. Wise, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature and Title Date
/s/ F. D. Hafer March 20, 2000 - ---------------------------------------------- F. D. Hafer, Chairman (Principal Executive Officer) and Director
/s/ R. L. Wise March 20, 2000 - ---------------------------------------------- R. L. Wise, President (Principal Operating Officer) and Director
/s/ B. L. Levy March 20, 2000 - ---------------------------------------------- B. L. Levy, Vice President (Principal Financial Officer)
/s/ M. P. O'Flynn March 20, 2000 - ---------------------------------------------- M. P. O'Flynn, Vice President-Finance and Rates & Comptroller and Director (Principal Accounting Officer)
/s/ C. B. Snyder March 20, 2000 - ---------------------------------------------- C. B. Snyder, Director
PENNSYLVANIA ELECTRIC COMPANY
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. The Signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof.
PENNSYLVANIA ELECTRIC COMPANY
Dated: March 20, 2000 BY: /s/ R. L. Wise -------------- R. L. Wise, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature and Title Date
/s/ F. D. Hafer March 20, 2000 - ---------------------------------------------- F. D. Hafer, Chairman (Principal Executive Officer) and Director
/s/ R. L. Wise March 20, 2000 - ---------------------------------------------- R. L. Wise, President (Principal Operating Officer) and Director
/s/ B. L. Levy March 20, 2000 - ---------------------------------------------- B. L. Levy, Vice President (Principal Financial Officer)
/s/ M. P. O'Flynn March 20, 2000 - ---------------------------------------------- M. P. O'Flynn, Vice President-Finance and Rates & Comptroller and Director (Principal Accounting Officer)
/s/ C. B. Snyder March 20, 2000 - ---------------------------------------------- C. B. Snyder, Director
INDEX TO SUPPLEMENTARY DATA, FINANCIAL STATEMENTS ------------------------------------------------- AND FINANCIAL STATEMENT SCHEDULES --------------------------------- GPU, INC. Page --------- ----
Supplementary Data - ------------------
GPU Energy Companies' Statistics Selected Financial Data Quarterly Financial Data
Combined Management's Discussion and Analysis of
Financial Condition and Results of Operations
Financial Statements - --------------------
Report of Independent Accountants Consolidated Balance Sheets as of December 31, 1999 and 1998 Consolidated Statements of Income for the Years Ended December 31, 1999, 1998 and 1997 Consolidated Statements of Comprehensive Income for the Years Ended December 31, 1999, 1998 and 1997 Consolidated Statements of Retained Earnings for the Years Ended December 31, 1999, 1998 and 1997 Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, 1998 and 1997
Combined Notes to Consolidated Financial Statements
Financial Statement Schedules - -----------------------------
Schedule II - Valuation and Qualifying Accounts for the Years 1997-1999
JERSEY CENTRAL POWER & LIGHT COMPANY ------------------------------------
Supplementary Data - ------------------
Company Statistics Selected Financial Data Quarterly Financial Data
Financial Statements - --------------------
Report of Independent Accountants Consolidated Balance Sheets as of December 31, 1999 and 1998 Consolidated Statements of Income for the Years Ended December 31, 1999, 1998 and 1997 Consolidated Statements of Comprehensive Income for the Years Ended December 31, 1999, 1998 and 1997 Consolidated Statements of Retained Earnings for the Years Ended December 31, 1999, 1998 and 1997 Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, 1998 and 1997
Financial Statement Schedules - -----------------------------
Schedule II - Valuation and Qualifying Accounts for the Years 1997-1999
INDEX TO SUPPLEMENTARY DATA, FINANCIAL STATEMENTS ------------------------------------------------- AND FINANCIAL STATEMENT SCHEDULES ---------------------------------
METROPOLITAN EDISON COMPANY ---------------------------
Supplementary Data
Company Statistics Selected Financial Data Quarterly Financial Data
Financial Statements
Report of Independent Accountants Consolidated Balance Sheets as of December 31, 1999 and 1998 Consolidated Statements of Income for the Years Ended December 31, 1999, 1998 and 1997 Consolidated Statements of Comprehensive Income for the Years Ended December 31, 1999, 1998 and 1997 Consolidated Statements of Retained Earnings for the Years Ended December 31, 1999, 1998 and 1997 Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, 1998 and 1997
Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts for the Years 1997-1999
PENNSYLVANIA ELECTRIC COMPANY -----------------------------
Supplementary Data
Company Statistics Selected Financial Data Quarterly Financial Data
Financial Statements
Report of Independent Accountants Consolidated Balance Sheets as of December 31, 1999 and 1998 Consolidated Statements of Income for the Years Ended December 31, 1999, 1998 and 1997 Consolidated Statements of Comprehensive Income for the Years Ended December 31, 1999, 1998 and 1997 Consolidated Statements of Retained Earnings for the Years Ended December 31, 1999, 1998 and 1997 Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, 1998 and 1997
Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts for the Years 1997-1999
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.
GPU, Inc. and Subsidiary Companies
COMBINED MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GPU, Inc. owns all the outstanding common stock of three domestic electric utilities -- Jersey Central Power & Light Company (JCP&L), Metropolitan Edison Company (Met-Ed) and Pennsylvania Electric Company (Penelec). The customer service function, transmission and distribution operations and the operations of the remaining non-nuclear generating facilities of these electric utilities are conducting business under the name GPU Energy. JCP&L, Met-Ed and Penelec considered together are referred to as the "GPU Energy companies." The nuclear generation operations of GPU Energy are conducted by GPU Nuclear, Inc. (GPUN). GPU Capital, Inc. and GPU Electric, Inc. and their subsidiaries own, operate and fund the acquisition of electric and gas transmission and distribution systems in foreign countries, and are referred to as "GPU Electric." GPU International, Inc. and GPU Power, Inc. and their subsidiaries develop, own and operate generation facilities in the United States and foreign countries and are referred to as the "GPUI Group." Other subsidiaries of GPU, Inc. include GPU Advanced Resources, Inc. (GPU AR), which is involved in retail energy sales; GPU Telcom Services, Inc. (GPU Telcom), which is engaged in telecommunications-related businesses; and GPU Service, Inc. (GPUS), which provides legal, accounting, financial and other services to the GPU companies. All of these companies considered together are referred to as "GPU."
The matters discussed in Management's Discussion and Analysis of Financial Condition and Results of Operations contain certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements made that are not historical facts are forward-looking and, accordingly, involve estimates, forecasts, assumptions, risks and uncertainties that could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements. Although such forward-looking statements have been based on reasonable assumptions, there is no assurance that the expected results will be achieved. Some of the factors that could cause actual results to differ materially include, but are not limited to: the effects of regulatory decisions; changes in law and other governmental actions and initiatives; the impact of deregulation and increased competition in the industry; industry restructuring; expected outcomes of legal proceedings; the completion of generation asset divestiture; energy prices and availability; and uncertainties involved with foreign operations including political risks and foreign currency fluctuations.
GPU RESULTS OF OPERATIONS -------------------------
EARNINGS PER SHARE CONTRIBUTION: - --------------------------------
(on a diluted basis) 1999 1998 Change 1998 1997 Change - ----------------------------------------------------------------------------- Operations: GPU Energy companies * $ 3.51 $ 2.90 $ 0.61 $ 2.90 $ 3.21 $(0.31) GPU Electric 0.38 0.44 (0.06) 0.44 0.75 (0.31) GPUI Group 0.15 0.11 0.04 0.11 (0.13) 0.24 GPU AR (0.04) (0.01) (0.03) (0.01) (0.04) 0.03 GPU, Inc. (Corporate) (0.14) (0.09) (0.05) (0.09) (0.12) 0.03 ----- ----- ----- ----- ----- ----- Total operations 3.86 3.35 0.51 3.35 3.67 (0.32) Non-recurring items: GPU Energy companies (0.25) (0.52) 0.27 (0.52) - (0.52 GPU Electric 0.05 - 0.05 - (0.90) 0.90 ----- ----- ----- ----- ----- ----- Total $ 3.66 $ 2.83 $ 0.83 $ 2.83 $ 2.77 $ 0.06 ===== ===== ===== ===== ===== =====
* Includes GPU Telcom
GPU's 1999 earnings were $459.0 million, or $3.66 per share, compared with earnings of $360.1 million, or $2.83 per share, for 1998. GPU's return on average common equity was 13.0% in 1999, compared to 10.7% in 1998. Both periods reflect non-recurring items.
Excluding the following non-recurring items, earnings for 1999 would have been $484.1 million, or $3.86 per share: the net gain of $36.1 million after-tax, or $0.29 per share, for the sales of the GPU Energy companies' generating facilities related to wholesale operations; the non-recurring charge of $68 million after-tax, or $0.54 per share, resulting from a Summary Restructuring Order (Summary Order) issued to JCP&L by the New Jersey Board of Public Utilities (NJBPU); and the gain on the sale of the Midlands Electricity plc (Midlands) supply business of $6.8 million after-tax, or $0.05 per share. Excluding the effect of the Pennsylvania Public Utility Commission's (PaPUC) rate actions, earnings for 1998 would have been $425.9 million, or $3.35 per share. Return on average common equity for 1999 and 1998 on this basis would have been 13.7% and 12.4%, respectively.
The $0.51 per share earnings increase in 1999 versus 1998, excluding non-recurring items, was due to increased earnings from the GPU Energy companies primarily as a result of higher sales to other utilities, lower operation and maintenance (O&M) expense and lower depreciation expense. Also contributing to the increase was higher profits from operations at Midlands. Partially offsetting these increases were lower generation sales to customers by the GPU Energy companies as a result of some customers choosing alternate suppliers; and the absence of gains realized in 1998 on the sale of GPU Electric's interest in Solaris Power (Solaris) and the sale of AllGas Energy stock.
In 1997, a non-recurring charge of $109.3 million, or $0.90 per share, was taken for a windfall profits tax assessed on privatized utilities by the Government of the United Kingdom. Excluding the impact of non-recurring items in both years, GPU's earnings for 1998 would have been $425.9 million, compared to $444.4 million in 1997, and earnings per share for 1998 would have been $3.35, compared to $3.67 in 1997. Return on average common equity for 1998 and 1997 on this basis would have been 12.4% and 14%, respectively.
The 1998 earnings per share decrease on this basis was due to lower income from the GPU Energy companies, and increased shares outstanding due to the sale of GPU, Inc. common stock in February 1998. The GPU Energy companies' earnings reduction for the period was due to increased O&M expenses primarily related to the implementation of a new company-wide computer software system and restructuring costs related to staff reductions, partially offset by higher electric sales. After adjusting for the related impacts of the windfall profits tax, GPU Electric's income contribution increased for the year and partially offset the GPU Energy companies' decrease.
OPERATING REVENUES: - ------------------ Operating revenues increased $508.3 million to $4.8 billion in 1999, and increased $105.4 million to $4.2 billion in 1998. The components of the changes are as follows:
Changes (in millions) -------------------------------- 1999 1998 ---- ---- GPU Energy companies: Kilowatt-hour (KWH) revenues $(570.8) $ 30.9 Energy and restructuring-related revenues 220.2 49.8 Obligation to refund revenues (58.6) (56.4) Competitive transition charge (CTC) revenues 138.7 - GPU Telcom revenues (9.7) 16.1 Other revenues 12.7 (130.9) ----- ------ Total GPU Energy companies (267.5) (90.5) GPU Electric 683.5 151.6 GPUI Group 18.6 34.7 GPU AR 73.7 9.6 ----- ----- Total increase $ 508.3 $ 105.4 ===== =====
GPU Energy companies
Kilowatt-hour revenues - ----------------------
The decrease was primarily due to lower generation-related revenues of approximately $430 million as a result of some Pennsylvania customers choosing another electric energy supplier and a decrease of approximately $325 million in nonutility generation (NUG) revenues for Met-Ed and Penelec (which did not have an impact on earnings since NUG-related revenues are now being collected through the CTC effective January 1, 1999). Partially offsetting these decreases were increased sales to other utilities of approximately $160 million, the absence of an earnings cap adjustment (since JCP&L was not in an over earnings position in 1999) which reduced JCP&L's 1998 revenues and higher weather-related sales.
The increase in KWH revenues was primarily due to an increase in residential and commercial customer usage, partially offset by lower weather-related sales to residential and commercial customers, and the absence in 1998 of the step increase in unbilled revenue recorded by Met-Ed.
Energy and restructuring-related revenues (JCP&L only) - ------------------------------------------------------
1999 and 1998
The 1999 increase was primarily due to a change in the estimate for unbilled revenue and the inclusion of revenues, effective August 1, 1999, for the recovery of stranded costs due to restructuring in New Jersey. Changes in energy and restructuring-related revenues do not affect earnings as they are offset by corresponding changes in expense. The 1998 increase was due primarily to increased sales to other utilities and higher residential and commercial customer sales.
Obligation to refund revenues to customers - ------------------------------------------
The decrease was primarily due to the NJBPU's Summary Order issued to JCP&L which requires JCP&L to refund customers 5% from rates in effect as of April 30, 1997. As a result, JCP&L recorded a reduction to operating
revenues of $115 million. Partially offsetting the effect of the decrease was the absence of rate reductions to operating revenues of $56.4 million, recorded in 1998, as a result of PaPUC Restructuring Orders for Met-Ed and Penelec.
In 1998, as a result of amended PaPUC Restructuring Orders, Met-Ed and Penelec recorded reductions to operating revenues of $56.4 million to reflect their obligation to make refunds to customers from 1998 revenues (2.5% for Met-Ed customers and 3% for Penelec customers).
Competitive transition charge (CTC) revenues (Met-Ed and Penelec only) - ----------------------------------------------------------------------
CTC revenues represent Pennsylvania stranded cost recoveries permitted by the PaPUC in accordance with Met-Ed and Penelec's final Restructuring Orders effective January 1, 1999. Changes in CTC revenues generally do not affect earnings as they are offset by corresponding changes in expense.
Other revenues - --------------
The increase was due primarily to increased transmission revenues at Met-Ed and Penelec as a result of customer shopping in Pennsylvania.
The 1998 decrease was primarily due to lower revenue taxes as a result of New Jersey tax legislation that eliminated the gross receipts and franchise tax on utility bills and replaced it with a sales tax, a corporate business tax and a transitional energy facilities assessment, effective January 1, 1998. This decrease did not have an impact on earnings.
GPU Electric
The increase in revenues was primarily due to the inclusion of revenues from: Midlands (of which the remaining 50% was acquired in July 1999), $503.9 million; Empresa Distribuidora Electrica Regional, S.A. (Emdersa) (acquired in March 1999), $136 million; and GPU GasNet (acquired in June 1999), $31.3 million. For additional information, see Note 7, Acquisitions.
The increase in revenues was due mainly to including the full year effect of GPU PowerNet (acquired in November 1997).
GPUI Group
The increase was primarily due to an increase in Empresa Guaracachi S.A. (EGSA) energy and capacity revenues of $2.4 million, and the full year effect of consolidating Onondaga Cogen, L.P. (Onondaga) of $11 million.
The increase in revenues was due mainly to including the full year effect of Lake Cogen, Ltd. (Lake), and the effect of including Onondaga beginning in August 1998.
GPU AR
The increase was primarily due to an increase in energy sales to customers who chose GPU AR as their electric energy supplier as part of retail customer choice in Pennsylvania. Some of GPU AR's customers are located in the GPU Energy companies' service territories.
GPU AR's 1998 revenues were derived from energy sales to customers who chose it as their energy supplier as part of the retail access pilot program in Pennsylvania.
OPERATING INCOME: - ----------------
Operating income increased $112.8 million to $1.01 billion in 1999, and increased $25.3 million to $896.1 million in 1998. The components of the changes are as follows:
Changes (in millions) -------------------------------- 1999 1998 ---- ----
GPU Energy companies $ (30.2) $ (74.7) GPU Electric 143.9 90.4 GPUI Group 11.5 2.0 GPU AR (3.6) 3.8 GPU, Inc. (8.8) 3.8 ----- ----- Total increase $ 112.8 $ 25.3 ===== =====
GPU Energy companies
The decrease was due to lower revenues as discussed above (see Operating Revenues section for additional information). Also contributing to the decrease was a pre-tax reserve of $25 million for Met-Ed and Penelec related to the regulatory uncertainty of the full recoverability of stranded costs in Phase II of the Pennsylvania restructuring proceedings. Partially offsetting this decrease was lower O&M expenses primarily due to the sale of Penelec's interest in the Homer City Station (Homer City), lower depreciation expense due to the effect of the impairment write-down of the Oyster Creek (Oyster Creek) nuclear generating station and Three Mile Island Unit 1 (TMI-1) nuclear generating facility in 1999 and 1998, respectively; and the sale of Homer City.
The decrease was due primarily to lower revenues as discussed above (see Operating Revenues section for additional information). Also contributing to the decrease was higher O&M expenses primarily due to the implementation of a new company-wide computer software system, costs related to staff reductions and the full year inclusion of O&M expenses for GPU Telcom. The decrease also included additional amortization expense related to JCP&L's Final Settlement representing the portion of JCP&L's return on equity which exceeded the maximum amount allowed and must be applied against JCP&L's stranded cost pool.
GPU Electric
The increase was due primarily to the consolidation of Midlands since the acquisition of the remaining 50% ownership in 1999, and the inclusion of Emdersa and GPU GasNet from their acquisition dates in 1999.
The increase was due to higher revenues as discussed above, partially offset by an increase in O&M expenses primarily due to the full year effect of including GPU PowerNet.
GPUI Group
The increase was primarily due to higher revenues as discussed above, and the full year effect of consolidating Onondaga.
The increase was primarily due to higher revenues as discussed above, mostly offset by an increase in O&M expenses primarily due to the full year effect of including Lake, as well as the effect of including Onondaga beginning August 1998.
GPU AR
The decrease was primarily due to increased prices for power purchases due to the hot summer of 1999, partially offset by higher revenues as discussed above.
The increase was primarily due to higher revenues as discussed above, partially offset by increased power purchases.
OTHER INCOME AND DEDUCTIONS: - ---------------------------
Other income and deductions increased $54.5 million to $175.8 million in 1999, and increased $142.7 million to $121.3 million in 1998. The components of the changes are as follows:
Changes (in millions) -------------------------------- 1999 1998 ---- ----
GPU Energy companies $ 78.8 $(13.4) GPU Electric (25.6) 114.4 GPUI Group 0.4 42.1 GPU AR 0.1 0.1 GPU, Inc. 0.8 (0.5) ---- ----- Total increase $ 54.5 $142.7 ==== =====
GPU Energy companies
The increase was primarily due to the recognition of net gains of $61.3 million pre-tax, as a result of the sale of substantially all the GPU Energy companies' electric generating stations. Also contributing to the increase
was the absence of a charge for start-up payments for the establishment of an environmental fund for Met-Ed and Penelec; and the absence of a charge to terminate a contract with one of Met-Ed's wholesale customers, both in 1998.
The decrease was primarily due to a charge taken by Met-Ed and Penelec for start-up payments for the establishment of a sustainable energy fund as a result of the PaPUC's Restructuring Orders; and a charge by Met-Ed for the Middletown settlement.
GPU Electric
The decrease was primarily due to a pre-tax loss of $8.5 million for the write-down, to market value, of the investment in certain marketable securities due to GPU Electric's pending sale of this investment; and the absence of a pre-tax gain of $45 million realized in 1998 from the sale of Solaris. Offsetting the decrease was the pre-tax gain on the sale of the Midlands supply business of $10.5 million and increased earnings from Midlands' operations prior to the acquisition from Cinergy of the remaining 50%. Also contributing to the offset was the gain on the sale of the Enersis Group generation facility in Portugal.
The increase was primarily due to the absence of a $109.3 million charge taken in 1997 for a windfall profits tax imposed on Midlands by the Government of the United Kingdom. Also contributing to the increase was the pre-tax gain of $45 million realized from GPU Electric's sale of its interest in Solaris.
GPUI Group
In 1999, the GPUI Group sold its interests in two cogeneration projects and its shares of Niagara Mohawk Power Corporation stock (that it received as part of the 1998 master restructuring agreement for the Onondaga cogeneration project) for a total pre-tax gain of $12 million. Offsetting this increase was the recording of an impairment of $6.5 million, in 1999, related to the investment in the Lake cogeneration project and the absence of a pre-tax gain from the 1998 sale of a 50% interest in the Mid-Georgia cogeneration project of $9.1 million, which is offset by $2.5 million of deferred revenues recognized in income in 1999.
The increase was due primarily to the pre-tax gain of $9.1 million realized from the sale of half its interest in the Mid-Georgia cogeneration plant and higher investment income of $21.5 million.
INTEREST CHARGES AND PREFERRED DIVIDENDS: - ----------------------------------------
Interest charges and preferred dividends increased $93.3 million to $482.5 million in 1999, and increased $69.9 million to $389.2 million in 1998. The components of the changes are as follows:
Changes (in millions) --------------------------------
1999 1998 ---- ----
GPU Energy companies $(21.1) $ (7.1) GPU Electric 114.6 76.3 GPUI Group 1.5 (0.1) GPU, Inc. (1.7) 0.8 ---- ----- Total increase $ 93.3 $ 69.9 ==== =====
GPU Energy companies
The decrease was primarily due to the following: in 1999 Met-Ed and Penelec redeemed all their company-obligated mandatorily redeemable preferred securities and cumulative preferred stock (the redemption of preferred stock resulted in losses of $0.5 million and $0.7 million, respectively, for Met-Ed and Penelec); and Penelec redeemed $600 million of first mortgage bonds (FMBs). Also in 1999, JCP&L redeemed $30 million of cumulative preferred stock (which resulted in a loss of $0.8 million). Partially offsetting these decreases was increased interest expense associated with Penelec's issuance of $350 million of senior notes in 1999.
In 1998, JCP&L redeemed $15 million stated value of cumulative preferred stock.
GPU Electric
The increase was primarily due to higher debt levels from the 1999 acquisitions of Emdersa, GPU GasNet and Midlands (the remaining 50%), which resulted in additional interest expense of $8 million, $21.3 million and $66.8 million, respectively.
The increase was due primarily to debt associated with the GPU PowerNet acquisition in November 1997.
EXTRAORDINARY ITEM: - ------------------
The extraordinary loss was due to the impact of the PaPUC Restructuring Orders received by Met-Ed and Penelec. For additional information, see Note 6, Accounting for Extraordinary and Non-recurring Items.
JCP&L RESULTS OF OPERATIONS --------------------------- JCP&L's earnings for 1999 were $162.9 million, compared to 1998 earnings of $212.4 million. JCP&L's return on average common equity was 10.7% in 1999, compared to 13.5% in 1998. The decrease was due to a non-recurring charge of $68 million after-tax, as a result of the NJBPU's Summary Order issued to JCP&L. Excluding the non-recurring charge, earnings for 1999 would have been $230.9 million. The increase in earnings on this basis was due primarily to increased sales to new customers, higher weather-related sales and a decrease in depreciation expense.
Earnings in 1998 were $212.4 million, compared to 1997 earnings of $200.6 million. Contributing to this earnings increase were increased residential and commercial customer sales, partially offset by increased operation and maintenance expenses. JCP&L's return on average common equity was 13.5% in 1998, compared to 13.1% in 1997.
OPERATING REVENUES: - ------------------
Operating revenues decreased $51.4 million to $2.02 billion in 1999, and decreased $24.3 million to $2.07 billion in 1998. The components of the changes are as follows:
Changes (in millions) ------------------------------- 1999 1998 ---- ----
KWH revenues $(156.3) $ 64.0 Energy and restructuring-related revenues 220.2 48.2 Obligation to refund revenues (115.0) - Other revenues (0.3) (136.5) ------ ------ Decrease in revenues $ (51.4) $ (24.3) ====== ======
KWH revenues - -------------
The decrease was primarily due to decreased customer usage and decreased sales to other utilities of approximately $10 million. Partially offsetting the decrease was the absence of an earnings cap adjustment (since JCP&L was not in an over earnings position through July 1999) which reduced JCP&L's 1998 revenues; increased sales to new customers and higher weather-related sales.
1999 Delivered KWH Sales by Service Class ------------------------------------------
Residential 42% Commercial 40% Industrial/Other 18%
The increase was due to higher residential and commercial customer usage and an increase in new residential and commercial customer sales partially offset by lower weather-related sales.
Energy and restructuring-related revenues - -----------------------------------------
1999 and 1998 The 1999 increase was primarily due to a change in the estimate for unbilled revenue and the inclusion of revenues, effective August 1, 1999, for the recovery of stranded costs due to restructuring in New Jersey. Changes in energy and restructuring-related revenues do not affect earnings as they are offset by corresponding changes in expense. The 1998 increase was due primarily to increased sales to other utilities and higher residential and commercial customer sales.
Obligation to refund revenues to customers - ------------------------------------------
The decrease was due to the NJBPU's Summary Order issued to JCP&L which requires JCP&L to refund customers 5% from rates in effect as of
April 30, 1997. As a result, JCP&L recorded a reduction to operating revenues of $115 million.
Other revenues - --------------
The decrease was primarily due to lower revenue taxes as a result of New Jersey tax legislation that eliminated the gross receipts and franchise tax on utility bills and replaced it with a sales tax, a corporate business tax and a transitional energy facilities assessment, effective January 1, 1998. This decrease did not have an impact on earnings.
OPERATING INCOME: - ---------------- Operating income decreased $96.3 million to $365.8 million in 1999, and increased $26.5 million to $462.1 million in 1998.
The decrease was due to the obligation to make refunds to customers and lower KWH revenues as discussed above. Partially offsetting this decrease was lower depreciation expense due to the effect of the impairment write-down of Oyster Creek and TMI-1 in 1999 and 1998, respectively.
The increase was due primarily to increased KWH revenues as discussed above and lower reserve capacity expense. Partially offsetting the increase was higher O&M expenses primarily due to the implementation of a new company-wide computer software system and costs related to staff reductions. Furthermore, operating income was reduced by additional amortization expense related to JCP&L's Final Settlement representing the portion of JCP&L's return on equity which exceeded the maximum amount allowed and must be applied against JCP&L's stranded cost pool.
OTHER INCOME AND DEDUCTIONS: - --------------------------- Other income and deductions decreased $1.5 million to $12.5 million in 1999, and increased $12.1 million to $14.0 million in 1998.
The increase was due primarily to the absence of the charges incurred in 1997 for the termination of a NUG contract and for a loss on the sale of fuel oil from the Gilbert generating station.
INTEREST CHARGES AND PREFERRED DIVIDENDS: - ---------------------------------------- Interest charges and preferred dividends decreased $4.2 million to $114.4 million in 1999, and decreased $6.1 million to $118.6 million in 1998.
The decrease was primarily due to lower other interest expense (excludes interest on debt). Also contributing to the decrease was the redemption of $30 million of cumulative preferred stock, which resulted in a loss of $0.8 million.
The decrease was due to lower short-term debt levels and the redemption of $15 million stated value of cumulative preferred stock.
MET-ED RESULTS OF OPERATIONS ---------------------------- Met-Ed's earnings for 1999 were $94.5 million, compared to 1998 earnings of $50.4 million. Met-Ed's return on average common equity was 13.9% in 1999 compared to 7.5% in 1998. Excluding the net gain of $1.2 million after-tax for the sales of Met-Ed's generating facilities related to wholesale operations, earnings for 1999 would have been $93.3 million. Excluding the effect of the PaPUC rate actions, earnings for 1998 would have been $76.4 million. The increase in earnings on this basis was primarily due to increased sales to other utilities, higher weather-related sales and a decrease in depreciation expense.
Earnings in 1998 were $50.4 million, compared to 1997 earnings of $93 million. Met-Ed's return on average common equity was 7.5% in 1998 compared to 12.9% in 1997. In 1998, a non-recurring charge of $26 million after-tax was taken as a result of the PaPUC's Restructuring Order for Met-Ed. Also contributing to the earnings decrease was increased operation and maintenance expenses primarily related to the implementation of a new computer software system and restructuring costs related to staff reductions.
OPERATING REVENUES: - ------------------
Operating revenues decreased $16.8 million to $902.8 million in 1999, and decreased $23.5 million to $919.6 million in 1998. The components of the changes are as follows:
Changes (in millions) ------------------------------- 1999 1998 ---- ----
KWH revenues $(152.0) $ (4.5) Obligation to refund revenues 27.2 (27.2) CTC revenues 90.0 - Other revenues 18.0 8.2 ------ ----- Decrease in revenues $ (16.8) $(23.5) ====== =====
KWH revenues
The decrease was primarily due to lower generation-related revenues of approximately $220 million as a result of some Pennsylvania customers choosing another electric energy supplier and a decrease of approximately $155 million in NUG revenues (which did not have an impact on earnings since NUG-related revenues are now being collected through the CTC effective January 1, 1999). Partially offsetting these decreases was increased sales to other utilities of approximately $130 million and higher weather-related sales.
