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


(Mark One)

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

For the quarterly period ended   June 30, 1999
                              -----------------------------------

                                      OR

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

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


Commission        Registrant, State of Incorporation,     I.R.S. Employer
File Number       Address and Telephone Number            Identification No.
------------      ------------------------------------   --------------------
1-6047            GPU, Inc.                                 13-5516989
                  (a Pennsylvania corporation)
                  300 Madison Avenue
                  Morristown, New Jersey 07962-1911
                  Telephone (973) 455-8200

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

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

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


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

      The number of shares outstanding of each of the issuer's classes of voting
stock, as of July 31, 1999, was as follows:
                                                                     Shares
Registrant                           Title                         Outstanding
---------------------------------  ------------------------------- -----------

GPU, Inc.                            Common Stock, $2.50 par value 125,451,859
Jersey Central Power & Light Company Common Stock, $10 par value    15,371,270
Metropolitan Edison Company          Common Stock, no par value        859,500
Pennsylvania Electric Company        Common Stock, $20 par value     5,290,596



<PAGE>


                       GPU, Inc. and Subsidiary Companies
                          Quarterly Report on Form 10-Q
                                  June 30, 1999

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

            Page
PART I - Financial Information

      Consolidated Financial Statements:

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

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

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

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

      Combined Notes to Consolidated Financial Statements                 19

      Combined Management's Discussion and Analysis
        of Financial Condition and Results of
        Operations                                                        50

PART II - Other Information                                               75

Signatures                                                                76
                       ---------------------------------

     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 1998
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;  the completion of generation  asset  divestiture;  fuel prices and
availability;  the effects of the Year 2000 issue;  and  uncertainties  involved
with  foreign  operations   including   political  risks  and  foreign  currency
fluctuations.




                                        2



<PAGE>
<TABLE>
<CAPTION>


                       GPU, INC. AND SUBSIDIARY COMPANIES

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


                                                                  In Thousands
                                                         -----------------------------
                                                            June 30,      December 31,
                                                              1999            1998
                                                         ------------     ------------
                                                          (Unaudited)

ASSETS
Utility Plant:
<S>                                                        <C>            <C>
  Transmission, distribution and general plant             $ 8,339,977    $ 7,579,455
  Generation plant                                           2,452,076      3,445,984
                                                            ----------     ----------
      Utility plant in service                              10,792,053     11,025,439
  Accumulated depreciation                                  (4,462,182)    (4,460,341)
                                                            ----------     ----------
      Net utility plant in service                           6,329,871      6,565,098
  Construction work in progress                                275,910         94,005
  Other, net                                                   123,935        145,792
                                                            ----------     ----------
      Net utility plant                                      6,729,716      6,804,895
                                                            ----------     ----------

Other Property and Investments:
  Equity investments (Note 5)                                  691,364        667,998
  Goodwill, net                                              1,040,615        545,262
  Nuclear decommissioning trusts, at market (Note 1)           744,612        716,274
  Nuclear fuel disposal trust, at market                       118,861        116,871
  Other, net                                                   331,291        253,538
                                                            ----------     ----------
      Total other property and investments                   2,926,743      2,299,943
                                                            ----------     ----------

Current Assets:
  Cash and temporary cash investments                          298,454         72,755
  Special deposits                                              48,343         62,673
  Accounts receivable:
    Customers, net                                             269,645        286,278
    Other                                                      190,703        126,088
  Unbilled revenues                                            157,575        144,076
  Materials and supplies, at average cost or less:
    Construction and maintenance                               121,052        155,827
    Fuel                                                        29,225         42,697
  Investments held for sale                                     50,040         48,473
  Deferred income taxes                                         25,116         47,521
  Prepayments                                                  194,739         76,021
                                                            ----------     ----------
      Total current assets                                   1,384,892      1,062,409
                                                            ----------     ----------

Deferred Debits and Other Assets:
  Regulatory assets, net: (Note 1)
    Competitive transition charge                              973,163      1,023,815
    Other regulatory assets, net                             4,588,498      2,882,413
  Deferred income taxes                                      2,378,930      2,004,278
  Other                                                        220,003        210,356
                                                            ----------     ----------
      Total deferred debits and other assets                 8,160,594      6,120,862
                                                            ----------     ----------



      Total Assets                                        $19,201,945     $16,288,109
                                                           ==========      ==========

<FN>

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

                                        3
</FN>
</TABLE>


<PAGE>


<TABLE>
<CAPTION>

                       GPU, INC. AND SUBSIDIARY COMPANIES

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


                                                                  In Thousands
                                                         -----------------------------
                                                            June 30,      December 31,
                                                              1999            1998
                                                         ------------     ------------
                                                          (Unaudited)
LIABILITIES AND CAPITALIZATION
Capitalization:
<S>                                                        <C>            <C>
  Common stock                                             $   331,958    $   331,958
  Capital surplus                                            1,013,747      1,011,310
  Retained earnings                                          2,335,325      2,230,425
  Accumulated other comprehensive income/(loss) (Note 7)       (27,893)       (31,304)
                                                            ----------     ----------
      Total                                                  3,653,137      3,542,389
  Reacquired common stock, at cost                            (178,093)       (77,741)
                                                            ----------     ----------
      Total common stockholders' equity                      3,475,044      3,464,648
  Cumulative preferred stock:
    With mandatory redemption                                   81,500         86,500
    Without mandatory redemption                                37,741         66,478
  Subsidiary-obligated mandatorily redeemable
    preferred securities                                       330,000        330,000
  Trust preferred securities                                   200,000            -
  Long-term debt                                             4,829,230      3,825,584
                                                            ----------     ----------
      Total capitalization                                   8,953,515      7,773,210
                                                            ----------     ----------

Current Liabilities:
  Securities due within one year                               153,272        563,683
  Notes payable                                                472,400        368,607
  Obligations under capital leases                             128,986        126,480
  Accounts payable                                             407,041        394,815
  Taxes accrued                                                233,420         92,339
  Interest accrued                                              74,373         81,931
  Deferred energy credits                                        3,004          2,411
  Other                                                        367,990        377,594
                                                            ----------     ----------
      Total current liabilities                              1,840,486      2,007,860
                                                            ----------     ----------

Deferred Credits and Other Liabilities:
  Deferred income taxes                                      3,094,439      3,044,947
  Unamortized investment tax credits                            98,958        114,308
  Three Mile Island Unit 2 future costs                        490,132        483,515
  Power purchase contract loss liability                     3,518,817      1,803,820
  Other                                                      1,205,598      1,060,449
                                                            ----------     ----------
      Total deferred credits and other liabilities           8,407,944      6,507,039
                                                            ----------     ----------


<FN>


Commitments and Contingencies (Note 1)

</FN>


<S>                                                       <C>            <C>
      Total Liabilities and Capitalization                $19,201,945    $16,288,109
                                                           ==========     ==========
<FN>

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

                                             4
</FN>
</TABLE>


<PAGE>
<TABLE>
<CAPTION>


                       GPU, INC. AND SUBSIDIARY COMPANIES
                        Consolidated Statements of Income
                        ---------------------------------
                                   (Unaudited)
                                                          In Thousands
                                                     (Except Per Share Data)
                                           ----------------------------------------------
                                               Three Months               Six Months
                                              Ended June 30,            Ended June 30,
                                              --------------            --------------
                                              1999        1998         1999       1998
                                            ----        ----         ----       ----

