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   March 31, 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 19605
                  Telephone (610) 929-3601

1-446             Metropolitan Edison Company               23-0870160
                  (a Pennsylvania corporation)
                  2800 Pottsville Pike
                  Reading, Pennsylvania 19605
                  Telephone (610) 929-3601

1-3522            Pennsylvania Electric Company             25-0718085
                  (a Pennsylvania corporation)
                  2800 Pottsville Pike
                  Reading, Pennsylvania 19605
                  Telephone (610) 929-3601


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


      The number of shares outstanding of each of the issuer's classes of voting
stock, as of April 30, 1998, was as follows:
                                                                     Shares
Registrant                           Title                         Outstanding
----------                           -----                         -----------

GPU, Inc.                            Common Stock, $2.50 par value 127,875,105
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
                                March 31, 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                                                        50

PART II - Other Information                                               73

Signatures                                                                74

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

     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>



                           GPU, INC. AND SUBSIDIARY COMPANIES

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

                                                            In Thousands
                                                   -----------------------------
                                                      March 31,     December 31,
                                                        1998            1997
                                                   ------------     ------------
                                                    (Unaudited)

ASSETS
Utility Plant:
  In service, at original cost                     $11,239,028      $11,150,677
  Less, accumulated depreciation                     4,165,553        4,050,165
                                                    ----------       ----------
    Net utility plant in service                     7,073,475        7,100,512
  Construction work in progress                        244,498          250,050
  Other, net                                           170,970          159,009
                                                    ----------       ----------
       Net utility plant                             7,488,943        7,509,571
                                                    ----------       ----------

Other Property and Investments:
  GPUI Group equity investments                        621,093          596,679
  Goodwill, net                                        588,811          581,364
  Nuclear decommissioning trusts, at market            626,884          579,673
  Nuclear fuel disposal trust, at market               110,978          108,652
  Other, net                                           135,861          252,335
                                                    ----------       ----------
       Total other property and investments          2,083,627        2,118,703
                                                    ----------       ----------

Current Assets:
  Cash and temporary cash investments                  130,555           85,099
  Special deposits                                      23,611           27,093
  Accounts receivable:
    Customers, net                                     279,673          290,247
    Other                                              111,887          104,441
  Unbilled revenues                                    131,271          147,162
  Materials and supplies, at average cost or less:
    Construction and maintenance                       191,658          187,799
    Fuel                                                40,758           40,424
  Investment held for sale                                 -            106,317
  Deferred income taxes                                 44,669           83,962
  Prepayments                                          104,349           55,613
  Other                                                    -              1,023
                                                    ----------       ----------
       Total current assets                          1,058,431        1,129,180
                                                    ----------       ----------

Deferred Debits and Other Assets:
  Regulatory assets:
    Income taxes recoverable through future rates      521,780          510,680
    Three Mile Island Unit 2 deferred costs            337,754          345,326
    Nonutility generation contract buyout costs        240,068          245,568
    Unamortized property losses                         96,355           99,532
    Other                                              425,095          448,146
                                                    ----------       ----------
       Total regulatory assets                       1,621,052        1,649,252
  Deferred income taxes                                431,112          383,169
  Other                                                150,844          134,833
                                                    ----------       ----------
       Total deferred debits and other assets        2,203,008        2,167,254
                                                    ----------       ----------

       Total Assets                                $12,834,009      $12,924,708
                                                    ==========       ==========

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


                                       3
<PAGE>




                           GPU, INC. AND SUBSIDIARY COMPANIES

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


                                                             In Thousands
                                                   -----------------------------
                                                      March 31,     December 31,
                                                        1998            1997
                                                   ------------     ------------
                                                    (Unaudited)
LIABILITIES AND CAPITALIZATION
Capitalization:
  Common stock                                     $   331,958      $   314,458
  Capital surplus                                    1,007,885          755,040
  Retained earnings                                  2,274,486        2,140,712
  Accumulated other comprehensive income/(loss)        (14,733)         (29,296)
                                                    ----------       ----------
    Total                                            3,599,596        3,180,914
  Less, reacquired common stock, at cost                80,326           80,984
                                                    ----------       ----------
    Total common stockholders' equity                3,519,270        3,099,930
  Cumulative preferred stock:
    With mandatory redemption                           91,500           91,500
    Without mandatory redemption                        66,478           66,478
  Subsidiary-obligated mandatorily redeemable
    preferred securities                               330,000          330,000
  Long-term debt                                     4,064,192        4,325,972
                                                    ----------       ----------
       Total capitalization                          8,071,440        7,913,880
                                                    ----------       ----------



Current Liabilities:
  Securities due within one year                       423,640          631,934
  Notes payable                                        299,618          353,214
  Obligations under capital leases                     131,276          138,919
  Accounts payable                                     415,629          413,791
  Taxes accrued                                        150,782           48,304
  Interest accrued                                      51,470           83,947
  Deferred energy credits                               23,984           25,645
  Other                                                276,381          325,681
                                                    ----------       ----------
       Total current liabilities                     1,772,780        2,021,435
                                                    ----------       ----------


Deferred Credits and Other Liabilities:
  Deferred income taxes                              1,572,001        1,566,131
  Unamortized investment tax credits                   120,761          123,162
  Three Mile Island Unit 2 future costs                453,596          448,808
  Regulatory liabilities                               102,768          101,774
  Other                                                740,663          749,518
                                                    ----------       ----------
       Total deferred credits and other liabilities  2,989,789        2,989,393
                                                    ----------       ----------


Commitments and Contingencies (Note 1)




       Total Liabilities and Capitalization        $12,834,009      $12,924,708
                                                    ==========       ==========

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


                                       4
<PAGE>


                          GPU, INC. AND SUBSIDIARY COMPANIES

                           Consolidated Statements of Income
                           ---------------------------------
                                      (Unaudited)


                                                             In Thousands
                                                        (Except Per Share Data)
                                                        -----------------------
                                                            Three Months
                                                            Ended March 31,
                                                        -----------------------
                                                           1998         1997

Operating Revenues                                     $1,043,109    $1,051,012
                                                        ---------     ---------

Operating Expenses:
  Fuel                                                     96,700        98,614
  Power purchased and interchanged                        263,279       250,712
  Deferral of energy costs, net                            (2,020)        6,251
  Other operation and maintenance                         240,849       205,399
  Depreciation and amortization                           127,148       115,198
  Taxes, other than income taxes                           57,519        94,657
                                                        ---------     ---------
        Total operating expenses                          783,475       770,831
                                                        ---------     ---------

Operating Income Before Income Taxes                      259,634       280,181
  Income taxes                                             66,293        83,923
                                                        ---------     ---------
Operating Income                                          193,341       196,258
                                                        ---------     ---------

Other Income and Deductions:
  Allowance for other funds used during
     construction                                             320           348
  Equity in undistributed earnings
     of affiliates, net                                    17,651        32,227
  Other income, net                                        44,562         5,713
  Income taxes                                            (19,431)       (5,443)
                                                        ---------     ---------
        Total other income and deductions                  43,102        32,845
                                                        ---------     ---------

Income Before Interest Charges
  and Preferred Dividends                                 236,443       229,103
                                                        ---------     ---------

Interest Charges and Preferred Dividends:
  Interest on long-term debt                               84,052        57,109
  Other interest                                            8,984         7,345
  Allowance for borrowed funds used
    during construction                                    (1,071)       (1,185)
  Dividends on subsidiary-obligated mandatorily
    redeemable preferred securities                         7,222         7,222
  Preferred stock dividends of subsidiaries                 2,975         3,427
                                                        ---------     ---------
        Total interest charges and
          preferred dividends                             102,162        73,918
                                                        ---------     ---------

Minority interest net income                                  501           147
                                                        ---------     ---------

Net Income                                             $  133,780    $  155,038
                                                        =========     =========

Basic - Earnings Per Avg. Common Share                 $     1.07    $     1.29
                                                        =========     =========
      - Avg. Common Shares Outstanding (In Thousands)     124,543       120,630
                                                        =========     =========

Diluted - Earnings Per Avg. Common Share               $     1.07    $     1.28
                                                        =========     =========
        - Avg. Common Shares Outstanding (In Thousands)   124,823       120,896
                                                        =========     =========

Cash Dividends Paid Per Share                          $     .500    $     .485
                                                        =========     =========


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


                                       5
<PAGE>

                       GPU, INC. AND SUBSIDIARY COMPANIES

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

                                                              In Thousands
                                                          --------------------
                                                              Three Months
                                                             Ended March 31,
                                                          --------------------
                                                          1998         1997
                                                          ----         ----
Operating Activities:
  Net income                                            $ 133,780    $ 155,038
  Adjustments to reconcile income to cash provided:
    Depreciation and amortization                         138,750      120,451
    Amortization of property under capital leases          13,091       14,772
    Gain on sale of investments                           (38,452)         -
    Equity in undistributed earnings
      of affiliates, net of distributions received        (15,775)     (26,128)
    Nuclear outage maintenance costs, net                   5,856        6,920
    Deferred income taxes and investment tax
      credits, net                                        (27,538)       2,852
    Deferred energy and capacity costs, net                (1,667)       6,251
    Accretion income                                       (2,460)      (2,690)
    Allowance for other funds used
      during construction                                    (320)        (348)
  Changes in working capital:
    Receivables                                            25,788      (66,360)
    Materials and supplies                                 (4,106)      (7,609)
    Special deposits and prepayments                      (49,614)      (6,519)
    Payables and accrued liabilities                       27,426       70,639
  Nonutility generation contract buyout costs             (17,500)     (23,550)
  Other, net                                               27,122      (14,823)
                                                         --------     --------
     Net cash provided by operating activities            214,381      228,896
                                                         --------     --------

Investing Activities:
  Capital expenditures:
    GPU Energy companies                                  (68,110)     (79,994)
    GPUI Group                                             (5,542)     (35,045)
  Proceeds from sale of investments
                                                          146,700          -
  Contributions to decommissioning trusts                 (11,256)     (10,255)
  Other, net                                                  209       14,377
                                                         --------     --------
     Net cash provided by/(used for)
       investing activities                                62,001     (110,917)
                                                         --------     --------

Financing Activities:
  Issuance of long-term debt                                  -         26,698
  Decrease in notes payable, net                          (53,596)        (332)
  Retirement of long-term debt                           (375,878)     (56,034)
  Capital lease principal payments                        (12,071)     (12,329)
  Issuance of common stock                                269,448          -
  Dividends paid on common stock                          (60,414)     (58,493)
                                                         --------     --------
     Net cash required by financing activities           (232,511)    (100,490)
                                                         --------     --------

Effect of exchange rate changes on cash                     1,585          622
                                                         --------     --------

Net increase in cash and temporary
  cash investments from above activities                   45,456       18,111
Cash and temporary cash investments, beginning of year     85,099       31,604
                                                         --------     --------
Cash and temporary cash investments, end of period      $ 130,555    $  49,715
                                                         ========     ========

Supplemental Disclosure:
  Interest and preferred dividends paid                 $ 112,471    $  84,323
                                                         ========     ========
  Income taxes paid                                     $   4,786    $   4,213
                                                         ========     ========
  New capital lease obligations incurred                $   5,286    $   2,248
                                                         ========     ========
  Common stock dividends declared but not paid          $     -      $     -
                                                         ========     ========

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


                                       6
<PAGE>


               JERSEY CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARY COMPANY

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

                                                            In Thousands
                                                   -----------------------------
                                                      March 31,     December 31,
                                                       1998             1997
                                                   ------------     --------
                                                    (Unaudited)

ASSETS
Utility Plant:
  In service, at original cost                     $4,709,381       $4,671,568
  Less, accumulated depreciation                    2,067,399        2,007,427
                                                    ---------        ---------
    Net utility plant in service                    2,641,982        2,664,141
  Construction work in progress                       120,898          124,887
  Other, net                                          110,613           92,654
                                                    ---------        ---------
       Net utility plant                            2,873,493        2,881,682
                                                    ---------        ---------

Other Property and Investments:
  Nuclear decommissioning trusts, at market           370,136          343,434
  Nuclear fuel disposal trust, at market              110,978          108,652
  Other, net                                            8,944            8,951
                                                    ---------        ---------
       Total other property and investments           490,058          461,037
                                                    ---------        ---------

Current Assets:
  Cash and temporary cash investments                  10,898            2,994
  Special deposits                                      6,543            6,778
  Accounts receivable:
    Customers, net                                    136,215          153,753
    Other                                              32,157           18,225
  Unbilled revenues                                    49,811           59,687
  Materials and supplies, at average cost or less:
    Construction and maintenance                       92,582           90,037
    Fuel                                               15,055           14,260
  Deferred income taxes                                29,902           27,536
  Prepayments                                           9,037           14,468
                                                    ---------        ---------
       Total current assets                           382,200          387,738
                                                    ---------        ---------

Deferred Debits and Other Assets:
  Regulatory assets:
    Income taxes recoverable through future rates     136,853          128,111
    Nonutility generation contract buyout costs       137,500          140,500
    Three Mile Island Unit 2 deferred costs           102,059          109,498
    Unamortized property losses                        91,641           94,726
    Other                                             280,593          312,867
                                                    ---------        ---------
      Total regulatory assets                         748,646          785,702
  Deferred income taxes                               161,635          154,708
  Other                                                20,525           19,909
                                                    ---------        ---------
       Total deferred debits and other assets         930,806          960,319
                                                    ---------        ---------




