ML19308B955
| ML19308B955 | |
| Person / Time | |
|---|---|
| Site: | Crane  |
| Issue date: | 12/31/1978 |
| From: | Metropolitan Edison Co |
| To: | |
| References | |
| TASK-TF, TASK-TMR NUDOCS 8001170660 | |
| Download: ML19308B955 (30) | |
Text
SECURITIES AND EXCHANGE COMMISSION washington, D.
C.
20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 1978 Commission File No. 1-446 METROPOLITAN EDISON COMPANY (Exact name of registrant as specified in its charter)
Pennsylvania 23-0870160 (State nT other jurisdiction (I.R.S. Employer of incorporation or organization)
Identification No.)
2800 Pottsville Pike, Muhlenberg Township, Berks County, Pennsylvania (Address of principal executive office) 19640 (Zip Code)
Registrant's telephone number, including area codt<
215-929-3601 j
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on Title of each class which registered Cumulative Preferred Stock, without par value of the stated value of $100:
3.90% Series New York Stock Exchange 8.12% Series New York Stock Exchange 7.68% Series G New York Stock Exchange 8.32% Series H New York Stock Exchange 8.12% Series I New York Stock Exchange 8.32% Series J New York Stock Exchange First Mortgage Bonds, 2-3/4% Series due 2/1/1980 New York Stock Exchange-Securities registered pursuant to Section 12(g) of the Act:
None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securi-ties Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Indicate the number of shares outstanding of each of the,
bJ issuer's classer of common stock, as of the close of the period covered by this report:
Common Stock, no par value, 859,500 shares ottstanding.
8001170 6 @
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PART I ITEM 1.
BUSINESS.
Metropolitan Edison Company (the " Company"), a Pennsylvania i
corporation incorporated in 1922, is a subsidiary of General Public Utilities Corporation ("GPU"), a holding company registered under the Public Utility Holding Company Act of 1935 (the "1935 Act").
The Company's principal business is the production, purchase, j
transmission, distribution and sale of electricity.
The Company is affiliated with Jersey Central Power & Light Company ("JCP&L") and Pennsylvania Electric Company ("Penelec")
and with GPU Service Corporation (a mutual service company) and Cherry Hill Fuels Corporation (a fuels company), which serve the 1
GPU systga, all of which are wholly-owned subsidiaries of GPU.
General. The Company provides retail service in all or portions of four cities, 92 boroughs and 155 townships, located within 14 counties, in the eastern and centi al parts of Pennsylvania having an estimated population of 830.000.
It also sells electricity at wholesale to five municipalities having an estimated population of 17,500, to an electric company serving substantially all of one j
township and to a rural electric cooperative corporation. The l
Company's only subsidiary, York Haven Power Company, is the owner c,
and licensee of the York Haven hydroelectric project.
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Thg_ generating and transmission facilities of t_he Company, 4
JCP&L and Penelec are interconnected f
and_are_ operated as an_inte_- Jf ggc b
~ grated and _ coordinated system.
Major facilities of the integrated /p/
gd jhyUpp$4 system are designed and installed on an over-all system basis to U
I achieve maximum operating economy consistent with service relia-bility.
The electric transmission facilities of the integrated qfjd~fg system are also physically interconnected with neighboring non-9
}C affiliated utilities in Pennsylvania, New Jercey, Maryland, Ohio and g
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The Company is a member of the Pennsylvania-New Jersey-
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, Maryland Interconnection ("PJM") and M_id-Atlantic Area Council, an organization providing coordinated review of the planning of utilities in the PJM area.
The interconnection facilities are used for substantial capacity and energy interchange and purchased power transactions as well as emergency assistance.
Electric sales for the year 1978 to residential customers i
accounted for approximately 37% of the Company's operating revenues, sales to commercial customers 21%, sales to industrial customers i
31%, and sales to municipalities, street and highway lighting and miscellaneous revenues 11%.
The revenue derived from the largest single industrial customer, Carpenter Technology Corporation, accounted for approximately 2% of the gross electric operating revenues for the year 1978 and the 25 largest industrial customers In the aggregate accounted for approximately 13% of such revenues.
Reference is made to " Company Statistics" on page 16 of the Company's 1978 annual report (filed herewith as Exhibit 2) for further informa-tion concerning the Company's sales and revenues.
f /
Pennsylvania Power & Light Company has purchased all of the outstanding stock of one of the Company's wholesale for resale customers, Hershey Electric Company
(" Hershey").
The Company provides service to Hershey under a rate schedule which includes a two year termination provision.
Hershey has given notice of termination of the contract effective March 1, 1980, after which date the Company expects to no longer provide service to Hershey.
Revenues for the year 1978 include billings to Hershey of approxi-mately $7,900,000 representing approximately 3% of total revenues and approximately 4% of total kilowatt hour sales.
The Company estimates that the capacity required to service Hershey approxi-mates 50 megawatts.
Financing and Construction Program.
The Company's con-struction expenditures for the year 1978 and the estimated cost of the Company's construction program and the principal categories thereof for 1979 and 1980 are set forth below:
(In Thousands) 1978 1979 1980 Generation.....................
S 66,397
$ 42,000 S 41,000 Transmission....................
975 2,000 6,000 Distribution....................
17,560 19,000 22,000 Other...........................
2,225 2,000 1,000 Gross Construction.........
S 87,657 S 65,000
$ 70,000 lk In addition, in 1979 and 1980, the Company reauires approxi-f mately_S2,000,000 and $14,000,000, respectivel'y, to meet sinking fund
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hD obligations and to repay maturing senior indebtedness.
The Company plans to finance its 1 9 7 9 c a p i t_a l _ r.e q u i.r_e m e n t s._ b y the sale of first mortgage._ bond _s and funds provided from operatiops.
The Company also_ expects _to_hav_e_short-term bank loans and commercial pape_r outstanding during 1979.
The Company does not know whether the presant construction program, which is intended to make provision for a growth in annual sales of approximately 4.5% while limiting peak load growth to approximately 3.5%, will be adequate to provide for the requirements of its customers.
For the five-year period ending with 197.1, the Company's kilowatthour sales and peak load grew at average annual rates of 7.7% and 7.7%, respectively.
For the five-year period ending with 1978, the Company's kilowatthour sales and peak load grew at average annual rates of 0.7% and 0.3%, respectively.
(See " Company Statistics" on page 16 of the Company's 1978 annual report filed as Exhibit 2. ) If customer usage patterns return to prior growth trends, the Company's construction program wil' not be sufficient to maintain the same degree of reliable service that the Company provided in the past unless peak load growth is limited.
The Company has instituted load-management programs (consisting of
certain tariff changes and customer education) designed to inhibit the rate of growth of peak load so as to maintain its ability to If efforts of this nature should fail to serve existing customers.
achieve their intended purpose, the Company would attempt to modify its construction program if its financing capabilities permit and/or increase its purchases of power if available.
to Limitations on Issuing Additional Securities.
The Company's first mortgage bond indenture, debenture indenture and/or articles of incorporation contain provisions limiting the total amou_nt_of securities evidencing funded indebtedness and/or unsecured ladebted-the most restrictive of which are ness which the Company may issue, discussed below.
The Company's debenture indenture requires that for a period of,Iq any twelve consecutive months out of the fifteen calendar months theCompany'sn_e_t}HC@
preFe~ ding the issuance o fadditional funded debt, with other income 1_imi.ted_tp 10% of g
earnings (before income taxes, o p.e r a tTng_i ncome_b e.fo r_e_i n come t a x e s ) available for intere_st on funded debt shall have been at least twice the annual interest requirements 7h1 al~1 funded debt to be outstanding immediately after s'Udh 1~Sshance.