1999 Delivered KWH Sales by Service Class -----------------------------------------
Residential 36% Commercial 29% Industrial/Other 35%
The decrease was due to the absence in 1998 of the step increase in unbilled revenue as a result of Met-Ed including its ECR in base rates, amounting to $13 million, and lower weather-related sales. Partially offsetting these decreases were increased sales to other utilities, an increase in new commercial and residential customer sales and increased customer usage.
Obligation to refund revenues to customers - ------------------------------------------
The increase was due to the absence of rate refunds of $27.2 million, recorded in 1998, as a result of the PaPUC Restructuring Order for Met-Ed.
In 1998, as a result of the amended PaPUC Restructuring Order, Met-Ed recorded a reduction to operating revenues of $27.2 million to reflect its obligation to make refunds, of 2.5%, to customers from 1998 revenues.
CTC revenues - ------------
CTC revenues represent Pennsylvania stranded cost recoveries permitted by the PaPUC in accordance with Met-Ed's final Restructuring Order effective January 1, 1999. Changes in CTC revenues generally do not affect earnings as they are offset by corresponding changes in expense.
Other revenues - --------------
The increase was due primarily to increased transmission revenues as a result of customer shopping in Pennsylvania.
OPERATING INCOME: - ---------------- Operating income increased $45.8 million to $213.2 million in 1999, and decreased $47.0 million to $167.4 million in 1998.
The increase was primarily due to increased sales to other utilities, the absence of rate refunds of $27.2 million recorded in 1998 and lower depreciation expense due to the effect of the impairment write-down of TMI-1 in 1998 and lower O&M expenses. Partially offsetting this decrease was lower revenues due to customer shopping and the recording of a pre-tax reserve of $18.7 million related to the regulatory uncertainty of the full recoverability of stranded costs in Phase II of the Pennsylvania restructuring proceedings.
The decrease was primarily due to lower revenues as a result of rate refunds of $27.2 million and higher O&M expenses due to increased costs from the implementation of a new computer software system and increased costs related to staff reductions. Also contributing to the decrease was higher depreciation and amortization expense due to additions to plant in service and higher depreciation rates.
OTHER INCOME AND DEDUCTIONS: - --------------------------- Other income and deductions increased $17.5 million to $4.1 million in 1999, and decreased $16.9 million to a net expense of $13.4 million in 1998.
The increase was primarily due to the absence of a charge for start-up payments for the establishment of an environmental fund; and the absence of a charge to terminate a contract with Middletown, both in 1998. Also contributing to the increase was the recognition of net gains of $2 million pre-tax, as a result of the sale of substantially all of Met-Ed's electric generating stations.
The decrease was due primarily to a charge for start-up payments for the establishment of an environmental fund per the PaPUC's Restructuring Order and a charge for the Middletown settlement.
INTEREST CHARGES AND PREFERRED DIVIDENDS: - ----------------------------------------- Interest charges and preferred dividends increased $2.1 million to $61.4 million in 1999, and increased $0.2 million to $59.3 million in 1998.
The increase was due to the issuance of $100 million of trust preferred securities. Partially offsetting the increase was a decrease in interest on debt due to lower debt levels and lower preferred stock dividends due to the redemption of all of Met-Ed's preferred stock, which resulted in a loss of $0.5 million.
EXTRAORDINARY ITEM: - -------------------
The extraordinary loss was due to the impact of the PaPUC Restructuring Order received by Met-Ed. For additional information, see Note 6, Accounting for Extraordinary and Non-recurring Items.
PENELEC RESULTS OF OPERATIONS ----------------------------- Penelec's 1999 earnings were $151.6 million, compared to 1998 earnings of $38.9 million. Penelec's return on average common equity was 26.6% in 1999 compared to 5% in 1998. Excluding the net gain of $34.9 million after-tax for the sales of Penelec's generating facilities related to wholesale operations, earnings for 1999 would have been $116.7 million. Excluding the effect of the PaPUC rate actions, earnings for 1998 would have been $78.7 million. The increase in earnings on this basis was primarily due to increased sales to other utilities, higher weather-related sales and a decrease in depreciation expense.
Earnings in 1998 were $38.9 million, compared to 1997 earnings of $94.4 million. Penelec's return on average common equity was 5% in 1998 compared to 12.1% in 1997. In 1998, a non-recurring charge of $39.8 million after-tax was taken as a result of the PaPUC's Restructuring Order for Penelec. Also contributing to the earnings decrease was increased operation and maintenance expenses primarily related to the implementation of a new computer software system and restructuring costs related to staff reductions.
OPERATING REVENUES: - -------------------
Operating revenues decreased $110.3 million to $922 million in 1999, and decreased $20.7 million to $1.0 billion in 1998. The components of the changes are as follows:
Changes (in millions) -------------------------------- 1999 1998 ---- ----
KWH revenues $(203.3) $ 13.9 Obligation to refund revenues 29.2 (29.2) CTC revenues 48.7 - Other revenues 15.1 (5.4) ------ ----- Decrease in revenues $(110.3) $(20.7) ====== =====
KWH revenues - ------------
The decrease was primarily due to lower generation-related revenues of approximately $210 million as a result of some Pennsylvania customers choosing another electric energy supplier and a decrease of approximately $170 million in NUG revenues (which did not have an impact on earnings since NUG-related revenues are now being collected through the CTC effective January 1, 1999). Partially offsetting these decreases was increased sales to other utilities of approximately $40 million and higher weather-related sales.
1999 Delivered KWH Sales by Service Class ----------------------------------------- Residential 28% Commercial 32% Industrial/Other 40%
The increase was primarily due to increased sales to other utilities and increased industrial customer usage offset by lower weather-related sales. The revenue comparison was also affected by the absence in 1998 of the step increase in unbilled revenue as a result of Penelec including its ECR in base rates, amounting to $15 million.
Obligation to refund revenues to customers - ------------------------------------------
The increase was due to the absence of rate refunds of $29.2 million, recorded in 1998, as a result of the PaPUC Restructuring Order for Penelec.
In 1998, as a result of the amended PaPUC Restructuring Order, Penelec recorded a reduction to operating revenues of $29.2 million to reflect its obligation to make refunds, of 3%, to customers from 1998 revenues.
CTC revenues - ------------
CTC revenues represent Pennsylvania stranded cost recoveries permitted by the PaPUC in accordance with Penelec's Restructuring Order effective January 1, 1999. Changes in CTC revenues generally do not affect earnings as they are offset by corresponding changes in expense.
Other revenues - --------------
The increase was due primarily to increased transmission revenues as a result of customer shopping in Pennsylvania.
OPERATING INCOME: - ---------------- Operating income increased $20.8 million to $191.6 million in 1999, and decreased $57.5 million to $170.8 million in 1998.
The increase was primarily due to increased sales to other utilities, the absence of rate refunds of $29.2 million recorded in 1998, lower O&M expenses primarily due to the sale of Penelec's interest in Homer City, lower depreciation expense due to the effect of the impairment write-down of TMI-1 in 1998 and the sale of Homer City. Partially offsetting this increase was lower KWH revenues as discussed above and a pre-tax reserve of $6.3 million related to the regulatory uncertainty of the full recoverability of stranded costs in Phase II of the Pennsylvania restructuring proceedings.
The decrease was due primarily to lower revenues as a result of rate refunds of $29.2 million. Also contributing to the decrease was higher O&M expenses primarily due to the implementation of a new company-wide computer software system and costs related to staff reductions; and higher depreciation and amortization expense due to additions to plant in service and higher depreciation rates.
OTHER INCOME AND DEDUCTIONS: - --------------------------- Other income and deductions increased $65.7 million to $59.3 million in 1999, and decreased $8.9 million to a net expense of $6.4 million in 1998.
The increase was primarily due to the recognition of net gains of $59.3 million pre-tax, as a result of the sale of substantially all of Penelec's electric generating stations. Also contributing to the increase was the absence of a charge for start-up payments for the establishment of an environmental fund in 1998.
The decrease was primarily due to a charge taken by Penelec for start-up payments for the establishment of an environmental fund as a result of the PaPUC's Restructuring Order.
INTEREST CHARGES AND PREFERRED DIVIDENDS: - ---------------------------------------- Interest charges and preferred dividends decreased $18.9 million to $45 million in 1999, and decreased $1.2 million to $63.9 million in 1998.
The decrease was primarily due to Penelec's redemption of all its company-obligated mandatorily redeemable preferred securities and cumulative preferred stock, which resulted in a loss of $0.7 million; and the redemption of $600 million of FMBs. Partially offsetting the decrease was increased interest expense associated with Penelec's issuance of $350 million of senior notes in 1999.
EXTRAORDINARY ITEM: - ------------------
The extraordinary loss was due to the impact of the PaPUC Restructuring Order received by Penelec. For additional information, see Note 6, Accounting for Extraordinary and Non-recurring Items.
INVESTMENTS IN FUCOs AND EWGs ------------------------------
GPU, Inc. has Securities and Exchange Commission (SEC) authorization to finance investments in foreign utility companies (FUCOs) and exempt wholesale generators (EWGs) up to an aggregate amount equal to 100% of GPU's average consolidated retained earnings, or approximately $2.4 billion as of December 31, 1999. At December 31, 1999, GPU, Inc. has remaining authorization to finance approximately $245 million of additional investments in FUCOs and EWGs. GPU, Inc.'s investments in FUCOs and EWGs are made through GPU Electric and the GPUI Group.
GPU ELECTRIC ------------ GPU Electric has ownership interests in electric and gas transmission and distribution businesses in England, Australia and Argentina. Through its ownership in Midlands, GPU Electric also has investments in operating generating facilities located in foreign countries totaling 4,244 megawatts (MW) (of which GPU Electric's equity interest represents 1,163 MW) of capacity. At December 31, 1999, GPU, Inc.'s aggregate investment in GPU Electric was $1.06 billion. GPU, Inc. has also guaranteed up to an additional $1.04 billion of outstanding GPU Electric obligations.
In July 1999, GPU Electric acquired Cinergy's 50% ownership interest in Avon Energy Partners Holdings (Avon), which owns Midlands, for British Pound 452.5 million (approximately US $714 million). As a result of this transaction, GPU Electric assumed debt of US $1 billion. GPU and Cinergy had jointly formed Avon in 1996 to acquire Midlands, an English regional electric company serving 2.3 million customers.
In June 1999, National Power plc acquired all the assets and liabilities of Midlands' supply business, including obligations under Midlands' power purchase agreements, for $300 million ($150 million for GPU's share) plus an adjustment for working capital. As a result, in 1999 GPU recorded an after-tax gain on the sale of $6.8 million.
In June 1999, GPU Electric acquired Transmission Pipelines Australia (TPA), a natural gas transmission business, from the State of Victoria, Australia for A$1.025 billion (approximately US $675 million). TPA (which has since been renamed GPU GasNet) was sold as part of Victoria's privatization of the natural gas industry. The GPU GasNet system encompasses 1,105 miles of transmission pipelines, and consists of two separate networks serving approximately 1.3 million residential customers and about 40,000 industrial and commercial customers throughout Victoria.
In March 1999, GPU Electric acquired Emdersa for $375 million. Emdersa owns three electric distribution companies that serve three provinces in northwest Argentina. As a result of this transaction, GPU Electric assumed debt of US $76 million.
For additional information on GPU's acquisitions, see Note 7, Acquisitions.
GPU has initiated plans to raise at least US $500 million through the sale of assets and use the proceeds to reduce debt, provide funding for additional repurchases of its common stock and invest in growth initiatives. In December 1999, GPU announced that it would seek proposals to purchase at least 50% of GPU's ownership in GPU PowerNet and GPU GasNet.
Management expects that future foreign acquisitions, if made, would likely be small in size and would serve to expand capabilities to grow the non-regulated businesses or to provide critical mass to the current portfolio of holdings. For additional information, see COMPETITIVE ENVIRONMENT AND RATE MATTERS section of Management's Discussion and Analysis.
GPUI GROUP -----------
The GPUI Group has ownership interests in six operating cogeneration plants in the US totaling 1,014 MW (of which the GPUI Group's equity interest represents 496 MW) of capacity and four operating generating facilities located in foreign countries totaling 1,229 MW (of which the GPUI Group's equity interest represents 424 MW) of capacity. At December 31, 1999, GPU, Inc.'s aggregate investment in the GPUI Group was $232 million. GPU, Inc. has also guaranteed up to an additional $29.9 million of GPUI Group obligations.
PLANNED ACQUISITION OF MYR GROUP ----------------------------------
In December 1999, GPU, Inc. and MYR Group Inc. (MYR) entered into an agreement under which GPU would acquire the utility infrastructure construction firm for $215 million cash, or $30.10 per share of MYR common stock. Following the transaction MYR would become a wholly-owned subsidiary of GPU, Inc. The acquisition, which is subject to approval by the SEC and other conditions, is expected to be completed by the first quarter of 2000. For additional information, see Note 7, Acquisitions.
Market Risk Sensitive Instruments ----------------------------------
GPU Electric uses interest rate swap agreements to manage the risk of increases in variable interest rates. All of the agreements effectively convert variable rate debt, including commercial paper, to fixed rate debt. None of these swap agreements are held for trading purposes. During 1999, GPU
PowerNet began a program of refinancing much of its floating rate bank borrowings with fixed rate publicly issued debt. As a result, certain swaps associated with the floating rate bank borrowings were marked to market. As of December 31, 1999, most of these positions were terminated, which resulted in swap breakage and mark to market costs of A$16.8 million (approximately US $10.9 million). The following summarizes the principal characteristics of swap agreements in effect as of December 31, 1999:
The expected variable interest rates included above, for the years 2000 through 2004, were provided by the financial institutions with which the swap agreements were executed, and were derived from their proprietary models based upon recognized financial principles.
At December 31, 1999, these agreements covered approximately $1.3 billion of debt, including commercial paper, and are scheduled to expire on various dates through November 2007. For the year ended December 31, 1999, fixed rate interest expense exceeded variable rate interest by approximately $20.7 million. GPU Electric uses currency swap agreements to manage currency risk caused by fluctuations in the US dollar exchange rate related to debt issued in the US by Avon. These swap agreements effectively convert principal and interest payments on this US dollar debt to fixed sterling principal and interest payments, and expire on the maturity dates of the bonds. Interest expense is recorded based on the fixed sterling interest rate. The following summarizes the characteristics of the currency swap agreements as of December 31, 1999:
Fixed Fixed Currency USD Sterling Sterling USD USD Swap Notional Notional Termination Interest Interest Fair Type Value Value Date Rate Rate Value(a) - -------- --------- --------- ----------- -------- -------- -------- British Pound - ------------- $ $350,000 212,122 12/11/02 7.66% 6.73% (2,838) $ $100,000 60,606 12/11/07 7.75% 7.05% (4,776) $ $150,000 90,909 12/11/07 7.70% 7.05% (7,604) $ $250,000 153,374 03/04/08 6.94% 6.46% (14,036)
(a) Represents the amount GPU Electric would (pay)/receive to terminate the swap agreements as of December 31, 1999 (prior to their scheduled termination dates).
LIQUIDITY AND CAPITAL RESOURCES -------------------------------
Capital Expenditures and Investments* - ------------------------------------
(in millions) ------------------------------------------ 2000** 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- ---- GPU Energy companies $349 $ 291 $328 $ 356 $404 $462 GPU Electric 213 1,809 59 1,800 516 - GPUI Group 5 32 81 112 58 165 GPU, Inc. 215 - - - - - ---------------------------------------- Total $782 $2,132 $468 $2,268 $978 $627 === ===== === ===== === ===
* Includes acquisitions, net of cash acquired.
** Estimate includes $215 million for the anticipated acquisition of MYR.
GPU Energy companies
The GPU Energy companies' capital spending was $291 million (JCP&L $141 million; Met-Ed $66 million; Penelec $78 million; Other $6 million) in 1999, and was used primarily to expand and improve existing transmission and distribution (T&D) facilities, for new customer connections and to implement an integrated information system. In 2000, capital expenditures for the GPU Energy companies are estimated to be $349 million (JCP&L $178 million; Met-Ed
$57 million; Penelec $82 million; Other $32 million), primarily for ongoing T&D system development. Expenditures for maturing long-term debt were $83 million (JCP&L $3 million; Met-Ed $30 million; Penelec $50 million) in 1999, and are expected to total $101 million (JCP&L $51 million; Met-Ed $50 million) in 2000, and $51 million (JCP&L $51 million) in 2001. Management estimates that a substantial portion of the GPU Energy companies' 2000 capital outlays will be satisfied through internally generated funds.
GPU Electric
GPU Electric's capital spending was $1.8 billion in 1999 and primarily represents the cost of acquiring Emdersa, GPU GasNet and the remaining 50% of Midlands, and also includes $128.6 million of improvements to GPU PowerNet, Emdersa and Midlands' facilities. For 2000, infrastructure-related capital expenditures are forecasted to be $213 million. In 1999, expenditures for maturing long-term debt were $453 million, and are expected to total $475 million in 2000 and $1 billion in 2001. Capital outlays for 2000 will be satisfied through both internally generated funds and external financings.
GPUI Group
The GPUI Group's capital spending was $32 million in 1999 and was used primarily for construction activities at one of the GPUI Group's South American investments. For 2000, capital expenditures are forecasted to be $6 million. In 1999, expenditures for maturing long-term debt were $28 million, and are expected to total $5 million in 2000 and $7 million in 2001. Capital outlays for 2000 will be satisfied through both internally generated funds and external financings.
Financing - ---------
GPU, Inc.
In January 1999, the GPU, Inc. Board of Directors authorized the repurchase of up to $350 million of GPU, Inc. common stock. Through December 31, 1999, GPU, Inc. has repurchased 6.4 million shares of common stock at an average price of $35.25 per share.
GPU has various credit facilities in place, the most significant of which are discussed below. These credit facilities generally provide GPU bank loans at negotiable market rates.
GPU, Inc. and the GPU Energy companies have available $450 million of short-term borrowing facilities, which include a $250 million revolving credit agreement and various bank lines of credit. In addition, GPU, Inc., JCP&L, Met-Ed and Penelec can issue commercial paper in amounts of up to $100 million, $150 million, $75 million, and $100 million, respectively. From these sources, GPU, Inc. has regulatory authority to have $250 million outstanding at any one time. JCP&L, Met-Ed and Penelec are limited by their charters or SEC authorization to $265 million, $150 million and $150 million, respectively, of short-term debt outstanding at any one time.
GPU, Inc. has SEC approval to issue and sell up to $300 million of unsecured debentures through 2001, the proceeds from which could be utilized to repay short-term debt or to finance additional investments. Further significant investments by GPU Electric and/or the GPUI Group, or otherwise, may require GPU, Inc. to issue additional debt and/or common stock.
GPU Energy companies
Met-Ed and Penelec have regulatory approval to issue through December 31, 2000 senior notes and preferred securities in aggregate amounts of $150 million and $275 million, respectively, of which up to $25 million for each company may consist of preferred securities. JCP&L has regulatory approval to issue through December 31, 2000, senior notes and preferred securities in the aggregate amount of $300 million. Met-Ed and JCP&L will be issuing secured senior notes (collateralized by FMBs issued to the senior note trustee) until such time as more than 80% of the outstanding FMBs are held by the senior note trustee. At that time, the FMBs will be cancelled and the outstanding senior notes will become unsecured obligations. Penelec's senior notes are unsecured.
Current plans call for the GPU Energy companies to issue senior notes during the next three years to fund the redemption of maturing senior securities, refinance outstanding senior securities and finance construction activities. Following the initial issuance of senior notes, the GPU Energy companies would not issue any additional FMBs other than as collateral for the senior notes. The senior note indentures prohibit (subject to certain exceptions) the GPU Energy companies from issuing any debt which is senior to the senior notes.
The GPU Energy companies' bond indentures include provisions that limit the amount of FMBs the companies may issue. The GPU Energy companies' interest coverage ratios are currently in excess of indenture restrictions. JCP&L's certificate of incorporation includes provisions that limit the amount of preferred stock it may issue. JCP&L's preferred dividend coverage ratio is currently in compliance with the charter restrictions.
In 1999, Met-Ed and Penelec redeemed all of their outstanding shares of cumulative preferred stock for $12.5 million and $17.4 million, respectively. As a result, a reacquisition loss of $1.3 million was charged to income ($0.6 million and $0.7 million for Met-Ed and Penelec, respectively). Also in 1999, Met-Ed and Penelec redeemed all of their outstanding shares of Subsidiary-obligated mandatorily redeemable preferred securities for $100 million and $105 million, respectively.
In 1999, JCP&L redeemed $30 million stated value of cumulative preferred stock pursuant to mandatory and optional sinking fund provisions. As a result, a reacquisition loss of $0.8 million was charged to income.
In 1999, Penelec redeemed $600 million of FMBs with proceeds from the sale of its interest in Homer City and issued $350 million of unsecured senior notes, the proceeds from which were used to redeem or repurchase other outstanding securities, reduce short-term borrowings, fund its construction program and for other corporate purposes.
In 1999, Met-Ed and Penelec each issued $100 million of trust preferred securities, at 7.35% and 7.34%, respectively.
GPU Electric
GPU Capital has a $1 billion 364-day senior revolving credit agreement due in December 2000 supporting the issuance of commercial paper for its $1 billion commercial paper program established to fund GPU Electric
acquisitions. GPU, Inc. has guaranteed GPU Capital's obligations under this program. At December 31, 1999, $768 million was outstanding under the commercial paper program, of which $370 million is included in long-term debt on the Consolidated Balance Sheets since it is management's intent to reissue this amount of the commercial paper on a long-term basis.
In 1999, GPU Capital sold $373 million of commercial paper to refinance all its outstanding borrowings related to the 1996 acquisition of a 50% interest in Midlands. In addition, in 1999, GPU Capital sold $50 million of commercial paper to partially fund the acquisition of Cinergy's 50% ownership of Midlands. The Emdersa and GPU GasNet acquisitions, in 1999, were also partially funded by commercial paper sales of $323 million and $180 million, respectively.
Also in 1999, GPU Capital borrowed A$750 million (approximately US $495 million) under a senior credit facility to fund the acquisition of GPU GasNet and British Pound 245 million (approximately US $382 million) under a term loan to fund its acquisition of the remaining 50% interest in Midlands.
GPU Australia Holdings, Inc. has $270 million available under its senior revolving credit facility due in November 2002. This facility, in combination with other GPU, Inc. credit facilities, serves as credit support for GPU Australia Holdings' $350 million commercial paper program. GPU, Inc. has guaranteed GPU Australia Holdings' obligations under this program. GPU Australia Holdings has $182 million outstanding under its commercial paper program as of December 31, 1999. In 1999, GPU Australia Holdings refinanced $350 million of outstanding long-term debt associated with the GPU PowerNet acquisition, with $345 million of commercial paper under this program.
Austran Holdings, Inc. (Austran), a wholly-owned indirect subsidiary of GPU Electric, has a A$500 million (approximately US $328 million) commercial paper program to refinance the maturing portion of the senior debt credit facility used to finance the GPU PowerNet acquisition. GPU PowerNet has guaranteed Austran's obligations under this program. As of December 31, 1999, Austran had outstanding approximately A$420 million (approximately US $275 million) under this program.
In 1999, Austran refinanced A$220 million (approximately US $142 million) of GPU PowerNet acquisition debt with proceeds from an Australian Dollar medium term note issuance. In connection with this debt refinancing program, a loss of A$20.3 million (approximately US $13.3 million) related to certain interest rate swap positions was reflected in GPU's 1999 earnings. In addition, Austran issued A$50 million (approximately US $32 million) of variable rate and A$120 million (approximately US $77 million) of fixed rate medium term notes, proceeds of which were used to refinance acquisition debt.
Midlands maintains a British Pound 200 million (approximately US $323 million) syndicated revolving credit facility with a bank for working capital purposes, which matures May 2001. At December 31, 1999, British Pound 87 million (approximately US $140 million) was outstanding under this facility.
GPUI Group
GPU International has a revolving credit agreement providing for borrowings through December 2000 of up to $30 million outstanding at any one time, of which up to $15 million may be utilized to provide letters of
credit. GPU, Inc. has guaranteed GPU International's obligations under this agreement. At December 31, 1999, no borrowings or letters of credit were outstanding under this facility.
Capitalization
Each of the GPU companies' target capitalization ratios is designed to provide credit quality ratings that permit capital market access at reasonable costs. The target capitalization ratios vary by subsidiary depending upon their business and financial risk. GPU's actual capitalization ratios at December 31 for the years indicated, were as follows:
GPU, Inc. and Subsidiary Companies 1999 1998 1997 - ---------------------------------- ---- ---- ---- Common equity 30% 40% 35% Preferred securities 4 6 6 Debt 66 54 59 --- --- --- Total 100% 100% 100% === === ===
JCP&L - -----
Common equity 50% 50% 50% Preferred securities 8 8 9 Debt 42 42 41 --- --- --- Total 100% 100% 100% === === ===
Met-Ed - ------ Common equity 44% 47% 49% Preferred securities 9 8 7 Debt 47 45 44 --- --- --- Total 100% 100% 100% === === ===
Penelec - ------- Common equity 44% 47% 47% Preferred securities 10 7 7 Debt 46 46 46 --- --- --- Total 100% 100% 100% === === ===
The increase in the debt ratio in 1999 resulted mainly from GPU Electric's acquisitions of the following: the 50% of Midlands it did not already own; GPU GasNet; and Emdersa. Since GPU Electric now owns 100% of Midlands and must consolidate the entity, certain debt, which was previously excluded from its balance sheet under the equity method of accounting, must now be included.
In 1999, the quarterly dividend on GPU, Inc.'s common stock was increased by 2.9% to an annualized rate of $2.12 per share. GPU, Inc.'s dividend payout rate in 1999 was 55% of earnings (excluding the non-recurring items). Management will continue to review GPU, Inc.'s dividend policy to determine how to best serve the long-term interests of shareholders.
At December 31, 1999, Met-Ed and Penelec had retained earnings available to pay common stock dividends of $10 million and $49 million, respectively, net of amounts restricted under the companies' respective FMB indentures. In
addition, Met-Ed and Penelec had capital surplus of $400 million and $285 million, respectively, which would also be available to pay common dividends, to the extent authorized by the SEC. Met-Ed and Penelec have requested SEC approval to declare and pay common dividends from their capital surplus, from time to time through December 31, 2001, so long as their common equity ratios and GPU, Inc.'s common equity ratio are not less than 30% of total capitalization. At December 31, 1999, the common equity ratios of Met-Ed, Penelec and GPU, Inc. were 43.7%, 44.4% and 30.2%, respectively.
Year 2000 Issue - ---------------
GPU has been addressing the Year 2000 issue by undertaking comprehensive reviews of its computers, software and equipment with embedded systems such as microcontrollers (together, "Year 2000 Components"), and of its business relationships with third parties, including key customers, lenders, trading partners, vendors, suppliers and service providers. GPU's Year 2000 project has not caused any material delay in the GPU information technology services group performing other planned projects.
As of January 31, 2000, GPU believes that its Year 2000 program was effective since no significant Year 2000 issues were identified. GPU will continue to monitor its systems generally through March 31, 2000.
Costs
The GPU Energy companies expect to spend a total of $42.3 million (JCP&L $18.7 million; Met-Ed $11.9 million; Penelec $11.7 million) on the Year 2000 issue, as summarized below: $8.1 million (JCP&L $2.7 million; Met-Ed $2.7 million; Penelec $2.7 million) represents the avoided costs of having to upgrade certain legacy systems, which were replaced by a new integrated information system; $7.4 million (JCP&L $3.4 million; Met-Ed $1.9 million; Penelec $2.1 million) represents what would have been spent in any event for maintenance and cyclical replacement plans; $13.9 million (JCP&L $6.5 million; Met-Ed $3.7 million; Penelec $3.7 million) represents the reallocation of resources to the Year 2000 project; and $12.9 million (JCP&L $6.1 million; Met-Ed $3.6 million; Penelec $3.2 million) represents the incremental or out-of-pocket costs for the Year 2000 project. The GPU Energy companies are funding these costs from their operations.
Through December 31, 1999, the GPU Energy companies have spent a total of approximately $41.8 million (JCP&L $18.4 million; Met-Ed $11.7 million; Penelec $11.7 million) on the Year 2000 issue, of which $21.2 million (JCP&L $9.8 million; Met-Ed $5.8 million; Penelec $5.6 million) was spent in 1999.