       Total Assets                                $4,676,557       $4,690,776
                                                    =========        =========


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


                                       7
<PAGE>

               JERSEY CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARY COMPANY

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


                                                             In Thousands
                                                    ---------------------------
                                                       March 31,   December 31,
                                                        1998           1997
                                                    ------------   --------
                                                     (Unaudited)

LIABILITIES AND CAPITALIZATION
Capitalization:
  Common stock                                      $  153,713     $  153,713
  Capital surplus                                      510,769        510,769
  Retained earnings                                    915,717        875,639
                                                     ---------      ---------
    Total common stockholder's equity                1,580,199      1,540,121
  Cumulative preferred stock:
    With mandatory redemption                           91,500         91,500
    Without mandatory redemption                        37,741         37,741
  Company-obligated mandatorily
    redeemable preferred securities                    125,000        125,000
  Long-term debt                                     1,173,364      1,173,304
                                                     ---------      ---------
       Total capitalization                          3,007,804      2,967,666
                                                     ---------      ---------


Current Liabilities:
  Securities due within one year                        12,511         12,511
  Notes payable                                            -          115,254
  Obligations under capital leases                      77,616         79,419
  Accounts payable:
    Affiliates                                           4,879         27,167
    Other                                              126,912        113,822
  Taxes accrued                                         72,080          3,966
  Deferred energy credits                               23,984         25,645
  Interest accrued                                      29,496         26,021
  Other                                                 98,082         76,529
                                                     ---------      ---------
       Total current liabilities                       445,560        480,334
                                                     ---------      ---------


Deferred Credits and Other Liabilities:
  Deferred income taxes                                647,751        644,562
  Unamortized investment tax credits                    53,375         54,675
  Nuclear fuel disposal fee                            136,149        134,326
  Three Mile Island Unit 2 future costs                113,424        112,227
  Regulatory liabilities                                50,990         49,226
  Other                                                221,504        247,760
                                                     ---------      ---------
       Total deferred credits and other liabilities  1,223,193      1,242,776
                                                     ---------      ---------


Commitments and Contingencies (Note 1)



       Total Liabilities and Capitalization         $4,676,557     $4,690,776
                                                     =========      =========


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


                                       8
<PAGE>

           JERSEY CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARY COMPANY

                        Consolidated Statements of Income
                        ---------------------------------
                                   (Unaudited)

                                                             In Thousands
                                                        ---------------------
                                                            Three Months
                                                            Ended March 31,
                                                         1998          1997

Operating Revenues                                     $472,334      $510,443
                                                        -------       -------

Operating Expenses:
  Fuel                                                   19,660        24,289
  Power purchased and interchanged:
    Affiliates                                            3,115         4,367
    Others                                              153,680       140,944
  Deferral of energy and capacity costs, net             (2,020)        6,251
  Other operation and maintenance                       100,730       101,805
  Depreciation and amortization                          62,994        61,810
  Taxes, other than income taxes                         23,857        59,160
                                                        -------       -------
     Total operating expenses                           362,016       398,626
                                                        -------       -------

Operating Income Before Income Taxes                    110,318       111,817
  Income taxes                                           32,476        29,345
                                                        -------       -------
Operating Income                                         77,842        82,472
                                                        -------       -------

Other Income and Deductions:
  Allowance for other funds used during
    construction                                            275           131
  Other income, net                                       2,265         3,457
  Income taxes                                           (1,053)         (409)
                                                        -------       -------
     Total other income and deductions                    1,487         3,179
                                                        -------       -------

Income Before Interest Charges and
  Dividends on Preferred Securities                      79,329        85,651
                                                        -------       -------

Interest Charges and Dividends
  on Preferred Securities:
  Interest on long-term debt                             21,792        22,768
  Other interest                                          2,529         2,491
  Allowance for borrowed funds used
    during construction                                    (483)         (603)
  Dividends on company-obligated mandatorily
    redeemable preferred securities                       2,675         2,675
                                                        -------       -------
     Total interest charges and dividends
       on preferred securities                           26,513        27,331
                                                        -------       -------

Net Income                                               52,816        58,320
  Preferred stock dividends                               2,738         3,162
                                                        -------       -------
Earnings Available for Common Stock                    $ 50,078      $ 55,158
                                                        =======       =======





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


                                       9
<PAGE>

              JERSEY CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARY COMPANY

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

                                                             In Thousands
                                                           ------------------
                                                             Three Months
                                                            Ended March 31,
                                                           ------------------
                                                           1998         1997
                                                           ----         ----
Operating Activities:
  Net income                                            $  52,816    $  58,320
  Adjustments to reconcile income to cash provided:
    Depreciation and amortization                          68,725       64,153
    Amortization of property under capital leases           7,065        8,364
    Nuclear outage maintenance costs, net                   3,549        4,866
    Deferred income taxes and investment tax
      credits, net                                        (17,314)      (2,783)
    Deferred energy and capacity costs, net                (1,667)       6,251
    Accretion income                                       (2,460)      (2,690)
    Allowance for other funds used
      during construction                                    (275)        (131)
  Changes in working capital:
    Receivables                                            13,483      (20,677)
    Materials and supplies                                 (3,340)      (1,900)
    Special deposits and prepayments                        5,665       13,418
    Payables and accrued liabilities                       54,517       54,870
  Nonutility generation contract buyout costs             (15,000)     (15,000)
  Other, net                                               25,544       (1,944)
                                                         --------     --------
     Net cash provided by operating activities            191,308      165,117
                                                         --------     --------

Investing Activities:
  Capital expenditures                                    (40,125)     (43,134)
  Contributions to decommissioning trusts                  (6,319)      (4,501)
  Other, net                                               (1,469)      (2,611)
                                                         --------     --------
     Net cash used for investing activities               (47,913)     (50,246)
                                                         --------     --------

Financing Activities:
  Decrease in notes payable, net                         (115,254)     (23,900)
  Retirement of long-term debt                                -        (54,191)
  Capital lease principal payments                         (7,499)      (5,798)
  Dividends paid on common stock                          (10,000)     (20,000)
  Dividends paid on preferred stock                        (2,738)      (3,162)
                                                         --------     --------
     Net cash required by financing activities           (135,491)    (107,051)
                                                         --------     --------

Net increase in cash and temporary
  cash investments from above activities                    7,904        7,820
Cash and temporary cash investments, beginning of year      2,994        1,321
                                                         --------     --------
Cash and temporary cash investments, end of period      $  10,898    $   9,141
                                                         ========     ========

Supplemental Disclosure:
  Interest and preferred dividends paid                 $  25,578    $  28,937
                                                         ========     ========
  Income taxes paid                                     $      96    $     211
                                                         ========     ========
  New capital lease obligations incurred                $   5,257    $   1,112
                                                         ========     ========



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


                                       10
<PAGE>

                  METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANIES

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

                                                           In Thousands
                                                  -----------------------------
                                                     March 31,     December 31,
                                                      1998             1997
                                                  ------------     ------------
                                                   (Unaudited)

ASSETS
Utility Plant:
  In service, at original cost                    $2,424,260       $2,411,810
  Less, accumulated depreciation                     945,023          919,771
                                                   ---------        ---------
    Net utility plant in service                   1,479,237        1,492,039
  Construction work in progress                       44,255           45,435
  Other, net                                          35,416           39,056
                                                   ---------        ---------
       Net utility plant                           1,558,908        1,576,530
                                                   ---------        ---------

Other Property and Investments:
  Nuclear decommissioning trusts, at market          183,168          168,110
  Other, net                                          11,971           11,958
                                                   ---------        ---------
       Total other property and investments          195,139          180,068
                                                   ---------        ---------

Current Assets:
  Cash and temporary cash investments                  3,462            6,116
  Special deposits                                     1,109            1,055
  Accounts receivable:
    Customers, net                                    61,564           65,156
    Other                                             27,177           29,399
  Unbilled revenues                                   39,157           39,747
  Materials and supplies, at
   average cost or less:
    Construction and maintenance                      38,824           38,597
    Fuel                                              10,175           11,323
  Deferred income taxes                                2,945            2,945
  Prepayments                                         38,438            6,762
                                                   ---------        ---------
       Total current assets                          222,851          201,100
                                                   ---------        ---------

Deferred Debits and Other Assets:
  Regulatory assets:
    Income taxes recoverable through future rates    182,303          178,927
    Three Mile Island Unit 2 deferred costs          145,032          146,290
    Nonutility generation contract buyout costs       73,868           76,368
    Other                                             75,986           73,297
                                                   ---------        ---------
       Total regulatory assets                       477,189          474,882
  Deferred income taxes                               91,668           87,332
  Other                                               16,688           14,069
                                                   ---------        ---------
       Total deferred debits and other assets        585,545          576,283
                                                   ---------        ---------






       Total Assets                               $2,562,443       $2,533,981
                                                   =========        =========


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


                                       11
<PAGE>

                  METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANIES

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

                                                           In Thousands
                                                  -----------------------------
                                                    March 31,      December 31,
                                                      1998             1997
                                                  -----------      --------
                                                   (Unaudited)

LIABILITIES AND CAPITALIZATION
Capitalization:
  Common stock                                    $   66,273       $   66,273
  Capital surplus                                    370,200          370,200
  Retained earnings                                  273,243          268,634
  Accumulated other comprehensive income              15,034           12,487
                                                   ---------        ---------
    Total common stockholder's equity                724,750          717,594
  Cumulative preferred stock                          12,056           12,056
  Company-obligated mandatorily
    redeemable preferred securities                  100,000          100,000
  Long-term debt                                     576,925          576,924
                                                   ---------        ---------
       Total capitalization                        1,413,731        1,406,574
                                                   ---------        ---------



Current Liabilities:
  Securities due within one year                          22               22
  Notes payable                                       81,600           67,279
  Obligations under capital leases                    34,732           38,372
  Accounts payable:
    Affiliates                                        49,158           62,873
    Other                                             96,074           95,589
  Taxes accrued                                       40,100           21,455
  Interest accrued                                    10,599           15,903
  Other                                               30,895           33,351
                                                   ---------        ---------
       Total current liabilities                     343,180          334,844
                                                   ---------        ---------



Deferred Credits and Other Liabilities:
  Deferred income taxes                              420,465          412,692
  Three Mile Island Unit 2 future costs              226,748          224,354
  Unamortized investment tax credits                  28,633           29,134
  Nuclear fuel disposal fee                           30,755           30,343
  Regulatory liabilities                              23,786           24,195
  Other                                               75,145           71,845
                                                   ---------        ---------
     Total deferred credits and other liabilities    805,532          792,563
                                                   ---------        ---------


Commitments and Contingencies (Note 1)



       Total Liabilities and Capitalization       $2,562,443       $2,533,981
                                                   =========        =========


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


                                       12
<PAGE>

                 METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANIES

                           Consolidated Statements of Income
                           ---------------------------------
                                      (Unaudited)

                                                             In Thousands
                                                        ----------------------
                                                            Three Months
                                                            Ended March 31,
                                                        ----------------------
                                                         1998          1997
                                                         ----          ----

Operating Revenues                                     $234,748      $255,260
                                                        -------       -------

Operating Expenses:
  Fuel                                                   26,071        24,489
  Power purchased and interchanged:
    Affiliates                                            1,853         4,347
    Others                                               54,885        55,640
  Other operation and maintenance                        52,253        45,656
  Depreciation and amortization                          26,263        25,833
  Taxes, other than income taxes                         15,549        16,700
                                                        -------       -------
     Total operating expenses                           176,874       172,665
                                                        -------       -------

Operating Income Before Income Taxes                     57,874        82,595
  Income taxes                                           17,562        28,482
                                                        -------       -------
Operating Income                                         40,312        54,113
                                                        -------       -------

Other Income and Deductions:
  Allowance for other funds used during
    construction                                             45           179
  Other income, net                                         284           343
  Income taxes                                             (488)          (25)
                                                        -------       -------
     Total other income and deductions                     (159)          497
                                                        -------       -------

Income Before Interest Charges and
  Dividends on Preferred Securities                      40,153        54,610
                                                        -------       -------

Interest Charges and Dividends
  on Preferred Securities:
  Interest on long-term debt                             10,623        11,254
  Other interest                                          2,753         1,668
  Allowance for borrowed funds used
    during construction                                    (203)         (247)
  Dividends on company-obligated mandatorily
    redeemable preferred securities                       2,250         2,250
                                                        -------       -------
     Total interest charges and dividends
       on preferred securities                           15,423        14,925
                                                        -------       -------

Net Income                                               24,730        39,685
  Preferred stock dividends                                 121           121
                                                        -------       -------
Earnings Available for Common Stock                    $ 24,609      $ 39,564
                                                        =======       =======





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


                                       13
<PAGE>

                 METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANIES

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

                                                             In Thousands
                                                        ----------------------
                                                            Three Months
                                                            Ended March 31,
                                                        ----------------------
                                                         1998          1997
                                                         ----          ----
Operating Activities:
  Net income                                            $  24,730    $  39,685
  Adjustments to reconcile income to cash provided:
    Depreciation and amortization                          29,797       28,512
    Amortization of property under capital leases           3,659        3,790
    Nuclear outage maintenance costs, net                   1,537        1,368
    Deferred income taxes and investment tax
      credits, net                                         (2,546)       6,156
    Allowance for other funds used
      during construction                                     (45)        (179)
  Changes in working capital:
    Receivables                                             6,404      (33,207)
    Materials and supplies                                    921       (1,096)
    Special deposits and prepayments                      (31,730)     (13,085)
    Payables and accrued liabilities                       (5,365)       8,507
  Nonutility generation contract buyout costs              (2,500)      (8,550)
  Other, net                                               (3,296)      (8,679)
                                                         --------     --------
     Net cash provided by operating activities             21,566       23,222
                                                         --------     --------