ThTf o r eg 61 ng e ar n i ng s r eq u i fe~de n t'i s~no t~ ~ appl i c abl e
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to additional" funded indebtedness to the extent that the proceeds of such additional funded indebtedness are utilized solely for the fl.,
of refunding outstanding funded indebtedness which is purposa "A
(1) maturing no later and bearing a higher interest rate than, and at least equal in principal amount to, such additional funded gd(N7 Indebtedrmss or (ii) within two years of maturity, gc r/ 7 0
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'l Among other restrictions, the Company's articles provide
_yy the consent of the holders of two-thirds of the out #
that without standing preferred stock, no additional shares of preferred star,k
.-e issued unless, for any period of any twelve consecutive J/<.
may be months out of the fifteen calendar months preceding such issuance,ca,mfq>
the Company's af tet_ tax _ net _ earnings available for the payment of
~ " b7^
interest on indebtedness shall have been at least one and one-half
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times the aggregate of (1) the annual interest charges on indebted-ness and (2) the annual dividend requirements on all shares of preferred stock to be outstanding immediately after such issuance.
Under the Company's articles, without the consent of the holders of a majority of the total voting power of the Company's outstanding preferred stock, the Company may not issue or assume any securities representing short-term unsecured indebtedness (except to refund certain outstanding unsecured securities issued or assumed by if immedi-the Company or to redeem all outstanding preferred stock) ately thereafter the total principal amount of all outstanding unsecured debt securities having an initial maturity of less than ten years would exceed 10% of the aggregate of (1) the total princi-pal amount of all outstanding secured indebtedness issued or assumed by the Company and (2) the capital and surplus of the Company.
Under the 1935 Act, unless the Securities and Exchange Commission
("SEC") authorizes a greater amount, the Company may incur short-term indebtedness of up to 5% of the aggregate principal amount and for securities having no par value, their fair market par value (or, value at date of issue) of other securities of the Company outstanding.
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.The Company believes that the foregoing will permit it to_ issue the senior securities required to carry out its 1979 construction
/
program if such ability were me_asured_as_o.f_Dec.emb_er 3f1Z1978_.,
However, since under the Company's indenture and articles of incer-poration such ability is measured for a consecutive twelve month period during the fif teen months immediately preceding such issuance, it is to be anticipated that the coverage ratios may deteriorate __and might be a limiting f ac_to r_i n_t he_ab s en c_e_of__ ad e q u a t e__r a t e r e l i e f.
Regulation.
The Company is subject to rate and other comprehen-sive regulation by the Pennsylvania Public_ Utility Commission
("PaPUC"). As a subsidiary of GPU, which is a registered holding company, the Company is subject to regulation under the 1935 Act by the SEC with respect to accounting, the issuance of securities, the acqu Disi ion 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 other miscellaneous matters.
The Company is also subject to certain regulation by the Federal Energy Regulatory Commission ("FERC") under the Federal Power Act as a company engaged in the transmission or sale at wholesale of electric energy in interstate commerce, as is its subsidiary, York Haven Power Company, as the licensee of the York Haven Hydroelectric Project (see " Properties - Generating Sta-tions"), and by the Nuclear Regulatory Commission ("NRC") as the owner of an undivided interest in~th~e7hree Mili Island nuclear generating station.
Reference is also made to " Environmental Matters" for additional regulation to which the Company is or may be subject.
)
Rate Matters.
The Company's retail rates are subject to regulation by the PaPUC and its wholesale for resale rates are subject to regalation by the FERC.
On September 18, 1978, the PaPUC issued an Order pertaining to the Company's request for a S44 million increase in base rates I
filed on July 1, 1977.
The Order excluded the portion of the request applicable to Unit No. 2 of the Three Mile Island ("TMI")
nuclear generating station since that unit was not then_in service, and allowed an increase of only $2.6 million annually, or 6 percent of the amount requested, retroactive to May 31, 1978.
The. tariff to implement this Order was not approved until January 10, 1979.
On June 30, 1978, the Company filed an application with the PaPUC seeking a $79 million, or 30 percent, annual increase in base cates, of which approximately $63 million are associated with the Company's 50 percent ownership interest in TMI Unit No.
2.
Considering the forecasted decreases in energy adjustment clause revenues because of additional lower cost nuclear-fueled generation, the net annual increase to customers is estimated to average about 13 percent or S39 million. On February 23, 1979, the Administrative Law Judge assigned to the proceedings, in his recommended decision, proposed that the Company receive an annual increase in base rates of $45.2 million.
The Administrative Law Judge also apparently J
recommended in his decision that the effective date of any rate increase, which the PaPUC had previously suspended until March 29, i
1979, be further suspended to April 17, 1979.
The recommended decision is subject to PaPUC approval and the Company and other parties have filed exceptions to this decision.
There can be no assurance as to the outcome of the matter.
On November 13, 1978, the Company filed with FERC an application for a wholesale for resale rate increase in the amount of $4.6 million annually with a proposed effective date of January 12, 1979.
On January 12, 1979, the FERC suspended the effective date until June 13, 1979.
For information with respect to the status of certain proceed-ings before the PaPUC regarding claims for refund of certain amounts collected by the Company pursuant to its energy clause, see Note 7 to the Company's Consolidated Financial Statements, incorporated herein by reference to the Company's 1978 annual report filed herewith as Exhibit 2.
The Company is unable to determine what effect, if any, the President's program of voluntary wage and price guidelines will have on it.
General Problems of the Industry.
The Company has been exper-iencing problems common to the electric utility industry in general, such as the restriction on operations and increased costs and delays attributable to environmental considerations (see " Environmental Matters"), the high cost of capital and the difficulty in obtaining an adequate return on invested capital (see " Rate Matters"), the frequent necessity of making substantial commitments for, and investments in, the construction of facilities prior to the comple-tion of licensing and other proceedings by regulatory bodies necessary for the construction and/or cperation of such facilities, and the difficulty in obtaining adequate supplies of fuel at reasonable prices (see " Fuel").
Fuel. Fuels were u:ilized in the generation of electric energy during 1978 in approximately the following percentages: coal 58%;
nuclear 38%; oil 2%; and hydro 2%.
For 1979 these percentages are expected to be as follows:
coal 49%; nuclear 49%; oil 1% and hydro 1%.
The increased use of nuclear generation is expected to result from the placing in service in December 1978 of TMI Unit No.
2.
On November 9, 1978 the President signed several energy bills which, among other things, require state public utility commissions to consider standards relating to retail rate design, restrictions on automatic adjustment clauses and time-of-day and seasonal rates, require states to develop residential energy conservation plans, grant the FERC authority to order wheeling and interconnection in specified situations and to limit automatic adjustment clauses for wholesale rates, deregulate the first sale prices of natural gas in 1985 and grant the Secretary of Energy the authority to limit or prohibit the use of oil in certain existing power plants with coal burning capability.
The Company is unable to predict at this time what effect, if any, this legislation will have on it...
Fossil:
The Company has contractual commitments subject to force majeure provisions with its principal coal suppliers for approximately 40% of its total estimated requirements for 1979.
A substantial portion of the remaining requirements is expected to be obtained pursuant to add' onal contracts expected to be negotiated and the balance, if any, an a spot basis.
The contracts, which expire in yeara ranging fro-1981 to 1987, also contain provisions for price escalation and for price adjustment based upon the BTU content of coal.
Tbr 'ompany has adequate supplies of coal in inventory at its mm, >; generating stations.
The Company's use of oil is limited and adequate supplies are presently available.
