UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-Q


(Mark One)

 X    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
---
      EXCHANGE ACT OF 1934

For the quarterly period ended   June 30, 1998
                               --------------------

                                      OR

___   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

For the transition period from                 to
                               ---------------    ---------------

Commission        Registrant, State of Incorporation,     I.R.S. Employer
File Number       Address and Telephone Number            Identification No.
-----------       ----------------------------            ------------------

1-6047            GPU, Inc.                                 13-5516989
                  (a Pennsylvania corporation)
                  300 Madison Avenue
                  Morristown, New Jersey 07962-1911
                  Telephone (973) 455-8200

1-3141            Jersey Central Power & Light Company      21-0485010
                  (a New Jersey corporation)
                  2800 Pottsville Pike
                  Reading, Pennsylvania 19640-0001
                  Telephone (610) 929-3601

1-446             Metropolitan Edison Company               23-0870160
                  (a Pennsylvania corporation)
                  2800 Pottsville Pike
                  Reading, Pennsylvania 19640-0001
                  Telephone (610) 929-3601

1-3522            Pennsylvania Electric Company             25-0718085
                  (a Pennsylvania corporation)
                  2800 Pottsville Pike
                  Reading, Pennsylvania 19640-0001
                  Telephone (610) 929-3601


      Indicate by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes X No


      The number of shares outstanding of each of the issuer's classes of voting
stock, as of July 29, 1998, was as follows:
                                                                     Shares
Registrant                           Title                         Outstanding
----------                           -----                         -----------

GPU, Inc.                            Common Stock, $2.50 par value 127,927,087
Jersey Central Power & Light Company Common Stock, $10 par value    15,371,270
Metropolitan Edison Company          Common Stock, no par value        859,500
Pennsylvania Electric Company        Common Stock, $20 par value     5,290,596

<PAGE>


                       GPU, Inc. and Subsidiary Companies
                          Quarterly Report on Form 10-Q
                                  June 30, 1998

                                Table of Contents
                                -----------------

                                                                            Page
PART I - Financial Information

      Consolidated Financial Statements:

          GPU, Inc.
          ---------
            Balance Sheets                                                 3
            Statements of Income                                           5
            Statements of Cash Flows                                       6

          Jersey Central Power & Light Company
          ------------------------------------
            Balance Sheets                                                 7
            Statements of Income                                           9
            Statements of Cash Flows                                      10

          Metropolitan Edison Company
          ---------------------------
            Balance Sheets                                                11
            Statements of Income                                          13
            Statements of Cash Flows                                      14

          Pennsylvania Electric Company
          -----------------------------
            Balance Sheets                                                15
            Statements of Income                                          17
            Statements of Cash Flows                                      18

      Combined Notes to Consolidated Financial Statements                 19

      Combined Management's Discussion and Analysis
        of Financial Condition and Results of
        Operations                                                        52

PART II - Other Information                                               77

Signatures                                                                80

                       ---------------------------------

    The financial  statements (not examined by independent  accountants) reflect
all adjustments (which consist of only normal recurring  accruals) which are, in
the opinion of management, necessary for a fair statement of the results for the
interim periods presented.

    This  combined  Quarterly  Report on Form 10-Q is  separately  filed by GPU,
Inc.,  Jersey  Central Power & Light  Company,  Metropolitan  Edison Company and
Pennsylvania  Electric  Company.  Information  contained  herein relating to any
individual  registrant is filed by such  registrant  on its own behalf.  None of
these  registrants make any  representations  as to information  relating to the
other  registrants.  This  combined Form 10-Q  supplements  and updates the 1997
Annual  Report  on Form  10-K,  filed  by the  individual  registrants  with the
Securities and Exchange Commission and should be read in conjunction therewith.

    This  Form 10-Q  contains  certain  forward-looking  statements  within  the
meaning of the Private Securities Litigation Reform Act of 1995. Statements made
that are not historical  facts are  forward-looking  and,  accordingly,  involve
risks and  uncertainties  that could cause actual  results or outcomes to differ
materially from those expressed in the forward-looking statements. Although such
forward-looking  statements have been based on reasonable assumptions,  there is
no  assurance  that the expected  results will be achieved.  Some of the factors
that could  cause  actual  results  to differ  materially  include,  but are not
limited  to:  the  effects  of  regulatory  decisions;  changes in law and other
governmental  actions and initiatives;  the impact of deregulation and increased
competition in the industry; industry restructuring;  expected outcomes of legal
proceedings;  generating plant  performance;  fuel prices and availability;  and
uncertainties  involved with foreign  operations  including  political risks and
foreign currency fluctuations.

                                      2


<PAGE>

<TABLE>

                       GPU, INC. AND SUBSIDIARY COMPANIES

                           Consolidated Balance Sheets
                           ---------------------------

<CAPTION>
                                                                  In Thousands
                                                         -----------------------------
                                                           June 30,       December 31,
                                                             1998             1997
                                                         ------------     --------
                                                          (Unaudited)
ASSETS
Utility Plant:
<S>                                                      <C>              <C>
  In service, at original cost                           $10,782,924      $11,150,677
  Less, accumulated depreciation                           4,260,228        4,050,165
                                                          ----------       ----------
    Net utility plant in service                           6,522,696        7,100,512
  Construction work in progress                              251,272          250,050
  Other, net                                                 160,291          159,009
                                                          ----------       ----------
       Net utility plant                                   6,934,259        7,509,571
                                                          ----------       ----------

Other Property and Investments:
  GPUI Group equity investments (Note 4)                     650,970          596,679
  Goodwill, net                                              549,206          581,364
  Nuclear decommissioning trusts, at market (Note 1)         654,812          579,673
  Nuclear fuel disposal trust, at market                     112,418          108,652
  Other, net                                                 140,255          252,335
                                                          ----------       ----------
       Total other property and investments                2,107,661        2,118,703
                                                          ----------       ----------

Current Assets:
  Cash and temporary cash investments                        122,835           85,099
  Special deposits                                            21,261           27,093
  Accounts receivable:
    Customers, net                                           273,482          290,247
    Other                                                    103,184          104,441
  Unbilled revenues                                          154,564          147,162
  Materials and supplies, at average cost or less:
    Construction and maintenance                             158,790          187,799
    Fuel                                                      38,231           40,424
  Investment held for sale                                       -            106,317
  Deferred income taxes                                       76,672           83,962
  Prepayments                                                188,167           55,613
  Other                                                          -              1,023
                                                          ----------       ----------
       Total current assets                                1,137,186        1,129,180
                                                          ----------       ----------

Deferred Debits and Other Assets:
  Competitive transition charge (Note 1 & 2)               1,909,360              -
  Other regulatory assets, net (Note 1)                    1,599,207        1,547,478
  Deferred income taxes                                    1,573,731          383,169
  Other                                                      183,292          134,833
                                                          ----------       ----------
       Total deferred debits and other assets              5,265,590        2,065,480
                                                          ----------       ----------







       Total Assets                                      $15,444,696      $12,822,934
                                                          ==========       ==========
<FN>

The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.
</FN>


                                              3
</TABLE>


<PAGE>
<TABLE>


                       GPU, INC. AND SUBSIDIARY COMPANIES

                           Consolidated Balance Sheets
                           ---------------------------

<CAPTION>

                                                                  In Thousands
                                                         -----------------------------
                                                           June 30,       December 31,
                                                             1998             1997
                                                         ------------     --------
                                                          (Unaudited)

LIABILITIES AND CAPITALIZATION
Capitalization:
<S>                                                      <C>              <C>
  Common stock                                           $   331,958      $   314,458
  Capital surplus                                          1,008,574          755,040
  Retained earnings                                        1,947,585        2,140,712
  Accumulated other comprehensive income/(loss)(Note 6)      (35,375)         (29,296)
                                                          ----------       ----------
    Total                                                  3,252,742        3,180,914
  Less, reacquired common stock, at cost                      79,856           80,984
                                                          ----------       ----------
    Total common stockholders' equity                      3,172,886        3,099,930
  Cumulative preferred stock:
    With mandatory redemption                                 86,500           91,500
    Without mandatory redemption                              66,478           66,478
  Subsidiary-obligated mandatorily
    redeemable preferred securities                          330,000          330,000
  Long-term debt                                           4,041,386        4,325,972
                                                          ----------       ----------
       Total capitalization                                7,697,250        7,913,880
                                                          ----------       ----------



Current Liabilities:
  Securities due within one year                             353,171          631,934
  Notes payable                                              487,160          353,214
  Obligations under capital leases                           140,810          138,919
  Accounts payable                                           357,436          413,791
  Taxes accrued                                               81,281           48,304
  Interest accrued                                            64,835           83,947
  Deferred energy credits                                     15,254           25,645
  Other                                                      356,684          325,681
                                                          ----------       ----------
       Total current liabilities                           1,856,631        2,021,435
                                                          ----------       ----------



Deferred Credits and Other Liabilities:
  Deferred income taxes                                    2,527,314        1,566,131
  Unamortized investment tax credits                         118,360          123,162
  Three Mile Island Unit 2 future costs                      458,919          448,808
  Nonutility generation contract loss liability            1,810,350              -
  Other                                                      975,872          749,518
                                                          ----------       ----------
       Total deferred credits and other liabilities        5,890,815        2,887,619
                                                          ----------       ----------


Commitments and Contingencies (Note 1)


       Total Liabilities and Capitalization              $15,444,696      $12,822,934
                                                          ==========       ==========
<FN>

The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.
</FN>


                                              4

</TABLE>

<PAGE>

<TABLE>


                       GPU, INC. AND SUBSIDIARY COMPANIES
                        Consolidated Statements of Income
                        ---------------------------------
                                   (Unaudited)
<CAPTION>

                                                             In Thousands
                                                       (Except Per Share Data)
                                           ---------------------------------------------
                                                 Three Months              Six Months
                                                Ended June 30,     `      Ended June 30,
                                                --------------     -      --------------
                                                1998        1997        1998       1997
                                                ----        ----        ----       ----

<S>                                         <C>         <C>         <C>        <C>
Operating Revenues                          $1,015,087  $  942,783  $2,058,196 $1,993,795
                                             ---------   ---------   ---------  ---------

Operating Expenses:
  Fuel                                         100,353      91,412     197,053    190,026
  Power purchased and interchanged             253,470     238,107     519,215    488,819
  Deferral of energy costs, net                 (9,310)        478     (11,330)     6,729
  Other operation and maintenance              262,845     248,441     501,228    453,840
  Depreciation and amortization                134,868     115,058     262,016    230,256
  Taxes, other than income taxes                57,239      81,746     114,758    176,403
                                             ---------   ---------   ---------  ---------
     Total operating expenses                  799,465     775,242   1,582,940  1,546,073
                                             ---------   ---------   ---------  ---------

Operating Income Before Income Taxes           215,622     167,541     475,256    447,722
  Income taxes                                  50,316      34,732     116,609    118,655
                                             ---------   ---------   ---------  ---------
Operating Income                               165,306     132,809     358,647    329,067
                                             ---------   ---------   ---------  ---------

Other Income and Deductions:
  Allowance for other funds used during
    construction                                   229         313         549        661
  Equity in undistributed earnings
    of affiliates, net (Note 4)                 13,193      20,087      30,844     52,314
  Other income/(expense), net                   (3,650)        518      40,912      6,231
  Income taxes                                     711      (6,054)    (18,720)   (11,497)
                                             ---------   ---------   ---------- ---------
     Total other income and deductions          10,483      14,864      53,585     47,709
                                             ---------   ---------   ---------- ---------

Income Before Interest Charges
  and Preferred Dividends                      175,789     147,673     412,232    376,776
                                             ---------   ---------   ---------  ---------

Interest Charges and Preferred Dividends:
  Interest on long-term debt                    77,882      56,526     161,934    113,635
  Other interest                                 8,859      11,294      17,843     18,639
  Allowance for borrowed funds used
    during construction                         (1,276)     (1,258)     (2,347)    (2,443)
  Dividends on subsidiary-obligated mandatorily
    redeemable preferred securities              7,222       7,222      14,444     14,444
  Preferred stock dividends of subsidiaries      2,917       3,174       5,892      6,601
                                             ---------   ---------   ---------  ---------
     Total interest charges and
       preferred dividends                      95,604      76,958     197,766    150,876
                                             ---------   ---------   ---------  ---------

Minority interest net income                       248         466         749        613
                                             ---------   ---------   ---------  ---------

Income Before Extraordinary Item                79,937      70,249     213,717    225,287
Extraordinary item (net of income tax
  benefit of $195,090)(Note 2)                (275,110)        -      (275,110)       -
                                             ---------   ---------   ---------  -------
Net Income/(Loss)                           $ (195,173) $   70,249  $  (61,393)$  225,287
                                             =========   =========   =========  =========

Basic - Earnings Per Avg. Common Share
  Before Extraordinary Item                 $     0.62  $     0.58  $     1.69 $     1.87
Extraordinary Item                               (2.16)        -         (2.16)       -
                                             ---------   ---------   ---------  -------
Basic - Earnings Per Avg. Common Share      $    (1.54) $     0.58  $    (0.47)$     1.87
                                             =========   =========   =========  =========
        Avg. Common Shares Outstanding         127,892     120,690     126,218    120,660
                                             =========   =========   =========  =========

Diluted - Earnings Per Avg. Common Share
  Before Extraordinary Item                 $     0.62  $     0.58  $     1.69 $     1.86
Extraordinary Item                               (2.16)        -         (2.16)       -
                                             ---------   ---------   ---------  -------
Diluted - Earnings Per Avg. Common Share    $    (1.54) $     0.58  $    (0.47)$     1.86
                                             =========   =========   =========  =========
        Avg. Common Shares Outstanding         128,162     120,972     126,493    120,934
                                             =========   =========   =========  =========

Cash Dividends Paid Per Share               $     .515  $     .500  $    1.015 $     .985
                                             =========   =========   =========  =========

<FN>

The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.
</FN>



                                              5
</TABLE>


<PAGE>





                          GPU, INC. AND SUBSIDIARY COMPANIES

                         Consolidated Statements of Cash Flows
                         -------------------------------------
                                      (Unaudited)
                                                             In Thousands
                                                         ----------------------
                                                              Six Months
                                                            Ended June 30,
                                                         ----------------------
                                                           1998         1997
                                                           ----         ----
Operating Activities:
  Net income/(loss)                                     $ (61,393)   $ 225,287
  Extraordinary item (net of income tax
    benefit of $195,090)                                  275,110          -
                                                         --------     ------
  Income before extraordinary item                        213,717      225,287
  Adjustments to reconcile income to cash provided:
    Depreciation and amortization                         282,400      239,640
    Amortization of property under capital leases          26,838       27,642
    Gain on sale of investments                           (38,812)         -
    Equity in undistributed (earnings)/losses
      of affiliates, net of distributions received        (26,911)     (40,846)
    Nuclear outage maintenance costs, net                  11,149       13,499
    Deferred income taxes and investment tax
      credits, net                                        (53,316)       5,188
    Deferred energy and capacity costs, net               (10,403)       6,729
    Accretion income                                       (4,920)      (5,380)
    Allowance for other funds used
      during construction                                    (549)        (661)
  Changes in working capital:
    Receivables                                            17,310      (29,830)
    Materials and supplies                                  8,709       (7,866)
    Special deposits and prepayments                     (127,685)    (110,456)
    Payables and accrued liabilities                      (43,264)     (20,682)
  Nonutility generation contract buyout costs             (20,417)     (46,550)
  Other, net                                               23,592      (14,602)
                                                         --------     --------
      Net cash provided by operating activities           257,438      241,112
                                                         --------     --------

Investing Activities:
  Capital expenditures:
    GPU Energy companies                                 (163,403)    (158,462)
    GPUI Group                                            (39,387)     (87,213)
  Proceeds from sale of investments                       146,700          -
  Contributions to decommissioning trusts                 (24,239)     (20,601)
  Other, net                                                2,431       25,265
                                                         --------     --------
      Net cash used for investing activities              (77,898)    (241,011)
                                                         --------     --------

Financing Activities:
  Issuance of long-term debt                                  -        114,271
  Increase in notes payable, net                          133,946      168,206
  Retirement of long-term debt                           (375,496)    (103,129)
  Capital lease principal payments                        (25,426)     (26,587)
  Issuance of common stock                                269,448          -
  Redemption of preferred stock of subsidiaries           (15,000)     (20,000)
  Dividends paid on common stock                         (126,274)    (118,828)
                                                         --------     --------
      Net cash provided/(required) by
        financing activities                             (138,802)      13,933
                                                         --------     --------

Effect of exchange rate changes on cash                    (3,002)        (710)
                                                         --------     --------

Net increase in cash and temporary
  cash investments from above activities                   37,736       13,324
Cash and temporary cash investments, beginning of year     85,099       31,604
                                                         --------     --------
Cash and temporary cash investments, end of period      $ 122,835    $  44,928
                                                         ========     ========

Supplemental Disclosure:
  Interest and preferred dividends paid                 $ 188,293    $ 151,079
                                                         ========     ========
  Income taxes paid                                     $ 160,974    $ 112,718
                                                         ========     ========
  New capital lease obligations incurred                $  28,910    $  30,123
                                                         ========     ========
  Common stock dividends declared but not paid          $  65,874    $  60,361
                                                         ========     ========


The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.



                                           6


<PAGE>

<TABLE>

               JERSEY CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARY COMPANY

                           Consolidated Balance Sheets
                           ---------------------------
<CAPTION>

                                                                  In Thousands
                                                         ----------------------------
                                                           June 30,       December 31,
                                                             1998             1997
                                                         -------------    --------
                                                          (Unaudited)

ASSETS
Utility Plant:
<S>                                                      <C>              <C>
  In service, at original cost                           $4,638,568       $4,671,568
  Less, accumulated depreciation                          2,115,382        2,007,427
                                                          ---------        ---------
    Net utility plant in service                          2,523,186        2,664,141
  Construction work in progress                             112,191          124,887
  Other, net                                                106,739           92,654
                                                          ---------        ---------
       Net utility plant                                  2,742,116        2,881,682
                                                          ---------        ---------


Other Property and Investments:
  Nuclear decommissioning trusts, at market (Note 1)        385,992          343,434
  Nuclear fuel disposal trust, at market                    112,418          108,652
  Other, net                                                  8,937            8,951
                                                          ---------        ---------
       Total other property and investments                 507,347          461,037
                                                          ---------        ---------


Current Assets:
  Cash and temporary cash investments                         8,741            2,994
  Special deposits                                            5,997            6,778
  Accounts receivable:
    Customers, net                                          142,928          153,753
    Other                                                    27,245           18,225
  Unbilled revenues                                          72,247           59,687
  Materials and supplies, at average cost or less:
    Construction and maintenance                             82,753           90,037
    Fuel                                                     15,137           14,260
  Deferred income taxes                                      24,168           27,536
  Prepayments                                               122,384           14,468
                                                          ---------        ---------
       Total current assets                                 501,600          387,738
                                                          ---------        ---------


Deferred Debits and Other Assets:
  Other regulatory assets, net (Note 1)                     798,156          736,476
  Deferred income taxes                                     172,778          154,708
  Other                                                      24,324           19,909
                                                          ---------        ---------
       Total deferred debits and other assets               995,258          911,093
                                                          ---------        ---------







       Total Assets                                      $4,746,321       $4,641,550
                                                          =========        =========
<FN>

The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.
</FN>


                                           7
</TABLE>


<PAGE>
<TABLE>


               JERSEY CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARY COMPANY

                           Consolidated Balance Sheets
                           ---------------------------

<CAPTION>

                                                                  In Thousands
                                                         -----------------------------
                                                            June 30,      December 31,
                                                              1998            1997
                                                         --------------   --------
                                                           (Unaudited)

LIABILITIES AND CAPITALIZATION
Capitalization:
<S>                                                      <C>              <C>
  Common stock                                           $  153,713       $  153,713
  Capital surplus                                           510,769          510,769
  Retained earnings                                         938,437          875,639
                                                          ---------        ---------
    Total common stockholder's equity                     1,602,919        1,540,121
  Cumulative preferred stock:
    With mandatory redemption                                86,500           91,500
    Without mandatory redemption                             37,741           37,741
  Company-obligated mandatorily
    redeemable preferred securities                         125,000          125,000
  Long-term debt                                          1,173,424        1,173,304
                                                          ---------        ---------
       Total capitalization                               3,025,584        2,967,666
                                                          ---------        ---------



Current Liabilities:
  Securities due within one year                              2,511           12,511
  Notes payable                                             167,016          115,254
  Obligations under capital leases                           93,505           79,419
  Accounts payable:
    Affiliates                                               15,556           27,167
    Other                                                   110,403          113,822
  Taxes accrued                                               6,285            3,966
  Deferred energy credits                                    15,254           25,645
  Interest accrued                                           26,596           26,021
  Other                                                     105,115           76,529
                                                          ---------        ---------
       Total current liabilities                            542,241          480,334
                                                          ---------        ---------



Deferred Credits and Other Liabilities:
  Deferred income taxes                                     647,728          644,562
  Unamortized investment tax credits                         52,075           54,675
  Nuclear fuel disposal fee                                 137,915          134,326
  Three Mile Island Unit 2 future costs                     114,755          112,227
  Other                                                     226,023          247,760
                                                          ---------        ---------
       Total deferred credits and other liabilities       1,178,496        1,193,550
                                                          ---------        ---------


Commitments and Contingencies (Note 1)


       Total Liabilities and Capitalization              $4,746,321       $4,641,550
                                                          =========        =========
<FN>

The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.

</FN>

                                           8

</TABLE>

<PAGE>

<TABLE>



                  JERSEY CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARY COMPANY

                        Consolidated Statements of Income
                        ---------------------------------
                                   (Unaudited)
<CAPTION>

                                                               In Thousands
                                              --------------------------------------------
                                                   Three Months             Six Months
                                                  Ended June 30,          Ended June 30,
                                                  1998       1997        1998       1997

<S>                                            <C>        <C>        <C>         <C>
Operating Revenues                             $ 478,894  $ 478,226  $  951,228  $ 988,669
                                                --------   --------   ---------   --------

Operating Expenses:
  Fuel                                            23,084     21,781      42,744     46,070
  Power purchased and interchanged:
    Affiliates                                    11,953      2,839      15,068      7,206
    Others                                       155,025    138,162     308,705    279,106
  Deferral of energy and capacity costs, net      (9,310)       478     (11,330)     6,729
  Other operation and maintenance                113,030    114,472     213,760    216,277
  Depreciation and amortization                   68,685     59,428     131,679    121,238
  Taxes, other than income taxes                  23,677     53,668      47,534    112,828
                                                --------   --------   ---------   --------
     Total operating expenses                    386,144    390,828     748,160    789,454
                                                --------   --------   ---------   --------

Operating Income Before Income Taxes              92,750     87,398     203,068    199,215
  Income taxes                                    26,875     16,747      59,351     46,092
                                                --------   --------   ---------   --------
Operating Income                                  65,875     70,651     143,717    153,123
                                                --------   --------   ---------   --------

Other Income and Deductions:
  Allowance for other funds used during
    construction                                     193        136         468        267
  Other income/(expense), net                      2,653     (3,310)      4,918        147
  Income taxes                                    (1,289)    (2,418)     (2,342)    (2,827)
                                                --------   --------   ---------   --------
     Total other income and deductions             1,557     (5,592)      3,044     (2,413)
                                                --------   --------   ---------   --------

Income Before Interest Charges and
  Dividends on Preferred Securities               67,432     65,059     146,761    150,710
                                                --------   --------   ---------   --------

Interest Charges and Dividends
  on Preferred Securities:
  Interest on long-term debt                      21,849     22,577      43,641     45,345
  Other interest                                   3,058      5,167       5,587      7,658
  Allowance for borrowed funds used
    during construction                             (435)      (601)       (918)    (1,204)
  Dividends on company-obligated mandatorily
    redeemable preferred securities                2,675      2,675       5,350      5,350
                                                --------   --------   ---------   --------
     Total interest charges and dividends
       on preferred securities                    27,147     29,818      53,660     57,149
                                                --------   --------   ---------   --------

Net Income                                        40,285     35,241      93,101     93,561
  Preferred stock dividends                        2,565      2,879       5,303      6,041
                                                --------   --------   ---------   --------
Earnings Available for Common Stock            $  37,720  $  32,362  $   87,798  $  87,520
                                                ========   ========   =========   ========




<FN>

The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.
</FN>

                                              9

</TABLE>

<PAGE>




              JERSEY CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARY COMPANY

                         Consolidated Statements of Cash Flows
                         -------------------------------------
                                      (Unaudited)


                                                              In Thousands
                                                         ----------------------
                                                              Six Months
                                                             Ended June 30,
                                                         ----------------------
                                                           1998         1997
                                                           ----         ----
Operating Activities:
  Net income                                            $  93,101    $  93,561
  Adjustments to reconcile income to cash provided:
     Depreciation and amortization                        143,726      127,837
     Amortization of property under capital leases         14,771       15,294
     Nuclear outage maintenance costs, net                  6,602        9,487
     Deferred income taxes and investment tax
       credits, net                                       (29,294)      (6,224)
     Deferred energy and capacity costs, net              (10,403)       6,729
     Accretion income                                      (4,920)      (5,380)
     Allowance for other funds used
       during construction                                   (468)        (267)
     Changes in working capital:
     Receivables                                          (10,754)      (7,813)
     Materials and supplies                                 6,407        1,329
     Special deposits and prepayments                    (107,136)    (102,194)
     Payables and accrued liabilities                      11,051      (33,305)
  Nonutility generation contract buyout costs             (15,000)     (30,500)
  Other, net                                               18,135        4,777
                                                         --------     --------
       Net cash provided by operating activities          115,818       73,331
                                                         --------     --------

Investing Activities:
  Capital expenditures                                    (84,117)     (78,509)
  Contributions to decommissioning trusts                 (13,547)      (9,016)
  Other, net                                               (3,850)      (5,659)
                                                         --------     --------
       Net cash used for investing activities            (101,514)     (93,184)
                                                         --------     --------

Financing Activities:
  Increase in notes payable, net                           51,762      161,493
  Retirement of long-term debt                                -        (54,191)
  Capital lease principal payments                        (14,811)     (13,705)
  Redemption of preferred stock                           (15,000)     (20,000)
  Dividends paid on common stock                          (25,000)     (40,000)
  Dividends paid on preferred stock                        (5,508)      (6,324)
                                                         --------     --------
       Net cash provided/(required)
         by financing activities                           (8,557)      27,273
                                                         --------     --------

Net increase in cash and temporary
  cash investments from above activities                    5,747        7,420
Cash and temporary cash investments, beginning of year      2,994        1,321
                                                         --------     --------
Cash and temporary cash investments, end of period      $   8,741    $   8,741
                                                         ========     ========

Supplemental Disclosure:
  Interest and preferred dividends paid                 $  57,725    $  64,008
                                                         ========     ========
  Income taxes paid                                     $  97,162    $  63,634
                                                         ========     ========
  New capital lease obligations incurred                $  28,852    $   8,187
                                                         ========     ========





The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.