Investing Activities:
  Capital expenditures                                    (12,104)     (17,528)
  Contributions to decommissioning trusts                  (3,621)      (4,438)
  Other, net                                                  (12)         (11)
                                                         --------     --------
     Net cash used for investing activities               (15,737)     (21,977)
                                                         --------     --------

Financing Activities:
  Increase in notes payable, net                           14,321       17,875
  Capital lease principal payments                         (2,683)      (3,872)
  Dividends paid on common stock                          (20,000)     (10,000)
  Dividends paid on preferred stock                          (121)        (236)
                                                         --------     --------
     Net cash provided/(required)
       by financing activities                             (8,483)       3,767
                                                         --------     --------

Net increase in cash and temporary cash
  investments from above activities                        (2,654)       5,012
Cash and temporary cash investments, beginning of year      6,116        1,901
                                                         --------     --------
Cash and temporary cash investments, end of period      $   3,462    $   6,913
                                                         ========     ========

Supplemental Disclosure:
  Interest and preferred dividends paid                 $  20,787    $  21,652
                                                         ========     ========
  Income taxes paid                                     $   2,250    $   1,655
                                                         ========     ========
  New capital lease obligations incurred                $      19    $     757
                                                         ========     ========




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


                                       14
<PAGE>


                 PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES

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

                                                            In Thousands
                                                   -----------------------------
                                                     March 31,      December 31,
                                                       1998             1997
                                                   ------------     --------
                                                    (Unaudited)

ASSETS
Utility Plant:
  In service, at original cost                     $2,829,073       $2,812,720
  Less, accumulated depreciation                    1,114,874        1,091,965
                                                    ---------        ---------
    Net utility plant in service                    1,714,199        1,720,755
  Construction work in progress                        67,157           69,089
  Other, net                                           24,101           26,110
                                                    ---------        ---------
       Net utility plant                            1,805,457        1,815,954
                                                    ---------        ---------

Other Property and Investments:
  Nuclear decommissioning trusts, at market            73,580           68,129
  Other, net                                            7,066            7,071
                                                    ---------        ---------
       Total other property and investments            80,646           75,200
                                                    ---------        ---------

Current Assets:
  Cash and temporary cash investments                   7,544              -
  Special deposits                                      2,647            2,449
  Accounts receivable:
    Customers, net                                     75,936           71,338
    Other                                              29,433           21,051
  Unbilled revenues                                    42,303           47,728
  Materials and supplies, at average cost
   or less:
    Construction and maintenance                       48,853           47,853
    Fuel                                               15,528           14,841
  Deferred income taxes                                 7,589            7,589
  Prepayments                                          52,180           29,856
                                                    ---------        ---------
       Total current assets                           282,013          242,705
                                                    ---------        ---------

Deferred Debits and Other Assets:
  Regulatory assets:
    Income taxes recoverable through future rates     202,624          203,642
    Three Mile Island Unit 2 deferred costs            90,663           89,538
    Nonutility generation contract buyout costs        28,700           28,700
    Other                                              74,662           68,220
                                                    ---------        ---------
      Total regulatory assets                         396,649          390,100
  Deferred income taxes                                56,203           55,698
  Other                                                14,276           13,118
                                                    ---------        ---------
       Total deferred debits and other assets         467,128          458,916
                                                    ---------        ---------



       Total Assets                                $2,635,244       $2,592,775
                                                    =========        =========


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


                                       15
<PAGE>

                 PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES

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


                                                             In Thousands
                                                     March 31,      December 31,
                                                       1998             1997
                                                   ------------     -----------
                                                    (Unaudited)

LIABILITIES AND CAPITALIZATION
Capitalization:
  Common stock                                     $  105,812       $  105,812
  Capital surplus                                     285,486          285,486
  Retained earnings                                   420,237          393,708
  Accumulated other comprehensive income                7,605            6,332
                                                      -------          -------
    Total common stockholder's equity                 819,140          791,338
  Cumulative preferred stock                           16,681           16,681
  Company-obligated mandatorily
    redeemable preferred securities                   105,000          105,000
  Long-term debt                                      676,445          676,444
                                                    ---------        ---------
       Total capitalization                         1,617,266        1,589,463
                                                    ---------        ---------



Current Liabilities:
  Securities due within one year                           11           30,011
  Notes payable                                       116,000           77,581
  Obligations under capital leases                     18,087           19,939
  Accounts payable:
    Affiliates                                         27,410           24,811
    Other                                              55,916           62,483
  Taxes accrued                                        28,464           15,966
  Interest accrued                                     10,118           20,902
  Other                                                25,471           19,654
                                                    ---------        ---------
       Total current liabilities                      281,477          271,347
                                                    ---------        ---------



Deferred Credits and Other Liabilities:
  Deferred income taxes                               481,328          478,182
  Three Mile Island Unit 2 future costs               113,424          112,227
  Unamortized investment tax credits                   38,753           39,353
  Nuclear fuel disposal fee                            15,378           15,172
  Regulatory liabilities                               29,424           29,785
  Other                                                58,194           57,246
                                                    ---------        ---------
     Total deferred credits and other liabilities     736,501          731,965
                                                    ---------        ---------


Commitments and Contingencies (Note 1)



       Total Liabilities and Capitalization        $2,635,244       $2,592,775
                                                    =========        =========


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


                                       16
<PAGE>

                PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES

                           Consolidated Statements of Income
                           ---------------------------------
                                      (Unaudited)

                                                            In Thousands
                                                        ----------------------
                                                            Three Months
                                                            Ended March 31,
                                                        ----------------------
                                                         1998          1997
                                                         ----          ----

Operating Revenues                                     $263,655      $289,753
                                                        -------       -------

Operating Expenses:
  Fuel                                                   42,434        46,223
  Power purchased and interchanged:
    Affiliates                                              244         1,652
    Others                                               54,714        54,128
  Other operation and maintenance                        60,033        53,888
  Depreciation and amortization                          25,644        25,696
  Taxes, other than income taxes                         17,963        18,797
                                                        -------       -------
     Total operating expenses                           201,032       200,384
                                                        -------       -------

Operating Income Before Income Taxes                     62,623        89,369
  Income taxes                                           19,803        30,513
                                                        -------       -------
Operating Income                                         42,820        58,856
                                                        -------       -------

Other Income and Deductions:
  Allowance for other funds used during
    construction                                            -              38
  Other income, net                                          79           145
  Income taxes                                               14           (69)
                                                        -------       -------
     Total other income and deductions                       93           114
                                                        -------       -------

Income Before Interest Charges and
  Dividends on Preferred Securities                      42,913        58,970
                                                        -------       -------

Interest Charges and Dividends
  on Preferred Securities:
  Interest on long-term debt                             12,112        12,115
  Other interest                                          2,244         1,999
  Allowance for borrowed funds used
    during construction                                    (385)         (335)
  Dividends on company-obligated mandatorily
    redeemable preferred securities                       2,297         2,297
                                                        -------       -------
     Total interest charges and dividends
       on preferred securities                           16,268        16,076
                                                        -------       -------

Net Income                                               26,645        42,894
  Preferred stock dividends                                 116           144
                                                        -------       -------
Earnings Available for Common Stock                    $ 26,529      $ 42,750
                                                        =======       =======





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


                                       17
<PAGE>





                PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES

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

                                                             In Thousands
                                                        ----------------------
                                                            Three Months
                                                            Ended March 31,
                                                        ----------------------
                                                         1998          1997
                                                         ----          ----
Operating Activities:
  Net income                                            $  26,645    $  42,894
  Adjustments to reconcile income to cash provided:
    Depreciation and amortization                          26,797       24,736
    Amortization of property under capital leases           2,018        2,108
    Nuclear outage maintenance costs, net                     770          686
    Deferred income taxes and investment tax
      credits, net                                          1,177          523
    Allowance for other funds used
      during construction                                     -            (38)
  Changes in working capital:
    Receivables                                            (7,556)     (29,105)
    Materials and supplies                                 (1,687)      (4,613)
    Special deposits and prepayments                      (22,522)      (7,007)
    Payables and accrued liabilities                         (945)      18,979
  Other, net                                               (7,501)      (5,622)
                                                         --------     --------
     Net cash provided by operating activities             17,196       43,541
                                                         --------     --------

Investing Activities:
  Capital expenditures                                    (15,041)     (19,488)
  Contributions to decommissioning trusts                  (1,316)      (1,316)
                                                         --------     --------
     Net cash used for investing activities               (16,357)     (20,804)
                                                         --------     --------

Financing Activities:
  Increase in notes payable, net                           38,419          192
  Retirement of long-term debt                            (30,000)         -
  Capital lease principal payments                         (1,540)      (2,149)
  Dividends paid on common stock                              -        (15,000)
  Dividends paid on preferred stock                          (174)        (174)
                                                         --------     --------
     Net cash provided/(required)
       by financing activities                              6,705      (17,131)
                                                         --------     --------

Net increase in cash and temporary
  cash investments from above activities                    7,544        5,606
Cash and temporary cash investments, beginning of year        -            -
                                                         --------     ------
Cash and temporary cash investments, end of period      $   7,544    $   5,606
                                                         ========     ========

Supplemental Disclosure:
  Interest and preferred dividends paid                 $  27,018    $  23,896
                                                         ========     ========
  Income taxes paid                                     $   2,285    $   2,347
                                                         ========     ========
  New capital lease obligations incurred                $      10    $     379
                                                         ========     ========

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


                                       18
<PAGE>





GPU, Inc. and Subsidiary Companies

               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.  Met-Ed and Penelec  estimate that
their  total   above-market   costs  related  to  power  purchase   commitments,
company-owned  generation,  generating plant decommissioning,  regulatory assets
and  transition  expenses,  on a present value basis at year-end  1998, are $1.5
billion  and  $1.2  billion,  respectively.   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). In July 1997, JCP&L proposed,  in its
restructuring plans filed with the New Jersey Board of Public

                                       19


<PAGE>


Utilities (NJBPU),  recovery of its remaining Oyster Creek plant investment as a
regulatory asset,  through a nonbypassable charge to customers (see Management's
Discussion and Analysis - Competitive  Environment).  At March 31, 1998, JCP&L's
net investment in Oyster Creek was $710 million.  These estimates are subject to
significant  uncertainties 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.
The restructuring legislation in Pennsylvania and the Energy Master Plan (NJEMP)
in New Jersey provide mechanisms for utilities to recover, subject to regulatory
approval,  their  above-market  costs. These regulatory  recovery  mechanisms in
Pennsylvania  and New  Jersey  differ,  but  should  allow for the  recovery  of
non-mitigable above-market costs through either distribution charges or separate
nonbypassable charges to customers.

      In June  1997,  Met-Ed and  Penelec  filed  with the  Pennsylvania  Public
Utility  Commission  (PaPUC)  their  proposed  restructuring  plans to implement
competition and customer choice in Pennsylvania as required by the comprehensive
restructuring  legislation  enacted  in  1996.  Highlights  of these  plans  are
presented in the Competitive  Environment section of Management's Discussion and
Analysis.  In May 1998,  an  Administrative  Law Judge (ALJ) issued  Recommended
Decisions in Met-Ed and Penelec's restructuring proceedings.  Met-Ed and Penelec
are  continuing  to  analyze  the ALJ's  recommendations,  which do not  contain
detailed schedules recommending proposed amounts of stranded cost disallowances,
cost  allocations  or other rate matters.  Accordingly,  management is unable to
assess the full  implications  of the Decisions at this time. The major elements
of the ALJ's Decisions are presented in the Competitive  Environment  section of
Management's  Discussion  and  Analysis.  Met-Ed  and  Penelec  intend  to  file
exceptions to a number of the ALJ's  recommendations  by May 20, 1998. The PaPUC
is  scheduled  to take  nonbinding  polls  on June  4,  1998 on the  Recommended
Decisions and issue final orders on June 25, 1998.

      Based on  preliminary  review and analysis of the  Recommended  Decisions,
management believes that if the PaPUC were to adopt the ALJ's recommendations in
substantial part (in particular,  the proposed reduction of T&D rates), it would
have a material  adverse  effect on Met-Ed and Penelec's  stranded cost recovery
and future earnings,  except to the extent offset by spending reductions.  There
can be no assurance as to the outcome of these proceedings.

      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.
Highlights of this plan are presented in the Competitive  Environment section of
Management's  Discussion  and  Analysis.  Although  the NJBPU has stated that it
intends  to  complete  its  review  of  JCP&L's  plan  so  as to  permit  retail
competition to begin in October 1998,  this would require  enacting  legislation
which has not yet been  introduced.  Management  believes  it is  unlikely  that
legislation could be enacted in time for retail competition to begin in 1998.