<S>                                       <C>         <C>          <C>         <C>
Operating Revenues                        $  897,729  $1,015,087   $1,971,462  $2,058,196
                                           ---------   ---------    ---------   ---------

Operating Expenses:
  Fuel                                        72,443     100,353      168,919     197,053
  Power purchased and interchanged           266,281     253,470      512,790     519,215
  Deferral of energy and capacity
    costs, net                               (20,226)     (9,310)         144     (11,330)
  Other operation and maintenance            278,256     262,845      523,410     501,228
  Depreciation and amortization              125,851     134,868      243,095     262,016
  Taxes, other than income taxes              43,097      57,239       92,444     114,758
                                           ---------   ---------    ---------   ---------
     Total operating expenses                765,702     799,465    1,540,802   1,582,940
                                           ---------   ---------    ---------   ---------

Operating Income Before Income Taxes         132,027     215,622      430,660     475,256
  Income taxes                                21,175      50,316       95,071     116,609
                                           ---------   ---------    ---------   ---------
Operating Income                             110,852     165,306      335,589     358,647
                                           ---------   ---------    ---------   ---------

Other Income and Deductions:
  Allowance for other funds used during
    construction                                 100         229          165         549
  Equity in undistributed earnings
    of affiliates, net (Note 5)               23,247      13,193       76,499      30,844
  Other income/(expense), net                 19,153      (3,650)      68,234      40,912
  Income taxes                                (6,848)        711      (49,218)    (18,720)
                                           ---------   ---------    ---------   ---------
     Total other income and deductions        35,652      10,483       95,680      53,585
                                           ---------   ---------    ---------   ---------

Income Before Interest Charges
  and Preferred Dividends                    146,504     175,789      431,269     412,232
                                           ---------   ---------    ---------   ---------

Interest Charges and Preferred Dividends:
  Long-term debt                              82,159      77,882      158,839     161,934
  Trust preferred securities                   1,000           -        1,000           -
  Subsidiary-obligated mandatorily
    redeemable preferred securities            7,222       7,222       14,444      14,444
  Other interest                               6,002       8,859       12,011      17,843
  Allowance for borrowed funds used
    during construction                       (1,036)     (1,276)      (1,644)     (2,347)
  Preferred stock dividends of subsidiaries,
    inclusive of $1,268 loss on
    reacquisition (1st Qtr. 1999)              2,370       2,917        6,290       5,892
                                           ---------   ---------    ---------   ---------
     Total interest charges and
       preferred dividends                    97,717      95,604      190,940     197,766
                                           ---------   ---------    ---------   ---------

Minority interest net income                   1,525         248        2,348         749
                                           ---------   ---------    ---------   ---------

Income Before Extraordinary Item              47,262      79,937      237,981     213,717
Extraordinary item (net of income tax
  benefit of $195,090)                             -    (275,110)           -    (275,110)
                                           ---------   ---------    ---------   ---------
Net Income/(Loss)                         $   47,262  $ (195,173)  $  237,981  $  (61,393)
                                           =========   =========    =========   =========

Basic - Earnings Per Avg. Common Share
  Before Extraordinary Item               $      .39  $     0.62   $     1.88  $     1.69
Extraordinary Item                                 -       (2.16)           -       (2.16)
                                           ---------   ---------    ---------   ---------
Basic - Earnings Per Avg. Common Share    $      .39  $    (1.54)  $     1.88  $    (0.47)
                                           =========   =========    =========   =========
        Avg. Common Shares Outstanding       125,701     127,892      126,670     126,218
                                           =========   =========    =========   =========

Diluted - Earnings Per Avg. Common Share
  Before Extraordinary Item               $      .38  $     0.62   $     1.87  $     1.69
Extraordinary Item                                 -       (2.16)           -       (2.16)
                                           ---------   ---------    ---------   ---------
Diluted - Earnings Per Avg. Common Share  $      .38  $    (1.54)  $     1.87  $    (0.47)
                                           =========   =========    =========   =========
        Avg. Common Shares Outstanding       125,951     128,162      126,932     126,493
                                           =========   =========    =========   =========

Cash Dividends Paid Per Share             $     .530  $     .515   $    1.045  $    1.015
                                           =========   =========    =========   =========
<FN>

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

                                        5

</TABLE>

<PAGE>
<TABLE>

<CAPTION>


                       GPU, INC. AND SUBSIDIARY COMPANIES

                      Consolidated Statements of Cash Flows
                      -------------------------------------
                                   (Unaudited)
                                                              In Thousands
                                                      --------------------------
                                                             Six Months
                                                             Ended June 30,
                                                      --------------------------
                                                            1999         1998
                                                            ----         ----

Operating Activities:
<S>                                                   <C>            <C>
  Net income/(loss)                                   $   237,981    $ (61,393)
  Extraordinary item (net of income tax
     benefit of $195,090)                                     -        275,110
                                                       ----------     --------
  Income before extraordinary item                        237,981      213,717
  Adjustments to reconcile income to cash provided:
    Depreciation and amortization                         256,454      282,400
    Amortization of property under capital leases          26,041       26,838
    NJBPU restructuring rate order                        115,000          -
    Gain on sale of investments                           (38,339)     (38,812)
    Equity in undistributed earnings
      of affiliates, net of distributions received        (66,889)     (26,911)
    Nuclear outage maintenance costs, net                   2,913       11,149
    Deferred income taxes and investment tax
      credits, net                                       (343,327)     (53,316)
    Deferred energy and capacity costs, net                   411      (10,403)
    Allowance for other funds used
      during construction                                    (165)        (549)
  Changes in working capital:
    Receivables                                           (92,730)      17,310
    Materials and supplies                                  3,806        8,709
    Special deposits and prepayments                     (109,353)    (127,685)
    Payables and accrued liabilities                      118,481      (43,264)
  Nonutility generation contract buyout costs             (40,250)     (20,417)
  Other, net                                               40,205       18,672
                                                       ----------     --------
     Net cash provided by operating activities            110,239      257,438
                                                       ----------     --------

Investing Activities:
  Capital expenditures and investments                 (1,208,712)    (202,790)
  Proceeds from sale of investments                       894,450      146,700
  Contributions to decommissioning trusts                 (19,302)     (24,239)
  Other, net                                               52,912        2,431
                                                       ----------     --------
     Net cash provided/(required) by
       investing activities                              (280,652)     (77,898)
                                                       -----------    --------

Financing Activities:
  Issuance of long-term debt                            1,614,321          -
  Issuance of trust preferred securities                  193,070          -
  Increase/(Decrease) in notes payable, net               348,624      133,946
  Retirement of long-term debt                         (1,463,192)    (375,496)
  Capital lease principal payments                        (23,756)     (25,426)
  Reacquisition of common stock                          (102,582)          -
  Issuance of common stock                                    -        269,448
  Dividends paid on common stock                         (132,534)    (126,274)
  Redemption of preferred stock of subsidiaries           (35,004)     (15,000)
                                                       ----------     --------
     Net cash required by financing activities            398,947     (138,802)
                                                       ----------     --------

Effect of exchange rate changes on cash                    (2,835)      (3,002)
                                                       ----------     --------