GPU Electric expects to spend a total of $14 million on the Year 2000 issue. Through December 31, 1999, GPU Electric has spent a total of approximately $13.1 million on the Year 2000 issue, of which $9.3 million was spent in 1999.
The total cost associated with the GPUI Group and GPU AR achieving Year 2000 readiness was not material to GPU's business operations or financial position.
Milestones
GPU established Inventory, Assessment, Remediation, Testing and Monitoring of its mission-critical Year 2000 Components as the primary phases for its Year 2000 program. All stages of the Year 2000 program have been completed with the exception of Monitoring, which will be completed by March 31, 2000.
Third Party Qualification
Due to the interdependence of computer systems and the reliance on other organizations for materials, supplies or services, GPU contacted key customers, lenders, trading partners, vendors, suppliers and service providers to assess whether they adequately addressed the Year 2000 issue.
With respect to computer software and equipment with embedded systems, the GPU Energy companies analyzed where they are dependent upon third parties and identified several critical areas: (1) the Pennsylvania-New Jersey-Maryland (PJM) Interconnection; (2) electric generation suppliers, such as cogeneration operators and NUGs; (3) Electronic Data Interchange (EDI) with trading partners; (4) Electronic Funds Transfer (EFT) with financial institutions; (5) vendors; and (6) customers.
As of January 31, 2000, GPU believes that its planning concerning the Year 2000 readiness of critical third parties was effective. As of that date, no significant Year 2000 issues have been identified.
Scenarios and Contingencies
As of January 31, 2000, GPU believes that its Year 2000 preparations were effective relative to its mission-critical Year 2000 Components and has established contingency plans to deal promptly with problems that may arise during the monitoring phase of its Year 2000 program. GPU does not anticipate any "most reasonably likely worst case Year 2000 scenarios" that would cause a material adverse effect on its results of operations, liquidity or financial condition.
COMPETITIVE ENVIRONMENT AND RATE MATTERS ----------------------------------------
GPU Business Plan - -----------------
Currently, and increasingly in the future, the GPU Energy companies expect they will have to serve customers in markets where there will be capped rates for varying periods and their ability to seek rate increases will be more limited. In addition, inflation could adversely affect GPU since these increased costs may not be recoverable in an environment where there are capped rates. Since the GPU Energy companies have, to a large extent, exited the generation business, they will have to supply energy to customers who do not choose an alternate supplier largely from contracted and open market purchases. Management has identified and addressed market risks associated with these purchases through implementation of an energy risk management program. However, there can be no assurance that the GPU Energy companies will be able to supply electricity to customers at costs which will be recoverable by the respective companies.
In October 1999, GPU initiated a program to enhance shareholder returns through planned cost reductions of $100 million ($55 million in 2000 and $45 million in 2001) by increasing operating efficiency and by making investments of $40 million to $50 million to improve the reliability of its domestic utility operations.
The GPU Energy companies are targeting reductions of $30 million in 2000 and an additional $40 million in 2001. Cost reductions will be achieved by using new tools from its enterprise resource planning system to eliminate significant amounts of operational overhead expense and by improving the productivity of all its operations. Midlands plans cost reductions of US $25 million in 2000 and US $5 million in 2001. Cost reductions will be achieved by eliminating activities not provided for in its new regulated rate level, which will take effect in the Spring of 2000, and by realizing productivity benefits from its new systems and organization. Furthermore, GPU plans to raise at least $500 million in cash from its current investment portfolio by reducing GPU's ownership in non-core and under-performing assets.
The GPU Energy Companies' Supply Plan - -------------------------------------
As a result of the NJBPU and the PaPUC's restructuring orders, the GPU Energy companies are required to provide generation service to customers who do not choose an alternate supplier. (For additional information, see the Provider of Last Resort and Basic Generation Service Provider sections below.) Given that the GPU Energy companies have largely divested their generation business, there will be increased market risks associated with providing generation service since the GPU Energy companies will have to supply energy to non-shopping customers from contracted and open market purchases. Under its order, JCP&L is permitted to recover reasonably and prudently incurred costs associated with providing basic generation service. The PaPUC's restructuring orders, however, generally do not allow Met-Ed and Penelec to recover their energy costs in excess of established rate caps which are in effect for varying periods. While management has implemented an energy risk management program, there can be no assurance that the GPU Energy companies will be able to supply electricity to customers that do not choose an alternate supplier at costs which will be recoverable by the respective companies.
Following the sales in 1999 of the GPU Energy companies' generating facilities, GPU has 200 MW of capacity and related energy from Yards Creek Pumped Storage Facility (Yards Creek) remaining to meet customer needs (see Generation Asset Divestiture for a discussion of the pending sale of Oyster Creek) and an additional 704 MW of nuclear, combustion turbine and hydroelectric generation, the sales of which are pending. The GPU Energy companies also have contracts with NUG facilities totaling 1,606 MW (JCP&L 928 MW; Met-Ed 273 MW; Penelec 405 MW) and JCP&L has agreements with other utilities to provide for up to 584 MW (reduced to 400 MW on January 1, 2000) of capacity and related energy. The GPU Energy companies have agreed to purchase all of the capacity and energy from TMI-1 through December 31, 2001 and from Oyster Creek (following its sale) through March 31, 2003. In addition, the GPU Energy companies have the right to call the capacity of the Homer City station (942 MW) through May 31, 2001 and the capacity of the generating stations sold to Sithe Energies (Sithe)(4,117 MW) through May 31, 2002. The GPU Energy companies' remaining capacity and energy needs will be met by short- to intermediate-term commitments (one month to three years) during times of expected high energy price volatility and reliance on spot market purchases during other periods.
Provider of Last Resort - -----------------------
Under the PaPUC Restructuring Orders, Met-Ed and Penelec customers have been permitted to shop for their generation supplier since January 1, 1999. A PaPUC approved competitive bid process was to assign provider of last resort (PLR) service for 20% of Met-Ed and Penelec's retail customers on June 1, 2000, 40% on June 1, 2001, 60% on June 1, 2002, and 80% on June 1, 2003, to licensed generation suppliers referred to as Competitive Default Service (CDS). Any retail customers assigned to CDS may return to Met-Ed and Penelec as the default PLR at no additional charge. Met-Ed and Penelec may meet any remaining PLR obligation at rates not less than the lowest rate charged by the winning CDS provider, but no higher than Met-Ed and Penelec's rate cap. In 1999, Met-Ed and Penelec issued requests for bids to provide competitive bidding for default energy supply service for 20% of their customers, beginning in June 2000, as required by the PaPUC. In February 2000, GPU Energy announced that no bids were received in response to its offer and, as a result, it would be increasing its forward purchasing of electric power to accommodate the 20% of customers for whom it will now continue to be the default supplier. GPU estimates that these additional energy purchases will reduce its 2000 earnings per share by $0.04 to $0.08, but expects to mitigate this impact through additional common stock repurchases. GPU Energy is also developing a comprehensive solution for default energy supply service in Pennsylvania, which it plans to submit to the PaPUC.
Management's best estimates for PLR load are based upon regional economic data, normal weather (20 year average), forecasts of retail customer shopping, and implementation of CDS. As of December 31, 1999 a hypothetical 10% increase in the cost of energy not already under contract to serve the estimated PLR load would result in an estimated $9 million decrease in pre-tax earnings during 2000.
Basic Generation Service Provider - ---------------------------------
JCP&L is required to provide basic generation services (BGS) to retail customers who choose to remain with JCP&L as generation customers for a three-year period ending July 31, 2002. The responsibility for BGS thereafter will be bid out. JCP&L's BGS rates are pre-determined for the period through July 31, 2003. Bidders will bid for the right to provide BGS during the year commencing August 1, 2002 at the pre-established BGS rates. Any payment received or required by JCP&L resulting from the bidding process will be deferred for future refund or recovery.
GPU Energy Supply Market Risk - -----------------------------
The GPU Energy companies manage the risks associated with the purchases and sales of electric energy and natural gas which result from its obligation to provide electricity as PLR service in Pennsylvania and BGS in New Jersey. This also involves managing the purchase and sale of installed capacity and ancillary services to minimize business risk associated with its reliability obligation in the PJM Interconnection, LLC (PJM).
The focus for the Pennsylvania operating companies is to avoid large earnings volatility due to fixed price sales to Pennsylvania customers, while cost stability for New Jersey customers is the goal for JCP&L to minimize deferred balances for BGS. The GPU Energy companies will transact in supply/hedging market instruments for hedging purposes only. Supply/risk
management transactions will be made based on the objective of decreasing both price and volume uncertainty.
Market Risk - Electricity - -------------------------
The GPU Energy companies electricity supply profile generally reflects a shortage of economic on-peak electricity, resulting in a net short position (load in excess of supply). Consequently, the GPU Energy companies are generally at risk of rising prices for electricity and electricity-related commodities. These risks may differ during some months of the year. To manage these risks, the GPU Energy companies employ a portfolio approach primarily consisting of two party forward purchases and options, but may also include NYMEX PJM electricity futures and similar instruments as they become widely available. This portfolio includes transactions of various durations ranging from one hour to greater than one year.
The GPU Energy companies' electricity market risks can be price-related, volume-related, or cost-related as follows:
- - Price-related risk refers to the price exposure associated with having to purchase amounts of electricity, installed capacity, and ancillary services for load requirements from the PJM interchange spot market. To the extent the GPU Energy companies must rely on the PJM pool to satisfy load requirements, financial exposure exists for the difference between the PJM energy and installed capacity spot market prices and the rates paid by customers.
- - Volume-related risk refers to the uncertainty associated with the amount of load the GPU Energy companies are required to serve. Deregulation of the electric utility industry has resulted in the ability of their customers to purchase energy from other electric suppliers. This customer shopping, combined with deviations in weather, which affects customer energy usage, can affect the GPU Energy companies' position.
- - Cost recovery-related risk refers to the financial risk associated with the potential prudency audits of the NJBPU that are part of JCP&L's deferred energy clause. Cost recovery-related risk also refers to the prudency risk associated with future NUG cost recovery under the restructuring orders approved by the PaPUC and the NJBPU which require continued mitigation of above market NUG costs.
Market Risk - Natural Gas - -------------------------
As part of its NUG cost mitigation program, the GPU Energy companies manage the natural gas requirements of certain NUGs that produce and sell energy to JCP&L under long-term contracts. Under this obligation, the GPU Energy companies must manage both natural gas volume and price risk in a manner that will satisfy potential prudency audits of the NJBPU. Prudently incurred costs associated with natural gas commodity and transportation for these NUGs are included in JCP&L's deferred energy clause.
The GPU Energy companies employ a portfolio approach consisting of two party forward purchases and NYMEX natural gas futures contracts. The GPU Energy companies' natural gas market risks can be price-related, volume-related or cost recovery-related as follows:
- - Price-related risk refers to the price exposure associated with having to purchase volumes of natural gas for New Jersey NUG requirements from the spot market.
- - Volume-related risk refers to the uncertainty associated with the amount of natural gas required for the dispatchable NUGs.
- - Cost recovery-related risk refers to the financial risk associated with the potential prudency audits of the NJBPU that are part of JCP&L's deferred energy clause.
Generation Asset Divestiture - ----------------------------
As discussed below, in 1999, the GPU Energy companies completed the sales of TMI-1 and substantially all their fossil-fuel and hydroelectric generating stations.
Penelec sold its 50% interest in Homer City to a subsidiary of Edison Mission Energy for approximately $900 million. In addition, Penelec's 20% undivided ownership interest in the Seneca Pumped Storage Facility was sold to Cleveland Electric Illuminating Company for $43 million.
The GPU Energy companies completed the sales of substantially all their remaining fossil fuel and hydroelectric generating facilities to Sithe for approximately $1.6 billion (JCP&L $416 million; Met-Ed $641 million; Penelec $558 million) (JCP&L's 50% interest in Yards Creek is not included in the sale and the sales of the 66 MW Forked River combustion turbines and 19 MW York Haven hydroelectric station were postponed). The GPU Energy companies have agreed to assume up to $20 million (JCP&L $7 million; Met-Ed $9 million; Penelec $4 million) of employee severance costs for employees not hired by Sithe. The net proceeds from the sales will be used to fund future stranded costs, invest in the reliability of the GPU Energy companies' T&D network, reduce outstanding debt, and repurchase GPU, Inc. common stock. For additional information, see Note 6, Accounting for Extraordinary and Non-recurring items.
These sales have resulted in an after-tax gain of $37.2 million (Met-Ed $1.4 million; Penelec $ $35.8 million), or $0.30 per share, during 1999 for the portion of the gains related to wholesale operations and the deferral as a regulatory liability of the remaining gain of $1.3 billion (Met-Ed $389.1 million; Penelec $938.3 million) pending Phase II of the Pennsylvania restructuring proceeding and a separate review by the NJBPU.
The GPU Energy companies sold TMI-1 to AmerGen Energy Company, LLC (AmerGen), a joint venture of PECO Energy and British Energy, for a total purchase price of approximately $100 million. AmerGen will pay approximately $77 million of the purchase price which is allocable to nuclear fuel, in five annual installments, beginning in December 2000, and is obligated to make certain contingent payments to the GPU Energy companies of up to $80 million, depending on the level of energy prices through 2010. The GPU Energy companies have transferred $320 million to AmerGen for decommissioning, and AmerGen has assumed all liability and obligation for decommissioning TMI-1. This sale did not have a significant impact on 1999 earnings (a loss of $1.1 million, or $0.01 per share, was recorded related to wholesale operations) since TMI-1 had been written down to its fair market value in 1998. The majority of the amount written down and the majority of the remaining loss
from the sale resulted in the deferral of $528.3 million (JCP&L $133.1 million; Met-Ed $270.7 million; Penelec $124.5 million) as a regulatory asset and a charge to 1998 income of $10 million.
In October 1999, JCP&L agreed to sell Oyster Creek to AmerGen for $10 million. As part of the terms of the transaction, AmerGen will assume full responsibility for decommissioning the plant. JCP&L will transfer at closing $430 million of decommissioning trust funds as well as funds for the station's outage cost, including the fuel reload for the next refueling outage scheduled for the Fall of 2000. AmerGen will repay these outage costs (estimated at $88 million) to JCP&L in nine equal annual installments without interest, beginning one year after the closing. The sale is subject to various conditions including the receipt of satisfactory federal and state regulatory approvals and favorable rulings by the Internal Revenue Service.
Recent Regulatory Actions - -------------------------
New Jersey Restructuring
In May 1999, the NJBPU issued a Summary Order with respect to JCP&L's rate unbundling, stranded cost and restructuring filings. JCP&L is awaiting a more detailed order from the NJBPU. This Summary Order provides for, among other things, the following:
- customer choice of electric generation supplier for all consumers beginning August 1, 1999 with utilities accepting customer selection of suppliers in October 1999;
- a 5% rate reduction commencing August 1, 1999; additional reductions of 1% in 2000 and 2% in 2001; and an additional net 3% reduction in 2002 inclusive of a 5% rate refund from rates in effect as of April 30, 1997, partially offset by a 2% increase in the Market Transition Charge (MTC). The total rate reduction of 11% will remain in effect through July 2003;
- the removal from regulation of the costs associated with providing electric generation service. JCP&L must provide BGS through July 31, 2002 to retail customers who do not choose an alternative generation supplier, after which BGS will be bid out;
- the average shopping credits will range from 5.14 cents per KWH in 1999 to 5.40 cents in 2003;
- an average distribution rate of 3.35 cents per KWH;
- the ability to recover stranded costs;
- the ability to securitize approximately $400 million of stranded costs associated with Oyster Creek (see below for additional information);
- effective August 1, 1999, JCP&L is no longer subject to an earnings cap;
- the establishment of a non-bypassable societal benefits charge to recover costs associated with nuclear plant decommissioning, demand-side management, manufactured gas plant remediation, universal service fund and consumer education; and
- the NJBPU will conduct an annual review and assessment of the reasonableness and prudency of costs incurred by JCP&L in the procurement of energy and capacity needed to serve BGS load as well as of NUG and utility power purchase agreement stranded costs.
In addition, JCP&L will implement a non-bypassable MTC through which JCP&L will collect:
- above-market costs associated with long-term NUG and utility power purchase agreements;
- any under-recovered deferred costs as of August 1, 1999 resulting from JCP&L's previous levelized energy adjustment clause;
- early retirement and severance-related costs of $130 million over 11 years should Oyster Creek be retired from service in 2000; and
- the amortization of Oyster Creek sunk costs, pending securitization.
In August 1999, JCP&L filed a petition with the NJBPU requesting authorization to issue transition bonds to securitize the recovery of bondable stranded costs attributable to the projected net investment in Oyster Creek at September 1, 2000. The petition also requests that the NJBPU order provide for the imposition and collection of a usage based non-bypassable transition bond charge (TBC) and for the transfer of the bondable transition property relating to the TBC to another entity. JCP&L has amended its petition to include the up-front decommissioning and outage payments included in the Oyster Creek sale agreement.
Pennsylvania Restructuring
In 1996, Pennsylvania adopted comprehensive legislation (Customer Choice Act) which provides for the restructuring of the electric utility industry. In October 1998, the PaPUC issued amended Restructuring Orders, approving Settlement Agreements entered into by Met-Ed and Penelec. An appeal by one intervenor in the restructuring proceedings is pending before the Pennsylvania Supreme Court. There can be no assurance as to the outcome of this appeal.
The results of Met-Ed and Penelec's sale of their generating facilities (see Generation Asset Divestiture section) will be addressed in Phase II of the Pennsylvania restructuring proceeding, which is expected to begin in early 2000. In 1999, Penelec deposited a portion of the proceeds from its generation asset sale into a NUG Trust, which has a balance at December 31, 1999 of $266.7 million. To the extent Penelec incurs above-market NUG costs in excess of the CTC revenues allocated for such costs Penelec may withdraw amounts from the trust. There can be no assurance as to the outcome of these matters.
Federal Regulation
In November 1997, the Federal Energy Regulatory Commission (FERC) issued an order to the PJM Power Pool which, among other things, directed the GPU Energy companies to implement a single-system transmission rate, effective April 1, 1998. The implementation of the single-system rate has not affected
total transmission revenues; however, it has increased the pricing for transmission service in Met-Ed and Penelec's service territories and reduced the pricing for transmission service in JCP&L's service territory.
The GPU Energy companies have requested the FERC to reconsider its ruling requiring a single-system transmission rate. The Restructuring Orders for Met-Ed and Penelec provide for a transmission and distribution rate cap exception to recover the increase in the transmission rate from Met-Ed and Penelec's retail customers in the event the FERC denies the request for reconsideration of the single-system transmission rate. The FERC's ruling may also have an effect on JCP&L's distribution rates. There can be no assurance as to the outcome of this matter.
Several bills have been introduced in Congress providing for a comprehensive restructuring of the electric utility industry. These bills proposed, among other things, retail choice for all utility customers, the opportunity for utilities to recover their prudently incurred stranded costs in varying degrees, and repeal of both the Public Utility Regulatory Policies Act (PURPA) and the Public Utility Holding Company Act of 1935 (PUHCA).
In April 1999, the Clinton administration introduced the Comprehensive Electricity Competition Act, which proposes a flexible mandate for customer choice by January 1, 2003, reliability standards, environmental provisions, and the repeal of both PURPA and PUHCA. The flexible mandate allows states to opt out of the mandate if they believe consumers would be better served by an alternative policy.
Nonutility Generation Agreements - --------------------------------
Pursuant to the mandates of PURPA and state regulatory directives, the GPU Energy companies have been required to enter into power purchase agreements with NUGs for the purchase of energy and capacity which agreements have remaining terms of up to 21 years. As of December 31, 1999, facilities covered by these agreements having 1,606 MW (JCP&L 928 MW; Met-Ed 273 MW; Penelec 405 MW) of capacity were in service.
The NJBPU Summary Order and PaPUC Restructuring Orders provide the GPU Energy companies assurance of full recovery of their NUG costs (including above-market NUG costs and certain buyout costs). Accordingly, the GPU Energy companies have recorded a liability of $3.2 billion (JCP&L $1.6 billion; Met-Ed $0.7 billion; Penelec $0.9 billion)on the Consolidated Balance Sheets for above-market NUG costs which is fully offset by Regulatory assets, net. In addition, JCP&L recorded a liability of $64 million for above-market utility power purchase agreements with a corresponding offset to Regulatory assets, net, since there is assurance of full recovery. The GPU Energy companies are continuing efforts to reduce the above-market costs of these agreements and will, where beneficial, attempt to renegotiate the prices of the agreements, offer contract buyouts and attempt to convert must-run agreements to dispatchable agreements. There can be no assurance as to the extent to which these efforts will be successful. For additional information, see the Competition and the Changing Regulatory Environment section of Note 12 of the Notes to Consolidated Financial Statements.
In 1998, Met-Ed entered into a buyout agreement with Solar Turbines, Inc. (Solar), contingent upon Met-Ed obtaining a final and non-appealable PaPUC order allowing for full recovery of the buyout payment through retail rates.
In October 1999, Met-Ed paid Solar $51.3 million under an amended agreement which obligates Solar to refund to Met-Ed these amounts if the PaPUC rescinds its current approval of the buyout which was received as part of Met-Ed's Restructuring Order.
ENVIRONMENTAL MATTERS --------------------- As a result of existing and proposed legislation and regulations, and ongoing legal proceedings dealing with environmental matters, including but not limited to acid rain, water quality, ambient air quality, global warming, electromagnetic fields, and storage and disposal of hazardous and/or toxic wastes, GPU may be required to incur substantial additional costs to construct new equipment, modify or replace existing and proposed equipment, remediate, decommission or cleanup waste disposal and other sites currently or formerly used by it, including formerly owned manufactured gas plants (MGP), coal mine refuse piles and generation facilities.
GPU records environmental liabilities (on an undiscounted basis) where it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated, and adjusts these liabilities as required to reflect changes in circumstances. At December 31, 1999, the GPU Energy companies have liabilities recorded on their balance sheets for environmental remediation totaling $66 million (JCP&L $56 million; Met-Ed $1 million; Penelec $8 million; Other $1 million).
For more information, see the Environmental Matters section of Note 12 of the Notes to Consolidated Financial Statements.
LEGAL MATTERS - TMI-2 ACCIDENT CLAIMS -------------------------------------
As a result of the 1979 TMI-2 accident, individual claims for alleged personal injury (including claims for punitive damages), which are material in amount, were asserted against GPU, Inc. and the GPU Energy companies. Approximately 2,100 of such claims were filed in the US District Court for the Middle District of Pennsylvania. Some of the claims also seek recovery for injuries from alleged emissions of radioactivity before and after the accident.
In 1996, the District Court granted a motion for summary judgment filed by GPU, Inc. and the GPU Energy companies, and dismissed the ten initial "test cases," which had been selected for a test case trial as well as all of the remaining 2,100 pending claims. The Court ruled that there was no evidence which created a genuine issue of material fact warranting submission of plaintiffs' claims to a jury. The plaintiffs appealed the District Court's ruling to the Court of Appeals for the Third Circuit. On November 2, 1999, the Third Circuit affirmed the District Court's dismissal of the ten "test cases," but set aside the dismissal of the additional pending claims, remanding them to the District Court for further proceedings. In remanding these claims, the Third Circuit held that the District Court had erred in extending its summary judgment decision to the other plaintiffs and imposing on these plaintiffs the District Court's finding that radiation exposures below 10 rems were too speculative to establish a causal link to cancer. The Court of Appeals stated that the non-test case plaintiffs should be permitted to present their own individual evidence that exposure to radiation from the accident caused their cancers.
GPU, Inc. and the GPU Energy companies believe that the Third Circuit has misinterpreted the record before the District Court, as it applies to the non-test case plaintiffs and on November 16, 1999, filed petitions seeking a rehearing and reconsideration of the Court's decision regarding these remaining claims. The "test case" plaintiffs also requested a rehearing of the Court's decision upholding the dismissal of their claims. In January 2000, the Court of Appeals denied both petitions. The "test case" plaintiffs have stated that they intend to seek Supreme Court review of the District Court's decision. There can be no assurance as to the outcome of this litigation.
GPU, Inc. and the GPU Energy companies believe that any liability to which they might be subject by reason of the TMI-2 accident will not exceed their financial protection under the Price-Anderson Act.
ACCOUNTING MATTERS ------------------
Statement of Financial Accounting Standards No. 71 (FAS 71), "Accounting for the Effects of Certain Types of Regulation," applies to regulated utilities that have the ability to recover their costs through rates established by regulators and charged to customers. In June 1997, the Financial Accounting Standards Board's (FASB) Emerging Issues Task Force (EITF) (Issue 97-4) concluded that utilities are no longer subject to FAS 71, for the relevant portion of their business, when they know details of their individual transition plans to a competitive electric generation marketplace. The EITF also concluded that utilities can continue to carry previously recorded regulated assets, as well as any newly established regulated assets (including those related to generation), on their balance sheets if regulators have assured a regulated cash flow stream to recover the cost of these assets.
On May 24, 1999, the NJBPU issued a Summary Order regarding JCP&L's unbundling, stranded cost and restructuring filings which essentially deregulated the electric generation portion of JCP&L's business. Accordingly, in the second quarter of 1999, JCP&L discontinued the application of FAS 71 and adopted the provisions of Statement of Financial Accounting Standards No. 101 (FAS 101), "Regulated Enterprises - Accounting for the Discontinuation of Application of FASB Statement No. 71" and EITF Issue 97-4 with respect to its electric generation operations. In 1998, Met-Ed and Penelec, in conjunction with receiving their Restructuring Orders, discontinued the application of FAS 71 and adopted the provisions of FAS 101 and EITF 97-4 for their generation operations. The transmission and distribution portion of the GPU Energy companies' operations continue to be subject to the provisions of FAS 71.
In accordance with the Statement of Financial Accounting Standards No. 121 (FAS 121), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," impairment tests performed by the GPU Energy companies on the net book values of their remaining generation facilities determined that the net investment in Oyster Creek was impaired. As of December 31, 1999, this resulted in a write-down of $678 million to reflect Oyster Creek's fair market value. The total impairment amount of Oyster Creek has been reestablished as a regulatory asset since the Summary Order provides for its recovery in the restructuring process.
Statement of Financial Accounting Standards No. 133 (FAS 133), "Accounting for Derivative Instruments and Hedging Activities," establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. FAS 133 requires that companies recognize all derivatives as either assets or liabilities on the balance sheet and measure those instruments at fair value. GPU will be required to include its derivative transactions on its balance sheet at fair value, and recognize the subsequent changes in fair value as either gains or losses in earnings or report them as a component of other comprehensive income, depending upon the intended use and designation of the derivative as a hedge. FAS 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. GPU will adopt FAS 133 in the first quarter of 2001 and is in the process of evaluating the impact of the implementation of this statement. GPU's use of derivative instruments is intended to manage the risk of interest rate, foreign currency and commodity price fluctuations and may include such transactions as electricity and natural gas forward and futures contracts, foreign currency swaps, interest rate swaps and options. GPU does not intend to hold or issue derivative instruments for trading purposes.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of GPU, Inc.:
In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of GPU, Inc. and Subsidiary Companies at December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999 in conformity with accounting principles generally accepted in the United States. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania February 10, 2000
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GPU, Inc. owns all the outstanding common stock of three domestic electric utilities -- Jersey Central Power & Light Company (JCP&L), Metropolitan Edison Company (Met-Ed) and Pennsylvania Electric Company (Penelec). The customer service function, transmission and distribution operations and the operations of the remaining non-nuclear generating facilities of these electric utilities are conducting business under the name GPU Energy. JCP&L, Met-Ed and Penelec considered together are referred to as the "GPU Energy companies." The nuclear generation operations of GPU Energy are conducted by GPU Nuclear, Inc. (GPUN). GPU Capital, Inc. and GPU Electric, Inc. and their subsidiaries own, operate and fund the acquisition of electric and gas transmission and distribution systems in foreign countries, and are referred to as "GPU Electric." GPU International, Inc. and GPU Power, Inc. and their subsidiaries develop, own and operate generation facilities in the United States and foreign countries and are referred to as the "GPUI Group." Other subsidiaries of GPU, Inc. include GPU Advanced Resources, Inc. (GPU AR), which is involved in retail energy sales; GPU Telcom Services, Inc. (GPU Telcom), which is engaged in telecommunications-related businesses; and GPU Service, Inc. (GPUS), which provides legal, accounting, financial and other services to the GPU companies. All of these companies considered together are referred to as "GPU."
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the reporting period. Actual results could differ from those estimates.