      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.  The
current schedule, which is subject to change, calls for initial non-binding bids
due in June  1998,  selection  of a short list of bidders in July 1998 and final
bid  submission in October  1998. It is  anticipated  that  definitive  purchase
agreements will be entered into in November 1998 and the divestiture

                                       20


<PAGE>


completed by mid-1999, subject to the timely receipt of the necessary regulatory
and other  approvals.  For additional  information,  see Other  Commitments  and
Contingencies.

      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 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  PaPUC-approved
competitive  transition charge,  subject to certain  conditions,  including that
utilities  attempt to mitigate these costs. In 1997, the NJBPU released Phase II
of the 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. There can be no assurance as to the extent that
stranded  costs  will  be  recoverable  in  Pennsylvania  and New  Jersey.  (For
additional  information,  see Management's Discussion and Analysis - Competitive
Environment).

      The inability of the GPU Energy  companies to recover their stranded costs
in  whole  or  in  part  could  result  in  the  recording  of  liabilities  for
above-market  nonutility  generation  (NUG) 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."  Decommissioning  costs, for which a liability may
have to be recorded (see Nuclear Plant Retirement  Costs), and the corresponding
regulatory asset for amounts  recoverable from customers,  could also be subject
to  writedowns.  The  inability  to recover  these  stranded  costs would have a
material  adverse  effect  on  GPU's  results  of  operations.  (See  additional
discussion  of  stranded  costs  in  Management's   Discussion  and  Analysis  -
Competitive Environment).

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

      Pursuant to the  requirements  of the federal  Public  Utility  Regulatory
Policies Act (PURPA) and state regulatory  directives,  the GPU Energy companies
have entered into power purchase agreements with 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.

                          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                       860      402      208      250
      2001                       887      411      237      239
      2002                       908      423      246      239

                                       21


<PAGE>


*     The 1998 amounts consist of actual payments through March 31, 1998 and
      estimated payments for the remainder of the year.

      As of March 31, 1998,  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  definitive  buyout
agreements  with two  bidders.  The PaPUC is  considering  Met-Ed and  Penelec's
requests for approval of these agreements as part of their pending restructuring
proceedings.

      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 July 1997,  the PaPUC
ordered  that the issue of recovery of the related  buyout costs and approval of
the revised  power  purchase  agreements  with AES be  considered  in Met-Ed and
Penelec's restructuring proceedings. If the revised power purchase

                                       22


<PAGE>


agreements  with AES are not  approved  by the PaPUC,  Met-Ed and  Penelec  have
agreed to pay AES up to an additional $28 million and $5 million, respectively.

      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.

      The GPU  Energy  companies  are  recovering  certain  of their  NUG  costs
(including  certain buyout costs) from customers.  Although the recently enacted
legislation in Pennsylvania 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.)

Regulatory Assets and Liabilities:
----------------------------------

      Regulatory  Assets and Regulatory  Liabilities,  as reflected in the March
31, 1998 and December 31, 1997  Consolidated  Balance Sheets in accordance  with
the  provisions  of FAS 71,  "Accounting  for the  Effects of  Certain  Types of
Regulation", were as follows:

GPU, Inc. and Subsidiary Companies                      Assets (in thousands)
----------------------------------                      ---------------------
                                                     March 31,      December 31,
                                                       1998            1997
                                                  -------------     -----------
Income taxes recoverable through
  future rates                                    $  521,780        $  510,680
Three Mile Island Unit 2 (TMI-2) deferred costs      337,754           345,326
Nonutility generation contract buyout costs          240,068           245,568
Unamortized property losses                           96,355            99,532
Other postretirement benefits                         88,519            89,569
Environmental remediation                             71,807            90,308
N.J. unit tax                                         38,204            39,797
Unamortized loss on reacquired debt                   39,280            40,489
Load and demand-side management programs              18,414            23,164
N.J. low-level radwaste disposal                      29,653            31,479
DOE enrichment facility decommissioning               32,377            33,472
Nuclear fuel disposal fee                             20,688            21,512
Storm damage                                          30,215            31,097
Nonutility generation costs                           32,163            24,857
Other                                                 23,775            22,402
                                                   ---------         ---------
     Total                                        $1,621,052        $1,649,252
                                                   =========         =========

                                                    Liabilities (in thousands)
                                                    --------------------------
                                                   March 31,        December 31,
                                                      1998             1997
                                                  ----------        ----------
Income taxes refundable through
  future rates                                    $   87,568        $   89,247
Other                                                 15,200            12,527
                                                   ---------         ---------
     Total                                        $  102,768        $  101,774
                                                   =========         =========


                                       23


<PAGE>


JCP&L                                                 Assets (in thousands)
-----                                                 ---------------------
                                                  March 31,         December 31,
                                                    1998               1997
                                                ------------         ----------
Income taxes recoverable through
  future rates                                    $  136,853        $  128,111
TMI-2 deferred costs                                 102,059           109,498
Nonutility generation contract buyout costs          137,500           140,500
Unamortized property losses                           91,641            94,726
Other postretirement benefits                         48,977            49,807
Environmental remediation                             41,683            61,324
N.J. unit tax                                         38,204            39,797
Unamortized loss on reacquired debt                   28,029            28,729
Load and demand-side management programs              18,414            23,164
N.J. low-level radwaste disposal                      29,653            31,479
DOE enrichment facility decommissioning               20,439            21,223
Nuclear fuel disposal fee                             23,045            23,781
Storm damage                                          30,215            31,097
Other                                                  1,934             2,466
                                                   ---------         ---------
     Total                                        $  748,646        $  785,702
                                                   =========         =========

                                                     Liabilities (in thousands)
                                                     --------------------------
                                                   March 31,        December 31,
                                                     1998              1997
                                                 ------------       ----------
Income taxes refundable through
  future rates                                    $   36,861        $   37,759
Other                                                 14,129            11,467
                                                   ---------         ---------
     Total                                        $   50,990        $   49,226
                                                   =========         =========


Met-Ed                                                Assets (in thousands)
------                                                ---------------------
                                                  March 31,         December 31,
                                                    1998               1997
                                               -------------          --------
Income taxes recoverable through
  future rates                                    $  182,303        $  178,927
TMI-2 deferred costs                                 145,032           146,290
Nonutility generation contract buyout costs           73,868            76,368
Unamortized property losses                            2,579             2,650
Other postretirement benefits                         39,542            39,762
Environmental remediation                              4,121             4,121
Unamortized loss on reacquired debt                    5,134             5,329
DOE enrichment facility decommissioning                7,959             8,166
Nuclear fuel disposal fee                             (1,540)           (1,511)
Nonutility generation costs                           12,602            10,265
Other                                                  5,589             4,515
                                                   ---------         ---------
     Total                                        $  477,189        $  474,882
                                                   =========         =========

                                                 Liabilities (in thousands)
                                                   March 31,       December 31,
                                                     1998              1997
                                                -------------         --------
Income taxes refundable through
  future rates                                    $   21,393        $   21,749
Other                                                  2,393             2,446
                                                   ---------         ---------
     Total                                        $   23,786        $   24,195
                                                   =========         =========



                                       24


<PAGE>


Penelec                                              Assets (in thousands)
-------                                              ---------------------
                                                March 31,           December 31,
                                                  1998                 1997
                                             -------------            --------
Income taxes recoverable through
  future rates                                  $  202,624          $  203,642
TMI-2 deferred costs                                90,663              89,538
Nonutility generation contract buyout costs         28,700              28,700
Unamortized property losses                          2,135               2,156
Environmental remediation                           26,003              24,863
Unamortized loss on reacquired debt                  6,117               6,431
DOE enrichment facility decommissioning              3,979               4,083
Nuclear fuel disposal fee                             (817)               (758)
Nonutility generation costs                         19,561              14,592
Other                                               17,684              16,853
                                                 ---------           ---------
     Total                                      $  396,649          $  390,100
                                                 =========           =========

                                                  Liabilities (in thousands)
                                                  --------------------------
                                                 March 31,          December 31,
                                                   1998                 1997
                                              -------------         -----------
Income taxes refundable through
  future rates                                  $   29,314          $   29,739
Other                                                  110                  46
                                                 ---------           ---------
     Total                                      $   29,424          $   29,785
                                                 =========           =========

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

TMI-2 deferred costs:  Represents  costs that are recoverable  through rates for
--------------------
the GPU  Energy  companies'  remaining  investment  in the plant and fuel  core,
radiological   decommissioning  and  the  cost  of  removal  of  nonradiological
structures  and materials in accordance  with the 1995  site-specific  study (in
1998  dollars)  and JCP&L's  share of long-term  monitored  storage  costs.  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 (see Management's  Discussion and Analysis The GPU Energy
Companies' Supply Plan).

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.



                                       25


<PAGE>


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.

Nonutility generation costs: 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).

      Amounts related to the  decommissioning  of TMI-1 and Oyster Creek,  which
are not included in Regulatory  assets on the Consolidated  Balance Sheets,  are
separately disclosed in the Nuclear Plant Retirement Costs section.

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

      Historically, electric utility rates have been based on a utility's costs.
As a result,  the GPU  Energy  companies  account  for the  economic  effects of
cost-based ratemaking regulation under the provisions of FAS 71. 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. At March
31, 1998,  GPU has recorded on the  Consolidated  Balance Sheets $1.6 billion in
regulatory  assets  in  accordance  with  FAS  71  (see  Regulatory  Assets  and
Liabilities section of Competition and the Changing Regulatory Environment).

      In  response  to  the  continuing  deregulation  of the  electric  utility
industry, the Securities and Exchange Commission (SEC) questioned the

                                       26


<PAGE>


continued  applicability of FAS 71 by  investor-owned  utilities with respect to
their electric generation operations.

      In  response  to the  concerns  expressed  by the  Staff of the  SEC,  the
Financial  Accounting Standards Board's (FASB) EITF agreed to discuss the issues
surrounding  the  continued  applicability  of FAS 71 to  the  electric  utility
industry.  In 1997,  the EITF met to discuss  these  issues and  concluded  that
utilities are no longer subject to FAS 71, for the  generation  portion of their
business, as soon as 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.
While  the  EITF's  consensus  must be  complied  with,  the  SEC has the  final
regulatory authority for accounting by public companies.

      In light of retail  access  legislation  enacted in  Pennsylvania  and the
NJBPU's final findings and  recommendations,  the GPU Energy  companies  believe
they will no longer meet the requirements  for continued  application of FAS 71,
for the  generation  portion of their  business,  by no later than  mid-1998 for
Met-Ed and Penelec,  and October 1998 for JCP&L, the expected  approval dates of
their  restructuring  plans  filed  with state  regulators.  Once the GPU Energy
companies are able to determine that the generation  portion of their operations
is no longer subject to the provisions of FAS 71, the related regulatory assets,
net of  regulatory  liabilities,  would,  to the  extent  that  recovery  is not
provided for through their respective  restructuring  plans,  have to be written
off and charged to expense.  Additional  depreciation  expense  would have to be
recorded  for any  differences  created by the use of a  regulated  depreciation
method that is  different  from that which would have been used under  generally
accepted  accounting   principles  for  enterprises  in  general.  In  addition,
write-downs  of plant  assets  could be  required  in  accordance  with FAS 121,
"Accounting for the Impairment of Long-Lived Assets," discussed below.

      Additionally,  the inability of the GPU Energy  companies to recover their
above-market  costs of power purchase  commitments,  in whole or in part,  could
result in the recording of liabilities and corresponding charges to expense. The
amount of charges  resulting from the  discontinuation  of FAS 71 will depend on
the  final  outcome  of  the  GPU  Energy  companies'  individual  restructuring
proceedings,  and could  have a  material  adverse  effect on GPU's  results  of
operations and financial position.

      In  December  1997,  the  PaPUC  rejected  PECO  Energy  Company's  (PECO)
restructuring  settlement  and approved an alternate  plan for PECO based on its
findings in that case. PECO took a pre-tax charge to 1997 income of $3.1 billion
reflecting the effects of the PaPUC order.  Met-Ed and Penelec  believe that the
PaPUC's  decision  in the  PECO  case  was  based  on  the  specific  facts  and
circumstances of that  proceeding.  Met-Ed and Penelec further believe that they
have  demonstrated  in  their   restructuring   proceedings  ample  evidence  to
distinguish  sufficiently their cases from PECO's and that the PaPUC should not,
therefore,  apply its findings in the PECO case to their  pending  restructuring
plans.  If,  however,  the PaPUC were to apply these  findings,  it would have a
material  adverse  impact  on  Met-Ed  and  Penelec's  stranded  cost  recovery,
restructuring proceedings and future earnings.


                                       27


<PAGE>


      In April 1998, PECO and other parties to PECO's restructuring  proceeding,
including  Met-Ed and  Penelec,  filed a joint  petition for  settlement  (Joint
Petition)  with  the  PaPUC.  The  Joint  Petition  represents  a  comprehensive
settlement  that  resolves  numerous  issues  on appeal  by the  parties  to the
settlement,  including an agreement by Met-Ed, Penelec and PECO to withdraw from
each others respective restructuring cases. Additionally, PECO has agreed not to
participate when the PaPUC reviews Met-Ed and Penelec's sale of their generating
facilities.  The Joint  Petition was  tentatively  approved by the PaPUC and the
final vote is currently scheduled for May 14, 1998. There can be no assurance as
to the outcome of this matter.

      Should the restructuring proceedings in New Jersey and Pennsylvania 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 the GPU Energy companies,  management believes that the outcome
of these  proceedings  would  have a  material  adverse  effect on GPU's  future
earnings.