Net increase in cash and temporary
  cash investments from above activities                  225,699       37,736
Cash and temporary cash investments, beginning of year     72,755       85,099
                                                       ----------     --------
Cash and temporary cash investments, end of period    $   298,454    $ 122,835
                                                       ==========     ========

Supplemental Disclosure:
  Interest and preferred dividends paid               $   191,347    $ 188,293
                                                       ==========     ========
  Income taxes paid                                   $   285,016    $ 160,974
                                                       ==========     ========
  New capital lease obligations incurred              $    28,396    $  28,910
                                                       ==========     ========
  Common stock dividends declared but not paid        $    66,489    $  65,874
                                                       ==========     ========
<FN>

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

                                        6

</TABLE>

<PAGE>
<TABLE>
<CAPTION>


           JERSEY CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARY COMPANY

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

                                                                  In Thousands
                                                          --------------------------
                                                            June 30,      December 31,
                                                             1999             1998
                                                          ------------    ----------
                                                          (Unaudited)

ASSETS
Utility Plant:
<S>                                                        <C>            <C>
  Transmission, distribution, and general plant            $3,135,468     $3,108,697
  Generation plant                                          1,096,520      1,646,576
                                                            ---------      ---------
      Utility plant in service                              4,231,988      4,755,273
  Accumulated depreciation                                 (2,310,599)    (2,217,108)
                                                            ---------      ---------
      Net utility plant in service                          1,921,389      2,538,165
  Construction work in progress                                69,115         48,126
  Other, net                                                   59,710         98,491
                                                            ---------      ---------
      Net utility plant                                     2,050,214      2,684,782
                                                            ---------      ---------

Other Property and Investments:
  Nuclear decommissioning trusts, at market (Note 1)          452,098        422,277
  Nuclear fuel disposal trust, at market                      118,861        116,871
  Other, net                                                    1,803          9,596
                                                            ---------      ---------
       Total other property and investments                   572,762        548,744
                                                            ---------      ---------

Current Assets:
  Cash and temporary cash investments                          11,909          1,850
  Special deposits                                              3,338          6,047
  Accounts receivable:
    Customers, net                                            145,537        152,120
    Other                                                      61,484         32,562
  Unbilled revenues                                           102,130         56,391
  Materials and supplies, at average cost or less:
    Construction and maintenance                               26,061         79,863
    Fuel                                                       13,908         13,144
  Deferred income taxes                                         3,583         20,812
  Prepayments                                                 127,207         27,648
                                                            ---------      ---------
      Total current assets                                    495,157        390,437
                                                            ---------      ---------

Deferred Debits and Other Assets:
  Regulatory assets, net (Note 1)                           3,005,897        753,885
  Deferred income taxes                                       196,578        179,237
  Other                                                        20,538         25,037
                                                            ---------      ---------
      Total deferred debits and other assets                3,223,013        958,159
                                                            ---------      ---------







      Total Assets                                         $6,341,146     $4,582,122
                                                            =========      =========

<FN>


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

                                        7
</TABLE>


<PAGE>

<TABLE>
<CAPTION>

           JERSEY CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARY COMPANY

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


                                                                  In Thousands
                                                          --------------------------
                                                            June 30,      December 31,
                                                             1999             1998
                                                         ------------     ------------
                                                          (Unaudited)

LIABILITIES AND CAPITALIZATION
Capitalization:
<S>                                                        <C>            <C>
  Common stock                                             $  153,713     $  153,713
  Capital surplus                                             510,769        510,769
  Retained earnings                                           841,056        893,016
  Accumulated other comprehensive income/(loss)(Note 7)          (425)          (425)
                                                            ---------      ---------
      Total common stockholder's equity                     1,505,113      1,557,073
  Cumulative preferred stock:
    With mandatory redemption                                  81,500         86,500
    Without mandatory redemption                               37,741         37,741
  Company-obligated mandatorily redeemable
    preferred securities                                      125,000        125,000
  Long-term debt                                            1,133,653      1,173,532
                                                            ---------      ---------
      Total capitalization                                  2,883,007      2,979,846
                                                            ---------      ---------

Current Liabilities:
  Securities due within one year                               42,512          2,512
  Notes payable                                               187,800        122,344
  Obligations under capital leases                             77,227         85,366
  Accounts payable:
    Affiliates                                                 49,263         40,861
    Other                                                      98,223         80,233
  Taxes accrued                                                22,043          5,559
  Interest accrued                                             26,887         26,678
  Deferred energy credits                                       3,004          2,411
  Other                                                        52,484        104,408
                                                            ---------      ---------
      Total current liabilities                               559,443        470,372
                                                            ---------      ---------

Deferred Credits and Other Liabilities:
  Deferred income taxes                                       572,633        670,961
  Unamortized investment tax credits                           48,000         50,225
  Nuclear fuel disposal fee                                   144,464        141,270
  Three Mile Island Unit 2 future costs                       122,541        120,904
  Power purchase contract loss liability                    1,769,275            -
  Other                                                       241,783        148,544
                                                            ---------      ---------
      Total deferred credits and other liabilities          2,898,696      1,131,904
                                                            ---------      ---------


Commitments and Contingencies (Note 1)



      Total Liabilities and Capitalization                 $6,341,146     $4,582,122
                                                            =========      =========
<FN>



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

                                        8
</TABLE>


<PAGE>
<TABLE>
<CAPTION>


           JERSEY CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARY COMPANY

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

                                                               In Thousands
                                               -------------------------------------------
                                                   Three Months             Six Months
                                                  Ended June 30,          Ended June 30,
                                                  --------------          --------------
                                                  1999       1998        1999       1998
                                                  ----       ----        ----       ----

<S>                                            <C>        <C>        <C>         <C>
Operating Revenues                             $ 391,025  $ 478,894  $  907,914  $ 951,228
                                                --------   --------   ---------   --------

Operating Expenses:
  Fuel                                            21,598     23,084      43,715     42,744
  Power purchased and interchanged:
    Affiliates                                    41,639     11,953      57,588     15,068
    Others                                       144,908    155,025     298,358    308,705
  Deferral of energy and capacity costs, net     (20,226)    (9,310)        144    (11,330)
  Other operation and maintenance                107,899    113,030     215,745    213,760
  Depreciation and amortization                   64,362     68,685     127,058    131,679
  Taxes, other than income taxes                  19,560     23,677      40,894     47,534
                                                --------   --------   ---------   --------
     Total operating expenses                    379,740    386,144     783,502    748,160
                                                --------   --------   ---------   --------

Operating Income Before Income Taxes              11,285     92,750     124,412    203,068
  Income taxes                                    (7,272)    26,875      27,984     59,351
                                                ---------  --------   ---------   --------
Operating Income                                  18,557     65,875      96,428    143,717
                                                --------   --------   ---------   --------

Other Income and Deductions:
  Allowance for other funds used during
    construction                                      69        193         123        468
  Other income, net                                4,463      2,653       7,482      4,918
  Income taxes                                    (1,982)    (1,289)     (3,401)    (2,342)
                                                --------   --------   ---------   --------
     Total other income and deductions             2,550      1,557       4,204      3,044
                                                --------   --------  ----------   --------

Income Before Interest Charges                    21,107     67,432     100,632    146,761
                                                --------   --------   ---------   --------