SYSTEM OF ACCOUNTS ------------------
Certain reclassifications of prior years' data have been made to conform with the current presentation. The GPU Energy companies' accounting records are maintained in accordance with the Uniform System of Accounts prescribed by the Federal Energy Regulatory Commission (FERC) and adopted by the Pennsylvania Public Utility Commission (PaPUC) and the New Jersey Board of Public Utilities (NJBPU). GPU's accounting records also comply with the Securities and Exchange Commission's (SEC) rules and regulations.
CONSOLIDATION -------------
The GPU consolidated financial statements include the accounts of its wholly-owned subsidiaries and any affiliates in which it has a controlling financial interest (generally evidenced by a greater than 50% ownership interest). All significant intercompany transactions and accounts are eliminated in consolidation. GPU also uses the equity method of accounting for investments in affiliates in which it has the ability to exercise significant influence.
Effective in the third quarter of 1999, GPU began accounting for its Midlands Electricity plc (Midlands) investment as a consolidated entity due to GPU's purchase from Cinergy Corp. (Cinergy) of the remaining 50% ownership interest in Midlands which GPU did not own. As a result of this change, GPU's remaining equity investments are no longer presented in the Notes to Consolidated Financial Statements since these investments as of December 31, 1999 are considered immaterial to GPU's results of operations and financial condition.
REGULATORY ACCOUNTING ---------------------
Statement of Financial Accounting Standards No. 71 (FAS 71), "Accounting for the Effects of Certain Types of Regulation," applies to regulated utilities that have the ability to recover their costs through rates established by regulators and charged to customers. The GPU Energy companies' transmission and distribution operations are currently accounted for under the provisions of FAS 71. In accordance with FAS 71, GPU has deferred certain costs pursuant to actions of the NJBPU and PaPUC and is recovering or expects to recover such costs in regulated rates charged to customers. Regulatory assets and liabilities are reflected net in the Deferred Debits and Other Assets section of the Consolidated Balance Sheets. For additional information about regulatory assets and liabilities, see Note 12, Commitments and Contingencies.
With the receipt of the NJBPU Summary Restructuring Order (Summary Order) in 1999 and the PaPUC Restructuring Orders (Restructuring Orders) in 1998, GPU determined that the GPU Energy companies' electric generation operations no longer met the criteria for the continued application of FAS 71, and therefore adopted, for that portion of its business, the provisions of Statement of Financial Accounting Standards No. 101 (FAS 101), "Regulated Enterprises - Accounting for the Discontinuation of Application of FASB Statement No. 71" and Emerging Issues Task Force Issue 97-4 (EITF)(Issue 97-4), Deregulation of the Pricing of Electricity - Issues Related to the Application of FASB Statement No. 71 "Accounting for the Effects of Certain Types of Regulation" and No. 101 "Regulated Enterprises - Accounting for the Discontinuation of Application of FASB Statement No. 71."
CURRENCY TRANSLATION --------------------
In accordance with Statement of Financial Accounting Standards No. 52 (FAS 52), "Foreign Currency Translation," balance sheet accounts of foreign operations are translated from foreign currencies into US dollars at year-end rates, while income statement accounts are translated at the average month-end exchange rates for the relevant period. The resulting translation adjustments are included in Accumulated other comprehensive income/(loss), net of deferred taxes, on the Consolidated Balance Sheets. Gains and losses resulting from foreign currency transactions are included in Net Income.
REVENUES --------
GPU recognizes operating revenues for services rendered to the end of the relevant accounting period. GPU Electric and the GPU Energy companies' electric operating revenues also include an estimate for unbilled revenues.
DEFERRED COSTS --------------
JCP&L recovers its prudently incurred generation-related costs through a Market Transition Charge (MTC) and Basic Generation Service (BGS) charge, and defers any differences between actual costs and amounts recovered from customers through rates. Met-Ed and Penelec use deferred accounting for the above-market portion of nonutility generation (NUG) costs which are collected through the Competitive Transition Charge (CTC).
UTILITY PLANT -------------
At December 31, 1999 and 1998, the GPU Energy companies' generation plants are valued at the lower of cost or market. All other utility plant and additions are valued at cost. The assets of acquired companies are carried at their fair value as of the acquisition date, less accumulated depreciation.
DEPRECIATION ------------
GPU generally provides for depreciation at annual rates determined and revised periodically, on the basis of studies, to be sufficient to depreciate the original cost of depreciable property over estimated remaining service lives, which are generally longer than those employed for tax purposes. These rates, on an aggregate composite basis, resulted in annual rates as follows:
GPU JCP&L Met-Ed Penelec --- ----- ------ ------- 1999 2.96% 2.94% 3.01% 2.81% 1998 3.43% 3.65% 3.53% 3.25% 1997 3.34% 3.60% 3.39% 3.08%
GPU GasNet uses the volumetric depreciation method to amortize the cost of its gas pipeline.
AMORTIZATION POLICIES ---------------------
Accounting for TMI-2 and Forked River Investments: - -------------------------------------------------
At December 31, 1999, $61 million is included in Regulatory assets, net on the Consolidated Balance Sheets for JCP&L's investment in Three Mile Island Unit 2 (TMI-2). JCP&L is collecting annual revenues for the amortization of TMI-2 of $9.6 million. This level of revenue will be sufficient to recover the remaining investment by 2008. Met-Ed and Penelec have collected all of their TMI-2 investment attributable to retail customers. At December 31, 1999, $56 million is included in Regulatory assets, net on the Consolidated Balance Sheets for JCP&L's Forked River project. JCP&L is collecting annual revenues for the amortization of this project of $11.2 million, which will be sufficient to recover its remaining investment by 2006. Because JCP&L has not been provided revenues for a return on the unamortized balances of the damaged TMI-2 facility and the cancelled Forked River project, these investments are being carried at their discounted present values.
Nuclear Fuel: - ------------
The GPU Energy companies amortize nuclear fuel on a unit-of-production basis. Rates are determined and periodically revised to amortize the cost of the fuel over its useful life.
At December 31, 1999 and 1998, the liability of the GPU Energy companies for future contributions to the Federal Decontamination and Decommissioning Fund for the cleanup of uranium enrichment plants operated by the Federal Government amounted to $25 million (JCP&L $15 million; Met-Ed $7 million; Penelec $3 million) and $28 million (JCP&L $18 million; Met-Ed $7 million; Penelec $3 million), respectively, and was primarily reflected in Deferred Credits and Other Liabilities-Other. Annual contributions, which began in 1993, are being made over a 15-year period. JCP&L is recovering these costs from customers through its BGS and MTC rates while Met-Ed and Penelec anticipate recovery in Phase II of their restructuring proceedings which are expected to begin in early 2000.
Goodwill: - --------
Goodwill, resulting from GPU's purchase of various businesses, is recorded on the Consolidated Balance Sheets and amortized to expense, on a straight-line basis, over its useful life not to exceed 40 years. Goodwill amortization expense amounted to $51.6 million, $14 million and $2.8 million for the years ended December 31, 1999, 1998 and 1997, respectively. In addition, GPU's investments accounted for under the equity method or cost method include goodwill (net of amortization) totaling $21 million and $18.5 million as of December 31, 1999 and 1998, respectively, which is amortized on a straight-line basis over 20 years. Amortization expense on this goodwill (which is reflected on the Consolidated Statements of Income in Other Income and Deductions) amounted to $1.9 million, $1.6 million and $3.6 million for the years ended December 31, 1999, 1998 and 1997, respectively. GPU periodically reviews undiscounted projections of future cash flows from operations to assess whether any potential intangible impairment exists on its goodwill. For additional information of goodwill resulting from acquisitions, see Note 7, Acquisitions.
NUCLEAR FUEL DISPOSAL FEE -------------------------
The GPU Energy companies are providing for estimated future disposal costs for spent nuclear fuel at the Oyster Creek nuclear generating station (Oyster Creek) and Three Mile Island Unit 1 (TMI-1) in accordance with the Nuclear Waste Policy Act of 1982. The GPU Energy companies entered into contracts in 1983 with the US Department of Energy (DOE) for the disposal of spent nuclear fuel. The total liability under these contracts, including interest, at December 31, 1999, all of which relates to spent nuclear fuel from nuclear generation through April 1983, amounted to $198 million (JCP&L $148 million; Met-Ed $33 million; Penelec $17 million), and is reflected in Deferred Credits and Other Liabilities - Other. As the actual liability is substantially in excess of the amount recovered to date from ratepayers, the GPU Energy companies have reflected such excess in Regulatory assets, net. The distribution rates presently charged to customers provide for the collection of these costs, plus interest, over a remaining period of seven years for JCP&L. Met-Ed and Penelec are recovering these costs through their respective CTC.
The GPU Energy companies' current rates provide for the recovery of costs for spent nuclear fuel disposal costs resulting from nuclear generation subsequent to April 1983. The GPU Energy companies are making quarterly payments to the DOE based on one mill per kilowatt-hour. These remittances have ceased for TMI-1 and will cease for Oyster Creek when that facility is
sold. For a discussion of the DOE's current inability to begin acceptance of spent nuclear fuel from the GPU Energy companies and other standard contract holders, see Note 12, Commitments and Contingencies.
INCOME TAXES ------------
GPU files a consolidated federal income tax return. All participants are jointly and severally liable for the full amount of any tax, including penalties and interest, which may be assessed against the group.
Deferred income taxes, which result primarily from purchase accounting adjustments, liberalized depreciation methods, deferred costs, decommissioning funds and discounted Forked River and TMI-2 investments, reflect the impact of temporary differences between the amounts of assets and liabilities recognized for financial reporting purposes and the amounts recognized for tax purposes. Investment tax credits (ITC) are amortized over the estimated service lives of the related facilities.
CARRYING AMOUNTS OF FINANCIAL INSTRUMENTS -----------------------------------------
The carrying amounts of Temporary cash investments, Special deposits, Securities due within one year and Notes payable on the Consolidated Balance Sheets approximate fair value due to the short period to maturity. The carrying amounts of the Nuclear decommissioning trusts and Nuclear fuel disposal trust, whose assets are invested in cash equivalents and debt and equity securities, also approximate fair value.
DERIVATIVE INSTRUMENTS ----------------------
GPU's use of derivative instruments is intended primarily to manage the risk of interest rate, foreign currency and commodity price fluctuations. GPU does not intend to hold or issue derivative instruments for trading purposes.
Commodity Derivatives: - ---------------------
The GPU Energy companies use futures contracts to manage the risk of fluctuations in the market price of electricity and natural gas. These contracts qualify for hedge accounting treatment under current accounting rules since price movements of the commodity derivatives are highly correlated with the underlying hedged commodities and the transactions are designated as hedges at inception. Accordingly, under the deferral method of accounting, gains and losses related to commodity derivatives are recognized in Power purchased and interchanged in the Consolidated Statements of Income when the hedged transaction closes or if the commodity derivative is no longer sufficiently correlated. Prior to income or loss recognition, deferred gains and losses relating to these transactions are recorded in Current Assets or Current Liabilities in the Consolidated Balance Sheets.
Interest Rate Swap Agreements: - -----------------------------
GPU Electric uses interest rate swap agreements to manage the risk of increases in variable interest rates. At December 31, 1999, these agreements covered approximately $1.3 billion of debt, including commercial paper, and were scheduled to expire on various dates through November 2007. Differences between amounts paid and received under interest rate swaps are recorded as
adjustments to the interest expense of the underlying debt since the swaps are related to specific assets, liabilities or anticipated transactions. All of the agreements effectively convert variable rate debt, including commercial paper, to fixed rate debt. For the year ended December 31, 1999, fixed rate interest expense incurred in connection with the swap agreements exceeded the variable rate interest expense that would have been incurred had the swaps not been in place by approximately $20.7 million.
Currency Swap Agreements: - ------------------------
GPU Electric uses currency swap agreements to manage currency risk caused by fluctuations in the US dollar exchange rate related to debt issued in the US by Avon Energy Partners Holdings (Avon). These swap agreements effectively convert principal and interest payments on this US dollar debt to fixed sterling principal and interest payments, and expire on the maturity dates of the bonds. Interest expense is recorded based on the fixed sterling interest rate. At December 31, 1999, these currency swap agreements covered British Pound 517 million (US $850 million) of debt. Interest expense would have been British Pound 16.6 million (US $26.9 million) as compared to British Pound 18.2 million (US $29.5 million) for the year ended December 31, 1999 had these agreements not been in place.
Indexed Swap Agreement: - ----------------------
As part of an amended power purchase agreement with Niagara Mohawk Power Corporation (NIMO), Onondaga Cogeneration L.P. (Onondaga), a GPU International subsidiary, entered into a 10-year indexed swap agreement in 1998 which is intended to provide Onondaga a fixed revenue stream. At December 31, 1999 and 1998, the indexed swap agreement is valued at $55.1 million and $62.4 million, respectively and is included in Other - Deferred Debits and Other Assets on the Consolidated Balance Sheets. This valuation was derived using the discounted estimated cash flows related to payments expected to be received by Onondaga. The indexed swap is being amortized to expense over the life of the swap agreement. As a result of the anticipated expiration of a related power put agreement between Onondaga and NIMO, GPU International expects to recognize in income the unamortized balance of the indexed swap agreement, mostly offset by a plant impairment, resulting in a slight gain in 2000.
ENVIRONMENTAL LIABILITIES -------------------------
GPU may be subject to loss contingencies resulting from environmental laws and regulations, which include obligations to mitigate the effects on the environment of the disposal or release of certain hazardous wastes and substances at various sites. GPU records liabilities (on an undiscounted basis) for hazardous waste sites where it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated and adjusts these liabilities as required to reflect changes in circumstances.
STATEMENTS OF CASH FLOWS ------------------------
For the purpose of the consolidated statements of cash flows, temporary investments include all unrestricted liquid assets, such as cash deposits and debt securities, with maturities generally of three months or less. Cash flows are reported using the US dollar equivalent of the functional
currencies in effect at the time of the cash transaction. The effect of exchange rate changes on cash balances held in foreign currencies are reported as a separate line item on the Consolidated Statements of Cash Flows.
Avon and Midlands have a formal agreement with a United Kingdom bank, under which they maintain available cash balances in a number of subsidiary bank accounts and an overdraft in the main Midlands operating account. The overdraft balance was $224.6 million as of December 31, 1999, while total cash at Midlands was $274.6 million. Since Midlands manages the overdraft balance in such a way that it does not exceed the available cash balances in the other associated accounts, no interest or fees are paid under this arrangement. In effect, Midlands uses the overdraft facility to utilize the available cash in the other bank accounts. The overdraft position and the offsetting cash balances subject to this arrangement are shown on the Consolidated Balance Sheets in Bank overdraft and Cash and temporary cash investments, respectively.
2. SHORT-TERM BORROWING ARRANGEMENTS
At December 31, 1999 and 1998, short-term debt outstanding consisted of the following:
1999 1998 ---- ---- Balance Weighted Balance Weighted Company Facility Outstanding Avg. Rate Outstanding Avg. Rate - ------- -------- ------------- --------- ----------- --------- (in millions) (in millions)
GPU, Inc. Bank Loans $ 123 7 % $ 69 7 % JCP&L Bank Loans - - 53 6.3 Commercial Paper - - 69 6.2 Met-Ed Bank Loans - - 17 6.1 Commercial Paper - - 63 6.4 Penelec Bank Loans - - 32 5.9 Commercial Paper 54 6.9 54 6.1 GPUI Bank Loans - - 12 6.2 GPU Electric Bank Loans 147 6.1 - - Commercial Paper 848 6.5 - - ----- --- Total $1,172 $369 ===== ===
GPU's weighted average interest rate on the short-term borrowings was 6.5% and 6.4% at December 31, 1999 and 1998, respectively.
GPU has various credit facilities in place, the most significant of which are discussed below. These credit facilities generally provide GPU bank loans at negotiable market rates. In addition, commitment fees or facility fees are determined by market rates at the time the facility is put in place, and can change based on the borrower's current bond rating.
GPU, Inc. and GPU Energy companies
GPU, Inc. and the GPU Energy companies have available $450 million of short-term borrowing facilities, which includes a $250 million revolving credit agreement and various bank lines of credit. In addition, GPU, Inc., JCP&L, Met-Ed and Penelec can issue commercial paper in amounts of up to $100 million, $150 million, $75 million, and $100 million, respectively. From
these sources, GPU, Inc. has regulatory authority to have $250 million outstanding at any one time. JCP&L, Met-Ed and Penelec are limited by their charters or SEC authorization to $265 million, $150 million and $150 million, respectively, of short-term debt outstanding at any one time. As of December 31, 1999, GPU, Inc. and the GPU Energy companies had $123.5 million and $53.6 million, respectively, of short-term debt outstanding.
GPU Electric
GPU Capital has a $1 billion 364-day senior revolving credit agreement due in December 2000 supporting the issuance of commercial paper for its $1 billion commercial paper program established to fund GPU Electric acquisitions. GPU, Inc. has guaranteed GPU Capital's obligations under this program. At December 31, 1999, $768 million was outstanding under the commercial paper program, of which $370 million is included in long-term debt on the Consolidated Balance Sheets since it is management's intent to reissue this amount of the commercial paper on a long-term basis. For additional information, see Note 3 Long-Term Debt.
GPU Australia Holdings, Inc. has $270 million available under its senior revolving credit facility due in November 2002. This facility, in combination with other GPU, Inc. credit facilities, serves as credit support for GPU Australia Holdings' $350 million commercial paper program. GPU, Inc. has guaranteed GPU Australia Holdings' obligations under this program. At December 31, 1999, $182 million was outstanding under the commercial paper program.
Austran Holdings, Inc. (Austran), a wholly-owned indirect subsidiary of GPU Electric, has a A$500 million (approximately US $328 million) commercial paper program to refinance the maturing portion of the senior debt credit facility used to finance the PowerNet Victoria (GPU PowerNet) acquisition. GPU PowerNet has guaranteed Austran's obligations under this program. At December 31, 1999, A$420 million (approximately US $275 million) was outstanding under this program.
Midlands maintains a (pound)200 million (approximately US $323 million) syndicated revolving credit facility with a bank for working capital purposes, which matures May 2001. At December 31, 1999, (pound)87 million (approximately US $140 million) was outstanding under this facility.
GPUI Group
GPU International has a revolving credit agreement providing for borrowings through December 2000 of up to $30 million outstanding at any one time, of which up to $15 million may be utilized to provide letters of credit. GPU, Inc. has guaranteed GPU International's obligations under this agreement. At December 31, 1999, no borrowings or letters of credit were outstanding under this facility.
3. LONG-TERM DEBT
At December 31, 1999 and 1998, long-term debt outstanding consisted of the following:
GPU, Inc. and Subsidiary companies (in millions) ----------------------------------- Total Due Interest Debt Within 1999 Maturities Rates Outstanding One Year ---- ---------- ----- ----------- --------
GPU Energy companies & GPUS:
First mortgage bonds(a) 2000-2027 5.35-9.48% $1,783 (1) $ 90 Senior notes 2004-2019 5.75-6.63% 350 - Other long-term debt 2000-2039 6.76-7.69% 34 -
GPU Electric: Bank loans 2000-2014 4.16-13% 2,483 475 Bonds 2002-2008 7.38-7.46% 1,092 - Commercial paper/Medium term notes 2000-2002 6.3 -7.65% 633 (2) - GPUI Group 2000-2022 4.5 -7% 46 5 ----- ----- Total $6,421 $ 570 ===== ====
(1) Amount is less unamortized net discount of $4.6 million. (2) Amount includes $370 million of commercial paper, which is included in long-term debt on the Consolidated Balance Sheets since it is management's intent to reissue this amount on a long-term basis.
1998 (in millions) - ----
First mortgage bonds(a) $2,418 Amounts due within one year (80) Unamortized net discount (3) ----- Total GPU Energy companies 2,335 Other long-term debt: GPU Electric (excludes amounts due within one year of $453) 1,434 GPUI Group (excludes amounts due within one year of $28) 23 Other 34 ----- Total $3,826 ====== JCP&L - -----
First Mortgage Bonds - Series as noted (a): (in thousands) 1999 1998 ---- ----
6.04% due 2000 $ 40,000 $ 40,000 6.45% due 2001 40,000 40,000 9% due 2002 50,000 50,000 6.375% due 2003 150,000 150,000 7.125% due 2004 160,000 160,000 6.78% due 2005 50,000 50,000 8.25% due 2006 50,000 50,000 6.85% due 2006 40,000 40,000 7.90% due 2007 40,000 40,000 7.125% due 2009 6,300 6,300 7.10% due 2015 12,200 12,200 9.20% due 2021 50,000 50,000 8.55% due 2022 30,000 30,000 8.82% due 2022 12,000 12,000 8.85% due 2022 38,000 38,000 8.32% due 2022 40,000 40,000 7.98% due 2023 40,000 40,000 7.5% due 2023 125,000 125,000 8.45% due 2025 50,000 50,000 6.75% due 2025 150,000 150,000 --------- ---------
Subtotal 1,173,500 1,173,500 Amounts due within one year (40,000) - Unamortized net discount (2,752) (2,992) --------- ---------
Total 1,130,748 1,170,508
Other long-term debt (excludes amounts due within one year of $13 for 1999 and $12 for 1998) 3,012 3,024 --------- --------- Total long-term debt $1,133,760 $1,173,532 ========= =========
Met-Ed - ------
First Mortgage Bonds - Series as noted (a): (in thousands) 1999 1998 ---- ----
7.05% due 1999 $ - $ 30,000 6.2% due 2000 30,000 30,000 9.48% due 2000 20,000 20,000 8.05% due 2002 30,000 30,000 6.6% due 2003 20,000 20,000 7.22% due 2003 40,000 40,000 9.1% due 2003 30,000 30,000 6.34% due 2004 40,000 40,000 6.77% due 2005 30,000 30,000 7.35% due 2005 20,000 20,000 6.36% due 2006 17,000 17,000 6.40% due 2006 33,000 33,000 6.00% due 2008 8,700 8,700 6.1% due 2021 28,500 28,500 8.6% due 2022 30,000 30,000 8.8% due 2022 30,000 30,000 6.97% due 2023 30,000 30,000 7.65% due 2023 30,000 30,000 8.15% due 2023 60,000 60,000 5.95% due 2027 13,690 13,690 ------- -------
Subtotal 540,890 570,890 Amounts due within one year (50,000) (30,000) Unamortized net discount (31) (35) ------- -------
Total 490,859 540,855
Other long-term debt (excludes amounts due within one year of $25 for 1999 and $24 for 1998) 6,024 6,049 ------- -------
Total long-term debt $ 496,883 $ 546,904 ======= =======
Penelec - -------
First Mortgage Bonds - Series as noted (a): (in thousands) 1999 1998 ---- ----
5.99% due 1999 $ - $ 50,000 6.15% due 2000 - 30,000 6.8% due 2001 - 20,000 8.70% due 2001 - 30,000 7.40% due 2002 - 10,000 7.43% due 2002 - 30,000 7.92% due 2002 - 10,000 7.40% due 2003 - 10,000 6.60% due 2003 - 30,000 7.02% due 2003 - 20,000 7.48% due 2004 - 40,000 6.10% due 2004 - 30,000 6.7% due 2005 - 30,000 6.35% due 2006 - 40,000 8.05% due 2006 - 10,000 6.125% due 2007 4,110 4,110 6.55% due 2009 - 50,000 5.35% due 2010 12,310 12,310 5.35% due 2010 12,000 12,000 5.80% due 2020 20,000 20,000 8.33% due 2022 - 20,000 7.49% due 2023 - 30,000 8.38% due 2024 - 40,000 8.61% due 2025 - 30,000 7.53% due 2025 - 40,000 6.05% due 2025 25,000 25,000 ------- -------
Subtotal 73,420 673,420 Amounts due within one year - (50,000) Unamortized net discount (1,791) (11) ------- -------
Total 71,629 623,409
Senior Notes - Series as noted:
5.75% due 2004 125,000 - 6.125% due 2009 100,000 - 6.625% due 2019 125,000 - ------- -------
Total 350,000 -
Other long-term debt (excludes amounts due within one year of $13 for 1999 and $12 for 1998) 3,012 3,025 ------- -------
Total long-term debt $ 424,641 $ 626,434 ======= =======
(a) Substantially all of the utility plant owned by the GPU Energy companies is subject to the liens of their respective mortgages.
For the years 2000, 2001, 2002, 2003 and 2004, GPU has long-term debt maturities as follows:
(in millions) Company 2000 2001 2002 2003 2004 - ------- ---- ---- ---- ---- ----
JCP&L $ 40 $ 40 $ 50 $150 $160 Met-Ed 50 - 30 90 40 Penelec - - - - 125 GPU Electric 475 1,007 1,074 14 12 GPUI Group 5 7 7 6 6 GPUS - 22 - - - --- ----- ----- --- --- Total $570 $1,076 $1,161 $260 $343 === ===== ===== === ===
The fair value of long-term debt is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to GPU for debt of the same remaining maturities and credit qualities. The estimated fair value of GPU's long-term debt, including amounts due within one year, as of December 31, 1999 and 1998 is as follows:
(in millions) ---------------------------------------------- 1999 1998 ---------------------------------------------- Carrying Fair Carrying Fair Amount Value Amount Value -------- ----- ------- -----
JCP&L $1,174 $1,139 $1,174 $1,245 Met-Ed 547 532 577 614 Penelec 424 392 676 718 GPU Electric 4,208 4,186 - - GPUI Group 46 41 1,938 1,856 GPUS 22 22 22 22 ----- ----- ----- ----- Total $6,421 $6,312 $4,387 $4,455 ===== ===== ===== =====
At December 31, 1999, GPU Electric had long-term debt outstanding of approximately $470 million, which was guaranteed by GPU, Inc. The guaranteed amount consisted of $370 million under the GPU Capital $1 billion commercial paper program and up to $100 million under the British Pound 245 million credit facility used to partially fund GPU's acquisition of Cinergy's 50% interest in Midlands.
4. PREFERRED SECURITIES
Cumulative Preferred Stock: - --------------------------
At December 31, 1999 and 1998, the following issues of cumulative preferred stock were outstanding:
GPU, Inc. and Subsidiary Companies
(in thousands) 1999 1998 ---- ---- Cumulative preferred stock (a):
With mandatory redemption (c)(d) $ 84,000 $ 89,000 Amounts due within one year (e) (10,833) ( 2,500) ------- ------- Total cumulative preferred stock with mandatory redemption $ 73,167 $ 86,500 ======= =======
Cumulative preferred stock (a):
Without mandatory redemption (b)(d)(f) $ 12,500 $ 65,996 Premium on cumulative preferred stock 149 482 ------- ------- Total cumulative preferred stock without mandatory redemption $ 12,649 $ 66,478 ======= =======
JCP&L - -----
Cumulative preferred stock, without par value, 15,600,000 shares authorized, 965,000 and 1,265,000 shares issued and outstanding in 1999 and 1998, respectively. (a)
(in thousands) 1999 1998 ---- ---- Cumulative preferred stock - without mandatory redemption (b)(d):
4% Series, 125,000 shares, callable at $106.50 a share $ 12,500 $ 12,500 7.88% Series E, 250,000 shares, callable at $103.65 a share - 25,000 ------ ------ Subtotal 12,500 37,500 Premium on cumulative preferred stock 149 241 ------ ------ Total cumulative preferred stock - without mandatory redemption $ 12,649 $ 37,741 ====== ======
Cumulative preferred stock - with mandatory redemption (c)(d)(e):
8.65% Series J, 500,000 shares $ 50,000 $ 50,000 7.52% Series K, 340,000 shares at 12/31/99 390,000 shares at 12/31/98 34,000 39,000 ------ ------- Subtotal 84,000 89,000 Amounts due within one year (e) (10,833) (2,500) ------ ------- Total cumulative preferred stock - with mandatory redemption $ 73,167 $ 86,500 ====== =======
Met-Ed - ------
Cumulative preferred stock, without par value, 10,000,000 shares authorized, 119,475 shares issued and outstanding in 1998, without mandatory redemption. All cumulative preferred stock issued and outstanding was redeemed February 1999. (a)(b)(f)
(in thousands) 1999 1998 ---- ---- 3.90% Series, 64,384 shares, callable at $105.625 a share $ - $ 6,438 4.35% Series, 22,517 shares, callable at $104.25 a share - 2,252 3.85% Series, 9,252 shares, callable at $104.00 a share - 925 3.80% Series, 7,982 shares, callable at $104.70 a share - 798 4.45% Series, 15,340 shares, callable at $104.25 a share - 1,534 ------ ------ Subtotal - 11,947 Premium on cumulative preferred stock - 109 ------ ------ Total cumulative preferred stock $ - $12,056 ====== ======
Penelec - -------
Cumulative preferred stock, without par value, 11,435,000 shares authorized, 165,485 shares issued and outstanding in 1998, without mandatory redemption. All cumulative preferred stock issued and outstanding was redeemed February 1999. (a)(b)(f)
(in thousands) 1999 1998 ---- ---- 4.40% Series B, 29,678 shares, callable at $108.25 per share $ - $ 2,968 3.70% Series C, 49,568 shares, callable at $105.00 per share - 4,957 4.05% Series D, 28,219 shares, callable at $104.53 per share - 2,822 4.70% Series E, 14,103 shares, callable at $105.25 per share - 1,410 4.50% Series F, 17,081 shares, callable at $104.27 per share - 1,708 4.60% Series G, 26,836 shares, callable at $104.25 per share - 2,684 ------ ------ Subtotal - 16,549 Premium on cumulative preferred stock - 132 ------ ------ Total cumulative preferred stock $ - $16,681 ====== ======
(a) At December 31, 1999 and 1998, the GPU Energy companies were authorized to issue 37,035,000 of cumulative preferred stock. If dividends on any of the cumulative preferred stock of JCP&L are in arrears for four quarters, the holders of cumulative preferred stock, voting as a class, are entitled to elect a majority of the Board of Directors until all dividends in arrears have been paid. If JCP&L has failed to pay dividends in full on any outstanding shares of cumulative preferred stock, thereafter and until dividends in full on all such shares of cumulative preferred stock have been paid, or declared and set apart for payment, for all past quarterly dividend periods, JCP&L shall not redeem any cumulative preferred stock unless all the shares of cumulative preferred stock outstanding are redeemed and shall not purchase or otherwise acquire for value any shares of cumulative preferred stock except in accordance with an offer (which may vary with respect to shares of different series) made to all holders of share of cumulative preferred stock.