                                          10




<PAGE>

<TABLE>

                  METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANIES

                           Consolidated Balance Sheets
                           ---------------------------
<CAPTION>

                                                                  In Thousands
                                                         ----------------------------
                                                           June 30,       December 31,
                                                             1998             1997
                                                         -------------    --------
                                                          (Unaudited)

ASSETS
Utility Plant:
<S>                                                      <C>              <C>
  In service, at original cost                           $2,212,765       $2,411,810
  Less, accumulated depreciation                            966,200          919,771
                                                          ---------        ---------
    Net utility plant in service                          1,246,565        1,492,039
  Construction work in progress                              50,000           45,435
  Other, net                                                 31,416           39,056
                                                          ---------        ---------
       Net utility plant                                  1,327,981        1,576,530
                                                          ---------        ---------

Other Property and Investments:
  Nuclear decommissioning trusts, at market (Note 1)        192,145          168,110
  Other, net                                                 11,977           11,958
                                                          ---------        ---------
       Total other property and investments                 204,122          180,068
                                                          ---------        ---------

Current Assets:
  Cash and temporary cash investments                         2,856            6,116
  Special deposits                                            1,030            1,055
  Accounts receivable:
    Customers, net                                           55,646           65,156
    Other                                                    21,331           29,399
  Unbilled revenues                                          45,837           39,747
  Materials and supplies, at average cost or less:
    Construction and maintenance                             23,877           38,597
    Fuel                                                      7,225           11,323
  Deferred income taxes                                       2,945            2,945
  Prepayments                                                23,277            6,762
                                                          ---------        ---------
       Total current assets                                 184,024          201,100
                                                          ---------        ---------

Deferred Debits and Other Assets:
  Competitive transition charge (Note 1 & 2)              1,024,970              -
  Other regulatory assets, net (Note 1)                     291,291          450,687
  Deferred income taxes                                     579,156           87,332
  Other                                                      28,047           14,069
                                                          ---------        ---------
       Total deferred debits and other assets             1,923,464          552,088
                                                          ---------        ---------








       Total Assets                                      $3,639,591       $2,509,786
                                                          =========        =========

<FN>


The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.
</FN>


                                          11

</TABLE>

<PAGE>

<TABLE>

                  METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANIES

                           Consolidated Balance Sheets
                           ---------------------------

<CAPTION>

                                                                  In Thousands
                                                         ----------------------------
                                                           June 30,       December 31,
                                                             1998             1997
                                                         -------------    --------
                                                          (Unaudited)

LIABILITIES AND CAPITALIZATION
Capitalization:
<S>                                                      <C>              <C>
  Common stock                                           $   66,273       $   66,273
  Capital surplus                                           370,200          370,200
  Retained earnings                                          84,390          268,634
  Accumulated other comprehensive income (Note 6)            14,316           12,487
                                                          ---------        ---------
    Total common stockholder's equity                       535,179          717,594
  Cumulative preferred stock                                 12,056           12,056
  Company-obligated mandatorily
    redeemable preferred securities                         100,000          100,000
  Long-term debt                                            576,926          576,924
                                                          ---------        ---------
       Total capitalization                               1,224,161        1,406,574
                                                          ---------        ---------



Current Liabilities:
  Securities due within one year                                 22               22
  Notes payable                                              76,826           67,279
  Obligations under capital leases                           30,731           38,372
  Accounts payable:
    Affiliates                                               49,216           62,873
    Other                                                    96,623           95,589
  Taxes accrued                                              10,587           21,455
  Interest accrued                                           16,946           15,903
  Other                                                      38,805           33,351
                                                          ---------        ---------
       Total current liabilities                            319,756          334,844
                                                          ---------        ---------



Deferred Credits and Other Liabilities:
  Deferred income taxes                                     765,945          412,692
  Three Mile Island Unit 2 future costs                     229,409          224,354
  Unamortized investment tax credits                         28,132           29,134
  Nuclear fuel disposal fee                                  31,154           30,343
  Nonutility generation contract loss liability             792,830              -
  Other                                                     248,204           71,845
                                                          ---------        ---------
       Total deferred credits and other liabilities       2,095,674          768,368
                                                          ---------        ---------


Commitments and Contingencies (Note 1)


       Total Liabilities and Capitalization              $3,639,591       $2,509,786
                                                          =========        =========


<FN>

The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.
</FN>

                                          12

</TABLE>

<PAGE>

<TABLE>

                    METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANIES

                        Consolidated Statements of Income
                        ---------------------------------
                                   (Unaudited)
<CAPTION>

                                                               In Thousands
                                               ----------------------------------------------
                                                    Three Months            Six Months
                                                   Ended June 30,         Ended June 30,
                                                   --------------         --------------
                                                   1998      1997         1998        1997
                                                   ----      ----         ----        ----

<S>                                            <C>        <C>         <C>         <C>
Operating Revenues                             $ 226,030  $ 208,554   $  460,778  $  463,814
                                                --------   --------    ---------   ---------

Operating Expenses:
  Fuel                                            26,172     22,037       52,243      46,526
  Power purchased and interchanged:
    Affiliates                                     3,565      2,610        5,418       6,957
    Others                                        45,598     49,560      100,483     105,200
  Other operation and maintenance                 55,032     57,376      107,285     103,032
  Depreciation and amortization                   26,455     26,098       52,718      51,931
  Taxes, other than income taxes                  15,504     13,054       31,053      29,754
                                                --------   --------    ---------   ---------
     Total operating expenses                    172,326    170,735      349,200     343,400
                                                --------   --------    ---------   ---------

Operating Income Before Income Taxes              53,704     37,819      111,578     120,414
  Income taxes                                    15,344      9,516       32,906      37,998
                                                --------   --------    ---------   ---------
Operating Income                                  38,360     28,303       78,672      82,416
                                                --------   --------    ---------   ---------

Other Income and Deductions:
  Allowance for other funds used during
    construction                                      36        122           81         301
  Other income/(expense), net                     (9,665)     1,761       (9,381)      2,104
  Income taxes                                     4,254       (897)       3,766        (922)
                                                --------   --------    ---------   ---------
     Total other income and deductions            (5,375)       986       (5,534)      1,483
                                                --------   --------    ---------   ---------

Income Before Interest Charges and
  Dividends on Preferred Securities               32,985     29,289       73,138      83,899
                                                --------   --------    ---------   ---------

Interest Charges and Dividends
  on Preferred Securities:
  Interest on long-term debt                      10,624     11,040       21,247      22,294
  Other interest                                   1,800      1,960        4,553       3,628
  Allowance for borrowed funds used
    during construction                             (237)      (164)        (440)       (411)
  Dividends on company-obligated mandatorily
    redeemable preferred securities                2,250      2,250        4,500       4,500
                                                --------   --------    ---------   ---------
     Total interest charges and dividends
       on preferred securities                    14,437     15,086       29,860      30,011
                                                --------   --------    ---------   ---------

Income Before Extraordinary Item                  18,548     14,203       43,278      53,888
Extraordinary item (net of income tax
  benefit of $132,810) (Note 2)                 (187,280)       -       (187,280)        -
                                                --------   --------    ---------   -------

Net Income/(Loss)                               (168,732)    14,203     (144,002)     53,888
  Preferred stock dividends                          121        121          242         242
                                                --------   --------    ---------   ---------
Earnings/(Loss) Available for Common Stock     $(168,853) $  14,082   $ (144,244) $   53,646
                                                ========   ========    =========   =========

<FN>

The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.
</FN>

                                             13
</TABLE>


<PAGE>



                 METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANIES

                         Consolidated Statements of Cash Flows
                         -------------------------------------
                                      (Unaudited)

                                                              In Thousands
                                                         ----------------------
                                                                Six Months
                                                              Ended June 30,
                                                         ----------------------
                                                           1998         1997
                                                           ----         ----
Operating Activities:
  Net income/(loss)                                     $(144,002)   $  53,888
   Extraordinary item (net of income tax
    benefit of $132,810)                                  187,280          -
                                                         --------       ------
  Income before extraordinary item                         43,278       53,888
  Adjustments to reconcile income to cash provided:
    Depreciation and amortization                          58,232       56,400
    Amortization of property under capital leases           7,294        7,276
    Nuclear outage maintenance costs, net                   3,029        2,673
    Deferred income taxes and investment tax
      credits, net                                        (10,824)      10,244
    Allowance for other funds used
      during construction                                     (81)        (301)
  Changes in working capital:
    Receivables                                            11,488      (17,024)
    Materials and supplies                                  3,676       (1,973)
    Special deposits and prepayments                      (16,490)     (10,139)
    Payables and accrued liabilities                      (34,367)      10,795
  Nonutility generation contract buyout costs              (5,417)     (11,050)
  Other, net                                               11,153      (20,393)
                                                         --------     --------
     Net cash provided by operating activities             70,971       80,396
                                                         --------     --------

Investing Activities:
  Capital expenditures                                    (29,206)     (36,630)
  Contributions to decommissioning trusts                  (8,060)      (8,877)
  Other, net                                                   56          (23)
                                                         --------     --------
     Net cash used for investing activities               (37,210)     (45,530)
                                                         --------     --------

Financing Activities:
  Issuance of long-term debt                                  -         13,577
  Increase in notes payable, net                            9,547        8,883
  Retirement of long-term debt                                -        (20,000)
  Capital lease principal payments                         (6,326)      (7,632)
  Dividends paid on common stock                          (40,000)     (25,000)
  Dividends paid on preferred stock                          (242)        (357)
                                                         --------     --------
     Net cash required by
       financing activities                               (37,021)     (30,529)
                                                         ---------    --------

Net increase/(decrease) in cash and temporary
  cash investments from above activities                   (3,260)       4,337
Cash and temporary cash investments, beginning of year      6,116        1,901
                                                         --------     --------
Cash and temporary cash investments, end of period      $   2,856    $   6,238
                                                         ========     ========

Supplemental Disclosure:
  Interest and preferred dividends paid                 $  28,884    $  30,032
                                                         ========     ========
  Income taxes paid                                     $  38,428    $  30,349
                                                         ========     ========
  New capital lease obligations incurred                $      39    $  14,613
                                                         ========     ========




The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.



                                          14



<PAGE>

<TABLE>

                 PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES

                           Consolidated Balance Sheets
                           ---------------------------
<CAPTION>

                                                                  In Thousands
                                                         -----------------------------
                                                            June 30,      December 31,
                                                              1998            1997
                                                         -------------    -----------
                                                          (Unaudited)

ASSETS
Utility Plant:
<S>                                                      <C>              <C>
  In service, at original cost                           $2,731,674       $2,812,720
  Less, accumulated depreciation                          1,133,790        1,091,965
                                                          ---------        ---------
    Net utility plant in service                          1,597,884        1,720,755
  Construction work in progress                              74,250           69,089
  Other, net                                                 21,632           26,110
                                                          ---------        ---------
       Net utility plant                                  1,693,766        1,815,954
                                                          ---------        ---------

Other Property and Investments:
  Nuclear decommissioning trusts, at market (Note 1)         76,675           68,129
  Other, net                                                  7,061            7,071
                                                          ---------        ---------
       Total other property and investments                  83,736           75,200
                                                          ---------        ---------

Current Assets:
  Cash and temporary cash investments                           -                -
  Special deposits                                            2,508            2,449
  Accounts receivable:
    Customers, net                                           72,980           71,338
    Other                                                    33,316           21,051
  Unbilled revenues                                          36,480           47,728
  Materials and supplies, at average cost or less:
    Construction and maintenance                             40,722           47,853
    Fuel                                                     15,869           14,841
  Deferred income taxes                                       7,589            7,589
  Prepayments                                                46,619           29,856
                                                          ---------        ---------
       Total current assets                                 256,083          242,705
                                                          ---------        ---------

Deferred Debits and Other Assets:
  Competitive transition charge (Note 1 & 2)                884,390              -
  Other regulatory assets, net (Note 1)                     509,760          360,315
  Deferred income taxes                                     725,913           55,698
  Other                                                      46,997           13,118
                                                          ---------        ---------
       Total deferred debits and other assets             2,167,060          429,131
                                                          ---------        ---------








       Total Assets                                      $4,200,645       $2,562,990
                                                          =========        =========


<FN>

The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.
</FN>


                                          15

</TABLE>

<PAGE>

<TABLE>

                 PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES

                           Consolidated Balance Sheets
                           ---------------------------
<CAPTION>


                                                                  In Thousands
                                                         ----------------------------
                                                           June 30,       December 31,
                                                             1998             1997
                                                         -------------    --------
                                                          (Unaudited)

LIABILITIES AND CAPITALIZATION
Capitalization:
<S>                                                      <C>              <C>
  Common stock                                           $  105,812       $  105,812
  Capital surplus                                           285,486          285,486
  Retained earnings                                         336,927          393,708
  Accumulated other comprehensive income (Note 6)             7,247            6,332
                                                          ---------        ---------
    Total common stockholder's equity                       735,472          791,338
  Cumulative preferred stock                                 16,681           16,681
  Company-obligated mandatorily
    redeemable preferred securities                         105,000          105,000
  Long-term debt                                            626,444          676,444
                                                          ---------        ---------
       Total capitalization                               1,483,597        1,589,463
                                                          ---------        ---------



Current Liabilities:
  Securities due within one year                             50,011           30,011
  Notes payable                                             108,818           77,581
  Obligations under capital leases                           16,070           19,939
  Accounts payable:
    Affiliates                                               37,214           24,811
    Other                                                    48,081           62,483
  Taxes accrued                                              12,480           15,966
  Interest accrued                                           19,836           20,902
  Other                                                      32,720           19,654
                                                          ---------        ---------
       Total current liabilities                            325,230          271,347
                                                          ---------        ---------



Deferred Credits and Other Liabilities:
  Deferred income taxes                                   1,091,758          478,182
  Three Mile Island Unit 2 future costs                     114,755          112,227
  Unamortized investment tax credits                         38,153           39,353
  Nuclear fuel disposal fee                                  15,577           15,172
  Nonutility generation contract loss liability           1,017,520              -
  Other                                                     114,055           57,246
                                                          ---------        ---------
       Total deferred credits and other liabilities       2,391,818          702,180
                                                          ---------        ---------


Commitments and Contingencies (Note 1)


       Total Liabilities and Capitalization              $4,200,645       $2,562,990
                                                          =========        =========


<FN>

The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.
</FN>

                                          16

</TABLE>

<PAGE>

<TABLE>


                    PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES

                        Consolidated Statements of Income
                        ---------------------------------
                                   (Unaudited)
<CAPTION>

                                                               In Thousands
                                              ---------------------------------------------
                                                    Three Months            Six Months
                                                   Ended June 30,         Ended June 30,
                                                   --------------         --------------
                                                   1998      1997        1998        1997

<S>                                            <C>        <C>        <C>         <C>
Operating Revenues                             $ 250,355  $ 247,862  $  514,010  $  537,615
                                                --------   --------   ---------   ---------

Operating Expenses:
  Fuel                                            42,667     42,993      85,101      89,216
  Power purchased and interchanged:
    Affiliates                                       909        422       1,153       2,074
    Others                                        50,098     50,385     104,812     104,513
  Other operation and maintenance                 65,080     64,447     125,113     118,335
  Depreciation and amortization                   27,740     27,705      53,384      53,401
  Taxes, other than income taxes                  18,058     15,024      36,021      33,821
                                                --------   --------   ---------   ---------
     Total operating expenses                    204,552    200,976     405,584     401,360
                                                --------   --------   ---------   ---------

Operating Income Before Income Taxes              45,803     46,886     108,426     136,255
  Income taxes                                    11,217     12,631      31,020      43,144
                                                --------   --------   ---------   ---------
Operating Income                                  34,586     34,255      77,406      93,111
                                                --------   --------   ---------   ---------

Other Income and Deductions:
  Allowance for other funds used during
    construction                                     -           55         -            93
  Other income, net                                1,654      1,110       1,733       1,255
  Income taxes                                      (719)      (427)       (705)       (496)
                                                --------   --------   ---------   ---------
     Total other income and deductions               935        738       1,028         852
                                                --------   --------   ---------   ---------

Income Before Interest Charges and
  Dividends on Preferred Securities               35,521     34,993      78,434      93,963
                                                --------   --------   ---------   ---------

Interest Charges and Dividends
  on Preferred Securities:
  Interest on long-term debt                      11,862     12,104      23,974      24,219
  Other interest                                   2,215      2,244       4,459       4,243
  Allowance for borrowed funds used
    during construction                             (604)      (493)       (989)       (828)
  Dividends on company-obligated mandatorily
    redeemable preferred securities                2,297      2,297       4,594       4,594
                                                --------   --------   ---------   ---------
     Total interest charges and dividends
       on preferred securities                    15,770     16,152      32,038      32,228
                                                --------   --------   ---------   ---------

Income Before Extraordinary Item                  19,751     18,841      46,396      61,735
Extraordinary item (net of income tax
  benefit of $62,280) (Note 2)                   (87,830)       -       (87,830)        -
                                                --------   --------   ---------   -------

Net Income/(Loss)                                (68,079)    18,841     (41,434)     61,735
  Preferred stock dividends                          231        174         347         318
                                                --------   --------   ---------   ---------
Earnings/(Loss) Available for Common Stock     $ (68,310) $  18,667  $  (41,781) $   61,417
                                                =========  ========   ==========  =========

<FN>

The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.
</FN>

                                             17

</TABLE>

<PAGE>






                PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES

                        Consolidated Statements of Cash Flows
                        -------------------------------------
                                     (Unaudited)


                                                               In Thousands
                                                         ----------------------
                                                               Six Months
                                                              Ended June 30,
                                                         ----------------------
                                                           1998         1997
                                                           ----         ----
Operating Activities:
  Net income/(loss)                                     $ (41,434)   $  61,735
  Extraordinary item (net of income tax
    benefit of $62,280)                                    87,830          -
                                                         --------     ------
  Income before extraordinary item                         46,396       61,735
  Adjustments to reconcile income to cash provided:
    Depreciation and amortization                          53,814       49,396
    Amortization of property under capital leases           4,088        4,079
    Nuclear outage maintenance costs, net                   1,518        1,339
    Deferred income taxes and investment tax
      credits, net                                           (969)       1,711
    Allowance for other funds used
      during construction                                     -            (93)
  Changes in working capital:
    Receivables                                            (2,709)     (19,707)
    Materials and supplies                                 (1,472)      (7,222)
    Special deposits and prepayments                      (16,822)      (2,530)
    Payables and accrued liabilities                       (6,426)       5,290
  Nonutility generation contract buyout costs                 -         (5,000)
  Other, net                                              (10,337)      (7,867)
                                                         --------     --------
     Net cash provided by operating activities             67,081       81,131
                                                         --------     --------

Investing Activities:
  Capital expenditures                                    (46,735)     (41,908)
  Contributions to decommissioning trusts                  (2,632)      (2,708)
                                                         --------     --------
     Net cash used for investing activities               (49,367)     (44,616)
                                                         --------     --------

Financing Activities:
  Issuance of long-term debt                                  -         49,875
  Increase/(Decrease) in notes payable, net                31,237      (21,759)
  Retirement of long-term debt                            (30,000)     (26,000)
  Capital lease principal payments                         (3,604)      (4,257)
  Dividends paid on common stock                          (15,000)     (30,000)
  Dividends paid on preferred stock                          (347)        (347)
                                                         --------     --------
     Net cash required by financing activities            (17,714)     (32,488)
                                                         --------     --------

Net increase in cash and temporary
  cash investments from above activities                      -          4,027
Cash and temporary cash investments, beginning of year        -            -
                                                         --------     ------
Cash and temporary cash investments, end of period      $     -      $   4,027
                                                         ========     ========

Supplemental Disclosure:
  Interest and preferred dividends paid                 $  33,016    $  31,773
                                                         ========     ========
  Income taxes paid                                     $  35,859    $  31,278
                                                         ========     ========
  New capital lease obligations incurred                $      19    $   7,323
                                                         ========     ========




The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements


                                          18

<PAGE>





               COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     GPU,  Inc., a Pennsylvania  corporation,  is a holding  company  registered
under the  Public  Utility  Holding  Company  Act of 1935.  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,  transmission and  distribution  operations of these electric
utilities are conducting  business under the name GPU Energy.  JCP&L, Met-Ed and
Penelec  considered  together are referred to as the "GPU Energy companies." The
generation  operations  of  the  GPU  Energy  companies  are  conducted  by  GPU
Generation,  Inc. (Genco) and GPU Nuclear,  Inc. (GPUN). GPU, Inc. also owns all
the common stock of GPU  International,  Inc., GPU Power, Inc. and GPU Electric,
Inc. which develop,  own and operate  generation,  transmission and distribution
facilities in the United States and in foreign  countries.  Collectively,  these
are referred to as the "GPUI Group."  Other  wholly-owned  subsidiaries  of GPU,
Inc. are GPU Advanced Resources,  Inc. (GPU AR), a subsidiary engaging in energy
services and retail  energy sales;  GPU Telcom  Services,  Inc. (GPU Telcom),  a
subsidiary engaging in certain  telecommunications-related  businesses;  and GPU
Service,  Inc. (GPUS), which provides certain legal,  accounting,  financial and
other services to the GPU companies.  All of these companies considered together
are referred to as "GPU."

     These notes should be read in  conjunction  with the notes to  consolidated
financial  statements  included  in the 1997  Annual  Report on Form  10-K.  The
December  31,  1997  balance  sheet data  contained  in the  attached  financial
statements  was derived  from  audited  financial  statements.  For  disclosures
required by generally accepted accounting principles, see the 1997 Annual Report
on Form 10-K.


1.   COMMITMENTS AND CONTINGENCIES

             COMPETITION AND THE CHANGING REGULATORY ENVIRONMENT
             ---------------------------------------------------

The Emerging Competitive Market and Stranded Costs:
---------------------------------------------------

     The  current  market  price of  electricity  being  below  the cost of some
utility-owned  generation  and power  purchase  commitments,  combined  with the
ability of some  customers  to choose their  energy  suppliers,  has created the
potential for stranded costs in the electric  utility  industry.  These stranded
costs, while potentially recoverable in a regulated environment,  are at risk in
a deregulated and competitive environment.

     In 1996, the Federal Energy Regulatory  Commission (FERC) issued Order 888,
which permits  electric  utilities to recover their  legitimate  and  verifiable
stranded costs incurred when a wholesale  customer  purchases power from another
supplier  using the utility's  transmission  system.  In addition,  Pennsylvania
adopted  comprehensive  legislation (Customer Choice Act) in 1996 which provides
for the restructuring of the electric utility industry and will permit utilities
the  opportunity to recover their  prudently  incurred  stranded costs through a
Pennsylvania Public Utility Commission (PaPUC) approved


                                      19

<PAGE>


competitive  transition charge (CTC),  subject to certain conditions,  including
that utilities attempt to mitigate these costs. In 1997, the New Jersey Board of
Public  Utilities  (NJBPU)  released Phase II of the Energy Master Plan (NJEMP),
which proposes that New Jersey electric  utilities should have an opportunity to
recover their stranded costs associated with generating capacity commitments and
caused by electric  retail  competition,  provided that they attempt to mitigate
these costs.  Implementing  legislation,  which has not yet been introduced,  is
necessary to effect the restructuring programs by the NJEMP.