Interest Charges:
  Long-term debt                                  21,806     21,849      43,612     43,641
  Company-obligated mandatorily
    redeemable preferred securities                2,675      2,675       5,350      5,350
  Other interest                                   2,935      3,058       4,514      5,587
  Allowance for borrowed funds used
    during construction                             (454)      (435)       (686)      (918)
                                                --------   --------   ---------   --------
     Total interest charges                       26,962     27,147      52,790     53,660
                                                --------   --------   ---------   --------

Net Income                                        (5,855)    40,285      47,842     93,101
  Preferred stock dividends                        2,370      2,565       4,802      5,303
                                                --------   --------   ---------   --------
Earnings Available for Common Stock            $  (8,225) $  37,720  $   43,040  $  87,798
                                                ========   ========   =========   ========





<FN>


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


                                        9

</TABLE>

<PAGE>
<TABLE>
<CAPTION>


           JERSEY CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARY COMPANY

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

                                                             In Thousands
                                                       -------------------------
                                                             Six Months
                                                            Ended June 30,
                                                       -------------------------
                                                           1999         1998
                                                           ----         ----
Operating Activities:
<S>                                                     <C>          <C>
  Net income                                            $  47,842    $  93,101
  Adjustments to reconcile income to cash provided:
    Depreciation and amortization                         141,578      143,726
    Amortization of property under capital leases          15,237       14,771
    NJBPU restructuring rate order                        115,000          -
    Nuclear outage maintenance costs, net                  (1,149)       6,602
    Deferred income taxes and investment tax
      credits, net                                        (40,599)     (29,294)
    Deferred energy and capacity costs, net                   411      (10,403)
    Allowance for other funds used
      during construction                                    (123)        (468)
  Changes in working capital:
    Receivables                                           (68,078)     (10,754)
    Materials and supplies                                 11,797        6,407
    Special deposits and prepayments                      (96,850)    (107,136)
    Payables and accrued liabilities                       15,460       11,051
  Nonutility generation contract buyout costs             (35,500)     (15,000)
  Other, net                                               34,667       13,215
                                                         --------     --------
     Net cash provided by operating activities            139,693      115,818
                                                         --------     --------

Investing Activities:
  Capital expenditures and investments                    (67,305)     (84,117)
  Contributions to decommissioning trusts                 (12,571)     (13,547)
  Other, net                                                1,860       (3,850)
                                                         --------     --------
     Net cash used for investing activities               (78,016)    (101,514)
                                                         --------     --------

Financing Activities:
  Increase in notes payable, net                           65,456       51,762
  Capital lease principal payments                        (12,366)     (14,811)
  Redemption of preferred stock                            (5,000)     (15,000)
  Dividends paid on common stock                          (95,000)     (25,000)
  Dividends paid on preferred stock                        (4,708)      (5,508)
                                                         --------     --------
     Net cash required by financing activities            (51,618)      (8,557)
                                                         --------     --------

Net increase in cash and temporary
  cash investments from above activities                   10,059        5,747
Cash and temporary cash investments, beginning of year      1,850        2,994
                                                         --------     --------
Cash and temporary cash investments, end of period      $  11,909    $   8,741
                                                         ========     ========

Supplemental Disclosure:
  Interest and preferred dividends paid                 $  57,524    $  57,725
                                                         ========     ========
  Income taxes paid                                     $  81,027    $  97,162
                                                         ========     ========
  New capital lease obligations incurred                $   7,098    $  28,852
                                                         ========     ========
<FN>



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

                                       10

</TABLE>

<PAGE>
<TABLE>
<CAPTION>


              METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANIES

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

                                                                  In Thousands
                                                         -----------------------------
                                                            June 30,      December 31,
                                                             1999             1998
                                                             ----             ----
                                                          (Unaudited)

ASSETS
Utility Plant:
<S>                                                        <C>            <C>
  Transmission, distribution and general plant             $1,492,983     $1,481,958
  Generation plant                                            766,480        765,669
                                                            ---------      ---------
      Utility plant in service                              2,259,463      2,247,627
  Accumulated depreciation                                 (1,035,160)    (1,008,438)
                                                            ---------      ---------
      Net utility plant in service                          1,224,303      1,239,189
  Construction work in progress                                33,277         19,380
  Other, net                                                   39,231         27,819
                                                            ---------      ---------
      Net utility plant                                     1,296,811      1,286,388
                                                            ---------      ---------

Other Property and Investments:
  Nuclear decommissioning trusts, at market (Note 1)          211,077        211,194
  Other, net                                                    6,154         11,742
                                                            ---------      ---------
      Total other property and investments                    217,231        222,936
                                                            ---------      ---------

Current Assets:
  Cash and temporary cash investments                           7,146            442
  Special deposits                                                 89          1,062
  Accounts receivable:
    Customers, net                                             48,093         60,012
    Other                                                      58,665         41,895
  Unbilled revenues                                            27,426         43,687
  Materials and supplies, at average cost or less:
    Construction and maintenance                               17,968         24,727
    Fuel                                                        8,940         12,218
  Deferred income taxes                                         1,955          2,945
  Prepayments                                                  74,546         20,616
                                                            ---------      ---------
      Total current assets                                    244,828        207,604
                                                            ---------      ---------

Deferred Debits and Other Assets:
  Regulatory assets, net: (Note 1)
    Competitive transition charge                             661,927        680,213
    Other regulatory assets, net                              920,505        921,934
  Deferred income taxes                                       665,880        714,202
  Other                                                        31,036         31,692
                                                            ---------      ---------
      Total deferred debits and other assets                2,279,348      2,348,041
                                                            ---------      ---------






      Total Assets                                         $4,038,218     $4,064,969
                                                            =========      =========

<FN>


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

                                       11
</TABLE>

<PAGE>
<TABLE>
<CAPTION>


              METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANIES

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


                                                                  In Thousands
                                                           --------------------------
                                                           June 30,       December 31,
                                                             1999             1998
                                                          -----------      ------------
                                                          (Unaudited)

LIABILITIES AND CAPITALIZATION
Capitalization:
<S>                                                        <C>            <C>
  Common stock                                             $   66,273     $   66,273
  Capital surplus                                             400,200        370,200
  Retained earnings                                           255,459        234,066
  Accumulated other comprehensive income (Note 7)              19,336         16,520
                                                            ---------      ---------
       Total common stockholder's equity                      741,268        687,059
  Cumulative preferred stock                                      -           12,056
  Company-obligated mandatorily redeemable
    preferred securities                                      100,000        100,000
  Trust preferred securities                                  100,000            -
  Long-term debt                                              496,906        546,904
                                                            ---------      ---------
      Total capitalization                                  1,438,174      1,346,019
                                                            ---------      ---------

Current Liabilities:
  Securities due within one year                               80,024         30,024
  Notes payable                                                24,900         79,540
  Obligations under capital leases                             34,217         27,135
  Accounts payable:
    Affiliates                                                133,645         75,933
    Other                                                      41,782        102,390
  Taxes accrued                                                12,335         19,463
  Interest accrued                                             17,703         16,747
  Other                                                        18,109         42,598
                                                            ---------      ---------
      Total current liabilities                               362,715        393,830
                                                            ---------      ---------