Nuclear:
Fueling a nuclear generating station involves various stages for which the Company contracts separately.
Stage I concerns the mining and milling of the natural uranium ore to produce a concentrate; Stage II deals with the conversion of uranium concen-trate into uranium hexafluoride; Stage III involves the enrichment process; and Stage IV entails the fabrication of the enriched uranium hexafluoride into usable fuel assemblies.
The Company and its affiliates presently expect that the majority of the 1979-1986 uranium concentrate requirements for the TMI station will be supplied under a contract entered into in 1973.
The price for shipments through 1980, which was agreed upon in the contract, is substantially below current market prices.
The price for shipments after 1980 has yet to be negotiated.
The supplier, which is making deliveries under that contract, has stated in a letter, dated November 21, 1975, that it intends to continue ship-ments subject to force majeure "until such time as conditions render such shipments commercially impracticable". The letter stated that the supplier had not yet made a determination whether or not such a condition currently existed but cited " phenomenal" cost escalations and other problems "which all present possible and probable expenses of an enormous magnitude". The Company does not kncw whether a claim of commercial impracticability will ultimately be asserted by any supplier, or whether, if so asserted, such claim would be upheld, and is unable to determine the consequences if such assertion should be successful.
The Company intends to enforce its contracts, but believes that any increased fuel costs would be valid costs recover-able under its energy adjustment clause and would therefore not have l
a material effect on the Company's earnings.
The Company has contracts for conversion and f abrication services for TMI Unit No. 1 through 1986 and for TMI Unit No. 2 through 1987, and for enrichment essentially covering the life of l
plant requirements.
1 The Company and its affiliates are presently carrying an inventory of uranium concentrates not assigned to particular nuclear units equal to approximately one to two year's requirements, which are expected to be replenished periodically.
The Company cannot predict its success in obtaining additional contracts, beyond the dates referred to above, for uranium concen-trate or for the services involved in the convercion and enrichment of nuclear fuel and the fabrication of nuclear fuel assemblies, nor can it estimate the costs thereof, which may be higher than present Costs.
The President has announced that he believes that the reprocess-ing of spent nuclear fuel should be deferred indefinitely.
There are no reprocessing facilities currently in commercial operation and the Company does not know whether or to what extent spent nuclear fuel will eventually be able to be reprocessed and reused by its nuclear generating stations.
At present, the Company has suffi-cient on and off-site storage capacity to accommodate, under normal operating conditions, spent nuclear fuel through 1987 for TMI Unit No. 1 and through 1983 for TMI Unit No. 2.
It may be desirable, however, to effect complete unloading of a reactor core; in order to do so, additional storage capacity for the TMI station would be required.
Plans are being developed to establish on-site storage capacity at the TMI station sufficient to permit the storage of spent nuclear fuel assemblies discharged through the early 1990's, while maintaining the ability to discharge the entire reactor core.
Used fuel assemblies are currently being stored at the station and the Company anticipates that the fuel assemblies now loaded in TMI Unit No. 1 will also be stored there.
As a result no additional costs for storage are currently reflected in the Company's nuclear fuel costs.
Bills are pending in Congress which would authorize the initial steps for the construction of a Federally financed away from reactor storage facility for spent nuclear fuel and would provide a basis for determining costs for such storage.
The Company expects to propose that such costs (or, in their absence, Company estimates of such costs) be reflected in nuclear fuel ccsts of fuel assemblies which are expected to be stored away from 6.he reactor when such fuel assemblies are installed in the reactor.
Environmental Matters.
The Company is subject to licensing of hydroelectric projects by the FERC and of nuclear power projects by the NRC.
Such licensing and other actions by Federal agencies with respect to projects of the Company are also subject to the National Environmental Policy Act ("NEPA").
In addition, the Company is or may be subject under certain circumstances to environ-mental regulation by the Federal Highway, Railroad, and Aviation Administrations, to Federal and state water and air quality legis-lation and to regulations issued by the Environmental Protection Agency (" EPA") and the Council on Environmental Quality.
Water:
The Federal Water Pollution Control Act (the " Water l
Act") requires with respect to existing steam electric power plants the application of the "best practicable control technology cur-i rently available" and, generally, compliance with state established water quality standards; it also requires by July 1, 1984 the application of the "best available technology economically achievable".
With respect to future plants, the Water Act requires
" application of the best available demonstrated technology, pro-cesses, operating methods or other alternatives" to achieve, where practicable, no discharge of pollutants.
The Water Act also requires that the location, design, construction and capacity of cooling water intake structures reflect the application of the "best technology available for minimizing adverse environmental impact".
The EPA has adopted regulations which establish thermal and other limitations for ef fluent discharged from both existing and new steam generating stations and regulations relating to the location, design, construction and capacity of cooling water intake structures.
Enforcement of effluent limitations and standards of performance is obtained through the issuance of discharge permits which specify the limitations to be applied.
Water quality certificates issued by the appropriate state or interstate agency generally are required in connection with the processing of applicat.ons for discharge permits, and the terms of such certificates must be included as conditions of a permit.
Discharge permits, having expiration dates ranging from 1979
)
through 1981, have been issued for all of the Company's steam generating stations.
The permits for the TMI and Portland generat-Ing stations contain certain conditions which the Company believes are unwarranted.
The Company has been granted adjudicatory hearings with respect to these permits to resolve such issues.
Negotiations have been undertaken with the EPA and settlement of all outstanding issues is virtually complete.
Required implementation of the provisions to which the Company has objected has been suspended pending the adjudicatory hearings.
j In connection with the Company's TMI and Conemaugh generating stations, the EPA has requested certain economic data to determine 1
the assessment of civil penalties, if any, resulting from the failure to comply with the Water Act's July 1, 1977 deadline.
The Company does not believe that any assessments which may arise will be material.
There can be no assurance as to the outcome of these proceedings.
The Pennsylvania Department of Environmental Resources ("PaDER")
J has also adopted regulations designed to implement the Pennsylvania and Federal statutes relating to water quality standards and is administering regulations adopted by the Delaware River Basin l
Commission relating to water quality.
Industrial waste permits l
requiring compliance with current requirements have been issued by l
the PaDER for all of the Company's generating stations.
The Company is attempting to modify its existing facilities and is making studies and plans to install facilities and to change its operating procedures in order to meet the Federal and Pennsyl-vania water quality criteria.
The Company's present estimate is that the additional cost of facilities to meet these standards will be approximately $6,000,000 (of which approximately $4,400,000 l
1s included in the Company's 1979 construction program) and that annual operating costs, exclusive of fixed charges, will be in-creased upon the completion of the installation of new facilities at its existing generating stations to meet EPA and PaDER water quality regulations.
Nuclear:
Since 1974, the NRC has required introduction of quantified environmental effects associated with the uranium fuel cycle into the NEPA cost / benefit analysis for each light water reactor.
The effects for typical light water reactors, such as both TMI units, were deveJ oped by the NRC and incorporated into an NRC regulation.
In 1976, the U.S.
Court of Appeals for the District of Columbia, in a case not involving the Company, held invalid that portion of the NRC regulation dealing with the spent fuel repro-cessing and waste disposal phases of the fuel cycle.
On April 3, 1978, the Supreme Court reversed the Court of Appeals' decision, but remanded the case for that court to consider whether a sufficient basis existed for the NRC's determination of the quantified values included in that rule.
The matter is pending before the Court of Appeals.
Prior to the Supreme Court's decision, however, the NRC issued an interim rule to replace that invalidated by the Court of Appeals, and directed the Atomic Safety and Licensing Appeal Boards to apply the interim rule with respect to 19 nuclear units, including both TMI units.