     In  June  1997,   Met-Ed  and  Penelec  filed  with  PaPUC  their  proposed
restructuring plans to implement competition and customer choice in Pennsylvania
as required by the Customer  Choice Act. In June 1998,  the PaPUC  entered final
orders  (Restructuring  Orders) on the restructuring plans. In the Restructuring
Orders,  the PaPUC,  among other  things,  established a CTC which (a) would not
ensure Met-Ed and Penelec full recovery of the costs under their  contracts with
nonutility  generators  (NUGs)  as  required  by  state  and  federal  law;  (b)
disallowed  certain  stranded  cost  claims by Met-Ed and  Penelec;  (c) lowered
unbundled  transmission and  distribution  (T&D) rates for Met-Ed and Penelec by
reallocating certain T&D costs to generation;  and (d) advanced the phase-in for
retail choice to January 2, 2000.  Accordingly,  Met-Ed and Penelec have written
off in  the  second  quarter  before  taxes,  $320  million  and  $150  million,
respectively.   For   additional   information,   see  Note  2  Accounting   for
Non-recurring Items.

     On July 20, 1998, Met-Ed and Penelec appealed the  Restructuring  Orders to
the  Commonwealth  Court claiming more than 40 errors of law. Met-Ed and Penelec
have also filed  complaints in the U.S.  District Court seeking both declaratory
and injunctive relief  challenging,  among other things,  the PaPUC's refusal in
the Restructuring  Orders to ensure full recovery of the costs of NUG contracts,
as required by state and federal law.

     In  addition,  on July  20,  1998  Met-Ed  and  Penelec  filed  Alternative
Restructuring Plans (Alternative Plans) with the PaPUC based on the provision in
the Customer  Choice Act that enables a utility to file an alternate plan if the
PaPUC rejects the utility's initial plan. Met-Ed and Penelec believe that in the
Restructuring  Orders,  the PaPUC has  objected to  essentially  the entirety of
their original  restructuring  plans and has therefore  rejected these plans. On
August 5, 1998, the PaPUC rejected the Alternative Plans as invalid.  Met-Ed and
Penelec intend to appeal this action to the  Commonwealth  Court.  Highlights of
the Alternative  Plans are presented in the Competitive  Environment  section of
Management's Discussion and Analysis.

     Unless the Restructuring Orders are substantially  modified consistent with
the  Alternative  Plans (in  particular  removing the proposed  reduction of T&D
rates),  there  would be an  adverse  effect  on  Met-Ed  and  Penelec's  future
earnings, except to the extent offset by spending reductions.

     In July 1997,  JCP&L filed with the NJBPU its proposed  restructuring  plan
for a competitive  electric  marketplace in New Jersey as required by the NJEMP.
JCP&L  estimates  that its total  above-market  costs related to power  purchase
commitments and company-owned  generation, on a present value basis at September
30, 1998, is $1.6 billion.  The $1.6 billion  excludes  above-market  generation
costs related to the Oyster Creek Nuclear  Generating  Station  (Oyster  Creek).
These estimates are subject to significant uncertainties


                                      20


<PAGE>


including  the future  market price of both  electricity  and other  competitive
energy sources,  as well as the timing of when these  above-market  costs become
stranded  due to  customers  choosing  another  supplier.  In July  1997,  JCP&L
proposed,  in its  restructuring  plan,  recovery of its remaining  Oyster Creek
plant  investment  as a  regulatory  asset,  through a  nonbypassable  charge to
customers.  At June 30, 1998,  JCP&L's net  investment  in Oyster Creek was $697
million.  Highlights of this plan are presented in the  Competitive  Environment
section of Management's Discussion and Analysis.

     In  February  1998,  hearings  with  respect to JCP&L's  stranded  cost and
unbundled rate filings were completed before an  Administrative  Law Judge (ALJ)
and a recommended decision is scheduled to be issued in August. The NJBPU is not
expected to issue final decisions until  legislation is enacted,  but to date no
legislation has been introduced.

     The  inability of JCP&L to recover its  stranded  costs in whole or in part
would  result in the  recording  of  liabilities  for  above-market  NUG  costs,
decommissioning  costs,  and  writedowns  of  uneconomic  generation  plant  and
regulatory assets recorded in accordance with Statement of Financial  Accounting
Standards  No. 71 (FAS 71),  "Accounting  for the  Effects of  Certain  Types of
Regulation." The inability to recover these stranded costs would have a material
adverse effect on GPU's results of operations.

     In October  1997,  GPU  announced its intention to begin a process to sell,
through  a  competitive   bid  process,   up  to  all  of  the  fossil-fuel  and
hydroelectric  generating  facilities owned by the GPU Energy  companies.  These
facilities,  comprised  of 26  operating  stations,  support  organizations  and
development  sites, total  approximately  5,300 MW (JCP&L 1,900 MW; Met-Ed 1,300
MW;  Penelec  2,100 MW) of capacity  and have a net book value of  approximately
$1.1 billion (JCP&L $286 million; Met-Ed $297 million;  Penelec $532 million) at
June 30,  1998.  The net  proceeds  from the sale  would be used to  reduce  the
capitalization of the respective GPU Energy companies and may also be applied to
reduce  short-term  debt,  finance  further  acquisitions,  repurchase GPU, Inc.
common  stock,  and  to  reduce  acquisition  debt  of  the  GPUI  Group.  It is
anticipated that definitive purchase agreements will be entered into in November
1998 and the divestiture completed by mid-1999, subject to the timely receipt of
the necessary regulatory and other approvals.

     In August  1998,  Penelec  and New York State  Electric  & Gas  Corporation
(NYSEG)  entered into  definitive  agreements with Edison Mission Energy to sell
the Homer City Station for a total purchase price of approximately $1.8 billion.
Penelec and NYSEG each own a 50% interest in the station, and will share equally
in the net sale  proceeds.  The sale,  which is subject to various  federal  and
state regulatory approvals,  is expected to be completed in the first quarter of
1999.

Nonutility Generation Agreements:
---------------------------------

     Pursuant to the  requirements  of the  federal  Public  Utility  Regulatory
Policies Act (PURPA) and state regulatory  directives,  the GPU Energy companies
have entered into power purchase agreements with NUGs for the purchase of energy
and capacity for remaining  periods of up to 23 years. The following table shows
actual payments from 1995 through 1997, and estimated payments from 1998 through
2002.



                                      21


<PAGE>


                         Payments Under NUG Agreements
                         -----------------------------
                                 (in Millions)
                              Total       JCP&L       Met-Ed      Penelec
                              -----       -----       ------      -------

      1995                       $670       $381        $131        $158
      1996                        730        370         168         192
      1997                        759        384         172         203
   *  1998                        783        393         173         217
      1999                        789        395         167         227
      2000                        877        402         222         253
      2001                        916        411         261         244
      2002                        940        423         272         245

*    The 1998  amounts  consist of actual  payments  through  June 30,  1998 and
     estimated payments for the remainder of the year.

     As of June 30, 1998, NUG facilities  covered by agreements  having 1,666 MW
(JCP&L 905 MW; Met-Ed 356 MW; Penelec 405 MW) of capacity were in service. While
a few of these NUG facilities are dispatchable,  most are must-run and generally
obligate the GPU Energy companies to purchase, at the contract price, the output
up to the contract  limits.  Substantially  all unbuilt NUG facilities for which
the GPU Energy companies have executed agreements are fully dispatchable.

     The  emerging   competitive   generation  market  has  created  uncertainty
regarding the  forecasting  of the  companies'  energy  supply needs,  which has
caused  the GPU  Energy  companies  to  change  their  supply  strategy  to seek
shorter-term  agreements  offering more  flexibility.  The GPU Energy companies'
future supply plan will likely focus on short- to intermediate-term  commitments
and reliance on spot market  purchases.  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.   As  a  result  of  these
developments,  the rates under  virtually all of the GPU Energy  companies'  NUG
agreements for facilities  currently in operation are substantially in excess of
current and projected prices from alternative sources.

     The GPU Energy  companies are seeking to reduce the  above-market  costs of
these NUG  agreements  by: (1)  attempting  to convert  must-run  agreements  to
dispatchable agreements; (2) attempting to renegotiate prices of the agreements;
(3) offering  contract buyouts (see  Management's  Discussion and Analysis - The
GPU Energy  Companies'  Supply  Plan,);  and (4) initiating  proceedings  before
federal and state agencies,  and in the courts, where appropriate.  In addition,
the GPU Energy  companies  intend to avoid,  to the maximum extent  practicable,
entering into any new NUG agreements  that are not needed or not consistent with
current market pricing, and are supporting  legislative efforts to repeal PURPA.
These efforts may result in claims against GPU for  substantial  damages.  There
can be no assurance as to the extent to which these  efforts will be  successful
in whole or in part.

     In 1997,  Met-Ed and Penelec issued requests for proposals (RFPs) to 24 NUG
projects  which  currently  supply a total of  approximately  760 MW under power
purchase  agreements.  The RFPs requested the NUGs to propose buyouts,  buydowns
and/or  restructurings  of current power  purchase  contracts in return for cash
payments. In January 1998, Met-Ed and Penelec entered into


                                      22


<PAGE>


definitive buyout  agreements with two bidders.  These agreements are contingent
upon Met-Ed and Penelec  obtaining a PaPUC order  allowing for the full recovery
of the buyout payments through retail rates.

     In February  1997,  Met-Ed and Penelec  entered into revised power purchase
agreements with AES Power Corporation (AES) for 377 MW and 80 MW of capacity and
related energy,  respectively,  related to a combined-cycle  generating facility
that AES plans to construct in Pennsylvania.  Met-Ed and Penelec have paid $63.4
million  and  $5  million,  respectively,  to  previous  developers  and  AES to
terminate the original power purchase agreements.  In November 1997, in response
to an offer  from AES,  Met-Ed  and  Penelec  agreed to  increase  the  contract
capacity  under  the  agreements  by 163  MW.  If  the  revised  power  purchase
agreements  with AES are not  approved  by the PaPUC,  Met-Ed and  Penelec  have
agreed to pay AES up to an additional $29 million and $6 million,  respectively.
There can be no assurance as to the outcome of this matter.

     The GPU Energy  companies  are  currently  recovering  certain of their NUG
costs  (including  certain  buyout  costs) from  customers.  However,  the PaPUC
Restructuring  Orders do not  provide for the  collection  from  customers  of a
substantial portion of above-market NUG costs. Met-Ed and Penelec are contesting
the Restructuring Orders. Although the Pennsylvania legislation and the NJEMP in
New  Jersey  both  include  provisions  for the  recovery  of  costs  under  NUG
agreements and certain NUG buyout costs,  there can be no assurance that the GPU
Energy  companies will continue to be able to recover similar costs which may be
incurred in the future. (See Management's  Discussion and Analysis - Competitive
Environment for additional discussion.)

     This discussion of "Nonutility  Generation  Agreements"  contains estimates
which are based on current  knowledge and  expectations of the outcome of future
events.  The  estimates  are  subject to  significant  uncertainties,  including
changes in fuel prices,  improvements  in  technology,  the changing  regulatory
environment and the deregulation of the electric utility industry.

Regulatory Assets, Net:
-----------------------

     On June 30, 1998,  Met-Ed and Penelec  received  final PaPUC  Restructuring
Orders. The Restructuring  Orders,  among other things,  essentially remove from
regulation the costs associated with providing  electric  generation  service to
Pennsylvania  consumers,  effective  January  1, 1999.  Accordingly,  Met-Ed and
Penelec have  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"  with  respect  to  their  electric  generation  operations,
effective April 1, 1998. The transmission and distribution portion of Met-Ed and
Penelec's operations will continue to be subject to the provisions of FAS 71.
See Note 2 - Accounting for Non-recurring Items.

     JCP&L will  discontinue the application of FAS 71 and apply FAS 101 for its
electric generation  operations no later than when it receives NJBPU approval of
its restructuring plans.

     Regulatory  Assets,  Net as reflected in the June 30, 1998 and December 31,
1997  Consolidated  Balance Sheets in accordance  with the provisions of FAS 71,
were as follows:



                                      23


<PAGE>


GPU, Inc. and Subsidiary Companies                  Assets (in thousands)
----------------------------------              ----------------------------
                                                   June 30,     December 31,
                                                     1998           1997
                                                -------------    ---------

Competitive transition charge per PaPUC Order     $1,832,780     $        -
Return recognized                                     76,580              -
                                                   ---------      ---------
     Total competitive transition charge (CTC)    $1,909,360     $        -
                                                   =========      =========

Other regulatory assets, net:
Reserve for generation divestiture (JCP&L)        $  122,409     $        -
Phase II reserve for generation divestiture          440,541             -
Income taxes recoverable through future rates        412,710        510,680
Income taxes refundable through future rates         (57,475)      (89,247)
Net investment in TMI-2                               67,458         83,951
TMI-2 decommissioning costs                           76,398        257,180
Nonutility generation contract buyout costs          139,708        245,568
Unamortized property losses                           83,619         99,532
Other postretirement benefits                         75,431         89,569
Environmental remediation                             43,174         90,308
N.J. unit tax                                         36,583         39,797
Unamortized loss on reacquired debt                   34,525         40,489
Load and demand-side management programs              21,932         23,164
N.J. low-level radwaste disposal                      26,496         31,479
DOE enrichment facility decommissioning               30,306         33,472
Nuclear fuel disposal fee                             22,556         21,512
Storm damage                                          31,252         31,097
Deferred nonutility generation costs
  not in current rates                                     -         24,857
Other regulatory liabilities                         (17,691)       (13,959)
Other regulatory assets                                9,275         28,029
                                                   ---------      ---------
     Total other regulatory assets, net           $1,599,207     $1,547,478
                                                   =========      =========

JCP&L                                               Assets (in thousands)
-----                                               ---------------------
                                                   June 30,     December 31,
                                                     1998           1997
                                                   -------------   --------
Other regulatory assets, net:
Reserve for generation divestiture                $  122,409     $        -
Income taxes recoverable through future rates        140,920        128,111
Income taxes refundable through future rates         (35,964)      (37,759)
Net investment in TMI-2                               67,458         75,541
TMI-2 decommissioning costs                           23,398         30,024
Nonutility generation contract buyout costs          132,208        140,500
Unamortized property losses                           83,540         94,726
Other postretirement benefits                         48,147         49,807
Environmental remediation                             43,174         61,324
N.J. unit tax                                         36,583         39,797
Unamortized loss on reacquired debt                   27,342         28,729
Load and demand-side management programs              21,932         23,164
N.J. low-level radwaste disposal                      26,496         31,479
DOE enrichment facility decommissioning               18,679         21,223
Nuclear fuel disposal fee                             22,016         23,781
Storm damage                                          31,252         31,097
Other regulatory liabilities                         (16,665)       (11,467)
Other regulatory assets                                5,231          6,399
                                                   ---------      ---------
     Total other regulatory assets, net           $  798,156     $  736,476
                                                   =========      =========


                                      24

<PAGE>


Met-Ed                                              Assets (in thousands)
------                                              ---------------------
                                                   June 30,     December 31,
                                                     1998           1997
                                                   -------------   --------

Competitive transition charge per PaPUC Order     $  974,860     $        -
Return recognized                                     50,110              -
                                                   ---------      ---------
  Total competitive transition charge (CTC)       $1,024,970     $        -
                                                   =========      =========

Other regulatory assets, net: Transmission & Distribution related:
  Income taxes recoverable through future rates   $  123,060     $  116,303
  Income taxes refundable through future rates       (12,201)      (12,614)
  Nonutility generation contract buyout costs          7,500         12,500
  Other postretirement benefits                       27,284         27,436
  Unamortized loss on reacquired debt                  3,153          3,411
  DOE enrichment facility decommissioning              7,751          8,166
  Other regulatory liabilities                          (940)        (1,014)
  Other regulatory assets                                223            216
                                                   ---------      ---------
    Subtotal                                      $  155,830     $  154,404
                                                   ---------      ---------

Generation related:
-------------------
  Income taxes recoverable through future rates   $        -     $   62,624
  Income taxes refundable through future rates             -        (9,135)
  Unamortized property losses                             79          2,650
  Other postretirement benefits                            -         12,326
  Environmental remediation                                -          4,121
  Unamortized loss on reacquired debt                    140          1,918
  Nuclear fuel disposal fee                              302         (1,511)
  Other regulatory liabilities                             -         (1,432)
  Other regulatory assets                                642          3,227
                                                   ---------      ---------
    Subtotal                                      $    1,163     $   74,788
                                                   ---------      ---------

Other:
------
  Phase II reserve for generation divestiture     $   96,421     $        -
  Net investment in TMI-2                                  -          1,187
  TMI-2 decommissioning costs                         36,530        145,103
  Nonutility generation contract buyout costs              -         63,868
 Deferred nonutility generation costs
  not in current rates                                     -         10,265
  Other regulatory assets                              1,347          1,072
                                                   ---------      ---------
    Subtotal                                      $  134,298     $  221,495
                                                   ---------      ---------

    Total other regulatory assets, net            $  291,291     $  450,687
                                                   =========      =========


Penelec                                             Assets (in thousands)
-------                                             ---------------------
                                                   June 30,     December 31,
                                                     1998           1997
                                                -------------   --------

Competitive transition charge per PaPUC Order     $  857,920     $        -
Return recognized                                     26,470              -
                                                   ---------      ---------
  Total competitive transition charge (CTC)       $  884,390     $        -
                                                   =========      =========





                                      25


<PAGE>


Other regulatory assets, net: Transmission & Distribution related:
  Income taxes recoverable through future rates   $  148,730     $  142,549
  Income taxes refundable through future rates        (9,310)        (9,516)
  Unamortized loss on reacquired debt                  3,690          4,116
  DOE enrichment facility decommissioning              3,876          4,083
  Other regulatory liabilities                           (86)           (46)
                                                   ---------      ---------
    Subtotal                                      $  146,900     $  141,186
                                                   ---------      ---------

Generation related:
  Income taxes recoverable through future rates   $        -     $   61,093
  Income taxes refundable through future rates             -       (20,223)
  Unamortized property losses                              -          2,156
  Environmental remediation                                -         24,863
  Unamortized loss on reacquired debt                    200          2,315
  Nuclear fuel disposal fee                              238           (758)
  Other regulatory assets                                686         15,964
                                                   ---------      ---------
    Subtotal                                      $    1,124     $   85,410
                                                   ---------      ---------

Other:
       Phase II reserve for generation divestiture                  344,120
         -
  Net investment in TMI-2                                  -          7,223
  TMI-2 decommissioning costs                         16,470         82,053
  Nonutility generation contract buyout costs              -         28,700
  Deferred nonutility generation costs
   not in current rates                                    -         14,592
  Other regulatory assets                              1,146          1,151
                                                   ---------      ---------
    Subtotal                                      $  361,736     $  133,719
                                                   ---------      ---------

    Total other regulatory assets, net            $  509,760     $  360,315
                                                   =========      =========


Competitive  transition  charge:  Represents the stranded cost recovery  amounts
allowed by the PaPUC,  and a recognized  return,  which are to be collected from
customers of Met-Ed and Penelec, beginning January 1, 1999, over eleven-year and
eight-year transition periods,  respectively.  Stranded costs, as defined by the
Pennsylvania Competition Act, include an electric utility's known and measurable
generation-related  costs,  which  would  have been  recoverable  in the  former
regulated market, but are not recoverable in a competitive  electric  generation
market.

Reserve for generation  divestiture (JCP&L):  Represents generation  divestiture
shortfall  which  is  probable  of  recovery  in  future  rates,   inclusive  of
transaction costs.

Phase II reserve for  generation  divestiture  (Met-Ed and Penelec):  Represents
generation  divestiture  CTC  shortfall  to be  addressed  in a  Phase  II  rate
restructuring order, inclusive of transaction costs.

Income taxes  recoverable/refundable  through future rates:  Represents  amounts
deferred due to the implementation of FAS 109, "Accounting for Income Taxes," in
1993.

Net investment in TMI-2: Represents costs that are recoverable through rates for
the GPU Energy companies' remaining investment in the plant and fuel core.


                                      26


<PAGE>


TMI-2 decommissioning costs: Represents costs that are recoverable through rates
for the GPU  Energy  companies'  radiological  decommissioning  and the  cost of
removal of nonradiological  structures and materials in accordance with the 1995
site-specific study (in 1998 dollars). For additional  information,  see Nuclear
Plant Retirement Costs.

Nonutility  generation  contract buyout costs:  Represents  amounts incurred for
terminating power purchase contracts with NUGs, for which rate recovery has been
granted or is probable.

Unamortized  property  losses:  Consists mainly of costs associated with JCP&L's
Forked River project, which are included in rates.

Other  postretirement  benefits:  Includes costs associated with the adoption of
FAS  106,  "Employers'   Accounting  for  Postretirement   Benefits  Other  Than
Pensions,"  which are deferred in  accordance  with  Emerging  Issues Task Force
(EITF) Issue 92-12, "Accounting for OPEB Costs by Rate-Regulated
Enterprises."

Environmental remediation:  Consists of amounts related to the investigation and
remediation of several  manufactured gas plant sites formerly owned by JCP&L, as
well as several other JCP&L sites; Penelec's Seward station property; and future
closure costs of various ash disposal  sites for the GPU Energy  companies.  For
additional information, see Environmental Matters.

N.J. unit tax: Represents certain state taxes, with interest, for which JCP&L
received NJBPU approval in 1993 to recover over a ten-year period.

Unamortized loss on reacquired debt:  Represents  premiums and expenses incurred
in the early redemption of long-term debt. In accordance with FERC  regulations,
reacquired  debt costs are  amortized  over the  remaining  original life of the
retired debt.

Load and  demand-side  management  (DSM)  programs:  Consists of load management
costs and other DSM program  expenditures  that are currently  being  recovered,
with interest,  through JCP&L's retail base rates and demand-side  factor.  Also
includes  provisions for lost revenues  between base rate cases and  performance
incentives.

N.J. low-level radwaste disposal: Represents the estimated assessment for the
siting of a disposal facility for low-level waste from Oyster Creek, less
amortization, as allowed in JCP&L's rates.

Department  of Energy  (DOE)  enrichment  facility  decommissioning:  Represents
payments to the DOE over a 15-year period which began in 1994.

Nuclear fuel  disposal fee:  Represents  amounts  recoverable  through rates for
estimated future disposal costs for spent nuclear fuel at Oyster Creek and Three
Mile Island Unit 1 (TMI-1) in  accordance  with the Nuclear  Waste Policy Act of
1982.

Storm damage:  Relates to incremental  noncapital  costs associated with various
storms  in  the  JCP&L  service  territory  that  are  not  recoverable  through
insurance.  These amounts were deferred based upon past rate recovery precedent.
An annual  amortization  amount is included in JCP&L's  retail base rates and is
charged to expense.


                                      27


<PAGE>



Deferred   nonutility   generation  costs  not  in  current  rates:   Represents
incremental NUG operating  costs incurred above amounts  reflected in Met-Ed and
Penelec's  current  rates,  for which rate  recovery is probable but has not yet
been  granted  (see   Management's   Discussion   and  Analysis  -   Competitive
Environment).


Accounting Matters:
-------------------

     In June 1998,  Statement of  Financial  Accounting  Standards  No. 133 (FAS
133), "Accounting for Derivative Instruments and Hedging Activities" was issued.
FAS 133 requires that  companies  recognize all  derivatives as either assets or
liabilities on the balance sheet and measure those instruments at fair value. To
comply with this  statement,  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  reported as a
component of other  comprehensive  income,  depending  upon the intended use and
designation  of the  derivative as a hedge.  This statement is effective for all
fiscal  quarters of fiscal years  beginning  after June 15, 1999. GPU expects to
adopt this  statement  in the first  quarter of 2000.  GPU is in the  process of
evaluating the impact of FAS 133.

     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," requires that regulatory  assets meet the recovery criteria of FAS 71 on an
ongoing basis in order to avoid a write-down. In addition, FAS 121 requires that
long-lived  assets,  identifiable  intangibles,  capital  leases and goodwill be
reviewed  for  impairment  whenever  events  occur or changes  in  circumstances
indicate that the carrying amount of the assets may not be recoverable.  FAS 121
also requires the recognition of impairment  losses when the carrying amounts of
those assets are greater than the estimated  cash flows expected to be generated
from the use and eventual  disposition of the assets.  See Note 2 Accounting for
Non-recurring Items.

     Should the  restructuring  proceeding in New Jersey  result in  substantial
disallowance of certain capital additions;  the disallowance of certain stranded
costs;  reduction in cost of capital allowances on certain elements of plant and
cost deferrals;  and tariff rate unbundling reflecting an allocation of costs to
the transmission and distribution  activities lower than that proposed by JCP&L,
management  believes that the outcome of that  proceeding  would have a material
adverse effect on GPU's future earnings.


                              NUCLEAR FACILITIES
                              ------------------

     The GPU Energy  companies  have made  investments  in three  major  nuclear
projects  -- TMI-1 and  Oyster  Creek,  both of which are  operating  generation
facilities, and TMI-2, which was damaged during a 1979 accident. TMI-1 and TMI-2
are jointly owned by JCP&L,  Met-Ed and Penelec in the  percentages  of 25%, 50%
and 25%,  respectively.  Oyster  Creek is owned by JCP&L.  At June 30,  1998 and
December 31, 1997, the GPU Energy  companies' net investment in TMI-1 and Oyster
Creek, including nuclear fuel, was as follows:




                                      28


<PAGE>


                       Net Investment (in millions)
                       ----------------------------
                                   TMI-1     Oyster Creek
                                   -----     ------------
           June 30, 1998
           -------------
           JCP&L                   $ 33           $697
           Met-Ed                    65              -
           Penelec                   33              -
                                    ---            ---
             Total                 $131           $697
                                    ===            ===

                          Net Investment (in millions)
                          ----------------------------
                                   TMI-1     Oyster Creek
           December 31, 1997
           -----------------
           JCP&L                   $155           $701
           Met-Ed                   300              -
           Penelec                  147              -
                                    ---            ---
             Total                 $602           $701
                                    ===            ===

The GPU  Energy  companies'  net  investment  in TMI-2 at June 30,  1998 was $68
million for JCP&L and $84 million,  (JCP&L $76 million;  Met-Ed $1 million;  and
Penelec $7 million) at December 31 1997. 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.  On June 30,  1998,  Met-Ed  and  Penelec  received  final  PaPUC
Restructuring  Orders. The companies  discontinued the application of FAS 71 and
adopted the  provisions  of FAS 101 with  respect to their  electric  generation
operations. Accordingly, Met-Ed and Penelec wrote-off their remaining investment
in TMI-2 of $1 million and $7 million,  respectively.  See Note 2 Accounting for
Non-recurring Items.