(b) The outstanding shares of preferred stock without mandatory redemption are callable at various prices above their stated values. At December 31, 1999, JCP&L could call the 4% Series for $13.3 million.
(c) The 7.52% and 8.65% Series are callable at various prices above their stated values beginning in 2002 and 2000, respectively. The 7.52% Series is to be redeemed ratably over twenty years, beginning in 1998. The 8.65% Series is to be redeemed ratably over six years beginning in 2000.
(d) During 1999, JCP&L redeemed all of its outstanding shares of 7.88% cumulative preferred stock with a stated value of $25 million and $5 million stated value of its 7.52% cumulative preferred stock pursuant to mandatory and optional sinking fund provisions. As a result, a
reacquisition loss of $0.8 million was charged to income. During 1998, JCP&L redeemed $5 million stated value of its 7.52% cumulative preferred stock and $10 million stated value of its 8.48% cumulative preferred stock pursuant to mandatory and optional sinking fund provisions. JCP&L's total redemption cost for 1999 and 1998 was $30.9 million and $15 million, respectively.
(e) The shares with mandatory redemption have redemption requirements of $10.8 million for each year of the next five years. The fair value of the preferred stock with mandatory redemption, including amounts due within one year, based on market price quotations at December 31, 1999 and 1998, was $86.5 million and $94.7 million, respectively.
(f) In 1999, Met-Ed and Penelec redeemed all of their outstanding shares of cumulative preferred stock for $12.5 million and $17.4 million, respectively. As a result, a reacquisition loss of $1.3 million (Met-Ed $0.6 million; Penelec $0.7 million) was charged to income.
Subsidiary-Obligated Mandatorily Redeemable Preferred Securities: - ----------------------------------------------------------------
JCP&L Capital, L.P., Met-Ed Capital, L.P. and Penelec Capital, L.P. are special-purpose partnerships in which a subsidiary of JCP&L, Met-Ed and Penelec, respectively, is the sole general partner. In 1995, JCP&L Capital, L.P. issued $125 million at 8.56% (5 million shares at $25 per share) of mandatorily redeemable preferred securities (MIPS) and in 1994, Met-Ed Capital, L.P. and Penelec Capital, L.P. issued $100 million at 9% (4 million shares at $25 per share) and $105 million at 8.75% (4.2 million shares at $25 per share), respectively, of MIPS. The proceeds were loaned to JCP&L, Met-Ed and Penelec, respectively, which, in turn, issued their deferrable interest subordinated debentures to the partnerships. In 1999, Met-Ed and Penelec redeemed all of their outstanding shares of MIPS for $100 million and $105 million, respectively. At December 31, 1999, JCP&L's outstanding shares of MIPS had a fair value of $120.6 million.
The MIPS of JCP&L Capital, L.P. mature in 2044 and are redeemable at the option of JCP&L beginning in May of 2000 at 100% of their principal amount, or earlier under certain limited circumstances, including the loss of the federal tax deduction for interest paid on the subordinated debentures. JCP&L has fully and unconditionally guaranteed payment of distributions, to the extent there is sufficient cash on hand to permit such payments and legally available funds, and payments on liquidation or redemption of its Preferred Securities. Distributions on the MIPS (and interest on the subordinated debentures) may be deferred for up to 60 months, but JCP&L, may not pay dividends on, or redeem or acquire, any of its cumulative preferred or common stock until deferred payments on its subordinated debentures are paid in full.
Trust Preferred Securities: - --------------------------
In 1999, $100 million of trust preferred securities were issued on behalf of each of Met-Ed and Penelec at 7.35% and 7.34%, respectively. The trust preferred securities were issued by Met-Ed Capital Trust and Penelec Capital Trust and represent a beneficial interest in the trust equal to a cumulative preferred limited partnership interest in Met-Ed Capital II, L.P. and Penelec Capital II, L.P. The preferred securities are the sole assets of the trust
and the only revenues of the trust will be distributions on the trust preferred securities. Each trust security has entitled the holder to receive quarterly cash distributions. Met-Ed and Penelec unconditionally guaranteed the payments by Met-Ed Capital II, L.P. and Penelec Capital II, L.P., respectively.
The fair value of the Met-Ed and Penelec trust preferred securities at December 31, 1999 was $81 million and $80.8 million, respectively.
5. STOCKHOLDERS' EQUITY
The following table presents information relating to the common stock ($2.50 par value) of GPU, Inc.:
1999 1998 1997 ---- ---- ----
Authorized shares 350,000,000 350,000,000 350,000,000 Issued shares 132,783,338 132,783,338 125,783,338 Reacquired shares 10,977,798 4,787,657 4,950,727 Outstanding shares 121,805,540 127,995,681 120,832,611 Outstanding restricted units 283,602 268,360 247,955 Outstanding stock options 394,750 335,950 -
In 1999, GPU, Inc. reacquired 6.4 million shares of common stock at a total cost of $225.8 million.
At December 31, 1999 and 1998, the following issues of common stock were outstanding:
(in thousands) GPU, Inc. 1999 1998 - --------- ---- ----
Common stock, par value $2.50 per share $331,958 $331,958 ======= =======
JCP&L - -----
Common stock, par value $10 per share, 16,000,000 shares authorized, 15,371,270 shares issued and outstanding $153,713 $153,713 ======= =======
Met-Ed - ------
Common stock, no par value, 900,000 shares authorized, 859,500 shares issued and outstanding $ 66,273 $ 66,273 ====== ======
Penelec - -------
Common stock, par value $20 per share, 5,400,000 shares authorized, 5,290,596 shares issued and outstanding $105,812 $105,812 ======= =======
Pursuant to the 1990 Employee Stock Plan (as restated to reflect amendments through June 3, 1999), awards may be granted in the form of incentive stock options, nonqualified stock options, restricted shares of common stock, restricted units and stock appreciation rights, which may accompany options. In 1999, 1998 and 1997, GPU, Inc. issued restricted units
to officers representing rights to receive shares of common stock, on a one-for-one basis, at the end of the restriction period. The number of shares eventually issued will depend upon the degree to which GPU's performance goals have been met for the restriction period and could range from 0% to 200% of the originally awarded units plus additional units resulting from reinvested dividend equivalents. In 1999, GPU, Inc. granted stock options to its officers to purchase 90,600, 1,000 and 1,000 shares at $42.9375, $34.50 and $34.6875 per share, respectively. In 1998, GPU, Inc. granted stock options to its officers to purchase 305,950 and 30,000 shares at $36.625 per share and $44.25 per share, respectively. All options have an exercise price equal to the fair market value of GPU, Inc. common stock on the grant date. Options are exercisable in accordance with the terms set forth in the Stock Option Agreement. In 1999 and 1998, no options were exercised.
Since 1997, pursuant to the Deferred Stock Unit Plan for Outside Directors, restricted units were issued to outside directors representing rights to receive shares of GPU, Inc. common stock, on a one-for-one basis. All restricted units are considered common stock equivalents and, accordingly, are reflected in the computation of diluted earnings per share shown on the Consolidated Statements of Income. The restricted units accrue dividend equivalents on a quarterly basis, which are reinvested in additional restricted units.
In 1999, 1998 and 1997, through the above-mentioned plans, officers and outside directors were awarded 56,994, 53,260 and 64,941 restricted units, respectively. In 1999, 1998 and 1997, also through those plans, GPU, Inc. issued a total of 20,215, 20,611 and 54,491 shares of common stock, respectively, from previously reacquired shares.
In 1996, GPU adopted the disclosure requirements of Statement of Financial Accounting Standards No. 123 (FAS 123), "Accounting for Stock-Based Compensation," which establishes a fair value-based method of accounting for employee stock-based compensation. As permitted by FAS 123 GPU continues to follow the intrinsic value method set forth in APB Opinion No. 25, "Accounting for Stock Issued to Employees" and disclose the pro forma effects on net income (loss) had the fair value of the options been expensed. The pro forma effects on net income resulting from the application of the fair value-based method of accounting defined in FAS 123 are immaterial.
Accumulated Other Comprehensive Income/(Loss): - ----------------------------------------------
In 1997, GPU adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income." At December 31, 1999 and 1998, GPU had on the Consolidated Balance Sheets the following amounts in Accumulated other comprehensive income/(loss):
GPU, Inc. and Subsidiary Companies - ----------------------------------
(in thousands) 1999 1998 ---- ----
Net unrealized gains on investments $ 34,183 $ 28,345 Foreign currency translation (40,518) (54,377) Minimum pension liability (6) (5,272) ------ ------ Accumulated other comprehensive income/(loss) $( 6,341) $(31,304) ====== ======
JCP&L 1999 1998 ----- ------ ------ Net unrealized gain on investments $ 7 $ - Minimum pension liability - (425) ------ ----- Accumulated other comprehensive income/(loss) $ 7 $ (425) ====== =====
Met-Ed - -------
Net unrealized gain on investments $ 21,369 $ 17,054 Minimum pension liability (6) (534) ------ ------ Accumulated other comprehensive income $ 21,363 $ 16,520 ====== ======
Penelec - -------
Net unrealized gain on investments $ 10,619 $ 8,518 Minimum pension liability - (165) ------ ------ Accumulated other comprehensive income $ 10,619 $ 8,353 ====== ======
The components of the change in accumulated other comprehensive income/(loss), and the related tax effects, for the years 1999, 1998 and 1997 are as follows:
GPU, Inc. and Subsidiary Companies - ----------------------------------
(in thousands) Amount Income Tax Amount Before (Expense) Net of Taxes Benefit Taxes ------- --------- -------
- ----
Net unrealized gains on investments $12,516 $( 4,680) $ 7,836 Adjustment for amounts included in income ( 1,998) - ( 1,998) ------ ------- ------ Net change in accumulated other comprehensive income 10,518 ( 4,680) 5,838 ------ ------- ------ Foreign currency translation adjustments 19,735 ( 6,907) 12,828 Adjustment for amounts included in income 1,586 (555) 1,031 ------ ------- ------ Net change in accumulated other comprehensive income 21,321 ( 7,462) 13,859 ------ ------- ------ Minimum pension liability 8,957 ( 3,691) 5,266 ------ ------- ------ Total change in accumulated other comprehensive income/(loss) $40,796 $(15,833) $24,963 ====== ======= ======
- ----
Net unrealized gains on investments $ 13,235 $( 4,248) $ 8,987 ------ ------ ------ Foreign currency translation adjustments (23,295) 8,233 (15,062) Adjustment for amounts included in income 8,737 ( 3,136) 5,601 ------ ------ ------ Net change in accumulated other comprehensive income/(loss) (14,558) 5,097 ( 9,461) ------ ------ ------ Minimum pension liability ( 2,605) 1,071 ( 1,534) ------ ------ ------ Total change in accumulated other comprehensive income/(loss) $( 3,928) $ 1,920 $( 2,008) ====== ====== ======
- ---- Net unrealized gains on investments $ 10,895 $( 4,521) $ 6,374 Foreign currency translation adjustments (73,115) 24,186 (48,929) Minimum pension liability ( 2,541) 1,046 ( 1,495) ------ ------ ------ Total change in accumulated other comprehensive income/(loss) $(64,761) $ 20,711 $(44,050) ====== ====== ======
(in thousands) JCP&L Amount Income Tax Amount - ----- Before (Expense) Net of 1999 Taxes Benefit Taxes ---- ------ ------- ------- Net unrealized gain on investments $ 7 $ - $ 7 Minimum pension liability 718 (293) 425 ---- ---- ---- Total change in accumulated other comprehensive income/(loss) $ 725 $ (293) $ 432 ==== ===== ====
---- Net unrealized gain on investments $ - $ - $ - Minimum pension liability (718) 293 (425) ---- ---- ---- Total change in accumulated other comprehensive income/(loss) $ (718) $ 293 $ (425) ==== ==== ====
Met-Ed - ------ ---- Net unrealized gain on investments $ 7,388 $(3,073) 4,315 Minimum pension liability 901 (373) 528 ----- ----- ------ Total change in accumulated other comprehensive income/(loss) $ 8,289 $(3,446) $ 4,843 ===== ===== =====
- ---- Net unrealized gain on investments $ 6,990 $(2,842) $ 4,148 Minimum pension liability (196) 81 (115) ----- ----- ----- Total change in accumulated other comprehensive income/(loss) $ 6,794 $(2,761) $ 4,033 ===== ===== =====
----
Net unrealized gain on investments $ 7,263 $(3,014) $ 4,249 Minimum pension liability (267) 110 (157) ----- ----- -----
Total change in accumulated other comprehensive income/(loss) $ 6,996 $(2,904) $ 4,092 ===== ===== =====
Penelec
----
Net unrealized gain on investments$ 3,708 (1,607) $ 2,101 Minimum pension liability 282 (117) 165 ----- ---- -----
Total change in accumulated other comprehensive income/(loss) $ 3,990 $(1,724) $ 2,266 ===== ===== =====
----
Net unrealized gain on investments $ 3,471 $(1,406) $ 2,064 Minimum pension liability (73) 30 (43) ----- ----- ----- Total change in accumulated other comprehensive income/(loss) $ 3,397 $(1,376) $ 2,021 ===== ===== =====
Net unrealized gain on investments $ 3,632 $(1,507) $ 2,125 Minimum pension liability (209) 87 (122) ----- ----- ----- Total change in accumulated other comprehensive income/(loss) $ 3,423 $(1,420) $ 2,003 ===== ===== =====
6. ACCOUNTING FOR EXTRAORDINARY AND NON-RECURRING ITEMS
JCP&L Restructuring Write-off: - -----------------------------
In 1999, the NJBPU issued a Summary Order regarding JCP&L's unbundling, stranded cost and restructuring filings. Accordingly, in 1999 JCP&L discontinued the application of FAS 71 and adopted the provisions of FAS 101 and EITF 97-4 with respect to its electric generation operations. The transmission and distribution operations of JCP&L continue to be subject to the provisions of FAS 71.
In 1999, JCP&L recorded a reduction in operating revenues of $115 million relating to the Summary Order which resulted in an after-tax charge to earnings of $68 million, or $0.54 per share. This reduction reflects JCP&L's obligation to refund to customers 5% from rates in effect as of April 30, 1997. The refund will be made to customers from August 1, 2002 through July 31, 2003.
Since JCP&L is no longer subject to FAS 71 for the generation portion of its business, GPU performed an impairment test on Oyster Creek in accordance with Statement of Financial Accounting Standards No. 121 (FAS 121) "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This test determined that JCP&L's net investment in Oyster Creek, including plant, nuclear fuel and materials and supplies inventories, was impaired. This investment was written down by a total of $678 million (pre-tax) in 1999 to reflect the plant's fair market value. This impairment, which was recorded as an extraordinary deduction, was reversed and reestablished as a regulatory asset since the Summary Order provides for rate recovery.
Generation Asset Divestiture: - ----------------------------
As discussed below, in 1999, the GPU Energy companies completed the sales of TMI-1 and substantially all of their fossil-fuel and hydroelectric stations.
The GPU Energy companies sold TMI-1 to AmerGen Energy Company, LLC (AmerGen), a joint venture of PECO Energy and British Energy, for a total purchase price of approximately $100 million. The sale did not have a significant impact on 1999 earnings since TMI-1 had been written down to its fair market value in 1998. The majority of the amount written down and the majority of the remaining loss from the sale resulted in the deferral of $528.3 million (JCP&L $133.1 million; Met-Ed $270.7 million; Penelec $124.5 million) as a regulatory asset pending separate and further reviews by the NJBPU and the PaPUC (Phase II of the Pennsylvania restructuring proceedings).
The GPU Energy companies completed the sales of substantially all their fossil fuel and hydroelectric generating facilities to Sithe Energies (Sithe) for approximately $1.6 billion (JCP&L $416 million; Met-Ed $641 million; Penelec $558 million) (JCP&L's 50% interest in Yards Creek was not included in the sale and the sales of the 66 MW Forked River combustion turbines and 19 MW York Haven hydroelectric station were postponed). The sale resulted in the recording of an after-tax gain of $13.4 million (Met-Ed $1.4 million; Penelec $12 million) in 1999 for the portion of the gain related to wholesale
operations and the deferral of the remaining pre-tax gain of $706.5 million (Met-Ed $389.1 million; Penelec $317.4 million) as a regulatory liability pending separate and further reviews by the NJBPU and the PaPUC.
Penelec sold its 20% interest in the Seneca Pumped Storage Hydroelectric Generating Station to The Cleveland Electric Illuminating Company for $43 million. The sale resulted in the recording of an after-tax gain of $1.2 million in 1999 for the portion of the gain related to wholesale operations and the deferral of the remaining pre-tax gain of $30.2 million as a regulatory liability pending further review by the PaPUC.
Penelec sold its 50% interest in the Homer City Station to a subsidiary of Edison Mission Energy for approximately $900 million. As a result, Penelec recorded an after-tax gain of $22.6 million in 1999 for the portion of the gain related to wholesale operations and deferred as a regulatory liability the remaining pre-tax gain of $590.7 million pending further review by the PaPUC.
Midlands sold its electric supply business to National Power plc for approximately $300 million. As a result, in 1999 GPU recorded an after-tax gain on the sale of $6.8 million.
For information on JCP&L's pending sale of Oyster Creek, see Note 12, Commitments and Contingencies.
Pennsylvania Restructuring Write-offs: - -------------------------------------
In 1998, Met-Ed and Penelec received PaPUC Restructuring Orders which, among other things, essentially removed from regulation the costs associated with providing electric generation service to Pennsylvania consumers, effective January 1, 1999. Accordingly, in 1998 Met-Ed and Penelec discontinued the application of FAS 71 and adopted the provisions of FAS 101 and EITF Issue 97-4 with respect to their electric generation operations. The transmission and distribution operations of Met-Ed and Penelec continue to be subject to the provisions of FAS 71.
As a result of the Restructuring Orders, Met-Ed and Penelec recorded an extraordinary charge of $25.8 million (after-tax) or $0.20 per share and a non-recurring charge of $40 million (after-tax), or $0.32 per share, for customer refunds of 1998 revenues and for the establishment of a sustainable energy fund.
In accordance with FAS 121, impairment tests were performed and determined that the net investment in TMI-1 was impaired at December 31, 1998, resulting in a write-down of $518 million (pre-tax) to reflect TMI-1's fair market value. Of the amount written down for TMI-1, $508 million was reestablished as a regulatory asset because management believes it is probable of recovery in the restructuring process and $10 million (the FERC jurisdictional portion) was charged to expense as an extraordinary item in 1998.
Windfall Profits Tax Write-off: - ------------------------------
In 1997, the Government of the United Kingdom imposed a windfall profits tax on privatized utilities, including Midlands. As a result, a one-time charge to income of $109.3 million, or $0.90 per share, was taken in 1997.
7. ACQUISITIONS
Empresa Distribuidora Electrica Regional, S.A. ----------------------------------------------
In March 1999, GPU Electric acquired Empresa Distribuidora Electrica Regional, S.A. (Emdersa) for US $375 million. The fair value of the assets acquired totaled approximately $320 million and the amount of liabilities assumed totaled approximately $153 million, including debt of $76 million. Emdersa owns three electric distribution companies that serve three provinces in northwest Argentina.
The acquisition was financed through the issuance of commercial paper by GPU Capital, guaranteed by GPU, Inc., and a $50 million capital contribution from GPU, Inc.
The acquisition has been accounted for under the purchase method of accounting. The total acquisition cost exceeded the estimated value of net assets by approximately $208 million. This excess is considered goodwill and is being amortized on a straight-line basis over 40 years.
Transmission Pipelines Australia --------------------------------
In June 1999, GPU Electric acquired Transmission Pipelines Australia (TPA), a natural gas transmission business, from the State of Victoria, Australia for A$1.025 billion (approximately US $675 million). TPA has been renamed GPU GasNet. The fair value of the assets acquired totaled approximately US $704 million and the amount of liabilities assumed totaled approximately US $116 million.
The acquisition was financed through: (1) an A$750 million (approximately US $495 million) senior credit facility, which is non-recourse to GPU, Inc.; and (2) an equity contribution from GPU Capital of A$275 million (approximately US $180 million) provided through the issuance of commercial paper guaranteed by GPU, Inc.
The acquisition has been accounted for under the purchase method. The total acquisition cost exceeded the estimated value of net assets acquired by approximately $88 million. This excess is considered goodwill and is being amortized on a straight-line basis over 40 years.
Midlands Electricity plc ------------------------
In July 1999, GPU Electric acquired Cinergy's 50% ownership interest in Avon, which owns Midlands, for British Pounds 452.5 million (approximately US $714 million). GPU and Cinergy had jointly formed Avon in 1996 to acquire Midlands. The fair value of the assets acquired totaled approximately US $2.1 billion and the liabilities totaled approximately US $1.5 billion, including debt of US $1 billion.
GPU Electric financed the acquisition through a combination of equity and debt. The equity was funded from: (1) a US $250 million contribution from GPU, Inc., and (2) the issuance of US $50 million of commercial paper by GPU Capital, which is guaranteed by GPU, Inc. The debt has been provided through a two-year (pound)245 million (approximately US $382 million) credit agreement entered into by EI UK Holdings, of which GPU, Inc. has guaranteed approximately US $100 million.
As a result of GPU's purchase of Cinergy's 50% ownership in Midlands, effective in the third quarter of 1999, GPU began accounting for Midlands as a consolidated entity, rather than under the equity method of accounting as was previously the practice. Consequently, Goodwill, net on the Consolidated Balance Sheet increased by approximately $1.8 billion in the third quarter of 1999. Of this amount, $1.7 billion relates to the previous 1996 acquisition of Midlands by GPU and Cinergy and approximately $119 million represents goodwill resulting from GPU's purchase of Cinergy's 50% share of Midlands. The goodwill is being amortized on a straight-line basis over 40 years.
Concurrent with GPU's July 1999 acquisition of the 50% of Midlands which it did not already own, GPU began to evaluate existing restructuring plans and formulate additional plans to reduce operating expenses and achieve ongoing cost reductions. As of December 31, 1999, GPU had identified and approved a cost reduction plan. At the acquisition date, Midlands had recorded a liability of $28.6 million related to previous cost reduction plans. GPU retained $25.7 million of this liability, related to contractual termination and other severance benefits for 276 employees identified in a 1999 business process reengineering project. GPU identified an additional 355 employees (234 in Engineering Services, 38 in metering, 21 in Network Services and 62 from other specific functions) to be terminated as part of the plan and recorded an additional liability of $39.3 million. A net charge of $18.2 million for GPU's 50% share of these adjustments is included in expense and the other 50% was recorded as a purchase accounting adjustment.
As of December 31, 1999, $7.2 million of severance benefits had been paid to 172 of these employees. The remaining severance liability of $29.5 million for the remaining 459 employees is included in Other current liabilities, and $28.3 million to be funded out of pension plan assets is included as a pension liability. Management expects the plan will be substantially completed by June 2000.
The following unaudited pro forma consolidated results of operations for the years 1999 and 1998 presents information assuming Emdersa, GPU GasNet and the 50% of Midlands GPU did not already own were acquired January 1, 1998. The pro forma amounts include certain adjustments, primarily to recognize interest expense, amortization of goodwill and depreciation of assets having stepped-up bases, and are not necessarily indicative of the actual results that would have been realized had the acquisitions occurred on the assumed date of January 1, 1998, nor are they necessarily indicative of future results. The pro forma operating results are for information purposes only and are as follows:
1999 1998 - ---------------------------------------------------------------------------- (in thousands, except As As per share data) Reported Pro Forma* Reported Pro Forma* - ----------------------------------------------------------------------------
Revenues $ 4,757,124 $ 6,030,514 $ 4,248,792 $ 6,901,012 Income before extra- ordinary item $ 459,014 $ 493,449 $ 385,881 $ 441,776 Net income $ 459,014 $ 493,449 $ 360,126 $ 416,021 Basic and Diluted earnings per share before extraordinary item $ 3.66 $ 3.94 $ 3.03 $ 3.47 Basic and Diluted earnings per share $ 3.66 $ 3.94 $ 2.83 $ 3.27
* Unaudited
GPU PowerNet ------------
In 1997, GPU Electric acquired the business of GPU PowerNet from the State of Victoria, Australia for A$2.6 billion (approximately US $1.9 billion). The fair value of the assets acquired totaled approximately US $2 billion and the amount of liabilities assumed totaled approximately US $142.9 million. GPU PowerNet owns and operates the high-voltage electricity transmission system in the State of Victoria serving an area of approximately 87,900 square miles and a population of approximately 4.5 million.
The acquisition was financed through: (1) a senior debt credit facility of A$1.9 billion (approximately US $1.4 billion), which is non-recourse to GPU, Inc.; (2) a five-year US $450 million bank credit agreement which is guaranteed by GPU, Inc.; and (3) an equity contribution from GPU, Inc. of US $50 million.
The acquisition was accounted for under the purchase method of accounting. The total acquisition costs exceeded the estimated value of net assets by A$877 million (approximately US $537 million). This excess is considered goodwill and is being amortized on a straight-line basis over 40 years.
GPU PowerNet has been included in GPU's consolidated financial statements since its purchase on November 6, 1997. The unaudited consolidated pro forma information for 1997, assuming debt financing and an acquisition date of January 1, 1997, is as follows: operating revenues of $4.32 billion; net income of $327 million; basic earnings per share of $2.71 and; diluted earnings per share of $2.70. The pro forma results, which are for information purposes only, are not necessarily indicative of the actual results that would have been realized had the acquisition occurred on the assumed date of January 1, 1997, nor are they necessarily indicative of future results.
Planned Acquisition of MYR Group Inc. -------------------------------------
In December 1999, GPU, Inc., and MYR Group Inc. (MYR) entered into an agreement under which GPU has agreed to acquire the utility infrastructure construction firm for $215 million cash, or $30.10 per share of MYR common stock. Following the acquisition, MYR would become a wholly-owned subsidiary of GPU, Inc. The acquisition, which is subject to approval by the SEC and other conditions, is expected to be completed in the first quarter of 2000. The acquisition will be initially financed through short-term debt and will be accounted for under the purchase method of accounting.
