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   September 30, 1998    
                              -------------------------------------------------

                                       OR

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

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


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

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

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

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

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


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


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

GPU, Inc.                            Common Stock, $2.50 par value  127,963,926
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
                               September 30, 1998

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


                                                                            Page
                                                                         ----
PART I - Financial Information

      Consolidated Financial Statements:

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

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

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

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

      Combined Notes to Consolidated Financial Statements                 19

      Combined Management's Discussion and Analysis
        of Financial Condition and Results of
        Operations                                                        51

PART II - Other Information                                               79

Signatures                                                                80

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

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

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

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

                                       2
<PAGE>


                           GPU, INC. AND SUBSIDIARY COMPANIES

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

                                                        In Thousands 
                                                  ---------------------------
                                                  September 30,  December 31,
                                                     1998          1997     
                                                  ------------   -------------
                                   (Unaudited)
ASSETS
Utility Plant:
  In service, at original cost                   $10,832,810   $11,150,677
  Less, accumulated depreciation                   4,341,080     4,050,165
                                                  ----------     ---------
    Net utility plant in service                   6,491,730     7,100,512
  Construction work in progress                      175,499       250,050
  Other, net                                         148,298       159,009
                                                  ----------     ---------
       Net utility plant                           6,815,527     7,509,571
                                                  ----------     ---------

Other Property and Investments:
  GPUI Group equity investments (Note 4)             648,304       596,679
  Goodwill, net                                      523,756       581,364
  Nuclear decommissioning trusts,   
     at market (Note 1)                              635,689       579,673
  Nuclear fuel disposal trust, at market             115,423       108,652
  Other, net                                         216,033       252,335
                                                  ----------     ---------
       Total other property and investments        2,139,205     2,118,703
                                                  ----------     ---------

Current Assets:
  Cash and temporary cash investments                248,276        85,099
  Special deposits                                    47,247        27,093
  Accounts receivable:
    Customers, net                                   335,921       290,247
    Other                                            113,992       104,441
  Unbilled revenues                                  130,387       147,162
  Materials and supplies, at average cost 
          or less:
    Construction and maintenance                     158,767       187,799
    Fuel                                              34,949        40,424
  Investments held for sale                           22,098       106,317
  Deferred income taxes                               74,164        83,962
  Prepayments                                        116,216        55,613
  Other                                               -              1,023
                                                  ----------     ---------
      Total current assets                         1,282,017     1,129,180
                                                  ----------     ---------

Deferred Debits and Other Assets:
  Competitive transition charge (Notes 1 & 2)        989,815           -
  Other regulatory assets, net (Note 1)            2,900,585     1,547,478
  Deferred income taxes                            1,979,072       383,169
  Other                                              191,176       134,833
       Total deferred debits and other assets      6,060,648     2,065,480
                                                  ----------     ---------






       Total Assets                              $16,297,397   $12,822,934
                                                 ===========   ===========


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

                                       3
<PAGE>


                           GPU, INC. AND SUBSIDIARY COMPANIES

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


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

LIABILITIES AND CAPITALIZATION
Capitalization:
  Common stock                                   $   331,958      $314,458
  Capital surplus                                  1,010,373       755,040
  Retained earnings                                2,278,770     2,140,712
  Accumulated other  
         comprehensive income/
         (loss)(Note 6)                              (43,743)      (29,296)
                                                    --------      --------
    Total                                          3,577,358     3,180,914
  Less, reacquired common stock, at cost              78,349        80,984
                                                  ----------    ----------

    Total common stockholders' equity              3,499,009     3,099,930
  Cumulative preferred stock:
    With mandatory redemption                         86,500        91,500
    Without mandatory redemption                      66,478        66,478
  Subsidiary-obligated mandatorily
    redeemable preferred securities                  330,000       330,000
  Long-term debt                                   4,214,057     4,325,972
                                                   ---------     ---------
       Total capitalization                        8,196,044     7,913,880
                                                   ---------     ---------



Current Liabilities:
  Securities due within one year                     264,610       631,934
  Notes payable                                      298,393       353,214
  Obligations under capital leases                   129,440       138,919
  Accounts payable                                   415,321       413,791
  Taxes accrued                                      104,078        48,304
  Interest accrued                                    71,343        83,947
  Deferred energy credits                              7,771        25,645
  Other                                              285,721       325,681
                                                   ---------     ---------
       Total current liabilities                   1,576,677     2,021,435
                                                   ---------     ---------



Deferred Credits and Other Liabilities:
  Deferred income taxes                            2,964,223     1,566,131
  Unamortized investment tax credits                 115,960       123,162
  Three Mile Island Unit 2 future costs              464,304       448,808
  Nonutility generation contract loss liability    1,810,350           -
  Other                                            1,169,839       749,518
                                                   ---------     ---------
      Total deferred credits and other 
          liabilities                              6,524,676     2,887,619
                                                   ---------     ---------


Commitments and Contingencies (Note 1)


       Total Liabilities and Capitalization      $16,297,397   $12,822,934
                                                 ===========   ===========


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

                                       4
<PAGE>

<TABLE>

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

                                                         In Thousands
                                                    (Except Per Share Data)  
                                                Three Months             Nine Months
                                              Ended September 30,     Ended  September 30,  
                                              -------------------     --------------------  
                                                1998       1997        1998        1997
                                                ----       ----        ----        -----


<S>                                         <C>        <C>         <C>         <C>       
Operating Revenues                          $1,168,779 $1,117,140  $3,226,975  $3,110,935
                                             ---------  ---------   ---------   --------


Operating Expenses:
  Fuel                                         119,692     98,704     316,745     288,730
  Power purchased and interchanged             338,275    282,694     857,490     771,513
  Deferral of energy costs, net                 (7,585)     4,900     (18,915)     11,629
  Other operation and maintenance              308,836    268,027     810,064     721,867
  Depreciation and amortization                127,592    125,002     389,608     355,258
  Taxes, other than income taxes                56,019     95,186     170,777     271,589
                                             ---------  ---------   ---------   ---------

     Total operating expenses                  942,829    874,513   2,525,769   2,420,586
                                             ---------  ---------   ---------  ----------


Operating Income Before Income Taxes           225,950    242,627     701,206     690,349
  Income taxes                                  48,320     65,341     164,929     183,996
                                             ---------  ---------   ---------   ---------

Operating Income                               177,630    177,286     536,277     506,353
                                             ---------  ---------   ---------   --------


Other Income and Deductions:
  Allowance for other funds used during
    construction                                   188        274         737         935
  Equity in undistributed earnings/(losses)
    of affiliates, net (Note 4)                 12,038   (138,309)     42,882     (85,995)
  Other income/(expense), net                    3,465     (4,759)     44,377       1,472
  Income taxes                                  (8,035)    58,477     (26,755)     46,980
                                              ---------  ---------   ---------  ---------

     Total other income and deductions           7,656    (84,317)     61,241     (36,608)
                                             ---------  ---------   ---------   ---------


Income Before Interest Charges
  and Preferred Dividends                      185,286     92,969     597,518     469,745
                                             ---------  ---------   ---------   --------


Interest Charges and Preferred Dividends:
  Long-term debt                                78,309     57,374     240,243     171,009
  Subsidiary-obligated mandatorily
    redeemable preferred securities              7,222      7,222      21,666      21,666
  Other interest                                 8,933      9,261      26,776      27,900
  Allowance for borrowed funds used
    during construction                         (1,201)    (1,104)     (3,548)     (3,547)
  Preferred stock dividends of subsidiaries      2,624      2,890       8,516       9,491
                                              ---------  ---------   ---------  ---------

     Total interest charges and
       preferred dividends                      95,887     75,643     293,653     226,519
                                             ---------  ---------   ---------   ---------


Minority interest net income                       708        422       1,457       1,035
                                             ---------  ---------   ---------   --------


Income Before Extraordinary Item                88,691     16,904     302,408     242,191
Extraordinary item (net of income taxes
  of $178,790 and $16,300)(Notes 1 & 2)        249,355        -       (25,755)       -   
                                             ---------  ---------   ---------   ---------

Net Income                                  $  338,046 $   16,904  $  276,653  $  242,191
                                             =========  =========   =========  ==========


Basic - Earnings Per Avg. Common Share
  Before Extraordinary Item                 $     0.69 $     0.58  $     2.38  $     2.01
Extraordinary Item                                1.96         -        (0.20)        -  
                                             ---------   ---------  ---------   ---------

Basic - Earnings Per Avg. Common Share      $     2.65 $     0.58  $     2.18  $     2.01
                                             =========  =========   =========  ==========

        Avg. Common Shares Outstanding         127,940    120,762     126,796     120,694
                                             =========  =========   =========   =========


Diluted - Earnings Per Avg. Common Share
  Before Extraordinary Item                 $     0.69 $     0.58  $     2.38  $     2.00
Extraordinary Item                                1.96         -        (0.20)      - 
                                             ---------   ---------  ---------   ---------

Diluted - Earnings Per Avg. Common Share    $     2.65 $     0.58  $     2.18  $     2.00
                                             =========  =========   =========   =========

        Avg. Common Shares Outstanding         128,068    121,068     127,019     120,979
                                             =========  =========   =========   =========


Cash Dividends Paid Per Share               $     .515 $     .500  $     1.53  $    1.485
                                             =========  =========   =========   =========

<FN>

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

                                       5
</TABLE>
<PAGE>




                       GPU, INC. AND SUBSIDIARY COMPANIES

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

                                                               In Thousands
                                                       -------------------------
                                                                Nine Months
                                                            Ended September 30,
                                                       -------------  ----------
                                                            1998         1997
Operating Activities:
  Net income                                            $ 276,653    $ 242,191
  Extraordinary item (net of income tax
    benefit of $16,300)  (Note 2)                          25,755          -  
                                                         --------     --------
  Income before extraordinary item                        302,408      242,191
  Adjustments to reconcile income to cash provided:
    Depreciation and amortization                         414,688      370,769
    Amortization of property under capital leases          40,323       36,867
    PaPUC restructuring rate orders  (Notes 1 & 2)         68,500          -
    Gain on sale of investments                           (43,600)         -
    Equity in undistributed (earnings)/losses
      of affiliates, net of distributions received        (30,025)     123,023
    Nuclear outage maintenance costs, net                  12,461        8,685
    Deferred income taxes and investment tax
      credits, net                                       (123,004)     (68,815)
    Deferred energy and capacity costs, net               (17,835)      11,629
    Accretion income                                       (7,380)      (8,070)
    Allowance for other funds used
      during construction                                    (737)        (935)
  Changes in working capital:
    Receivables                                            (2,986)     (51,480)
    Materials and supplies                                  5,480        1,995
    Special deposits and prepayments                      (57,113)     (15,808)
    Payables and accrued liabilities                       17,479        1,373
  Nonutility generation contract buyout costs             (21,667)     (49,050)
  Other, net                                               15,808      (25,136)
                                                         --------     --------
     Net cash provided by operating activities            572,800      577,238
                                                         --------     --------

Investing Activities:
  Capital expenditures:
     GPU Energy companies                                (213,154)    (235,941)
     GPUI Group                                           (49,428)     (97,565)
  Proceeds from sale of investments                       163,768          -
  Contributions to decommissioning trusts                 (38,057)     (30,764)
  Other, net                                               14,256       12,104
                                                         --------     --------
     Net cash used for investing activities              (122,615)    (352,166)
                                                         --------     --------


Financing Activities:
  Issuance of long-term debt                              226,355      130,471
  Increase/(Decrease) in notes payable, net               (54,821)      60,227
  Retirement of long-term debt                           (474,889)    (166,601)
  Capital lease principal payments                        (38,695)     (38,884)
  Issuance of common stock                                269,448          -
  Redemption of preferred stock of subsidiaries           (15,000)     (20,000)
  Dividends paid on common stock                         (192,149)    (179,188)
     Net cash required by financing activities           (279,751)    (213,975)
                                                         --------     --------
Effect of exchange rate changes on cash                    (7,257)        (178)
                                                         --------     --------


Net increase in cash and temporary
  cash investments from above activities                  163,177       10,919
Cash and temporary cash investments, beginning of year     85,099       31,604
                                                         --------     --------
Cash and temporary cash investments, end of period      $ 248,276    $  42,523
                                                         ========     ========

Supplemental Disclosure:
  Interest and preferred dividends paid                 $ 295,338    $ 240,524
                                                         ========     ========
  Income taxes paid                                     $ 254,411    $ 187,503
                                                         ========     ========
  New capital lease obligations incurred                $  30,587    $  39,306
                                                         ========     ========
  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      
                                                 -------------------------
                                                 September 30, December 31,
                                                     1998        1997     
                                                  ---------     ---------
                                   (Unaudited)

ASSETS
Utility Plant:
  In service, at original cost                   $4,692,874   $4,671,568
  Less, accumulated depreciation                  2,149,280    2,007,427
    Net utility plant in service                  2,543,594    2,664,141
  Construction work in progress                      75,163      124,887
  Other, net                                        101,183       92,654
                                                  ---------    ---------
      Net utility plant                           2,719,940    2,881,682
                                                  ---------    ---------


Other Property and Investments:
  Nuclear decommissioning trusts,
     at market (Note 1)                             375,967      343,434
  Nuclear fuel disposal trust, at market            115,423      108,652
  Other, net                                          8,930        8,951
                                                  ---------    ---------
       Total other property and investments         500,320      461,037
                                                  ---------    ---------


Current Assets:
  Cash and temporary cash investments                 9,846        2,994
  Special deposits                                    6,177        6,778
  Accounts receivable:
    Customers, net                                  190,987      153,753
    Other                                            29,641       18,225
  Unbilled revenues                                  54,615       59,687
  Materials and supplies, at average cost or less:
    Construction and maintenance                     81,463       90,037
    Fuel                                             12,687       14,260
  Deferred income taxes                              20,001       27,536
  Prepayments                                        66,327       14,468
                                                  ---------    ---------
      Total current assets                          471,744      387,738
                                                  ---------    ---------


Deferred Debits and Other Assets:
  Other regulatory assets, net (Note 1)             792,969      736,476
  Deferred income taxes                             181,374      154,708
  Other                                              22,444       19,909
                                                  ---------    ---------
       Total deferred debits and other assets       996,787      911,093
                                                  ---------    ---------







       Total Assets                              $4,688,791   $4,641,550
                                                 ==========   ==========


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  
                                                  ---------------------------- 
                                                  September 30,    December 31,
                                                      1998           1997  
                                                  -------------    ------------
                                   (Unaudited)

LIABILITIES AND CAPITALIZATION
Capitalization:
  Common stock                                    $  153,713       $153,713
  Capital surplus                                    510,769        510,769
  Retained earnings                                  942,714        875,639
                                                   ---------      ---------
    Total common stockholder's equity              1,607,196      1,540,121
  Cumulative preferred stock:
    With mandatory redemption                         86,500         91,500
    Without mandatory redemption                      37,741         37,741
  Company-obligated mandatorily
    redeemable preferred securities                  125,000        125,000
  Long-term debt                                   1,173,472      1,173,304
                                                   ---------      ---------
       Total capitalization                        3,029,909      2,967,666
                                                   ---------      ---------



Current Liabilities:
  Securities due within one year                       2,512         12,511
  Notes payable                                       72,493        115,254
  Obligations under capital leases                    87,929         79,419
  Accounts payable:
    Affiliates                                        33,293         27,167
    Other                                            122,415        113,822
  Taxes accrued                                       24,886          3,966
  Deferred energy credits                              7,771         25,645
  Interest accrued                                    29,693         26,021
  Other                                              105,993         76,529
                                                   ---------      ---------
      Total current liabilities                      486,985        480,334
                                                   ---------      ---------



Deferred Credits and Other Liabilities:
  Deferred income taxes                              637,256        644,562 
  Unamortized investment tax credits                  50,775         54,675
  Nuclear fuel disposal fee                          139,684        134,326
  Three Mile Island Unit 2 future costs              116,101        112,227
  Other                                              228,081        247,760
                                                   ---------      ---------
       Total deferred credits and
          other liabilities                        1,171,897      1,193,550
                                                   ---------      ---------


Commitments and Contingencies (Note 1)


       Total Liabilities and Capitalization       $4,688,791     $4,641,550
                                                  ==========     ==========


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

                                       8

<PAGE>


<TABLE>


                  JERSEY CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARY COMPANY

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

                                                                 In  Thousands     
                                                ---------------------------------------------
                                                    Three Months              Nine Months
                                                Ended September 30,      Ended  September 30, 
                                                -------------------     ---------------------
                                                   1998        1997       1998       1997
                                                   ----        ----       ----       -----


<S>                                            <C>         <C>          <C>         <C>       
Operating Revenues                             $ 647,625   $ 602,900    $1,598,853  $1,591,569
                                                --------    --------    ----------   ---------



Operating Expenses:
  Fuel                                            29,709      27,633        72,453      73,703
  Power purchased and interchanged:
    Affiliates                                    31,320       7,513        46,388      14,719
    Others                                       193,237     172,432       501,942     451,538
  Deferral of energy and capacity costs, net      (7,585)      4,900       (18,915)     11,629
   Other operation and maintenance               140,632     115,531       354,392     331,808
  Depreciation and amortization                   55,435      68,940       187,114     190,178
  Taxes, other than income taxes                  27,796      64,050        75,330     176,878
                                                -------     --------      --------   ---------
     Total operating expenses                    470,544     460,999     1,218,704   1,250,453
                                                --------    --------      --------   ---------

Operating Income Before Income Taxes             177,081     141,901       380,149     341,116
  Income taxes                                    59,748      39,374       119,099      85,466
                                                --------    --------      --------   ---------

Operating Income                                 117,333     102,527       261,050     255,650
                                                --------    --------      --------   ---------



Other Income and Deductions:
  Allowance for other funds used during
    construction                                     184          65           652         332
  Other income, net                                2,314       1,975         7,232       2,122
  Income taxes                                    (1,095)      1,583        (3,437)     (1,244)
                                                --------    --------      --------   ---------
     Total other income and deductions             1,403       3,623         4,447       1,210
                                                --------    --------      --------   ---------

Income Before Interest Charges and
  Dividends on Preferred Securities              118,736     106,150       265,497     256,860
                                                --------    --------     ---------   ---------

Interest Charges:
  Long-term debt                                  21,814      22,434        65,455      67,779
  Company-obligated mandatorily
    redeemable preferred securities                2,675       2,675         8,025       8,025
  Other interest                                   3,058       4,022         8,645      11,680
  Allowance for borrowed funds used
    during construction                             (418)      (287)        (1,336)     (1,491)
                                                --------   ---------      --------   ---------
     Total interest charges                       27,129      28,844        80,789      85,993
                                                --------    --------      --------   ---------

Net Income                                        91,607      77,306       184,708     170,867
  Preferred stock dividends                        2,330       2,597         7,633       8,638
                                                --------    --------      --------    --------
Earnings Available for Common Stock            $  89,277  $  74,709     $  177,075  $  162,229
                                                ========   ========     ==========  ==========