     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. The GPU Energy companies may also incur costs and experience
reduced output at their nuclear plants because of the prevailing design criteria
at the time of construction and the age of the plants' systems and equipment. In
addition, for economic or other reasons,  operation of these plants for the full
term of  their  operating  licenses  cannot  be  assured.  Also,  not all  risks
associated  with  the  ownership  or  operation  of  nuclear  facilities  may be
adequately insured or insurable.  Consequently, the recovery of costs associated
with nuclear projects,  including replacement power, any unamortized  investment
at the end of each plant's  useful life (whether  scheduled or  premature),  the
carrying costs of that  investment and retirement  costs,  is not assured.  (See
Competition and the Changing Regulatory Environment.)

      In addition to the continued operation of the Oyster Creek facility, JCP&L
has been  exploring the sale or early  retirement of the plant to mitigate costs
associated with its continued operation.  In July 1998, GPU, Inc. announced that
it was  unable  to  identify  a buyer for the  Oyster  Creek  facility.  A final
decision  on the  plant  will not be made  until  the  NJBPU  rules  on  JCP&L's
restructuring  filing.  If a  decision  is  made  to  retire  the  plant  early,
retirement  would likely occur in 2000.  Although  management  believes that the
current  rate  structure  would allow for the  recovery of and return on its net
investment in the plant and provide for  decommissioning  costs, there can be no
assurance  that  such  costs  will  be  fully  recoverable.   (See  Management's
Discussion and Analysis - Competitive Environment).


                                      29


<PAGE>


     In July 1998,  GPU entered into a Letter of Intent to sell TMI-1 to AmerGen
Energy Company,  LLC (AmerGen),  a joint venture between PECO Energy and British
Energy.  The Letter of Intent  initiates a 90-day  period  during  which GPU and
AmerGen will seek to negotiate a definitive  agreement for the purchase and sale
of TMI-1  and  AmerGen  will  complete  its due  diligence  review  of the TMI-1
facility.  Highlights of the Letter of Intent are  presented in the  Competitive
Environment section of Management's Discussion and Analysis.

TMI-2:
------

     The 1979 TMI-2 accident  resulted in individual claims for alleged personal
injury  (including claims for punitive  damages),  which are material in amount,
have been asserted against GPU, Inc. and the GPU Energy companies. Approximately
2,100 of such  claims  were filed in the United  States  District  Court for the
Middle  District  of  Pennsylvania.  Some of the claims also seek  recovery  for
injuries from alleged emissions of radioactivity before and after the accident.

     At the time of the TMI-2  accident,  as provided for in the  Price-Anderson
Act, the GPU Energy companies had (a) primary  financial  protection in the form
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 (JCP&L $7.5 million; Met-Ed $5 million; Penelec $2.5 million).

     In October 1995, the U.S. Court of Appeals for the Third Circuit ruled that
the  Price-Anderson Act provides coverage under its primary and secondary levels
for punitive as well as compensatory  damages,  but that punitive  damages could
not be  recovered  against  the  Federal  Government  under the  third  level of
financial protection.  In so doing, the Court of Appeals referred to the "finite
fund" (the $560 million of financial protection under the Price-Anderson Act) to
which plaintiffs must resort to get compensatory as well as punitive damages.

     The Court of  Appeals  also  ruled  that the  standard  of care owed by the
defendants  to a plaintiff  was  determined  by the specific  level of radiation
which was  released  into the  environment,  as measured  at the site  boundary,
rather than as measured at the specific  site where the plaintiff was located at
the time of the accident (as the defendants proposed). The Court of Appeals also
held that each plaintiff still must demonstrate  exposure to radiation  released
during the TMI-2  accident and that such  exposure had resulted in injuries.  In
1996,  the U.S.  Supreme Court denied  petitions  filed by GPU, Inc. and the GPU
Energy companies to review the Court of Appeals' rulings.

     In June 1996,  the  District  Court  granted a motion for summary  judgment
filed by GPU, Inc. and the GPU Energy companies,  and dismissed all of the 2,100
pending  claims.  The Court  ruled that there was no  evidence  which  created a
genuine issue of material fact warranting  submission of plaintiffs' claims to a
jury. The plaintiffs have appealed the District Court's ruling to


                                      30


<PAGE>


the Court of Appeals for the Third Circuit, before which the matter is
pending.  There can be no assurance as to the outcome of this litigation.

     Based on the above, 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 1990, the GPU Energy  companies  submitted a report,  in compliance with
Nuclear Regulatory  Commission (NRC)  regulations,  setting forth a funding plan
(employing the external  sinking fund method) for the  decommissioning  of their
nuclear  reactors.  Under this plan, the GPU Energy companies intend to complete
the funding for Oyster Creek and TMI-1 by the end of the plants'  license terms,
2009  and  2014,  respectively.  The  TMI-2  funding  completion  date is  2014,
consistent with TMI-2's remaining in long-term storage and being  decommissioned
at the same time as TMI-1. Based on NRC studies, a comparable funding target was
developed  for  TMI-2  which  took the  accident  into  account.  Under  the NRC
regulations, the funding targets (in 1998 dollars) are as follows:
                                              (in millions)
                                                               Oyster
                                        TMI-1      TMI-2       Creek
                                        -----      -----       -----

JCP&L                                   $ 46       $ 73        $314
Met-Ed                                    92        146           -
Penelec                                   46         73           -
                                         ---        ---         ---
   Total                                $184       $292        $314
                                         ===        ===         ===

    The funding  targets,  while not considered  cost  estimates,  are reference
levels  designed  to  assure  that  licensees   demonstrate  adequate  financial
responsibility for decommissioning. While the NRC regulations address activities
related to the removal of the radiological  portions of the plants,  they do not
establish residual radioactivity limits nor do they address costs related to the
removal of nonradiological structures and materials.

    In 1995, a consultant  to GPUN  performed  site-specific  studies of the TMI
site, including both Units 1 and 2, and of Oyster Creek, that considered various
decommissioning   methods  and  estimated  the  cost  of   decommissioning   the
radiological portions and the cost of removal of the nonradiological portions of
each plant, using the prompt  removal/dismantlement  method. GPUN management has
reviewed the methodology and assumptions used in these studies,  is in agreement
with them,  and  believes  the  results are  reasonable.  The NRC may require an
acceleration  of the  decommissioning  funding for Oyster  Creek if the plant is
retired early. The retirement cost estimates under the site-specific studies are
as follows (in 1998 dollars):





                                      31


<PAGE>


                                              (in millions)
                                                               Oyster
                                        TMI-1      TMI-2       Creek
                                        -----      -----       -----

Radiological decommissioning            $337       $410        $397
Nonradiological cost of removal           83         34 *        38
                                         ---        ---         ---
   Total                                $420       $444        $435
                                         ===        ===         ===

* Net of $11.6 million spent as of June 30, 1998.

     Each of the GPU Energy  companies is responsible  for  retirement  costs in
proportion to its respective ownership percentage.

     In July 1998, GPU entered into a Letter of Intent to sell TMI-1 to AmerGen.
The Letter of Intent provides,  among other things,  that upon closing,  Amergen
will  assume all TMI-1  decommissioning  liabilities  beyond $320  million,  the
amount  to  which  GPU has  agreed  to fund  the  trusts.  If all the  necessary
regulatory approvals, as well as certain Internal Revenue Service (IRS) rulings,
are obtained, then the transfer of all the TMI-1 decommissioning liabilities and
expenses to AmerGen will take place at the financial closing.

     The ultimate cost of retiring the GPU Energy companies'  nuclear facilities
may be  different  from  the cost  estimates  contained  in these  site-specific
studies.  Such costs are subject to (a) the  escalation of various cost elements
(for reasons including, but not limited to, general inflation),  (b) the further
development  of  regulatory  requirements  governing  decommissioning,  (c)  the
technology available at the time of decommissioning, and (d) the availability of
nuclear waste disposal facilities.

     The  GPU  Energy  companies  charge  to  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.  Accounting for retirement costs may
change based upon the FASB Exposure Draft discussed below.

     The FASB has  issued an  Exposure  Draft  titled  "Accounting  for  Certain
Liabilities  Related to Closure or Removal of Long-Lived Assets," which includes
nuclear plant retirement  costs. If the Exposure Draft is adopted,  Oyster Creek
and TMI-1 future  retirement  costs would have to be  recognized  as a liability
immediately,  rather than the current industry  practice of accruing these costs
in accumulated  depreciation over the life of the plants. A regulatory asset for
amounts  probable  of recovery  through  rates  would also be  established.  Any
amounts  not  probable  of  recovery  through  rates would have to be charged to
expense.  (For TMI-2, a liability (in 1998 dollars) has already been recognized,
based on the 1995  site-specific  study because the plant is no longer operating
(see TMI-2)).  The  effective  date of this  accounting  change has not yet been
established.

TMI-1 and Oyster Creek:
-----------------------

     The NJBPU has granted  JCP&L  annual  revenues  for TMI-1 and Oyster  Creek
retirement costs of $2.5 million and $13.5 million,  respectively.  These annual
revenues are based on both the NRC funding targets for radiological


                                      32


<PAGE>


decommissioning  costs and a site-specific study which was performed in 1988 for
nonradiological  costs of removal.  The Stipulation of Final Settlement approved
by the NJBPU in 1997 allows for JCP&L's future collection of retirement costs to
increase  annually to $5.2 million and $22.5 million for TMI-1 and Oyster Creek,
respectively,   beginning  in  1998,  based  on  the  1995  site-specific  study
estimates.

     The PaPUC has granted Met-Ed annual revenues for TMI-1  retirement costs of
$8.5   million   based  on  both  the  NRC  funding   target  for   radiological
decommissioning costs and the 1988 site-specific study for nonradiological costs
of removal.  The PaPUC also granted  Penelec annual revenues of $4.2 million for
its share of TMI-1  retirement  costs,  on a basis  consistent with that granted
Met-Ed. As part of their  restructuring plans filed with the PaPUC in June 1997,
Met-Ed and Penelec have requested that these amounts be increased to reflect the
estimated  retirement  costs  contained  in the  1995  site-specific  study  for
radiological  decommissioning and nonradiological  costs of removal. On June 30,
1998,  Met-Ed and Penelec  received  final  PaPUC  Restructuring  Orders,  which
granted recovery of TMI-1  decommissioning  costs as part of the CTC. The PaPUC,
however rejected Met-Ed and Penelec's  proposed TMI-1  decommissioning  recovery
period  and  inflation  assumptions.   Met-Ed  and  Penelec  have  appealed  the
Restructuring  Orders to the Commonwealth Court and have filed complaints in the
U.S. District Court.  Met-Ed and Penelec have filed revised stranded cost claims
for TMI-1  decommissioning  in their  Alternative  Plans. On August 5, 1998, the
PaPUC rejected the  Alternative  Plans as invalid.  Met-Ed and Penelec intend to
appeal this action to the Commonwealth Court.

     The amounts charged to  depreciation  expense for the six months ended June
30, 1998 and the  provisions for the future  expenditure  of these funds,  which
have been made in accumulated depreciation, are as follows:

                                  (in millions)
                                                   Oyster
                                        TMI-1      Creek
                                        -----      -----
Amount expensed for the six months ended June 30, 1998:
   JCP&L                                $  3       $ 11
   Met-Ed                                  4          -
   Penelec                                 2          -
                                         ---        ---
                                        $  9       $ 11
                                         ===        ===

                                  (in millions)
                                                   Oyster
                                        TMI-1      Creek
                                        -----      -----
Accumulated depreciation provision at June 30, 1998:
   JCP&L                                $ 43       $246
   Met-Ed                                 79          -
   Penelec                                34          -
                                         ---        ---
                                        $156       $246
                                        ====       ====


     Management  believes that any TMI-1 and Oyster Creek  retirement  costs, in
excess  of  those  currently  recognized  for  ratemaking  purposes,  should  be
recoverable from customers.


                                      33


<PAGE>


TMI-2:
------

     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
June 30, 1998 and December 31, 1997 are as follows:

                                                 (in millions)

                                    GPU        JCP&L       Met-Ed     Penelec
                                    ---        -----       ------     -------

June 30, 1998                       $459       $115        $229       $115
December 31, 1997                   $449       $112        $225       $112

     These  amounts are based upon the 1995  site-specific  study  estimates (in
1998 and  1997  dollars,  respectively)  discussed  above  and an  estimate  for
remaining  incremental monitored storage costs of $16 million (JCP&L $4 million;
Met-Ed $8 million;  Penelec $4 million)  as of June 30,  1998 and  December  31,
1997, 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 million  (JCP&L $250 thousand;  Met-Ed $500 thousand;  Penelec
$250 thousand).

     Offsetting  the $459  million  liability  at June 30, 1998 is $255  million
which management believes is probable of recovery from customers and included in
Competitive  transition  charge  (Met-Ed $107 million;  Penelec $67 million) and
Other regulatory assets, net (JCP&L $27 million; Met-Ed $37 million; Penelec $17
million)  on the  Consolidated  Balance  Sheets,  and $246  million  (JCP&L  $96
million; Met-Ed $110 million;  Penelec $40 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  Competitive  transition charge and Other
regulatory assets. TMI-2  decommissioning  costs charged to depreciation expense
during  the six months  ended June 30,  1998  amounted  to $7 million  (JCP&L $1
million; Met-Ed $5 million; Penelec $1 million).

     The NJBPU has granted  JCP&L,  TMI-2  decommissioning  revenues for the NRC
funding  target  and  allowances  for the  cost of  removal  of  nonradiological
structures and materials. In addition,  JCP&L is recovering its share of TMI-2's
incremental  monitored  storage  costs.  The  Stipulation  of  Final  Settlement
approved by the NJBPU in 1997 adjusts  JCP&L's  future  revenues for  retirement
costs based on the 1995  site-specific  study  estimates,  beginning in 1998. On
June 30, 1998,  Met-Ed and Penelec  received final PaPUC  Restructuring  Orders,
which granted  recovery of TMI-2  decommissioning  costs as part of the CTC. The
PaPUC rejected the companies' proposed TMI-2 decommissioning recovery period and
inflation  assumptions  but allowed  Met-Ed and Penelec to defer as a regulatory
asset those amounts that are above which was provided for in the CTC.

     At June 30,  1998,  the  accident-related  portion  of  TMI-2  radiological
decommissioning costs is considered to be $73 million (JCP&L $18 million, Met-Ed
$37 million;  Penelec $18  million),  which is the  difference  between the 1995
TMI-1 and TMI-2 site-specific  study estimates (in 1998 dollars).  In connection
with  rate  case  resolutions  at the  time,  JCP&L,  Met-Ed  and  Penelec  made
contributions  to irrevocable  external  trusts  relating to their shares of the
accident-related portions of the decommissioning liability. In 1990,


                                      34


<PAGE>


JCP&L  contributed $15 million and in 1991,  Met-Ed and Penelec  contributed $40
million and $20 million,  respectively,  to irrevocable  external trusts.  These
contributions were not recovered from customers and have been expensed.  The GPU
Energy  companies  will not  pursue  recovery  from  customers  for any of these
amounts  contributed  in  excess  of the $73  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 the TMI station and for Oyster Creek totals $2.7
billion per site. In accordance with NRC regulations,  these insurance  policies
generally  require that proceeds first be used for stabilization of the reactors
and then to pay for decontamination  and debris removal expenses.  Any remaining
amounts available under the policies may then be used for repair and restoration
costs and decommissioning costs. Consequently, there can be no assurance that in
the event of a nuclear  incident,  property damage  insurance  proceeds would be
available for the repair and restoration of that station.

     The  Price-Anderson  Act limits  GPU's  liability  to third  parties  for a
nuclear incident at one of its sites to approximately $9.9 billion. Coverage for
the first $200 million of such liability is provided by private  insurance.  The
remaining  coverage,   or  secondary  financial   protection,   is  provided  by
retrospective  premiums  payable by all nuclear reactor owners.  Under secondary
financial  protection,  a nuclear incident at any licensed nuclear power reactor
in the country,  including those owned by the GPU Energy companies, could result
in  assessments  of up to $88  million per  incident  for each of the GPU Energy
companies' two operating  reactors,  subject to an annual maximum payment of $10
million per  incident  per reactor.  In addition to the  retrospective  premiums
payable under the Price-Anderson  Act, the GPU Energy companies are also subject
to  retrospective  premium  assessments  of up to  $26.5  million  (JCP&L  $17.0
million;  Met-Ed  $6.3  million;  Penelec  $3.2  million)  in any one year under
insurance policies applicable to nuclear operations and facilities.

     The  GPU  Energy   companies  have  insurance   coverage  for   incremental
replacement  power  costs  resulting  from an  accident-related  outage at their
nuclear  plants.  Coverage  commences  after a 17 week  waiting  period  at $3.5
million  per week,  and after 23 weeks of an outage,  continues  for three years
beginning  at $1.8  million  and $2.6  million  per week for the first  year for
Oyster  Creek and TMI-1,  respectively,  decreasing  to 80% of such  amounts for
years two and three.


                                      35


<PAGE>


                            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.

     To comply with Titles I and IV of the federal  Clean Air Act  Amendments of
1990  (Clean  Air  Act),  the GPU  Energy  companies  expect to spend up to $248
million  (JCP&L $44 million;  Met-Ed $98 million;  Penelec $106 million) for air
pollution  control  equipment  by the year  2000,  of which  approximately  $242
million  (JCP&L $43  million;  Met-Ed $96  million;  Penelec  $103  million) has
already been spent. In developing their least-cost plan to comply with the Clean
Air Act,  the GPU Energy  companies  will  continue  to evaluate  major  capital
investments  compared to  participation  in the sulfur  dioxide  (SO2)  emission
allowance market, the expected nitrogen oxide (NOx) emissions trading market and
the use of  low-sulfur  fuel or  retirement of  facilities.  In 1994,  the Ozone
Transport Commission (OTC), consisting of representatives of 12 northeast states
(including New Jersey and Pennsylvania)  and the District of Columbia,  proposed
reductions  in NOx  emissions it believes  necessary to meet ambient air quality
standards  for  ozone  and the  statutory  deadlines  set by the  Clean Air Act.
Effective  November 1997, the Pennsylvania  Environmental  Quality Board adopted
regulations implementing the OTC's proposed NOx reductions and in December 1997,
the New Jersey Department of Environmental  Protection developed a proposal with
the  electric  utility  industry on a plan to implement  the OTC's  proposed NOx
reductions.  The  GPU  Energy  companies  expect  that  the  U.S.  Environmental
Protection Agency (EPA) will approve state implementation plans, including those
in  Pennsylvania  and New  Jersey,  and that as a  result,  they  will  spend an
estimated $6 million  (JCP&L $0.2  million;  Met-Ed $2.8  million;  Penelec $3.0
million)  (included in the above total),  to meet the 1999  seasonal  reductions
agreed upon by the OTC. The OTC has stated that it anticipates  that  additional
NOx  reductions  will be  necessary  to meet the Clean Air Act's  2005  National
Ambient Air Quality Standard for ozone.  However, the specific requirements that
will have to be met at that time have not been finalized.  In addition,  in July
1997 the EPA adopted new, more stringent rules on ozone and particulate  matter.
Several  groups have filed suit in the U.S.  Court of Appeals to overturn  these
new air quality  standards on the grounds  that,  among other  things,  they are
based on inadequate scientific evidence.  Also,  legislation has been introduced
in the Congress  that would impose a four-year  moratorium  on any new standards
under the Clean Air Act. The GPU Energy  companies are unable to determine  what
additional costs, if any, will be incurred if the EPA rules are upheld.

     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):



                                      36


<PAGE>


      JCP&L       MET-ED      PENELEC     GPUN     GPU INC.       TOTAL
      -----       ------      -------     ----     --------       -----

        7            4            2         1          1            12

     In  addition,   certain  of  the  GPU  companies  have  been  requested  to
participate  in the  remediation  or  supply  information  to the EPA and  state
environmental  authorities  on several  other sites for which they have not been
formally named as PRPs,  although the EPA and state authorities may nevertheless
consider  them as PRPs.  Certain  of the GPU  companies  have also been named in
lawsuits  requesting damages (which are material in amount) for hazardous and/or
toxic substances  allegedly released into the environment.  The ultimate cost of
remediation  will  depend upon  changing  circumstances  as site  investigations
continue,  including (a) the existing technology required for site cleanup,  (b)
the remedial action plan chosen and (c) the extent of site contamination and the
portion attributed to the GPU companies involved.

     In 1997,  the EPA filed a complaint  against GPU, Inc. in the United States
District  Court for the District of Delaware for  enforcement  of its unilateral
order issued  against GPU,  Inc. to clean up the former Dover Gas Light  Company
(Dover) manufactured gas production site in Dover,  Delaware.  Dover was part of
the AGECO/AGECORP  group of companies from 1929 until 1942 and GPU, Inc. emerged
from the AGECO/AGECORP  reorganization  proceedings.  All of the common stock of
Dover was sold in 1942 by a member of the AGECO/AGECORP group to an unaffiliated
entity,  and was  subsequently  acquired by  Chesapeake  Utilities  Corporation.
According to the complaint, the EPA is seeking up to $0.5 million in past costs,
$4.2  million  for work in  connection  with the  cleanup  of the Dover site and
approximately  $19 million in  penalties.  GPU,  Inc.  has  responded to the EPA
complaint  stating  that such claims  should be dismissed  because,  among other
things,  they are barred by the  operation  of the Final  Decree  entered by the
United  States  District  Court  for the  Southern  District  of New York at the
conclusion of the 1946 reorganization  proceedings of AGECO/AGECORP.  Chesapeake
Utilities  Corporation has also sued GPU, Inc. for a contribution to the cleanup
of the Dover site. In December 1997, the Court refused to dismiss the complaint;
GPU, Inc. has requested that the Court reconsider its decision.  There can be no
assurance as to the outcome of these proceedings.

     Pursuant  to federal  environmental  monitoring  requirements,  Penelec has
reported to the Pennsylvania Department of Environmental Protection (PaDEP) that
contaminants  from coal mine refuse piles were identified in storm water run-off
at Penelec's Seward station  property.  Penelec signed a modified Consent Order,
which became effective December 1996, that establishes a schedule for submitting
a plan for long-term remediation,  based on future operating scenarios.  Penelec
currently  estimates that the  remediation  of the Seward station  property will
range  from $12  million to $20  million  and has a  recorded  liability  of $12
million at June 30,  1998.  These cost  estimates  are subject to  uncertainties
based on continuing  discussions with the PaDEP as to the method of remediation,
the extent of remediation required and available cleanup  technologies.  Penelec
expects  recovery of these  remediation  costs in Phase II of its  restructuring
proceeding and has recorded a corresponding  deferred debit of approximately $12
million at June 30, 1998.

     In 1997, the GPU Energy  companies  filed with the PaDEP  applications  for
re-permitting seven (JCP&L - one; Met-Ed - three; Penelec - three) operating ash
disposal sites, including projected site closure procedures and related



                                      37


<PAGE>


cost  estimates.  The cost  estimates  for the closure of these sites range from
approximately $17 million to $22 million,  and a liability of $17 million (JCP&L
$1  million;  Met-Ed $4  million;  Penelec  $12  million)  is  reflected  on the
Consolidated  Balance Sheets at June 30, 1998.  JCP&L has requested  recovery of
its share of  closure  costs in its  restructuring  plan filed with the NJBPU in
July 1997.  Met-Ed and  Penelec  expect  recovery  of these costs in Phase II of
their restructuring proceedings. As a result, a deferred debit of $16 million is
reflected on the Consolidated Balance Sheets at June 30, 1998.

     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 June 30, 1998, JCP&L has spent
approximately  $29 million in  connection  with the cleanup of these  sites.  In
addition, JCP&L has recorded an estimated environmental liability of $46 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 $46  million  due to  significant  uncertainties,
including changes in acceptable remediation methods and technologies.

     In 1997,  JCP&L's request to establish a Remediation  Adjustment Clause for
the recovery of MGP  remediation  costs was approved by the NJBPU as part of the
Stipulation  of Final  Settlement.  At June 30, 1998,  JCP&L had recorded on its
Consolidated  Balance  Sheet  a  regulatory  asset  of  $37  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. Pretrial discovery is continuing.