Deferred Credits and Other Liabilities:
  Deferred income taxes                                       998,007      1,010,982
  Unamortized investment tax credits                           26,175         27,157
  Three Mile Island Unit 2 future costs                       244,981        241,707
  Nuclear fuel disposal fee                                    32,633         31,912
  Power purchase contract loss liability                      765,528        787,440
  Other                                                       170,005        225,922
                                                            ---------      ---------
      Total deferred credits and other liabilities          2,237,329      2,325,120
                                                            ---------      ---------



Commitments and Contingencies (Note 1)




      Total Liabilities and Capitalization                 $4,038,218     $4,064,969
                                                            =========      =========


<FN>

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

                                       12

<PAGE>
<TABLE>
<CAPTION>


              METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANIES

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

                                                               In Thousands
                                               ----------------------------------------------
                                                   Three Months            Six Months
                                                   Ended June 30,         Ended June 30,
                                               ----------------------------------------------
                                                   1999      1998         1999        1998
                                                   ----      ----         ----        ----

<S>                                            <C>        <C>         <C>          <C>
Operating Revenues                             $ 198,010  $ 226,030   $  427,167   $ 460,778
                                                --------   --------    ---------    --------

Operating Expenses:
  Fuel                                            23,514     26,172       49,143      52,243
  Power purchased and interchanged:
    Affiliates                                       -        3,565        2,208       5,418
    Others                                        46,039     45,598       86,997     100,483
  Other operation and maintenance                 54,002     55,032      105,917     107,285
  Depreciation and amortization                   19,191     26,455       38,320      52,718
  Taxes, other than income taxes                  10,641     15,504       23,707      31,053
                                                --------   --------    ---------   ---------
     Total operating expenses                    153,387    172,326      306,292     349,200
                                                --------   --------    ---------   ---------

Operating Income Before Income Taxes              44,623     53,704      120,875     111,578
  Income taxes                                    12,006     15,344       41,410      32,906
                                                --------   --------    ---------   ---------
Operating Income                                  32,617     38,360       79,465      78,672
                                                --------   --------    ---------   ---------

Other Income and Deductions:
  Allowance for other funds used during
    construction                                      31         36           42          81
  Other income/(expense), net                      1,903     (9,665)       3,036      (9,381)
  Income taxes                                      (290)     4,254         (866)      3,766
                                                --------   --------    ---------    --------
     Total other income and deductions             1,644     (5,375)       2,212      (5,534)
                                                --------   --------    ---------    --------


Income Before Interest Charges                    34,261     32,985       81,677      73,138
                                                --------   --------    ---------    --------

Interest Charges:
  Long-term debt                                  10,624     10,624       21,247      21,247
  Trust preferred securities                         694        -            694         -
  Company-obligated mandatorily
    redeemable preferred securities                2,250      2,250        4,500       4,500
  Other interest                                   1,833      1,800        3,720       4,553
  Allowance for borrowed funds used
    during construction                             (282)      (237)        (458)       (440)
                                                --------   --------    ---------   ---------

     Total interest charges                       15,119     14,437       29,703      29,860
                                                --------   --------    ---------   ---------

Income Before Extraordinary Item                  19,142     18,548       51,974      43,278
Extraordinary item (net of income tax
  benefit of $132,810)                               -     (187,280)         -      (187,280)
                                                --------   --------    ---------   ----------


Net Income/(Loss)                                 19,142   (168,732)      51,974    (144,002)
  Preferred stock dividends                          -          121           66         242
  Loss on preferred stock reacquisition              -          -            542         -
                                                --------   --------    ---------   ----------

Earnings/(Loss) Available for Common Stock     $  19,142  $(168,853)  $   51,366  $ (144,244)
                                                ========   ========    =========   ==========
<FN>

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

                                       13

</TABLE>


<PAGE>

<TABLE>
<CAPTION>

              METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANIES

                      Consolidated Statements of Cash Flows
                      -------------------------------------
                                   (Unaudited)
                                                             In Thousands
                                                      --------------------------
                                                             Six Months
                                                            Ended June 30,
                                                      --------------------------
                                                           1999         1998
                                                           ----         ----
Operating Activities:
<S>                                                     <C>          <C>
  Net income/(loss)                                     $  51,974    $(144,002)
  Extraordinary item (net of income tax
     benefit of $132,810)                                     -        187,280
                                                         --------     --------
  Income before extraordinary item                         51,974       43,278
  Adjustments to reconcile income to cash provided:
    Depreciation and amortization                          41,302       58,232
    Amortization of property under capital leases           7,117        7,294
    Nuclear outage maintenance costs, net                   2,711        3,029
    Deferred income taxes and investment tax
      credits, net                                         18,161      (10,824)
    Allowance for other funds used
      during construction                                     (42)         (81)
  Changes in working capital:
    Receivables                                            (4,851)      11,488
    Materials and supplies                                 10,036        3,676
    Special deposits and prepayments                      (52,958)     (16,490)
    Payables and accrued liabilities                      (33,557)     (34,367)
  Nonutility generation contract buyout costs              (1,250)      (5,417)
  Other, net                                              (20,171)      11,153
                                                         --------     --------
     Net cash provided by operating activities             18,472       70,971
                                                         --------     --------

Investing Activities:
  Capital expenditures and investments                    (32,321)     (29,206)
  Contributions to decommissioning trusts                  (1,485)      (8,060)
  Other, net                                                  (33)          56
                                                         --------     --------
     Net cash used for investing activities               (33,839)     (37,210)
                                                         --------     --------

Financing Activities:
  Issuance of trust preferred securities                   96,535          -
  Increase/(decrease) in notes payable, net               (54,640)       9,547
  Capital lease principal payments                         (7,160)      (6,326)
  Redemption of preferred stock                           (12,598)         -
  Dividends paid on common stock                          (30,000)     (40,000)
  Dividends paid on preferred stock                           (66)        (242)
  Contribution from parent corporation                     30,000          -
                                                         --------     --------
     Net cash provided/(required)
       by financing activities                             22,071      (37,021)
                                                         --------     --------

Net increase/(decrease) in cash and temporary cash
  investments from above activities                         6,704       (3,260)
Cash and temporary cash investments, beginning of year        442        6,116
                                                         --------     --------
Cash and temporary cash investments, end of period      $   7,146    $   2,856
                                                         ========     ========

Supplemental Disclosure:
  Interest and preferred dividends paid                 $  28,112    $  28,884
                                                          ========     ========
Income taxes paid                                       $  76,187    $  38,428
                                                         ========     ========
  New capital lease obligations incurred                $  14,199    $      39
                                                         ========     ========
<FN>

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

                                       14
</TABLE>

<PAGE>
<TABLE>
<CAPTION>


             PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES

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

                                                                  In Thousands
                                                           --------------------------
                                                           June 30,       December 31,
                                                             1999             1998
                                                          -----------      -----------
                                                          (Unaudited)

ASSETS
Utility Plant:
<S>                                                        <C>            <C>
  Transmission, distribution and general plant             $1,777,802     $1,768,621
  Generation plant                                            589,076      1,033,739
                                                            ---------      ---------
      Utility plant in service                              2,366,878      2,802,360
  Accumulated depreciation                                 (1,018,963)    (1,175,842)
                                                            ---------      ---------
      Net utility plant in service                          1,347,915      1,626,518
  Construction work in progress                                35,284         18,862
  Other, net                                                   24,994         19,482
                                                            ---------      ---------
      Net utility plant                                     1,408,193      1,664,862
                                                            ---------      ---------