<FN>


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

                                       9
</TABLE>

<PAGE>


              JERSEY CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARY COMPANY

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

                                                              In  Thousands    
                                                        -----------------------
                                                               Nine Months 
                                                        Ended September 30,   
                                                        -----------------------
                                                           1998         1997
                                                           ----         ----
Operating Activities:
  Net income                                            $ 184,708     $170,867
  Adjustments to reconcile income to cash provided:
    Depreciation and amortization                         206,758      201,149
    Amortization of property under capital leases          22,010       21,195
    Nuclear outage maintenance costs, net                   5,393       10,925
    Deferred income taxes and investment tax
      credits, net                                        (37,052)     (29,818)
    Deferred energy and capacity costs, net               (17,835)      11,629
    Accretion income                                       (7,380)      (8,070)
    Allowance for other funds used
      during construction                                    (652)        (332)
  Changes in working capital:
    Receivables                                           (43,577)     (10,528)
    Materials and supplies                                  2,580        4,521
    Special deposits and prepayments                      (51,259)     (32,116)
    Payables and accrued liabilities                       62,009      (14,584)
  Nonutility generation contract buyout costs             (15,000)     (30,500)
  Other, net                                               32,507        4,367 
                                                         --------    ---------
     Net cash provided by operating activities            343,210      298,705
                                                         --------    ---------

Investing Activities: 
  Capital expenditures                                   (111,704)    (116,026)
  Contributions to decommissioning trusts                 (20,775)     (13,502)
  Other, net                                               (6,214)      (7,603)
                                                        ---------    ---------
    Net cash used for investing activities               (138,693)    (137,131)
                                                        ---------    ---------

Financing Activities:
  Increase/(Decrease) in notes payable, net               (42,761)      75,000
  Retirement of long-term debt                                -        (80,075)
  Capital lease principal payments                        (21,965)     (20,289)
  Redemption of preferred stock                           (15,000)     (20,000)
  Dividends paid on common stock                         (110,000)     (95,000)
  Dividends paid on preferred stock                        (7,939)      (9,062)
                                                        ---------    ---------
     Net cash required  by financing activities          (197,665)    (149,426)
                                                        ---------    ---------

Net increase in cash and temporary
  cash investments from above activities                    6,852       12,148
Cash and temporary cash investments, beginning of year      2,994        1,321
                                                         --------    ---------
Cash and temporary cash investments, end of period      $   9,846    $  13,469
                                                         ========    =========

Supplemental Disclosure:
  Interest and preferred dividends paid                 $  83,893    $  93,035
                                                         ========    =========
  Income taxes paid                                     $ 139,334    $  91,518
                                                         ========    =========
  New capital lease obligations incurred                $  30,515    $  10,431
                                                         ========   ==========


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   
                                                     --------------------------
                                                     September 30, December 31,
                                                         1998         1997  
                                                    ------------  ------------
                                   (Unaudited)

ASSETS
Utility Plant:
  In service, at original cost                         $2,211,270   $2,411,810
  Less, accumulated depreciation                          983,516      919,771
                                                        ---------    ---------
   Net utility plant in service                         1,227,754    1,492,039
  Construction work in progress                            45,013       45,435
  Other, net                                               27,725       39,056
                                                        ---------    ---------
       Net utility plant                                1,300,492    1,576,530
                                                        ---------    ---------

Other Property and Investments:
  Nuclear decommissioning trusts, at market (Note 1)      185,991      168,110
  Other, net                                               11,990       11,958
                                                        ---------    ---------
     Total other property and investments                 197,981      180,068
                                                        ---------    ---------

Current Assets:
  Cash and temporary cash investments                       3,458        6,116
  Special deposits                                          1,038        1,055
  Accounts receivable:
    Customers, net                                         68,260       65,156
    Other                                                  46,879       29,399
  Unbilled revenues                                        38,637       39,747
  Materials and supplies, at average cost or less:
    Construction and maintenance                           24,254       38,597
    Fuel                                                    8,332       11,323
  Deferred income taxes                                     2,945        2,945
  Prepayments                                              12,030        6,762
                                                        ---------    ---------
      Total current assets                                205,833      201,100
                                                        ---------    ---------

Deferred Debits and Other Assets:
  Competitive transition charge (Notes 1 & 2)             657,655          -
  Other regulatory assets, net (Note 1)                   909,840      450,687
  Deferred income taxes                                   713,183       87,332
  Other                                                    20,622       14,069
                                                        ---------    ---------
       Total deferred debits and other assets           2,301,300      552,088
                                                        ---------    ---------



       Total Assets                                    $4,005,606   $2,509,786
                                                       ==========   ==========




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   
                                                     --------------------------
                                                     September 30, December 31,
                                                         1998         1997  
                                                    ------------  ------------
                                   (Unaudited)

LIABILITIES AND CAPITALIZATION
Capitalization:
  Common stock                                         $   66,273      $66,273
  Capital surplus                                         370,200      370,200
  Retained earnings                                       241,201      268,634
  Accumulated other comprehensive income (Note 6)          11,595       12,487
                                                          -------      -------

    Total common stockholder's equity                     689,269      717,594
  Cumulative preferred stock                               12,056       12,056
  Company-obligated mandatorily
    redeemable preferred securities                       100,000      100,000
  Long-term debt                                          576,903      576,924
                                                        ---------   ----------
      Total capitalization                              1,378,228    1,406,574
                                                        ---------   ----------



Current Liabilities:
  Securities due within one year                               24           22
  Notes payable                                            76,200       67,279
  Obligations under capital leases                         27,030       38,372
  Accounts payable:
    Affiliates                                             57,333       62,873
    Other                                                 108,938       95,589
  Taxes accrued                                            14,305       21,455
  Interest accrued                                         10,335       15,903
  Other                                                    54,383       33,351
                                                        ---------   ----------
       Total current liabilities                          348,548      334,844
                                                        ---------   ----------



Deferred Credits and Other Liabilities:
  Deferred income taxes                                   968,551      412,692
  Three Mile Island Unit 2 future costs                   232,102      224,354
  Unamortized investment tax credits                       27,632       29,134
  Nuclear fuel disposal fee                                31,554       30,343
  Nonutility generation contract loss liability           792,830          -
  Other                                                   226,161       71,845
                                                        ---------   ----------
       Total deferred credits and other liabilities     2,278,830      768,368
                                                        ---------   ----------

Commitments and Contingencies (Note 1)


       Total Liabilities and Capitalization            $4,005,606   $2,509,786
                                                       ==========   ==========


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

                                       12
<PAGE>

<TABLE>

             METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANIES

                        Consolidated Statements of Income
                                   (Unaudited)
<CAPTION>

                                                             In Thousands  
                                                -----------------------------------------------
                                                    Three Months             Nine Months
                                                Ended September 30,      Ended  September 30,  
                                                -------------------      ----------------------
                                                 1998         1997       1998           1997
                                                 ----         ----       ----           ----


<S>                                            <C>           <C>         <C>        <C>       
Operating Revenues                             $ 229,051     $ 248,161   $ 689,829  $  711,975
                                                --------     --------    ---------  ----------

Operating Expenses:
  Fuel                                            28,079        23,472      80,322      69,998
  Power purchased and interchanged:
    Affiliates                                     7,122         5,380      12,540      12,337
    Others                                        68,413        59,325     168,896     164,525
  Other operation and maintenance                 68,586        58,219     175,871     161,251
  Depreciation and amortization                   29,879        26,711      82,597      78,642
  Taxes, other than income taxes                  13,368        15,235      44,421      44,989
                                                --------      --------   ---------  ----------
     Total operating expenses                    215,447       188,342     564,647     531,742
                                                --------      --------   ---------  ----------


Operating Income Before Income Taxes              13,604        59,819     125,182     180,233
  Income taxes                                      (791)       18,105      32,115      56,103
                                                --------     --------    ---------  ----------

Operating Income                                  14,395        41,714      93,067     124,130
                                                --------     --------    ---------  ----------

Other Income and Deductions:
  Allowance for other funds used during
    construction                                       4           138          85         439
  Other income/(expense), net                     (5,417)          304     (14,798)      2,408
  Income taxes                                     2,213          (165)      5,979      (1,087)
                                                --------      --------    ---------  ---------
     Total other income and deductions            (3,200)          277      (8,734)      1,760
                                                 --------     --------    ---------  ---------

Income Before Interest Charges and
  Dividends on Preferred Securities               11,195        41,991      84,333     125,890
                                                 --------     --------    ---------  ---------


Interest Charges:
  Long-term debt                                  10,623        10,981      31,870      33,275
  Company-obligated mandatorily
    redeemable preferred securities                2,250         2,250       6,750       6,750
  Other interest                                   2,017         1,717       6,570       5,345
  Allowance for borrowed funds used
    during construction                             (151)         (182)       (591)       (593)
                                                 --------     --------    ---------  ---------                                   
     Total interest charges                       14,739        14,766      44,599      44,777 
                                                --------      --------    ---------  ---------

Income Before Extraordinary Item                  (3,544)       27,225      39,734      81,113
Extraordinary item (net of income taxes of
  $128,102 and $4,708) (Notes 1 & 2)             180,475          -         (6,805)        -  
                                                --------      --------    ---------  ---------
Net Income                                       176,931        27,225      32,929      81,113
  Preferred stock dividends                          120           120         362         362
                                                --------      --------    ---------  ---------
Earnings Available for Common Stock            $ 176,811     $  27,105     $32,567  $   80,751
                                                ========     =========    ========  ========== 


<FN>





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

                                       13
</TABLE>

<PAGE>


                 METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANIES

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

                                                            In  Thousands   
                                                    --------------------------
                                                             Nine Months
                                                         Ended September 30, 
                                                    --------------------------
                                                         1998         1997  
                                                    ------------  ------------
                                   (Unaudited)
Operating Activities:
  Net income                                            $  32,929    $  81,113
   Extraordinary item (net of income tax
    benefit of $4,708)  (Note 2)                            6,805          -  
                                                        ----------   ---------
  Income before extraordinary item                         39,734       81,113
  Adjustments to reconcile income to cash provided:
    Depreciation and amortization                          87,025       84,706
    Amortization of property under capital leases          11,011        8,723
    PaPUC restructuring rate orders  (Notes 1 & 2)         32,900          -
    Nuclear outage maintenance costs, net                   4,709       (1,496)
    Deferred income taxes and investment tax
      credits, net                                        (36,848)       8,786
    Allowance for other funds used
      during construction                                     (85)        (439)
  Changes in working capital:
    Receivables                                           (19,474)     (27,679)
    Materials and supplies                                  2,162        2,480
    Special deposits and prepayments                       (5,251)       5,171
    Payables and accrued liabilities                      (16,513)       7,311
  Nonutility generation contract buyout costs              (6,667)     (13,550)
  Other, net                                               12,698      (16,665)
                                                        ----------   ---------
     Net cash provided by operating activities            105,401      138,461
                                                         --------     --------

Investing Activities:
  Capital expenditures                                    (33,356)     (55,273)
  Contributions to decommissioning trusts                 (13,328)     (13,315)
  Other, net                                                   44         (312)
                                                        ----------   --------- 
   Net cash used for investing activities                 (46,640)     (68,900)
                                                        ----------   ---------

Financing Activities:
  Issuance of long-term debt                                  -         13,577
  Increase in notes payable, net                            8,921       14,389
  Retirement of long-term debt                                (22)     (40,020)
  Capital lease principal payments                         (9,956)     (10,672)
  Dividends paid on common stock                          (60,000)     (45,000)
  Dividends paid on preferred stock                          (362)        (478)
                                                       ----------   ---------
     Net cash required by financing activities            (61,419)     (68,204)
                                                       ----------   ---------



Net increase/(decrease) in cash and temporary
  cash investments from above activities                   (2,658)       1,357
Cash and temporary cash investments, beginning of year      6,116        1,901
                                                         --------     --------
Cash and temporary cash investments, end of period      $   3,458    $   3,258
                                                         ========     ========

Supplemental Disclosure:
  Interest and preferred dividends paid                 $  50,146    $  52,266
                                                         ========     ========
  Income taxes paid                                     $  60,189    $  44,652
                                                         ========     ========
  New capital lease obligations incurred                $      39    $  18,829
                                                         ========     ========


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   
                                                     --------------------------
                                                     September 30, December 31,
                                                         1998         1997  
                                                    ------------  ------------
                                   (Unaudited)

ASSETS
Utility Plant:
  In service, at original cost                         $2,763,300   $2,812,720
  Less, accumulated depreciation                        1,156,972    1,091,965
                                                       ----------    ----------
   Net utility plant in service                         1,606,328    1,720,755
  Construction work in progress                            47,762       69,089
  Other, net                                               19,178       26,110
                                                      ----------    ----------- 
       Net utility plant                                1,673,268    1,815,954
                                                      ----------    -----------

Other Property and Investments:
  Nuclear decommissioning trusts, 
     at market (Note 1)                                    73,731       68,129
  Other, net                                                7,093        7,071
                                                       ----------    ----------
      Total other property and investments                 80,824       75,200
                                                       ----------    ---------- 

Current Assets:
  Cash and temporary cash investments                       4,343         -
  Special deposits                                          2,530        2,449
  Accounts receivable:
    Customers, net                                         68,112       71,338
    Other                                                  28,287       21,051
  Unbilled revenues                                        37,135       47,728
  Materials and supplies, at average cost or less:
    Construction and maintenance                           40,667       47,853
    Fuel                                                   13,717       14,841
  Deferred income taxes                                     7,589        7,589
  Prepayments                                              35,767       29,856
                                                      ----------    ----------
       Total current assets                               238,147      242,705
                                                      ----------    ----------

Deferred Debits and Other Assets:
  Competitive transition charge (Notes 1 & 2)             332,160         -
  Other regulatory assets, net (Note 1)                 1,197,776      360,315
  Deferred income taxes                                   967,688       55,698
  Other                                                    13,142       13,118
                                                      ----------    ----------
      Total deferred debits and other assets            2,510,766      429,131
                                                       ----------   ----------




       Total Assets                                    $4,503,005   $2,562,990
                                                       ==========   ==========




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   
                                                     --------------------------
                                                     September 30, December 31,
                                                         1998         1997  
                                                    ------------  ------------
                                   (Unaudited)
LIABILITIES AND CAPITALIZATION
Capitalization:
  Common stock                                         $  105,812    $ 105,812
  Capital surplus                                         285,486      285,486
  Retained earnings                                       379,773      393,708
  Accumulated other comprehensive income (Note 6)           5,862        6,332
                                                       ----------   ----------
    Total common stockholder's equity                     776,933      791,338
  Cumulative preferred stock                               16,681       16,681
  Company-obligated mandatorily
    redeemable preferred securities                       105,000      105,000
  Long-term debt                                          626,434      676,444
                                                       ----------   ----------
       Total capitalization                             1,525,048    1,589,463
                                                       ----------   ----------



Current Liabilities:
  Securities due within one year                           50,012       30,011
  Notes payable                                            79,600       77,581
  Obligations under capital leases                         14,269       19,939
  Accounts payable:
    Affiliates                                             55,178       24,811
    Other                                                  51,918       62,483
  Taxes accrued                                            12,202       15,966
  Interest accrued                                         10,074       20,902
  Other                                                    37,384       19,654
                                                       ----------   ----------
      Total current liabilities                           310,637      271,347
                                                       ----------   ----------



Deferred Credits and Other Liabilities:
  Deferred income taxes                                 1,334,711      478,182
  Three Mile Island Unit 2 future costs                   116,101      112,227
  Unamortized investment tax credits                       37,553       39,353
  Nuclear fuel disposal fee                                15,777       15,172
  Nonutility generation contract loss liability         1,017,520         -
  Other                                                   145,658       57,246
                                                       ----------   ----------
       Total deferred credits and other liabilities     2,667,320      702,180
                                                       ----------   ----------

Commitments and Contingencies (Note 1)


       Total Liabilities and Capitalization            $4,503,005   $2,562,990
                                                       ==========   ==========



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

                                       16
<PAGE>

<TABLE>

             PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES

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

<CAPTION>

                                                             In Thousands  
                                                -----------------------------------------------
                                                    Three Months             Nine Months
                                                Ended September 30,      Ended  September 30,  
                                                -------------------      ----------------------
                                                 1998         1997       1998           1997
                                                 ----         ----       ----           ----



<S>                                            <C>         <C>          <C>         <C>        
Operating Revenues                             $ 259,354   $ 257,569    $773,364    $  795,184 
                                                --------   ---------    --------     ---------

Operating Expenses:
  Fuel                                            48,418      43,205     133,519       132,421
  Power purchased and interchanged:
    Affiliates                                        74         598       1,227         2,672
    Others                                        73,820      50,937     178,632       155,450
  Other operation and maintenance                 81,097      71,816     206,210       190,151
  Depreciation and amortization                   29,332      25,534      82,716        78,935
  Taxes, other than income taxes                  14,854      15,808      50,875        49,629
                                                --------   ---------   ---------     ---------
     Total operating expenses                    247,595     207,898     653,179       609,258
                                                --------   ---------   ---------     ---------


Operating Income Before Income Taxes              11,759      49,671     120,185       185,926
  Income taxes                                    (7,013)     14,227      24,007        57,371

                                                --------   ---------   ---------     ---------
Operating Income                                  18,772      35,444      96,178       128,555
                                                --------   ---------   ---------     ---------

Other Income and Deductions:
  Allowance for other funds used during
    construction                                     -            71         -             164
  Other income/(expense), net                     (6,045)        (57)     (4,312)        1,198
  Income taxes                                    (2,782)        (13)     (3,487)         (509)
                                                --------   ---------   ---------     ---------
     Total other income and deductions            (8,827)          1      (7,799)          853
                                                --------   ---------   ---------     ---------

Income Before Interest Charges and
  Dividends on Preferred Securities                9,945      35,445      88,379       129,408
                                                --------  ----------   ---------     ---------

Interest Charges:
  Long-term debt                                  11,948      12,453      35,922        36,672
  Company-obligated mandatorily
    redeemable preferred securities                2,297       2,297       6,891         6,891
  Other interest                                   2,192       1,961       6,651         6,204
  Allowance for borrowed funds used
    during construction                             (632)       (635)     (1,621)       (1,463)
                                                --------   --------    ---------     ---------
     Total interest charges                       15,805      16,076      47,843        48,304
                                                --------   --------    ---------     ---------

Income Before Extraordinary Item                  (5,860)     19,369      40,536        81,104
Extraordinary item (net of income taxes of
  $50,688 and $11,592) (Notes 1 & 2)              68,880        -        (18,950)          - 
                                                --------   --------    ---------     ---------

Net Income                                        63,020      19,369      21,586        81,104
  Preferred stock dividends                          174         173         521           491
                                                --------   ---------   ---------     ---------

Earnings Available for Common Stock            $  62,846   $  19,196     $21,065    $   80,613
                                                ========   =========   =========     =========