8. INCOME TAXES
As of December 31, 1999 and 1998, Regulatory assets, net on the Consolidated Balance Sheets reflected $296 million and $450 million, respectively, of Income taxes recoverable through future rates (primarily related to liberalized depreciation), and Income taxes refundable through future rates of $28 million and $53 million, respectively (related to unamortized ITC), substantially due to the recognition of amounts not previously recorded with the adoption of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," in 1993, as follows:
(in millions) 1999 1998 ---- ----
Income Taxes Recoverable Through Future Rates: JCP&L $ 2 $173 Met-Ed 124 134 Penelec 170 143 --- --- Total $296 $450 === ===
Income Taxes Refundable Through Future Rates: JCP&L $ 14 $ 36 Met-Ed 8 11 Penelec 6 6 --- --- Total $ 28 $ 53 === ===
Summaries of the components of deferred taxes as of December 31, 1999 and 1998 are as follows:
GPU, Inc. and Subsidiary Companies: - ----------------------------------
(in millions) Deferred Tax Assets Deferred Tax Liabilities - ------------------- ------------------------ 1999 1998 1999 1998 ---- ---- ---- ---- Current: Current: Unbilled revenue $ 12 $ 31 Revenue taxes $ 5 $ 8 Deferred energy - - Deferred energy 3 4 ----- ----- Other 60 16 Total $ 8 $ 12 ----- ----- ===== ===== Total $ 72 $ 47 ===== =====
Noncurrent: Noncurrent: Unamortized ITC $ 36 $ 70 Liberalized Decommissioning 77 151 depreciation: Contributions in aid Previously flowed of construction 28 26 through $ 222 $ 202 Cumulative translation Future revenue adjustment 22 29 requirements 147 155 ----- ----- Above-market NUGs 798 748 Customer transition Subtotal 369 357 charge 533 534 Liberalized Revenue subject depreciation 659 719 to refund 47 23 Customer transition Generation revenue charge 1,451 1,684 requirements 47 44 Net loss on genera- Net gain on genera- tion asset sale 218 - tion asset sale 499 - Other 441 379 Other 866 285 ----- ----- ----- ----- Total $2,528 $2,004 Total $3,563 $3,045 ===== ===== ===== =====
JCP&L: - ------
(in millions) Deferred Tax Assets Deferred Tax Liabilities - ------------------- ------------------------ 1999 1998 1999 1998 ---- ---- ---- ---- Current: Current: Unbilled revenue $ 2 $ 21 Revenue taxes $ 5 $ 12 Deferred energy - - Deferred Energy 3 - --- --- ---- --- Total $ 2 $ 21 Total $ 8 $ 12 === === ==== ===
Noncurrent: Noncurrent: Unamortized ITC $ 23 $ 36 Liberalized Decommissioning 31 46 depreciation: Contributions in aid Previously flowed of construction 21 20 through $ 35 $ 46 DOE SNF interest 25 Future revenue Revenues subject requirements 29 49 --- --- to refund 47 - Subtotal 64 95 Net gain on genera- Liberalized tion asset sale 73 - depreciation 368 375 Other 27 52 Forked River 7 5 --- --- Total $222 $179 TMI-1 investment/loss - 60 === === Net loss on genera- tion asset sale 58 - Other 74 136 --- --- Total $571 $671 === ===
Met-Ed: - ------ (in millions) Deferred Tax Assets Deferred Tax Liabilities - ------------------- ------------------------
1999 1998 1999 1998 ---- ---- ---- ---- Noncurrent: Current: Liberalized Unbilled revenue $ 3 $ 3 depreciation: === === Previously flowed through $ 81 $ 57 Future revenue
Noncurrent: requirements 49 50 ----- ----- Unamortized ITC $ 8 $ 16 Decommissioning 27 65 Subtotal 130 107 Contributions in aid Liberalized of construction 4 3 depreciation 129 127 Customer transition Customer transition charge 160 160 charge 594 737 Above-market NUGs 303 327 Net loss on genera- Revenue subject tion asset sale 110 - to refund 11 Other 30 40 ----- ----- Generation revenue Total $ 993 $1,011 ===== ===== requirements 24 23 Net gain on genera- tion asset sale 161 - Other 51 109 --- --- Total $738 $714 === ===
Penelec: - ------- (in millions) Deferred Tax Assets Deferred Tax Liabilities
1999 1998 1999 1998 ---- ---- ---- ---- Noncurrent: Current: Liberalized Unbilled revenue $ 8 $ 8 depreciation: ===== === Previously flowed
Noncurrent: through $ 103 $ 96 Unamortized ITC $ 5 $ 19 Future revenue Decommissioning 19 41 requirements 69 55 ------ ----- Contributions in aid
of construction 3 3 Subtotal 172 151 Customer transition Liberalized charge 374 373 depreciation 155 212 Above-market NUGs 494 421 Customer transition Revenue subject charge 856 948 to refund - 12 Net loss on genera- Generation revenue tion asset sale 51 - requirements 23 21 Other 16 27 ------ ----- Net gain on genera- Total $1,250 $1,338 ===== ===== tion asset sale 264 - Other 43 61 ----- --- Total $1,225 $951 ===== ===
The reconciliations from net income to book income subject to tax and from the federal statutory rate to combined federal and state effective tax rates are as follows:
GPU, Inc. and Subsidiary Companies: - ---------------------------------- (in millions) 1999 1998 1997 ---- ---- ----
Net income $459 $360 $335 Preferred stock dividends 9 11 13 Loss on preferred stock reacquisition 2 - - Income tax expense 294 250 234 --- --- --- Book income subject to tax $764* $621* $582* === === ===
Federal statutory rate 35% 35% 35% State tax, net of federal benefit 5 5 4 Amortization of ITC (6) (1) (2) Other 4 1 3 --- --- --- Effective income tax rate 38% 40% 40% === === ===
* Includes pre-tax foreign operations income of $331 million, $238 million, and $34 million, of which $85 million, $88 million and $20 million, respectively for 1999, 1998 and 1997, are included in Equity in undistributed earnings/(losses) of affiliates in the Consolidated Statements of Income.
JCP&L: - ------
(in millions) 1999 1998 1997 ---- ---- ----
Net income $172 $222 $212 Income tax expense 101 145 112 --- --- --- Book income subject to tax $273 $367 $324 === === ===
Federal statutory rate 35% 35% 35% State tax, net of federal benefit 6 5 - Amortization of ITC, net (5) - - Other 1 (1) - --- --- --- Effective income tax rate 37% 39% 35% === === ===
Met-Ed: - ------
Net income $ 96 $ 51 $ 93 Income tax expense 61 33 66 --- --- --- Book income subject to tax $157 $ 84 $159 === === ===
Federal statutory rate 35% 35% 35% State tax, net of federal benefit 7 6 6 Amortization of ITC (8) (2) - Other 5 - - --- --- --- Effective income tax rate 39% 39% 41% === === ===
Penelec: - -------
Net income $153 $ 40 $ 95 Income tax expense 54 31 71 --- --- --- Book income subject to tax $207 $ 71 $166 === === ===
Federal statutory rate 35% 35% 35% State tax, net of federal benefit 7 8 6 Amortization of ITC, net (11) - - Other (5) 1 2 --- --- --- Effective income tax rate 26% 44% 43% === === ===
Federal and state income tax expense is comprised of the following:
GPU, Inc. and Subsidiary Companies: - ---------------------------------- (in millions) 1999 1998 1997 ---- ---- ---- Provisions for taxes currently payable:
Domestic $ 775 $290 $206 Foreign 60 22 40 ---- --- --- Total provision for taxes $ 835 $312 $246
Deferred income taxes: Liberalized depreciation $(252) $ 2 $ 14 Foreign deferred taxes 80 31 4 Unbilled revenues 19 - (8) Gain/(loss) on sale of property (406) - - Decommissioning 87 (19) (5) PA Restructuring (FAS 71) 61 (15) - Global settlement 2 (8) - Pension expense/Voluntary Enhanced Retirement Programs (1) (8) (10) Nonutility generation contract buyout costs (14) (11) 5 Provision for rate refunds (47) (10) - OPEBS 2 (12) 5 Other (25) (3) (7) ---- --- --- Deferred income taxes, net (494) (53) (2) ---- --- --- Amortization of ITC, net (47) (9) (10) ---- --- --- Income tax expense $ 294 $250 $234 ==== === ===
The foreign taxes in the above table for 1999, 1998 and 1997 include $53 million ($16 million Current; $37 million Deferred), $27 million ($10 million Current; $17 million Deferred) and $41 million ($37 million Current; $4 million Deferred) in foreign tax expense which is netted in Equity in undistributed earnings/(loss) of affiliates in the Consolidated Statements of Income. Included in the ITC Amortization is the recognition of $36 million of ITC benefit resulting from the sale of generation plants.
JCP&L:
(in millions) 1999 1998 1997 ---- ---- ----
Provisions for taxes currently payable $197 $187 $139
Deferred income taxes: Liberalized depreciation $(49) $(11) $ (3) Gain/Loss on reacquired debt - 3 (1) New Jersey revenue tax - (2) (3) Deferral of energy costs (1) 10 (2) Abandonment loss - Forked River (4) (4) (5) Nuclear outage maintenance costs 3 3 (4) Accretion income - 4 4 Unbilled revenue 19 - (3) Decommissioning 22 (12) (3) Pension expense/VERP (2) (2) (5) Nonutility generation contract buyout costs (19) - 6 Demand-side management (7) - (3) Other postemployment benefits 4 (5) 2 Global settlement 2 (8) - Gas site & investigation MGP insurance recovery - (8) - Provision for rate refund (47) - - Gain (loss) sale of property (16) - - Other 11 (6) (2) --- --- --- Deferred income taxes, net (84) (38) (22) --- --- --- Amortization of ITC, net (12) (4) ( 5) --- --- --- Income tax expense $101 $145 $112 === === ===
Met-Ed: - ------ (in millions) 1999 1998 1997 ---- ---- ----
Provisions for taxes currently payable $140 $ 56 $ 63
Deferred income taxes: Liberalized depreciation $(88) $ 5 $ 6 Deferral of energy costs - - - Unbilled revenue - - 3 Decommissioning 42 (5) (2) PA Restructuring (FAS 71) 30 15 - Pension expense/VERP - (3) (3) Nonutility generation contract buyout costs 2 (9) (6) Nuclear outage maintenance costs 3 (3) 3 Nonutility generation contract over collections - 8 4 Other postemployment benefits - (5) (1) Provision for rate refund - (11) - CTC NUG deferrals - (5) - Sustainable energy fund - (2) - Gain (loss) sale of property (51) - - Other (5) (6) 1 --- --- --- Deferred income taxes, net (67) (21) 5 -- --- --- Amortization of ITC, net (12) (2) (2) --- --- --- Income tax expense $ 61 $ 33 $ 66 === === ===
Penelec: - -------
Provisions for taxes currently payable $ 472 $ 47 $ 61
Deferred income taxes: Liberalized depreciation $(114) $ 2 $ 6 Deferral of energy costs - - (1) Unbilled revenue - - (7) Decommissioning 23 (2) - PA Restructuring (FAS 71) 31 (11) - Pension expense/VERP - (2) (2) Nonutility generation contract buyout costs 3 (1) 5 Nuclear outage maintenance costs 2 (1) 1 Nonutility generation contract over collections - 6 6 Other postemployment benefits (2) (2) 3 Gain (loss) sale of property (339) - - Other 1 (3) 2 --- --- --- Deferred income taxes, net (395) (14) 13 --- --- --- Amortization of ITC, net (23) (2) (3) --- --- --- Income tax expense $ 54 $ 31 $ 71 === === ===
The Internal Revenue Service (IRS) has completed its examinations of GPU's federal income tax returns through 1995.
9. SUPPLEMENTARY INCOME STATEMENT INFORMATION
Maintenance expense and other taxes charged to operating expenses consisted of the following:
(in millions) 1999 1998 1997 ---- ---- ----
Maintenance: JCP&L $ 84 $ 91 $102 Met-Ed 48 49 46 Penelec 54 62 68 Other 24 - - --- --- --- Total Maintenance $210 $202 $216 === === ===
Other Taxes:
New Jersey Transitional Energy
Facility Assessment $ 59 $ 67 $ - New Jersey Unit Tax (JCP&L) - - 211 --- --- --- Total $ 59 $ 67 $211 --- --- ---
Pennsylvania State Gross Receipts: Met-Ed $ 27 $ 39 $ 39 Penelec 27 40 42 --- --- --- Total $ 54 $ 79 $ 81 --- --- ---
Real Estate and Personal Property: JCP&L $ 5 $ 9 $ 9 Met-Ed 4 6 8 Penelec 6 8 10 Other 24 - - --- --- --- Total $ 39 $ 23 $ 27 --- --- ---
Value Added and Stamp Taxes (U.K.) $ 6 $ - $ - --- --- ---
Other: JCP&L $ 13 $ 19 $ 12 Met-Ed 9 13 12 Penelec 9 16 15 Other 2 2 - --- --- --- Total $ 33 $ 50 $ 39 --- --- ---
Total Other Taxes $191 $219 $358 === === ===
The cost of services rendered to the GPU Energy companies by their affiliates is as follows:
(in millions) 1999 1998 1997 ---- ---- ----
JCP&L: - ------
Cost of services rendered by GPUN $189 $182 $156 Cost of services rendered by GPUS 366 26 31 Cost of services rendered by Genco 69 51 52 --- --- --- Total $624 $259 $239 === === ===
Amount Charged to Income $446 $239 $228 === === ===
(in millions) 1999 1998 1997 ---- ---- ---- Met-Ed: - ------ Cost of services rendered by GPUN $102 $ 59 $ 78 Cost of services rendered by GPUS 215 40 31 Cost of services rendered by Genco 96 108 91 --- --- --- Total $413 $207 $200 === === ===
Amount Charged to Income $281 $180 $179 === === ===
Penelec: - ------- Cost of services rendered by GPUN $ 51 $ 30 $ 40 Cost of services rendered by GPUS 255 17 19 Cost of services rendered by Genco 102 163 162 --- --- --- Total $408 $210 $221 === === ===
Amount Charged to Income $280 $170 $195 === === ===
For the years 1999, 1998 and 1997, JCP&L purchased $22 million, $26 million and $24 million, respectively, of energy from a cogeneration project in which an affiliate has a 50% partnership interest.
10. EMPLOYEE BENEFITS
Pension Plans and Other Postretirement Benefits: - -----------------------------------------------
GPU maintains defined benefit pension plans covering substantially all employees. GPU also provides certain retiree health care and life insurance benefits for substantially all U.S. employees who reach retirement age while working for GPU. The following tables provide a reconciliation of the changes in the plans' benefit obligation and fair value of assets for the years ended December 31, 1999 and 1998, a statement of the funded status of the plans, the amounts recognized in the Consolidated Balance Sheets as of December 31, 1999 and 1998 and the weighted average assumptions used in the measurement of the benefit obligation. The pension benefit disclosure amounts for GPU, Inc. and Subsidiary Companies for the year 1999 reflect the acquisition of the remaining 50% of Midlands stock by GPU in July of that year. Accordingly, the July 1999 benefit obligation and fair value of plan assets balances for Midlands are shown next to the line items entitled "Acquisitions" and the post-acquisition amounts occurring in the second half of 1999 are included in the tables.
GPU, Inc. and Subsidiary Companies - ----------------------------------
(in millions) Other Postretirement Pension Benefits Benefits ---------------- --------------- 1999 1998 1999 1998 ---- ---- ---- ---- Change in benefit obligation: Benefit obligation
at January 1: $ 1,897.0 $ 1,791.7 $ 790.5 $ 798.0 Acquisitions 1,502.5 - - - Service cost 46.2 36.1 15.9 16.4 Interest cost 158.0 121.6 52.2 54.4 Plan amendments 2.5 9.6 - (6.0) Actuarial (gain)/loss and other items (182.8) 26.2 (36.9) (55.7) Currency exchange (4.0) - - - Benefits paid (171.0) (123.9) (39.8) (30.2) Curtailments and settlements (139.4) 6.8 (44.8) 12.5 Termination benefits 48.8 28.9 - 1.1 -------- -------- ------ ------- Benefit obligation
at December 31: $ 3,157.8 $ 1,897.0 $ 737.1 $ 790.5 ======== ======== ====== =======
(in millions) Other Postretirement Pension Benefits Benefits ---------------- --------------- 1999 1998 1999 1998 ---- ---- ---- ---- Change in plan assets: Fair value of plan assets at January 1: $ 2,258.8 $ 2,033.3 $ 507.1 $ 403.0 Acquisitions 1,710.2 - - - Actual return on plan assets 579.4 342.9 61.0 78.9 Employer contributions 1.8 6.5 15.0 55.4 Benefits paid (171.0) (123.9) (39.8) (30.2) Currency exchange (5.8) - - - Settlement and other items (30.0) - - - -------- -------- ------ ------- Fair value of plan assets at December 31: $ 4,343.4 $ 2,258.8 $ 543.3 $ 507.1 ======== ======== ====== =======
Funded Status: Funded status at December 31: $ 1,185.6 $ 361.8 $(193.8) $ (283.4) Unrecognized net actuarial
(gain)/loss (953.0) (439.5) (54.2) (37.8) Unrecognized prior service cost 21.5 27.6 2.9 4.3 Unrecognized net transition
(asset)/obligation (1.4) (1.9) 143.3 210.7 -------- -------- ------ -------
Net amount recognized $ 252.7 $ (52.0) $(101.8) $ (106.2) ======== ======== ====== =======
Amounts recognized in the Consolidated Balance Sheet at December 31:
Prepaid benefit cost $ 297.2 $ 42.0 $ 24.2 $ 43.8 Accrued benefit liability (45.3) (103.0) (126.0) (150.0) Intangible asset 0.8 - - - Accumulated other comprehensive income - 5.3 - - Deferred income taxes - 3.7 - - -------- -------- ------- -------
Net amount recognized $ (252.7) $ (52.0) $ (101.8) $ (106.2) ======== ======== ======= =======
JCP&L - -----
Change in benefit obligation: Benefit obligation
at January 1: $ 509.7 $ 496.6 $ 198.2 $ 203.8 Transfer to GPUS (502.4) - (197.7) - Service cost 0.1 7.2 - 2.9 Interest cost 0.4 33.7 - 13.9 Plan amendments - - - - Actuarial (gain)/loss (2.8) 3.9 - (16.6) Benefits paid (0.1) (34.8) - (7.3) Curtailments - 0.6 - 1.2 Termination benefits - 2.5 - 0.3 -------- -------- ------- ------- Benefit obligation
at December 31: $ 4.9 $ 509.7 $ 0.5 $ 198.2 ======== ======== ======= =======
(in millions) Other Postretirement Pension Benefits Benefits ---------------- ----------------- 1999 1998 1999 1998 ---- ---- ---- ---- Change in plan assets: Fair value of plan assets at January 1: $ 639.9 $ 577.1 $ 137.0 $ 99.0 Transfer to GPUS (634.4) - (136.9) - Actual return on plan assets 0.8 97.1 - 20.0 Employer contributions - - - 25.8 Benefits paid (0.1) (34.8) - (7.3) Change in allocations - 0.5 - (0.5) -------- -------- ------- ------- Fair value of plan assets at December 31: $ 6.2 $ 639.9 $ 0.1 $ 137.0 ======== ======== ======= =======
Funded Status: Funded status at December 31: $ 1.3 $ 130.2 $ (0.4) $ (61.2) Unrecognized net actuarial
(gain)/loss (3.2) (139.3) (0.2) (16.1) Unrecognized prior service
Cost - 8.3 - 0.5 Unrecognized net transition (asset)/obligation 0.1 (1.0) 0.1 61.0 -------- -------- ------- -------
Net amount recognized $ (1.8) $ (1.8) $ (0.5) $ (15.8) ======== ======== ======= =======
Amounts recognized in the Consolidated Balance Sheet at December 31:
Prepaid benefit cost $ - $ 18.8 $ - $ 27.2 Accrued benefit liability (1.9) (21.3) (0.5) (43.0) Intangible Asset 0.1 - - - Accumulated other Comprehensive income - 0.4 - - Deferred income taxes - 0.3 - - -------- -------- ------- -------
Net amount recognized $ (1.8) $ (1.8) $ (0.5) $ (15.8) ======== ======== ======= =======
Met-Ed - ------
Change in benefit obligation: Benefit obligation
at January 1: $ 377.9 $ 345.9 $ 163.0 $ 152.5 Transfer to GPUS (367.9) - (160.8) - Service cost 0.2 6.3 0.1 2.9 Interest cost 0.5 23.4 0.2 11.2 Plan amendments - 3.1 - (2.2) Actuarial (gain)/loss (0.2) 14.3 (0.6) (0.1) Benefits paid (0.2) (22.8) - (5.2) Curtailments - 0.5 - 3.4 Termination benefits - 7.2 - 0.5 -------- -------- ------- ------- Benefit obligation
at December 31: $ 10.3 $ 377.9 $ 1.9 $ 163.0 ======== ======== ======= =======
(in millions) Other Postretirement Pension Benefits Benefits ---------------- ---------------- 1999 1998 1999 1998 ---- ---- ---- ---- Change in plan assets: Fair value of plan assets at January 1: $ 428.3 $ 373.2 $ 62.4 $ 49.5 Transfer to GPUS (420.2) - (61.9) - Actual return on plan assets 1.1 65.0 0.1 9.9 Employer contributions - - - 5.3 Benefits paid (0.2) (22.8) - (5.2) Change in allocations - 12.9 - 2.9 -------- -------- ------- ------- Fair value of plan assets at December 31: $ 9.0 $ 428.3 $ 0.6 $ 62.4 ======== ======== ======= =======
Funded Status: Funded status at December 31: $ (1.3) $ 50.4 $ (1.3) $ (100.6) Unrecognized net actuarial
(gain)/loss 0.4 (65.2) 0.7 20.5 Unrecognized prior service
Cost - 7.6 - 0.9 Unrecognized net transition (asset)/obligation - (0.6) 0.3 39.7 -------- -------- ------- -------
Net amount recognized $ (0.9) $ (7.8) $ (0.3) $ (39.5) ======== ======== ======= =======
Amounts recognized in the Consolidated Balance Sheet at December 31:
Prepaid benefit cost $ - $ - $ - $ - Accrued benefit liability (0.9) (8.7) (0.3) (39.5) Accumulated other comprehensive
income - 0.5 - - Deferred income taxes - 0.4 - - -------- -------- ------- -------
Net amount recognized $ (0.9) $ (7.8) $ (0.3) $ (39.5) ======== ======== ======= =======
Penelec - -------
Change in benefit obligation: Benefit obligation
at January 1: $ 419.7 $ 404.4 $ - $ 236.1 Transfer to GPUS (416.1) - - - Service cost - 4.1 - 2.1 Interest cost 0.2 27.2 - 15.1 Plan amendments - 4.3 - (3.5) Actuarial (gain)/loss (0.7) 8.9 - (35.4) Benefits paid (0.1) (37.6) - (6.9) Curtailments - 0.7 - 4.5 Termination benefits - 7.7 - - -------- -------- ------- ------- Benefit obligation
at December 31: $ 3.0 $ 419.7 $ - $ 212.0 ======== ======== ======= =======
(in millions) Other Postretirement Pension Benefits Benefits ---------------- --------------- 1999 1998 1999 1998 ---- ---- ---- ---- Change in plan assets: Fair value of plan assets at January 1: $ 535.2 $ 486.8 $ - $ 130.4 Transfer to GPUS (533.5) - - - Actual return on plan assets 0.3 81.9 - 22.9 Employer contributions - 0.1 - 10.0 Benefits paid (0.1) (37.6) - (6.9) Change in allocations - 4.0 - (12.6) -------- -------- ------- ------- Fair value of plan assets at December 31: $ 1.9 $ 535.2 $ - $ 143.8 ======== ======== ======= =======
Funded Status: Funded status at December 31: $ (1.1) $ 115.5 $ - $ (68.2) Unrecognized net actuarial (gain)/loss 0.1 (105.9) - (4.4) Unrecognized prior service Cost - 10.3 - 0.3 Unrecognized net transition obligation 0.1 1.4 - 60.0 -------- -------- ------- -------
Net amount recognized $ (0.9) $ 21.3 $ - $ (12.3) ======== ======== ======= =======
Amounts recognized in the Consolidated Balance Sheet at December 31:
Prepaid benefit cost $ - $ 22.5 $ - $ 16.5 Accrued benefit liability (1.0) (1.5) - (28.8) Intangible Asset 0.1 - - - Accumulated other comprehensive income - 0.2 - - Deferred income taxes - 0.1 - - -------- --------- ------- -------
Net amount recognized $ (0.9) $ 21.3 $ - $ (12.3) ======== ======== ======= =======
Weighted average assumptions as of December 31 for GPU, Inc. and Subsidiary Companies: Discount rate 7.0% 6.75% 7.5% 6.75% Expected return on plan assets 8.1% 8.5% 8.5% 8.5% Rate of compensation increase 4.7% 4.5% - -
Weighted average assumptions as of December 31 for JCP&L, Met-Ed and Penelec:
Discount rate 7.5% 6.75% 7.5% 6.75% Expected return on plan assets 8.5% 8.5% 8.5% 8.5% Rate of compensation increase 4.5% 4.5% - -
The following tables provide the components of net periodic pension and other postretirement benefit costs. As previously discussed, the 1999 net periodic pension cost for GPU, Inc. and Subsidiary Companies reflects post-acquisition amounts related to Midlands for the second half of the year.
Pension Plans: (in millions) GPU, Inc. and Subsidiary Companies 1999 1998 1997 - ---------------------------------- ---- ---- ----
Service cost $ 46.2 $ 36.1 $ 31.1 Interest cost 158.0 121.6 122.2 Expected return on plan assets (198.0) (140.1) (131.5) Amortization of transition (asset)/obligation (0.5) (0.5) (0.5) Other amortization 2.1 1.1 0.2 ----- ------ -----
Net periodic pension cost $ 7.8 $ 18.2 $ 21.5 ===== ====== =====
JCP&L - -----
Service cost $ 0.1 $ 7.2 $ 6.1 Interest cost 0.4 33.7 34.2 Expected return on plan assets (0.3) (39.6) (37.5) Amortization of transition (asset)/obligation - (0.3) (0.3) Other amortization - 0.6 0.1 ----- ------ -----
Net periodic pension cost $ 0.2 $ 1.6 $ 2.6 ===== ====== =====
Met-Ed - ------
Service cost $ 0.2 $ 6.3 $ 4.3 Interest cost 0.5 23.4 21.8 Expected return on plan assets (0.5) (25.4) (22.3) Amortization of transition (asset)/obligation - (0.1) (0.1) Other amortization - 0.4 0.6 ------ ------ -----
Net periodic pension cost $ 0.2 $ 4.6 $ 4.3 ====== ====== =====
Penelec - -------
Service cost $ - $ 4.1 $ 3.3 Interest cost 0.2 27.2 26.2 Expected return on plan assets (0.1) (33.1) (29.7) Amortization of transition (asset)/obligation - 0.3 0.3 Other amortization - 0.4 0.2 ------ ------ -----
Net periodic pension cost $ 0.1 $ (1.1) $ 0.3 ====== ====== =====
In 1999, the effect of increasing the discount rate assumption for the U.S. pension plans from 6.75% to 7.5% resulted in a $162 million (JCP&L $0.5 million; Met-Ed $1.0 million; Penelec $0.3 million; Other $160.2 million) decrease in the benefit obligation as of December 31, 1999. In 1998, the effect of decreasing the discount rate assumption from 7% to 6.75% was partially offset by the effect of decreasing the salary scale assumption from 5% to 4.5% and resulted in a $35 million (JCP&L $7 million; Met-Ed $7 million; Penelec $8 million; Other $13 million)increase in the benefit obligation as of December 31, 1998.
The above net periodic pension cost amount for 1999 excludes pre-tax credits of $31 million, of which $30 million was deferred for return to customers, resulting from employee terminations related to generation asset divestiture. No portion of these amounts relate to JCP&L, Met-Ed or Penelec. The above net periodic pension cost amount for 1998 excludes pre-tax charges of $30 million (JCP&L $8 million; Met-Ed $11 million; Penelec $9 million; Other $2 million), of which $22 million (JCP&L $6 million; Met-Ed $9 million; Penelec $7 million) was deferred pending future rate recovery, resulting from early retirement programs in 1998.