Other Property and Investments:
  Nuclear decommissioning trusts, at market (Note 1)           81,437         82,803
  Other, net                                                    2,282          7,705
                                                            ---------      ---------
      Total other property and investments                     83,719         90,508
                                                            ---------      ---------

Current Assets:
  Cash and temporary cash investments                         183,924          2,750
  Special deposits                                                 76          2,632
  Accounts receivable:
    Customers, net                                             59,145         69,887
    Other                                                      32,037         28,893
  Unbilled revenues                                            28,019         43,998
  Materials and supplies, at average cost or less:
    Construction and maintenance                               17,210         39,452
    Fuel                                                        6,155         17,107
  Deferred income taxes                                         7,589          7,589
  Prepayments                                                  31,239         31,551
                                                            ---------      ---------
      Total current assets                                    365,394        243,859
                                                            ---------      ---------

Deferred Debits and Other Assets:
  Regulatory assets, net: (Note 1)
    Competitive transition charge                             311,236        343,602
    Other regulatory assets, net                              662,096      1,206,594
  Deferred income taxes                                     1,158,561        951,471
  Other                                                        28,959         23,911
                                                            ---------      ---------
      Total deferred debits and other assets                2,160,852      2,525,578
                                                            ---------      ---------






      Total Assets                                         $4,018,158     $4,524,807
                                                            =========      =========
<FN>


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

</FN>

                                       15
</TABLE>


<PAGE>
<TABLE>
<CAPTION>


                 PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES

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


                                                                  In Thousands
                                                          ----------------------------
                                                          June 30,       December 31,
                                                             1999             1998
                                                         ------------     ------------
                                                          (Unaudited)

LIABILITIES AND CAPITALIZATION
Capitalization:
<S>                                                        <C>            <C>
  Common stock                                             $  105,812     $  105,812
  Capital surplus                                             285,486        285,486
  Retained earnings                                            72,208        367,653
  Accumulated other comprehensive income (Note 7)               9,690          8,353
                                                            ---------      ---------
      Total common stockholder's equity                       473,196        767,304
  Cumulative preferred stock                                      -           16,681
  Company-obligated mandatorily redeemable
    preferred securities                                      105,000        105,000
  Trust preferred securities                                  100,000            -
  Long-term debt                                              424,561        626,434
                                                            ---------      ---------
      Total capitalization                                  1,102,757      1,515,419
                                                            ---------      ---------


Current Liabilities:
  Securities due within one year                                   12         50,012
  Notes payable                                                   -           86,023
  Obligations under capital leases                             17,542         13,979
  Accounts payable:
    Affiliates                                                 61,458         47,164
    Other                                                      14,528         47,795
  Taxes accrued                                               263,491         32,755
  Interest accrued                                              5,232         19,700
  Other                                                        20,330         37,272
                                                            ---------      ---------
      Total current liabilities                               382,593        334,700
                                                            ---------      ---------


Deferred Credits and Other Liabilities:
  Deferred income taxes                                     1,262,898      1,338,235
  Unamortized investment tax credits                           24,783         36,926
  Three Mile Island Unit 2 future costs                       122,610        120,904
  Nuclear fuel disposal fee                                    16,317         15,956
  Power purchase contract loss liability                      984,014      1,016,380
  Other                                                       122,186        146,287
                                                            ---------      ---------
      Total deferred credits and other liabilities          2,532,808      2,674,688
                                                            ---------      ---------


Commitments and Contingencies (Note 1)



      Total Liabilities and Capitalization                 $4,018,158     $4,524,807
                                                            =========      =========


<FN>

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

                                       16
</TABLE>

<PAGE>
<TABLE>
<CAPTION>


             PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES

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

                                                               In Thousands
                                              ---------------------------------------------
                                                    Three Months            Six Months
                                                   Ended June 30,         Ended June 30,
                                                   --------------         --------------
                                                   1999      1998        1999        1998
                                                   ----      ----        ----        ----

<S>                                            <C>        <C>        <C>         <C>
Operating Revenues                             $ 205,097  $ 250,355  $  451,346  $  514,010
                                                --------   --------   ---------   ---------

Operating Expenses:
  Fuel                                            16,709     42,667      53,253      85,101
  Power purchased and interchanged:
    Affiliates                                     2,991        909       4,553       1,153
    Others                                        54,960     50,098      93,991     104,812
  Other operation and maintenance                 55,215     65,080     114,618     125,113
  Depreciation and amortization                   18,407     27,740      41,460      53,384
  Taxes, other than income taxes                  11,806     18,058      25,820      36,021
                                                --------   --------   ---------   ---------
     Total operating expenses                    160,088    204,552     333,695     405,584
                                                --------   --------   ---------   ---------

Operating Income Before Income Taxes              45,009     45,803     117,651     108,426
  Income taxes                                    19,580     11,217      26,678      31,020
                                                --------   --------   ---------   ---------
Operating Income                                  25,429     34,586      90,973      77,406
                                                --------   --------   ---------   ---------

Other Income and Deductions:
  Other income, net                                7,192      1,654      46,101       1,733
  Income taxes                                    (2,872)      (719)    (25,903)       (705)
                                                --------   --------   ---------   ---------
     Total other income and deductions             4,320        935      20,198       1,028
                                                --------   --------   ---------   ----------

Income Before Interest Charges                    29,749     35,521     111,171      78,434
                                                --------   --------   ---------   ---------

Interest Charges:
  Long-term debt                                   6,978     11,862      18,811      23,974
  Trust preferred securities                         306        -           306         -
  Company-obligated mandatorily
    redeemable preferred securities                2,297      2,297       4,594       4,594
  Other interest                                     523      2,215       2,525       4,459
  Allowance for borrowed funds used
    during construction                             (300)      (604)       (500)       (989)
                                                --------   --------   ---------   ---------
     Total interest charges                        9,804     15,770      25,736      32,038
                                                --------   --------   ---------   ---------

Income Before Extraordinary Item                  19,945     19,751      85,435      46,396
Extraordinary item (net of income tax
  benefit of $62,280)                                -      (87,830)        -       (87,830)
                                                --------   --------   ---------   ----------


Net Income/(Loss)                                 19,945    (68,079)     85,435     (41,434)
  Preferred stock dividends                          -          231         154         347
  Loss on preferred stock reacquisition              -          -           726         -
                                                --------   --------   ---------   ----------
Earnings/(Loss) Available for Common Stock     $  19,945  $ (68,310) $   84,555  $  (41,781)
                                                ========   ========   =========   =========