<FN>



The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.
</FN>
                                       17
</TABLE>

<PAGE>


                PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES

                      Consolidated Statements of Cash Flows
                                   (Unaudited)

                                                            In Thousands      
                                                         ---------------------
                                                             Nine Months
                                                          Ended September 30, 
                                                         ---------------------
                                                            1998         1997
                                                            ----         ----
Operating Activities:
  Net income                                            $  21,586      $81,104
  Extraordinary item (net of income tax
    benefit of $11,592)  (Note 2)                          18,950          -  
                                                         --------     --------
  Income before extraordinary item                         40,536       81,104
  Adjustments to reconcile income to cash provided:
    Depreciation and amortization                          80,097       73,989
    Amortization of property under capital leases           6,324        5,517
    PaPUC restructuring rate orders  (Notes 1 & 2)         35,600          -
    Nuclear outage maintenance costs, net                   2,359         (744)
    Deferred income taxes and investment tax
      credits, net                                        (19,382)       8,373
    Allowance for other funds used
      during construction                                     -           (164)
  Changes in working capital:
    Receivables                                             6,583      (18,438)
    Materials and supplies                                    721       (5,006)
    Special deposits and prepayments                       (5,992)       1,681
    Payables and accrued liabilities                       12,766       (6,818)
  Nonutility generation contract buyout costs                 -         (5,000)
  Other, net                                              (17,098)     (11,425)
                                                         --------     --------
     Net cash provided by operating activities            142,514      123,069
                                                         --------     --------

Investing Activities:
  Capital expenditures                                    (64,869)     (63,005)
  Contributions to decommissioning trusts                  (3,954)      (3,947)
  Other, net                                                  (39)         417 
                                                         --------     --------
     Net cash used for investing activities               (68,862)     (66,535)
                                                         --------     --------


Financing Activities:
  Issuance of long-term debt                                  -         49,875
  Increase/(Decrease) in notes payable, net                 2,019      (24,151)
  Retirement of long-term debt                            (30,011)     (26,010)
  Capital lease principal payments                         (5,796)      (6,491)
  Dividends paid on common stock                          (35,000)     (45,000)
  Dividends paid on preferred stock                          (521)        (521)
                                                         --------     --------
     Net cash required by financing activities            (69,309)     (52,298)
                                                         --------     --------


Net increase in cash and temporary
  cash investments from above activities                    4,343        4,236
Cash and temporary cash investments, beginning of year        -            -   
                                                         --------     ---------
Cash and temporary cash investments, end of period      $   4,343    $   4,236
                                                         ========     ========

Supplemental Disclosure:
  Interest and preferred dividends paid                 $  58,549    $  56,810
                                                         ========     ========
  Income taxes paid                                     $  53,178    $  44,147
                                                         ========     ========
  New capital lease obligations incurred                $      33    $  10,046
                                                         ========     ========





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.  In October 1998, the  Pennsylvania
Public  Utility  Commission  (PaPUC)  issued final  Restructuring  Orders (final
Restructuring   Orders),   which  granted  Met-Ed  and  Penelec  recovery  of  a
substantial portion of their stranded costs. See Competitive Environment section
of Management's Discussion and Analysis.

     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,


                                       19


<PAGE>


Pennsylvania  adopted  comprehensive  legislation  (Customer Choice Act) in 1996
which provides for the  restructuring  of the electric utility industry and will
permit  utilities the opportunity to recover their prudently  incurred  stranded
costs through a PaPUC approved  competitive  transition charge (CTC), subject to
certain conditions, including that utilities attempt to mitigate these costs.

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

     In July 1998, Met-Ed and Penelec appealed the  Restructuring  Orders to the
Commonwealth  Court and filed  Alternative  Restructuring  Plans  with the PaPUC
which were ultimately rejected.  Met-Ed and Penelec also filed complaints in the
U.S. District Court seeking both declaratory and injunctive relief  challenging,
among other things,  the PaPUC's refusal in the  Restructuring  Orders to ensure
full  recovery of the costs of NUG  contracts,  as required by state and federal
law.

     Following extended  negotiations,  on September 23, 1998, Met-Ed,  Penelec,
the PaPUC and numerous intervenors in the restructuring proceedings entered into
Settlement  Agreements  providing for new  restructuring  plans.  On October 16,
1998,   the  PaPUC  adopted  final   Restructuring,   approving  the  Settlement
Agreements. In the third quarter, as a result of the final Restructuring Orders,
Met-Ed and Penelec reversed $313 million and $142 million pre-tax, respectively,
of the  writeoffs  recorded  in  the  second  quarter  and  recorded  additional
non-recurring  charges of $38 million and $58  million  pre-tax,  for Met-Ed and
Penelec,  respectively.  For additional  information,  see Note 2 Accounting for
Non-recurring Items. In accordance with the final Restructuring  Orders,  Met-Ed
and Penelec  have agreed to dismiss  all of the pending  Commonwealth  Court and
U.S. District Court litigation.

     In 1997, the New Jersey Board of Public Utilities (NJBPU) released Phase II
of the Energy  Master Plan  (NJEMP),  which  proposes  that New Jersey  electric
utilities  should have an opportunity to recover their stranded costs associated
with generating capacity  commitments and caused by electric retail competition,
provided that they attempt to mitigate  these costs.  Legislation  to deregulate
New Jersey's  electricity  market was  introduced in September  1998,  and it is
currently  anticipated that such legislation will be enacted by the end of 1998.
The proposed  legislation  provides  for,  among other things,  customer  choice
beginning no later than June 1, 1999 and  expanding to include all  customers by
October 1, 1999; a minimum five to ten percent rate reduction; the unbundling of
customer  bills;  the recovery of stranded  costs and the ability to  securitize
stranded costs.

                                       20
<PAGE>


     In July 1997,  JCP&L filed with the NJBPU its proposed  restructuring  plan
for a competitive  electric  marketplace in New Jersey as required by the NJEMP.
JCP&L  estimates  that its total  above-market  costs related to power  purchase
commitments and company-owned  generation, on a present value basis at September
30, 1998, is $1.6 billion.  The $1.6 billion  excludes  above-market  generation
costs related to the Oyster Creek Nuclear  Generating  Station  (Oyster  Creek).
These  estimates are subject to significant  uncertainties  including the future
market price of both electricity and other competitive  energy sources,  as well
as the timing of when these  above-market costs become stranded due to customers
choosing another  supplier.  In July 1997, JCP&L proposed,  in its restructuring
plan,  recovery of its remaining  Oyster Creek plant  investment as a regulatory
asset,  through a  nonbypassable  charge to  customers.  At September  30, 1998,
JCP&L's net investment in Oyster Creek was $688 million. Highlights of this plan
are presented in the Competitive  Environment section of Management's Discussion
and Analysis.

     In  February  1998,  hearings  with  respect to JCP&L's  stranded  cost and
unbundled rate filings were completed before an  Administrative  Law Judge (ALJ)
and a recommended decision was issued in September.  See Competitive Environment
section of  Management's  Discussion  and  Analysis  for  highlights  of the ALJ
recommended decision.  Also in September 1998, identical bills to deregulate New
Jersey's  electricity market were introduced into the state Assembly and Senate.
The NJBPU is not  expected to issue final  decisions on JCP&L's  stranded  cost,
unbundled rate and restructuring filings until legislation is enacted.

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

     In October  1997,  GPU  announced its intention to begin a process to sell,
through  a  competitive   bid  process,   up  to  all  of  the  fossil-fuel  and
hydroelectric  generating  facilities owned by the GPU Energy  companies.  These
facilities,  comprised  of 26  operating  stations,  support  organizations  and
development  sites, total  approximately  5,300 MW (JCP&L 1,900 MW; Met-Ed 1,300
MW;  Penelec  2,100 MW) of capacity  and have a net book value of  approximately
$1.1 billion (JCP&L $282 million; Met-Ed $290 million;  Penelec $527 million) at
September  30, 1998.  The net proceeds from the sale would be used to reduce the
capitalization of the respective GPU Energy companies and may also be applied to
reduce  short-term  debt,  finance  further  acquisitions,  repurchase GPU, Inc.
common stock, and to reduce acquisition debt of the GPUI Group.

     In August  1998,  Penelec  and New York State  Electric  & Gas  Corporation
(NYSEG)  entered into  definitive  agreements with Edison Mission Energy to sell
the Homer City Station for a total purchase price of approximately $1.8 billion.
Penelec and NYSEG each own a 50% interest in the station, and will share equally
in the net sale  proceeds.  The sale,  which is subject to various  federal  and
state regulatory approvals,  is expected to be completed in the first quarter of
1999.
                                       21

<PAGE>


     On November  9, 1998,  the GPU Energy  companies  entered  into  definitive
purchase  agreements  with Sithe Energies and  FirstEnergy  Corporation to sell,
with the exception of JCP&L's 50%  ownership  interest in the Yards Creek Pumped
Storage plant,  all their  remaining  fossil-fuel and  hydroelectric  generating
facilities for a total purchase price of approximately  $1.7 billion (JCP&L $442
million;  Met-Ed $677 million; and Penelec $603 million). The sales are expected
to be  completed  in mid-1999,  subject to the timely  receipt of the  necessary
regulatory and other approvals.

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

     Pursuant to the  requirements  of the  federal  Public  Utility  Regulatory
Policies Act 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                        771        389         170         212
      1999                        763        395         150         218
      2000                        852        402         206         244
      2001                        892        411         245         236
      2002                        915        423         257         235

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

     As of September 30, 1998, NUG facilities covered by agreements having 1,681
MW (JCP&L 912 MW;  Met-Ed 364 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.

                                       22
<PAGE>


     The October  1998 PaPUC final  Restructuring  Orders  provide  for, and the
proposed  legislation and  restructuring  plans in New Jersey also  contemplate,
full  recovery  of the  above-market  costs of NUG  agreements.  The GPU  Energy
companies  will  continue  efforts  to reduce  the  above-market  costs of these
agreements and will, where beneficial,  attempt to renegotiate the prices of the
agreements, offer contract buyouts and attempt to convert must-run agreements to
dispatchable  agreements.  There can be no  assurance  as to the extent to which
these efforts will be successful in 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.  These  agreements were contingent upon Met-Ed and
Penelec  obtaining a PaPUC order  allowing  for the full  recovery of the buyout
payments  through  retail rates.  The final  Restructuring  Orders issued by the
PaPUC in October 1998  established  terms and  conditions  that would enable the
buyout agreements to proceed.

     In February  1997,  Met-Ed and Penelec  entered into revised power purchase
agreements with AES Power Corporation (AES) for 377 MW and 80 MW of capacity and
related energy,  respectively,  related to a combined-cycle  generating facility
that AES plans to construct in Pennsylvania.  Met-Ed and Penelec have paid $63.4
million  and  $5  million,  respectively,  to  previous  developers  and  AES to
terminate the original power purchase agreements.  In November 1997, in response
to an offer  from AES,  Met-Ed  and  Penelec  agreed to  increase  the  contract
capacity under the agreements by 163 MW. The final  Restructuring  Orders issued
by the PaPUC in October 1998 established  terms and conditions that would enable
the AES power purchase agreements to proceed.

     The GPU Energy  companies  are  currently  recovering  certain of their NUG
costs  (including  certain buyout costs) from customers.  The October 1998 final
Restructuring  Orders  provide  assurance  of full  recovery  of these costs for
Met-Ed and  Penelec.  Although  the proposed  restructuring  legislation  in New
Jersey  includes  provisions  for the recovery of costs under NUG agreements and
certain NUG buyout costs,  there can be no assurance that JCP&L will continue to
be able to recover  similar  costs which may be  incurred  in the  future.  (See
Management's  Discussion and Analysis - Competitive  Environment  for additional
discussion.)

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

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

     In June 1998, Met-Ed and Penelec received PaPUC Restructuring  Orders which
were subsequently amended in October 1998 by the final Restructuring Orders. The
Restructuring Orders, among other things, essentially remove from regulation the
costs  associated  with providing  electric  generation  service to Pennsylvania
consumers,  effective  January 1, 1999.  Accordingly,  Met-Ed and  Penelec  have
discontinued the application of FAS 71 and adopted the provisions

                                       23
<PAGE>


of Statement of Financial Accounting Standards No. 101 (FAS 101), "Regulated
Enterprises - Accounting for the Discontinuation of Application of FASB
Statement No. 71" with respect to their electric generation operations, in
the second quarter of 1998.  The transmission and distribution portion of
Met-Ed and Penelec's operations will continue to be subject to the provisions
of FAS 71.  See Note 2 - Accounting for Non-recurring Items.

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

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

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

Competitive transition charge per PaPUC Order     $  989,815     $        -
                                                   =========      =========

Other regulatory assets, net:
Reserve for generation divestiture (JCP&L)        $  132,748     $        -
Phase II reserve for generation divestiture        1,360,375              -
Income taxes recoverable through future rates        379,105        510,680
Income taxes refundable through future rates         (54,519)       (89,247)
Net investment in TMI-2                               68,009         83,951
TMI-2 decommissioning costs                          131,737        257,180
Nonutility generation contract buyout costs          131,458        245,568
Unamortized property losses                           83,385         99,532
Other postretirement benefits                         74,601         89,569
Environmental remediation                             44,447         90,308
N.J. unit tax                                         34,929         39,797
Unamortized loss on reacquired debt                   33,234         40,489
Load and demand-side management programs              16,445         23,164
N.J. low-level radwaste disposal                      25,685         31,479
DOE enrichment facility decommissioning               29,542         33,472
Nuclear fuel disposal fee                             21,467         21,512
Storm damage                                          31,255         31,097
Deferred nonutility generation costs
  not in current rates                               (16,067)        24,857
Future nonutility generation costs not in CTC        375,820              -
Public utility realty taxes (PURTA)                    6,881              -
Other regulatory liabilities                         (20,235)       (13,959)
Other regulatory assets                               10,283         28,029
                                                   ---------      ---------
     Total other regulatory assets, net           $2,900,585     $1,547,478
                                                   =========      =========

                                       24
<PAGE>


JCP&L                                               Assets (in thousands)
-----                                           ----------------------------
                                                September 30,   December 31,
                                                     1998           1997     
                                                -------------   -------------
Other regulatory assets, net:
Reserve for generation divestiture                $  132,749     $        -
Income taxes recoverable through future rates        134,028        128,111
Income taxes refundable through future rates         (35,964)      (37,759)
Net investment in TMI-2                               68,009         75,541
TMI-2 decommissioning costs                           29,474         30,024
Nonutility generation contract buyout costs          126,458        140,500
Unamortized property losses                           83,346         94,726
Other postretirement benefits                         47,317         49,807
Environmental remediation                             44,447         61,324
N.J. unit tax                                         34,929         39,797
Unamortized loss on reacquired debt                   26,655         28,729
Load and demand-side management programs              16,445         23,164
N.J. low-level radwaste disposal                      25,685         31,479
DOE enrichment facility decommissioning               18,502         21,223
Nuclear fuel disposal fee                             21,197         23,781
Storm damage                                          31,255         31,097
Other regulatory liabilities                         (19,311)       (11,467)
Other regulatory assets                                7,748          6,399
                                                   ---------      ---------
     Total other regulatory assets, net           $  792,969     $  736,476
                                                   =========      =========


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

Competitive transition charge per PaPUC Order     $  657,655     $        -
                                                   =========      =========

Other regulatory assets, net: Transmission & Distribution related:
  Income taxes recoverable through future rates   $  111,303     $  116,303
  Income taxes refundable through future rates       (11,081)       (12,614)
  Nonutility generation contract buyout costs          5,000         12,500
  Other postretirement benefits                       27,284         27,436
  Unamortized loss on reacquired debt                  2,011          3,411
  DOE enrichment facility decommissioning              7,498          8,166
  Other regulatory liabilities                          (924)        (1,014)
  Other regulatory assets                                232            216
                                                   ---------      ---------
    Subtotal                                      $  141,323     $  154,404
                                                   ---------      ---------

Generation related:
  Income taxes recoverable through future rates   $        -     $   62,624
  Income taxes refundable through future rates             -         (9,135)
  Unamortized property losses                             39          2,650
  Other postretirement benefits                            -         12,326
  Environmental remediation                                -          4,121
  Unamortized loss on reacquired debt                  1,131          1,918
  Nuclear fuel disposal fee                              151         (1,511)
  Other regulatory liabilities                             -         (1,432)
  Other regulatory assets                                321          3,227
                                                   ---------      ---------
    Subtotal                                      $    1,642     $   74,788
                                                   ---------      ---------

                                       25


<PAGE>


Other:
  Phase II reserve for generation divestiture     $  423,003     $        -
  Net investment in TMI-2                                  -          1,187
  TMI-2 decommissioning costs                         71,103        145,103
  Nonutility generation contract buyout costs              -         63,868
  Deferred nonutility generation costs
    not in current rates                              (7,746)        10,265
  Future nonutility generation costs not in CTC      276,660              -
  Public utility realty taxes (PURTA)                  3,130              -
  Other regulatory assets                                725          1,072
                                                   ---------      ---------
    Subtotal                                      $  766,875     $  221,495
                                                   ---------      ---------

    Total other regulatory assets, net            $  909,840     $  450,687
                                                   =========      =========


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

Competitive transition charge per PaPUC Order     $  332,160     $        -
                                                   =========      =========

Other regulatory assets, net: Transmission & Distribution related:
  Income taxes recoverable through future rates   $  133,774     $  142,549
  Income taxes refundable through future rates        (7,475)        (9,516)
  Unamortized loss on reacquired debt                  2,200          4,116
  DOE enrichment facility decommissioning              3,542          4,083
  Other regulatory liabilities                             -            (46)
                                                   ---------      ---------
    Subtotal                                      $  132,041     $  141,186
                                                   ---------      ---------

Generation related:
  Income taxes recoverable through future rates   $        -     $   61,093
  Income taxes refundable through future rates             -        (20,223)
  Unamortized property losses                              -          2,156
  Environmental remediation                                -         24,863
  Unamortized loss on reacquired debt                  1,237          2,315
  Nuclear fuel disposal fee                              119           (758)
  Other regulatory assets                                343         15,964
                                                   ---------      ---------
    Subtotal                                      $    1,699     $   85,410
                                                   ---------      ---------

Other:
  Phase II reserve for generation divestiture     $  937,372     $        -
  Net investment in TMI-2                                  -          7,223
  TMI-2 decommissioning costs                         31,160         82,053
  Nonutility generation contract buyout costs              -         28,700
  Deferred nonutility generation costs
    not in current rates                              (8,321)        14,592
  Future nonutility generation costs not in CTC       99,160              -
  Public utility realty taxes (PURTA)                  3,751              -
  Other regulatory assets                                914          1,151
                                                   ---------      ---------
    Subtotal                                      $1,064,036     $  133,719
                                                   ---------      ---------

    Total other regulatory assets, net            $1,197,776     $  360,315
                                                   =========      =========

                                       26

<PAGE>


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

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

Phase II reserve for  generation  divestiture  (Met-Ed and Penelec):  Represents
generation  divestiture  CTC  shortfall  to be  addressed  in a  Phase  II  rate
restructuring  order,  inclusive of future closure costs of various ash disposal
sites;  amounts related to the remediation of Penelec's Seward station property;
costs for a voluntary  enhanced  retirement  program offered to Genco employees;
certain income tax-related items; and divestiture transaction costs.