                     OTHER COMMITMENTS AND CONTINGENCIES
                     -----------------------------------

Year 2000 Issue:
----------------

     GPU is  addressing  the year  2000  issue as it  relates  to its  business,
operations and operating  systems,  and its business dealings with third parties
including customers,  banks, partners, vendors, suppliers and service providers.
Comprehensive reviews of all computers,  equipment, systems and applications are
being performed;  remediation plans are being developed;  and certain corrective
actions have begun.  GPU's  remediation plans include,  among other things,  the
upgrade or replacement of computers, equipment and computer software. Management
currently  believes that adequate  resources are being allocated to this project
and anticipates that GPU's remediation  efforts will, in all material  respects,
be completed by the end of 1999.  However,  if GPU or critical  third parties on
which GPU relies are unable to  successfully  correct their year 2000 issue on a
timely basis,  certain  computers,  equipment,  systems and applications may not
function  properly,  which  could  have  a  material  adverse  effect  on  GPU's
operations and financial  condition.  Among other things, GPU's operations could
be affected  by a temporary  inability  to process  transactions,  send bills or
operate electric  generating  stations,  as well as by interruptions of electric
service  and  reduced  customer  service.  There can be no  assurance  as to the
outcome of this matter.



                                      38


<PAGE>


     As part  of  their  year  2000  solution,  the GPU  Energy  companies  have
purchased  and  are  installing  an  integrated   information   system  (Project
Enterprise)  that will help them manage business growth and meet the mandates of
electric utility  deregulation.  The system is scheduled to be fully operational
in early 1999.

     The GPU Energy companies  currently  estimate they will spend $24.2 million
(JCP&L $10.6  million;  Met-Ed $7.4 million;  Penelec $6.2 million) on year 2000
remediation of their computers,  equipment and computer  software.  Of the $24.2
million,  approximately  $6.7  million  (JCP&L $3  million;  Met-Ed $2  million;
Penelec $1.7 million)  would have been spent in any event because of maintenance
and cyclical  replacement  plans that are already in place.  Also, an additional
$8.1  million  (JCP&L,  Met-Ed and Penelec  $2.7  million  each) would have been
needed  to be spent on  modifications  to  systems  that are being  replaced  by
Project Enterprise.

     The GPUI Group currently estimates it will spend approximately $9.2 million
to address the year 2000 issue, primarily to replace or modify equipment.

GPUI Group:
-----------

     At June 30, 1998,  the GPUI Group had  investments  totaling  approximately
$2.4 billion in businesses and facilities located in foreign countries. Although
management  attempts  to  mitigate  the risk of  investing  in  certain  foreign
countries by securing political risk insurance,  the GPUI Group faces additional
risks  inherent to  operating  in such  locations,  including  foreign  currency
fluctuations (see Management's Discussion and Analysis - GPUI Group).

     At June 30, 1998,  GPU, Inc.'s  aggregate  investment in the GPUI Group was
$526 million;  GPU, Inc. has also guaranteed up to an additional $893 million of
GPUI Group  obligations.  Of this amount,  $725 million is included in Long-term
debt and Securities due within one year on GPU's  Consolidated  Balance Sheet at
June 30, 1998; $30 million of that amount relates to a GPU  International,  Inc.
revolving  credit   agreement;   and  $138  million  relates  to  various  other
obligations of the GPUI Group.

     GPU International, Inc. has ownership interests in three NUG projects which
have long-term power purchase  agreements with Niagara Mohawk Power  Corporation
(NIMO). In July 1997, NIMO and 16 independent  power producers (IPP),  including
the GPUI Group,  executed a master agreement  providing for the restructuring or
termination of 29 power purchase  agreements,  pursuant to which NIMO has agreed
to pay an aggregate of $3.6 billion in cash and/or debt securities, and to issue
an  aggregate  of 46 million  shares of NIMO common  stock.  In June 1998,  NIMO
executed the master agreement whereby each of the IPP agreements were negotiated
independently  and resulted in lump sum payments and/or new contracts with NIMO.
At that time,  two of GPUI's NUG projects were  restructured;  and the third NUG
project  has until  August 31,  1998 to  complete  its  restructuring.  GPUI has
deferred  its net  gain on the  proceeds  received  from the  settlement,  which
ensures  recovery of the investment,  and will recognize the gain in income over
the ten year  period of their  restructured  agreements  with NIMO or until such
time as an independent  system  operator (ISO) is established in New York State.
The ISO for New York is expected to be  implemented  as early as 1999,  at which
time  the net  deferred  gain  resulting  from the  lump  sum  proceeds  will be
recognized in income.



                                      39


<PAGE>


     Midlands Electricity (Midlands) has invested in a power project in Pakistan
(Uch Power Project) which was originally scheduled to begin commercial operation
in late 1998.  The Uch Power Project is a 586 MW facility of which Midlands is a
40% owner. The Pakistani  government-owned  utility has recently issued a notice
of intent to terminate certain key project  agreements.  The notice asserts that
various  forms of  corruption  were  involved  in the  original  granting of the
agreements to the Uch investors by the  predecessor  Pakistani  government.  GPU
Electric  believes  that this  notice is similar to  notices  received  by other
independent power projects in Pakistan.

     The Uch investors,  including  Midlands,  strongly deny the allegations and
intend to pursue all available legal options to enforce their contractual rights
under the  project  agreements.  The Uch  investors  are  continuing  to explore
remedies to the situation  with officials of the Pakistani  government.  Through
its 50%  ownership in Midlands,  GPU  Electric's  current  investment in the Uch
Power Project is  approximately  $30 million.  In addition,  the project lenders
could  require  investors to make  additional  investments  to the project under
certain  conditions.  GPU Electric's  share of the additional  investment  could
amount to a maximum of approximately  $14 million.  There can be no assurance as
to the outcome of this matter.

Other:

     GPU's  capital  programs,  for  which  substantial  commitments  have  been
incurred and which extend over several years,  contemplate  expenditures of $545
million  (JCP&L $198 million;  Met-Ed $89 million;  Penelec $110 million;  Other
$148 million) during 1998.

     The GPU  Energy  companies  have  entered  into  long-term  contracts  with
nonaffiliated  mining companies for the purchase of coal for certain  generating
stations in which they have ownership interests. The contracts,  which expire at
various  dates  between  1998 and 2007,  require the purchase of either fixed or
minimum amounts of the stations' coal requirements.  The price of the coal under
the contracts is based on adjustments of indexed cost components. The GPU Energy
companies'  share  of the  cost of coal  purchased  under  these  agreements  is
expected to  aggregate  $171  million  (JCP&L $26  million;  Met-Ed $55 million;
Penelec $90 million) for 1998.

     JCP&L has entered into agreements with other utilities to purchase capacity
and energy for various periods through 2004.  These  agreements will provide for
up to 614 MW in 1998,  declining  to 529 MW in 1999 and 345 MW in 2000,  through
the  expiration  of the final  agreement  in 2004.  Payments  pursuant  to these
agreements  are estimated to be $129 million in 1998,  $111 million in 1999, $83
million in 2000, $92 million in 2001, and $101 million in 2002.

     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.  In December 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.  In
January 1997, the GPU Energy companies,  along with other electric utilities and
state agencies, petitioned the U.S. Court of Appeals



                                      40


<PAGE>


to, among other  things,  permit  utilities to cease  payments  into the Federal
Nuclear Waste Fund until the DOE complies with the NWPA. The DOE's  inability to
accept spent nuclear fuel by 1998 could have a material  impact on GPU's results
of operations, as additional costs may be incurred to build and maintain interim
on-site storage at Oyster Creek.  TMI-1 has sufficient  on-site storage capacity
to accommodate  spent nuclear fuel through the end of its licensed life. In June
1997,  a  consortium  of electric  utilities,  including  GPUN,  filed a license
application  with the NRC seeking  permission  to build an interim  above-ground
disposal  facility for spent nuclear fuel in northwestern  Utah. There can be no
assurance as to the outcome of these matters.

     New Jersey and  Connecticut  have  established  the Northeast  Compact,  to
construct a low-level  radioactive waste disposal facility in New Jersey,  which
should commence operation by the end of 2003. GPUN's total share of the cost for
developing,  constructing and site licensing the facility is estimated to be $58
million,  which will be paid through 2002. Through June 30, 1998, $6 million has
been  paid.  As a result,  at June 30,  1998,  a  liability  of $52  million  is
reflected on the  Consolidated  Balance Sheets.  JCP&L is recovering these costs
from customers, and a regulatory asset has also been recorded. In February 1998,
the New Jersey Low-Level  Radwaste Facility Siting Board (Siting Board) voted to
suspend the siting  process in New Jersey.  The Siting  Board is  reviewing  its
legal and  financial  obligations,  subject to review  from the  Governor.  GPUN
cannot determine at this time what effect,  if any, this matter will have on its
operations.

     Pennsylvania,  Delaware,  Maryland and West Virginia have  established  the
Appalachian  Compact to  construct  a facility  for the  disposal  of  low-level
radwaste in those states,  including  low-level  radwaste  from TMI-1.  To date,
pre-construction  costs of $33 million,  out of an estimated  $88 million,  have
been  paid.   Eleven   nuclear   plants  have  so  far  shared  equally  in  the
pre-construction  costs;  GPUN has  contributed  $3  million on behalf of TMI-1.
Pennsylvania  has stated that it may suspend the search for a low level radwaste
disposal site in the state.  GPUN cannot determine at this time what effect,  if
any, this may have on its operations.

     JCP&L's two  operating  nuclear  units are  subject to the  NJBPU's  annual
nuclear  performance  standard.  Operation of these units at an aggregate annual
generating  capacity  factor  below 65% or above  75% would  trigger a charge or
credit based on replacement  energy costs.  At current cost levels,  the maximum
annual effect on net income of the performance standard charge at a 40% capacity
factor would be  approximately  $11 million before tax. While a capacity  factor
below 40% would generate no specific monetary charge, it would require the issue
to be brought before the NJBPU for review. The annual measurement period,  which
begins in March of each year,  coincides with that used for the Levelized Energy
Adjustment Clause.

     At June 30, 1998, GPU, Inc. and consolidated affiliates had 9,325 employees
worldwide, of which 8,967 employees were located in the U.S. The majority of the
U.S.  workforce  is  employed  by the GPU Energy  companies,  of which 4,800 are
represented  by unions for collective  bargaining  purposes.  JCP&L,  Met-Ed and
Penelec's collective bargaining agreements with the International Brotherhood of
Electrical Workers expire in 1999, 2000 and 2002, respectively.  Penelec and the
Utility  Workers Union of America have entered into a new  three-year  agreement
which expires in 2001.



                                      41


<PAGE>


     During the normal course of the operation of its businesses, in addition to
the matters  described  above,  GPU is from time to time  involved in  disputes,
claims and, in some cases,  as a defendant in litigation  in which  compensatory
and punitive damages are sought by the public, customers,  contractors,  vendors
and other suppliers of equipment and services and by employees alleging unlawful
employment practices. While management does not expect that the outcome of these
matters will have a material  effect on GPU's  financial  position or results of
operations, there can be no assurance that this will continue to be the case.


2.   ACCOUNTING FOR NON-RECURRING ITEMS

Extraordinary Item - FAS 101 Write-off for Pennsylvania Operations:

     Historically, the rates an electric utility charges its customers have been
based on the utility's costs of operation. As a result, the GPU Energy companies
were  required  to account for the  economic  effects of  cost-based  ratemaking
regulation under the provisions of Statement of Financial  Accounting  Standards
No. 71 (FAS 71),  "Accounting  for the Effects of Certain Types of  Regulation."
FAS 71 requires  regulated  entities,  in certain  circumstances,  to defer,  as
regulatory assets, the impact on operations of costs expected to be recovered in
future rates.

     In  response  to  the  continuing  deregulation  of  the  electric  utility
industry,  the  Securities  and Exchange  Commission  (SEC) has  questioned  the
continued  applicability of FAS 71 by  investor-owned  utilities with respect to
their  electric  generation  operations.  In  response  to these  concerns,  the
Financial  Accounting  Standards Board's (FASB) EITF concluded in June 1997 that
utilities  are no longer  subject  to FAS 71, for a  separable  portion of their
business,  when they know details of their individual transition plans. The EITF
also  concluded  that  utilities  can  continue  to  carry  previously  recorded
regulated assets,  as well as any newly established  regulated assets (including
those  related  to  generation),  on their  balance  sheets if  regulators  have
guaranteed a regulated cash flow stream to recover the cost of these assets.

     On June 30, 1998,  Met-Ed and Penelec  received  final PaPUC  Restructuring
Orders. The Restructuring  Orders,  among other things,  essentially remove from
regulation the costs associated with providing  electric  generation  service to
Pennsylvania  consumers,  effective  January  1, 1999.  Accordingly,  Met-Ed and
Penelec have  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 FAS 71" with
respect to their electric  generation  operations,  effective April 1, 1998. The
transmission  and distribution  portion of Met-Ed and Penelec's  operations will
continue to be subject to the provisions of FAS 71. JCP&L expects to discontinue
the  application  of FAS 71 and  adopt  FAS  101  for  its  electric  generation
operations no later than when it receives  NJBPU  approval of its  restructuring
plans.

     Met-Ed and  Penelec's  generation-related  stranded  costs at December  31,
1998,  stranded  costs  approved for rate recovery from  customers,  and amounts
written-off as of June 30, 1998, are summarized as follows:




                                      42


<PAGE>


                                                     (in millions)
                                             Met-Ed     Penelec    Total
                                             ------     -------    -----


Nonutility generation (NUG) commitments     $  816.1  $1,052.0   $1,868.1

Company-owned generation                       140.0    (222.5)     (82.5)

Generation-related regulatory assets and regulatory liabilities:
    Income taxes recoverable through
      future rates                              47.6      31.9       79.5
    Merrill Creek                               51.4       -         51.4
    Other post retirement benefits              12.3       -         12.3
    Consumer education costs                     9.4      11.5       20.9
    Deferred energy costs/(credits)
      at December 31, 1996                      (1.4)      8.6        7.2
    Other deferred costs, net                    5.2      12.9       18.1
                                             -------   -------    -------
      Total                                    124.5      64.9      189.4

Nuclear decommissioning costs                  136.6      85.3      221.9

NUG contract buyout costs                      127.9      54.8      182.7
                                             -------   -------    -------

      Total stranded costs at
        December 31, 1998                    1,345.1   1,034.5    2,379.6

Stranded costs approved for rate recovery
  in PaPUC Orders (CTC receivable)             974.9     857.9    1,832.8

CTC return recognized                           50.1      26.5       76.6
                                             -------   -------    -------

Pre-tax write-offs at June 30, 1998
  as a result of PaPUC Orders                  320.1     150.1      470.2

Tax effect                                     132.8      62.3      195.1
                                             -------   -------    -------

      Net write-offs at June 30, 1998       $  187.3  $   87.8   $  275.1
                                             =======   =======    =======


FAS 121 Impairment Tests on Generation Facilities:

     In accordance with FAS 121, GPU performed  impairment tests on the June 30,
1998 net book value of the GPU Energy companies'  generation  facilities.  These
tests determined that GPU's net investment in TMI-1 was impaired.  No impairment
existed  for the  fossil  fuel and  hydroelectric  generating  plants or for the
Oyster Creek  Nuclear  Station as of that date.  GPU's  investment  in TMI-1 was
written down by $472 million (pre-tax) (JCP&L $123 million; Met-Ed $235 million;
Penelec $114 million) to reflect its fair market value.

Re-establishment of TMI-1 Impairment as a Regulatory Asset:

     The amount  written off for TMI-1 ($472  million) was  re-established  as a
regulatory asset since management believes it is probable of recovery in the



                                      43


<PAGE>


restructuring  process due to expected  gains on the sale of the fossil fuel and
hydroelectric  generating  plants being  projected to exceed the TMI-1 writedown
amount.


3.   ACCOUNTING FOR DERIVATIVE INSTRUMENTS

     GPU's use of derivative financial and commodity  instruments is principally
limited to the GPUI Group.  GPU does not hold or issue  derivative  financial or
commodity instruments for trading purposes.

Interest Rate Swap Agreements:
------------------------------

     The GPUI Group uses  interest  rate swap  agreements  to manage the risk of
increases in variable interest rates. At June 30, 1998, these agreements covered
approximately  $1.3 billion of debt and are scheduled to expire on various dates
through  November 2007.  The GPUI Group records  amounts paid and received under
the  agreements as adjustments  to the interest  expense of the underlying  debt
since the swaps are  related to  specific  assets,  liabilities  or  anticipated
transactions  of the GPUI Group.  For the six months ended June 30, 1998,  fixed
rate interest  expense  exceeded  variable rate interest by  approximately  $9.2
million.


4.   GPUI GROUP EQUITY INVESTMENTS

     The GPUI Group uses the equity  method of  accounting  for  investments  in
which it has the ability to exercise  significant  influence  over the operating
and  financial  policies of the  investee  (generally  evidenced by a 20% to 50%
ownership interest). Investments accounted for under the equity method follow:

                                                               Ownership
Investment                          Location of Operations     Percentage
----------                          ----------------------     ----------
Midlands Electricity plc             United Kingdom               50%
Mid-Georgia Cogen, L.P.              United States                50%
Prime Energy, L.P.                   United States                50%
Onondaga Cogen, L.P.                 United States                50%
Pasco Cogen, Ltd.                    United States                50%
GPU Solar, Inc.                      United States                50%
Termobarranquilla S.A.               Colombia                     29%
Selkirk Cogeneration Partners, L.P.  United States                19%
EnviroTech Investment Fund           United States                10%
Ballard Generation Systems, Inc.     Canada                       10%
Project Orange Associates, L.P.      United States                 4%
OLS Power, L.P.                      United States                 1%

     Summarized  financial  information  for  the  GPUI  Group's  equity  method
investments (which are not consolidated in the financial statements),  including
both the GPUI Group's ownership interests and the non-ownership interests, is as
follows:






                                      44


<PAGE>


                                                        Ownership
                                              ------------------------------
Balance Sheet Data (in thousands)             GPUI Group        Other Owners
---------------------------------             ----------        ------------

June 30, 1998
Current Assets                               $   203,244        $   321,828
Noncurrent Assets                              2,663,417          3,382,498
Current Liabilities                             (861,884)          (926,964)
Long-Term Debt                                (1,145,534)        (1,768,101)
Other Noncurrent Liabilities                    (265,529)          (349,756)
                                               ---------          ---------
Equity in Net Assets                         $   593,714        $   659,505
                                               =========          =========

December 31, 1997
Current Assets                               $   284,033        $   391,018
Noncurrent Assets                              2,918,125          3,616,461
Current Liabilities                             (755,499)          (814,572)
Long-Term Debt                                (1,497,982)        (2,086,257)
Other Noncurrent Liabilities                    (307,504)          (396,675)
                                               ---------          ---------
Equity in Net Assets                         $   641,173        $   709,975
                                               =========          =========

                                                        Ownership
                                              ------------------------------
Earnings Data (in thousands)                  GPUI Group        Other Owners

For the six months ended June 30, 1998
--------------------------------------
Operating Revenues                             $ 665,058          $ 712,278
Depreciation and Amortization                    (39,831)           (39,322)
Operating Income                                  90,513            104,440
Other Income and Deductions                       (5,592)               666
Interest and Preferred Dividends                 (54,077)           (67,540)
                                                 -------            -------
Equity in Net Income                           $  30,844          $  37,566
                                                 =======            =======


For the six months ended June 30, 1997
--------------------------------------
Operating Revenues                             $ 729,269          $ 790,137
Depreciation and Amortization                    (39,242)           (47,579)
Operating Income                                 121,369            124,389
Other Income and Deductions                       (4,620)             9,205
Interest and Preferred Dividends                 (64,433)           (75,010)
                                                 -------            -------
Equity in Net Income                           $  52,316          $  58,584
                                                 =======            =======


For the six months ended June 30, 1998 and 1997,  the GPUI Group  received  cash
distributions totaling $3.9 million and $11.5 million, respectively.

     As of June 30, 1998 and December 31, 1997, GPUI Group equity investments on
the   Consolidated   Balance  Sheets  included   goodwill  (net  of  accumulated
amortization) of approximately $24 million and $66 million, respectively,  which
is  amortized  to expense  over  periods not  exceeding  40 years.  Amortization
expense for the six months ended June 30, 1998 and 1997 amounted to $0.8 million
and $0.3  million,  respectively.  In January  1998,  the GPUI Group  recorded a
decrease in goodwill of $41.2 million as a result of GPU Electric's  sale of its
50% stake in Solaris Power.  In July 1998, GPU Electric sold its 10.36% stake in
Allgas Energy Limited which it had acquired as part of the sale of Solaris Power
in January 1998.




                                      45


<PAGE>


5. SEGMENT INFORMATION

     In 1997, GPU adopted  Statement of Financial  Accounting  Standards No. 131
(FAS  131),   "Disclosures   about   Segments  of  an  Enterprise   and  Related
Information,"  which requires the reporting of certain financial  information by
business  segment and  geographic  area.  For the purpose of  providing  segment
information,  the GPU Energy  companies  consist of the three domestic  electric
utility  companies  serving customers in Pennsylvania and New Jersey, as well as
Genco,  GPUN, GPU Telcom and GPUS. The GPUI Group primarily  develops,  owns and
operates  generation,  transmission  and  distribution  facilities in the United
States and in foreign countries. GPU AR is engaged in energy services and retail
energy sales.  Corporate  represents  the  activities of GPU, Inc., a registered
holding company. GPU's reportable segments are strategic business units that are
managed separately due to their different operating and regulatory environments.
GPU's segment information is as follows:


































                                      46


<PAGE>


Balance Sheet Segment Data (in thousands)

                                            Current   Noncurrent    Current
June 30, 1998                               Assets      Assets    Liabilities
-------------                               -------   ----------  -----------

Domestic:
   GPU Energy companies                   $  914,875  $11,781,747 $1,218,254
   GPUI Group*                                76,776      290,753     66,558
   Less: GPUI Group equity investments
     included above                          (45,584)    (249,369)   (38,906)
   Add: Original equity investment and
     income/(loss) less dividends to date          -       88,685          -
   GPU AR                                      3,083           32      4,498
   Corporate                                     273        6,265    193,414
                                           ---------   ----------  ---------
        Subtotal                             949,423   11,918,113  1,443,818
                                           ---------   ----------  ---------
Foreign: (GPUI Group only)
   Australia                                 135,371    1,705,505    400,522
   United Kingdom*                           147,975    2,202,805    807,677
   Other*                                     62,077      332,850     27,592
   Less: GPUI Group equity investments
     included above                         (157,660)  (2,414,048)  (822,978)
   Add: Original equity investment and
     income/(loss) less dividends to date          -      562,285          -
                                           ---------   ----------  ---------
        Subtotal                             187,763    2,389,397    412,813
                                           ---------   ----------  ---------

Consolidated Total                        $1,137,186  $14,307,510 $1,856,631
                                           =========   ==========  =========

                                                        Other        Cash
                                          Long-Term   Noncurrent    Capital
June 30, 1998                                Debt     Liabilities Expenditures
-------------                             ---------  ------------------------

Domestic:
   GPU Energy companies                   $2,398,794   $5,725,478 $  163,381
   GPUI Group*                               220,440       57,518     22,832
   Less: GPUI Group equity investments
     included above                         (220,440)     (17,811)    (2,133)
   Add: Original equity investment and
     income/(loss) less dividends to date          -            -          -
   GPU AR                                          -          136         22
   Corporate                                       -        1,947          -
                                           ---------    ---------  ---------
        Subtotal                           2,398,794    5,767,268    184,102
                                           ---------    ---------  ---------
Foreign: (GPUI Group only)
   Australia                               1,244,240       71,808      9,046
   United Kingdom*                         1,127,380      236,228     50,735
   Other*                                    196,066       63,229     14,288
   Less: GPUI Group equity investments
     included above                         (925,094)    (247,718)   (55,381)
   Add: Original equity investment and
     income/(loss) less dividends to date          -            -          -
                                           ---------    ---------  ---------
        Subtotal                           1,642,592      123,547     18,688
                                           ---------    ---------  ---------

Consolidated Total                        $4,041,386   $5,890,815 $  202,790
                                           =========    =========  =========


* Includes the effect of consolidating  the GPUI Group's  ownership  interest in
investments  accounted  for under the equity  method  (pro-rata  consolidation),
which are not consolidated in the audited consolidated financial statements.

                                      47


<PAGE>


Balance Sheet Segment Data (in thousands) (continued)

                                            Current    Noncurrent    Current
December 31, 1997                           Assets       Assets    Liabilities
-----------------                           -------    ----------- -----------

Domestic:
   GPU Energy companies                   $  831,269  $ 9,015,913  $1,140,492
   GPUI Group*                                81,027      352,139      90,097
   Less: GPUI Group equity investments
     included above                          (43,777)    (182,384)    (21,360)
   Add: Original equity investment and
     income/(loss) less dividends to date          -       79,458           -
   GPU AR                                      4,961          161       3,301
   Corporate                                     165        6,313     155,977
                                           ---------   ----------   ---------
        Subtotal                             873,645    9,271,600   1,368,507
                                           ---------   ----------   ---------
Foreign: (GPUI Group only)
   Australia*                                 86,226    2,091,619     558,496
   United Kingdom*                           188,462    2,152,977     785,152
   Other*                                    114,786      396,078      43,419
   Less: GPUI Group equity investments
     included above                         (240,256)  (2,735,741)   (734,139)
   Add: Original equity investment and
     income/(loss) less dividends to date    106,317      517,221           -
                                           ---------   ----------   ---------
        Subtotal                             255,535    2,422,154     652,928
                                           ---------   ----------   ---------

Consolidated Total                        $1,129,180  $11,693,754  $2,021,435
                                           =========   ==========   =========

                                                        Other        Cash
                                          Long-Term   Noncurrent    Capital
December 31, 1997                            Debt     Liabilities Expenditures
-----------------                         ---------   ------------------------

Domestic:
   GPU Energy companies                   $2,448,672   $2,721,527  $  356,416
   GPUI Group*                               263,378       46,880     111,125
   Less: GPUI Group equity investments
     included above                         (171,665)     (12,321)       (120)
   Add: Original equity investment and
     income/(loss) less dividends to date          -            -           -
   GPU AR                                          -            -           -
   Corporate                                       -        1,418           -
                                           ---------    ---------   ---------
        Subtotal                           2,540,385    2,757,504     467,421
                                           ---------    ---------   ---------
Foreign: (GPUI Group only)
   Australia*                              1,485,639      115,390   1,811,921
   United Kingdom*                         1,367,471      245,105      77,706
   Other*                                    258,794       64,803       1,213
   Less: GPUI Group equity investments
     included above                       (1,326,317)    (295,183)    (89,624)
   Add: Original equity investment and
     income/(loss) less dividends to date          -            -           -
                                           ---------    ---------   ---------
        Subtotal                           1,785,587      130,115   1,801,216
                                           ---------    ---------   ---------

Consolidated Total                        $4,325,972   $2,887,619  $2,268,637
                                           =========    =========   =========


* Includes the effect of consolidating  the GPUI Group's  ownership  interest in
investments  accounted  for under the equity  method  (pro-rata  consolidation),
which are not consolidated in the audited consolidated financial statements.