(A petition for review of the interim rule is pending before the U.S.
Court of Appeals for the District of Colum-bla.)
By order dated August 8, 1977, the Atomic Safety and Licensing Appeal Boards concluded that the application of the interim rule did not require suspension of the previously issued license for TMI Unit No.
1.
On February 8, 1978, an operating license for TMI Unit No. 2 was issued, pursuant to an authorization of the Atomic Safety and Licensing Board (the " Licensing Board").
Intervenors in the proceed-ing appealed the Licensing Board's action which, on July 19, 1978, was affirmed by the Atomic Safety and Licensing Appeal Board (the
" Appeal Board").
On September 15, 1978, the NRC denied a petition filed by the intervenors seeking review of the Appeal Board's decision.
Pending the Appeal Board's decision, the NRC denied a request by the intervenors to stay the effectiveness of the Licensing Board's decision authorizing the granting of the operating license, but determined that the value assigned by the interim rule to the gas radon-222 was in error.
The record has been reopened to receive evidence on the environmental effects of radoit-222 associated with the milling and mining of uranium, which queste.on is also in issue in reopened proceedings involving 26 other nuc ear units.
In addition to reserving decision on the radon-222 issue, the Appeal Board's July 19, 1978 decision ordered that the record be reopened to receive additional evidence regarding the data base employed to determine the probability of a crash of a heavy aircraft at TMI Unit No. 2.
Petitions for review of this proceeding filed by the inter-venors seeking, among other things, withdrawal of TMI Unit No. 2's operating license, are pending before the U.S.
Court of Appeals for the District of Columbia.
There can be no assurance as to the outcome of these proceedings.
Air:
Pennsylvania environmental regulations prohibit, in general, the use in stations constructed before 1972 of coal with a sulfur content exceeding 2.4% at 12,000 BTU per pound of coal, with lower limits applicable to certain stations.
On a weighted average basis, the Company has been able to obtain processed coal having a sulfur content of less than 2.4% at 12,000 BTU per pound of coal.
If, and to the extent that, the Company cannot meet such limitations with processed coal in the future, it may be necessary to refit such stations with sulfur removal equipment which may require additional capital expenditures estimated at $100-120 per KW of installed capacity.
Such refitting, if it could be accomplished in such a way as to permit continued reliable operation of the facilities concerned, would take approximately four years.
The Company is also subject to various local environmental regulations which are primarily concerned with subjects such as zoning, disposal of sanitary wastes, undergrounding of distribution facilities and location of transmission lines and generating stations.
In 1978, the Company made capital expenditures of approxi-mately $6,000,000 in response to environmental considerations; approximately $10,000,000 for this purpose has been included in the Company's 1979 construction program.
The operating and maintenance costs, including the incremental costs of low-sulfur fuel, for such equipment were about $8,000,000 in 1978 and are expected to be approximately S11,000,000 in 1979.
Environmental regulations may in other respects significantly increase the capital and operating costs of existing and new facilities of the Company but the amount of such other increased costs cannot be accurately estimated at the present time.
Franchises and Concessions.
The Company has necessary non-exclusive primary franchise (charter. rights granted by the state),
and with minor and unimportant exceptions, the necessary secondary franchises (consents by municipalities to occupy the streets) free from unduly burdensome restrictions and perpetual as to time, to enable the Company te maintain and operate its existing facili-ties for the transmission and supply of electricity in the various municipalities in which these services are now supplied, except that (a) the right to maintain and operate these facilities in the streets of certain of the municipalities, although good, rests as against those municipalities on estoppel and not on a grant of a secondary franchise, (b) in the case of the City of Reading, the franchise is held by the Company's lessor, Reading Electric Light j
and Power Co., and (c) the secondary franchise granted by the Borough of Boyertown 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.
Employee Relations.
The Company's collective bargaining agreement with the International Brotherhood of Electrical Workers
("IBEW") covering approximately 62% of its employees became effective May 1, 1978 and expires April 30, 1980.
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l By letter dated September 27, 1974, the Office of Civil Rights of the General Services Administration ("GSA") informed the Company that one of the Company's female employees had filed a complaint alleging discriminatory practices by the Company against its female employees.
The GSA stated that it had determined that both the Company and the IBEW had engaged in such discriminatory practices and that the Company and the IBEW must adopt an appropriate cor-rective actiori program to insure that female as well as other minority employees of the Company attain as soon as possible the status which would otherwise have been attained were such employees not discriminated against.
By letter dated January 12, 1978, the GSA notified the Company that as a result of its review of the Company's equal employment opportunity policies and practices, the Company does not appear to be in compliance with the requirements of Executive Order 11246, as amended, and its implementing regulations and required the Company to show cause why enforcement proceedings should not be initiated.
The Company has responded to the letter, furnishing additional information and requesting the withdrawal of the sPow cause notice.
Meetings have been held with the GSA on the matter to clarify and review the issues raised, including those initiated by GSA in the proceedings initiated in 1974 described above.
The Company has also submitted a proposed corrective action to GSA before which these matters are pending.
During 1977, a female employee filed a complaint with the City of York Human Relations Commission alleging unlawful discrimination on the basis of sex, and religion or race.
In May 1978, the Commission determined that no probable cause existed to support the allegations in the complaint. In January 1978, the Commission issued a complaint against the Company charging, among other things, that the Company has " markedly low proportions of minorities in certain job categories" and, by subsequent amendments to the com-plaint, that the Company " maintains a pattern and practice of discrimination on the basis of race, sex and national origin" thereby violating a York city ordinance and requiring the initiation of investigative proceedings.
The Company has denied the charges and has asked the Commission to dismiss the complaint.
Several meetings have been held with the Commission and the matter is pending before the Commission.
In 1978, two former employees of a Company contractor, one applicant for employment and one Company employee filed complaints with the Pennsylvania Human Relations Commission alleging unlawful discrimination on the basis of race or of being handicapped.
With respect to the handicap claim, the complainant has accepted employ-ment with the Company but the Commission has not officially with-drawn the complaint.
In the other cases, the Company has denied the charges and the matters are currently pending before the Commission.
Also in 1978, a complaint was filed by a female employee with the Pennsylvania Human Relations Commission alleging discrimination on the basis of race.
The Company advised the Commission that no basis exists to support the allegations in the complaint and re-quested a meeting to review the matter. The matter is currently pending before the Commission.
Dividend Policy and Investment by Parent.
All of the Company's outstanding common stock is owned by GPU.
It is the policy of the Company to declare, in each year, dividends on its common stock in aggregate amounts substantially equal to the annual earnings appli-cable thereto.
In view of the fact that this practice involves the declaration of each quarterly dividend prior to the end of the quarter, it has the temporary effect, at the date of the declaration, of reducing the balance of retained earnings below that shown at the end of the preceding calendar year.
However, since the aggregate dividends declared during any year are correlated with the antici-pated earnings for that year, any temporary reduction in the balance of retained earnings arising out of any such dividend declarations is expected to be eliminated by the end of that year.
The Company does not expect to receive cash capital contri-butions from GPU during 1979.
ITEM 2.
SUMMARY
OF OPERATIONS.
The information required by Item 2 of Form 10-K and manage-ment's comments on earaings are incorporated herein by reference to pages 4 and 5 of the Company's Annual Report to Stockholders for the year 1978, filed as an exhibit hereto.
Reference is made to Item 12 hereof which contains a list of the Company's consolidated financial statements and schedules filed herewith.
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ITEM 3.
PROPERTIES.
Generating Stations.