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

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

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

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

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

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

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

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

                                       27
<PAGE>


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.

Deferred  nonutility  generation  costs not in  current  rates:  Represents  NUG
operating  costs which are not reflected in Met-Ed and Penelec's  current rates,
for which rate  recovery  has been  assured  (see  Management's  Discussion  and
Analysis - Competitive Environment).

Future nonutility  generation costs not in CTC:  Represents future NUG operating
costs which are not presently  included in Met-Ed and  Penelec's  CTC, for which
recovery has been assured.  The amounts  collected  will be adjusted  every five
years over the life of each NUG contract.

Public utility realty taxes (PURTA): Represents additional assessments under the
public utility realty tax,  which are  recoverable  through Met-Ed and Penelec's
state tax adjustment surcharges.

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

     In June 1998,  Statement of  Financial  Accounting  Standards  No. 133 (FAS
133), "Accounting for Derivative Instruments and Hedging Activities" was issued.
FAS 133 requires that  companies  recognize all  derivatives as either assets or
liabilities on the balance sheet and measure those instruments at fair value. To
comply with this  statement,  GPU will be  required  to include  its  derivative
transactions  on its balance sheet at fair value,  and recognize the  subsequent
changes in fair value as either  gains or losses in  earnings  or  reported as a
component of other  comprehensive  income,  depending  upon the intended use and
designation  of the  derivative as a hedge.  This statement is effective for all
fiscal quarters of fiscal years beginning after June 15,

                                       28
<PAGE>


1999.  GPU expects to adopt this  statement in the first quarter of 2000. GPU is
in the process of evaluating the impact of FAS 133.

     Statement of Financial Accounting Standards No. 121 (FAS 121),  "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of," requires that regulatory  assets meet the recovery criteria of FAS 71 on an
ongoing basis in order to avoid a write-down. In addition, FAS 121 requires that
long-lived  assets,  identifiable  intangibles,  capital  leases and goodwill be
reviewed  for  impairment  whenever  events  occur or changes  in  circumstances
indicate that the carrying amount of the assets may not be recoverable.  FAS 121
also requires the recognition of impairment  losses when the carrying amounts of
those assets are greater than the estimated  cash flows expected to be generated
from the use and eventual disposition of the assets.

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


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

    The GPU  Energy  companies  have made  investments  in three  major  nuclear
projects  -- TMI-1 and  Oyster  Creek,  both of which are  operating  generation
facilities, and TMI-2, which was damaged during a 1979 accident. TMI-1 and TMI-2
are jointly owned by JCP&L,  Met-Ed and Penelec in the  percentages  of 25%, 50%
and 25%, respectively. Oyster Creek is owned by JCP&L. At September 30, 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
                                   -----     ------------
           September 30, 1998
           ------------------
           JCP&L                   $ 22           $688
           Met-Ed                    43              -
           Penelec                   21              -
                                    ---            ---
             Total                 $ 86           $688
                                    ===            ===

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

     The GPU Energy companies' net investment in TMI-2 at September 30, 1998 was
$68 million for JCP&L and $84 million,  (JCP&L $76  million;  Met-Ed $1 million;
and Penelec $7 million) at December 31 1997.  JCP&L is  collecting  revenues for
TMI-2 on a basis which provides for the recovery of its remaining  investment in
the plant by 2008. In June 1998, Met-Ed and Penelec received

                                       29
<PAGE>


PaPUC  Restructuring  Orders which were subsequently  amended in October 1998 by
the final  Restructuring  Orders. The companies  discontinued the application of
FAS 71 and  adopted the  provisions  of FAS 101 with  respect to their  electric
generation  operations in the second  quarter of 1998.  Accordingly,  Met-Ed and
Penelec  wrote-off  their  remaining  investment  in TMI-2 of $1 million  and $7
million, respectively.

     Costs associated with the operation,  maintenance and retirement of nuclear
plants  have  continued  to be  significant  and  less  predictable  than  costs
associated  with other  sources  of  generation,  in large part due to  changing
regulatory  requirements,   safety  standards,  availability  of  nuclear  waste
disposal  facilities and experience  gained in the construction and operation of
nuclear facilities. The GPU Energy companies may also incur costs and experience
reduced output at their nuclear plants because of the prevailing design criteria
at the time of construction and the age of the plants' systems and equipment. In
addition, for economic or other reasons,  operation of these plants for the full
term of  their  operating  licenses  cannot  be  assured.  Also,  not all  risks
associated  with  the  ownership  or  operation  of  nuclear  facilities  may be
adequately insured or insurable.  Consequently, the recovery of costs associated
with nuclear projects,  including replacement power, any unamortized  investment
at the end of each plant's  useful life (whether  scheduled or  premature),  the
carrying costs of that  investment and retirement  costs,  is not assured.  (See
Competition and the Changing Regulatory Environment.)

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

     In October 1998, GPU entered into  definitive  purchase  agreements to sell
TMI-1 to AmerGen Energy  Company,  LLC (AmerGen),  a joint venture  between PECO
Energy and British  Energy.  Highlights of the  agreements  are presented in the
Competitive Environment section of Management's Discussion and Analysis.

TMI-2:
------

     As a result of the 1979  TMI-2  accident,  individual  claims  for  alleged
personal injury (including claims for punitive  damages),  which are material in
amount,  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

                                       30
<PAGE>


of insurance policies with groups of insurance  companies providing an aggregate
of $140 million of primary coverage,  (b) secondary financial  protection in the
form of private liability insurance under an industry  retrospective rating plan
providing  for up to an aggregate of $335 million in premium  charges under such
plan,  and (c) an  indemnity  agreement  with  the  NRC  for up to $85  million,
bringing  their total  financial  protection up to an aggregate of $560 million.
Under  the  secondary   level,  the  GPU  Energy  companies  are  subject  to  a
retrospective  premium charge of up to $5 million per reactor, or a total of $15
million (JCP&L $7.5 million; Met-Ed $5 million; Penelec $2.5 million).

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

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

     In June 1996,  the  District  Court  granted a motion for summary  judgment
filed by GPU, Inc. and the GPU Energy companies,  and dismissed all of the 2,100
pending  claims.  The Court  ruled that there was no  evidence  which  created a
genuine issue of material fact warranting  submission of plaintiffs' claims to a
jury. The plaintiffs  have appealed the District  Court's ruling to the Court of
Appeals for the Third Circuit,  before which the matter is pending. There can be
no assurance as to the outcome of this litigation.

     Based on the above, GPU, Inc. and the GPU Energy companies believe that any
liability  to which they might be subject by reason of the TMI-2  accident  will
not exceed their financial protection under the Price-Anderson Act.


                         NUCLEAR PLANT RETIREMENT COSTS
                         ------------------------------

     Retirement   costs  for  nuclear   plants   include   decommissioning   the
radiological  portions of the plants and the cost of removal of  nonradiological
structures  and  materials.  The  disposal  of  spent  nuclear  fuel is  covered
separately by contracts with the DOE.

     In 1990, the GPU Energy  companies  submitted a report,  in compliance with
Nuclear Regulatory  Commission (NRC)  regulations,  setting forth a funding plan
(employing the external  sinking fund method) for the  decommissioning  of their
nuclear reactors. Under this plan, the GPU Energy companies intend to

                                       31
<PAGE>


complete  the  funding  for  Oyster  Creek and  TMI-1 by the end of the  plants'
license terms, 2009 and 2014, respectively. The TMI-2 funding completion date is
2014,   consistent  with  TMI-2's  remaining  in  long-term  storage  and  being
decommissioned  at the same time as TMI-1.  Based on NRC  studies,  a comparable
funding  target was  developed  for TMI-2 which took the accident  into account.
Under the NRC regulations, the funding targets (in 1998 dollars) are as follows:

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

JCP&L                                   $ 47       $ 74        $319
Met-Ed                                    93        148           -
Penelec                                   47         74           -
                                         ---        ---         ---
   Total                                $187       $296        $319
                                         ===        ===         ===

    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 TMI-1,
TMI-2 and 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            $342       $415        $402
Nonradiological cost of removal           84         34 *        39
                                         ---        ---         ---
   Total                                $426       $449        $441
                                         ===        ===         ===

* Net of $12.0 million spent as of September 30, 1998.

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

     In October 1998,  GPU entered into  definitive  agreements to sell TMI-1 to
AmerGen. The agreements provide,  among other things, that upon closing, the GPU
Energy companies will fund the TMI-1  decommissioning  trusts up to $320 million
and  AmerGen  will  assume  all TMI-1  decommissioning  liabilities.  If all the
necessary  regulatory  approvals,  as well as certain  Internal  Revenue Service
rulings,  are  obtained,  then the  transfer  of all the  TMI-1  decommissioning
liabilities and expenses to AmerGen will take place at the financial closing.

                                       32
<PAGE>


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

     The  GPU  Energy  companies  charge  to  depreciation  expense  and  accrue
retirement  costs based on amounts  being  collected  from  customers.  Customer
collections are contributed to external trust funds.  These deposits,  including
the related  earnings,  are  classified as Nuclear  decommissioning  trusts,  at
market on the Consolidated  Balance Sheets.  Accounting for retirement costs may
change based upon the FASB Exposure Draft discussed below.

     The FASB has  issued an  Exposure  Draft  titled  "Accounting  for  Certain
Liabilities  Related to Closure or Removal of Long-Lived Assets," which includes
nuclear plant retirement  costs. If the Exposure Draft is adopted,  Oyster Creek
and TMI-1 future  retirement  costs would have to be  recognized  as a liability
immediately,  rather than the current industry  practice of accruing these costs
in accumulated  depreciation over the life of the plants. A regulatory asset for
amounts  probable  of recovery  through  rates  would also be  established.  Any
amounts  not  probable  of  recovery  through  rates would have to be charged to
expense.  (For TMI-2, a liability (in 1998 dollars) has already been recognized,
based on the 1995  site-specific  study because the plant is no longer operating
(see TMI-2)).  The effective date of this proposed 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. In October
1998,  Met-Ed and Penelec  received  final  PaPUC  Restructuring  Orders,  which
granted recovery of an interim level of TMI-1  decommissioning  costs as part of
the CTC.  This  amount  will be  adjusted  in Phase II of Met-Ed  and  Penelec's
restructuring proceedings, once the net

                                       33
<PAGE>


proceeds from the nuclear, fossil-fuel and hydroelectric generation
divestiture are determined.

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

                                  (in millions)
                                                   Oyster
                                        TMI-1      Creek
                                        -----      -----
Amount expensed for the nine months ended September 30, 1998:
   JCP&L                                $  4       $ 17
   Met-Ed                                  6          -
   Penelec                                 3          -
                                         ---        ---
                                        $ 13       $ 17
                                         ===        ===

                                  (in millions)
                                                   Oyster
                                        TMI-1      Creek
                                        -----      -----
Accumulated depreciation provision at September 30, 1998:
   JCP&L                                $ 43       $243
   Met-Ed                                 77          -
   Penelec                                36          -
                                         ---        ---
                                        $156       $243

     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
September 30, 1998 and December 31, 1997 are as follows:
                                  (in millions)

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

September 30, 1998                  $464       $116        $232       $116
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 September 30, 1998 and December 31,
1997, as a result of TMI-2's entering  long-term  monitored storage in 1993. The
GPU Energy companies are incurring annual incremental monitored storage costs of
approximately  $1 million  (JCP&L $250 thousand;  Met-Ed $500 thousand;  Penelec
$250 thousand).

     Offsetting the $464 million liability at September 30, 1998 is $259 million
which management believes is probable of recovery from customers and
                                       34

<PAGE>


included in  Competitive  transition  charge  (Met-Ed $74  million;  Penelec $50
million)  and Other  regulatory  assets,  net  (JCP&L  $33  million;  Met-Ed $71
million;  Penelec $31  million) on the  Consolidated  Balance  Sheets,  and $233
million  (JCP&L $91 million;  Met-Ed $93 million;  Penelec $49 million) in trust
funds for TMI-2 and included in Nuclear decommissioning trusts, at market on the
Consolidated  Balance  Sheets.  Earnings on trust fund  deposits are included in
amounts shown on the Consolidated  Balance Sheets under  Competitive  transition
charge and Other  regulatory  assets.  TMI-2  decommissioning  costs  charged to
depreciation expense during the nine months ended September 30, 1998 amounted to
$10 million (JCP&L $2 million; Met-Ed $7 million; Penelec $1 million).

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

     At September 30, 1998, the  accident-related  portion of TMI-2 radiological
decommissioning costs is considered to be $73 million (JCP&L $18 million, Met-Ed
$37 million;  Penelec $18  million),  which is the  difference  between the 1995
TMI-1 and TMI-2 site-specific  study estimates (in 1998 dollars).  In connection
with  rate  case  resolutions  at the  time,  JCP&L,  Met-Ed  and  Penelec  made
contributions  to irrevocable  external  trusts  relating to their shares of the
accident-related  portions  of the  decommissioning  liability.  In 1990,  JCP&L
contributed $15 million and in 1991, Met-Ed and Penelec  contributed $40 million
and  $20  million,   respectively,   to  irrevocable   external  trusts.   These
contributions were not recovered from customers and have been expensed.  The GPU
Energy  companies  will not  pursue  recovery  from  customers  for any of these
amounts  contributed  in  excess  of the $73  million  accident-related  portion
referred to above.

     JCP&L intends to seek recovery for any increases in TMI-2 retirement costs,
and  Met-Ed  and  Penelec  intend  to seek  recovery  for any  increases  in the
nonaccident-related portion of such costs, but recognize that recovery cannot be
assured.

                                    INSURANCE
                                    ---------

     GPU  has  insurance   (subject  to  retentions  and  deductibles)  for  its
operations and facilities  including coverage for property damage,  liability to
employees  and  third  parties,   and  loss  of  use  and  occupancy  (primarily
incremental  replacement  power  costs).  There  is no  assurance  that GPU will
maintain all existing  insurance  coverages.  Losses or liabilities that are not
completely  insured,  unless allowed to be recovered through  ratemaking,  could
have a material adverse effect on the financial position of GPU.

     The  decontamination  liability,  premature  decommissioning  and  property
damage  insurance  coverage for the TMI station and for Oyster Creek totals $2.7
billion per site. In accordance with NRC regulations, these insurance

                                       35
<PAGE>


policies  generally require that proceeds first be used for stabilization of the
reactors and then to pay for  decontamination  and debris removal expenses.  Any
remaining  amounts  available under the policies may then be used for repair and
restoration  costs  and  decommissioning  costs.  Consequently,  there can be no
assurance that in the event of a nuclear  incident,  property  damage  insurance
proceeds would be available for the repair and restoration of that station.

     The  Price-Anderson  Act limits  GPU's  liability  to third  parties  for a
nuclear incident at one of its sites to approximately $9.9 billion. Coverage for
the first $200 million of such liability is provided by private  insurance.  The
remaining  coverage,   or  secondary  financial   protection,   is  provided  by
retrospective  premiums  payable by all nuclear reactor owners.  Under secondary
financial  protection,  a nuclear incident at any licensed nuclear power reactor
in the country,  including those owned by the GPU Energy companies, could result
in  assessments  of up to $88  million per  incident  for each of the GPU Energy
companies' two operating  reactors,  subject to an annual maximum payment of $10
million per  incident  per reactor.  In addition to the  retrospective  premiums
payable under the Price-Anderson  Act, the GPU Energy companies are also subject
to  retrospective  premium  assessments  of up to  $26.8  million  (JCP&L  $16.8
million;  Met-Ed  $6.7  million;  Penelec  $3.3  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
                                       36

<PAGE>


northeast  states  (including New Jersey and  Pennsylvania)  and the District of
Columbia,  proposed  reductions in NOx  emissions it believes  necessary to meet
ambient air quality  standards for ozone and the statutory  deadlines set by the
Clean Air Act. Effective November 1997, the Pennsylvania  Environmental  Quality
Board adopted regulations  implementing the OTC's proposed NOx reductions and in
December 1997, the New Jersey Department of Environmental Protection developed a
proposal  with the electric  utility  industry on a plan to implement  the OTC's
proposed  NOx  reductions.  The  GPU  Energy  companies  expect  that  the  U.S.
Environmental  Protection Agency (EPA) will approve state implementation  plans,
including those in Pennsylvania and New Jersey, and that as a result,  they will
spend an estimated $6 million (JCP&L $0.2 million; Met-Ed $2.8 million;  Penelec
$3.0  million)  (included  in the  above  total),  to  meet  the  1999  seasonal
reductions  agreed upon by the OTC. The OTC has stated that it anticipates  that
additional  NOx  reductions  will be  necessary to meet the Clean Air Act's 2005
National  Ambient  Air  Quality  Standard  for  ozone.   However,  the  specific
requirements  that will have to be met at that time have not been finalized.  In
addition,  in July 1997 the EPA adopted new, more  stringent  rules on ozone and
particulate matter.  Several groups have filed suit in the U.S. Court of Appeals
to overturn  these new air quality  standards on the grounds  that,  among other
things, they are based on inadequate scientific evidence.  Also, legislation has
been introduced in the Congress that would impose a four-year  moratorium on any
new  standards  under the Clean Air Act. The GPU Energy  companies are unable to
determine what  additional  costs, if any, will be incurred if the EPA rules are
upheld.

     GPU  has  been  formally  notified  by  the  EPA  and  state  environmental
authorities that it is among the potentially  responsible parties (PRPs) who may
be  jointly  and  severally  liable  to pay for the  costs  associated  with the
investigation  and  remediation  at  hazardous  and/or  toxic waste sites in the
following number of instances (in some cases, more than one company is named for
a given site):

      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

                                       37
<PAGE>


unaffiliated  entity,  and was  subsequently  acquired by  Chesapeake  Utilities
Corporation.  According to the complaint,  the EPA is seeking up to $0.5 million
in past costs, $4.2 million for work in connection with the cleanup of the Dover
site and approximately $19 million in penalties.  GPU, Inc. has responded to the
EPA complaint stating that such claims should be dismissed because,  among other
things,  they are barred by the  operation  of the Final  Decree  entered by the
United  States  District  Court  for the  Southern  District  of New York at the
conclusion of the 1946 reorganization  proceedings of AGECO/AGECORP.  Chesapeake
Utilities  Corporation has also sued GPU, Inc. for a contribution to the cleanup
of the Dover site. In December 1997, the Court refused to dismiss the complaint;
GPU, Inc. has requested that the Court reconsider its decision.  There can be no
assurance as to the outcome of these proceedings.