                                      48


<PAGE>


Earnings Segment Data (in thousands)

                                                      Depreciation
For the six months                        Operating       and      Operating
ended June 30, 1998                       Revenues    Amortization  Income
-------------------                       --------    ------------  ------

Domestic:
   GPU Energy companies                   $1,907,021  $   237,781 $  300,488
   GPUI Group*                                93,464        5,026     14,454
   Less: GPUI Group equity investments
     included above                          (56,371)      (4,668)   (15,099)
   Add: Equity in undistributed earnings
     of affiliates, net                            -            -          -
   GPU AR                                      5,217            -     (1,173)
   Corporate                                       -            -     (2,292)
                                           ---------   ----------  ---------
        Subtotal                           1,949,331      238,139    296,378
                                           ---------   ----------  ---------
Foreign: (GPUI Group only)
   Australia                                  93,589       20,763     58,675
   United Kingdom*                           595,643       28,448     78,713
   Other*                                     28,320        9,829        295
   Less: GPUI Group equity investments
     included above                         (608,687)     (35,163)   (75,414)
   Add: Equity in undistributed earnings
     of affiliates, net                            -            -          -
                                           ---------   ----------  ---------
        Subtotal                             108,865       23,877     62,269
                                           ---------   ----------  ---------

Consolidated Total                        $2,058,196  $   262,016 $  358,647
                                           =========   ==========  =========

                                             Other    Interest and
For the six months                        Income and    Preferred
ended June 30, 1998                       Deductions    Dividends  Net Income
-------------------                       ----------    ---------  ----------

Domestic:
   GPU Energy companies                   $   (1,456) $   121,450 $  (97,528)
   GPUI Group*                                 3,485       10,277      7,662
   Less: GPUI Group equity investments
     included above                            1,127      (10,173)    (3,799)
   Add: Equity in undistributed earnings
     of affiliates, net                        3,799            -      3,799
   GPU AR                                         34            -     (1,139)
   Corporate                                    (989)       3,244     (6,525)
                                           ---------   ----------  ---------
        Subtotal                               6,000      124,798    (97,530)
                                           ---------   ----------  ---------
Foreign: (GPUI Group only)
   Australia                                  17,622       55,940     20,357
   United Kingdom*                            (3,389)      58,569     16,755
   Other*                                      1,842        2,363       (975)
   Less: GPUI Group equity investments
     included above                            4,465      (43,904)   (27,045)
   Add: Equity in undistributed earnings
     of affiliates, net                       27,045            -     27,045
                                           ---------   ----------  ---------
        Subtotal                              47,585       72,968     36,137
                                           ---------   ----------  ---------

Consolidated Total                        $   53,585  $   197,766 $  (61,393)
                                           =========   ==========  =========

* Includes the effect of consolidating  the GPUI Group's  ownership  interest in
investments  accounted  for under the equity  method  (pro-rata  consolidation),
which are not consolidated in the audited consolidated financial statements.



                                      49


<PAGE>


Earnings Segment Data (in thousands)(continued)

                                                      Depreciation
For the six months                        Operating       and       Operating
ended June 30, 1997                       Revenues    Amortization   Income
-------------------                       ---------   ------------  -------

Domestic:
   GPU Energy companies                   $1,969,328  $   226,570 $  328,650
   GPUI Group*                                75,697        4,799     13,576
   Less: GPUI Group equity investments
     included above                          (66,218)      (4,469)   (13,748)
   Add: Equity in undistributed earnings/
     (losses) of affiliates, net                   -            -          -
   GPU AR                                          -            -     (1,400)
   Corporate                                       -            -     (5,517)
                                           ---------   ----------  ---------
        Subtotal                           1,978,807      226,900    321,561
                                            --------   ----------  ---------
Foreign: (GPUI Group only)
   Australia*                                 73,808        4,772     23,376
   United Kingdom*                           576,596       28,122     86,965
   Other*                                     27,635        5,235      4,786
   Less: GPUI Group equity investments
     included above                         (663,051)     (34,773)  (107,621)
   Add: Equity in undistributed earnings/
     of affiliates, net                            -            -          -
                                           ---------   ----------  ---------
        Subtotal                              14,988        3,356      7,506
                                           ---------   ----------  ---------

Consolidated Total                        $1,993,795  $   230,256 $  329,067
                                           =========   ==========  =========

                                             Other    Interest and
For the six months                        Income and    Preferred
ended June 30, 1997                       Deductions    Dividends  Net Income
-------------------                       ----------  -----------  ----------

Domestic:
   GPU Energy companies                   $      (78) $   125,989 $  202,583
   GPUI Group*                                (1,634)      10,573      1,369
   Less: GPUI Group equity investments
     included above                              975      (10,084)    (2,689)
   Add: Equity in undistributed earnings/
     (losses) of affiliates, net               2,689            -      2,689
   GPU AR                                          -            -     (1,400)
   Corporate                                    (110)       2,621     (8,248)
                                           ---------   ----------  ---------
        Subtotal                               1,842      129,099    194,304
                                           ---------   ----------  ---------
Foreign: (GPUI Group only)
   Australia*                                 (8,295)      12,129      2,952
   United Kingdom*                              (533)      55,680     30,752
   Other*                                      1,423        8,317     (2,255)
   Less: GPUI Group equity investments
     included above                            3,645      (54,349)   (49,627)
   Add: Equity in undistributed earnings
     of affiliates, net                       49,627            -     49,627
                                           ---------   ----------  ---------
        Subtotal                              45,867       21,777     31,449
                                           ---------   ----------  ---------

Consolidated Total                        $   47,709  $   150,876 $  225,753
                                           =========   ==========  =========


* Includes the effect of consolidating  the GPUI Group's  ownership  interest in
investments  accounted  for under the equity  method  (pro-rata  consolidation),
which are not consolidated in the audited consolidated financial statements.


                                      50


<PAGE>






6.   COMPREHENSIVE INCOME

     For  the  six  months   ended  June  30,   1998  and  1997,   comprehensive
income/(loss) was as follows:


                                                           (in thousands)
                                                             Six months
                                                           Ended June 30,
                                                           --------------
GPU, Inc. and Subsidiary Companies                        1998        1997
----------------------------------                        ----        ----

Net income/(loss)                                      $ (61,393)   $225,287
                                                         -------     -------
Other comprehensive income/(loss), net of tax:
     Net unrealized gains on investments                   2,744       1,902
     Foreign currency translation                         (8,823)     (3,182)
                                                         -------     -------
       Total other comprehensive income/(loss)            (6,079)     (1,280)
                                                         -------     -------
Comprehensive income/(loss)                             $(67,472)   $224,007
                                                         =======     =======

Met-Ed
------

Net income/(loss)                                      $(144,002)   $ 53,888
                                                         -------     -------
Other comprehensive income/(loss), net of tax:
     Net unrealized gains on investments                   1,829       1,268
                                                         -------     -------
Comprehensive income/(loss)                            $(142,173)   $ 55,156
                                                         =======     =======

Penelec
-------

Net income/(loss)                                      $ (41,434)   $ 61,735
                                                         -------     -------
Other comprehensive income/(loss), net of tax:
     Net unrealized gains on investments                     915         634
                                                         -------     -------
Comprehensive income/(loss)                            $ (40,519)   $ 62,369
                                                        ========     =======























                                      51


<PAGE>




               COMBINED MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS


     GPU, Inc. owns all the outstanding  common stock of three domestic electric
utilities -- Jersey Central Power & Light Company (JCP&L),  Metropolitan  Edison
Company  (Met-Ed) and  Pennsylvania  Electric  Company  (Penelec).  The customer
service,  transmission and distribution  operations of these electric  utilities
are  conducting  business under the name GPU Energy.  JCP&L,  Met-Ed and Penelec
considered  together  are  referred  to  as  the  "GPU  Energy  companies."  The
generation  operations  of  the  GPU  Energy  companies  are  conducted  by  GPU
Generation,  Inc. (Genco) and GPU Nuclear,  Inc. (GPUN). GPU, Inc. also owns all
the common stock of GPU  International,  Inc., GPU Power, Inc. and GPU Electric,
Inc., which develop,  own and operate generation,  transmission and distribution
facilities in the United States and in foreign  countries.  Collectively,  these
are referred to as the "GPUI Group."  Other  wholly-owned  subsidiaries  of GPU,
Inc. are GPU Advanced Resources,  Inc. (GPU AR), a subsidiary engaging in energy
services and retail  energy sales;  GPU Telcom  Services,  Inc. (GPU Telcom),  a
subsidiary engaging in certain  telecommunications-related  businesses;  and GPU
Service,  Inc. (GPUS), which provides certain legal,  accounting,  financial and
other services to the GPU companies.  All of these companies considered together
are referred to as "GPU."

                          GPU RESULTS OF OPERATIONS
                          -------------------------

     GPU incurred a net loss of $195.2 million for the second quarter ended June
30, 1998, compared with earnings of $70.3 million for the quarter ended June 30,
1997.  The loss per share on a diluted  basis for the  second  quarter  1998 was
$1.54,  compared  with earnings per share of $0.58 in 1997.  The second  quarter
1998 results were  affected by an  extraordinary  charge of $275.1  million,  or
$2.16 per share,  as a result of the  Pennsylvania  Public Utility  Commission's
(PaPUC) June 30, 1998 Restructuring Orders (Restructuring  Orders) on Met-Ed and
Penelec's restructuring plans which were filed with the PaPUC in accordance with
Pennsylvania's Electricity Generation Customer Choice Act (Customer Choice Act).
In its Restructuring  Orders,  the PaPUC did not provide for the collection from
customers of a substantial  portion of above market nonutility  generation (NUG)
costs.  Excluding this extraordinary item, GPU's earnings for the second quarter
ended June 30, 1998 would have been $79.9 million, or $0.62 per share.

     For the six months  ended June 30,  1998,  GPU incurred a net loss of $61.4
million,  or $0.47 per share compared with earnings of $225.3 million,  or $1.86
per share for the six months ended June 30, 1997.  Excluding  the  extraordinary
item mentioned above, earnings for the six months ended June 30, 1998 would have
been $213.7 million, or $1.69 per share. The earnings decrease on this basis was
due to lower income from GPU's domestic utility operations,  which are conducted
by GPU Energy,  and the dilutive effect of the sale of GPU, Inc. common stock in
February  1998.  GPU Energy's  earnings  reduction  for the six month period was
mainly  due to the  absence in 1998 of the step  increase  in  unbilled  revenue
recorded by Met-Ed and Penelec as a result of including  their energy cost rates
(ECRs) in base rates and the  cessation  of  deferred  energy  accounting,  both
effective  January 1, 1997;  increased  expenses related to the reengineering of
business processes to position the GPU Energy companies for deregulation.




                                      52


<PAGE>


GPU RESULTS OF OPERATIONS (continued)
-------------------------
     Partially  offsetting  the earnings  decrease for the six months ended June
30, 1998 versus the six months ended June 30, 1997, was higher GPUI Group income
due to gains on the sale of its interest in Solaris Power (Solaris) and the sale
of half its interest in the Mid-Georgia cogeneration plant (Mid-Georgia).  These
gains  were  partially  offset  by lower  Midlands  Electricity  plc  (Midlands)
earnings due in part to lower weather-related sales.

OPERATING REVENUES:
-------------------

     Operating  revenues for the second  quarter of 1998 increased 7.7% to $1.02
billion,  as compared to the second  quarter of 1997.  For the six months  ended
June 30, 1998,  revenues increased 3.2% to $2.06 billion as compared to the same
period last year. The components of the changes are as follows:

                                                  (in millions)
                                       ----------------------------------
                                       Three Months          Six Months
                                           Ended               Ended
                                       June 30, 1998        June 30, 1998
                                       -------------        -------------

GPU Energy companies:
   Kilowatt-hour (KWH) revenues           $ 19.9              $(18.8)
   Energy-related revenues                  15.4                17.3
   GPU Telcom revenues                       0.9                 5.8
   Other revenues                          (25.4)              (66.6)
                                           -----               -----
        Total GPU Energy companies          10.8               (62.3)
GPUI Group                                  58.2               121.5
GPU AR                                       3.3                 5.2
                                           -----               -----
        Total increase in revenues        $ 72.3              $ 64.4
                                           =====               =====

GPU Energy Companies

Kilowatt-hour revenues
----------------------

     The increase in KWH  revenues for the three month period was due  primarily
to higher  weather-related  sales due to warmer  June  weather  this year versus
cooler than normal  weather last year, an increase in the number of  residential
customers, and increased commercial customer usage.

     The decrease in KWH revenues for the six month period was  primarily due to
the absence in 1998 of the step increase in unbilled  revenue recorded by Met-Ed
and Penelec as a result of including their ECRs in base rates.  KWH revenues now
include  Met-Ed and  Penelec's  energy  and tax  revenues,  consistent  with the
inclusion  of their  ECRs and State  Tax  Adjustment  Surcharges  (STAS) in base
rates, effective January 1, 1997.

Energy-related revenues (JCP&L only)
------------------------------------

      Generally,  changes in  energy-related  revenues do not affect earnings as
they reflect corresponding changes in JCP&L's levelized energy adjustment clause
(LEAC)  billed to  customers  and  expensed.  The increase for the three and six
month periods was due primarily to increased  sales to other  utilities,  higher
energy cost rates and higher residential and commercial customer sales.




                                      53


<PAGE>


GPU RESULTS OF OPERATIONS (continued)
-------------------------

GPU Telcom revenues
-------------------

      GPU Telcom,  a  subsidiary  engaged in certain  telecommunication  related
businesses,  was formed in 1997.  Its 1998 revenues were derived from  contracts
for the leasing and construction of telecommunication infrastructure.

Other revenues

      Generally,  changes in other  revenues do not affect  earnings as they are
offset by corresponding  changes in expense.  The decrease for the three and six
month periods is primarily due to a decrease in 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.  (See
COMPETITIVE ENVIRONMENT.)

GPUI Group

      The increase in GPUI Group  revenues  for the three and six month  periods
was due mainly to the inclusion of revenues from GPU PowerNet (PowerNet),  which
was acquired by GPU Electric in November 1997.

GPU AR

      GPU AR,  which was  formed in the  second  quarter  of 1997,  derived  its
revenues from energy sales to customers who chose it as their energy supplier as
part of the retail  access  pilot  programs  in  Pennsylvania  (see  COMPETITIVE
ENVIRONMENT).  Some  of  GPU  AR's  customers  are  located  in the  GPU  Energy
companies' service territories.

OPERATING EXPENSES:
-------------------

Power purchased and interchanged (PP&I)
---------------------------------------

      Changes  in the energy  component  of PP&I  expense  do not  significantly
affect JCP&L's  earnings since these cost variances are passed through the LEAC.
However,  beginning  on  January  1, 1997,  such cost  variances  for Met-Ed and
Penelec  are not  subject to deferred  accounting  and have a current  impact on
earnings.

Fuel and Deferral of energy and capacity costs, net
---------------------------------------------------

      For JCP&L,  changes in fuel and deferral of energy and capacity costs, net
do not affect  earnings  as they are offset by  corresponding  changes in energy
revenues.  Effective  January 1, 1997, Met-Ed and Penelec ceased deferred energy
accounting  as their  ECRs  were  combined  with  base  rates;  therefore,  cost
variances  have a current  impact on  earnings.  Lower  fuel  costs for  Penelec
contributed slightly to earnings for the six months ended June 30, 1998.






                                      54


<PAGE>


GPU RESULTS OF OPERATIONS (continued)
-------------------------

Other operation and maintenance (O&M)
-------------------------------------

      The increase in other O&M expenses for the three and six month periods was
due primarily to increased GPUI Group O&M expenses  resulting from the inclusion
of PowerNet.  The inclusion of O&M expenses for GPU Telcom,  which was formed in
1997, also contributed to the increase for the three and six month periods. Also
contributing  to the increase for the six month period were expenses  related to
the reengineering of business processes to position the GPU Energy companies for
deregulation.

Depreciation and amortization
-----------------------------

      The increase in depreciation  and  amortization  expense for the three and
six month periods was due mainly to the inclusion of PowerNet.  A charge related
to JCP&L's Final Settlement representing the portion of JCP&L's return on equity
which exceeds the maximum  amount  allowed and must be applied  against  JCP&L's
stranded costs also contributed to the increase for the three month period.

Taxes, other than income taxes
------------------------------

      For JCP&L,  changes in taxes other than income taxes do not  significantly
affect  earnings  as they are  substantially  recovered  in  revenues.  However,
effective  January 1, 1997,  Met-Ed and  Penelec's  STAS were combined with base
rates  and are no  longer  subject  to  annual  adjustment.  This did not have a
significant impact on earnings for the first six months of 1998.

OTHER INCOME AND DEDUCTIONS:
----------------------------

Equity in undistributed earnings of affiliates, net
---------------------------------------------------

      The decrease in equity in  undistributed  earnings of affiliates,  net for
the three and six month periods was primarily due to decreased Midlands earnings
due in part to lower weather-related sales.

Other income/(expense), net
---------------------------

      The increase in other  income/(expense),  net for the six month period was
due primarily to gains realized by the GPUI Group from the sales of its interest
in Solaris,  and half its interest in  Mid-Georgia in the first quarter of 1998.
This increase was partially  offset in the second quarter of 1998 by a charge to
terminate a contract with one of Met-Ed's wholesale customers.













                                      55


<PAGE>


GPU RESULTS OF OPERATIONS (continued)
-------------------------------------

INTEREST CHARGES AND PREFERRED DIVIDENDS:
-----------------------------------------

Interest on long-term debt
--------------------------

      The  increase in interest  on  long-term  debt for the three and six month
periods was due primarily to debt  associated with the PowerNet  acquisition.  A
portion  of this  debt was  reduced  in 1998  from  proceeds  received  from GPU
Electric's  sale of its  interest  in Solaris and the sale of GPU,  Inc.  common
stock.

Other interest
--------------

      The decrease in other interest for the three and six month periods was due
to lower JCP&L short-term debt levels.


                         JCP&L RESULTS OF OPERATIONS
                         ---------------------------

     JCP&L's  earnings  for the second  quarter  ended June 30,  1998 were $37.7
million, compared to 1997 second quarter earnings of $32.3 million. The increase
in earnings was due primarily to a second quarter 1997 charge of $5.5 million to
settle a lawsuit  related to the  termination of the Freehold NUG contract.  For
the six months  ended June 30, 1998,  earnings  were $87.8  million  compared to
$87.5 million for the same period last year.

OPERATING REVENUES:
-------------------

     Operating  revenues for the second quarter of 1998 increased 0.1% to $478.9
million,  as compared to the second  quarter of 1997.  For the six months  ended
June 30, 1998, revenues decreased 3.8% to $951.2 million as compared to the same
period last year. The components of the changes are as follows:

                                                  (in millions)
                                       ----------------------------------
                                       Three Months          Six Months
                                           Ended               Ended
                                       June 30, 1998        June 30, 1998
                                       -------------        -------------


   KWH revenues                           $ 15.5              $ 13.3
   Energy-related revenues                  16.0                17.5
   Other revenues                          (30.8)              (68.2)
                                           -----               -----
        Increase/(decrease) in revenues   $  0.7              $(37.4)
                                           =====               =====

Kilowatt-hour revenues
----------------------

     The increase in KWH revenues for the three and six month periods was due to
higher  weather-related sales due to warmer June weather this year versus cooler
than  normal  weather  last  year,  an  increase  in the  number of  residential
customers, and increased commercial customer usage.






                                      56


<PAGE>



JCP&L RESULTS OF OPERATIONS (continued)
---------------------------------------

Energy-related revenues
-----------------------

     Changes in  energy-related  revenues do not affect earnings as they reflect
corresponding changes in the LEAC billed to customers and expensed. The increase
for the three and six month  periods was due  primarily  to  increased  sales to
other utilities,  higher energy cost rates and higher residential and commercial
customer sales.

Other revenues
--------------

      Generally,  changes in other  revenues do not affect  earnings as they are
offset by corresponding  changes in expense.  The decrease for the three and six
month periods is primarily due to a decrease in 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.  (See
COMPETITIVE ENVIRONMENT.)

OPERATING EXPENSES:
-------------------

Power purchased and interchanged
--------------------------------

     Changes in the energy component of PP&I expense do not significantly affect
earnings since these cost variances are passed through the LEAC.

Fuel and Deferral of energy and capacity costs, net
---------------------------------------------------

     Changes in fuel and  deferral  of energy  and  capacity  costs,  net do not
affect earnings as they are offset by corresponding changes in energy revenues.

Other operation and maintenance
-------------------------------

     The decrease in other O&M expenses for the three and six month  periods was
primarily due to lower tree trimming and insurance  expenses.  For the six month
period,  this decrease was partially  offset by higher  expenses  related to the
reengineering of business processes to position JCP&L for deregulation.

Depreciation and amortization
-----------------------------

     The increase in depreciation and amortization expense for the three and six
month  periods was due  primarily  to additions to plant in service and slightly
higher  depreciation  rates.  A  charge  related  to  JCP&L's  Final  Settlement
representing  the portion of JCP&L's  return on equity which exceeds the maximum
amount  allowed  and  must  be  applied  against  JCP&L's  stranded  costs  also
contributed to the increase for the three month period.

Taxes, other than income taxes
------------------------------

     Generally,  changes in taxes other than income  taxes do not  significantly
affect earnings as they are substantially recovered in revenues.



                                      57


<PAGE>


JCP&L RESULTS OF OPERATIONS (continued)
---------------------------

OTHER INCOME AND DEDUCTIONS:
----------------------------

Other income/(expense), net
---------------------------

     The  increase  in other  income/(expense),  net for the three and six month
periods was due  primarily  to a second  quarter  1997 charge of $5.5 million to
settle a lawsuit related to the termination of the Freehold NUG contract.


                         MET-ED RESULTS OF OPERATIONS
                         ----------------------------

      Met-Ed  incurred a loss for the  second  quarter  ended  June 30,  1998 of
$168.9 million,  compared to 1997 second quarter earnings of $14.0 million.  The
decrease was due to an extraordinary  charge of $187.3 million, for writeoffs in
connection with the PaPUC's  Restructuring  Order.  Excluding the  extraordinary
charge,  earnings for the second  quarter of 1998 would have been $18.4 million.
The increase in earnings on this basis was  primarily due to increased KWH sales
to customers  partially  offset by a charge to terminate a contract  with one of
Met-Ed's wholesale customers.

     For the six months ended June 30, 1998,  losses  amounted to $144.2 million
compared to earnings of $53.6  million for the same period last year.  Excluding
the  extraordinary  charge  mentioned  above,  earnings  would  have been  $43.0
million.  This earnings decrease was due primarily to the absence in 1998 of the
step  increase in unbilled  revenue as a result of Met-Ed  including  its ECR in
base rates and the  cessation  of deferred  energy  accounting,  both  effective
January 1, 1997.

OPERATING REVENUES:
-------------------

     Operating  revenues for the second quarter of 1998 increased 8.4% to $226.0
million,  as compared to the second  quarter of 1997.  For the six months  ended
June 30, 1998, revenues decreased 0.7% to $460.8 million as compared to the same
period last year. The components of the changes are as follows:

                                                  (in millions)
                                       ----------------------------------
                                       Three Months          Six Months
                                           Ended               Ended
                                       June 30, 1998        June 30, 1998

   KWH revenues                           $ 12.7              $(6.8)
   Other revenues                            4.8                3.8
                                            ----                ---
       Increase/(decrease) in revenues    $ 17.5              $(3.0)
                                            ====               ====

Kilowatt-hour revenues
----------------------

     The  increase in KWH  revenues for the three month period was due mainly to
higher  weather-related  sales and  increased  commercial  customer  usage.  The
decrease  in KWH  revenues  for the six month  period was due  primarily  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.




                                      58


<PAGE>


MET-ED RESULTS OF OPERATIONS (continued)
----------------------------------------

Other revenues
--------------

     Generally,  changes in other  revenues  do not affect  earnings as they are
offset by corresponding changes in expense.

OPERATING EXPENSES:
-------------------

Fuel and Power purchased and interchanged
-----------------------------------------

     Effective  January 1, 1997, Met-Ed ceased deferred energy accounting as its
ECR was combined with base rates. Thus, energy cost variances now have a current
impact on earnings.