The Company's generating stations in commercial service and the11 locations are as follows:
Effective Capability Net Station Year of (Net KW)
Output (MWH)
. Installation (Winter) 1978 m
Coal:
Portland, Portland, Pa......
1958 399,000 2,299,643 Titus, Cumru Township, Pa...
1951 240,000 1,333,845 Conemaugh, New Florence, Pa.
(a)..........
1970 280,000 1,263,548 011:
Fourteen combustion tur-bines and four diesel units......................
1967-72 353,000 189,737 Nuclear:
Three Mile Island Unit No.
1, Dauphin County, Pa.
(b)....................
1974 400,000 2,836,807 Three Mlle Island Unit Ih";4 No. 2, Dauphin County
, s Pa. (b)
(c)................
1978 453,000 9,369 j(d),
Hydro:
York Haven, York Haven,
-s Pa.
(e).....................
1905 19,000
/131,211 j/,064,160 (d)
Totals...................
2,144,000 8
(a) Represents the Company's undivided 16.45% interest in this station.
(b) Represents the Company's undivided 50% interest in this unit.
(c) This unit was placed in commercial operation in December, 1978.
id) _ Excludes 326,705 MWH of test generation.
(e) This small hydroelectric generating plant (owned by York Haven Power Company, a wholly owned subsidiary of the Company),
located in and aleng the Susquehanna River, is basically a run of the stream plant constructed in 1904.
The license for the project under the Federal Power Act expired on June 30, 1970 and the project is being operated pursuant to annual licenses granted under the Act.
An application for a new long-term license for the project is pending before the FERC.
A small Pennsylvania municipality has intervened in the proceedings relating to such license applica-tion and has urged (with support from the then Governor of the Commonwealth of Pennsylvania) that the term of any license not be extended beyond 1980.
At this time there can be no assurance that a license will be granted or, if granted, what its terms will be.
. i
The Federal Price-Anderson Act pro 71 des that all owners of nuclear reactors may be assessed up to $5 million per operating reactor for each nuclear incident occurring at any reactor in the United States, not to exceed $10 million per reactor per year.
Transmission and Distribution System.
At December 31, 1978, the Company owned 399 transmission and distribution substations which had an aggregate installed transformer capacity of 10,288,857 KVA and 1,488 circuit miles of transmission lines, of which 186 miles were operated at 500 kilovolts ("KV"), 359 miles at 230 KV, 3 miles at 138 KV, 323 miles at 115 KV and the balance of 617 miles at 69 KV and 3 4.5 KV. The Company's distribution system included 4,606,335 KVA of line transformer capacity, 10,726 pole miles of overhead lines and 609 trench miles of underground cable.
Additions and Retirements of Electric Property.
During the period from January 1,
1974 to December 31, 1978 the gross additions (including construction work in progress of $19,670,000 at December 31, 1978) to the Company's electric utility plant (excluding nuclear fuel) amounted to S403,639,000 and the retirements of electric utility plant amounted to $49,747,000 resulting in net additions (including such construction work in progress) of $353,892,000 or an increase during the period of 38% on an original cost basis.
ITEM 4.
PARENTS AND SUBSIDIARIES.
All of the Company's common stock, its only class of voting securities, is owned by GPU, a Pennsylvania corporation.
The Company owns all of the outstanding shares of common stock of York Haven Power Company, a Pennsylvania corporation, which subsidiary is included in the Company's consolidated financial statements.
ITEM 5.
LEGAL PROCEEDINGS.
Reference is made to " Rate Matters", " Environmental Matters" and " Employee Relations" under Item 1 above for a description of certain pending legal proceedings involving the Company.
ITEM 6.
INCREASES AND DECREASES IN OUTSTANDING SECURITIES AND INDEBTEDNESS.
On January 26, 1978 the Company issued to Dauphin County Industrial Development Authority (the " Authority") S8,700,000 principal amount of its First Mortgage Bonds, 6% Series due January 1, 2008 (the "2008 Series Bonds").
The Company issued the 2008 Series Bonds to the Authority pursuant to a certain Pollution Control Facilities Agreement under which the Authority simultaneously issued and sold at competitive bidding to Paine, Webber, Jackson &
Curtis Incorporated, $8,700,000 principal amount of Pollution Control Revenue Bonds, 1978 Series A.
Neither the Authority nor the Purchaser is affiliated with the Company.
Pursuant to the Pollution Control Facilities Agreement, the net proceeds received from the issuance of the 2008 Series Bonds to the Authority ($8,618,887 including accrued interest from January 1, 1978 in the amount of S36,250), were placed in a construction fund to be administered by Manufacturers Hanover Trust Company, the escrow agent.
The issuance of the 2008 Series Bonds by the Company was not registered under the Securities Act of 1933 based upon the exemption contained in Section 4(2) of that Act.
The issuance and sale of the Pollution Control Revenue Bonds by the Authority was not registered under the Securi-ties Act of 1933 based upon the exemption contained in Section 3(a)(2) sf that Act.
Reference is made to the Company's Certificate Pursuant to Rule 24 of Completion of Transactions filed under the Public Utility Holding Company Act of 1935 in SEC File No.
70-6076 and the Company's Quarterly Report on Form 10-0 for the quarter ended September 30, 1978 for a more complete description of the foregoing transaction.
On September 28, 1978 the Company issued and sold at competi-tive bidding to underwriters, including and represented by Merrill Lynch, Pierce, Fenner & Smith Incorporated; Blyth, Eastman Dillon
& Co.; The First Boston Corporation; Salomon Brothers; and Dillon, Read & Co.,
Inc. S50,000,000 aggregate principal amount of the Company's First Mortgage Bonds, 9% Series due September 1, 2008.
None of such underwriters is affiliated with the Company.
The Company used $42,200,000 of the net proceeds (S49,419,500 exclusive of expenses of the offering and accrued interest) from the sale to prepay a like amount of its short-term bank borrowings then out-standing and the remainder thereof to reimburse its treasury for funds previously expended therefrom for construction purposes.
The issuance and sale of these First Mortgage Bonds was registered under the Securities Act of 1933 (SEC Registration No. 2-62212).
Reference is made to the Company's Certificate Pursuant to Rule 24 of Ccmple-tion of Transactions flied under the Public Utility Holding Company Act of 1935 in SEC File No. 70-6192 and the Company's Quarterly Report on Form 10-0 for the quarter ended September 30, 1978 for a more complete description of this transaction.
ITEM 7.
CHANGES IU SECURITIES AND CHANGES IN SECURITY FOR REGIS-TERED SECURITIES.
None.
ITEM 8.
DEFAULTS UPON SENIOR SECURITIES.
None.
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ITEM 9.
APPROXIMATE NUMBER OF EQUITY SECURITY HOLDERS.
The following table sets forth the approximate number of holders of record of each class of the Company's equity securities as of December 31, 1978.
Title of Class Number of Holders of Record Common Stock, no par value 1
Cumulative Preferred Stock, without par value, of the stated value of $100:
3.90% Series 1,159 422 1.35% Series 3.85% Series 315 3.80% Series 202 4.45% Series 313 8.12% Series 675 7.68% Series G 651 8.32% Series H 1,757 8.12% Series I 692 8.32% Series J 407 ITEM 10.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None, except as previously reported in the Company's Quarterly Report on Form 10-Q for the quarters ended June 30, 1978 and September 30, 1978.
ITEM 11.
INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Except as set forth below, the i.nformation required by Item 11 is incorporated herein by reference to Item 12 of the Company's Annual Report on Form 10-K for the year ended December 31, 1977 (SEC File 1-446).