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

     In 1997, the GPU Energy  companies  filed with the PaDEP  applications  for
re-permitting seven (JCP&L - one; Met-Ed - three; Penelec - three) operating ash
disposal  sites,  including  projected site closure  procedures and related 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 September 30, 1998. JCP&L has requested recovery
of its share of closure costs in its restructuring  plan filed with the NJBPU in
July 1997.  Met-Ed and  Penelec  expect  recovery  of these costs in Phase II of
their restructuring proceedings. As a result, a deferred debit of $17 million is
reflected on the Consolidated Balance Sheets at September 30, 1998.

     JCP&L  has  entered  into  agreements  with the New  Jersey  Department  of
Environmental  Protection for the  investigation  and remediation of 17 formerly
owned MGP sites.  JCP&L has also entered into  various  cost-sharing  agreements
with other utilities for most of the sites. As of September 30, 1998,  JCP&L has
spent  approximately  $30 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.

                                       38
<PAGE>

     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 September 30, 1998,  JCP&L had recorded on
its  Consolidated  Balance  Sheet a regulatory  asset of $38  million.  JCP&L is
continuing to pursue  reimbursement  from its insurance carriers for remediation
costs  already  spent and for future  estimated  costs.  In 1994,  JCP&L filed a
complaint with the Superior Court of New Jersey against several of its insurance
carriers, relative to these MGP sites. Pretrial discovery is continuing.


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

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

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

     At September 30, 1998, GPU, Inc.'s  aggregate  investment in the GPUI Group
was $526 million; GPU, Inc. has also guaranteed up to an additional $996 million
of GPUI Group obligations. Of this amount, $733 million is included in Long-term
debt and Securities due within one year on GPU's  Consolidated  Balance Sheet at
September 30, 1998; $30 million of that amount  relates to a GPU  International,
Inc.  (GPUI)  revolving  credit  agreement;  and $233 million relates to various
other obligations of the GPUI Group.

     GPUI has  ownership  interests in three NUG projects  which have  long-term
power purchase  agreements with Niagara Mohawk Power Corporation (NIMO). In June
1998,  NIMO executed a master  agreement  with 29  independent  power  producers
(IPP),  including GPUI, whereby each of the IPP agreements were renegotiated and
resulted in lump sum payments  and/or new contracts with NIMO. As a result,  the
three GPUI NUG projects with NIMO were  restructured.  GPUI has deferred its net
gain on the proceeds  received from the  settlements,  which ensures recovery of
the  investment,  and will recognize the gain in income over the ten year period
of their restructured  agreements with NIMO or until such time as an independent
system operator (ISO) is established in New York State.  The ISO for New York is
expected to be implemented as early as 1999, at which time the net deferred gain
resulting from the lump sum proceeds will be recognized in income.

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

                                       39
<PAGE>


     The Uch investors,  including  Midlands,  strongly deny the allegations and
are pursuing all available  legal options to enforce  their  contractual  rights
under the project agreements. Construction of the Uch Power Project is complete,
but commercial  operations have been delayed  pending  resolution of the dispute
with the  Pakistani  government.  The Uch  investors  are  continuing to explore
remedies to the situation  with  officials of the Pakistani  government  and are
working  with the  project  lenders  to ensure  their  continued  support of the
project. The project contractor has given notice of its desire to invoke dispute
resolution  procedures in relation to a claim for additional  costs arising from
the  failure of the Uch Power  Project to provide  fuel gas and  interconnection
facilities.  The Uch Power Project  denies that it is liable for any  additional
costs arising from this delay.

     Through  its 50%  ownership  in  Midlands,  GPU  Electric,  Inc.'s  current
investment in the Uch Power Project is approximately  $32 million.  In addition,
the project lenders could require  investors to make  additional  investments to
the  project  under  certain  conditions.  GPU  Electric,  Inc.'s  share  of the
additional  investment could amount to a maximum of  approximately  $12 million.
There can be no assurance as to the outcome of this matter.

Other:
------

     GPU's  capital  programs,  for  which  substantial  commitments  have  been
incurred and which extend over several years,  contemplate  expenditures of $471
million (JCP&L $169 million; Met-Ed $77 million; Penelec $87 million; Other $138
million) during 1998.

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

     JCP&L has entered into agreements with other utilities to purchase capacity
and energy for various periods through 2004. These agreements  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

                                       40
<PAGE>


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

     New Jersey and  Connecticut  have  established  the Northeast  Compact,  to
construct a low-level  radioactive waste disposal facility in New Jersey,  which
should commence operation by the end of 2003. GPUN's total share of the cost for
developing,  constructing and site licensing the facility is estimated to be $58
million, which will be paid through 2002. Through September 30, 1998, $6 million
has been paid. As a result, at September 30, 1998, a liability of $52 million is
reflected on the  Consolidated  Balance Sheets.  JCP&L is recovering these costs
from customers, and a regulatory asset has also been recorded. In February 1998,
the New Jersey Low-Level  Radwaste Facility Siting Board (Siting Board) voted to
suspend the siting  process in New Jersey.  The Siting Board  intended to return
the  unused  funds  to the  generators,  but the  Governor  has  overruled  this
decision.  Legislation is pending in the state Senate and the Assembly, however,
that would mandate returning the unused funds to the generators, of which GPUN's
share is  approximately  $2.6 million.  GPUN cannot  determine at this time what
effect, if any, this matter will have on its operations.

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

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

     At September 30, 1998,  GPU,  Inc. and  consolidated  affiliates  had 9,264
employees  worldwide,  of which 8,923  employees  were  located in the U.S.  The
majority of the U.S. workforce is employed by the GPU Energy companies, of which
approximately  4,800  are  represented  by  unions  for  collective   bargaining
purposes.  JCP&L, Met-Ed and Penelec's collective bargaining agreements with the
International Brotherhood of Electrical Workers expire in 1999, 2000 and

                                       41
<PAGE>


2002,  respectively.  Penelec's collective bargaining agreement with the Utility
Workers Union of America expires in 2001.

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


2.    ACCOUNTING FOR NON-RECURRING ITEMS

Pennsylvania Restructuring Write-offs

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

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

     In June 1998, Met-Ed and Penelec received PaPUC Restructuring Orders, which
were subsequently amended in October 1998 by the final Restructuring Orders. The
Restructuring Orders, among other things, essentially remove from regulation the
costs  associated  with providing  electric  generation  service to Pennsylvania
consumers,  effective  January 1, 1999.  Accordingly,  Met-Ed and  Penelec  have
discontinued  the  application of FAS 71 and adopted the provisions of Statement
of Financial  Accounting  Standards  No. 101 (FAS 101),  "Regulated  Enterprises
Accounting  for the  Discontinuation  of  Application of FAS 71" with respect to
their  electric  generation  operations,  in the  second  quarter  of 1998.  The
transmission  and distribution  portion of Met-Ed and Penelec's  operations will
continue to be subject to the provisions of FAS 71. JCP&L expects to discontinue
the  application  of FAS 71 and  adopt  FAS  101  for  its  electric  generation
operations no later than when it receives  NJBPU  approval of its  restructuring
plans.

     As of September  30, 1998,  the net effect on earnings of the PaPUC's final
Restructuring Orders was as follows:

                                       42
<PAGE>


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

Write-off of existing Pennsylvania
  generation regulatory assets              $    8.0  $    2.8   $   10.8

Write-off of existing FERC
  generation regulatory assets                   1.5      17.6       19.1

TMI-1 impairment write-off (FERC) and
  TMI-1 decommissioning write-off (FERC)         2.0      10.2       12.2
                                             -------   -------    -------

      Extraordinary loss (pre-tax) -
        FAS 101 write-off                       11.5      30.6       42.1

Obligation to refund 1998 revenues              27.2      29.2       56.4

Establishment of sustainable energy fund         5.7       6.4       12.1
                                             -------   -------    -------

      Total pre-tax write-off                   44.4      66.2      110.6

Income tax benefit                             (18.4)    (26.4)     (44.8)
                                             -------   -------    -------

      Total after-tax write-off             $   26.0  $   39.8   $   65.8
                                             =======   =======    =======

GPU loss per average common share
  due to Pennsylvania restructuring         $   0.21  $   0.31   $   0.52
                                             =======   =======    =======


FAS 121 Impairment Tests on Generation Facilities:

     In accordance with FAS 121, GPU performed impairment tests on the September
30,  1998 net book value of the GPU  Energy  companies'  generation  facilities.
These tests  determined  that GPU's net  investment  in TMI-1 was  impaired.  No
impairment  existed for the fossil-fuel and  hydroelectric  generating plants or
for the Oyster Creek Nuclear  Station as of that date. For the nine months ended
September 30, 1998,  GPU's  investment in TMI-1 was written down by $505 million
(pre-tax)  (JCP&L $131 million;  Met-Ed $251  million;  Penelec $123 million) to
reflect its fair market value.

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

     Of the amount  written down for TMI-1,  $496 million  (JCP&L $131  million;
Met-Ed $250 million;  Penelec $115 million) was  re-established  as a regulatory
asset since management  believes it is probable of recovery in the restructuring
process due to expected  gains on the sale of the fossil fuel and  hydroelectric
generating plants being projected to exceed the TMI-1 writedown amount.


3.   ACCOUNTING FOR DERIVATIVE INSTRUMENTS

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

                                       43
<PAGE>


Interest Rate Swap Agreements:
------------------------------
     The GPUI Group uses  interest  rate swap  agreements  to manage the risk of
increases in variable  interest rates. At September 30, 1998,  these  agreements
covered  approximately  $1.1  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 nine months ended September
30,  1998,  fixed rate  interest  expense  exceeded  variable  rate  interest by
approximately $12.8 million.


4.   GPUI GROUP EQUITY INVESTMENTS

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

                                                                Ownership
Investment                          Location of Operations     Percentage
----------                          ----------------------     ----------
Midlands Electricity plc             United Kingdom               50%
Mid-Georgia Cogen, L.P.              United States                50%
Prime Energy, L.P.                   United States                50%
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%
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  
------------------                            ----------        ------------  

September 30, 1998
Current Assets                               $   226,908        $   345,213
Noncurrent Assets                              2,646,665          3,261,245
Current Liabilities                             (883,268)          (928,390)
Long-Term Debt                                (1,123,791)        (1,610,929)
Other Noncurrent Liabilities                    (252,870)          (395,405)
                                              ----------         ----------
Equity in Net Assets                         $   613,644        $   671,734 
                                              ==========         ===========

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

                                       44
<PAGE>


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

For the nine months ended September 30, 1998
Operating Revenues                           $ 1,070,234        $ 1,142,546
Depreciation and Amortization                    (54,723)           (60,624)
Operating Income                                 124,357            172,206
Other Income and Deductions                        5,701            (19,988)
Interest and Preferred Dividends                 (87,176)          (101,907)
                                              ----------         ----------
Equity in Net Income                         $    42,882        $    50,311
                                              ==========         ==========


For the nine months ended September 30, 1997
Operating Revenues                           $   939,572        $ 1,017,577
Depreciation and Amortization                    (35,593)           (42,329)
Operating Income                                 142,390            217,311
Other Income and Deductions                     (134,123)           (91,049)
Interest and Preferred Dividends                 (94,260)          (114,589)
                                              ----------         ----------
Equity in Net Income                         $    85,993        $    11,673
                                              ==========         ==========


For the nine months ended  September 30, 1998 and 1997,  the GPUI Group received
cash distributions totaling $12.9 million and $37.0 million, respectively.

     As of  September  30,  1998  and  December  31,  1997,  GPUI  Group  equity
investments  on the  Consolidated  Balance  Sheets  included  goodwill  (net  of
accumulated   amortization)  of  approximately  $24  million  and  $66  million,
respectively, which is amortized to expense over periods not exceeding 40 years.
Amortization  expense  for the nine  months  ended  September  30, 1998 and 1997
amounted to $1.2 million and $3.4 million,  respectively.  In January 1998,  the
GPUI Group  recorded a decrease in goodwill of $41.2  million as a result of GPU
Electric,  Inc.'s  sale of its 50% stake in Solaris  Power.  In July  1998,  GPU
Electric,  Inc.  sold its 10.36%  stake in Allgas  Energy  Limited  which it had
acquired as part of the sale of Solaris Power in January 1998.


5. SEGMENT INFORMATION

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

                                       45
<PAGE>


Balance Sheet Segment Data (in thousands)

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

Domestic:
   GPU Energy companies                   $  876,390  $12,425,467 $1,153,391
   GPUI Group*                               123,492      393,680     49,732
   Less: GPUI Group equity investments
     included above                          (46,522)    (197,577)   (18,579)
   Add: Original equity investment and
     income/(loss) less dividends to date          -       84,573          -
   GPU AR                                      2,771           83      4,044
   Corporate                                     184        6,261     71,675
                                           ---------   ----------  ---------
        Subtotal                             956,315   12,712,487  1,260,263
                                           ---------   ----------  ---------
Foreign: (GPUI Group only)
   Australia                                 260,838    1,623,505    278,628
   United Kingdom*                           169,573    2,243,012    851,853
   Other*                                     75,677      321,733     50,622
   Less: GPUI Group equity investments
     included above                         (180,386)  (2,449,088)  (864,689)
   Add: Original equity investment and
     income/(loss) less dividends to date          -      563,731          -
                                           ---------   ----------  ---------
        Subtotal                             325,702    2,302,893    316,414
                                           ---------   ----------  ---------

Consolidated Total                        $1,282,017  $15,015,380 $1,576,677
                                           =========   ==========  =========

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

Domestic:
   GPU Energy companies                   $2,398,809   $6,191,853 $  213,132
   GPUI Group*                               183,770      222,342     25,529
   Less: GPUI Group equity investments
     included above                         (183,770)     (12,328)    (4,326)
   Add: Original equity investment and
     income/(loss) less dividends to date          -            -          -
   GPU AR                                          -          118         22
   Corporate                                       -        1,398          -
                                           ---------    ---------  ---------
        Subtotal                           2,398,809    6,403,383    234,357
                                           ---------    ---------  ---------
Foreign: (GPUI Group only)
   Australia                               1,409,435       69,857     16,930
   United Kingdom*                         1,146,932      229,467     70,153
   Other*                                    198,902       61,010     12,081
   Less: GPUI Group equity investments
     included above                         (940,021)    (240,542)   (70,939)
   Add: Original equity investment and
     income/(loss) less dividends to date          -        1,501          -
                                           ---------    ---------  ---------
        Subtotal                           1,815,248      121,293     28,225
                                           ---------    ---------  ---------

Consolidated Total                        $4,214,057   $6,524,676 $  262,582
                                           =========    =========  =========


* 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>


Balance Sheet Segment Data (in thousands) (continued)

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

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

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

                                                        Other        Cash
                                          Long-Term   Noncurrent    Capital
December 31, 1997                            Debt     Liabilities Expenditures
                                          ----------  -----------  -----------
Domestic:
   GPU Energy companies                   $2,448,672   $2,721,527  $  356,416
   GPUI Group*                               263,378       46,880     111,125
   Less: GPUI Group equity investments
     included above                         (171,665)     (12,321)       (120)
   Add: Original equity investment and
     income/(loss) less dividends to date          -            -           -
   GPU AR                                          -            -           -
   Corporate                                       -        1,418           -
                                           ---------    ---------   ---------
        Subtotal                           2,540,385    2,757,504     467,421
                                           ---------    ---------   ---------
Foreign: (GPUI Group only)
   Australia*                              1,485,639      115,390   1,811,921
   United Kingdom*                         1,367,471      245,105      77,706
   Other*                                    258,794       64,803       1,213
   Less: GPUI Group equity investments
     included above                       (1,326,317)    (295,183)    (89,624)
   Add: Original equity investment and
     income/(loss) less dividends to date          -            -           -
                                           ---------    ---------   ---------
        Subtotal                           1,785,587      130,115   1,801,216
                                           ---------    ---------   ---------

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


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

                                       47
<PAGE>


Earnings Segment Data (in thousands)

                                                      Depreciation
For the nine months                       Operating       and      Operating
ended September 30, 1998                  Revenues    Amortization  Income  
------------------------                   ---------  -----------   ---------

Domestic:
   GPU Energy companies                   $3,009,856  $  352,427  $  451,855
   GPUI Group*                               138,758       8,936      21,554
   Less: GPUI Group equity investments
     included above                          (89,661)     (6,869)    (22,768)
   Add: Equity in undistributed earnings
     of affiliates, net                            -           -           -
   GPU AR                                      8,337           -      (1,477)
   Corporate                                       -           -      (3,193)
                                           ---------   ---------   ---------
        Subtotal                           3,067,290     354,494     445,971
                                           ---------   ---------   ---------
Foreign: (GPUI Group only)
   Australia                                 135,886      30,455      82,534
   United Kingdom*                           958,365      43,474     100,824
   Other*                                     46,007       9,039       8,537
   Less: GPUI Group equity investments
     included above                         (980,573)    (47,854)   (101,589)
   Add: Equity in undistributed earnings
     of affiliates, net                            -           -           -
                                           ---------   ---------   ---------
        Subtotal                             159,685      35,114      90,306
                                           ---------   ---------   ---------

Consolidated Total                        $3,226,975  $  389,608  $  536,277
                                           =========   =========   =========

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

Domestic:
   GPU Energy companies                   $  (12,067) $  181,747  $  232,286
   GPUI Group*                                 4,071      15,148      10,477
   Less: GPUI Group equity investments
     included above                            2,601     (14,944)     (5,223)
   Add: Equity in undistributed earnings
     of affiliates, net                        5,223           -       5,223
   GPU AR                                         49           -      (1,428)
   Corporate                                  (1,024)      4,910      (9,127)
                                           ---------   ---------   ---------
        Subtotal                              (1,147)    186,861     232,208
                                           ---------   ---------   ---------
Foreign: (GPUI Group only)
   Australia                                  23,464      81,979      24,019
   United Kingdom*                             6,127      88,088      18,863
   Other*                                      3,440       8,957       1,563
   Less: GPUI Group equity investments
     included above                           (8,302)    (72,232)    (37,659)
   Add: Equity in undistributed earnings
     of affiliates, net                       37,659           -      37,659
                                           ---------   ---------   ---------
        Subtotal                              62,388     106,792      44,445
                                           ---------   ---------   ---------

Consolidated Total                        $   61,241  $  293,653  $  276,653
                                           =========   =========   =========

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

                                       48
<PAGE>


Earnings Segment Data (in thousands)(continued)

                                                      Depreciation
For the nine months                       Operating       and       Operating
ended September 30, 1997                  Revenues    Amortization   Income  
------------------------                  ---------   ------------  ---------