Other Postretirement Benefits: (in millions) GPU, Inc. and Subsidiary Companies 1999 1998 1997 - ---------------------------------- ---- ---- ----
Service cost $ 15.9 $ 16.4 $ 10.7 Interest cost 52.2 54.4 51.7 Expected return on plan assets (37.5) (29.5) (23.7) Amortization of transition (asset)/obligation 14.6 15.8 16.8 Other amortization 1.6 5.0 2.3 ----- ----- -----
Net periodic postretirement benefit cost 46.8 62.1 57.8 Deferred for future recovery - - (13.0) ----- ----- -----
Postretirement benefit cost, net of deferrals $ 46.8 $ 62.1 $ 44.8 ===== ===== =====
JCP&L - -----
Service cost $ - $ 2.9 $ 1.5 Interest cost - 13.9 13.2 Expected return on plan assets - (7.3) (5.7) Amortization of transition obligation - 4.4 4.7 Other amortization - 0.7 0.6 ----- ----- -----
Net periodic postretirement benefit cost - 14.6 14.3 Deferred for future recovery - - (0.8) ----- ----- -----
Postretirement benefit cost, net of deferrals $ - $ 14.6 $ 13.5 ===== ===== =====
Met-Ed - ------
Service cost $ 0.1 $ 2.9 $ 1.5 Interest cost 0.2 11.2 10.0 Expected return on plan assets - (3.9) (3.1) Amortization of transition obligation - 3.1 3.2 Other amortization - 1.7 0.8 ----- ----- -----
Net periodic postretirement benefit cost 0.3 15.0 12.4 Deferred for future recovery - - (5.1) ----- ----- -----
Postretirement benefit cost, net of deferrals $ 0.3 $ 15.0 $ 7.3 ===== ===== =====
Penelec - -------
Service cost $ - $ 2.0 $ 1.5 Interest cost - 15.1 13.7 Expected return on plan assets - (8.9) (6.6) Amortization of transition obligation - 4.8 4.8 Other amortization - 1.4 0.6 ----- ----- -----
Net periodic postretirement benefit cost - 14.4 14.0 Deferred for future recovery - - - ----- ----- ----
Postretirement benefit cost, net of deferrals $ - $ 14.4 $ 14.0 ===== ===== =====
In 1999, the effect of increasing the assumption associated with medical inflation rates was partially offset by the effect of increasing the discount rate assumption from 6.75% to 7.5% and resulted in a $45 million increase in the benefit obligation as of December 31, 1999. No significant portion of this amount relates to JCP&L, Met-Ed or Penelec. In 1998, the effect of decreasing the assumption relating to the long-term medical cost of managed care plans was partially offset by the effect of decreasing the discount rate assumption from 7% to 6.75% and resulted in a $40 million (JCP&L $12 million; Met-Ed $7 million; Penelec $5 million; Other $16 million) decrease in the benefit obligation as of December 31, 1998. The benefit obligation was determined by application of the terms of the medical and life insurance plans, including the effects of established maximums on covered costs, together with relevant actuarial assumptions and health-care cost trend rates of 10% for those not eligible for Medicare and 11% for those eligible for Medicare, then decreasing gradually to 6% in 2010 and thereafter. These costs also reflect the implementation of an annual cost-cap of 6% for individuals who retire after December 31, 1995 and reach age 65. The effect of a 1% change in these assumed cost trend rates would increase or decrease the benefit obligation by $39.2 million or $36.9 million, respectively. In addition, such a 1% change would increase or decrease the aggregate service and interest cost components of net periodic postretirement health-care cost by $3.5 million or $3.4 million, respectively. No significant portion of the effect of such a 1% change rebates to JCP&L, Met-Ed or Penelec.
The above net periodic postretirement benefit cost amount for 1999 excludes pre-tax charges of $3 million, which was deferred pending future rate recovery, resulting from employee terminations related to generation asset divestiture. No portion of this amount relates to JCP&L, Met-Ed or Penelec. The above net periodic postretirement benefit cost amount for 1998 excludes pre-tax charges of $20 million (JCP&L $6 million; Met-Ed $6 million; Penelec $7 million; Other $1 million), of which $12 million (JCP&L $3 million; Met-Ed $5 million; Penelec $4 million) was deferred pending future rate recovery, resulting from early retirement programs in 1998.
In JCP&L's 1993 base rate proceeding, the NJBPU allowed JCP&L to collect $3 million annually for incremental postretirement benefit costs, charged to expense, and recognized as a result of FAS 106. Based on the final order, and in accordance with EITF Issue 92-12, "Accounting for OPEB Costs by Rate-Regulated Enterprises," JCP&L has deferred the amounts above that level. A 1997 Stipulation of Final Settlement (Final Settlement) allows JCP&L to recover and amortize the deferred balance at December 31, 1997 over a fifteen-year period. In addition, the Final Settlement allows JCP&L to recover current amounts accrued pursuant to FAS 106, including amortization of the transition obligation. Met-Ed has deferred the incremental postretirement benefit costs associated with the adoption of FAS 106 and in accordance with EITF Issue 92-12, as authorized by the PaPUC in its 1993 base rate order. In accordance with EITF Issue 92-12, effective January 1998, Met-Ed has ceased deferring these costs. The approximately one-third generation-related portion of the deferred balance at December 31, 1997 is to be recovered in rates over a twelve-year period pursuant to the PaPUC's Restructuring Orders. The remaining two-thirds for the transmission and distribution-related portion is to be amortized over a fourteen-year period beginning January 1999, pursuant to the Restructuring Orders. In 1994, Penelec determined that its FAS 106 costs, including costs deferred since January 1993, were not probable of recovery and charged those deferred costs to expense.
Savings Plans: - --------------
GPU also maintains savings plans for substantially all US employees. These plans provide for employee contributions up to specified limits and for various levels of employer matching contributions. The matching contributions for GPU were as follows:
(in millions) Company 1999 1998 1997 - ------- ---- ---- ----
JCP&L $ 0.1 $ 2.8 $ 2.4 Met-Ed 0.1 3.4 3.1 Penelec - 1.6 1.3 Other 13.8 5.8 5.8 ---- ----- ----- Total $14.0 $ 13.6 $ 12.6 ==== ===== =====
11. LEASES
GPU Energy companies
The GPU Energy companies' capital leases consist primarily of leases for nuclear fuel. Nuclear fuel capital lease obligations at December 31, 1999 and 1998 totaled $48 million (JCP&L $48 million), and $126 million(JCP&L $85 million; Met-Ed $27 million; Penelec $14 million).
Prior to the sale of TMI-1 to AmerGen in December 1999, the GPU Energy companies had nuclear fuel lease agreements with nonaffiliated fuel trusts for the plant. Upon the sale of TMI-1, the related fuel leases were terminated and all outstanding amounts due under the related credit facility were paid. The Oyster Creek fuel lease agreement will be terminated upon the sale of Oyster Creek to AmerGen. 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, 1999, 1998, and 1997, these amounts were as follows:
(in millions) Company 1999 1998 1997 - ------- ---- ---- ----
JCP&L $ 34 $ 30 $ 31 Met-Ed 13 16 12 Penelec 6 8 6 ----- ----- ----- Total $ 53 $ 54 $ 49 ===== ===== =====
Met-Ed and JCP&L have sold and leased back a portion of their respective ownership interests in the Merrill Creek Reservoir project (Merrill Creek). The annual minimum lease payments under these operating leases, which have remaining terms of 33 years, range from approximately $3.6 million to $6.7 million (Met-Ed $1.6 million to $2.9 million; JCP&L $2 million to $3.8 million) over the next five years, net of reimbursements from sublessees. Met-Ed believes that its Merrill Creek lease payments will be a recoverable stranded cost in Phase II rate proceedings pending before the PaPUC. JCP&L is recovering its Merrill Creek lease payments, net of reimbursements, through distribution rates.
GPUI Group
A subsidiary of GPU International sold and leased back an electric cogeneration facility for an initial term of eleven years (facility lease) for which GPU, Inc. has guaranteed payments of up to $8.1 million. In addition, a 20-year site lease was entered into commencing in 1993. The leases are accounted for as operating leases and rent expense is recorded on a straight-line basis over the initial 11-year term of the facility lease. Rent expense at December 31, 1999 and 1998 totaled $12.3 million and $11.3 million, respectively. The minimum lease payments for 2000, 2001, 2002, 2003 and 2004 are $13.4 million, $14.1 million, $14.8 million, $15.8 million and $12 million, respectively.
12. COMMITMENTS AND CONTINGENCIES
COMPETITION AND THE CHANGING REGULATORY ENVIRONMENT ---------------------------------------------------
Generation Asset Divestiture: - ----------------------------
In 1999, the GPU Energy companies completed the sales of TMI-1 and substantially all of their fossil and hydroelectric generating stations. For additional information on the completed sales, see Note 6, Accounting for Extraordinary and Non-recurring Items.
In October 1999, JCP&L agreed to sell Oyster Creek to AmerGen for $10 million and reimbursement of the cost (estimated at $88 million) of the next scheduled refueling outage. This transaction is subject to the receipt of various federal and state regulatory approvals.
JCP&L and Public Service Electric & Gas Company (PSE&G) each hold a 50% undivided ownership interest in Yards Creek Pumped Storage Facility (Yards Creek). In December 1998, JCP&L filed a petition with the NJBPU seeking a declaratory order that PSE&G's right of first refusal to purchase JCP&L's ownership interest at its current book value under a 1964 agreement between the companies is void and unenforceable. Management believes that the fair market value of JCP&L's ownership interest in Yards Creek is substantially in excess of its December 31, 1999 book value of $22 million. There can be no assurance as to the outcome of this matter.
Stranded Costs and Regulatory Restructuring Orders: - --------------------------------------------------
With the current market price of electricity being below the cost of some utility-owned generation and power purchase commitments, and the ability of customers to choose their energy suppliers, certain costs, which generally would be recoverable in a regulated environment, may not be recoverable in a competitive environment. These costs are generally referred to as stranded costs.
In 1998, the PaPUC issued Restructuring Orders to Met-Ed and Penelec which, among other things, provide for Met-Ed and Penelec's recovery of a substantial portion of what otherwise would have become stranded costs, and provide for a Phase II proceeding following the completion of their generation divestitures to make a final determination of the extent of that stranded cost recovery. An appeal by one intervenor in the restructuring proceedings is pending before the Pennsylvania Supreme Court. There can be no assurance as to the outcome of this appeal.
In April 1999, JCP&L entered into a settlement agreement with several parties to its stranded cost and rate unbundling proceedings, pending before the NJBPU. In May 1999, the NJBPU issued a Summary Order, approving the settlement with certain modifications. Among other things, the Summary Order provides for full recovery of JCP&L's stranded costs. The Summary Order did not address the pending sale of Oyster Creek, because at the time the Summary Order was issued, it was uncertain whether the plant would be sold or retired early. As a result of the NJBPU's actions, in the second quarter of 1999, JCP&L recorded a reduction in operating revenues of $115 million reflecting JCP&L's obligation to make refunds to customers. JCP&L is awaiting a final order from the NJBPU. For additional information, see Note 6, Accounting for Extraordinary and Non-recurring Items.
Under the NJBPU and the PaPUC restructuring orders, the GPU Energy companies are required to provide generation service to customers who do not choose an alternate supplier. As noted above, the GPU Energy companies have sold or agreed to sell substantially all of their generation assets. Consequently, there will be increased market risks associated with providing generation service since the GPU Energy companies will have to supply energy almost entirely from contracted and open market purchases. Under the Summary Order, JCP&L is permitted to recover reasonable and prudently incurred costs associated with providing basic generation service and to defer the portion of these costs that cannot be recovered currently. The PaPUC's Restructuring Orders, however, generally do not allow Met-Ed and Penelec to recover their costs, including their energy costs in excess of established rate caps. An inability of the GPU Energy companies to supply electricity to customers who do not choose an alternate supplier at a cost recoverable under their capped rates, would have an adverse effect, which may be material, on GPU's results of operations.
Generation Agreements: - ---------------------
The emerging competitive generation market has created uncertainty regarding the forecasting of the GPU Energy companies' energy supply needs, which has caused the GPU Energy companies to seek shorter-term agreements offering more flexibility. The GPU Energy companies' supply plan focuses on short- to intermediate-term commitments (one month to three years) covering times of expected high energy price volatility (that is, peak demand periods) and reliance on spot market purchases during other periods.
As of December 31, 1999, the GPU Energy companies have entered into agreements with third party suppliers to purchase capacity and energy. Payments pursuant to these agreements, which include firm commitments as well as certain assumptions regarding, among other things, call/put arrangements and the timing of the pending Oyster Creek sale, are estimated to be $709 million in 2000, $565 million in 2001, $328 million in 2002, $144 million in 2003 and $44 million in 2004.
Pursuant to the mandates of the federal Public Utility Regulatory Policies Act and state regulatory directives, the GPU Energy companies have been required to enter into power purchase agreements with NUGs for the purchase of energy and capacity which have remaining terms of up to 21 years. The rates under virtually all of the GPU Energy companies' NUG agreements are substantially in excess of current and projected prices from alternative sources. The projected cost of energy from new generation supply sources has
also decreased due to improvements in power plant technologies and lower forecasted fuel prices. The following table shows actual payments from 1997 through December 31, 1999, and estimated payments thereafter through 2004.
Payments Under NUG Agreements ----------------------------- (in millions)
Total JCP&L Met-Ed Penelec ----- ----- ------ -------
1997 759 384 172 203 1998 788 403 174 211 1999 774 388 167 219 2000 794 405 157 232 2001 778 410 154 214 2002 799 422 158 219 2003 802 413 163 226 2004 808 407 168 233
The NJBPU Summary Order and PaPUC Restructuring Orders provide the GPU Energy companies assurance of full recovery of their NUG costs (including above-market NUG costs and certain buyout costs). Accordingly, the GPU Energy companies have recorded, on a present value basis, a liability for above-market NUG costs of $3.2 billion (JCP&L 1.6 billion; Met-Ed $0.7 billion; Penelec $0.9 billion) on the Consolidated Balance Sheets which is fully offset by Regulatory assets, net. In addition, JCP&L recorded a liability of $64 million for above-market utility power purchase agreements with a corresponding offset to Regulatory assets, net, since there is also assurance of full recovery of these costs. The GPU Energy companies are continuing efforts to reduce the above-market costs of these agreements and will, where beneficial, attempt to renegotiate the prices of the agreements, offer contract buyouts and attempt to convert must-run agreements to dispatchable agreements. There can be no assurance as to the extent to which these efforts will be successful.
In 1997, the NJBPU approved a Stipulation of Final Settlement which, among other things, provided for the recovery of costs associated with the buyout of the Freehold Cogeneration power purchase agreement (Freehold buyout). The NJBPU approved the cost recovery of up to $135 million, over a seven-year period, on an interim basis subject to refund. The NJBPU's Summary Order provides for the continued recovery of the Freehold buyout in the MTC, but has not altered the interim nature of such recovery, pending a final decision by the NJBPU. There can be no assurance as to the outcome of this matter.
ACCOUNTING MATTERS ------------------
JCP&L, in 1999, and Met-Ed and Penelec in 1998, discontinued the application of FAS 71, and adopted the provisions of FAS 101, and EITF Issue 97-4 with respect to their electric generation operations. The transmission and distribution portion of the GPU Energy companies' operations continue to be subject to the provisions of FAS 71.
Regulatory assets, net as reflected in the December 31, 1999 and December 31, 1998 Consolidated Balance Sheets in accordance with the provisions of FAS 71 and EITF Issue 97-4 were as follows:
GPU, Inc. and Subsidiaries - --------------------------
(in thousands) --------------------------- 1999 1998 ------------- ---------- Market transition charge (MTC) / basic generation service (NJ) $2,358,844 $ - Competitive transition charge (CTC) (PA) 803,064 1,023,815 Reserve for generation divestiture 536,904 1,527,985 Power purchase contract loss not in CTC (PA) 369,290 369,290 Costs recoverable through distribution rates (NJ) 296,841 - Income taxes recoverable through future rates, net 280,268 396,937 Three Mile Island Unit 2 (TMI-2) decommissioning costs 100,794 119,571 Societal benefits charge (NJ) 116,941 - Other postretirement benefits 25,335 73,770 Nonutility generation contract buyout costs - 123,208 Unamortized property losses (NJ) - 80,287 Net investment in TMI-2 (NJ) - 65,787 Environmental remediation (NJ) - 50,214 Above market NUG deferral costs (252,348) (16,067) Other, net 76,721 126,032 --------- --------- Total regulatory assets, net $4,712,654 $3,940,829 ========= =========
JCP&L - -----
Regulatory assets, net: MTC / basic generation service $2,358,844 $ - Costs recoverable through distribution rates 296,841 - Societal benefits charge 116,941 - Net divestiture proceeds recoverable through MTC 37,175 - Reserve for generation divestiture - 146,419 Income taxes recoverable through future rates, net - 137,217 Nonutility generation contract buyout costs - 120,708 Unamortized property losses - 80,287 Net investment in TMI-2 - 65,787 Environmental remediation - 50,214 Other, net - 162,868 --------- --------- Total regulatory assets, net $2,809,801 $ 763,500 ========= =========
Met-Ed - ------
Regulatory assets, net: CTC $ 591,316 $ 680,213 Power purchase contract loss not in CTC 271,270 271,270 Reserve for generation divestiture 137,037 435,386 Income taxes recoverable through future rates, net 115,713 122,781 TMI-2 decommissioning costs 65,455 68,091 Other, net 50,349 37,985 --------- --------- Total regulatory assets, net $1,231,140 $1,615,726 ========= =========
Penelec - -------
Regulatory assets, net: Reserve for generation divestiture $ 399,867 $ 946,181 Above market NUG deferral costs (252,893) - CTC 211,748 343,602 Income taxes recoverable through future rates, net 164,555 136,939 Power purchase contract loss not in CTC 98,020 98,020 Other, net 50,416 36,861 --------- --------- Total regulatory assets, net $ 671,713 $1,561,603 ========= =========
Statement of Financial Accounting Standards No. 133 (FAS 133), "Accounting for Derivative Instruments and Hedging Activities," establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. FAS 133 requires that companies recognize all derivatives as either assets or liabilities on the balance sheet and measure those instruments at fair value. GPU will be required to include its derivative transactions on its balance sheet at fair value, and recognize the subsequent changes in fair value as either gains or losses in earnings or report them as a component of other comprehensive income, depending upon the intended use and designation of the derivative as a hedge. FAS 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. GPU will adopt FAS 133 in the first quarter of 2001 and is in the process of evaluating the impact of the implementation of this statement. GPU's use of derivative instruments is intended to manage the risk of interest rate, foreign currency and commodity price fluctuations and may include such transactions as electricity and natural gas forward and futures contracts, foreign currency swaps, interest rate swaps and options. GPU does not intend to hold or issue derivative instruments for trading purposes.
NUCLEAR FACILITIES ------------------
Investments: - -----------
In December 1999, the GPU Energy companies sold TMI-1 to AmerGen for approximately $100 million. In addition, JCP&L has agreed to sell Oyster Creek to AmerGen for $10 million and reimbursement of the cost (estimated at $88 million) of the next refueling outage. TMI-2, which was damaged during a 1979 accident, is jointly owned by JCP&L, Met-Ed and Penelec in the percentages of 25%, 50% and 25%. JCP&L's net investment in TMI-2 at December 31, 1999 and 1998 was $61 million and $66 million, respectively. JCP&L is collecting revenues for TMI-2 on a basis which provides for the recovery of its remaining investment in the plant by 2008. Met-Ed and Penelec's remaining investments in TMI-2 were written off in 1998 after receiving the PaPUC's Restructuring Orders.
Costs associated with the operation, maintenance and retirement of nuclear plants have continued to be significant and less predictable than costs associated with other sources of generation, in large part due to changing regulatory requirements, safety standards, availability of nuclear waste disposal facilities and experience gained in the construction and operation of nuclear facilities. Also, not all risks associated with the ownership or operation of nuclear facilities may be adequately insured or insurable. Consequently, the recovery of costs associated with nuclear projects, including replacement power, any unamortized investment at the end of each plant's useful life (whether scheduled or premature), the carrying costs of that investment and retirement costs, is not assured.
TMI-2: - ------
As a result of the 1979 TMI-2 accident, individual claims for alleged personal injury (including claims for punitive damages), which are material in amount, were asserted against GPU, Inc. and the GPU Energy companies. Approximately 2,100 of such claims were filed in the US District Court for
the Middle District of Pennsylvania. Some of the claims also seek recovery for injuries from alleged emissions of radioactivity before and after the accident.
At the time of the TMI-2 accident, as provided for in the Price-Anderson Act, the GPU Energy companies had (a) primary financial protection in the form of insurance policies with groups of insurance companies providing an aggregate of $140 million of primary coverage, (b) secondary financial protection in the form of private liability insurance under an industry retrospective rating plan providing for up to an aggregate of $335 million in premium charges under such plan, and (c) an indemnity agreement with the Nuclear Regulatory Commission (NRC) for up to $85 million, bringing their total financial protection up to an aggregate of $560 million. Under the secondary level, the GPU Energy companies are subject to a retrospective premium charge of up to $5 million per reactor, or a total of $15 million (JCP&L $7.5 million; Met-Ed $5 million; Penelec $2.5 million).
In 1995, the US Court of Appeals for the Third Circuit ruled that the Price-Anderson Act provides coverage under its primary and secondary levels for punitive as well as compensatory damages, but that punitive damages could not be recovered against the Federal Government under the third level of financial protection. In so doing, the Court of Appeals referred to the "finite fund" (the $560 million of financial protection under the Price-Anderson Act) to which plaintiffs must resort to get compensatory as well as punitive damages.
The Court of Appeals also ruled that the standard of care owed by the defendants to a plaintiff was determined by the specific level of radiation which was released into the environment, as measured at the site boundary, rather than as measured at the specific site where the plaintiff was located at the time of the accident (as the defendants proposed). The Court of Appeals also held that each plaintiff still must demonstrate exposure to radiation released during the TMI-2 accident and that such exposure had resulted in injuries. In 1996, the US Supreme Court denied petitions filed by GPU, Inc. and the GPU Energy companies to review the Court of Appeals' rulings.
In 1996, the District Court granted a motion for summary judgment filed by GPU, Inc. and the GPU Energy companies, and dismissed the ten initial "test cases," which had been selected for a test case trial as well as all of the remaining 2,100 pending claims. The Court ruled that there was no evidence which created a genuine issue of material fact warranting submission of plaintiffs' claims to a jury. The plaintiffs appealed the District Court's ruling to the Court of Appeals for the Third Circuit. In November 1999, the Third Circuit affirmed the District Court's dismissal of the ten "test cases," but set aside the dismissal of the additional pending claims, remanding them to the District Court for further proceedings. In remanding these claims, the Third Circuit held that the District Court had erred in extending its summary judgment decision to the other plaintiffs and imposing on these plaintiffs the District Court's finding that radiation exposures below 10 rems were too speculative to establish a causal link to cancer. The Court of Appeals stated that the non-test case plaintiffs should be permitted to present their own individual evidence that exposure to radiation from the accident caused their cancers.
GPU, Inc. and the GPU Energy companies believe that the Third Circuit has misinterpreted the record before the District Court as it applies to the non-test case plaintiffs, and in November 1999, filed petitions seeking a rehearing and reconsideration of the Court's decision regarding the remaining claims. The "test case" plaintiffs also requested a rehearing of the Court's decision upholding the dismissal of their claims. In January 2000, the Court of Appeals denied both petitions. The "test case" plaintiffs have stated that they intend to seek, and GPU, Inc. and the GPU Energy companies are considering whether to seek, Supreme Court review of the District Court's decision. There can be no assurance as to the outcome of this litigation.
GPU, Inc. and the GPU Energy companies believe that any liability to which they might be subject by reason of the TMI-2 accident will not exceed their financial protection under the Price-Anderson Act.
NUCLEAR PLANT RETIREMENT COSTS ------------------------------
Retirement costs for nuclear plants include decommissioning the radiological portions of the plants and the cost of removal of nonradiological structures and materials. The disposal of spent nuclear fuel is covered separately by contracts with the DOE.
In 1995, a consultant to GPUN performed site-specific studies of TMI-2 and Oyster Creek (updated in 1998), that considered various decommissioning methods and estimated the cost of decommissioning the radiological portions and the cost of removal of the nonradiological portions of each plant, using the prompt removal/dismantlement method. GPUN management has reviewed the methodology and assumptions used in these studies, is in agreement with them, and believes the results are reasonable. Under NRC regulations, JCP&L is making periodic payments to complete the funding for Oyster Creek retirement costs by the end of the plant's license term of 2009. The TMI-2 funding completion date is 2014, consistent with TMI-2's remaining in long-term storage. The NRC may require an acceleration of the decommissioning funding for Oyster Creek if the pending sale is not completed and the plant is retired early. The retirement cost estimates under the 1995 site-specific studies, assuming decommissioning of TMI-2 and Oyster Creek in 2014 and 2009, respectively, are as follows (in 1999 dollars):
(in millions) Oyster TMI-2 Creek ----- ------ Radiological decommissioning $435 $591 Nonradiological cost of removal 34* 32 --- --- Total $469 $623 === ===
* Net of $12.6 million spent as of December 31, 1999.
Each of the GPU Energy companies is responsible for retirement costs in proportion to its respective ownership percentage. The ultimate cost of retiring the GPU Energy companies' nuclear facilities may be different from the cost estimates contained in these site-specific studies. Also, the cost estimates contained in these site-specific studies are significantly greater than the decommissioning funding targets established by the NRC.
The 1995 Oyster Creek site-specific study was updated in 1998 in response to the previously announced potential early closure of the plant in 2000. An early shutdown would increase the retirement costs shown above to $632
million ($600 million for radiological decommissioning and $32 million for nonradiological cost of removal). Both estimates include substantial spending for an on-site dry storage facility for spent nuclear fuel and significant costs for storing the fuel until the DOE complies with the Nuclear Waste Policy Act of 1982. For additional information, see OTHER COMMITMENTS AND CONTINGENCIES section.
Upon the sale of TMI-1, AmerGen assumed all TMI-1 decommissioning liabilities and the GPU Energy companies transferred $320 million to AmerGen for decommissioning.
The agreements to sell Oyster Creek to AmerGen provide, among other things, that upon financial closing, JCP&L will transfer $430 million in decommissioning trust funds to AmerGen, which will assume all liability for decommissioning Oyster Creek.
The GPU Energy companies charge to depreciation expense and accrue retirement costs based on amounts being collected from customers. Customer collections are contributed to external trust funds. These deposits, including the related earnings, are classified as Nuclear decommissioning trusts, at market on the Consolidated Balance Sheets.
The NJBPU has granted JCP&L annual revenues for Oyster Creek retirement costs of $22.5 million based on the 1995 site-specific study. In August 2000, the recovery of Oyster Creek retirement cost escalates to $34.4 million annually if the plant is retired in 2000.
In the Restructuring Orders, the PaPUC granted Met-Ed and Penelec recovery of TMI-1 decommissioning costs of $103.4 million and $67.8 million, respectively, as part of the CTC. These amounts, which are computed on a present value basis, are based on the 1995 site-specific study and will be adjusted in Phase II of Met-Ed and Penelec's restructuring proceedings, once the net proceeds from the generation asset divestiture are determined.
In the event JCP&L does not complete the pending sale of Oyster Creek, management believes that any retirement costs, in excess of those currently recognized for ratemaking purposes, should be recoverable from customers.
The estimated liabilities for TMI-2 future retirement costs (reflected as Three Mile Island Unit 2 future costs on the Consolidated Balance Sheets) as of December 31, 1999 and December 31, 1998 are $497 million (JCP&L $124 million; Met-Ed $249 million; Penelec $124 million) and $484 million (JCP&L $121 million; Met-Ed $242 million; Penelec $121 million), respectively. These amounts are based upon the 1995 site-specific study estimates (in 1999 and 1998 dollars, respectively) discussed above and an estimate for remaining incremental monitored storage costs of $27 million (JCP&L $7 million; Met-Ed $13 million; Penelec $7 million) as of December 31, 1999 and $29 million (JCP&L $7 million; Met-Ed $15 million; Penelec $7 million) as of December 31, 1998, as a result of TMI-2's entering long-term monitored storage in 1993. The GPU Energy companies are incurring annual incremental monitored storage costs of approximately $1.8 million (JCP&L $450 thousand; Met-Ed $900 thousand; Penelec $450 thousand).
Offsetting the $497 million liability at December 31, 1999 is $193 million (JCP&L $14 million; Met-Ed $144 million; Penelec $35 million) which management believes is probable of recovery from customers and included in
Regulatory assets, net on the Consolidated Balance Sheets, and $355 million (JCP&L $114 million; Met-Ed $144 million; Penelec $97 million) in trust funds for TMI-2 and included in Nuclear decommissioning trusts, at market on the Consolidated Balance Sheets. Earnings on trust fund deposits are included in amounts shown on the Consolidated Balance Sheets under Regulatory assets, net. TMI-2 decommissioning costs charged to depreciation expense in 1999 amounted to $14.3 million (JCP&L $2.3 million; Met-Ed $11.2 million; Penelec $0.8 million).
The NJBPU has granted JCP&L revenues for TMI-2 retirement costs based on the 1995 site-specific estimates. In addition, JCP&L is recovering its share of TMI-2 incremental monitored storage costs. The PaPUC Restructuring Orders granted Met-Ed and Penelec recovery of TMI-2 decommissioning costs as part of the CTC, but also allowed Met-Ed and Penelec to defer as a regulatory asset those amounts that are above the level provided for in the CTC.