Subject to certain exceptions, the directors and officers of the Company are insured for 95% of loss applicable to the first
$1,000,000 and 100% of loss applicable to the next S29,000,000 (subject to a deductible of $5,000 for each director or officer but in no event exceeding $30,000 in the aggregate for each loss) with an overall limit of S30,000,000 resulting from any claim or claims made against them, including claims arising under the Securities Act of 1933 and caused by any negligent act, any error, any omission or any breach of duty while acting in their capacities as officers or directors, and the Company is insured to the extent that it shall have indemnified the directors and officers for such loss (subject to a deductible of $100,000 with respect to each loss). The premiums for such insurance are paid for by the Company.
ITEM 12.
FINANCIAL STATEMENTS, EXHIBITS FILED AND REPORTS ON FORM 8-K.
(a)(1)
Financial Statements:
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The consolidated balance sheets of Metropolitan Edison Company and Subsidiary Company as of December 31, 1978 and 1977 and the related consolidated statements of income, retained earnings and sources of funds used for construction for each of the five years in the period ended December 31, 1978, and the report, dated February 9, 1979, of Coopers & Lybrand with respect thereto are incorporated herein by reference t, Metropolitan Edison Company's Annual Report to Stockholders for 1978 which is filed herewith as Exhibit 2.
Schedules and supplementary financial information, as listed on the index following:
Pages Opinion and consent of independent certified public accountants 24 Schedule V - Property, plant and equipment, for the years 1978 and 1977 25 Schedule VI - Accumulated depreciation and amortization of property, plant and equipment,for the years 1978 and 1977 26, 27 Replacement cost data (unaudited) 28 - 30 (Schedules other than those listed above have been omitted because they are inapplicable or because the information required is set forth in the financial statements and notes thereto, or because the amounts to be included are not material. )
(a)(2) EFHIBITS:
1.
Supplemental Indenture of Metropolitan Edison Company, dated as of September 1, 1978, to Morgan Guaranty Trust Company of New York, covering creation of First Mortgage Bonds, 9% Series due September 1, 2008.
- 2.
1978 A' ual Report to the Stockholders of the Company.
- Except for those portions of the annual report specifically Incorporated by reference herein, such report is furnished solely for the information of the Securities and Exchange i
Commission and is not to be deemed to be " filed" as part hereof.
(b)
Reports on Form 8-K:
No reports on Form 8-K were filed during the last quarter of the period covered by this report.
PART II ITEM 13.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
17 -
All of the Company's 859,500 outstanding shares of common stock are owned beneficially and of record by the Company's parent, General Public Utilities Corporation, 260 Cherry Hill Road, Parsip-pany, New Jersey 07054.
The following tabulation sets forth, as at December 31, 1978, the beneficial ownership of each of the Company's directors of equity securities of the Company and GPU, and of all directors and officers, as a group.
The shares owned by all directors and officers, as a group constitute less than 1% of the total shares outstanding:
Amount and Nature of Director Title of Security Beneficial Ownership W. G.
Kuhns GPU Common Stock 7,895 Direct 79 Indirect W.
M.
Creitz GPU Common Stock 1,518 Direct 116 Custodian Met-Ed Preferred Stock 5 Custodia1 J.
S.
Bartman GPU Common Stock 1,054 Direct Met-Ed Preferred Stock 109 Direct V.
H.
Condon GPU Common Stock None H.
M. Dieckamp GPU Common Stock 2,102 Direct F.
D. Hafer GPU Common Stock 816 Direct E.
W.
Schleicher GPU Common Stock 350 Direct Met-Ed Preferred Stock 5 Direct R.
E.
Werts GPU Common Stock 562 Direct All directors and GPU Common Stock 15,675 Direct officers as a group 79 Indirect 116 Custodian Met-Ed Preferred Stock 114 Direct 5 Custodian ITEM 14.
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
(A)
Identification of directors.
The present directors of the Company, their ages and positions with the Company are as follows:
Year First Name Age Position Served W. G. Kuhns (a) 56 Chairman of the Board 1961 W. M. Creitz (b) 54 President 1969 J.
S. Bartman (c) 56 Vice President 1973 V. H. Condon (d) 52 Vice President 1978 H.
M. Dieckamp (e) 50 Director 1975 F. D. Hafer (f) 38 Director 1978 E. W. Schleicher (b) 53 Vice Dresident 1971 R.
E. Werts 55 Compt:oller 1973 (see notes on following page) l ;
1
(a)
Chairman of Executive Committee.
Mr. Kuhns is Chairman, Chief Executive Of ficer and a director of GPU.
He is also Chairman, Chief Executive Officer and member of the Board of Directors of JCP&L and Penelec, the Company's affiliates.
Mr. Kuhns is a member of the Board of Directors of Marine Midland Banks, Inc., the Home Life Insurance Company, New York and Hammermill Paper Company, Erie, Pennsylvania.
(b)
Member of Executive Committee.
(c)
Alternate member of Executive Committee.
(d) jMr. Condon was elected Vice President - Finance _of the Company He is also Ex {oined GPU in March 1978 as a Vice
~
In September 1978.
He ecutiVe vice President and a director President.
of GPU Service Corporation, and is a Vice President and a member of the Board of Directors of the Company's affiliates, JCP&L and Penelec. Prior to joining GPU, Mr. Condon had been Senior Vice President - Finance of AMBAC Industries Inc., a multi-industry manufacturing company, which he joined in 1968.
(e)
Mr. Dieckamp joined GPU in 1973 as a Vice President and was elected President, Chief Operating Officer and a director of GPU in 1974.
He also serves as President, Chief Operating Officer and a director of GPU Service Corporation and is a member of the Board of Directors of JCP&L and Penelec.
(f)
Since 1978, Mr. Hafer has been a Vice President of of GPU Service Corporation.
Prior to that time, he served as Treasurer of GPU and GPU Service Corporation since 1970.
Mr. Hafer is also a director of JCP&L and Penelec.
Directors of the Company are elected at the annual meeting of shareholders of the Company to serve until the next meeting of shareholders, to be held on May 14, 1979, and until their respective successors are duly elected and qualify. There are no family rela-tionships between any director or between any director or executive officer of the Company.
(B)
Identification of executive officers.
The executive officers of the Company, their ages, positions held and business experience during the past five years are as follows:
Year First Name Age Position Elected W.
G.
Kuhns 56 Chairman of the Board 1973 W.
M.
Creitz 54 President 1972 J.
S.
Bartman 56 Vice President 1973 V.
H. Condon (a) 52 Vice President 1978 J. G. Herbein (b) 40 Vice President 1977 H.
L. Robidoux 44 Vice President 1973 E. W.
Schleicher 53 Vice President 1969 R.
B. Heist 47 Secretary 1973 R.
E. Gehman 48 Treasurer 1970 R.
E. Werts 55 Comptroller 1968 (a)
See note (d) on previous page.
(b)
Mr. Herbein was elected a Vice President of the Company in May 1977.
Prior to that time, he served the Company as Manager-Generation, Manager-Nuclear Operations, Superintendent of the Three Mile Station and Assistant Station Superintendent during the past five years.
The Company's executive officers are elected each year at the first meeting of the board of directors held following the annual meeting of shareholders and until their respective successors are duly elected and qualify.
There are no family relationships among the Company's executive officers.
ITEM 15.
MANAGEMENT REMUNERATION AND TRANSACTIONS.