Domestic:
   GPU Energy companies                   $3,062,926  $  347,755  $  508,335
   GPUI Group*                               126,611       8,591      19,691
   Less: GPUI Group equity investments
     included above                         (102,137)     (8,089)    (21,417)
   Add: Equity in undistributed earnings/
     (losses) of affiliates, net                   -           -           -
   GPU AR                                        460           -      (2,158)
   Corporate                                       -           -      (6,791)
                                           ---------   ---------   ---------
        Subtotal                           3,087,860     348,257     497,660
                                           ---------   ---------   ---------
Foreign: (GPUI Group only)
   Australia*                                112,833       9,089      33,446
   United Kingdom*                           717,651      18,789      95,671
   Other*                                     30,026       6,624         550
   Less: GPUI Group equity investments
     included above                         (837,435)    (27,501)   (120,974)
   Add: Equity in undistributed earnings/
     of affiliates, net                            -           -           -
                                           ---------   ---------   ---------
        Subtotal                              23,075       7,001       8,693
                                           ---------   ---------   ---------

Consolidated Total                        $3,110,935  $  355,258  $  506,353
                                           =========   =========   =========

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

Domestic:
   GPU Energy companies                   $    3,823  $  188,565  $  323,593
   GPUI Group*                                (8,118)     19,681      (8,108)
   Less: GPUI Group equity investments
     included above                            2,414     (19,145)        142
   Add: Equity in undistributed earnings/
     (losses) of affiliates, net                (142)          -        (142)
   GPU AR                                          2           -      (2,156)
   Corporate                                    (418)      4,135     (11,344)
                                           ---------   ---------   ---------
        Subtotal                              (2,439)    193,236     301,985
                                           ---------   ---------   ---------
Foreign: (GPUI Group only)
   Australia*                                (27,051)     21,781     (15,386)
   United Kingdom*                           (55,064)     82,971     (42,364)
   Other*                                      2,089       3,648      (2,044)
   Less: GPUI Group equity investments
     included above                          131,710     (75,117)     85,853
   Add: Equity in undistributed earnings
     of affiliates, net                      (85,853)          -     (85,853)
                                           ---------   ---------   ---------
        Subtotal                             (34,169)     33,283     (59,794)
                                           ---------   ---------   ---------

Consolidated Total                        $  (36,608) $  226,519  $  242,191
                                           ==========  =========   =========


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

                                       49
<PAGE>


GPU, Inc. and Subsidiary Companies


6. COMPREHENSIVE INCOME

     For the nine months ended September 30, 1998 and 1997, comprehensive income
was as follows:

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

Net income                                             $276,653     $242,191
                                                       --------      -------
Other comprehensive income/(loss), net of tax:
     Net unrealized gains on investments                    728        4,131
     Foreign currency translation                       (15,175)      (5,702)
                                                       --------      -------
       Total other comprehensive income/(loss)          (14,447)      (1,571)
                                                       --------      -------
Comprehensive income                                   $262,206     $240,620
                                                       ========     ========

Met-Ed

Net income                                             $ 32,929     $ 81,113
                                                       --------      -------
Other comprehensive income/(loss), net of tax:
     Net unrealized gains/(losses) on investments          (892)       2,754
                                                       --------      -------
Comprehensive income                                   $ 32,037     $ 83,867 
                                                       ========      =======-

Penelec

Net income                                             $ 21,586     $ 81,104 
                                                       --------      --------
Other comprehensive income/(loss), net of tax:
     Net unrealized gains/(losses) on investments          (470)       1,377
                                                       --------      -------
Comprehensive income                                   $ 21,116     $ 82,481
                                                       ========      =======

                                       50
<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 third quarter ended  September 30, 1998 were $338.1
million, compared with earnings of $16.9 million for the quarter ended September
30, 1997.  The earnings per share on a diluted  basis for the third quarter 1998
was $2.65,  compared  with  earnings  per share of $0.14 in 1997.  Both  periods
include  non-recurring  items.  Excluding the non-recurring  items,  GPU's third
quarter  1998 and 1997  earnings  would have been $128.8  million,  or $1.01 per
share, and $126.2 million, or $1.04 per share, respectively.

     Previously,  GPU  recorded a second  quarter 1998  non-recurring  charge of
$275.1 million after-tax, or $2.16 per share, as a result of Pennsylvania Public
Utility  Commission  (PaPUC)  restructuring  rate orders  received by Met-Ed and
Penelec.  In the third quarter 1998, as a result of amended PaPUC  restructuring
rate orders, GPU reversed $266.3 million  after-tax,  or $2.09 per share, of the
non-recurring  charge  taken  in  the  second  quarter,   primarily  related  to
above-market   nonutility   generation   costs;   and  recorded  an   additional
non-recurring charge of $57.0 million after-tax,  or $0.45 per share, related to
customer  rate  refunds,  the  write-off  of  regulatory  assets  related to its
wholesale energy  customers and start up payments to an environmental  fund. The
year-to-date  effect of the PaPUC's rate actions was a charge to income of $65.8
million  after-tax,  or $0.52  per  share.  In the  third  quarter  of  1997,  a
non-recurring  charge of $109.3  million,  or $0.90 per  share,  was taken for a
windfall  profits tax assessed on privatized  utilities by the Government of the
United Kingdom.

     For the nine months ended  September 30, 1998,  GPU's  earnings were $276.7
million, or $2.18 per share,  compared with earnings of $242.2 million, or $2.00
per share for the nine months ended September 30, 1997.  Excluding the effect of
the  non-recurring  items  mentioned  above,  earnings for the nine months ended
September 30, 1998 and 1997 would have been $342.5 million,

                                       51
<PAGE>


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

or $2.70 per share, and $351.5 million,  or $2.90 per share,  respectively.  The
earnings  decrease  on this basis was due to lower  income  from GPU's  domestic
utility  operations,  which are conducted by the GPU Energy  companies,  and the
dilutive  effect of the sale of GPU, Inc. common stock in February 1998. The GPU
Energy companies' earnings reduction for the nine month period was mainly due to
the absence in 1998 of a 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; and increased computer costs.

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

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

     Operating  revenues for the third quarter of 1998  increased  4.6% to $1.17
billion,  as compared to the third  quarter of 1997.  For the nine months  ended
September 30, 1998,  revenues increased 3.7% to $3.23 billion as compared to the
same period last year. The components of the changes are as follows:

                                                  (in millions)               
                                       --------------------------------------
                                          Three Months        Nine Months
                                             Ended              Ended
                      September 30, 1998 September 30, 1998
                                       ------------------  -------------------

GPU Energy companies:
  Kilowatt-hour (KWH) revenues              $ 61.5              $ 42.7
  Energy-related revenues                     33.4                50.7
  Obligation to refund 1998 revenues
    to customers per PaPUC Order             (56.4)              (56.4)
  GPU Telcom revenues                          6.8                12.6
  Other revenues                             (36.1)             (102.7)
                                             -----               -----
     Total GPU Energy companies                9.2               (53.1)
GPUI Group                                    39.7               161.2
GPU AR                                         2.7                 7.9
                                             -----               -----
     Total increase in revenues             $ 51.6              $116.0
                                             =====               =====


GPU Energy Companies

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

     The increase in KWH  revenues for the three month period was due  primarily
to higher residential and commercial customer usage at JCP&L and increased sales
to other utilities by Met-Ed and Penelec.

     The increase in KWH revenues for the nine month period was primarily due

                                       52
<PAGE>


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

to higher  residential  and commercial  customer  usage at JCP&L;  and increased
sales to other  utilities by Met-Ed and Penelec.  These increases were partially
offset by the absence in 1998 of the step increase in unbilled  revenue recorded
by Met-Ed and Penelec as a result of  including  their ECRs in base  rates.  KWH
revenues now include  Met-Ed and Penelec's  energy and tax revenues,  consistent
with the inclusion of their ECRs and State Tax Adjustment  Surcharges  (STAS) in
base rates, effective January 1, 1997.

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

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

Obligation to refund 1998 revenues to customers per PaPUC Order
---------------------------------------------------------------

     The decrease in revenues reflect  transmission and distribution  (T&D) rate
reductions  resulting from the PaPUC's final Restructuring Orders for Met-Ed and
Penelec. The T&D rate reductions reflect Met-Ed and Penelec's obligation to make
refunds to customers  from 1998 revenues  (2.5 percent for Met-Ed  customers and
3.0 percent for Penelec customers from December 1996 levels).

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

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

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

      Generally,  changes in other  revenues do not affect  earnings as they are
offset by corresponding  changes in expense. The decrease for the three and nine
month periods is primarily due to a decrease in revenue taxes as a result of New
Jersey tax  legislation  that eliminated the gross receipts and franchise tax on
utility  bills and replaced it with a sales tax, a corporate  business tax and a
transitional  energy  facilities  assessment,  effective  January 1, 1998.  (See
COMPETITIVE ENVIRONMENT.)

GPUI Group

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






                                       53


<PAGE>


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

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. In October 1998, the PaPUC approved the use of deferred accounting for
above-market NUG costs as part of the final Restructuring  Orders for Met-Ed and
Penelec.  The increase in PP&I includes a one-time  charge by Met-Ed and Penelec
for the NUG portion of unbilled revenue.

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. Higher fuel expenses for Met-Ed and
Penelec  affected  earnings  for the three and nine months ended  September  30,
1998.

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

      The increase in other O&M  expenses  for the three and nine month  periods
was due primarily to increased  computer costs resulting from the  reengineering
of business  processes to position the GPU Energy  companies  for  deregulation;
employee  reduction costs; and increased GPUI Group O&M expenses  resulting from
the inclusion of PowerNet.  The inclusion of O&M expenses for GPU Telcom,  which
was formed in 1997,  also  contributed  to the  increase  for the three and nine
month periods.

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

      The increase in depreciation  and  amortization  expense for the three and
nine month  periods was due mainly to the inclusion of PowerNet and additions to
plant in service.

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,

                                       54
<PAGE>


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

effective  January 1, 1997,  Met-Ed and  Penelec's  STAS were combined with base
rates  and are no  longer  subject  to  annual  adjustment.  This did not have a
significant impact on earnings for the first nine months of 1998.

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

Equity in undistributed earnings of affiliates, net

      The increase in equity in  undistributed  earnings of affiliates,  net for
the three  and nine  month  periods  was  primarily  due to  higher  GPUI  Group
investment  income.  The increase was due  primarily to the absence in 1998 of a
$109.3  million  charge  taken in 1997 for a  windfall  profits  tax  imposed on
Midlands by the Government of the United Kingdom.

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

      The increase in other income/(expense),  net for the nine month period was
due primarily to gains  realized by the GPUI Group from the sale of its interest
in Solaris, the sale of Allgas Energy stock and the sale of half its interest in
Mid-Georgia.  This  increase  was  partially  offset  by a charge  for  start-up
payments for the establishment of an environmental  fund for Met-Ed and Penelec;
and a charge to terminate a contract with one of Met-Ed's wholesale customers.

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

Long-term debt
--------------

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

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

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

EXTRAORDINARY ITEM:
-------------------

Extraordinary item, net of income taxes 
--------------------------------------- 

      The extraordinary income for the three month period was due to the amended
PaPUC   restructuring  rate  orders  received  by  Met-Ed  and  Penelec,   which
substantially  reversed the  extraordinary  charge taken in the second  quarter,
primarily related to above-market nonutility generation costs. The extraordinary
income was  partially  offset by  additional  charges  taken for the writeoff of
regulatory assets related to wholesale energy customers.  The extraordinary loss
for the nine month  period was due to the net impact of the PaPUC  Restructuring
Orders for Met-Ed and Penelec.

                                       55
<PAGE>


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

     JCP&L's  earnings for the third quarter ended September 30, 1998 were $89.3
million,  compared to 1997 third quarter earnings of $74.7 million. The increase
in earnings was due  primarily to higher  residential  and  commercial  customer
sales.  For the nine months  ended  September  30,  1998,  earnings  were $177.1
million, compared to $162.2 million for the same period last year.

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

     Operating  revenues for the third quarter of 1998  increased 7.4% to $647.6
million,  as compared to the third  quarter of 1997.  For the nine months  ended
September 30, 1998,  revenues  increased 0.5% to $1.6 billion as compared to the
same period last year. The components of the changes are as follows:

                                                 (in millions)               
                                   ------------------------------------------
                                     Three Months            Nine Months
                                         Ended                  Ended
                                   September 30, 1998     September 30, 1998
                                   ------------------     ------------------


  KWH revenues                            $ 47.2              $  60.5
  Energy-related revenues                   33.2                 50.7
  Other revenues                           (35.7)              (103.9)
                                           -----               ------
      Increase in revenues                $ 44.7              $   7.3
                                           =====               ======

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

     The increase in KWH  revenues for the three and nine month  periods was due
to higher  residential  and  commercial  customer  usage and an  increase in the
number of residential and 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 and nine month  periods was due  primarily to  increased  sales to
other utilities and higher residential and commercial customer sales.

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

     Generally,  changes in other  revenues  do not affect  earnings as they are
offset by corresponding  changes in expense. The decrease for the three and nine
month  periods is primarily due to lower revenue taxes as a result of New Jersey
tax legislation  that eliminated the gross receipts and franchise tax on utility
bills  and  replaced  it with a sales  tax,  a  corporate  business  tax,  and a
transitional energy facilities assessment effective January 1, 1998.
(See COMPETITIVE ENVIRONMENT.)


                                       56



<PAGE>


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

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

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

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

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

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

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

     The increase in other O&M expenses for the three and nine month periods was
due primarily to increased  computer costs resulting from the  reengineering  of
business  processes to position JCP&L for deregulation;  and employee  reduction
costs.

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

     The decrease in depreciation and  amortization  expense for the three month
period was due  primarily  to the  reversal  of  charges  taken in the first six
months of 1998 relating to JCP&L's Final Settlement  representing the portion of
JCP&L's  return on equity which exceeds the maximum  amount  allowed and must be
applied against JCP&L's stranded cost pool.

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.

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

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

     The  increase  in other  income,  net for the  nine  month  period  was due
primarily  to a second  quarter  1997 charge of $5.5 million to settle a lawsuit
related to the termination of the Freehold NUG contract.

INTEREST CHARGES:
-----------------

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

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

                                       57



<PAGE>


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

     Met-Ed's  earnings  for the third  quarter  ended  September  30, 1998 were
$176.8  million,  compared  with earnings of $27.2 million for the quarter ended
September 30, 1997. Excluding the effect of non-recurring items,  Met-Ed's third
quarter 1998 earnings would have been $15.5 million.

     Previously,  Met-Ed recorded a second quarter 1998 non-recurring  charge of
$187.3 million after-tax, as a result of PaPUC restructuring rate orders. In the
third  quarter 1998,  as a result of amended  PaPUC  restructuring  rate orders,
Met-Ed reversed $183.2 million after-tax,  of the non-recurring  charge taken in
the second  quarter,  primarily  related to above-market  nonutility  generation
costs;  and  recorded  an  additional  non-recurring  charge  of  $21.9  million
after-tax  related to customer rate refunds,  the write-off of regulatory assets
related  to  its  wholesale  energy  customers  and  start-up   payments  to  an
environmental fund.

     For the nine months ended September 30, 1998,  Met-Ed's earnings were $32.6
million,  compared  with  earnings of $80.8  million,  for the nine months ended
September 30, 1997.  Excluding the effect of the  non-recurring  items mentioned
above,  earnings  for the nine months ended  September  30, 1998 would have been
$58.6  million.  The  earnings  decrease on this basis was due to the absence in
1998 of a step  increase in unbilled  revenue  recorded by Met-Ed 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;  and  increased
computer costs.

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

     Operating  revenues for the third quarter of 1998  decreased 7.7% to $229.0
million,  as compared to the third  quarter of 1997.  For the nine months  ended
September 30, 1998, revenues decreased 3.1% to $689.8 million as compared to the
same period last year. The components of the changes are as follows:

                                                 (in millions)              
                                   -------------------------------------------
                                       Three Months           Nine Months
                                           Ended                 Ended
                                    September 30, 1998     September 30, 1998
                                    ------------------     ------------------

  KWH revenues                            $  5.7              $ (1.1)
  Obligation to refund 1998 revenues
    to customers per PaPUC Order           (27.2)              (27.2)
  Other revenues                             2.3                 6.1
                                           -----               -----

  Decrease in revenues                    $(19.2)             $(22.2)
                                           =====               =====

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

     The  increase in KWH  revenues for the three month period was due mainly to
increased sales to other utilities and increased  commercial customer usage. The
decrease in KWH  revenues  for the nine month  period was due  primarily  to the
absence in 1998 of the step  increase in unbilled  revenue as a result of Met-Ed
including its ECR in base rates,  amounting to $13 million;  partially offset by
increased sales to other utilities and increased commercial customer usage.

                                       58
<PAGE>


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

Obligation to refund 1998 revenues to customers per PaPUC Order
---------------------------------------------------------------

     The decrease in revenues  reflect a T&D rate  reduction  resulting from the
PaPUC's final  Restructuring  Order for Met-Ed.  The T&D rate reduction reflects
Met-Ed's obligation to make refunds to customers from 1998 revenues (2.5 percent
from December 1996 levels).

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.  In October  1998,  the PaPUC  approved the use of deferred
accounting for above-market NUG costs as part of the final  Restructuring  Order
for Met-Ed.  The increase in PP&I  includes a one-time  charge by Met-Ed for the
NUG portion of unbilled revenue.

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

     The increase in other O&M expenses for the three and nine month periods was
due primarily to increased  computer costs resulting from the  reengineering  of
business  processes to position Met-Ed for deregulation;  and employee reduction
costs.

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

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

     The decrease in other  income/(expense),  net for the nine month period was
due to a charge for start-up  payments for the establishment of an environmental
fund and a charge  to  terminate  a  contract  with  one of  Met-Ed's  wholesale
customers.

EXTRAORDINARY ITEM:
-------------------

Extraordinary item, net of income taxes 
--------------------------------------- 

      The extraordinary income for the three month period was due to the amended
PaPUC restructuring rate order received by Met-Ed which  substantially  reversed
the  extraordinary  charge  taken in the second  quarter,  primarily  related to
above-market nonutility generation costs. The extraordinary income was partially
offset by additional charges taken for the writeoff of regulatory assets related
to wholesale energy customers.  The extraordinary loss for the nine month period
was due to the net impact of the PaPUC Restructuring Orders on Met-Ed.

                                       59
<PAGE>

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

     Penelec's  earnings for the third  quarter  ended  September  30, 1998 were
$62.9  million,  compared  with  earnings of $19.2 million for the quarter ended
September 30, 1997. Excluding the effect of non-recurring items, Penelec's third
quarter 1998 earnings would have been $14.9 million.

     Previously,  Penelec recorded a second quarter 1998 non-recurring charge of
$87.8 million after-tax,  as a result of Pennsylvania  Public Utility Commission
(PaPUC)  restructuring  rate orders.  In the third  quarter 1998, as a result of
amended  PaPUC  restructuring  rate  orders,   Penelec  reversed  $83.1  million
after-tax,  of the non-recurring  charge taken in the second quarter,  primarily
related to above-market  nonutility generation costs; and recorded an additional
non-recurring  charge  of $35.1  million  after-tax  related  to  customer  rate
refunds,  the write-off of  regulatory  assets  related to its wholesale  energy
customers and start-up payments to an environmental fund.