      FAS 121 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.
The effects of FAS 121 have not been material to GPU's results of operations.

                               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 March 31, 1998 and
December 31, 1997, the GPU Energy  companies' net investment in TMI-1 and Oyster
Creek, including nuclear fuel, was as follows:

                                                   Net Investment (in millions)
                                                   ----------------------------
                                                   TMI-1          Oyster Creek
                                                   -----          ------------
               March 31, 1998
               --------------
               JCP&L                               $152                  $710
               Met-Ed                               293                     -
               Penelec                              143                     -
                                                    ---                   ---
                 Total                             $588                  $710
                                                    ===                   ===

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



                                       28


<PAGE>


      The GPU Energy  companies'  net  investment in TMI-2 at March 31, 1998 and
December  31,  1997 was $82  million and $84  million,  respectively  (JCP&L $74
million  and $76  million,  respectively;  Met-Ed  $1  million  and $1  million,
respectively;  Penelec  $7  million  and $7  million,  respectively).  JCP&L  is
collecting  revenues for TMI-2 on a basis which provides for the recovery of its
remaining  investment  in the plant by 2008.  Met-Ed and Penelec are  collecting
revenues for TMI-2 related to their wholesale customers.

      Costs associated with the operation, maintenance and retirement of nuclear
plants  have  continued  to be  significant  and  less  predictable  than  costs
associated  with other  sources  of  generation,  in large part due to  changing
regulatory  requirements,   safety  standards,  availability  of  nuclear  waste
disposal  facilities and experience  gained in the construction and operation of
nuclear facilities. 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
is  exploring  the sale or early  retirement  of the  plant  to  mitigate  costs
associated with its continued operation. JCP&L is exploring these options due to
the plant's  high cost of  generation  compared to the current  market  price of
electricity.  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).

      The  GPU  Energy  companies  have  also  entered  into  a  confidentiality
agreement with a potential purchaser of TMI-1. Unlike Oyster Creek, however, the
early retirement of TMI-1 is not being considered because of its lower operating
costs.  In the  event  that  TMI-1 is sold,  there can be no  assurance  of full
recovery of its remaining investment.

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


                                       29


<PAGE>


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 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
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



                                       30


<PAGE>


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                        $ 45              $ 72             $310
Met-Ed                         91               144                -
Penelec                        45                72                -
                              ---               ---              ---
    Total                    $181              $288             $310
                              ===               ===              ===

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):

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

Radiological decommissioning       $333             $404             $391
Nonradiological cost of removal      82               33 *             38
                                    ---              ---              ---
    Total                          $415             $437             $429
                                    ===              ===              ===

* Net of $11.2 million spent as of March 31, 1998.

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

      The ultimate cost of retiring the GPU Energy companies' nuclear facilities
may be  different  from  the cost  estimates  contained  in these  site-specific
studies.  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

                                       31


<PAGE>


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  the
Impairment of Long-Lived  Assets and for  Long-Lived  Assets to Be Disposed Of,"
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
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.

      The amounts charged to depreciation  expense for the first quarter of 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 three 
 months ended March 31, 1998:
    JCP&L                             $  1         $  6
    Met-Ed                               2            -
    Penelec                              1            -
                                       ---          ---
                                      $  4         $  6
                                       ===          ===


                                       32


<PAGE>


                                        (in millions)
                                                   Oyster
                                      TMI-1        Creek
                                      -----        -----
Accumulated depreciation
 provision at March 31, 1998:
    JCP&L                             $ 41         $235
    Met-Ed                              75            -
    Penelec                             32            -
                                       ---          ---
                                      $148         $235
                                       ===          ===

      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.

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
March 31, 1998 and December 31, 1997 are as follows:

                                             (in millions)

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

March 31, 1998               $453          $113          $227           $113
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 March 31, 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 $453  million  liability at March 31, 1998 is $256 million
(JCP&L $29 million; Met-Ed $144 million;  Penelec $83 million) which is probable
of recovery  from  customers  and  included in Three Mile Island Unit 2 deferred
costs on the Consolidated  Balance Sheets,  and $238 million (JCP&L $94 million;
Met-Ed $105 million;  Penelec $39 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 Three Mile Island Unit 2 deferred costs. TMI-2
decommissioning  costs charged to  depreciation  expense in the first quarter of
1998  amounted  to $3 million  (JCP&L $573  thousand;  Met-Ed  $2,496  thousand;
Penelec $255 thousand).

      The NJBPU and PaPUC have  granted  JCP&L and Met-Ed,  respectively,  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. Based on Met-Ed's rate order, Penelec has


                                       33


<PAGE>


recorded a regulatory  asset for that portion of such costs which it believes to
be probable of recovery.

      At March 31,  1998,  the  accident-related  portion of TMI-2  radiological
decommissioning costs is considered to be $71 million (JCP&L $18 million, Met-Ed
$35 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,  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 $71  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 $8.9 billion. Coverage for
the first $200 million of such liability is provided by private  insurance.  The
remaining  coverage,   or  secondary  financial   protection,   is  provided  by
retrospective  premiums  payable by all nuclear reactor owners.  Under secondary
financial  protection,  a nuclear incident at any licensed nuclear power reactor
in the country,  including those owned by the GPU Energy companies, could result
in  assessments  of up to $79  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

                                       34


<PAGE>


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.


                              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

                                       35


<PAGE>


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):

         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 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

                                       36


<PAGE>


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 March 31, 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 has requested, and expects to receive, recovery of
these  remediation  costs in its  restructuring  plan  filed with the PaPUC (see
Management's  Discussion  and  Analysis  -  Competitive  Environment),  and  has
recorded a corresponding  regulatory asset of approximately $12 million at March
31, 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 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 March 31, 1998. JCP&L has requested  recovery of
its share of  closure  costs in its  restructuring  plan filed with the NJBPU in
July 1997. Penelec and Met-Ed expect recovery through their  restructuring plans
filed  with the PaPUC in June 1997 (see  Management's  Discussion  and  Analysis
Competitive  Environment).  As a result,  a  regulatory  asset of $17 million is
reflected on the Consolidated Balance Sheets at March 31, 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 March 31,  1998,  JCP&L has
spent  approximately  $28 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 March 31, 1998,  JCP&L had recorded on its
Consolidated Balance Sheet a regulatory asset of $35 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.






                                       37


<PAGE>


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

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

       GPU is addressing  year 2000 issues as they relate to its  business,  its
operations and operating  systems,  and its relationship with 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.  GPU currently anticipates that its
year 2000 remediation  efforts will, in all material  respects,  be completed by
the end of 1999. In the event corrective actions are not completed by this date,
certain  computers,   equipment,  systems  and  applications  may  not  function
properly, which could have a material adverse effect on GPU's operations.

       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. As a result of the planned  implementation of Project Enterprise,
the GPU Energy  Companies  will avoid spending an estimated $8 million (JCP&L $3
million;  Met-Ed $2 million;  Penelec $3 million) in  modifications  to existing
systems to make them year 2000 compliant.

       The GPU Energy Companies currently estimate they will spend an additional
$24 million (JCP&L $11 million;  Met-Ed $7 million;  Penelec $6 million) on year
2000 remediation of their computers,  equipment and computer  software.  Of this
amount,  approximately $7 million (JCP&L $3 million; Met-Ed $2 million;  Penelec
$2  million)  would have been  spent in any event  because  of  maintenance  and
cyclical replacement plans that are already in place.

       The GPUI Group currently estimates it will spend approximately $7 million
to become year 2000 ready, primarily to replace or modify equipment.

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

       At March 31, 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 March 31, 1998, GPU, Inc.'s aggregate investment in the GPUI Group was
$518 million;  GPU, Inc. has also guaranteed up to an additional $913 million of
GPUI Group  obligations.  Of this amount,  $726 million is included in Long-term
debt and Securities due within one year on GPU's  Consolidated  Balance Sheet at
March 31, 1998; $30 million of that amount relates to a GPU International,  Inc.
revolving  credit   agreement;   and  $157  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) with an aggregate book value of approximately $28 million.

                                       38


<PAGE>


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.  The specific  terms of
restructured contracts that may be executed are being negotiated separately with
each IPP. In February  1998,  the New York Public  Service  Commission  approved
NIMO's restructuring agreement.

       Parties to the agreement must still resolve a number of important  issues
and final resolution will require the execution of separate  agreements for each
project;  approval by NIMO  shareholders,  and other state and federal agencies;
third party  consents;  successful  financing by NIMO; and resolution of certain
tax issues.  While the parties are  attempting to complete the  transactions  by
mid-1998, there can be no assurance as to the outcome of this matter.

       NIMO has also initiated an action in federal court seeking to invalidate
numerous NUG contracts,  including the three GPU  International,  Inc.  projects
discussed  above.  GPU  International,  Inc.  has filed  motions to dismiss  the
complaint.   This  proceeding  has  been  stayed  pending  the  outcome  of  the
restructuring negotiations.

Other:
------

       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 $288 million; Met-Ed $305 million;  Penelec $546 million) at
March 31,  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,  and to reduce acquisition
debt of the  GPUI  Group.  In  April  1998,  GPU  mailed  Confidential  Offering
Memoranda  to qualified  buyers.  One  Memorandum  covers 25  fossil-fueled  and
hydroelectric stations, support organizations and development sites and a second
Memorandum is for the 1,884 MW coal-fired  Homer City Station,  which Penelec is
selling  together  with its 50%  joint  owner,  New York  State  Electric  & Gas
Corporation.

       The  current  schedule,  which is subject to  change,  calls for  initial
non-binding bids due in June 1998,  selection of a short list of bidders in July
1998 and final bid submission in October 1998. 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. For the Homer City Station, initial,  non-binding bids will
be due in May,  with the winning  bidder  expected to be announced by the end of
July 1998.

       GPU's  capital  programs,  for which  substantial  commitments  have been
incurred and which extend over several years,  contemplate  expenditures of $582
million  (JCP&L $204 million;  Met-Ed $92 million;  Penelec $121 million;  Other
$165  million)  during  1998.  As  a  consequence  of  reliability,   licensing,
environmental and other requirements, additions to utility plant may be

                                       39


<PAGE>


required  relatively late in their expected service lives. If such additions are
made, current depreciation allowance methodology may not make adequate provision
for the recovery of such investments during their remaining lives.

       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 to, among other things,
permit utilities to cease payments into the Federal Nuclear Waste Fund until the
DOE complies with the NWPA. In May 1997, a joint  petition was filed  requesting
that the Court of Appeals  compel the DOE to begin  disposing  of spent  nuclear
fuel  beginning  not later than January 31, 1998.  In November  1997,  the Court
declined  to compel the DOE to begin  disposing  of spent fuel by the  statutory
deadline or to authorize the utilities to cease  payments into the Nuclear Waste
Fund.  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 March 31, 1998, $6 million has
been  paid.  As a result,  at March 31,  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.  (See the
Regulatory Assets and Liabilities section of Competition and the

                                       40


<PAGE>


Changing  Regulatory  Environment.)  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.

       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 March 31,  1998,  GPU,  Inc.  and  consolidated  affiliates  had 9,401
employees worldwide, of which about 9,000 employees were located in the U.S. The
majority of the U.S. workforce is employed by the GPU Energy companies, of which
4,862 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's  five-year  contract with the Utility Workers Union of America expires
on June 30, 1998, and renegotiations have begun.

       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 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 March 31,  1998,  these  agreements
covered  approximately  $1.4  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 three months ended March 31,
1998,  fixed  rate  interest   expense   exceeded   variable  rate  interest  by
approximately $4.8 million.



                                       41


<PAGE>


3.     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 Cogeneration, 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:

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

March 31, 1998
--------------
Current Assets                         $   225,502         $   329,523
Noncurrent Assets                        2,715,956           3,409,024
Current Liabilities                       (896,575)           (953,957)
Long-Term Debt                          (1,191,094)         (1,786,352)
Other Noncurrent Liabilities              (273,504)           (358,005)
                                         ---------           ---------
Equity in Net Assets                   $   580,285         $   640,233
                                         =========           =========

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
                                         =========           =========







                                       42


<PAGE>



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

For the three months ended March 31, 1998
-----------------------------------------
Operating Revenues                           $ 357,584         $ 382,424
Depreciation and Amortization                  (19,905)          (19,345)
Operating Income                                49,294            56,195
Other Income and Deductions                     (4,664)           (1,840)
Interest and Preferred Dividends               (26,979)          (33,500)
                                               -------           -------
Equity in Net Income                         $  17,651         $  20,855
                                               =======           =======


For the three months ended March 31, 1997
Operating Revenues                           $ 411,739         $ 453,103
Depreciation and Amortization                  (19,366)          (22,686)
Operating Income                                76,032            86,492
Other Income and Deductions                    (14,175)          (13,075)
Interest and Preferred Dividends               (29,630)          (38,233)
                                               -------           -------
Equity in Net Income                         $  32,227         $  35,184
                                               =======           =======


For the three months ended March 31, 1998 and 1997, the GPUI Group received cash
distributions totaling $1.9 million and $6.1 million, respectively.

       As of March 31, 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 three  months  ended  March 31,  1998 and 1997  amounted to $0.4
million and $0.1 million, respectively.