Other operation and maintenance
-------------------------------

     The decrease in other O&M expenses for the three month period was primarily
due to lower  expenses  related  to  maintenance  of  substation  equipment  and
overhead lines.

     The  increase  in other O&M  expenses  for the six month  period was due to
increased  expenses  related  to the  reengineering  of  business  processes  to
position Met-Ed for deregulation and for maintenance of substation equipment and
overhead  lines.  Additionally,  increased other  postretirement  benefits costs
affected both the three and six month periods.

Taxes, other than income taxes
------------------------------

     Effective  January 1, 1997,  Met-Ed's STAS was combined with base rates and
is no longer subject to annual  adjustment.  The change for the six month period
did not have a significant impact on earnings.

OTHER INCOME AND DEDUCTIONS:
----------------------------

Other income/(expense), net
---------------------------

     The  decrease  in other  income/(expense),  net for the three and six month
periods  was due to a charge  to  terminate  a  contract  with  one of  Met-Ed's
wholesale customers.


                        PENELEC RESULTS OF OPERATIONS
                        -----------------------------

     Penelec incurred a loss for the second quarter ended June 30, 1998 of $68.3
million, compared to 1997 second quarter earnings of $18.7 million. The decrease
was due to an extraordinary charge of $87.8 million, for writeoffs in connection
with the  PaPUC's  Restructuring  Order.  Excluding  the  extraordinary  charge,
earnings for the second quarter of 1998 would have been $19.5 million.







                                      59


<PAGE>


PENELEC RESULTS OF OPERATIONS (continued)
-----------------------------

     For the six months ended June 30, 1998,  losses  amounted to $41.8  million
compared to earnings of $61.4  million for the same period last year.  Excluding
the  extraordinary  charge  mentioned  above,  earnings  would  have been  $46.0
million.  This earnings decrease was due primarily to the absence in 1998 of the
step  increase in unbilled  revenue as a result of Penelec  including its ECR in
base rates and the  cessation  of deferred  energy  accounting,  both  effective
January 1, 1997.

OPERATING REVENUES:
-------------------

     Operating  revenues for the second quarter of 1998 increased 1.0% to $250.4
million,  as compared to the second  quarter of 1997.  For the six months  ended
June 30, 1998, revenues decreased 4.4% to $514.0 million as compared to the same
period last year. The components of the changes are as follows:


                                                  (in millions)
                                       ---------------------------------
                                       Three Months          Six Months
                                           Ended               Ended
                                       June 30, 1998        June 30, 1998
                                       -------------        -------------

   KWH revenues                           $  1.7              $(20.1)
   Other revenues                            0.8                (3.5)
                                           -----               -----
       Increase/(decrease) in revenues    $  2.5              $(23.6)
                                           =====               =====

Kilowatt-hour revenues
----------------------

     The decrease in KWH revenues for the six month period was  primarily due to
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.  Also
contributing  to the decrease  were lower  weather-related  sales and  decreased
customer usage.

Other revenues
--------------

     Generally,  changes in other  revenues  do not affect  earnings as they are
offset by corresponding changes in expense. However, lower transmission revenues
negatively affected the six month earnings comparison.

OPERATING EXPENSES:
-------------------

Fuel and Power purchased and interchanged
-----------------------------------------

     Effective January 1, 1997, Penelec ceased deferred energy accounting as its
ECR was combined with base rates. Thus, energy cost variances now have a current
impact on earnings. Lower fuel costs and reserve capacity expense contributed to
earnings for the first six months of 1998.








                                      60


<PAGE>


PENELEC RESULTS OF OPERATIONS (continued)
-----------------------------
Other operation and maintenance
-------------------------------

     The increase in other O&M  expenses for the six month period was  primarily
due to increased  storm and emergency  related  activity and increased  expenses
related to the  reengineering  of business  processes  to  position  Penelec for
deregulation.

Taxes, other than income taxes
------------------------------

     Effective January 1, 1997,  Penelec's STAS was combined with base rates and
is no longer subject to annual  adjustment.  The change for the six month period
did not have a significant impact on earnings.


<PAGE>






















































                                      61


<PAGE>


                                  GPUI GROUP
                                  ----------

     The  GPUI  Group   develops,   owns  and  operates   electric   generation,
transmission and distribution  facilities in the U.S. and foreign countries.  It
has also made  investments  in  certain  advanced  technologies  related  to the
electric power industry. The GPUI Group has ownership interests in transmission,
distribution  and  supply  businesses  in  England  and  Australia.  It also has
ownership  interests in nine operating  cogeneration plants in the U.S. totaling
1,147 megawatts (MW) (of which the GPUI Group's equity  interest  represents 458
MW) of capacity,  and ten  operating  generating  facilities  located in foreign
countries  totaling  3,820  MW  (of  which  the  GPUI  Group's  equity  interest
represents  713 MW) of  capacity.  It also has  investments  in five  generating
facilities  under  construction  totaling  1,833 MW (of which  the GPUI  Group's
equity interest  represents 339 MW) of capacity.  The business of the GPUI Group
includes  investment,  development  and operation of these  businesses and, when
appropriate, purchase and sale of interests in particular businesses.

     At June 30, 1998,  GPU, Inc.'s  aggregate  investment in the GPUI Group was
$526 million;  GPU, Inc. has also guaranteed up to an additional $893 million of
GPUI Group obligations.  GPU, Inc. has Securities and Exchange  Commission (SEC)
approval 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 $2.1 billion as of June
30, 1998. At June 30, 1998,  GPU, Inc. has  remaining  authorization  to finance
approximately $856 million of additional investments in FUCOs and EWGs.

     On June 1,  1998,  Mid-Georgia,  a 300 MW  facility  located  in  Kathleen,
Georgia,  began commercial operation.  GPU International,  Inc., the operator of
the plant,  and Sonat Energy  Services  Company  each owns 50% of the  facility.
Mid-Georgia  has  a  30-year  power  purchase  agreement  to  sell  energy  on a
dispatchable basis to Georgia Power.

     Management  expects that the GPUI Group will provide a substantial  portion
of GPU's future earnings growth and intends on making additional  investments in
its business  activities.  The timing and amount of these investments,  however,
will depend upon the  availability  of appropriate  opportunities  and financing
capabilities.


                       LIQUIDITY AND CAPITAL RESOURCES
                       -------------------------------

Year 2000 Issue
---------------

      GPU is  addressing  the year 2000  issue as it  relates  to its  business,
operations and operating  systems,  and its business dealings with third parties
including customers,  banks, partners, vendors, suppliers and service providers.
Comprehensive reviews of all computers,  equipment, systems and applications are
being performed;  remediation plans are being developed;  and certain corrective
actions have begun.  GPU's  remediation plans include,  among other things,  the
upgrade or replacement of computers, equipment and computer software. Management
currently  believes that adequate  resources are being allocated to this project
and anticipates that GPU's remediation efforts will,


                                      62


<PAGE>


in all material respects,  be completed by the end of 1999.  However,  if GPU or
critical  third parties on which GPU relies are unable to  successfully  correct
their year 2000 issue on a timely basis, certain computers,  equipment,  systems
and applications may not function properly,  which could have a material adverse
effect on GPU's operations and financial  condition.  Among other things,  GPU's
operations could be affected by a temporary  inability to process  transactions,
send bills or operate electric generating stations,  as well as by interruptions
of electric service and reduced customer  service.  There can be no assurance as
to the outcome of this matter.

      As part of  their  year  2000  solution,  the GPU  Energy  companies  have
purchased  and  are  installing  an  integrated   information   system  (Project
Enterprise)  that will help them manage business growth and meet the mandates of
electric utility  deregulation.  The system is scheduled to be fully operational
in early 1999.

      The GPU Energy companies  currently estimate they will spend $24.2 million
(JCP&L $10.6  million;  Met-Ed $7.4 million;  Penelec $6.2 million) on year 2000
remediation of their computers,  equipment and computer  software.  Of the $24.2
million,  approximately  $6.7  million  (JCP&L $3  million;  Met-Ed $2  million;
Penelec $1.7 million)  would have been spent in any event because of maintenance
and cyclical  replacement  plans that are already in place.  Also, an additional
$8.1  million  (JCP&L,  Met-Ed and Penelec  $2.7  million  each) would have been
needed  to be spent on  modifications  to  systems  that are being  replaced  by
Project Enterprise.

     The GPUI Group currently estimates it will spend approximately $9.2 million
to address the year 2000 issue, primarily to replace or modify equipment.

Capital Expenditures
--------------------

GPU Energy Companies

     The GPU Energy  companies'  capital  spending for the six months ended June
30, 1998 was $163 million  (JCP&L $84 million;  Met-Ed $29 million;  Penelec $47
million;  Other $3 million), and was used primarily for new customer connections
and to maintain and improve existing  transmission and distribution  facilities.
For 1998,  capital  expenditures  are  forecasted to be $410 million (JCP&L $198
million; Met-Ed $89 million; Penelec $110 million; Other $13), mainly related to
the GPU  Energy  companies  and  will  be  used  primarily  for  ongoing  system
development  and to  implement  Project  Enterprise.  Expenditures  for maturing
obligations  will total $43 million (JCP&L $13 million;  Penelec $30 million) in
1998. A substantial  portion of the GPU Energy  companies'  1998 capital outlays
will be satisfied through internally generated funds.

GPUI Group

     The GPUI Group's capital  spending was $39 million for the six months ended
June 30, 1998. For 1998, capital expenditures are forecasted to be $135 million.
Expenditures  for  maturing  obligations  will  total $589  million  in 1998.  A
substantial portion of the GPUI Group's 1998 capital outlays will be required to
be satisfied through external financings.



                                      63


<PAGE>


Financing

GPU, Inc.

     GPU, Inc. has received SEC approval to issue and sell up to $300 million of
unsecured  debentures through 2001. Further significant  investments by the GPUI
Group,  or  otherwise,  may require GPU,  Inc. to issue  additional  debt and/or
common  stock  (see  GPUI  GROUP  for a  discussion  of  GPU,  Inc.'s  remaining
investment authorization).

GPU Energy Companies

     As a result of  Pennsylvania  legislation  (see  COMPETITIVE  ENVIRONMENT),
Met-Ed and  Penelec may sell  securitized  transition  bonds  through a separate
trust or other  special  purpose  entity,  and would use the  proceeds to reduce
stranded costs  resulting from customer  choice,  including NUG contract  buyout
costs (see THE GPU ENERGY COMPANIES' SUPPLY PLAN), and to reduce capitalization.
The timing  and  amount of any sale will  depend  upon the  resolution  of legal
challenges and receipt of a favorable  ruling from the Internal Revenue Service,
as well as market  conditions.  It is expected that similar  legislation will be
introduced in New Jersey to permit the sale of securitized transition bonds. See
COMPETITIVE ENVIRONMENT for further discussion of these bonds.

     In May  1998,  JCP&L  redeemed  $10  million  stated  value  of  cumulative
preferred  stock pursuant to mandatory  sinking fund  provisions.  In June 1998,
JCP&L redeemed $5 million stated value of cumulative preferred stock pursuant to
mandatory and optional sinking fund provisions.

     JCP&L  and  Penelec  have  regulatory  authority  to issue  and sell  first
mortgage bonds (FMBs),  including secured medium-term notes, and preferred stock
through June 1999.  Met-Ed has similar  authority  through  December 1999. Under
existing  authorizations,  JCP&L,  Met-Ed and  Penelec  may issue  these  senior
securities in aggregate  amounts of $145 million,  $190 million and $70 million,
respectively,  of which up to $100  million for JCP&L and Met-Ed and $70 million
for  Penelec  may  consist of  preferred  stock.  Met-Ed and Penelec are seeking
regulatory  approvals to issue and sell senior notes and preferred securities in
aggregate amounts of $250 million and $725 million, respectively, of which up to
$125  million  for each  company may consist of  preferred  securities.  The GPU
Energy  companies also have  regulatory  authority to incur  short-term  debt, a
portion of which may be through the issuance of commercial paper.

     The GPU Energy  companies'  bond  indentures and articles of  incorporation
include provisions that limit the amount of long-term debt,  preferred stock and
short-term debt the companies may issue. The GPU Energy companies'  interest and
preferred  dividend  coverage  ratios are  currently in excess of indenture  and
charter  restrictions.  The amount of FMBs that the GPU Energy  companies  could
issue based on the bondable value of property  additions is in excess of amounts
currently authorized.

     Current plans call for the GPU Energy companies to issue senior  securities
during  the  next  three  years  to  fund  the  redemption  of  maturing  senior
securities,  refinance  outstanding  senior securities if economic,  and finance
construction activities.



                                      64


<PAGE>


                           COMPETITIVE ENVIRONMENT
                           -----------------------

Managing the Transition
-----------------------

     As competition in the electric  utility  industry  increases,  the price of
electricity  and  quality of customer  service  will be  critical.  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
competitive pressures and other changes will have on its financial condition and
results of operations.

     In October  1997,  GPU  announced its intention to begin a process to sell,
through  a  competitive   bid  process,   up  to  all  of  the  fossil-fuel  and
hydroelectric  generating  facilities owned by the GPU Energy  companies.  These
facilities,  comprised  of 26  operating  stations,  support  organizations  and
development  sites, total  approximately  5,300 MW (JCP&L 1,900 MW; Met-Ed 1,300
MW;  Penelec  2,100 MW) of capacity  and have a net book value of  approximately
$1.1 billion (JCP&L $286 million; Met-Ed $297 million;  Penelec $532 million) at
June 30,  1998.  The net  proceeds  from the sale  would be used to  reduce  the
capitalization of the respective GPU Energy companies and may also be applied to
reduce  short-term  debt,  finance  further  acquisitions,  repurchase GPU, Inc.
common  stock,  and  to  reduce  acquisition  debt  of  the  GPUI  Group.  It is
anticipated that definitive purchase agreements will be entered into in November
1998 and the divestiture completed by mid-1999, subject to the timely receipt of
the necessary regulatory and other approvals.

     In August  1998,  Penelec  and New York State  Electric  & Gas  Corporation
(NYSEG)  entered into  definitive  agreements with Edison Mission Energy to sell
the Homer City Station for a total purchase price of approximately $1.8 billion.
Penelec  and NYSEG  each owns a 50%  interest  in the  station,  and will  share
equally in the net sale proceeds.  The sale, which is subject to various federal
and state regulatory approvals, is expected to be completed in the first quarter
of 1999.

     In  addition  to the  continued  operation  of  the  Oyster  Creek  Nuclear
Generating  Station (Oyster  Creek),  JCP&L has been exploring the sale or early
retirement  of the  plant  to  mitigate  costs  associated  with  its  continued
operation.  In July 1998,  GPU, Inc.  announced that it was unable to identify a
buyer for the facility. A final decision on the plant will not be made until the
New Jersey  Board of Public  Utilities  (NJBPU)  rules on JCP&L's  restructuring
filing.

     In July 1998, GPU entered into a Letter of Intent to sell Three Mile Island
Unit 1 (TMI-1) to AmerGen Energy Company, LLC (AmerGen), a joint venture between
PECO Energy and British Energy.  The Letter of Intent  initiates a 90-day period
during which GPU and AmerGen will seek to negotiate a definitive  agreement  for
the  purchase  and sale of TMI-1 and AmerGen  will  complete  its due  diligence
review of the TMI-1 facility.

     Terms of the Letter of Intent  (which  assumes a December  31, 1999 closing
date) are summarized as follows:




                                      65


<PAGE>


-    The total cash  purchase  price is $100.6  million,  which  represents  $23
     million to be paid at financial  closing for the plant,  and $77.6  million
     for the  nuclear  fuel in the  reactor  to be  paid  in five  equal  annual
     installments beginning on December 31, 2000.

-    AmerGen would make certain contingent payments of up to $80 million for the
     period  January 1, 2002 through  December 31, 2010  depending on the actual
     energy market clearing prices through 2010.

-    GPU will  purchase the energy and capacity  from TMI-1 from January 1, 2000
     through December 31, 2001, at predetermined rates.

-    At financial  closing,  GPU will make  additional  deposits  into the TMI-1
     decommissioning  trusts to bring the trust  totals up to $320  million.  If
     these  trust  funds  cannot be  transferred  to AmerGen in a  tax-effective
     manner,  GPU will maintain the funds on AmerGen's  behalf until they can be
     transferred without adverse tax consequences. At financial closing, AmerGen
     will assume all liability and obligation for decommissioning TMI-1.

-    GPU will  continue to own and hold the license for Three Mile Island Unit 2
     (TMI-2),  which would not be included in the sale  agreement.  No liability
     for TMI-2 or its decommissioning will be assumed by AmerGen.

-    AmerGen will employ all  employees  located at TMI-1 at financial  closing,
     and  will  also  have  the   opportunity  to  offer   positions  to  GPUN's
     headquarters  staff.  GPU will be  responsible  for all severance  payments
     associated with these employees for a one year period  following  financial
     closing.  AmerGen will accept the current collective  bargaining  agreement
     covering TMI-1 union employees.

     The  sale  will be  subject  to the  satisfaction  of  various  conditions,
including  the  receipt  of  federal  and state  regulatory  approvals  prior to
financial  closing.  Among  other  things,  the  regulatory  approvals  must  be
reasonably  satisfactory to the parties and contain no terms or conditions which
would have a material  adverse effect on TMI-1 or the cost of the transaction to
GPU, including GPU's full recovery of TMI-1 decommissioning  costs. In addition,
certain rulings from the Internal Revenue Service will be necessary with respect
to the  maintenance  or transfer of the  decommissioning  trusts at the closing.
There can be no assurance as to the outcome of these matters.

Recent Regulatory Actions
-------------------------

Pennsylvania
------------

     In 1996, Pennsylvania adopted comprehensive  legislation which provides for
the restructuring of the electric utility industry. The legislation, among other
things,  permits  one-third  of  Pennsylvania  retail  consumers to choose their
electric supplier beginning January 1, 1999,  two-thirds to choose by January 1,
2000 and all retail  consumers  to do so by January  1,  2001.  The  legislation
requires the unbundling of rates for  transmission,  distribution and generation
services.  Utilities  would  have the  opportunity  to recover  their  prudently
incurred stranded costs that result from customers choosing



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<PAGE>


another supplier through a PaPUC approved  competitive  transition charge (CTC),
subject to certain  conditions,  including  that they attempt to mitigate  these
costs.  For a  discussion  of  stranded  costs,  see  Note  1 of  the  Notes  to
Consolidated Financial Statements - Competition and the Changing Regulatory
Environment.

     The legislation provides utilities the opportunity to reduce their stranded
costs  through the  issuance of  transition  bonds with  maturities  of up to 10
years.  The sale proceeds  could be used to buy out or buy down  uneconomic  NUG
contracts, to reduce capitalization, or both. Principal and interest payments on
the  bonds  would  be paid  by all  distribution  service  customers  through  a
nonbypassable  intangible transition charge.  Reduced financing costs associated
with the sale of transition  bonds would be used to provide rate  reductions for
all customers.  In order to securitize stranded costs, each Pennsylvania utility
is  required  to file with the PaPUC for a  qualified  rate  order.  Met-Ed  and
Penelec expect to file for such rate orders during 1999.

     Effective  January 1,  1997,  transmission  and  distribution  (T&D)  rates
charged to Pennsylvania  retail  customers are generally capped for 4 1/2 years,
and generation rates are generally capped for up to nine years. Transmission and
distribution  of  electricity  will  continue  as  a  regulated   monopoly.   An
independent  system  operator (ISO) will be  responsible  for  coordinating  the
generation and transmission of electricity in an efficient and nondiscriminatory
manner.

     In June  1997,  Met-Ed and  Penelec  filed  with the PaPUC  their  proposed
restructuring   plans  to  implement   competition   and   customer   choice  in
Pennsylvania. In June 1998, the PaPUC entered Restructuring Orders on the plans.
The following are the highlights of the Restructuring Orders:

-    While  recommending no overall rate reductions,  the  Restructuring  Orders
     have adopted lower  unbundled T&D rates than the  companies  requested,  by
     reallocating certain T&D costs to generation.  This reallocation results in
     annual T&D rate reductions of approximately  $59 million for Met-Ed and $68
     million for Penelec, beginning January 1, 1999.

-    Rejected the proposed use of a NUG Cost Rate to recover payments to NUGs in
     excess of amounts in current  rates.  The PaPUC has provided for a one-time
     determination of above-market NUG costs which would be recovered  through a
     CTC,  beginning  January  1,  1999.  Also,  the PaPUC  rejected  Met-Ed and
     Penelec's  requested  recovery of 1997 and 1998  operating  NUG  deferrals,
     amounting to a disallowance of approximately $24 million for Met-Ed and $33
     million for Penelec.

-    Accepted  Met-Ed and Penelec's  proposed two stage  ratemaking  process for
     their  fossil-fuel and  hydroelectric  generation  asset  divestiture  (See
     Managing the  Transition)  whereby the ultimate level of stranded costs and
     resulting  CTC rates would be determined  after the actual net  divestiture
     proceeds are known.  Interim CTC rates would be established  based upon the
     level of stranded costs approved in stage one.

-    Adopted a market line higher than that recommended by Met-Ed and Penelec in
     determining stranded costs.


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<PAGE>


-    Rejected  Met-Ed and  Penelec's  proposal to adopt a  levelized  generation
     credit (shopping  credit) for customers who choose  alternative  suppliers.
     Instead, the PaPUC-mandated shopping credit would rise over time consistent
     with the  recommended  market line  determination  and would provide for an
     approximately 10% guaranteed savings for shopping customers.

-    Approved Met-Ed and Penelec's NUG buyout costs,  but rejected their request
     for rate cap exceptions to recover these costs from retail customers.

-    Modified Met-Ed and Penelec's  proposed  nuclear  decommissioning  recovery
     period and  inflation  assumptions  and provided for recovery in Met-Ed and
     Penelec's respective CTC periods.

-    Adopted an accelerated  phase-in  period which provides for customer choice
     for  two-thirds  of retail  customers by January 2, 1999 and the  remaining
     one-third by January 2, 2000.

     On July 20, 1998, Met-Ed and Penelec appealed the  Restructuring  Orders to
the  Commonwealth  Court claiming more than 40 errors of law. Met-Ed and Penelec
have also filed  complaints in the U.S.  District Court seeking both declaratory
and injunctive relief  challenging,  among other things,  the PaPUC's refusal in
the Restructuring  Orders to ensure full recovery of the costs of NUG contracts,
as required by state and federal law.

     In  addition,  on July  20,  1998  Met-Ed  and  Penelec  filed  Alternative
Restructuring Plans (Alternative Plans) with the PaPUC based on the provision in
the Customer  Choice Act that enables a utility to file an alternate plan if the
PaPUC rejects the utility's initial plan. Met-Ed and Penelec believe that in the
Restructuring  Orders,  the PaPUC has  objected to  essentially  the entirety of
their original restructuring plans and has therefore rejected these plans.

     The major elements of the Alternative Plans were as follows:

-    Met-Ed and Penelec eliminated, modified or postponed until Phase II certain
     stranded cost claims.  This action reduced the stranded cost claims by $130
     million  for  Met-Ed  and $150  million  for  Penelec  from the  previously
     requested  amounts.  The Phase II proceeding  would adjust the CTC level to
     reflect the impact of the generating facilities sale proceeds.

-    A rate  mechanism to recover the costs of operating NUG projects over their
     contract lives that fully reconciles to actual market prices.

-    T&D rates of 2.50 and 2.51 cents/kwh for Met-Ed and Penelec,  respectively.
     The  Restructuring  Orders reflected a 2.26 cents/kwh rate for Met-Ed and a
     2.01 cents/kwh rate for Penelec.

-    CTC rates were  requested  which allow full stranded  cost recovery  (other
     than NUGs and nuclear  decommissioning,  which are proposed to be recovered
     over the lives of the contracts or related plants) over a seven year period
     for Met-Ed and a two year period for Penelec.



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<PAGE>


-    The  generation  tariffs (or shopping  credits) were  established  to allow
     overall  savings  to  shopping  customers  of 2.5%  for  Met-Ed  and 5% for
     Penelec.

-    If the Alternative Plans are ultimately  rejected,  Met-Ed and Penelec have
     stated that they would retain for  shareholders any net proceeds above book
     value for  generating  facilities  sold  through the  divestiture  program,
     rather  than the  previous  proposal  that  would  have  applied  those net
     proceeds to offset other stranded costs.

     On August 5, 1998,  the PaPUC  rejected the  Alternative  Plans as invalid.
Met-Ed and Penelec intend to appeal this action to the Commonwealth Court. There
can be no assurance as to the outcome of these proceedings.

     In 1997,  the PaPUC issued a final order that sets forth the guidelines for
retail access pilot programs in Pennsylvania  that give customers the ability to
choose their  electricity  supplier.  These pilot programs include  residential,
commercial and industrial class customers,  and utilities are required to commit
about 5% of load to retail  access  programs and  unbundle  their rates to allow
customers to choose their electric generation supplier.  The pilot program began
November 1, 1997 and will run until the first phase of retail competition begins
on January 1, 1999. Met-Ed and Penelec's pilot programs include approximately 5%
of each company's load.