     For the nine months ended September 30, 1998, Penelec's earnings were $21.1
million,  compared  with  earnings of $80.6  million,  for the nine months ended
September 30, 1997.  Excluding the effect of the  non-recurring  items mentioned
above,  earnings  for the nine months ended  September  30, 1998 would have been
$60.9  million.  The  earnings  decrease on this basis was due to the absence in
1998 of a step increase in unbilled  revenue  recorded by Penelec as a result of
including  its energy  cost  rates  (ECRs) in base  rates and the  cessation  of
deferred  energy  accounting,  both  effective  January 1, 1997;  and  increased
computer costs.

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

     Operating  revenues for the third quarter of 1998  increased 0.7% to $259.4
million,  as compared to the third  quarter of 1997.  For the nine months  ended
September 30, 1998, revenues decreased 2.7% to $773.4 million as compared to the
same period last year. The components of the changes are as follows:

                                                    (in millions)             
                                       ---------------------------------------
                                          Three Months         Nine Months
                                             Ended                Ended
                                       September 30, 1998   September 30, 1998
                                       ------------------   ------------------

  KWH revenues                               $ 33.6              $ 13.5
  Obligation to refund 1998 revenues
    to customers per PaPUC Order              (29.2)              (29.2)
  Other revenues                               (2.6)               (6.1)
                                              -----               -----
      Increase/(decrease) in revenues        $  1.8              $(21.8)
                                              =====               =====

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

     The  increase  in KWH  revenues  for the three and nine month  periods  was
primarily  due to increased  sales to other  utilities.  The nine month  revenue
comparison  was affected by the absence in 1998 of the step increase in unbilled
revenue as a result of Penelec including its ECR in base rates, amounting to $15
million.

                                       60
<PAGE>


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

Obligation to refund 1998 revenues to customers per PaPUC Order
---------------------------------------------------------------

     The decrease in revenues  reflect a T&D rate  reduction  resulting from the
PaPUC's final Restructuring  Order for Penelec.  The T&D rate reduction reflects
Penelec's  obligation  to make  refunds to  customers  from 1998  revenues  (3.0
percent from December 1996 levels).

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

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

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

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

      Effective  January 1, 1997,  Penelec ceased deferred energy  accounting as
its ECR was combined  with base rates.  Thus,  energy cost  variances now have a
current  impact on  earnings.  In October  1998,  the PaPUC  approved the use of
deferred   accounting  for   above-market   NUG  costs  as  part  of  the  final
Restructuring Order for Penelec. The increase in PP&I includes a one-time charge
for the NUG portion of unbilled revenue.

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

     The increase in other O&M expenses for the three and nine month periods was
due primarily to increased  computer costs resulting from the  reengineering  of
business processes to position Penelec for deregulation;  and employee reduction
costs.

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

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

     The  decrease in other  income/(expense),  net for the three and nine month
periods was due to a charge for start-up  payments for the  establishment  of an
environmental fund.

EXTRAORDINARY ITEM:
-------------------

Extraordinary item, net of income taxes 
--------------------------------------- 

      The extraordinary income for the three month period was due to the amended
PaPUC restructuring rate order received by Penelec which substantially  reversed
the  extraordinary  charge  taken in the second  quarter,  primarily  related to
above-market nonutility generation costs. The extraordinary income was partially
offset by additional charges taken for the writeoff of regulatory assets related
to wholesale energy customers.  The extraordinary loss for the nine month period
was due to the net impact of the PaPUC Restructuring Orders on Penelec.

                                       61
<PAGE>


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

     The  GPUI  Group   develops,   owns  and  operates   electric   generation,
transmission and distribution  facilities in the U.S. and foreign countries.  It
has also made  investments  in  certain  advanced  technologies  related  to the
electric power industry. The GPUI Group has ownership interests in transmission,
distribution  and  supply  businesses  in  England  and  Australia.  It also has
ownership  interests in nine operating  cogeneration plants in the U.S. totaling
1,147 megawatts (MW) (of which the GPUI Group's equity  interest  represents 498
MW) of capacity,  and ten  operating  generating  facilities  located in foreign
countries  totaling  3,820  MW  (of  which  the  GPUI  Group's  equity  interest
represents  713 MW) of  capacity.  It also has  investments  in five  generating
facilities  under  construction  totaling  1,833 MW (of which  the GPUI  Group's
equity interest  represents 339 MW) of capacity.  The business of the GPUI Group
includes  investment,  development  and operation of these  businesses and, when
appropriate, purchase and sale of interests in particular businesses.

     At September 30, 1998, GPU, Inc.'s  aggregate  investment in the GPUI Group
was $526 million; GPU, Inc. has also guaranteed up to an additional $996 million
of GPUI Group  obligations.  GPU, Inc. has  Securities  and Exchange  Commission
(SEC)  authorization to finance investments in foreign utility companies (FUCOs)
and exempt wholesale  generators  (EWGs) up to an aggregate amount equal to 100%
of GPU's average consolidated  retained earnings,  or approximately $2.2 billion
as of  September  30, 1998.  At September  30,  1998,  GPU,  Inc. has  remaining
authorization to finance approximately $869 million of additional investments in
FUCOs and EWGs.

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


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

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

     GPU is addressing the Year 2000 issue by undertaking a comprehensive review
of  its  computers,  software  and  equipment  with  embedded  systems  such  as
microcontrollers  (together,  "Year  2000  Components"),  and  of  its  business
relationships  with third  parties,  including key customers,  lenders,  trading
partners,   vendors,   suppliers  and  service  providers.   GPU  is  developing
remediation  plans,  and has begun to take corrective  actions.  The remediation
plans include,  among other things, the modification or replacement of Year 2000
Components which are not ready for use beyond the Year 2000.

     GPU continues to respond to requests for  information  concerning  its Year
2000  readiness.  Inquiries  have  been made by the New  Jersey  Board of Public
Utilities  (NJBPU),  the PaPUC,  the U.S.  Nuclear  Regulatory  Commission,  the
Department  of Energy and by numerous  third parties with which GPU has business
relationships.

                                       62
<PAGE>


Costs
-----

     The GPU Energy  companies  have  purchased and are installing an integrated
information system (Project  Enterprise) designed to help manage business growth
and meet the mandates of electric utility deregulation.  The system is scheduled
to be  substantially  operational for the GPU Energy companies and GPUS by March
1999 and fully  operational  for all such companies by June 1999. GPUN and Genco
are not  installing  Project  Enterprise  prior to the Year 2000, but rather are
making  modifications  to their  systems to achieve Year 2000  readiness.  These
modifications  are  expected  to be  completed  by March 31,  1999 for  critical
systems,  and by July 31,  1999 for their  remaining  systems.  By  implementing
Project  Enterprise  as a part of  their  Year  2000  solution,  the GPU  Energy
companies  will avoid  spending  $8.1  million  (JCP&L,  Met-Ed and Penelec $2.7
million  each) on  modifications  to systems  that are being  replaced.  The GPU
Energy companies estimate they will spend $106-$115 million for the purchase and
implementation of Project Enterprise.

     In addition to the purchase and  implementation of Project  Enterprise as a
part of their Year 2000 solution,  the GPU Energy companies  currently  estimate
they will spend $26.5 million (JCP&L $11.9 million; Met-Ed $7.7 million; Penelec
$6.9  million) on the  remediation  of Year 2000  Components.  Approximately  45
percent of the expected costs are for system  modifications or replacements;  35
percent for labor (including  contract labor); and 20 percent for contingencies.
These costs are being funded by the GPU Energy companies  through operating cash
flows.  Of this amount,  the GPU Energy  companies would have in any event spent
$7.4 million (JCP&L $3.6 million; Met-Ed $2.2 million; Penelec $1.6 million) for
maintenance and cyclical  replacement plans. Through September 30, 1998, a total
of approximately $10.6 million (JCP&L $4.5 million; Met-Ed $3.2 million; Penelec
$2.9  million)  has  already  been spent on the Year 2000  issue,  of which $5.9
million  (JCP&L $2.3  million;  Met-Ed $1.8  million;  Penelec $1.8 million) was
spent in 1998.

     Approximately 4.8 percent of the 1998 and 3.3 percent of the 1999 operating
and capital budgets for Information  Technology  Services (ITS) are allocated to
Year 2000 remediation. This level of spending, which includes employee costs and
time,  is not  expected  to cause any  material  delay in ITS  performing  other
planned projects.

     The GPUI Group currently estimates they will spend approximately $9 million
to address  the Year 2000 issue,  primarily  to replace or modify  equipment  at
Midlands  Electricity plc. Through  September 30, 1998, a total of approximately
$1.6 million has already been spent, primarily all of which was spent in 1998.

Milestones
----------

     GPU  has  established  Inventory,  Assessment,   Remediation,  Testing  and
Monitoring as the primary phases for its Year 2000 program.  The  Inventories of
critical  systems and components are  essentially  complete.  The milestones for
Assessment, Remediation, Testing and Monitoring are as follows:

                                       63
<PAGE>



                        Assessment  Remediation      Testing    Monitoring
                        ----------  -----------      -------    ----------
GPU Energy companies    12/31/1998   03/31/1999    03/31/1999   03/31/2000
  and GPUS
GENCO                   10/31/1998   11/15/1999    11/15/1999   05/31/2000
GPUN                    03/31/1999   10/31/1999    10/31/1999   03/31/2000
GPUI Group              12/31/1998   10/31/1999    10/31/1999   03/01/2000

     Genco expects to complete modifications and testing of Year 2000 Components
involved in 83 percent of its generation capacity by May 31, 1999. Modifications
and testing of the remaining  components,  primarily for three  generating units
with  outages  scheduled  in the  Fall of  1999,  will  not be  completed  until
mid-November  1999. GPUN expects to complete  modifications and testing for most
of its  systems and  components  by July 1, 1999.  Modifications  and testing of
fewer than a dozen  components  at TMI-1,  which is  scheduled  for a  refueling
outage in September  1999,  are not expected to be completed  until late October
1999.

Third Party Qualification
-------------------------

     Due to the  interdependence  of computer  systems and the reliance on other
organizations  for supplies,  materials or services,  GPU is addressing the Year
2000 issue as it relates to the readiness of third parties.  As part of its Year
2000  strategy,  GPU is contacting  key customers,  lenders,  trading  partners,
vendors,  suppliers and service  providers to assess whether they are adequately
addressing the Year 2000 issue.

     With respect to computer software and equipment with embedded systems,  GPU
has analyzed where it is dependent upon third party data and has identified four
principal  critical  areas:  (1)  the  Pennsylvania-New   Jersey-Maryland  (PJM)
Interconnection;   (2)  electric  generation  suppliers,  such  as  cogeneration
operators and nonutility  generators  (NUGs);  (3) Electronic  Data  Interchange
(EDI) with  trading  partners;  and (4)  Electronic  Funds  Transfer  (EFT) with
financial institutions.

     The  following  summarizes  the actions that have taken place with critical
third parties:

  -   PJM - A test plan is in place and awaiting a November  1998 upgrade of PJM
      systems to enable data link testing. While some testing of PJM systems has
      already  begun,  the major  testing will not be performed  until  February
      1999.

  -   Electric  generation  suppliers - All electric  generation  suppliers have
      been  contacted  and  information  as to their  readiness  status has been
      received from a small percentage. Those that have responded have readiness
      dates established generally for July 1999.

  -   EDI/EFT - Readiness  questionnaires  have been sent to  approximately  160
      organizations  with which GPU exchanges data  electronically  and conducts
      electronic funds transfers. GPU has currently received responses from only
      a few of these organizations.

                                       64
<PAGE>


Scenarios and Contingencies
---------------------------

     If GPU,  or critical  third  parties  upon whom GPU  relies,  are unable to
successfully  address  their  Year  2000  problems  on a timely  basis,  certain
computers,  equipment, systems and applications may not function properly, which
could  have  a  material  adverse  effect  on  GPU's  operations  and  financial
condition.  While GPU cannot predict what effect,  if any, the Year 2000 problem
will have on its  operations,  one possible  scenario  may include,  among other
things,  interruptions in delivering  electric service, a temporary inability to
process transactions, provide bills or operate electric generating stations. GPU
currently has no cost estimates related to its Year 2000 risks.

     While  there can be no  assurance  as to the  outcome of this  matter,  GPU
believes  that its Year 2000  preparations  will be  successful  relative to its
mission-critical   Year  2000  Components.   In  addition,   GPU  is  developing
contingency plans in accordance with the contingency  planning schedule proposed
by the North  American  Electric  Reliability  Council.  These plans,  which are
currently  expected  to  be  finalized  in  mid-  to  late-1999,   will  include
supplementing  present general  emergency  procedures with specific measures for
Year 2000  problems and placing  troubleshooting  teams at sites where  critical
components are located.

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

GPU Energy Companies

     The GPU  Energy  companies'  capital  spending  for the nine  months  ended
September  30, 1998 was $213 million  (JCP&L $112  million;  Met-Ed $33 million;
Penelec $65 million;  Other $3 million), and was used primarily for new customer
connections and to maintain and improve  existing  transmission and distribution
facilities.  For 1998,  capital  expenditures  are forecasted to be $336 million
(JCP&L $169 million; Met-Ed $77 million;  Penelec $87 million; Other $3), mainly
related to the GPU  Energy  companies  and will be used  primarily  for  ongoing
system development. Expenditures for maturing obligations will total $43 million
(JCP&L $13 million;  Penelec $30 million) in 1998. A substantial  portion of the
GPU Energy companies' 1998 capital outlays will be satisfied through  internally
generated funds.

GPUI Group

     The GPUI Group's capital spending was $49 million for the nine months ended
September 30, 1998.  For 1998,  capital  expenditures  are forecasted to be $133
million.  Expenditures  for  maturing  obligations  are  estimated to total $589
million in 1998. A substantial  portion of the GPUI Group's 1998 capital outlays
will be required to be satisfied through external financings.

Financing
---------

GPU, Inc.

     GPU, Inc. has received SEC approval to issue and sell up to $300 million
of unsecured debentures through 2001.  Further significant investments by the
GPUI Group, or otherwise, may require GPU, Inc. to issue additional debt
                                       65
<PAGE>


and/or  common stock (see GPUI GROUP for a discussion of GPU,  Inc.'s  remaining
investment authorization).

     GPU is in the process of arranging a new unsecured  commercial paper credit
facility  to  finance up to $1 billion  of  investments  in FUCOs and EWGs.  GPU
expects that the proceeds from the sale of commercial paper  (guaranteed by GPU,
Inc.) will be used to repay a portion  of  outstanding  acquisition  debt and to
finance future investments.

GPUI Group

     In August 1998, Austran Holdings, Inc. (Austran), a wholly owned subsidiary
of GPU Electric,  Inc.,  entered into a A$500 million  (approximately  U.S. $297
million)  revolving  commercial  paper  program.  GPU  PowerNet  has  guaranteed
Austran's  obligations  under this program.  As of September  30, 1998,  Austran
borrowed approximately A$342 million (approximately U.S. $203 million) under the
commercial  paper  program and  intends to borrow an  additional  A$100  million
(approximately  U.S. $59 million) to refinance the current portion of the senior
debt credit facility used to finance the PowerNet acquisition.  These borrowings
have been classified as noncurrent  since it is  management's  intent to reissue
the commercial paper on a long-term basis.

GPU Energy Companies

     JCP&L  and  Penelec  have  regulatory  authority  to issue  and sell  first
mortgage bonds (FMBs),  including secured medium-term notes, and preferred stock
through June 1999.  Met-Ed has similar  authority  through  December 1999. Under
existing  authorizations,  JCP&L,  Met-Ed and  Penelec  may issue  these  senior
securities in aggregate  amounts of $145 million,  $190 million and $70 million,
respectively,  of which up to $100  million for JCP&L and Met-Ed and $70 million
for  Penelec  may  consist of  preferred  stock.  Met-Ed and Penelec are seeking
regulatory  approvals to issue and sell senior notes and preferred securities in
aggregate amounts of $250 million and $725 million, respectively, of which up to
$125 million for each company may consist of preferred securities. JCP&L intends
to seek  regulatory  approval  to issue  and sell  senior  notes  and  preferred
securities in an aggregate  amount of $300 million,  of which up to $200 million
may  consist  of  preferred  securities.  The GPU  Energy  companies  also  have
regulatory authority to incur short-term debt, a portion of which may be through
the issuance of commercial paper.

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

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

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<PAGE>


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

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

     As competition in the electric  utility  industry  increases,  the price of
electricity  and  quality of customer  service  will be  critical.  GPU has been
active  both on the  federal  and state  levels  in  helping  to shape  electric
industry   restructuring   while   seeking  to  protect  the  interests  of  its
shareholders  and  customers,  and is attempting to assess the impact that these
competitive pressures and other changes will have on its financial condition and
results of operations.

     In October  1997,  GPU  announced its intention to begin a process to sell,
through  a  competitive   bid  process,   up  to  all  of  the  fossil-fuel  and
hydroelectric  generating  facilities owned by the GPU Energy  companies.  These
facilities,  comprised  of 26  operating  stations,  support  organizations  and
development  sites, total  approximately  5,300 MW (JCP&L 1,900 MW; Met-Ed 1,300
MW;  Penelec  2,100 MW) of capacity  and have a net book value of  approximately
$1.1 billion (JCP&L $282 million; Met-Ed $290 million;  Penelec $527 million) at
September  30, 1998.  The net proceeds from the sale would be used to reduce the
capitalization of the respective GPU Energy companies and may also be applied to
reduce  short-term  debt,  finance  further  acquisitions,  repurchase GPU, Inc.
common stock, and to reduce acquisition debt of the GPUI Group.

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

     On November  9, 1998,  the GPU Energy  companies  entered  into  definitive
purchase  agreements  with Sithe Energies and  FirstEnergy  Corporation to sell,
with the exception of JCP&L's 50%  ownership  interest in the Yards Creek Pumped
Storage plant,  all their  remaining  fossil-fuel and  hydroelectric  generating
facilities for a total purchase price of approximately  $1.7 billion (JCP&L $442
million;  Met-Ed $677 million; and Penelec $603 million). The sales are expected
to be  completed  in mid-1999,  subject to the timely  receipt of the  necessary
regulatory and other approvals.

     In  addition  to the  continued  operation  of  the  Oyster  Creek  Nuclear
Generating  Station (Oyster  Creek),  JCP&L has been exploring the sale or early
retirement  of the  plant  to  mitigate  costs  associated  with  its  continued
operation.  In July 1998,  GPU announced  that it was unable to identify a buyer
for the facility.  GPU does not anticipate  making a final decision on the plant
before the NJBPU rules on JCP&L's restructuring filing.