<FN>

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

                                       17

</FN>
</TABLE>


<PAGE>
<TABLE>

<CAPTION>



             PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES

                      Consolidated Statements of Cash Flows
                      -------------------------------------
                                   (Unaudited)
                                                             In Thousands
                                                       -------------------------
                                                             Six Months
                                                            Ended June 30,
                                                       -------------------------
                                                           1999         1998
                                                           ----         ----
Operating Activities:
<S>                                                     <C>          <C>
  Net income/(loss)                                     $  85,435    $ (41,434)
  Extraordinary item (net of income tax
     benefit of $62,280)                                      -         87,830
                                                         --------     --------
  Income before extraordinary item                         85,435       46,396
  Adjustments to reconcile income to cash provided:
    Depreciation and amortization                          40,958       53,814
    Amortization of property under capital leases           3,687        4,088
    Gain on sale of investment                            (38,252)         -
    Nuclear outage maintenance costs, net                   1,351        1,518
    Deferred income taxes and investment tax
      credits, net                                       (290,339)        (969)
  Changes in working capital:
    Receivables                                             7,598       (2,709)
    Materials and supplies                                 33,195       (1,472)
    Special deposits and prepayments                        2,867      (16,822)
    Payables and accrued liabilities                      180,354       (6,426)
  Nonutility generation contract buyout costs              (3,500)         -
  Other, net                                              (51,581)     (10,337)
                                                         --------     --------
     Net cash provided/(required)
       by operating activities                            (28,227)      67,081
                                                         --------     --------

Investing Activities:
  Capital expenditures and investments                    (37,567)     (46,735)
  Proceeds from sale of investment                        894,450          -
  Contributions to decommissioning trusts                  (5,246)      (2,632)
  Other, net                                                  915          -
                                                         --------     ---------
     Net cash provided/(used)
       for investing activities                           852,552      (49,367)
                                                         --------     --------

Financing Activities:
  Issuance of trust preferred securities                   96,535          -
  Issuance of long-term debt                              348,127          -
  Increase/(decrease) in notes payable, net               (86,023)      31,237
  Retirement of long-term debt                           (600,000)     (30,000)
  Redemption of preferred stock                           (17,406)         -
  Capital lease principal payments                         (4,230)      (3,604)
  Dividends paid on common stock                         (380,000)     (15,000)
  Dividends paid on preferred stock                          (154)        (347)
                                                         --------     --------
     Net cash required by financing activities           (643,151)     (17,714)
                                                         --------     -------- -

Net increase in cash and temporary
  cash investments from above activities                  181,174          -
Cash and temporary cash investments, beginning of year      2,750          -
                                                         --------     ---------
Cash and temporary cash investments, end of period      $ 183,924    $     -
                                                         ========     =========
Supplemental Disclosure:
  Interest and preferred dividends paid                 $  39,584    $  33,016
                                                         ========     ========
  Income taxes paid                                     $ 127,541    $  35,859
                                                         ========     ========
  New capital lease obligations incurred                $   7,099    $      19
                                                         ========     ========
<FN>

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

                                       18


<PAGE>



                    COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     GPU, Inc. owns all the outstanding  common stock of three domestic electric
utilities -- Jersey Central Power & Light Company (JCP&L),  Metropolitan  Edison
Company  (Met-Ed) and  Pennsylvania  Electric  Company  (Penelec).  The customer
service,  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 Capital, Inc. and GPU
Electric, Inc. and their subsidiaries,  own, operate and fund the acquisition of
electric and gas transmission and distribution systems in foreign countries, and
are referred to as "GPU Electric." GPU  International,  Inc. and GPU Power, Inc.
and their subsidiaries,  develop,  own and operate generation  facilities in the
United  States and foreign  countries  and are referred to as the "GPUI  Group."
Other subsidiaries of GPU, Inc. include GPU Advanced  Resources,  Inc. (GPU AR),
which is  involved  in retail  energy  sales;  GPU Telcom  Services,  Inc.  (GPU
Telcom),  which is engaged  in  telecommunications-related  businesses;  and GPU
Service,  Inc.  (GPUS),  which provides legal,  accounting,  financial and other
services to the GPU companies.  All of these companies  considered  together are
referred to as "GPU."

     These notes should be read in  conjunction  with the notes to  consolidated
financial  statements  included  in the 1998  Annual  Report on Form  10-K.  The
December  31,  1998  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 1998 Annual Report
on Form 10-K.


1.   COMMITMENTS AND CONTINGENCIES

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

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

     With the current market price of  electricity  being below the cost of some
utility-owned  generation  and power  purchase  commitments,  and the ability of
customers to choose their energy suppliers,  stranded costs have been created in
the electric utility industry. These stranded costs, while generally recoverable
in a  regulated  environment,  are at  risk  in a  deregulated  and  competitive
environment.  The Pennsylvania Public Utility Commission's (PaPUC) Restructuring
Orders  issued in 1998  granted  Met-Ed and Penelec  recovery  of a  substantial
portion of their stranded costs. On May 24, 1999, the New Jersey Board of Public
Utilities  (NJBPU)  issued a Summary Order  (Summary  Order) which,  among other
things,  provides for full recovery of JCP&L's  stranded costs.  See Competitive
Environment and Rate Matters section of Management's Discussion and Analysis.

     In June 1998,  the PaPUC  issued  restructuring  rate  orders to Met-Ed and
Penelec  which  resulted in pre-tax  charges to income in the second  quarter of
1998 of $320 million and $150 million,  respectively. In October 1998, the PaPUC
issued amended Restructuring Orders, approving the Settlement Agreements entered
into by Met-Ed and Penelec.  An appeal by one  intervenor  in the  restructuring
proceedings is still pending before the Pennsylvania



                                       19


<PAGE>


Commonwealth  Court. There can be no assurance as to the outcome of this appeal.
In the third quarter of 1998, as a result of the amended  Restructuring  Orders,
Met-Ed and Penelec reversed $313 million and $142 million pre-tax, respectively,
of their earlier charges and recorded  additional  non-recurring  charges of $38
million and $58 million pre-tax, for Met-Ed and Penelec, respectively.

     In January 1999, New Jersey  enacted  legislation to deregulate the state's
electricity  market.  In April 1999,  JCP&L entered into a settlement  agreement
with several parties to its stranded cost and rate unbundling  proceedings which
were pending before the NJBPU. The NJBPU issued a Summary Order,  which approved
the settlement with certain modifications, and provides for, among other things:
a 5% rate reduction commencing August 1, 1999;  additional rate reductions of 1%
in  2000  and 2% in  2001;  and an  additional  net 3%  rate  reduction  in 2002
inclusive of a 5% rate refund from April 30, 1997 rates for service  rendered on
or after  August 1,  2002,  partially  offset  by a 2%  increase  in the  Market
Transition  Charge (MTC).  For customers who choose an alternate  supplier,  the
Summary Order provides average customer shopping credits beginning at 5.14 cents
per  kilowatt-hour  increasing  to 5.40  cents per  kilowatt-hour  in 2003.  The
Summary Order also permits  JCP&L to apply the net proceeds from its  generation
asset sales to reduce stranded costs, the  securitization of approximately  $400
million of stranded costs  associated  with the Oyster Creek nuclear  generating
station,  and adequate  assurance  (through a deferral and true-up mechanism) of
full recovery of above-market  costs associated with JCP&L's  obligations  under
nonutility generation,  utility and transition power purchase agreements.  JCP&L
expects  the NJBPU to issue a Final  Order in the third  quarter  of 1999.  As a
result of the  NJBPU's  actions,  for the  quarter  ended June 30,  1999,  JCP&L
recorded a reduction in operating  revenues of $115 million  reflecting  JCP&L's
obligation  to make  refunds to customers  from 1999  revenues.  For  additional
information, see Note 2 Accounting for Extraordinary and Non-recurring items.