New Jersey
----------

     In April 1997,  the NJBPU issued final  Findings  and  Recommendations  for
Restructuring  the Electric  Power Industry in New Jersey and submitted the plan
to the  Governor  and the  Legislature  for their  consideration.  The NJBPU had
recommended,  among other  things,  that certain  electric  retail  customers be
permitted to choose their supplier beginning October 1998,  expanding to include
all retail  customers  by July 1, 2000.  It is  currently  expected  that retail
competition  in New Jersey will not commence  before the second quarter of 1999.
The NJBPU also recommended a near-term electric rate reduction of 5% to 10% with
the  phase-in  of retail  competition,  as well as  additional  rate  reductions
accomplished as a result of new energy tax legislation, as discussed below.

     The NJBPU has proposed that  utilities have an opportunity to recover their
stranded costs  associated with generating  capacity  commitments  provided that
they  attempt to mitigate  these  costs.  Also,  NUG  contracts  which cannot be
mitigated  would be eligible for stranded cost recovery.  The  determination  of
stranded cost recovery by the NJBPU would be undertaken on a case-by-case basis,
with no guaranty for full recovery of these costs. A separate market  transition
charge (MTC) would be established for each utility to allow utilities to recover
stranded  costs  over 4 to 8 years.  The MTC  would be  capped  to  ensure  that
customers  experience the NJBPU's  recommended  overall rate reduction of 5-10%.
New Jersey is also  considering  securitization  as a mechanism to help mitigate
stranded costs.

     In addition, the NJBPU is proposing that utilities unbundle their rates and
allow customers to choose their electric generation  supplier.  Transmission and
distribution of electricity would continue as a regulated



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<PAGE>


monopoly and utilities  would be  responsible  for  connecting  customers to the
system and for providing  distribution  service.  Transmission  service would be
provided by an ISO, which would be responsible  for  maintaining the reliability
of the  regional  power  grid  and  would be  regulated  by the  Federal  Energy
Regulatory Commission (FERC).

     In July 1997, New Jersey enacted energy tax  legislation  which  eliminated
the 13% gross receipts and franchise tax on utility bills  effective  January 1,
1998.  Utilities  are  collecting  from  customers  a 6% sales tax and  paying a
corporate  business tax which  amounts to 1-2% of revenues.  Utilities  are also
paying a transitional  energy  facilities  assessment  which will phase out over
five years and result in a 5-6% rate reduction to customers.

     In July 1997,  JCP&L filed with the NJBPU its proposed  restructuring  plan
for a competitive electric marketplace in New Jersey.  Included in the plan were
stranded cost, unbundled rate and restructuring filings. In December 1997, JCP&L
submitted   supplemental   information   regarding  the  proposed  sale  of  its
fossil-fuel   and   hydroelectric   generating   facilities  (see  Managing  the
Transition). Highlights of the plan include:

-  Some  electric  retail  customers  would  be able to  choose  their  supplier
   beginning  on  October  1,  1998,  as  initially  recommended  by the  NJBPU,
   expanding to include all retail customers by July 1, 2000.

-  As required by the NJBPU's final  findings and  recommendations,  JCP&L would
   unbundle its rates and these rates would apply to all distribution customers,
   with the  exception  of a Production  Charge,  which would be charged only to
   customers  who do not choose an  alternative  energy  supplier.  The proposed
   unbundled rate structure would include:

       --   a flat  monthly  Customer  Charge  for  the  costs  associated  with
            metering, billing and customer account administration.

       --   a Delivery  Charge  consisting  of capital and O&M costs  associated
            with the  transmission  and  distribution  system;  the  recovery of
            regulatory assets,  including those associated with generation;  the
            cost of social  programs;  and certain costs related to the proposed
            ratemaking treatment of Oyster Creek.

       --   a Market Energy and Capacity  (MEC) Charge would be established on a
            monthly  basis for a six-month  period for  electricity  provided to
            customers  for  whom  JCP&L  continues  to  act  as  their  electric
            generation supplier.  JCP&L would be the supplier of last resort for
            customers  who  cannot  or do not wish to  purchase  energy  from an
            alternative  supplier.  The MEC  would be based  upon  competitively
            "bidding out" the discrepancy  between projected needs and projected
            resources. JCP&L would true-up the MEC charges for sales differences
            against its actual cost to provide that power,  plus  interest.  The
            true-up  would be recovered  from, or credited to, the customers who
            were  customers  during that  period,  based upon their usage during
            such period. The MEC would be established every six months.




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<PAGE>


       --   a Societal Benefits Charge to recover demand-side  management costs,
            manufactured    gas   plant    remediation    costs,   and   nuclear
            decommissioning costs.

       --   a MTC to recover  non-NUG  stranded  generation  costs  (other  than
            Oyster Creek).  This charge would include both owned  generation and
            utility  purchase  power  commitments.  It is expected  that the MTC
            would be in effect for less than a three-year period.

       --   a NUG Transition  Charge (NTC) to recover ongoing  above-market  NUG
            costs over the life of the contracts and provide a mechanism to flow
            through to customers the benefits of future NUG mitigation  efforts.
            The NTC  would be  subject  to an annual  true-up  for  actual  cost
            escalations  or  reductions,  changes in  availability  or  dispatch
            levels and other cost  variations over the life of each NUG project.
            The NTC would also be subject to adjustment in the future to reflect
            additional  NUG  buyout  or  restructuring  costs  and  any  related
            savings.

-  The unbundling plan calls for an estimated 10% rate reduction,  of which 2.1%
   became effective as part of JCP&L's  Stipulation of Final  Settlement  (Final
   Settlement)  approved by the NJBPU in 1997. The remaining reductions would be
   phased in over a two-year period  beginning after the  commencement of retail
   choice, and would be achieved through, among other things, the proposed early
   retirement of Oyster Creek for ratemaking  purposes in September 2000 and, if
   legislation is enacted,  the securitization of certain above-market costs. In
   addition to this rate reduction,  JCP&L customers would receive an additional
   rate reduction of  approximately  6% to be phased in over the next five years
   as a result of energy tax legislation signed into law in July 1997.

-  In addition to the continued operation of the Oyster Creek facility, JCP&L is
   exploring the early retirement of the plant to mitigate costs associated with
   its continued  operation.  A final decision on the plant's future will not be
   made until the NJBPU  rules on JCP&L's  restructuring  filing.  Nevertheless,
   JCP&L has proposed that the NJBPU approve an early retirement of Oyster Creek
   in September 2000, for ratemaking  purposes.  The ratemaking  treatment being
   requested for Oyster Creek is as follows:

       --   The  market  value of  Oyster  Creek's  generation  output  would be
            recovered in the Production Charge.

       --   The  above-market  operating costs would be recovered as a component
            of the  Delivery  Charge  through  September  2000.  If the plant is
            operated  beyond  that date,  these  costs  would not be included in
            customer rates.

       --   Existing Oyster Creek regulatory assets would, like other regulatory
            assets, be recovered as part of the Delivery Charge.

       --   Oyster Creek decommissioning costs would, like TMI-1 decommissioning
            costs, be recovered as a component of the Societal Benefits Charge.



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<PAGE>


       --   JCP&L's net  investment  in Oyster Creek would be recovered  through
            the  Delivery  Charge as a  levelized  annuity,  effective  with the
            commencement   of  retail  choice  through  its  original   expected
            operating life, 2009.

-  Stranded  costs at the time  originally  proposed  by the NJBPU  for  initial
   customer choice (September 30, 1998), on a present value basis, are estimated
   at $1.6 billion, of which $1.5 billion is for above-market NUG contracts. The
   $1.6 billion excludes above-market generation costs related to Oyster Creek.

     Numerous  parties  have  intervened  in this  proceeding  and are  actively
contesting  various aspects of JCP&L's filings,  including,  among other things,
recovery by JCP&L of plant  capital  additions  since its last base rate case in
1992,  projections of future  electricity prices on which stranded cost recovery
calculations are based, the appropriate level of return and the  appropriateness
of earning a return on stranded investment.

     Consultants retained by the NJBPU Staff, the Division of Ratepayer Advocate
and other parties have proposed that JCP&L's stranded cost recoveries  should be
substantially lower than the levels JCP&L is seeking.

     In a February 1998 order,  the NJBPU  substantially  affirmed an ALJ ruling
which required that rates be unbundled  based on the 1992 cost of service levels
which were the basis for JCP&L's  last base rate case,  but  clarified  that (1)
JCP&L  could  update  its 1992  cost of  service  study to  reflect  adjustments
consistent with the NJBPU approved Final Settlement  which,  among other things,
recognized certain increased expense levels and reductions to base rates and (2)
all of the other updated  post-1992 cost information that JCP&L had submitted in
the proceeding  should remain in the record,  which the NJBPU will utilize after
issuance of the ALJ's initial  decision to establish a reasonable level of rates
going forward.

     Furthermore,  the NJBPU  emphasized  in its order that the final  unbundled
rates  established as a result of this proceeding will be lower than the current
bundled  rates.  This  directive  has  been  recognized  in  JCP&L's  July  1997
restructuring   plan  which   proposed   annual  revenue   reductions   totaling
approximately  $185  million.  The NJBPU  will  render  final and  comprehensive
decisions on the precise level of aggregate rate reductions required in order to
accomplish  its primary goals of  introducing  retail  competition  and lowering
electricity costs for consumers.

     If the NJBPU  were to accept  the  positions  of  various  parties or their
consultants,  or were  ultimately to deny JCP&L's  request to recover  post-1992
capital  additions  and  increased  expenses,  it would have a material  adverse
impact on JCP&L's  stranded cost recovery,  restructuring  proceeding and future
earnings.

     Hearings with respect to the stranded cost and unbundled  rate filings have
been  completed  and an ALJ  recommended  decision is  scheduled to be issued in
August.  The  NJBPU  is not  expected  to  issue  final  decisions  until  after
legislation  is  enacted,  but to  date  no  legislation  has  been  introduced.
Evidentiary hearings before the NJBPU with respect to the separate restructuring
filing were held jointly with the other New Jersey utilities,



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<PAGE>


and briefs  have been  filed.  A NJBPU  decision  is  expected  coincident  with
decisions in the stranded cost and unbundled rates proceedings.  There can be no
assurance as to the outcome of these proceedings.

     JCP&L has received  NJBPU  approval for a one-year  pilot program  offering
customers in Monroe  Township,  New Jersey,  a choice of their  electric  energy
supplier.  The pilot program began in September  1997, and can be extended until
the first phase of competition begins in October 1998. Since it is expected that
the start of retail  competition  will be delayed  beyond  October  1998,  JCP&L
recently  requested an extension  of the program  through the second  quarter of
1999. Monroe Township had been exploring the possibility of establishing its own
municipal electric system.

Other

     In  November  1997,  the  FERC  issued  an  order  to the  Pennsylvania-New
Jersey-Maryland  (PJM) Power Pool which,  among other  things,  directed the GPU
Energy  companies  to implement a  single-system  transmission  rate,  effective
January 1, 1998. The  implementation of a single-system  rate is not expected to
affect total transmission revenues. It would, however,  increase the pricing for
transmission  service in Met-Ed and Penelec's service territories and reduce 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 FERC's ruling may also have an
effect  on the GPU  Energy  companies'  distribution  rates  since the PaPUC has
ordered a rate cap  effective  January 1, 1997 and the NJBPU has  recommended  a
5-10% rate reduction effective with the implementation of customer choice. There
can be no assurance as to the outcome of this matter.

     Also in 1997, the PJM Power Pool converted to a limited  liability  company
governed  by an  independent  board  of  managers  and  the  FERC  approved  the
supporting PJM companies'  application to permit the PJM  Interconnection  to be
recognized as an ISO.

     Several   bills  have  been   introduced   in  Congress   providing  for  a
comprehensive  restructuring  of the  electric  utility  industry.  These  bills
propose,  among other things,  retail choice for all utility customers beginning
as early as January  1999,  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).

     The   Clinton   administration   announced  a   Comprehensive   Electricity
Competition Plan which proposes,  among other things, customer choice by January
1,  2003,   stranded  cost  recovery,   reliability   standards,   environmental
provisions,  and the  repeal of both PURPA and  PUHCA.  The plan does,  however,
allow states to opt out of the mandate if they believe consumers would be better
served by an  alternative  policy.  The  administration's  plan was submitted to
Congress in June 1998.







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<PAGE>


Nonutility Generation Agreements
--------------------------------

     Pursuant to the requirements of PURPA and state regulatory directives,  the
GPU Energy  companies have entered into power purchase  agreements with NUGs for
the  purchase of energy and capacity  for  remaining  periods of up to 23 years.
Although a few of these  facilities  are  dispatchable,  most are  must-run  and
generally obligate the GPU Energy companies to purchase,  at the contract price,
the output up to the contract limits. As of June 30, 1998, facilities covered by
these  agreements  having 1,666 MW (JCP&L 905 MW; Met-Ed 356 MW; Penelec 405 MW)
of capacity were in service. Although the Pennsylvania legislation and the NJEMP
in New Jersey  both  include  provisions  for the  recovery  of costs  under NUG
agreements and certain NUG buyout costs,  there can be no assurance that the GPU
Energy  companies will continue to be able to recover similar costs which may be
incurred  in the  future.  (See  Note 1 of the Notes to  Consolidated  Financial
Statements - Competition and the Changing Regulatory Environment.)

     The  GPU  Energy   companies   intend  to  avoid,  to  the  maximum  extent
practicable,  entering  into any new NUG  agreements  that are not needed or not
consistent  with  current  market  pricing and  continue to support  legislative
efforts to repeal PURPA.  They are also attempting to  renegotiate,  and in some
cases buy out,  existing high cost long-term NUG agreements  (see THE GPU ENERGY
COMPANIES' SUPPLY PLAN).


                    THE GPU ENERGY COMPANIES' SUPPLY PLAN
                    -------------------------------------

Managing Nonutility Generation
------------------------------

     The GPU Energy  companies are seeking to reduce the  above-market  costs of
NUG agreements by: (1) attempting to convert must-run agreements to dispatchable
agreements; (2) attempting to renegotiate prices of the agreements; (3) offering
contract  buyouts;  and (4)  initiating  proceedings  before  federal  and state
agencies,  and in the courts,  where  appropriate.  In addition,  the GPU Energy
companies intend to avoid, to the maximum extent practicable,  entering into any
new NUG  agreements  that are not needed or not  consistent  with current market
pricing and are supporting  legislative  efforts to repeal PURPA.  These efforts
may result in claims against GPU for substantial damages. There can, however, be
no assurance as to what extent these  efforts will be  successful in whole or in
part.

     In 1997, the NJBPU approved a Stipulation of Final Settlement which,  among
other things,  provides for the recovery of costs  associated with the buyout of
the Freehold  Cogeneration  project.  The Final Settlement provides for recovery
through the LEAC of: (1) buyout costs up to $130  million,  and 50% of any costs
from $130 million to $140 million,  over a seven-year period for the termination
of the Freehold power purchase agreement. The Freehold cost recovery was granted
on an interim  basis  subject to refund,  pending  further  review by the NJBPU,
before which the matter is pending.

     In 1997,  Met-Ed and Penelec issued requests for proposals (RFPs) to 24 NUG
projects  which  currently  supply a total of  approximately  760 MW under power
purchase  agreements.  The RFPs requested the NUGs to propose buyouts,  buydowns
and/or restructurings of current power purchase contracts in return



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<PAGE>


for cash payments.  In January 1998,  Met-Ed and Penelec entered into definitive
buyout agreements with two bidders.  These agreements are contingent upon Met-Ed
and Penelec obtaining a PaPUC order allowing for the full recovery of the buyout
payments  through  retail rates.  Based on the PaPUC's  Restructuring  Orders in
Met-Ed and Penelec's  proceedings  which  provides a CTC mechanism that fails to
guarantee  full and timely cost recovery,  management  believes that recovery of
these  buyout  payments  will not be  acceptable  to Met-Ed  and  Penelec.  Full
recovery of these  payments  was  requested  in the  Alternative  Plans filed by
Met-Ed and  Penelec in July 1998.  On August 5,  1998,  the PaPUC  rejected  the
Alternative Plans as invalid. Met-Ed and Penelec intend to appeal this action to
the  Commonwealth  Court.  There can be no  assurance  as to the outcome of this
matter.


                              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 response to the continuing deregulation
of  the  electric  utility  industry,  the  SEC  has  questioned  the  continued
applicability  of FAS 71 by  investor-owned  utilities  with  respect  to  their
electric  generation  operations.  In response to these concerns,  the Financial
Accounting  Standards Board's (FASB) Emerging Issues Task Force (EITF) concluded
in June 1997 that  utilities  are no longer  subject to FAS 71, for a  separable
portion of their business, when they know details of their individual transition
plans.  The EITF also concluded that utilities can continue to carry  previously
recorded  regulated assets,  as well as any newly  established  regulated assets
(including  those related to generation),  on their balance sheets if regulators
have  guaranteed  a  regulated  cash flow  stream to  recover  the cost of these
assets.

     On June 30, 1998, Met-Ed and Penelec received PaPUC Restructuring Orders on
their  restructuring  plans.  The  Restructuring  Orders,  among  other  things,
essentially  remove from regulation the costs associated with providing electric
generation  service  to  Pennsylvania  consumers,  effective  January  1,  1999.
Accordingly,  Met-Ed and Penelec have 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" with respect to their electric  generation
operations,  effective April 1, 1998. The transmission and distribution  portion
of Met-Ed and Penelec's operations will continue to be subject to the provisions
of FAS 71. JCP&L will  discontinue  the  application of FAS 71 and adopt FAS 101
for its  electric  generation  operations  no later than when it receives  NJBPU
approval of its restructuring plans.

     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," GPU performed  impairment  tests on the June 30, 1998
net book value of the GPU Energy companies' generation  facilities.  These tests
determined  that  GPU's net  investment  in TMI-1 was  impaired.  No  impairment
existed for the fossil fuel and  hydroelectric  generating  plants or for Oyster
Creek as of that date. GPU's investment in TMI-1 was written down



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<PAGE>


by $472 million (pre-tax) (JCP&L $123 million; Met-Ed $235 million; Penelec $114
million)  to  reflect  its  fair  market  value.  The  amount  written  off  was
re-established as a regulatory asset since management believes it is probable of
recovery in the  restructuring  process due to expected gains on the sale of the
fossil fuel and  hydroelectric  generating  plants being projected to exceed the
TMI-1 writedown amount.

     In June 1998,  Statement of  Financial  Accounting  Standards  No. 133 (FAS
133), "Accounting for Derivative Instruments and Hedging Activities" was issued.
FAS 133 requires that  companies  recognize all  derivatives as either assets or
liabilities in the balance sheet and measure those instruments at fair value. To
comply with this  statement,  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  reported as a
component of other  comprehensive  income,  depending  upon the intended use and
designation  of the  derivative  as a hedge.  The statement is effective for all
fiscal  quarters of fiscal years  beginning  after June 15, 1999. GPU expects to
adopt this  statement  in the first  quarter of 2000.  GPU is in the  process of
evaluating the impact of FAS 133.







































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<PAGE>


                                   PART II

ITEM 1 -    LEGAL PROCEEDINGS
            -----------------

            Information   concerning   the  current   status  of  certain  legal
            proceedings  instituted  against  the GPU,  Inc.  and the GPU Energy
            companies  discussed  in Part I of this report in Combined  Notes to
            Consolidated   Financial   Statements  is  incorporated   herein  by
            reference and made a part hereof.

ITEM 5 -    OTHER EVENTS
            ------------

            On August 6, 1998,  the Board of  Directors of GPU,  Inc.  adopted a
            Shareholders  Rights Plan (The Plan) that is intended to assure fair
            and equal treatment for all GPU, Inc. shareholders in the event of a
            hostile  takeover  attempt.  The Plan  requires  approval by the SEC
            under the Public  Utility  Holding  Company Act of 1935. The Plan is
            not being adopted  because of any specific  takeover offer or threat
            and is designed to encourage a potential  acquirer to negotiate with
            the Board of Directors a fair price for all  shareholders to realize
            the long-term value of their investment in GPU, Inc.

            Following  approval  of  the  Plan  by  the  SEC,  GPU  will  make a
            distribution of one right for each  outstanding  share of GPU, Inc's
            common  stock.  Shareholders  are not required to take any action to
            receive their rights distribution.

            Prior to the date upon which the  rights  would  become  exercisable
            under the Plan,  GPU,  Inc's  outstanding  stock  certificates  will
            represent both the shares of GPU, Inc.  common stock and the rights,
            and the rights will trade only with the shares.  Upon a  "triggering
            event" under the Plan (ten days after a person or group  acquires or
            announces,  without the prior consent of the Board of  Directors,  a
            tender or  exchange  offer to  acquire  ten  percent or more of GPU,
            Inc's outstanding  common stock), the rights will become exercisable
            and will trade independently of the outstanding shares.

            After a party  acquires  ten  percent  or more of GPU,  Inc.  common
            stock, each right,  except those held by an acquiring  person,  will
            entitle the holder to purchase at the exercise price additional GPU,
            Inc.  common shares  having a current  market value of two times the
            exercise price.

            If GPU is acquired in a merger or other business combination after a
            person has  acquired ten percent of GPU,  Inc.  common  stock,  each
            right,  except those held by an acquiring  person,  will entitle the
            holder to  purchase,  at the  exercise  price,  common  stock of the
            acquirer or the surviving  company  having a current market value of
            two times the exercise price.





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<PAGE>


            GPU may redeem the rights at  one-tenth of one cent per right at the
            direction   of  the  Board  of  Directors  at  any  time  before  an
            acquisition of ten percent of GPU, Inc.'s common stock.

            A copy of the related  shareholder  rights agreement is being filed 
            as an exhibit.


ITEM 6 -    EXHIBITS AND REPORTS ON FORM 8-K
            --------------------------------
            (a)  Exhibits

                  (4)   Instruments Defining the Rights of Security Holders,
                        including Indentures.

                        Form of Rights Agreement between GPU, Inc. and 
                        ChaseMellon Shareholder Services, L.L.C.

                 (10)  Material Contracts.

                        A  -  Severance   Protection  Agreement  for  Dennis  P.
                        Baldassari, dated June 5, 1997.

                        B  -  Severance   Protection  Agreement  for  Thomas  G.
                        Broughton, dated June 5, 1997.

                        C - Severance  Protection  Agreement for John G. Graham,
                        dated June 5, 1997.

                        D - Severance  Protection  Agreement  for Fred D. Hafer,
                        dated June 5, 1997.

                        E - Severance  Protection  Agreement  for Ira H. Jolles,
                        dated June 5, 1997.

                        F - Severance  Protection  Agreement  for Bruce L. Levy,
                        dated June 5, 1997.

                        G - Severance  Protection  Agreement for Robert L. Wise,
                        dated June 5, 1997.

                 (12)   Statements  Showing  Computation of Ratio of Earnings to
                        Fixed  Charges and Ratio of  Earnings to Combined  Fixed
                        Charges  and  Preferred  Stock  Dividends  Based  on SEC
                        Regulation S-K, Item 503

                        A - GPU, Inc. and Subsidiary Companies
                        B - JCP&L
                        C - Met-Ed
                        D - Penelec






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<PAGE>


                 (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 May 22, 1998, under Item 5 (Other Events).
                 Dated May 27, 1998, under Item 5 (Other Events). (Form 8-K/A)
                 Dated June 5, 1998, under Item 5 (Other Events).
                 Dated July 17, 1998, under Item 5 (Other Events).
                 Dated July 21, 1998, under Item 5 (Other Events).
                 Dated August 3, 1998, under Item 5 (Other Events).

                 Jersey Central Power & Light Company:

                 Dated July 17, 1998, under Item 5 (Other Events).

                 Metropolitan Edison Company:

                 Dated May 26, 1998, under Item 5 (Other Events).  Dated May 27,
                 1998,  under Item 5 (Other Events).  (Form 8-K/A) Dated June 5,
                 1998,  under Item 5 (Other Events).  Dated July 17, 1998, under
                 Item 5 (Other Events). Dated July 21, 1998, under Item 5 (Other
                 Events).

                 Pennsylvania Electric Company:

                 Dated May 22, 1998, under Item 5 (Other Events).
                 Dated May 27, 1998, under Item 5 (Other Events). (Form 8-K/A)
                 Dated June 5, 1998, under Item 5 (Other Events).
                 Dated July 17, 1998, under Item 5 (Other Events).
                 Dated July 21, 1998, under Item 5 (Other Events).
                 Dated August 3, 1998, under Item 5 (Other Events).



















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<PAGE>


                                  Signatures


      Pursuant to the  requirements of the Securities  Exchange Act of 1934, the
registrants  have duly caused  this  report to be signed on their  behalf by the
undersigned thereunto duly authorized.


                                    GPU, INC.



August 14, 1998                     By:    /s/ J. G. Graham
                                          ---------------------
                                          J. G. Graham, Senior Vice President
                                          (Chief Financial Officer)



August 14, 1998                     By:    /s/ F. A. Donofrio
                                          ---------------------
                                          F. A. Donofrio, Vice President
                                          and Comptroller
                                          (Chief Accounting Officer)



                                          JERSEY CENTRAL POWER & LIGHT COMPANY
                                          METROPOLITAN EDISON COMPANY
                                          PENNSYLVANIA ELECTRIC COMPANY



August 14, 1998                     By:    /s/ D. Baldassari
                                          ---------------------
                                          D. Baldassari, President
                                          (Principal Operating Officer)


August 14, 1998                     By:    /s/ D. W. Myers
                                          ---------------------
                                          D. W. Myers, Vice President
                                          and Comptroller
                                          (Principal Accounting Officer)


















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