The following table sets forth the remuneration paid by the Company for 1978 to the five highest paid officers or directors of the Company, whose aggregate remuneration exceeded $50,000, and to all directors and officers as a group:
CASH AND CASH-EQUIVALENT FORMS OF REMUNERATION SECURITIES OR PROPERTY
- SALARIES, INSURANCE AGGREGATE NAME OF
- FEES, REIMBURSEMENT FORMS OF OF PERSONS IN WHICH COMMISSIONS, PERSONAL RENUMERATION IN GROUP SERVED AND BONUSES BENEFITS (1)
(2)
W.
M.
Creltz President S90,250 S 4,151
& Director R.
E. Werts Comptroller 56,075 1,185
& Director J.
E.
Bartman Vice President 55,750 2,894
& Director E.
W.
Schleicher Vice President 55,750 2,656
& Director H.
L.
Robidoux Vice President 54,800 1,557 All officers and directors as a group (12 including those named above):
555,925 22,923 (1)
Includes, for all officers and directors as a group, $18,820 accrued in 1978 under the GPU System Tax Reduction Act Employee Stock Ownership Plan (TRAESOP).
(2)
The only contingent form of remuneration paid to or provided for Company officers are pension benefits under the Company's retirement plans.
Contributions for these plans for 1978 are computed on an aggregate cost basis and the amounts are not calculated on an Individual basis by the plans' actuary.
However, the aggregate Company contributions to the plans in 1978 represented 12.5% of the total base salary of participants who are not members of collective bargaining units.
For further details regarding the retirement plans see the following infor-mation and table.
O
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Retirement Plans:
The existing retirement plans provide for pension benefits, payable for life after retirement, based upon years of continuous service with the GPU System and the average annual compensation during the five years of highest compensation.
The following table shows the estimated annual benefits resulting from employer contri-bution payable upon retirement to persons in specified remuneration and years of service classification:
Estimated Annual Retirement Benefits
- Years of Service 10 20 30 40 Five year Average Salary S 50,000 S 8,325 S16,650
$21,547 S23,777 75,000 12,725 25,450 33,152 36,592 100,000 17,125 34,250 44,757 49,407 125,000 21,525 43,050 56,362 62,222
- Based on assumed retirement at age 65.
The amounts shown give effect to a reduction in retirement benefits for a surviving spouse's pension at 50%.
Tax Reduction Act Employee Stock Ownership Plan ("TRAESOP"):
TRAESOP permits the GPU system to claim up to 1 1/2% additional investment tax credits for each year in which the system companies make contributions to the TRAESOP trust.
Such contributions are used to purchase shares of GPU common stock from GPU, which are held in trust for a normal period of at least 7 years.
Two-thirds of the shares purchased with the GPU system contributions are allotted to employees (including officers but not directors, as such) in propor-tion to salary (up to $100,000 per year) and the remainder under a formula geared in part to contributions of up to 6% of base salary.
Since the GPU system contributions are offset by additional invest-ment tax credits, contributions under the TRAESOP do not involve a net cost to the GPU system.
Company employees are expected to receive nenefits accruing to TRAESOP through the year 1983 when the plan is scheduled to expire in accordance with the federal legisla-tion authorizing such plan.
SIGNATURE Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the ondersigned, thereunto duly authoc 22d.
METROPOLITAN EDISON COMPANY (Registrant)
By /S/ W.
M. CREITZ W.
M.
Creltz, President Date, March 9, 1979
/S/ R.
E. WERTS i
R.
E.
Werts, Comptroller (Principal Accounting Officer)
COOPERS & LY B R A N D CERTiriED PUSUC A JCOUNTANTS A MEMBER FIRM OF CCCPERs & LyaRAND (INTERNATIONAL)
OPINION AND CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We consent to the incorporation by reference of our report dated February 9,1979, which is subject to the effect, if any, on the consolidated financial statements of the ultimate resolution of the matter discussed in Note 7 to Consolidated Financial Statements, accompanying the consolidated financial statements of Metropolitan Edison Company and Subsidiary Company which appear in Metropolitan Edison Company's Annual Report to Stockholders for 1978.
In connection with our examinations referred to in our report appearing in the 1978 Annual Report to Stockholders, we have also examined the schedules listed in the accompanying index.
In our opinion, such schedules, when read in conjunction with the consolidated financial statements, present fairly the information required to be included therein in conformity with generally accepted accounting principles applied on a consistent basis.
DCfW N$
COOPERS & LYBRAND February 9, 1979 1900 Three Girard Plaza Philadelphia, PA 19102
METFOPOLITAN EDISON COMPANY and Fubsidiary Ccey
)
SCHEDULE V - PROPERrY, PLANI AND EQUIPMENT (In 'Ihousands)
Ebr the Years Ended December 31, 1977 1978 Column A Column F Classification Balance at end of Period ELECTRIC UFILITY PIANT, at original cost:
Plant in service:
Intangibles S
275 S
275 Production:
Steam 145,112 146 884 Nuclear 199,317 C5'61,T84W Hydro 3,674 3,'72 Canbustion 25,641 25,643
'Ibtal production' 373,744 737,433 Transmission 172,704 173,383 Distribution 298,197 313,706 General 30,765 32,372
'Ibtal in service 875,685 1,257,169 Construction work in progress
_327,534 19,670(a)
Plant held for future use 13,151 12,561
'Ibtal electric utility plant 1,216,370 1,289,400 NUCLEAR ETJEL, at original cost 62,477 64,169 OIEER PHYSICAL PROPERTY, at original cost 172 176
'Ibtal property plant and equignent
$1,279,019 S1,353,745 he information required by Colums B, C, D and E have been omitted since neither the total additions nor total deductions during either of the periods covered amount to more than 10% of the ending balance of such period. 'Ibtal additions at cost (Colum C) anounted to $101,518 and
$87,657 during 1977 and 1978, respectively.
'Ibtal retirements (Colum D) anounted to $22,493 during 1977 and $12,913 during 1978. Other changes I
(Colum E) anounted to ($1) during 1977 and ($18) during 1978.
(a) Nuclear plant in service at December 31, 1978 includes $359,619 fcr tree Mile Island Unit No. 2 which was placed in service on December 30, 1978. Of this anount $310,415 was included in
/
construction work in progress at December 31, 1977.
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METPOPOLITAN EDISON COMPINY l
and Subsidiary Company SCHEDULE VI - ACCUMUIATED DEPRECIATION AND AMOPTIZATICN OF PROPERIY, PLANT AND EQUIPMENT for the year ended December 31, 1978 (In 'Ihousands)
Column A Column B Column C Column D Column E Column F Balance Additions Other Balance at Charged to Ganges at Beginning Cbsts and Add End Description of Period Expenses Retirement (Deduct) of Period ACCUMUIATED DEPRECIATION OF ELECTRIC UTILITY PIANT S 188,079
$ 24,587(a) $
3,948 S
218(b) S 208,936 ACCUMUIATED AMORTIZATION OF NUCLEAR FUEL
$ 14.661 S
4,902(c)
S 8,511 S 11,052 ACCUMULATED DEPRECIATICN OF OIEER PHYSICAL PROPERIY S
5 S
5 (a) Reconciliation to depreciation expense in consolidated statement of incane:
'Ibtal, per Colum C S 24,587 Cost of Renoval (less salvage) charged directly to deprecia-tion expense 821 Nuclear decommissioning 77
'Ibtal S 25,485 (b) Other changes:
Garged to clearing accounts
$223 Miscellaneous (5)
'Ibtal S218 (c) See Note 1 to Consolidated Financial Statements
METBOPOLITAN EDISON COMPANY and Subsidiary Ccapany SCHEDULE VI - ACCUMULATED DEPRECIATICN AND AMORTIZATION OF PROPERIY, PLANT AND EQUIPMENT for the year ended December 31, 1977 (In 'Ihousands)
Column A Column B Column C Column D Column E Column F Balance Mditions Other Balance at Garged to Changes at Beginning Costs and Md End M criotion of Feriod Expenses Retirement (Deduct) of Period ACCUMULATED DEPRECIATICN OF UfILITY PIANT:
Electric
$ 181,747 S 23,438
$ 17,573 S
467
$ 188,079 Steam 626 18 1,535 891
'1btals S 182,373
$ 23,456(a) S 19,108 S 1,358(b)
S 188,079-ACCUMUIATED AMORTIZATION j
CF NUCLEAR FUEL S 13,197 4,509(c) S 3,045 S 14,661 (a)
Reconc111ation to depreciation expense in consolidated statement of incme:
'Ibtal, per Colunn C
$ 23,456..