       In  January  1998,  as a result  of the  Australian  State of  Victoria's
cross-ownership  restrictions,  GPU Electric sold its 50% stake in Solaris Power
(Solaris) to The Australian  Gas Light Company for A$208 million  (approximately
U.S. $135.2 million) and a 10.36% stake in Allgas Energy Limited  (Allgas),  the
natural gas distributor in Queensland, Australia. The Allgas shares had a market
value of A$14.6  million  (approximately  U.S.  $9.5 million) at the date of the
sale.  As a result,  GPU  recorded an after-tax  gain on the sale of U.S.  $18.3
million in the first quarter of 1998.













                                       43


<PAGE>


4. 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:



















                                       44


<PAGE>
<TABLE>


Balance Sheet Segment Data (in thousands)
<CAPTION>

                                                 Current     Noncurrent    Current
March 31, 1998                                   Assets        Assets    Liabilities
--------------                                   -------     ----------  -----------
<S>                                            <C>           <C>              <C>    

Domestic:
    GPU Energy companies                       $  879,850    $ 9,128,474      $1,125,665
    GPUI Group*                                    77,931        291,975          59,328
    Less: GPUI Group equity investments
       included above                             (43,346)      (249,906)        (36,871)
    Add: Original equity investment and
       income/(loss) less dividends to date             -         68,903               -
    GPU AR                                          3,001             13             658
    Corporate                                         885          6,261         108,336
                                                ---------     ----------       ---------
           Subtotal                               918,321      9,245,720       1,257,116
                                                ---------     ----------       ---------
Foreign: (GPUI Group only)
    Australia*                                     84,880      1,855,273         503,220
    United Kingdom*                               178,536      2,212,451         838,488
    Other*                                         58,850        375,994          33,660
    Less: GPUI Group equity investments
       included above                            (182,156)    (2,466,050)       (859,704)
    Add: Original equity investment and
       income/(loss) less dividends to date             -        552,190               -
                                                ---------     ----------       ---------
           Subtotal                               140,110      2,529,858         515,664
                                                ---------     ----------       ---------

Consolidated Total                             $1,058,431    $11,775,578      $1,772,780
                                                =========     ==========       =========

                                                               Other           Cash
                                               Long-Term     Noncurrent       Capital
March 31, 1998                                    Debt       Liabilities    Expenditures
--------------                                    ----       -----------    ------------

Domestic:
    GPU Energy companies                       $2,448,734     $2,822,114      $   68,110
    GPUI Group*                                   221,583         55,425           1,123
    Less: GPUI Group equity investments
       included above                            (221,583)       (16,081)           (774)
    Add: Original equity investment and
       income/(loss) less dividends to date             -              -               -
    GPU AR                                              -              -               -
    Corporate                                           -          1,405               -
                                                ---------      ---------       ---------
           Subtotal                             2,448,734      2,862,863          68,459
                                                ---------      ---------       ---------
Foreign: (GPUI Group only)
    Australia*                                  1,215,619         75,463           1,316
    United Kingdom*                             1,133,536        245,791          29,947
    Other*                                        235,814         63,095           8,516
    Less: GPUI Group equity investments
       included above                            (969,511)      (257,423)        (34,586)
    Add: Original equity investment and
       income/(loss) less dividends to date             -              -               -
                                                ---------      ---------       ---------
           Subtotal                             1,615,458        126,926           5,193
                                                ---------      ---------       ---------

Consolidated Total                             $4,064,192     $2,989,789      $   73,652
                                                =========      =========       =========
</TABLE>


     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.
                                       45


<PAGE>

<TABLE>

Balance Sheet Segment Data (in thousands) (continued)
<CAPTION>

                                                   Current    Noncurrent      Current
December 31, 1997                                  Assets      Assets        Liabilities
-----------------                                 -------    -----------     -----------
<S>                                            <C>           <C>              <C>

Domestic:
    GPU Energy companies                       $  831,269    $ 9,117,687      $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      9,373,374       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    $11,795,528       $2,021,435
                                                =========     ==========        =========

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

Domestic:
    GPU Energy companies                       $2,448,672     $2,823,301       $  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      2,859,278          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     $2,989,393       $2,268,637
                                                =========      =========        =========
</TABLE>


     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.
                                       46


<PAGE>
<TABLE>


Earnings Segment Data (in thousands)

<CAPTION>
                                                                   Depreciation
For the three months                             Operating             and        Operating
ended March 31, 1998                             Revenues          Amortization    Income
--------------------                             --------          ------------    ------
<S>                                            <C>          <C>                <C>

Domestic:
    GPU Energy companies                       $  968,888    $   114,901       $  161,796
    GPUI Group*                                    46,036          2,512            7,064
    Less: GPUI Group equity investments
       included above                             (29,337)        (2,334)          (7,861)
    Add: Equity in undistributed earnings
       of affiliates, net                               -              -                -
    GPU AR                                          1,925              -             (815)
    Corporate                                           -              -           (1,001)
                                                ---------        -------          -------
           Subtotal                               987,512        115,079          159,183
                                                ---------        -------          -------
Foreign: (GPUI Group only)
    Australia*                                     48,243         10,496           32,126
    United Kingdom*                               322,735         14,198           43,493
    Other*                                         12,866          4,946              (28)
    Less: GPUI Group equity investments
       included above                            (328,247)       (17,571)          41,433)
    Add:   Equity in undistributed earnings
       of affiliates, net                               -              -                -
                                                ---------        -------          -------
           Subtotal                                55,597         12,069           34,158
                                                ---------        -------          -------

Consolidated Total                             $1,043,109    $   127,148       $  193,341
                                                =========        =======          =======

                                                  Other          Interest and
For the three months                           Income and          Preferred
ended March 31, 1998                           Deductions          Dividends       Net Income
--------------------                           ----------          ---------       ----------

Domestic:
    GPU Energy companies                       $    1,421    $    61,179       $  102,038
    GPUI Group*                                     4,413          4,850            6,627
    Less: GPUI Group equity investments
       included above                               1,224         (4,714)          (1,923)
    Add:   Equity in undistributed earnings
       of affiliates, net                           1,923              -            1,923
    GPU AR                                             21              -             (794)
    Corporate                                          26          1,458           (2,433)
                                                   ------        -------          -------
           Subtotal                                 9,028         62,773          105,438
                                                   ------        -------          -------
Foreign: (GPUI Group only) 
    Australia*                                     17,154         29,785           19,495
    United Kingdom*                                (2,779)        30,693           10,021
    Other*                                            531          1,176           (1,174)
    Less: GPUI Group equity investments
       included above                               3,440        (22,265)         (15,728)
    Add: Equity in undistributed earnings
       of affiliates, net                          15,728              -           15,728
                                                   ------        -------          -------
           Subtotal                                34,074         39,389           28,342
                                                   ------        -------          -------

Consolidated Total                             $   43,102    $   102,162       $  133,780
                                                   ======        =======          =======
</TABLE>

* 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>

<TABLE>

Earnings Segment Data (in thousands)(continued)

 <CAPTION>
                                                                Depreciation
For the three months                            Operating             and         Operating
ended March 31, 1997                            Revenues          Amortization     Income
--------------------                           ---------         ------------      -------
<S>                                            <C>           <C>               <C>

Domestic:
    GPU Energy companies                       $1,042,064    $   113,339       $  195,441
    GPUI Group*                                    36,909          2,361            5,884
    Less: GPUI Group equity investments
       included above                             (35,108)        (2,199)          (7,344)
    Add: Equity in undistributed earnings/
       (losses) of affiliates, net                      -              -                -
    GPU AR                                              -              -                -
    Corporate                                           -              -           (1,282)
                                                ---------        -------          -------
           Subtotal                             1,043,865        113,501          192,699
                                                ---------        -------          -------
Foreign: (GPUI Group only)
    Australia*                                     35,949          2,458            9,378
    United Kingdom*                               336,505         13,967           63,273
    Other*                                         11,324          2,439             (404)
    Less: GPUI Group equity investments
       included above                            (376,631)       (17,167)         (68,688)
    Add: Equity in undistributed earnings/
       of affiliates, net                               -              -                -
                                                ---------        -------          -------
           Subtotal                                 7,147          1,697            3,559
                                                ---------        -------          -------

Consolidated Total                             $1,051,012    $   115,198       $  196,258
                                                =========        =======          =======

                                                  Other          Interest and
For the three months                           Income and          Preferred
ended March 31, 1997                           Deductions          Dividends       Net Income
--------------------                           ----------        -----------       ----------

Domestic:
    GPU Energy companies                       $    3,790    $    61,759       $  137,472
    GPUI Group*                                    (1,657)         5,451           (1,224)
    Less: GPUI Group equity investments
       included above                               2,337         (5,084)              77
    Add: Equity in undistributed earnings/
       (losses) of affiliates, net                    (77)             -              (77)
    GPU AR                                              -              -                -
    Corporate                                        (208)         1,187           (2,677)
                                                   ------         ------          -------
           Subtotal                                 4,185         63,313          133,571
                                                   ------         ------          -------
Foreign: (GPUI Group only)
    Australia*                                     (1,585)         6,018           1,775
    United Kingdom*                               (14,851)        27,402          21,020
    Other*                                            954          1,731          (1,328)
    Less: GPUI Group equity investments
       included above                              11,838        (24,546)        (32,304)
    Add: Equity in undistributed earnings
       of affiliates, net                          32,304              -          32,304
                                                   ------         ------         -------
           Subtotal                                28,660         10,605          21,467
                                                   ------         ------         -------

Consolidated Total                             $   32,845    $    73,918      $  155,038
                                                   ======         ======         =======
</TABLE>


     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>


5. COMPREHENSIVE INCOME

      For the three months ended March 31, 1998 and 1997,  comprehensive  income
was as follows:


                                                           (in thousands)
                                                            Three months
                                                           Ended March 31,
                                                           ---------------
GPU, Inc. and Subsidiary Companies                     1998             1997
----------------------------------                     ----             ----

Net income                                           $133,780         $155,038
                                                      -------          -------
Other comprehensive income, net of tax:
      Net unrealized gains on investments               3,820            1,161
      Foreign currency translation                     10,743             (593)
                                                      -------          -------
        Total other comprehensive income               14,563              568
                                                      -------          -------
Comprehensive income                                 $148,343         $155,606
                                                      =======          =======

Met-Ed
------

Net income                                           $ 24,730         $ 39,685
                                                      -------          -------
Other comprehensive income, net of tax:
      Net unrealized gains on investments               2,547              773
                                                      -------          -------
Comprehensive income                                 $ 27,277         $ 40,458
                                                      =======          =======

Penelec
-------

Net income                                           $ 26,645         $ 42,894
                                                      -------          -------
Other comprehensive income, net of tax:
      Net unrealized gains on investments               1,273              388
                                                      -------          -------
Comprehensive income                                 $ 27,918         $ 43,282
                                                      =======          =======
















                                       49



<PAGE>


GPU, Inc. and Subsidiary Companies


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


       GPU,  Inc.  owns all the  outstanding  common  stock  of  three  domestic
electric utilities -- Jersey Central Power & Light Company (JCP&L), Metropolitan
Edison  Company  (Met-Ed)  and  Pennsylvania  Electric  Company  (Penelec).  The
customer  service,  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's  earnings  for the first  quarter  ended March 31, 1998 were $133.8
million, compared to 1997 first quarter earnings of $155.0 million. Earnings per
share on a diluted  basis  were  $1.07 in 1998,  compared  to $1.28 per share in
1997.

       The first  quarter  earnings  decrease was due to lower income from GPU's
domestic  utility  operations,  which are conducted by GPU Energy.  GPU Energy's
earnings  reduction versus the first quarter of last year was due to the absence
in the  current  quarter's  results 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;  lower  weather-related  sales due to milder  winter
temperatures  this year  compared  to last;  and  increased  expenses  primarily
related  to  the  reengineering  of  business  processes  to  position  GPU  for
deregulation.

       Partially  offsetting  the earnings  reduction was  increased  GPUI Group
income due to gains on the sales of its  interest  in Solaris  Power  (Solaris),
half  its  interest  in  the  Mid-Georgia   cogeneration  project  and  Midlands
Electricity plc (Midlands)  generation  development  projects.  These gains were
partially offset by lower Midlands earnings due in part to lower weather-related
sales.  The  business of the GPUI Group  includes  investment,  development  and
operation  of global  businesses  and,  when  appropriate,  purchase and sale of
interests in particular businesses.


                                       50


<PAGE>


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

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

       Operating  revenues for the first quarter of 1998 decreased 0.8% to $1.04
billion, as compared to the first quarter of 1997. The components of the changes
are as follows:

                                             (in millions)
                                             -------------
GPU Energy companies:
   Kilowatt-hour (KWH) revenues                 $(38.7)
   Energy-related revenues                         1.9
   GPU Telcom revenues                             4.9
   Other revenues                                (41.2)
                                                 -----
        Total GPU Energy companies               (73.1)
GPUI Group                                        63.3
GPU AR                                             1.9
                                                 -----
        Total decrease in revenues              $ (7.9)
                                                 =====

GPU Energy Companies

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

       The decrease in KWH revenues for the three month period was due primarily
to the  absence in the first  quarter of 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 (See  COMPETITIVE
ENVIRONMENT). Also contributing to the decrease were lower weather-related sales
due to milder  winter  temperatures  this year  compared to last,  and decreased
usage by residential and commercial customers.

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 month period
was due primarily to increased  sales to other  utilities,  partially  offset by
lower  residential,  commercial and  industrial  customer sales and lower energy
cost rates.

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.