At December 31, 1999, the accident-related portion of TMI-2 radiological decommissioning costs is considered to be $77 million (JCP&L $19 million; Met-Ed $39 million; Penelec $19 million), which is based on the 1995 site-specific study estimate (in 1999 dollars). In connection with rate case resolutions at the time, JCP&L, Met-Ed and Penelec have made contributions to irrevocable external trusts relating to their shares of the accident-related portions of the decommissioning liability in the amounts of $15 million, $40 million and $20 million, respectively. These contributions were not recoverable from customers and have been expensed. The GPU Energy companies will not pursue recovery from customers for any amounts contributed in excess of the $77 million accident-related portion referred to above.
JCP&L intends to seek recovery for any increases in TMI-2 retirement costs, and Met-Ed and Penelec intend to seek recovery for any increases in the nonaccident-related portion of such costs, but recognize that recovery cannot be assured.
INSURANCE ---------
GPU has insurance (subject to retentions and deductibles) for its operations and facilities including coverage for property damage, liability to employees and third parties, and loss of use and occupancy (primarily incremental replacement power costs). There is no assurance that GPU will maintain all existing insurance coverages. Losses or liabilities that are not completely insured, unless allowed to be recovered through ratemaking, could have a material adverse effect on the financial position of GPU.
The decontamination liability, premature decommissioning and property damage insurance coverage for Oyster Creek totals $2.75 billion. In addition, GPU has purchased property and decontamination insurance coverage for TMI-2 totaling $150 million. In accordance with NRC regulations, these insurance policies generally require that proceeds first be used for stabilization of the reactors and then to pay for decontamination and debris removal expenses. Any remaining amounts available under the policies may then be used for repair and restoration costs and decommissioning costs. Consequently, there can be no assurance that in the event of a nuclear incident, property damage insurance proceeds would be available for the repair and restoration of that station.
The Price-Anderson Act limits GPU's liability to third parties for a nuclear incident at Oyster Creek to approximately $9.5 billion. Coverage for the first $200 million of such liability is provided by private insurance. The remaining coverage, or secondary financial protection, is provided by retrospective premiums payable by all nuclear reactor owners. Under secondary financial protection, a nuclear incident at any licensed nuclear power reactor in the country, including Oyster Creek, could result in an assessment of up to $88 million per incident, subject to an annual maximum payment of $10 million per incident per reactor. Although TMI-2 is exempt from this assessment, the plant is still covered by the provisions of the Price-Anderson Act. In addition to the retrospective premiums payable under the Price-Anderson Act, the GPU Energy companies are also subject to retrospective premium assessments of up to $10.5 million (JCP&L $10.1 million; Met-Ed $0.3 million; Penelec $0.1 million) for insurance policies currently in effect applicable to nuclear operations and facilities. The GPU Energy companies are also subject to other retrospective premium assessments related to policies applicable to TMI-1 prior to the sale of the plant to AmerGen.
JCP&L has insurance coverage for incremental replacement power costs should an accident-related outage at Oyster Creek occur. Coverage would commence after a 12-week waiting period at $2.1 million per week for 52 weeks, decreasing to 80% of such amount for the next 110 weeks.
ENVIRONMENTAL MATTERS ---------------------
As a result of existing and proposed legislation and regulations, and ongoing legal proceedings dealing with environmental matters, including but not limited to acid rain, water quality, ambient air quality, global warming, electromagnetic fields, and storage and disposal of hazardous and/or toxic wastes, GPU may be required to incur substantial additional costs to construct new equipment, modify or replace existing and proposed equipment, remediate, decommission or cleanup waste disposal and other sites currently or formerly used by it, including formerly owned manufactured gas plants (MGP), coal mine refuse piles and generation facilities.
GPU has been formally notified by the EPA and state environmental authorities that it is among the potentially responsible parties (PRPs) who may be jointly and severally liable to pay for the costs associated with the investigation and remediation at 11 hazardous and/or toxic waste sites (in some cases, more than one company is named for a given site).
JCP&L MET-ED PENELEC GPUN GPU,INC. TOTAL ----- ------ ------- ---- ------- ----- 6 4 2 1 1 11
In addition, certain of the GPU companies have been requested to participate in the remediation or supply information to the EPA and state environmental authorities on several other sites for which they have not been formally named as PRPs, although the EPA and state authorities may nevertheless consider them as PRPs. Certain of the GPU companies have also been named in lawsuits requesting damages (which are material in amount) for hazardous and/or toxic substances allegedly released into the environment. The ultimate cost of remediation will depend upon changing circumstances as site investigations continue, including (a) the existing technology required for site cleanup, (b) the remedial action plan chosen and (c) the extent of site contamination and the portion attributed to the GPU companies involved.
In 1997, the EPA filed a complaint against GPU, Inc. in the US District Court for the District of Delaware for enforcement of its Unilateral Order (Order) issued against GPU, Inc. to clean up the former Dover Gas Light Company (Dover) manufactured gas production site (Site) in Dover, Delaware. Dover was part of the AGECO/AGECORP group of companies from 1929 until 1942; GPU, Inc. emerged from the AGECO/AGECORP reorganization proceedings in 1946. All of Dover's common stock, which was sold in 1942 to an unaffiliated entity, was subsequently acquired by Chesapeake, which merged with Dover in 1960. Chesapeake is currently performing the cleanup at the Site. According to the complaint, the EPA is seeking (1) enforcement of the Order against GPU; (2) recovery of its past response costs, (3) a declaratory judgment that GPU is liable for any remaining cleanup costs of the Site and (4) statutory penalties for noncompliance with the Order. The EPA has stated that it has incurred approximately $1 million of past response costs as of December 31, 1999. The EPA estimates the total Site cleanup costs at approximately $4.2 million. Consultants to Chesapeake have estimated the remaining remediation groundwater costs at approximately $10.5 million. In accordance with its penalty policy, and in discussions with GPU, the EPA has demanded penalties calculated at a daily rate of $8,800, rather than the statutory maximum of $27,500 per day. At December 31, 1999, if the statutory maximum is applied, the total amount of penalties would be approximately $34 million. GPU believes that it has meritorious defenses as to why no penalty should be assessed or if a penalty is assessed, why it should be at a lower daily rate. Chesapeake has also sued GPU, Inc. for contribution to the cleanup of the Dover Site. The US District Court for the District of Delaware has consolidated the case filed by Chesapeake with the case filed by the EPA and discovery is proceeding. There can be no assurance as to the outcome of these proceedings.
In connection with the sale of its Seward Generation Station to Sithe, Penelec has assumed up to $6 million of remediation costs associated with certain coal mine refuse piles which are the subject of an earlier consent decree with the Pennsylvania Department of Environmental Protection. Penelec expects recovery of these remediation costs in Phase II of its restructuring proceeding and has recorded a corresponding regulatory asset of approximately $6 million at December 31, 1999.
JCP&L has entered into agreements with the New Jersey Department of Environmental Protection for the investigation and remediation of 17 formerly owned MGP sites. JCP&L has also entered into various cost-sharing agreements with other utilities for most of the sites. As of December 31, 1999, JCP&L has spent approximately $36 million in connection with the cleanup of these sites. In addition, JCP&L has recorded an estimated environmental liability of $52 million relating to expected future costs of these sites (as well as two other properties). This estimated liability is based upon ongoing site investigations and remediation efforts, which generally involve capping the sites and pumping and treatment of ground water. Moreover, the cost to clean up these sites could be materially in excess of $52 million due to significant uncertainties, including changes in acceptable remediation methods and technologies. In addition, federal and state law provides for payment by responsible parties for damage to natural resources.
In 1997, the NJBPU approved JCP&L's request to establish a Remediation Adjustment Clause for the recovery of MGP remediation costs. As a result of the NJBPU's Summary Order, effective August 1, 1999, the recovery of these costs was transferred to the Societal Benefits Charge. At December 31, 1999,
JCP&L had recorded on its Consolidated Balance Sheet a regulatory asset of $44 million. JCP&L is continuing to pursue reimbursement from its insurance carriers for remediation costs already spent and for future estimated costs. In 1994, JCP&L commenced litigation in the New Jersey Superior Court against several of its insurance carriers, relative to these MGP sites, and has settled with all but one of those insurance companies.
OTHER COMMITMENTS AND CONTINGENCIES -----------------------------------
Class Action Litigation: - -----------------------
GPU Energy
In July 1999, New Jersey experienced a severe heat storm that resulted in major power outages and temporary service interruptions including in JCP&L's service territory. As a result, the NJBPU has initiated an investigation into the reliability of the transmission and distribution systems of all New Jersey utilities and their response to power outages. In addition, two class action lawsuits have been commenced in New Jersey Superior Court against GPU, Inc. and the GPU Energy companies, seeking both compensatory and punitive damages for alleged losses suffered due to service interruptions. The GPU defendants originally requested the Court to stay or dismiss the litigation in deference to the NJBPU's primary jurisdiction. The Court denied the motion, but in January 2000 the Appellate Division agreed to review the Court's decision. In response to GPU's demand for a statement of damages, the plaintiffs have stated that they are seeking damages of $700 million, subject to the results of pre-trial discovery. GPU has notified its insurance carriers who have reserved their rights to contest coverage under GPU's insurance policies for losses which GPU may incur. There can be no assurance as to the outcome of these matters.
GPU Electric
As a result of the fire and explosion in September 1998, at the Longford natural gas plant in Victoria, Australia, three class actions have been brought in Australian Federal Court against Esso Australia Limited and its affiliate (Esso), the owner and operator of the plant, for losses suffered due to the lack of natural gas supply and related damages. Plaintiffs claim that Esso was, among other things, negligent in designing, maintaining and operating the Longford plant and also assert claims under various Australian fair trade practices laws.
Esso has joined as third party defendants the State of Victoria (State) and various State-owned entities which operated the Victorian gas industry prior to its privatization, including TPA and its affiliate Transmission Pipelines (Assets) Australia (TPAA). GPU, Inc. through GPU GasNet acquired the assets of TPA and the shares of TPAA from the State in June 1999. Esso has also named GPU GasNet as a third party defendant. Under the acquisition agreement with the State, GPU GasNet has indemnified TPA and the State against third party claims. Esso is seeking contribution and indemnity from the third party defendants for any damages for which Esso may be found liable. In addition, Esso has asserted several separate claims against the State and the former State-owned entities for damages, and contends that GPU GasNet assumed TPA's liabilities as part of the State's privatization process.
GPU GasNet and TPAA have filed answers denying liability, which could be material and have moved to dismiss portions of Esso's claims. GPU GasNet and TPAA have also notified their insurance carriers of this action. The insurers have reserved their rights to deny coverage. There can be no assurance as to the outcome of this matter.
Investments and Guarantees: - --------------------------
GPU, Inc.
GPU, Inc. has made significant investments in foreign businesses and facilities through its subsidiaries, GPU Electric and the GPUI Group. At December 31, 1999, GPU, Inc.'s investment in GPU Electric and the GPUI Group was $1.06 billion and $232 million, respectively. As of that date, GPU, Inc. has also guaranteed an additional $1.04 billion and $29.9 million (including $8.7 million of guarantees related to domestic operations) of GPU Electric and GPUI Group outstanding obligations, respectively. Although management attempts to mitigate the risks of investing in certain foreign countries by, among other things, securing political risk insurance, GPU faces additional risks inherent to operating in such locations, including foreign currency fluctuations.
GPU Electric
Midlands has a 40% ownership interest in a 586 MW power project in Pakistan (the Uch Power Project), which was originally scheduled to begin commercial operation in late 1998, but testing and commercial operation have been delayed.
In June 1999, certain Project lenders issued notices of default to the Project sponsors (including Midlands) for, among other things, failure to pay principal and interest under various loan agreements. In November 1999, the Project sponsors and lenders reached an agreement under which repayment of the construction loan will be extended, principal and interest payments deferred, and the sponsors will fund the completion of the plant through the remaining equity contribution commitments. Midlands' investment in the Uch Power Project at December 31, 1999 was approximately $43 million, and its share of the projected completion costs represents an additional $8 million commitment. Cinergy has agreed to fund up to an aggregate of $20 million of the required capital contributions and/or certain future "cash losses" which could be incurred on the Uch Power Project. Cinergy has reimbursed Midlands $3 million of capital contributions as of December 31, 1999, leaving a remaining commitment of up to $17 million. Testing of the plant has begun and the start of commercial operations is now anticipated in 2000. There can be no assurance as to the outcome of this matter.
As part of the sale of the Midlands' supply business and the purchase of the 50% of Midlands GPU did not already own, certain long-term obligations under natural gas supply contracts were retained. Most of these contracts were at fixed prices in excess of the market price of gas as of December 31, 1999. A liability was previously established for the estimated loss under such contracts, which extend to September 2005. The estimated liability at December 31, 1999 was $55.1 million.
GPUI Group
On July 9, 1999, DIAN (the Columbian national tax authority) issued a "Special Requirement" on the Termobarranquilla S.A., Empresa de Servicios Publicos (TEBSA, an investment in which GPU Power has a 29% interest) 1996 income tax return which challenges the exclusion from taxable income of an inflation adjustment related to the value of assets used for power generation.
The failure to give notice of this Special Requirement to the US Export Import Bank may be asserted as a technical event of default under the loan agreement. An event of default would entitle TEBSA's lenders to accelerate the payment of outstanding loans of TEBSA and require payment of certain standby equity commitments by TEBSA's shareholders and equity guarantors, which include a subsidiary of GPU Power and GPU, Inc. respectively. The lenders have not asserted that an event of default has occurred or indicated whether they will pursue remedies under the project financing documents.
As of December 31, 1999, GPU Power has an investment of approximately $79 million in TEBSA and GPU, Inc. has guaranteed $21.3 million in standby equity commitments. There can be no assurance as to the outcome of these matters.
Other: - -----
GPU AR has entered into contracts to supply electricity to retail customers through May 2001. In connection with meeting its supply obligations, GPU AR has entered into firm purchase commitments for energy and capacity with payment obligations totaling approximately $27 million as of December 31, 1999. GPU, Inc. has guaranteed up to $19 million of these payments.
In accordance with the Nuclear Waste Policy Act of 1982 (NWPA), the GPU Energy companies have entered into contracts with, and have been paying fees to, the DOE for the future disposal of spent nuclear fuel in a repository or interim storage facility. AmerGen has assumed all liability for disposal costs related to spent fuel generated after its purchase of TMI-1 and has agreed to assume this liability for Oyster Creek following its purchase of that plant. In 1996, the DOE notified the GPU Energy companies and other standard contract holders that it will be unable to begin acceptance of spent nuclear fuel for disposal by 1998, as mandated by the NWPA. The DOE requested recommendations from contract holders for handling the delay. The DOE's inability to accept spent nuclear fuel could have a material impact on GPU's results of operations, as additional costs may be incurred to build and maintain interim on-site storage at Oyster Creek. In June 1997, a consortium of electric utilities, including GPUN, filed a license application with the NRC seeking permission to build an interim above-ground disposal facility for spent nuclear fuel in Utah. There can be no assurance as to the outcome of these matters.
GPU, Inc. and consolidated affiliates have approximately 10,800 employees worldwide, of which 6,100 are employed in the US and 3,700 are employed in the United Kingdom. The majority of the US workforce is employed by the GPU Energy companies, of which approximately 4,000 are represented by unions for collective bargaining purposes. In the United Kingdom, approximately 2,800 Midlands employees are represented by unions; terms and conditions of the
various bargaining agreements are generally reviewed annually, on April 1. JCP&L, Met-Ed and Penelec's collective bargaining agreements with the International Brotherhood of Electrical Workers expire on October 31, 2002, April 30, 2000 and May 14, 2002, respectively. Penelec's collective bargaining agreement with the Utility Workers Union of America expires on June 30, 2001.
During the normal course of the operation of its businesses, in addition to the matters described above, GPU is from time to time involved in disputes, claims and, in some cases, as a defendant in litigation in which compensatory and punitive damages are sought by the public, customers, contractors, vendors and other suppliers of equipment and services and by employees alleging unlawful employment practices. While management does not expect that the outcome of these matters will have a material effect on GPU's financial position or results of operations, there can be no assurance that this will continue to be the case.
13. SEGMENT INFORMATION
The following is presented in accordance with Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information."
GPU's reportable segments are strategic business units that are managed separately due to their different operating and regulatory environments. GPU's management evaluates the performance of its business units based upon income before extraordinary and non-recurring items. For the purpose of providing segment information, domestic electric utility operations (GPU Energy) is comprised of the three electric utility operating companies serving customers in New Jersey and Pennsylvania, as well as GPU Generation, Inc. (sold in late 1999), GPUN, GPU Telcom and GPUS. For additional information on GPU's organizational structure and businesses, see preface to the Notes to Consolidated Financial Statements.
Jersey Central Power & Light Company and Subsidiary Company
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of Jersey Central Power & Light Company:
In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Jersey Central Power & Light Company and Subsidiary Company at December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999 in conformity with accounting principles generally accepted in the United States. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania February 10, 2000
Jersey Central Power & Light Company and Subsidiary Company
CONSOLIDATED BALANCE SHEETS
(In Thousands) December 31, 1999 1998 - -----------------------------------------------------------------------------
ASSETS
Utility Plant:
Transmission, distribution, and general plant $3,097,150 $3,108,697 Generation plant 504,545 1,646,576 --------- --------- Utility plant in service (Note 6) 3,601,695 4,755,273 Accumulated depreciation (1,872,422) (2,217,108) --------- --------- Net utility plant in service (Note 1) 1,729,273 2,538,165 Construction work in progress 80,671 48,126 Other, net 14,781 98,491 --------- -------- Net utility plant 1,824,725 2,684,782 --------- ---------
Other Property and Investments: Nuclear decommissioning trusts, at market (Note 12) 394,941 422,277 Nuclear fuel disposal trust, at market 119,293 116,871 Other, net 1,252 9,596 --------- -------- Total other property and investments 515,486 548,744 --------- -------- Current Assets: Cash and temporary cash investments 68,684 1,850 Special deposits 1,035 6,047 Accounts receivable: Customers, net 164,099 152,120 Other 83,086 32,562 Unbilled revenues (Note 1) 78,251 56,391 Materials and supplies, at average cost or less: Construction and maintenance - 79,863 Fuel - 13,144 Deferred income taxes (Note 8) 1,652 20,812 Prepayments 23,000 27,648 --------- ------- Total current assets 419,807 390,437 --------- ---------
Deferred Debits and Other Assets: Regulatory assets, net (Notes 1 & 12) 2,809,801 763,500 Deferred income taxes (Note 8) 221,668 179,237 Other 19,510 15,422 --------- --------
Total deferred debits and other assets 3,050,979 958,159 --------- ----------- Total Assets $5,810,997 $4,582,122 ========= ===========
The accompanying notes are an integral part of the consolidated financial statements.
Jersey Central Power & Light Company and Subsidiary Company
CONSOLIDATED BALANCE SHEETS
(In Thousands) December 31, 1999 1998 - ----------------------------------------------------------------------------
LIABILITIES AND CAPITALIZATION Capitalization: Common stock $ 153,713 $153,713 Capital surplus 510,769 510,769 Retained earnings 720,878 893,016 Accumulated other comprehensive income/(loss) 7 (425) --------- ---------- Total common stockholder's equity (Note 5) 1,385,367 1,557,073 Cumulative preferred stock: (Note 4) With mandatory redemption 73,167 86,500 Without mandatory redemption 12,649 37,741 Company-obligated mandatorily redeemable preferred securities (Note 4) 125,000 125,000 Long-term debt (Note 3) 1,133,760 1,173,532 --------- --------- Total capitalization 2,729,943 2,979,846 --------- ---------
Current Liabilities: Securities due within one year (Notes 3 & 4) 50,846 2,512 Notes payable (Note 2) - 122,344 Obligations under capital leases (Note 11) 48,165 85,366 Accounts payable: Affiliates 60,527 40,861 Other 82,355 80,233 Taxes accrued 13,079 5,559 Interest accrued 24,523 26,678 Deferred credits (Note 1) - 2,411 Other 36,169 104,408 --------- -------- Total current liabilities 315,664 470,372 --------- --------
Deferred Credits and Other Liabilities: Deferred income taxes (Note 8) 570,568 670,961 Unamortized investment tax credits 32,114 50,225 Nuclear fuel disposal fee 148,009 141,270 Three Mile Island Unit 2 future costs (Note 12) 124,241 120,904 Power purchase contract loss liability (Note 12) 1,624,769 - Other 265,689 148,544 --------- -------- Total deferred credits and other liabilities 2,765,390 1,131,904 --------- ---------
Commitments and Contingencies (Note 12)
Total Liabilities and Capitalization $5,810,997 $4,582,122 ========= ==========
The accompanying notes are an integral part of the consolidated financial statements.
Metropolitan Edison Company and Subsidiary Companies
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of Metropolitan Edison Company:
In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Metropolitan Edison Company and Subsidiary Companies at December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999 in conformity with accounting principles generally accepted in the United States. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania February 10, 2000
Metropolitan Edison Company and Subsidiary Companies
CONSOLIDATED BALANCE SHEETS
(In Thousands) December 31, 1999 1998 - ------------------------------------------------------------------------------
ASSETS Utility Plant: Transmission, distribution and general plant $1,500,417 $1,481,958 Generation plant 21,683 765,669 ---------- ---------- Utility plant in service (Note 6) 1,522,100 2,247,627 Accumulated depreciation (462,709) (1,008,438) ---------- ---------- Net utility plant in service (Note 1) 1,059,391 1,239,189 Construction work in progress 25,329 19,380 Other, net 643 27,819 ---------- ---------- Net utility plant 1,085,363 1,286,388 --------- ---------
Other Property and Investments: Nuclear decommissioning trusts, at market (Note 12) 144,261 211,194 Other, net 3,010 11,742 ---------- ---------- Total other property and investments 147,271 222,936 ---------- ----------
Current Assets: Cash and temporary cash investments 10,899 442 Special deposits 160 1,062 Accounts receivable: Customers, net 60,188 60,012 Other 149,760 41,895 Unbilled revenues (Note 1) 28,956 43,687 Materials and supplies, at average cost or less: Construction and maintenance - 24,727 Fuel - 12,218 Deferred income taxes (Note 8) 2,945 2,945 Prepayments 16,715 20,616 ---------- ---------- Total current assets 269,623 207,604 ---------- ----------
Deferred Debits and Other Assets: Regulatory assets, net (Notes 1 & 12) 1,231,140 1,615,726 Deferred income taxes (Note 8) 738,189 714,202 Other 16,607 18,113 ---------- ---------- Total deferred debits and other assets 1,985,936 2,348,041 ---------- ----------
Total Assets $3,488,193 $4,064,969 ========== ==========
The accompanying notes are an integral part of the consolidated financial statements.
Metropolitan Edison Company and Subsidiary Companies
CONSOLIDATED BALANCE SHEETS
(In Thousands) December 31, 1999 1998 - ------------------------------------------------------------------------------
LIABILITIES AND CAPITALIZATION
Capitalization: Common stock $ 66,273 $66,273 Capital surplus 400,200 370,200 Retained earnings 13,581 234,066 Accumulated other comprehensive income (Note 5) 21,363 16,520 ------- ------- Total common stockholder's equity 501,417 687,059 Cumulative preferred stock (Note 4) - 12,056 Company-obligated mandatorily redeemable preferred securities (Note 4) - 100,000 Trust preferred securities 100,000 - Long-term debt (Note 3) 496,883 546,904 ------- ------- Total capitalization 1,098,300 1,346,019 --------- ---------
Current Liabilities: Securities due within one year (Note 3) 50,025 30,024 Notes payable (Note 2) - 79,540 Obligations under capital leases (Note 11) - 27,135 Accounts payable: Affiliates 125,179 75,933 Other 30,106 102,390 Taxes accrued 35,976 19,463 Interest accrued 16,738 16,747 Other 18,208 42,598 ------- ------- Total current liabilities 276,232 393,830 ------- -------
Deferred Credits and Other Liabilities: Deferred income taxes (Note 8) 993,427 1,010,982 Three Mile Island Unit 2 future costs (Note 12) 248,381 241,707 Unamortized investment tax credits 15,010 27,157 Nuclear fuel disposal fee 33,430 31,912 Power purchase contract loss liability (Note 12) 735,833 787,440 Other 87,580 225,922 --------- --------- Total deferred credits and other liabilities 2,113,661 2,325,120 --------- ---------
Commitments and Contingencies (Note 12) Total Liabilities and Capitalization $3,488,193 $4,064,969 ========== ==========
The accompanying notes are an integral part of the consolidated financial statements.
Pennsylvania Electric Company and Subsidiary Companies
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of Pennsylvania Electric Company:
In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Pennsylvania Electric Company and Subsidiary Companies at December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999 in conformity with accounting principles generally accepted in the United States. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania February 10, 2000
Pennsylvania Electric Company and Subsidiary Companies
CONSOLIDATED BALANCE SHEETS
(In Thousands) December 31, 1999 1998 - ------------------------------------------------------------------------------
ASSETS
Utility Plant:
Transmission, distribution and general plant $1,732,386 $1,768,621 Generation plant - 1,033,739 --------- --------- Utility plant in service (Note 6) 1,732,386 2,802,360 Accumulated depreciation (552,449) (1,175,842) --------- --------- Net utility plant in service (Note 1) 1,179,937 1,626,518 Construction work in progress 30,329 18,862 Other, net 2,704 19,482 --------- --------- Net utility plant 1,212,970 1,664,862 --------- ---------
Other Property and Investments: Nonutility generation trusts, at market 266,700 - Nuclear decommissioning trusts, at market (Note 12) 97,082 82,803 Other, net 1,233 7,705 --------- --------- Total other property and investments 365,015 90,508 --------- ---------
Current Assets: Cash and temporary cash investments 32,250 2,750 Special deposits 233 2,632 Accounts receivable: Customers, net 69,752 69,887 Other 53,406 28,893 Unbilled revenues (Note 1) 30,836 43,998 Materials and supplies, at average cost or less: Construction and maintenance - 39,452 Fuel - 17,107 Deferred income taxes (Note 8) 7,589 7,589 Prepayments 15,484 31,551 --------- --------- Total current assets 209,550 243,859 --------- ---------
Deferred Debits and Other Assets: Regulatory assets, net: (Notes 1 & 12) 671,713 1,561,603 Deferred income taxes (Note 8) 1,225,150 951,471 Other 11,393 12,504 --------- --------- Total deferred debits and other assets 1,908,256 2,525,578 --------- ---------
Total Assets $3,695,791 $4,524,807 ========== ==========
The accompanying notes are an integral part of the consolidated financial statements.
Pennsylvania Electric Company and Subsidiary Companies
CONSOLIDATED BALANCE SHEETS
(In Thousands) December 31, 1999 1998 - ------------------------------------------------------------------------------
LIABILITIES AND CAPITALIZATION Capitalization: Common stock $ 105,812 $105,812 Capital surplus 285,486 285,486 Retained earnings 59,265 367,653 Accumulated other comprehensive income 10,619 8,353 ---------- -------- Total common stockholder's equity (Note 5) 461,182 767,304 Cumulative preferred stock (Note 4) - 16,681 Company-obligated mandatorily redeemable preferred securities (Note 4) - 105,000 Trust preferred securities 100,000 - Long-term debt (Note 3) 424,641 626,434 ---------- -------- Total capitalization 985,823 1,515,419 ---------- --------
Current Liabilities: Securities due within one year (Note 3) 13 50,012 Notes payable (Note 2) 53,600 86,023 Obligations under capital leases (Note 11) - 13,979 Accounts payable: Affiliates 66,223 47,164 Other 34,845 47,795 Taxes accrued 108,005 32,755 Interest accrued 6,588 19,700 Other 17,567 37,272 ---------- -------- Total current liabilities 286,841 334,700 ---------- --------
Deferred Credits and Other Liabilities: Deferred income taxes (Note 8) 1,250,490 1,338,235 Three Mile Island Unit 2 future costs (Note 12) 124,322 120,904 Unamortized investment tax credits 14,240 36,926 Nuclear fuel disposal fee 16,717 15,956 Power purchase contract loss liability (Note 12) 940,276 1,016,380 Other 77,082 146,287 ---------- -------- Total deferred credits and other liabilities 2,423,127 2,674,688 ---------- -------- Commitments and Contingencies (Note 12) Total Liabilities and Capitalization $3,695,791 $4,524,807 ========== ==========
The accompanying notes are an integral part of the consolidated financial statements.