     In October 1998, GPU entered into  definitive  purchase  agreements to sell
TMI-1 to AmerGen Energy  Company,  LLC (AmerGen),  a joint venture  between PECO
Energy and British  Energy.  Terms of the purchase  agreements are summarized as
follows:

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<PAGE>


-    The total cash  purchase  price is $100.6  million,  which  represents  $23
     million to be paid at financial  closing for the plant,  and $77.6  million
     for the  nuclear  fuel in the  reactor  to be  paid  in five  equal  annual
     installments  beginning one year after the closing.  The purchase  price is
     subject to certain adjustments for capital expenditures and other items.

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

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

-    At financial  closing,  GPU will make  additional  deposits  into the TMI-1
     decommissioning  trusts to bring the trust  totals up to $320  million.  At
     financial  closing,  AmerGen will assume all liability and  obligation  for
     decommissioning TMI-1.

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

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

     The sale is  subject  to  various  conditions,  including  the  receipt  of
satisfactory  federal and state regulatory approvals prior to financial closing.
In addition, certain rulings from the Internal Revenue Service will be necessary
with respect to the maintenance or transfer of the decommissioning trusts at the
closing. There can be no assurance as to the outcome of these matters.

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

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

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

                                       68
<PAGE>


     The legislation provides utilities the opportunity to reduce their stranded
costs  through the  issuance of  transition  bonds with  maturities  of up to 10
years.  The sale proceeds  could be used to buy out or buy down  uneconomic  NUG
contracts, to reduce capitalization, or both. Principal and interest payments on
the  bonds  would  be paid  by all  distribution  service  customers  through  a
nonbypassable  intangible transition charge.  Reduced financing costs associated
with the sale of transition  bonds would be used to provide rate  reductions for
all customers.

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

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

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

     In  addition,  on July  20,  1998  Met-Ed  and  Penelec  filed  Alternative
Restructuring Plans (Alternative Plans) with the PaPUC based on the provision in
the Customer  Choice Act that enables a utility to file an alternate plan if the
PaPUC rejects the utility's  initial plan. On August 5, 1998, the PaPUC rejected
the  Alternative  Plans as invalid  and on August 17,  1998,  Met-Ed and Penelec
appealed this action.

     Following extended  negotiations,  on September 23, 1998, Met-Ed,  Penelec,
the PaPUC and numerous intervenors in the restructuring proceedings entered into
Settlement  Agreements  providing for new  restructuring  plans.  On October 16,
1998,  the PaPUC adopted final  Restructuring  Orders  approving the  Settlement
Agreements. For additional information, see Note 2, Accounting for Non-recurring
Items. The major elements of the final Restructuring Order are as follows:

-    A transmission and distribution tariff rate which provides adequate funding
     for  maintaining   the   reliability  of  Met-Ed  and  Penelec's   electric
     distribution systems;

-    A rate  reduction  from January 1, 1999 through  December 31, 1999, for all
     customers,  whether  they choose an alternate  supplier or not,  reflecting
     Met-Ed and  Penelec's  obligation  to make refunds to  customers  from 1998
     revenues  (2.5  percent  for Met-Ed  customers  and 3.0 percent for Penelec
     customers from December 1996 levels);
                                       69

<PAGE>


-    The ability of all customers to participate  in electric  choice on January
     1, 1999 - two years  sooner than called for in  Pennsylvania's  Electricity
     Competition Act;

-    Customers  will receive a "shopping  credit" that will result in savings if
     they buy electricity from an alternate  supplier that charges less than the
     shopping  credit.  The average  shopping credit in 1999 will be 4.350 cents
     per kilowatt-hour for Met-Ed and 4.404 cents per kilowatt-hour for Penelec.
     Actual prices will vary by customer rate class;

-    Assurance of full recovery of the above-market costs of government-mandated
     contracts  to buy  electricity  from NUGs  (Beginning  in 2005,  the amount
     collected  will  be  adjusted  every  five  years  over  the  life  of each
     contract);

-    A rate  cap  for the  cost  of  delivering  electricity  (transmission  and
     distribution) until 2004,  three-and-one-half  years longer than the period
     called  for  in  Pennsylvania's   Electricity  Competition  Act  (with  the
     exception of a pending federal order requiring a transmission rate increase
     in Pennsylvania);

-    A rate cap for electricity purchased from GPU Energy, as provider of
     last resort, until 2010;

-    PaPUC approval for Met-Ed and Penelec to sell their generating stations,
     including TMI-1;

-    Recovery of $658.14  million in stranded costs for Met-Ed over 12 years and
     $332.16  million  for  Penelec  over 11 years  (These  amounts  reflect the
     effects  of using the  estimated  net  proceeds  from  selling  Met-Ed  and
     Penelec's  generating  plants to reduce stranded costs and will be adjusted
     based on actual net sale proceeds);

-    $2.7 million and $3.4 million  assistance in 1999 for low-income  customers
     of Met-Ed and Penelec,  respectively;  increasing  to $6.4 million and $6.9
     million in 2002.

-    A sustainable  energy fund to promote the  development and use of renewable
     energy and clean energy technologies with one-time payments in 1998 of $5.7
     million from Met-Ed and of $6.4 million from Penelec;

-    The  ability of some  customers  to choose  another  licensed  supplier  to
     provide metering  services  beginning January 1, 1999, and billing services
     beginning January 1, 2000;

-    A phase-in of competitive bidding beginning no later than June 1, 2000, for
     other  suppliers to be the  "provider of last resort" for  customers who do
     not shop; and

-    The dismissal of all pending litigation in accordance with the
     Settlement Agreements.

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<PAGE>


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

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

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

     In addition, the NJBPU is proposing that utilities unbundle their rates and
allow customers to choose their electric generation  supplier.  Transmission and
distribution of electricity would continue as a regulated monopoly and utilities
would be responsible  for  connecting  customers to the system and for providing
distribution  service.  Transmission  service would be provided by an ISO, which
would be responsible  for maintaining the reliability of the regional power grid
and would be regulated by the Federal Energy Regulatory Commission (FERC).

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

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

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

-   As required by the NJBPU's final findings and  recommendations,  JCP&L would
    unbundle  its  rates  and  these  rates  would  apply  to  all  distribution
    customers, with the exception of a Production Charge, which would be

                                       71
<PAGE>


      charged  only  to  customers  who  do not  choose  an  alternative  energy
      supplier. The proposed unbundled rate structure would include:

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

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

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

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

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

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

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

                                       72
<PAGE>


   be phased in over the next five years as a result of energy  tax  legislation
   signed into law in July 1997.

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

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

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

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

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

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

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

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

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

     In a February 1998 order,  the NJBPU  substantially  affirmed an ALJ ruling
which required that rates be unbundled  based on the 1992 cost of service levels
which were the basis for JCP&L's  last base rate case,  but  clarified  that (1)
JCP&L  could  update  its 1992  cost of  service  study to  reflect  adjustments
consistent with the NJBPU approved Final Settlement  which,  among other things,
recognized certain increased expense levels and reductions to

                                       73
<PAGE>


base rates and (2) all of the other  updated  post-1992  cost  information  that
JCP&L had submitted in the  proceeding  should  remain in the record,  which the
NJBPU will utilize after  issuance of the ALJ's initial  decision to establish a
reasonable level of rates going forward.

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

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

     Hearings with respect to the stranded cost and unbundled  rate filings have
been  completed.  On September 4, 1998,  the ALJ issued a  recommended  decision
containing the following major elements:

-   The ALJ did not  consider  current  cost levels as the basis for  unbundling
    rates, but instead used 1992 costs. With the exception of JCP&L's investment
    in a new combustion turbine plant, the ALJ denied recovery of post-1992 rate
    case  capital  additions.  However,  the ALJ did  recommend  that the  NJBPU
    reconsider these matters.

-   The ALJ  recommended  that the Oyster Creek  investment be recovered  over a
    period of between four and eleven  years,  but once the plant is retired for
    ratemaking  purposes,  no  return  should  be  provided  on the  unamortized
    investment.

-   The ALJ recommended  that the 2.1% rate reduction  implemented in April 1997
    as part of JCP&L's  Global  Settlement  should not be part of the 5-10% rate
    reduction mandated by the NJBPU's Final Report.

- The ALJ endorsed a market line higher than that proposed by JCP&L.

-   The ALJ  approved  recovery  of actual  NUG costs  through a NUG  Transition
    Charge (NTC), over the lives of the contracts.

-   The ALJ accepted  JCP&L's  proposal for recovery of nuclear  decommissioning
    costs through a Societal  Benefits  Charge,  but disallowed the inclusion of
    fossil decommissioning costs in the calculation of stranded costs.

-   The ALJ accepted  GPU Energy's  generation  asset  divestiture  plan and the
    position that the net proceeds be applied to reduce other stranded costs.

     Evidentiary  hearings  before  the  NJBPU  with  respect  to  the  separate
restructuring filing were held jointly with the other New Jersey utilities,  and
briefs have been filed. GPU Energy expects a NJBPU decision coincident

                                       74
<PAGE>


with decisions in the stranded cost and unbundled rates proceedings.  There
can be no assurance as to the outcome of these proceedings.

     In September  1998,  legislation  to  deregulate  New Jersey's  electricity
market was  introduced  in the  Assembly and Senate.  The  proposed  legislation
provides for, among other things,  customer choice  beginning no later than June
1, 1999 and  expanding  to include all  customers  by October 1, 1999; a minimum
five to ten percent  rate  reduction;  the  unbundling  of customer  bills;  the
recovery of stranded costs;  and the ability to securitize  stranded costs.  The
NJBPU is not  expected  to issue  final  decisions  on  JCP&L's  stranded  cost,
unbundled  rate and  restructuring  filings until after  legislation is enacted,
which is currently anticipated by the end of 1998.

     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 has been extended until
December 31,  1998.  Monroe  Township  had been  exploring  the  possibility  of
establishing its own municipal electric system.

Other
-----

     In  November  1997,  the  FERC  issued  an  order  to the  Pennsylvania-New
Jersey-Maryland  (PJM) Power Pool which,  among other  things,  directed the GPU
Energy  companies  to implement a  single-system  transmission  rate,  effective
January 1, 1998. The  implementation of a single-system  rate is not expected to
affect total transmission revenues. It would, however,  increase the pricing for
transmission  service in Met-Ed and Penelec's service territories and reduce the
pricing for transmission service in JCP&L's service territory.

     The GPU Energy  companies  have requested the FERC to reconsider its ruling
requiring a single-system  transmission rate. The final Restructuring Orders for
Met-Ed  and  Penelec  provide  for a  transmission  and  distribution  rate  cap
exception  to recover  the  increase  in the  transmission  rate from Met-Ed and
Penelec's  retail  customers  in the  event  the FERC  denies  the  request  for
reconsideration  of the single-system  transmission  rate. The FERC's ruling may
also  have  an  effect  on  JCP&L's  distribution  rates  since  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.

     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,  the
opportunity for utilities to recover their prudently  incurred stranded costs in
varying degrees,  and repeal of both the Public Utility Regulatory  Policies Act
(PURPA) and the Public Utility Holding Company Act of 1935 (PUHCA).

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

                                       75

<PAGE>


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

     Pursuant to the requirements of PURPA and state regulatory directives,  the
GPU Energy  companies have entered into power purchase  agreements with NUGs for
the  purchase of energy and capacity  for  remaining  periods of up to 23 years.
Although a few of these  facilities  are  dispatchable,  most are  must-run  and
generally obligate the GPU Energy companies to purchase,  at the contract price,
the output up to the  contract  limits.  As of September  30,  1998,  facilities
covered  by these  agreements  having  1,681 MW (JCP&L  912 MW;  Met-Ed  364 MW;
Penelec  405  MW)  of  capacity  were  in  service.  Although  the  Pennsylvania
legislation and the Energy Master Plan in New Jersey both include provisions for
the recovery of costs under NUG agreements  and certain NUG buyout costs,  there
can be no assurance  that the GPU Energy  companies  will continue to be able to
recover  similar  costs which may be incurred in the future.  (See Note 1 of the
Notes  to  Consolidated   Financial  Statements  Competition  and  the  Changing
Regulatory Environment.)

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


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

Supplier of Last Resort
-----------------------

     Under  traditional  retail  regulation,  supply  planning  in the  electric
utility  industry is directly  related to projected  sales growth in a utility's
franchise service territory. As the GPU Energy companies prepare to operate in a
competitive environment,  their supply planning strategy will focus on providing
for the needs of  existing  retail  customers  who  continue  to receive  energy
supplied  by the GPU  Energy  companies  and for whom the GPU  Energy  companies
continue  to  have  an  obligation   to  serve.   Based  upon  the  PaPUC  final
Restructuring  Orders for Met-Ed and  Penelec,  electric  utility  customers  in
Pennsylvania  will be  able to shop  for  their  generation  supplier  beginning
January 1, 1999.  Met-Ed and Penelec will  furnish,  through a  competitive  bid
process, provider of last resort service (PLR) for 20% of their retail customers
on June 1, 2000,  40% on June 1, 2001,  60% on June 1, 2002,  and 80% on June 1,
2003, referred to as Competitive Default Service (CDS). If no qualified bids for
CDS are received at or below their generation rate caps, Met-Ed and Penelec will
provide PLR  service at the rate cap levels  unless  modified by the PaPUC.  Any
retail customers assigned to CDS may elect a competitive  generation supplier or
return to Met-Ed and Penelec as the default PLR at no additional charge.  Met-Ed
and Penelec may meet any  remaining  PLR  obligation  at rates not less than the
lowest rate charged by the winning CDS  provider,  but no higher than Met-Ed and
Penelec's  rate cap.  JCP&L's  obligation  as  supplier  of last  resort will be
determined after restructuring  legislation in New Jersey is enacted.  There can
be no assurance as to the outcome of these proceedings.

                                       76
<PAGE>


     Following  the  completion  of  the  sale  of  the  GPU  Energy  companies'
generation  facilities,  and the evolving  competitive  climate in which the GPU
Energy  companies'  existing  customers  will be able to choose  their  electric
generation  supplier,  the GPU Energy  companies' future supply plan will likely
focus on short- to  intermediate-term  commitments  and  reliance on spot market
purchases.  The GPU Energy companies'  present strategy includes  minimizing the
financial exposure associated with new long-term purchase commitments.

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

     The October  1998 PaPUC final  Restructuring  Orders  provide  for, and the
proposed  legislation and  restructuring  plans in New Jersey also  contemplate,
full  recovery  of the  above-market  costs of NUG  agreements.  The GPU  Energy
companies  will  continue  efforts  to reduce  the  above-market  costs of these
agreements and will, where beneficial,  attempt to renegotiate the prices of the
agreements, offer contract buyouts and attempt to convert must-run agreements to
dispatchable  agreements.  There can be no  assurance  as to the extent to which
these efforts will be successful in 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.  These  agreements were contingent upon Met-Ed and
Penelec  obtaining a PaPUC order  allowing  for the full  recovery of the buyout
payments  through  retail  rates.  In  October  1998,  the  PaPUC  issued  final
Restructuring Orders that, among other things,  established terms and conditions
that would enable the buyout agreements to proceed.


                               ACCOUNTING MATTERS
                               ------------------

     Statement of Financial  Accounting  Standards No. 71 (FAS 71),  "Accounting
for the Effects of Certain Types of Regulation,"  applies to regulated utilities
that have the  ability to recover  their  costs  through  rates  established  by
regulators and charged to customers.  In response to the continuing deregulation
of  the  electric  utility  industry,  the  SEC  has  questioned  the  continued
applicability  of FAS 71 by  investor-owned  utilities  with  respect  to  their
electric  generation  operations.  In response to these concerns,  the Financial
Accounting  Standards Board's (FASB) Emerging Issues Task Force (EITF) concluded
in June 1997 that  utilities  are no longer  subject to FAS 71, for a  separable
portion of their business, when they know details of their individual transition
plans. The EITF also concluded that utilities

                                       77
<PAGE>


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 June and October 1998,  Met-Ed and Penelec received PaPUC  Restructuring
Orders,  which among other things,  essentially remove from regulation the costs
associated with providing electric generation service to Pennsylvania consumers,
effective January 1, 1999. Accordingly, Met-Ed and Penelec have discontinued the
application  of FAS 71 and adopted the  provisions  of  Statement  of  Financial
Accounting Standards No. 101 (FAS 101), "Regulated  Enterprises - Accounting for
the  Discontinuation  of  Application  of FASB Statement No. 71" with respect to
their  electric  generation  operations  in the  second  quarter  of  1998.  The
transmission  and distribution  portion of Met-Ed and Penelec's  operations will
continue to be subject to the provisions of FAS 71. JCP&L will  discontinue  the
application of FAS 71 and adopt FAS 101 for its electric  generation  operations
no later than when it receives NJBPU approval of its restructuring plans.

     In accordance with Statement of Financial Accounting Standards No. 121 (FAS
121),  "Accounting  for the  Impairment of Long-Lived  Assets and for Long-Lived
Assets to Be Disposed Of," GPU performed  impairment tests on the net book value
of the GPU Energy companies' generation facilities.  These tests determined that
GPU's net investment in TMI-1 was impaired. No impairment existed for the fossil
fuel and hydroelectric generating plants or for Oyster Creek as of September 30,
1998. For the nine months ended  September 30, 1998,  GPU's  investment in TMI-1
was written  down by $505 million  (pre-tax)  (JCP&L $131  million;  Met-Ed $251
million;  Penelec $123  million) to reflect its fair market  value.  The amounts
written off were  re-established as a regulatory asset since management believes
it is probable of recovery in the restructuring process due to expected gains on
the sale of the fossil-fuel and hydroelectric  generating plants being projected
to exceed the TMI-1 writedown amount.

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

                                       78
<PAGE>


                                     PART II

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

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


ITEM 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:

                 GPU, Inc.:
                 ----------

                 Dated October 2, 1998, under Item 5 (Other Events).
                 Dated October 22, 1998, under Item 5 (Other Events).

                 Jersey Central Power & Light Company:
                 -------------------------------------

                 Dated October 22, 1998, under Item 5 (Other Events).

                 Metropolitan Edison Company:
                 ----------------------------

                 Dated October 2, 1998, under Item 5 (Other Events).
                 Dated October 22, 1998, under Item 5 (Other Events).

                 Pennsylvania Electric Company:
                 -------------------------------

                 Dated October 2, 1998, under Item 5 (Other Events).
                 Dated October 22, 1998, under Item 5 (Other Events).

                                       79
<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.



November 9, 1998                    By:    /s/ J. G. Graham                   
                                          ------------------------------------
                       J. G. Graham, Senior Vice President
                            (Chief Financial Officer)



November 9, 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



November 9, 1998                    By:    /s/ D. Baldassari                  
                                          ------------------------------------
                                          D. Baldassari, President
                          (Principal Operating Officer)


November 9, 1998                    By:    /s/ D. W. Myers                    
                                          ------------------------------------
                           D. W. Myers, Vice President
                                           and Comptroller
                         (Principal Accounting Officer)


                                       80