                                       51


<PAGE>


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

GPUI Group

       The increase in GPUI Group  revenues  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,  except for incremental  nonutility  generation (NUG) costs, which are
included  in  Regulatory   assets  on  the  Consolidated   Balance  Sheets  (see
COMPETITIVE  ENVIRONMENT).  Lower reserve capacity expense (which is a component
of PP&I) contributed to earnings for the first three months of 1998.

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 (see COMPETITIVE  ENVIRONMENT).  For
Penelec,  lower fuel costs contributed to earnings for the first three months of
1998.

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

       The  increase in other O&M expenses for the three month period was due to
increased  GPUI Group O&M expenses  resulting from the inclusion of PowerNet and
the effect of consolidating its investment in Lake Cogen, Ltd. beginning in June
1997.  Also   contributing  to  the  increase  were  expenses   related  to  the
reengineering of business  processes to position GPU for  deregulation,  and the
inclusion of O&M expenses for GPU Telcom, and GPU AR.






                                       52


<PAGE>


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

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

       The increase in depreciation and amortization expense for the three month
period was due mainly to the inclusion of PowerNet,  as well as additions to GPU
Energy's plant in service and higher depreciation rates.

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  (see  COMPETITIVE
ENVIRONMENT).  This did not have a significant  impact on earnings for the first
three 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 month period was due to lower  Midlands  earnings due in part to lower
weather-related sales.

Other income, net
-----------------

       The  increase in other  income,  net for the three  month  period was due
primarily to gains  realized by the GPUI Group from the sales of its interest in
Solaris, half its interest in the Mid-Georgia  cogeneration project and Midlands
generation development projects.

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

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

       The increase in interest on long-term debt for the three month period was
due primarily to debt  associated  with the PowerNet  acquisition.  A portion of
this debt was reduced in the first quarter of 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  increase in other  interest  for the three  month  period was due to
higher Met-Ed and Penelec short-term debt levels.







                                       53


<PAGE>


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

       JCP&L's  earnings for the first  quarter  ended March 31, 1998 were $50.1
million,  compared to 1997 first quarter earnings of $55.2 million. The decrease
in earnings was due primarily to lower sales to customers due to decreased usage
and lower weather-related sales.

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

       Operating revenues for the first quarter of 1998 decreased 7.5% to $472.3
million, as compared to the first quarter of 1997. The components of the changes
are as follows:

                                  (in millions)
                                  -------------

   KWH revenues                     $ (2.2)
   Energy-related revenues             1.5
   Other revenues                    (37.4)
                                     -----
        Decrease in revenues        $(38.1)

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

       The  decrease in KWH revenues for the three month period was due to lower
usage by residential and commercial customers and lower weather-related sales to
residential  customers,  partially  offset  by an  increase  in  the  number  of
commercial customers.

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  month  period  was due  primarily  to  increased  sales to other
utilities,  partially  offset by lower  residential,  commercial  and industrial
sales and lower energy cost rates.

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

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

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. However,
lower reserve capacity expense  resulting  primarily from reduced purchases from
Pennsylvania  Power & Light Company  contributed to earnings for the three month
period.




                                       54


<PAGE>


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

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  month  period  was
primarily due to lower costs at the Oyster Creek facility,  partially  offset by
higher expenses related to the  reengineering of business  processes to position
the company for deregulation.

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

       The increase in depreciation and amortization expense for the three month
period was due  primarily to  additions to plant in service and slightly  higher
depreciation rates.

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

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


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

       Met-Ed's  earnings for the first  quarter ended March 31, 1998 were $24.6
million, compared to 1997 first quarter earnings of $39.6 million. This decrease
was  primarily  due to the  absence  in the  first  quarter  of 1998 of the step
increase in unbilled  revenue as a result of the  company  including  its ECR in
base rates and the  cessation  of deferred  energy  accounting,  both  effective
January 1, 1997 (See COMPETITIVE ENVIRONMENT).

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

       Operating revenues for the first quarter of 1998 decreased 8.0% to $234.7
million as compared to the first quarter of 1997.  The components of the changes
are as follows:

                                  (in millions)
                                  -------------

   KWH revenues                     $(19.5)
   Other revenues                     (1.0)
                                      ---- 
        Decrease in revenues        $(20.5)
                                    ====== 

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

      The decrease in KWH revenues for the three month period was due  primarily
to the  absence in the first  quarter of 1998 of the step  increase  in unbilled
revenue as a result of the company including its ECR in base rates, amounting

                                       55

<PAGE>



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

to $13 million.  Also  contributing  to the decrease were lower  weather-related
sales and lower usage by residential and commercial customers.

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, except for incremental NUG costs, which are included
in  Regulatory  assets  on the  Consolidated  Balance  Sheets  (see  COMPETITIVE
ENVIRONMENT).  Changes in fuel and power purchased and interchanged did not have
a significant impact on earnings for the first three months of 1998.

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

       The increase in other O&M expenses was due to increased  expenses related
to  the  reengineering  of  business  processes  to  position  the  company  for
deregulation and for maintenance of substation equipment and overhead lines.

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.  (see  COMPETITIVE  ENVIRONMENT) The
change for the three month period did not have a significant impact on earnings.

INTEREST CHARGES AND DIVIDENDS ON PREFERRED SECURITIES:
-------------------------------------------------------

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

       The increase in other interest expense for the three month period was due
to higher short-term debt levels.


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

       Penelec's  earnings for the first quarter ended March 31, 1998 were $26.5
million, compared to 1997 first quarter earnings of $42.8 million. This decrease
was  primarily  due to the  absence  in the  first  quarter  of 1998 of the step
increase in unbilled  revenue as a result of the  company  including  its ECR in
base rates and the  cessation  of deferred  energy  accounting,  both  effective
January 1, 1997 (See COMPETITIVE ENVIRONMENT).


                                       56


<PAGE>


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

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

       Operating revenues for the first quarter of 1998 decreased 9.0% to $263.7
million, as compared to the first quarter of 1997. The components of the changes
are as follows:

                                       (in millions)
                                       -------------

   KWH revenues                           $(21.8)
   Other revenues                           (4.3)
                                            ---- 
        Decrease in revenues              $(26.1)
                                          ====== 

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

       The  decrease in KWH  revenues  for the three month period was due to the
absence in the first quarter of 1998 of the step increase in unbilled revenue as
a result  of the  company  including  its ECR in base  rates,  amounting  to $15
million.  Also contributing to the decrease were lower  weather-related sales to
residential and commercial customers.

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 month
period was partially due to lower transmission revenues.

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, except for incremental NUG costs, which are included
in  Regulatory  assets  on the  Consolidated  Balance  Sheets  (see  COMPETITIVE
ENVIRONMENT).  Lower fuel costs and  reserve  capacity  expense  contributed  to
earnings for the first three months of 1998.

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

      The increase in other O&M expenses for the three month period was due to
increased expenses related to the reengineering of business processes to
position the company 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. (see COMPETITIVE ENVIRONMENT) The
change for the three month period did not have a significant impact on earnings.



                                       57


<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 eight operating  cogeneration plants in the U.S. totaling
847 megawatts (MW) (of which the GPUI Group's equity interest represents 308 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 six  generating
facilities  under  construction  totaling  2,131 MW (of which  the GPUI  Group's
equity interest  represents 488 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 March 31, 1998, GPU, Inc.'s aggregate investment in the GPUI Group was
$518 million;  GPU, Inc. has also guaranteed up to an additional $913 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  $2.2 billion as of
March 31, 1998.  At March 31, 1998,  GPU, Inc. has  remaining  authorization  to
finance approximately $904 million of additional  investments in FUCOs and EWGs.
To the extent the GPU Energy companies no longer meet the requirements of FAS 71
as a result of  regulatory  action  with  respect to the GPU  Energy  companies'
restructuring  plans,  any  resulting  write-offs  would reduce  GPU's  retained
earnings. Such reductions would reduce the amount of available authorization for
investments in FUCOs and EWGs.

       In  January  1998,  as a result  of the  Australian  State of  Victoria's
cross-ownership restrictions,  GPU Electric sold its 50% stake in Solaris to The
Australian  Gas Light  Company  for A$208  million  (approximately  U.S.  $135.2
million) and 10.36% of the  outstanding  common stock of Allgas  Energy  Limited
(Allgas),  the natural gas  distributor  in  Queensland,  Australia.  The Allgas
shares had a market value of A$14.6 million (approximately U.S. $9.5 million) at
the date of sale.  As a result,  GPU recorded an  after-tax  gain on the sale of
$18.3 million in the first quarter of 1998.

       In February  1998, GPU  International,  Inc. sold half of its interest in
the Mid-Georgia cogeneration project (Mid-Georgia). As a result, GPU recorded an
after-tax gain on the sale of $5.8 million in the first quarter of 1998. The 300
MW Mid-Georgia cogeneration facility, located in Kathleen, Georgia, is scheduled
to enter commercial operation in the second quarter of 1998 subject to obtaining
waivers of certain air emission requirements.

       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.

                                       58


<PAGE>


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

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

       GPU is addressing  year 2000 issues as they relate to its  business,  its
operations and operating  systems,  and its relationship with 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.  GPU currently anticipates that its
year 2000 remediation  efforts will, in all material  respects,  be completed by
the end of 1999. In the event corrective actions are not completed by this date,
certain  computers,   equipment,  systems  and  applications  may  not  function
properly, which could have a material adverse effect on GPU's operations.

       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. As a result of the planned  implementation of Project Enterprise,
the GPU Energy  Companies  will avoid spending an estimated $8 million (JCP&L $3
million;  Met-Ed $2 million;  Penelec $3 million) in  modifications  to existing
systems to make them year 2000 compliant.

       The GPU Energy Companies currently estimate they will spend an additional
$24 million (JCP&L $11 million;  Met-Ed $7 million;  Penelec $6 million) on year
2000 remediation of their computers,  equipment and computer  software.  Of this
amount,  approximately $7 million (JCP&L $3 million; Met-Ed $2 million;  Penelec
$2  million)  would have been  spent in any event  because  of  maintenance  and
cyclical replacement plans that are already in place.

       The GPUI Group currently estimates it will spend approximately $7 million
to become year 2000 ready, primarily to replace or modify equipment.

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

GPU Energy Companies

       The GPU Energy  companies'  capital  spending  for the three months ended
March 31, 1998 was $68 million (JCP&L $40 million;  Met-Ed $12 million;  Penelec
$15  million;  Other  $1  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 $441 million
(JCP&L $204  million;  Met-Ed $92  million;  Penelec $121  million;  Other $24),
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.  Management  estimates  that a substantial  portion of the GPU
Energy  companies'  1998 capital  outlays will be satisfied  through  internally
generated funds.

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<PAGE>


GPUI Group

       The GPUI  Group's  capital  spending  was $6 million for the three months
ended March 31, 1998. For 1998,  capital  expenditures are forecasted to be $141
million.  Expenditures for maturing obligations will total $589 million in 1998.
Management estimates that a substantial portion of the GPUI Group's 1998 capital
outlays will be satisfied through external financings.

Financing
---------

GPU, Inc.

       In February  1998,  GPU, Inc. sold seven million  shares of common stock.
The net  proceeds of $269 million  were used  primarily  to reduce  indebtedness
associated with the PowerNet and Midlands acquisitions, and the balance was used
for other corporate  purposes.  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  each plan to 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 Pennsylvania
Public Utility Commission (PaPUC) approval of restructuring plans, 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 February  1998,  Penelec  redeemed at maturity  $30 million  principal
amount of FMBs.  On May 1, 1998,  JCP&L  redeemed  $10 million  stated  value of
cumulative preferred stock pursuant to mandatory 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.  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'

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<PAGE>


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.

GPUI Group

       In January 1998, as a result of Victoria's cross-ownership  restrictions,
GPU Electric sold its 50% stake in Solaris for A$208 million (approximately U.S.
$135.2  million)  and  a  10.36%  stake  in  Allgas  valued  at  A$14.6  million
(approximately  U.S. $9.5 million) at the date of sale.  Approximately  U.S. $52
million of the net sales  proceeds were used to extinguish  Solaris  acquisition
debt and approximately U.S. $60 million was used to reduce PowerNet  acquisition
debt. The balance of the proceeds was applied for other corporate purposes.

       In the  first  quarter  of 1998,  the GPUI  Group  reduced  PowerNet  and
Midlands  acquisition debt by $40 million and $189 million,  respectively,  from
proceeds  provided by the sale of GPU,  Inc.  common  stock.  The GPUI Group may
further  reduce  Midlands  and PowerNet  acquisition  debt with a portion of the
proceeds from the proposed sale of the GPU Energy  companies'  fossil-fueled and
hydroelectric  generating  facilities,  which is  expected  to be  completed  in
mid-1999. (see Managing the Transition section of COMPETITIVE ENVIRONMENT).

Capitalization
--------------

       On April 2, 1998, the GPU Board of Directors  raised the quarterly common
stock  dividend by 3%. On an annualized  basis,  the dividend would be $2.06 per
share.


                             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

                                       61


<PAGE>


MW;  Penelec  2,100 MW) of capacity  and have a net book value of  approximately
$1.1 billion (JCP&L $288 million; Met-Ed $305 million;  Penelec $546 million) at
March 31,  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,  and to reduce acquisition
debt of the  GPUI  Group.  In  April  1998,  GPU  mailed  Confidential  Offering
Memoranda  to qualified  buyers.  One  Memorandum  covers 25  fossil-fueled  and
hydroelectric stations, support organizations and development sites and a second
Memorandum is for the 1,884 MW coal-fired  Homer City Station,  which Penelec is
selling  together  with its 50%  joint  owner,  New York  State  Electric  & Gas
Corporation.