Cost of Renoval (less salvage) charged directly to deprecia-tion expense 454
'Ibtal S 23,910 (b) Other changes:
Charged to clearing accounts S 268 Met-Ed steam abandonment 894 Miscellaneous 196
'Ibtal
$1,358 (c) See Note 1 to Consolidated Financial Statements
REPLACEMENT COST DATA (UNAUDITED)
%e following data compare investment in utility plant in service (exclusive of nuclear fuel) as shown on the balance sheets of the 0:xnpany at Decenber 31, 1978 and 1977 with the estimated cost to replace such plant at those dates, at prices in effect in late 1978 and 1977. 'Ihey also ccznpare the related accumulated depreciation as shown on such balance sheets with the anounts that would have been provided had past depreciation accruals been determined on the basis of such replacement costs:
(In Millions) 1978 Actual Estimated Historical Replacement Cost Cost Utility pla:nt in service (exclusive of nuclear fuel):
Subject to replacement cost disclosure S1,250
$2,365 Included at historic cost - land 7
7
'Ibtals 1,257 2,372 Less, accumulated depreciation 209 614 Net utility plant in service (exclusive of nuclear fuel)
S1,048 S1,758 (In Millions) 1977 Actual Estimated Historical Replacement Cost Cost Utility plant 4.n service (exclusive of nuclear fuel):
Subject to replacement cost disclosure S 837
$1,957 Included at historic cost - land 38 38
'Ibtals 875 1,995 Less, accumulated depreciation 188 607 Net utility plant in service (exclusive of nuclear fuel)
S 687 S1,388 Nuclear fuel is excluded from the foregoing replacement cost data since the Company has a ccuprehensive energy adjustment clause under which in-l creases in nuclear fuel costs would be charged to custcmers.
In accordance with a change in rate-making, the Ccapany, during 1978, transferred land rights at a cost of $32 million to depreciable property. As a result, such land rights are included in the anount subject to replacement cost disclosure at December 31, 1978.
A substantial portion of the Canpany's existing mix of generating facilities was installed prior to 1973 when relative generation costs and in-creasing environmental restrictions justified substantial reliance upon oil and natural gas-fired generation. 'Ibtal revenue requirenents (including cost of fuel) for new generation in the Company's service area and the need 1 '
i
to provide diversity of fuel supply result in plans for the Company to install additional generating equipment to provide approximately 5-10% of its energy by oil-fired and hydroelectric generation and the balance by approximately equal anounts of nuclear and coal-fired generation. Present forecasts of f el supply availability and prices indicate that this approxi-mate mix would result in the lowest overall revenue requirements.
In developing the replacement cost estimate, it was assumed that the existing system would be replaced by a system which would result in the above energy mix. A substantial partion of the Company's transmission and dis-tribution plant investment incorporates recent technological developments and the replacement cost estimates do not involve anticipations of major changes in the mix of such facilities.
We gross replacement cost estimates for generating plant have been derived primarily on the basis of current construction cost estimates per kilowatt for each type of generating capacity based on the expected unit size, engineering design and current environmental requirements for each type of capacity as of December 31, 1978 and 1977. W e gross replacement cost estimtes for transmission and distribution facilities and general plant have.been developed on the basis of standard industry or cmpany indices applied to the original cost of such facilities and do not assume that replacement would require the substitution of underground for overhead facilities.
We accumulated depreciation mounts reflected in the replacement cost estimates were derived by classifying replacement cost assets to the lowest I
functional level for which historical cost depreciation records are main-tained, and reflect conversion of accumulated historical cost depreciation to current 1978 dollars. We 1977 replacement cost amounts for accumulated I
depreciation, previously emputed using historical accumulated depreciation ratios, and related depreciation expense have been revised to permit more meaningful incorpration of the effects of inflation on these amounts.
te following figures empare depreciation expense as shown in the Statements of Incme of the Cmpany for the years ended December 31, 1978 and 1977 with the depreciation expense that would have been cmputed on the basis of the estimated average replacement cost of depreciable plant applying depreciation rates currently in effect:
(In Millions)
Actual Estimated Historical Replacement Cost Cost Depreciation expense:
1978 S26
$58 1977 24 55 he Cmpany cautions that replacement of existing plant will take place over many years. Be larger unit sizes and new technological develcsments applicable to such plant and the change in fuel mix discussed above should enable the Company to reduce operating expenses (mainly fuel costs) by annunts sufficient to offset in substantial part the increase in depreciation expense required by such replacement and thus nederate the increases in total charges to customers that are expected to be required as a result of such replacement.
s While the Company has a comprehensive energy adjustment clause under which the anticipated energy cost savings would automatically be avail-able to customers, the Cmpany believes that the ratemaking process should be influenced by changes in total charges to customers and should recognize, with reasonable prmptness, the increased depreciation charges and return on the required additional investment which would make such anticipated energy cost savings possible.
W e Company also cautions that replacement cost is not necessarily the current value of existing utility plant.
Replacement cost is an estimate of the cost that would be incurred if such assets were replaced at December 31, 1978 and 1977. Under the present ratemaking procedures to which the Cmpany is subject, the difference between historic and replacement cost of net utility plant investment does not represent a3ditional book value for cmmon stock; instead, it indicates the capital funds (in excess of bcoked depreciation and other prior capital provision) that may have to be provided to replace existing service capacity of the plant of the Company.
Such capital funds would be supplied from the conventional sources of utility financing.
he Company believes that the difference between depreciation expense based on historic cost and depreciation expense based on estimated replace-ment cost (which difference is not deductible in determining income tax l
expense) is not an additional arrount of depreciation expense which may l
properly be applied as an adjustment to financial statements prepared on a historic cost basis. Rather it is one theoretical measure of the investmencs which the company would be making in the future to replace its existing utility plant (assuming no growth in demands for service and no further inflation in costs).
Replacement cost data with respect to materials and supplies for con-struction and cperation, excluding fuel, have not been included because they are not material.
We foregoing replacement cost information is furnished pursuant to re-l quirements of the Securities and Exchange Commission, which were announced l
In the Commission's Accounting Series Release No. 190.
In that Release, the l
Cmmission cautioned investors and analysts against " simplistic use" of re-placement cost information.
In issuing that warning, the Cmmission stated:
"***(te Cmmission) intentionally determined not to require the dis-closure of the effect on net ineme of calculating cost of sales and depreciation on a current replacement cost basis, both because there are substantial theoretical problems in determining an incme effect and because it did not believe that users should be encouracJ to 4
convert the data into a single revised net inccme figure. he data are not designed to be a simple road map to the determination of 'true incme'.
In addition, investors must understand that due to the subjective judgments and the many different specific factual circum-stances involved, the data will not be fully cmparable atong crepanies and will be subject to errors of estimation."
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