       The  current  schedule,  which is subject to  change,  calls for  initial
non-binding bids due in June 1998,  selection of a short list of bidders in July
1998 and final bid submission in October 1998. 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. For the Homer City Station, initial,  non-binding bids will
be due in May,  with the winning  bidder  expected to be announced by the end of
July 1998.

       In  addition  to the  continued  operation  of the Oyster  Creek  Nuclear
Generating  Station  (Oyster  Creek),  JCP&L  is  exploring  the  sale or  early
retirement  of the  plant  to  mitigate  costs  associated  with  its  continued
operation.  The GPU Energy  companies  have also entered into a  confidentiality
agreement with a potential purchaser of Three Mile Island Unit 1 (TMI-1). Unlike
Oyster Creek,  however,  the early  retirement of TMI-1 is not being  considered
because of its lower operating costs. In the event that TMI-1 is sold, there can
be no assurance of full recovery of GPU's remaining investment.

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  another  supplier
through a PaPUC  approved  competitive  transition  charge,  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

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<PAGE>


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 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.  Highlights  of these  plans,  as revised  through  January  1998,
include:

-      One-third  of retail  customers  would be able to choose  their  electric
       suppliers beginning on January 1, 1999, two-thirds by January 1, 2000 and
       all retail customers by January 1, 2001.

-      As required by the restructuring legislation, rates would be unbundled
       for generation, transmission and distribution charges.

-      A competitive  transition  charge (CTC) would provide the  opportunity to
       recover all of Met-Ed and Penelec's  generation plant,  regulatory assets
       and  other  non-NUG  related  transition  and  stranded  costs  within  a
       seven-year time period beginning January 1, 1999.

-      A "NUG Cost Rate" is being proposed to capture payments to NUGs in excess
       of  amounts  in current  rates.  This  clause  would  provide  for a full
       reconciliation  of amounts paid to NUGs,  and recovered  from  customers.
       This would ensure that  customers  do not overpay for these  obligations,
       and it would also provide a vehicle for flowing  through to customers the
       full  benefits of any  prospective  reductions  in NUG  obligations  that
       result from mitigation.  At March 31, 1998, the deferred NUG balances for
       Met-Ed and Penelec were $12.6  million and $19.6  million,  respectively,
       and are included in Other Regulatory  Assets on the Consolidated  Balance
       Sheets.

-      Stranded  costs at the time of  initial  customer  choice  (December  31,
       1998), on a present value basis, are estimated at $1.5 billion for Met-Ed
       and $1.2 billion for Penelec.  These stranded costs include  above-market
       costs related to power purchase  commitments,  company-owned  generation,
       generating  plant  decommissioning,   regulatory  assets  and  transition
       expenses.

-      Ongoing stranded cost mitigation efforts include the buyout and/or 
       renegotiation of several above-market NUG agreements; the planned

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<PAGE>


-      retirement of  uneconomical  generating  units as well as the  continuing
       evaluation of remaining generating  facilities;  and workforce reductions
       achieved primarily through voluntary retirement and severance programs.

-      Met-Ed and Penelec have  requested  rate  recovery of prudently  incurred
       costs  associated with the buyout and  restructuring of NUG projects that
       are not currently being recovered in rates. The requested increase, based
       upon a  three-year  recovery of the buyout  costs,  is $44.6  million for
       Met-Ed and $19.1 million for Penelec. It is expected that these increases
       will be offset by lower  interest  expense  related  to the  issuance  of
       transition  bonds. The estimated  customer savings  associated with these
       contract  buyouts/restructurings  is $812  million  for  Met-Ed  and $593
       million for Penelec.

-      Met-Ed and Penelec will be the supplier of last resort for customers who 
       cannot or do not wish to purchase energy from an alternative supplier.

      Numerous  parties have  intervened in these  proceedings  and are actively
contesting  various  aspects of the filings,  including  the  quantification  of
stranded  costs and the fixing of the level of generation  credits for customers
who choose alternative  suppliers.  Evidentiary hearings have been concluded and
briefs were filed in April.

      In May 1998, an ALJ issued  Recommended  Decisions in Met-Ed and Penelec's
restructuring  proceedings.  Met-Ed and  Penelec are  continuing  to analyze the
ALJ's  recommendations,  which do not contain  detailed  schedules  recommending
proposed amounts of stranded cost disallowances,  cost allocations or other rate
matters.  Accordingly,  management is unable to assess the full  implications of
the Decisions at this time.  The following,  however,  are the major elements of
the ALJ's recommendations:

-      The ALJ, while  recommending no overall rate reductions,  has recommended
       the adoption of lower unbundled transmission and distribution (T&D) rates
       than the  companies  requested,  by  reallocating  certain  T&D  costs to
       generation.

-      The ALJ rejected the proposed use of a NUG Cost Rate to recover  payments
       to NUGs in excess of  amounts in current  rates.  The ALJ has  proposed a
       one-time determination of above-market NUG costs which would be recovered
       through a CTC over  seven  years  (the  recommended  transition  period),
       beginning January 1, 1999.

-      The ALJ  accepted  Met-Ed and  Penelec's  proposed  two stage  ratemaking
       process for their fossil-fuel and hydro 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.

-      The ALJ has endorsed a market line higher than that recommended by 
       Met-Ed and Penelec.


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<PAGE>


-      The ALJ  rejected  Met-Ed and  Penelec's  proposal  to adopt a  levelized
       generation credit (shopping credit) for customers who choose  alternative
       suppliers. Instead, the ALJ recommended a shopping credit that rises over
       time consistent with the recommended market line determination.

-      The ALJ approved Met-Ed and Penelec's NUG buyout costs, but rejected
       their request for rate cap exceptions.

-      The ALJ  accepted  Met-Ed and  Penelec's  proposed  level of funding  for
       nuclear decommissioning costs which would be recovered through T&D rates.

-      Met-Ed and Penelec will remain the provider of last resort for  customers
       who  cannot  or do not  wish  to  purchase  energy  from  an  alternative
       supplier,  but the ALJ has  recommended  a  competitive  bid  process for
       provider of last resort customers.

      Met-Ed  and  Penelec  intend to file  exceptions  to a number of the ALJ's
recommendations by May 20, 1998. The PaPUC is scheduled to take nonbinding polls
on June 4, 1998 on the Recommended  Decisions and issue final orders on June 25,
1998.

      Based on  preliminary  review and analysis of the  Recommended  Decisions,
management believes that if the PaPUC were to adopt the ALJ's recommendations in
substantial part (in particular,  the proposed reduction of T&D rates), it would
have a material  adverse  effect on Met-Ed and Penelec's  stranded cost recovery
and future earnings,  except to the extent offset by spending reductions.  There
can be no assurance as to the outcome of these proceedings.

      In  December  1997,  the  PaPUC  rejected  PECO  Energy  Company's  (PECO)
restructuring  settlement  and approved an alternate  plan for PECO based on its
findings in that case.  Among other things,  the alternate plan  accelerates the
pace of retail  competition  in  Pennsylvania  and  reduces the amount of PECO's
recoverable stranded costs. PECO has appealed the PaPUC's decision.  PECO took a
pre-tax  charge to 1997  income of $3.1  billion  reflecting  the effects of the
PaPUC order.  Met-Ed and Penelec  believe that the PaPUC's  decision in the PECO
case was based on the  specific  facts  and  circumstances  of that  proceeding.
Met-Ed  and  Penelec  further  believe  that  they  have  demonstrated  in their
restructuring proceedings ample evidence to distinguish sufficiently their cases
from PECO's and that the PaPUC should not, therefore,  apply its findings in the
PECO case to their pending  restructuring  plans. If, however, the PaPUC were to
apply  these  findings,  it would have a material  adverse  impact on Met-Ed and
Penelec's stranded cost recovery, restructuring proceedings and future earnings.

      In April 1998, PECO and other parties to PECO's restructuring  proceeding,
including  Met-Ed and  Penelec,  filed a joint  petition for  settlement  (Joint
Petition)  with  the  PaPUC.  The  Joint  Petition  represents  a  comprehensive
settlement  that  resolves  numerous  issues  on appeal  by the  parties  to the
settlement,  including an agreement by Met-Ed, Penelec and PECO to withdraw from
each others respective restructuring cases. Additionally, PECO has agreed not to
participate when the PaPUC reviews Met-Ed and Penelec's sale of their generating
facilities. The Joint Petition was tentatively approved by

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<PAGE>


the PaPUC and the final vote is currently scheduled for May 14, 1998.  There can
be no assurance as to the outcome of this matter.

      The PaPUC has also 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 New Jersey Board of Public  Utilities  (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 has 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.  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 beginning October 1998, utilities
unbundle  their rates and allow  customers to choose their  electric  generation
supplier.  Transmission  and  distribution  of  electricity  would continue as a
regulated  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  eliminates
the 13% gross  receipts  and  franchise  tax on utility  bills.  Utilities  will
collect  from  customers a 6% sales tax and pay a corporate  business  tax which
amounts  to 1-2% of  revenues.  Utilities  will also pay a  transitional  energy
facilities  assessment which will phase out over five years and result in a 5-6%
rate reduction to customers.

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<PAGE>


      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   with  the  NJBPU  and  parties  to  the
restructuring  proceeding  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,  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  who  elect  JCP&L 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.

          --      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.  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

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<PAGE>


                  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 October 1, 1998, 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 sale or early  retirement  of the plant to mitigate  costs
     associated  with its continued  operation.  A final decision on the plant's
     future has not been  reached.  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.

          --      JCP&L's net  investment  in Oyster  Creek  would be  recovered
                  through the Delivery Charge as a levelized annuity,  effective
                  October  1998 through its original  expected  operating  life,
                  2009.

-    Stranded costs at the time of 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

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<PAGE>



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 are
completed  and  pending  before the ALJ.  Discovery,  evidentiary  hearings  and
related  proceedings  with respect to the  restructuring  filing are continuing.
Although,  the NJBPU intends to complete its review and issue final decisions in
time for retail  competition  to commence in October  1998,  this would  require
enacting  legislation which has not yet been introduced.  Management believes it
is unlikely that legislation could be enacted in time for retail  competition to
begin in 1998. 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. Monroe Township had been
exploring the possibility of establishing its own municipal electric system.


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<PAGE>


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
effect 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 has not yet been
introduced in Congress.

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.  While the GPU Energy  companies thus far
have been  granted  recovery of their NUG costs from  customers by the PaPUC and
NJBPU,  there can be no assurance  that they will continue to be able to recover
these  costs  throughout  the terms of the related  agreements.  As of March 31,
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.


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<PAGE>


      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 for cash
payments.  In January 1998,  Met-Ed and Penelec entered into  definitive  buyout
agreements  with two  bidders.  The PaPUC is  considering  Met-Ed and  Penelec's
requests for approval of these agreements as part of their pending restructuring
proceedings.


                               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 1997, the Financial Accounting Standards
Board's Emerging Issues Task Force (EITF) met to discuss

                                       71


<PAGE>



these issues and concluded  that  utilities are no longer subject to FAS 71, for
the generation portion of their business,  as soon as 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.

      In light of retail  access  legislation  enacted in  Pennsylvania  and the
NJBPU's final findings and  recommendations,  the GPU Energy  companies  believe
they will no longer meet the  requirements  for continued  application of FAS 71
for the  generation  portion of their  business,  by no later than  mid-1998 for
Met-Ed and Penelec,  and October 1998 for JCP&L, the expected  approval dates of
their  restructuring  plans  filed  with state  regulators.  Once the GPU Energy
companies are able to determine that the generation  portion of their operations
is no longer subject to the provisions of FAS 71, the related regulatory assets,
net of  regulatory  liabilities,  would,  to the  extent  that  recovery  is not
provided for through their respective  restructuring  plans,  have to be written
off and charged to expense.  Additional  depreciation  expense  would have to be
recorded  for any  differences  created by the use of a  regulated  depreciation
method that is  different  from that which would have been used under  generally
accepted  accounting   principles  for  enterprises  in  general.  In  addition,
writedowns  of plant assets could be required in  accordance  with  Statement of
Financial  Accounting  Standards  No. 121,  "Accounting  for the  Impairment  of
Long-Lived Assets."

      Additionally,  the inability of the GPU Energy  companies to recover their
above-market  costs of power purchase  commitments,  in whole or in part,  could
result in the recording of liabilities and corresponding charges to expense. The
amount of charges  resulting from the  discontinuation  of FAS 71 will depend on
the  final  outcome  of  the  GPU  Energy  companies'  individual  restructuring
proceedings,  and could  have a  material  adverse  effect on GPU's  results  of
operations and financial position.















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<PAGE>


                                                      PART II

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

                  Information  concerning  the current  status of certain  legal
                  proceedings  instituted  against 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 6 -          EXHIBITS AND REPORTS ON FORM 8-K
                  --------------------------------

                  (a) Exhibits

                      (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

                      (27)      Financial Data Schedules

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

                  (b) Reports on Form 8-K:

                      None.















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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.



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



May 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



May 14, 1998                     By:   /s/ D. Baldassari
                                       -----------------
                                       D. Baldassari, President


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












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