    In October 1998, the GPU Energy companies entered into definitive agreements
to sell TMI-1 to AmerGen Energy Company, LLC (AmerGen), which is a joint venture
between PECO Energy and British Energy, for approximately  $100 million.  Of the
$100 million, $23 million will be paid at closing and $77 million,  which is for
the nuclear fuel in the reactor,  will be paid in five equal annual installments
beginning one year after closing. The sale, which GPU expects to complete by the
end of 1999,  is  subject  to  various  conditions,  including  the  receipt  of
satisfactory federal and state regulatory  approvals.  There can be no assurance
as to the outcome of these  matters.  Highlights of the agreements are presented
in  the  Competitive  Environment  and  Rate  Matters  section  of  Management's
Discussion and Analysis.

     In 1997, GPU announced its intention to begin a process to sell,  through a
competitive  bid  process,  up to  all  of  the  fossil-fuel  and  hydroelectric
generating  facilities owned by the GPU Energy companies.  The net proceeds from
the sale will be used to reduce the  capitalization of the respective GPU Energy
companies,   repurchase  GPU,  Inc.  common  stock,  fund  previously   incurred
liabilities  in accordance  with the  Pennsylvania  settlement,  and may also be
applied to reduce short-term debt, finance further  acquisitions,  and to reduce
acquisition debt of GPU Electric.

     In March 1999,  Penelec completed the sale of its 50% interest in the Homer
City Station to a subsidiary of Edison Mission Energy for approximately



                                       20


<PAGE>


$900 million.  As a result of the sale,  Penelec  recorded an after-tax  gain of
$27.8  million in the first  quarter of 1999 for the portion of the gain related
to wholesale  operations and deferred as a regulatory  liability  $596.7 million
pending Phase II of the Pennsylvania restructuring proceeding.

     In July 1999,  Penelec completed the sale of its 20% interest in the Seneca
Pumped  Storage  Hydroelectric  Generating  Station  to The  Cleveland  Electric
Illuminating  Company for $43  million.  This sale will be recorded in the third
quarter of 1999.

     In  November  1998,  the  GPU  Energy  companies  entered  into  definitive
agreements with Sithe Energies  (Sithe) to sell all their remaining  fossil-fuel
and hydroelectric generating facilities,  other than JCP&L's 50% interest in the
Yards Creek Pumped Storage  Facility (Yards Creek) for a total purchase price of
approximately  $1.7 billion  (JCP&L $442 million;  Met-Ed $677 million;  Penelec
$561  million).  The sales to Sithe are  expected to be  completed  in the third
quarter of 1999,  subject to the timely receipt of the necessary  regulatory and
other approvals.

     JCP&L and Public  Service  Electric & Gas Company  (PSE&G)  each hold a 50%
undivided  ownership  interest in Yards Creek.  In December 1998,  JCP&L filed a
petition with the NJBPU seeking a declaratory  order that PSE&G's right of first
refusal to purchase JCP&L's ownership interest at its current book value under a
1964 agreement between the companies is void and unenforceable. In January 1999,
the New Jersey  Superior Court held that the NJBPU had primary  jurisdiction  in
the matter and  dismissed a PSE&G  complaint  requesting  that the Court require
JCP&L to sell its ownership interest to PSE&G. Management believes that the fair
market value of JCP&L's  ownership  interest in Yards Creek is  substantially in
excess of its June 30, 1999 book value of $22 million. There can be no assurance
of the outcome of this matter.

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

     Pursuant to the mandates of the federal Public Utility Regulatory  Policies
Act and state regulatory directives, the GPU Energy companies have been required
to enter into power purchase  agreements with nonutility  generators  (NUGs) for
the purchase of energy and capacity for remaining periods of up to 22 years. The
following  table shows actual  payments  from 1997  through  June 30, 1999,  and
estimated payments thereafter through 2003.

                          Payments Under NUG Agreements
                          -----------------------------
                                  (in millions)

                          Total      JCP&L      Met-Ed      Penelec
                          -----      -----      ------      -------

      1997                  759        384         172          203
      1998                  788        403         174          211
      1999                  781        384         179          218
      2000                  816        404         169          243
      2001                  805        413         166          226
      2002                  819        425         169          225
      2003                  827        422         173          232

     As of June 30, 1999, NUG facilities  covered by agreements  having 1,681 MW
(JCP&L 928 MW; Met-Ed 348 MW; Penelec 405 MW) of capacity were in service.



                                       21


<PAGE>


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.

     The  emerging   competitive   generation  market  has  created  uncertainty
regarding  the  forecasting  of the GPU Energy  companies'  energy supply needs,
which has caused the GPU Energy  companies to change  their  supply  strategy to
seek  shorter  term  agreements  offering  more  flexibility.   The  GPU  Energy
companies'  future  supply  plan  will  focus  on  short-  to  intermediate-term
commitments  (one month to three years)  during  periods of expected high energy
price volatility and reliance on spot market purchases during other periods. 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 are substantially in excess of current and
projected prices from alternative sources.

     The NJBPU  Summary  Order and PaPUC  Restructuring  Orders  provide the GPU
Energy  companies  assurance  of full  recovery  of their NUG  costs  (including
above-market  NUG costs and certain buyout costs).  Accordingly,  the GPU Energy
companies have  recorded,  on a present value basis, a liability of $3.5 billion
(JCP&L  $1.7  billion;   Met-Ed  $0.8  billion;   Penelec  $1  billion)  on  the
Consolidated  Balance Sheets which is fully offset by Regulatory assets, net. In
addition,  JCP&L  recorded a liability of $75 million for  above-market  utility
purchase power agreements with a corresponding offset to Regulatory assets, net,
since there is also  assurance of full  recovery of these costs.  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 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 (Freehold buyout).  The Stipulation of Final
Settlement  provides for recovery through the levelized energy adjustment clause
of:  (1)  buyout  costs up to $130  million,  and (2) 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 NJBPU approved the cost recovery on an
interim  basis  subject  to refund,  pending  further  review by the NJBPU.  The
NJBPU's Summary Order provides for the continued recovery of the Freehold buyout
in the MTC, but has not altered the interim nature of such  recovery.  There can
be no assurance as to the outcome of this matter.

     In 1998,  Met-Ed and Penelec entered into definitive buyout agreements with
two NUG project  developers.  These  agreements are  contingent  upon Met-Ed and
Penelec obtaining a final and  non-appealable  PaPUC order allowing for the full
recovery of the buyout payments through retail rates. The  Restructuring  Orders
established  terms and  conditions  that would enable the buyout  agreements  to
proceed;  however,  until  the  pending  appeal of the  Restructuring  Orders is
resolved, there can be no assurance as to the outcome of these matters.





                                       22


<PAGE>


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

     The PaPUC  Restructuring  Orders and the NJBPU  Summary  Order  essentially
deregulated  the  electric  generation  portions  of the GPU  Energy  companies'
businesses.  Accordingly,  JCP&L,  in the second quarter of 1999, and Met-Ed and
Penelec  in  1998,  discontinued  the  application  of  Statement  of  Financial
Accounting  Standards  No. 71 (FAS 71),  "Accounting  for the Effects of Certain
Types of  Regulation,"  and adopted the  provisions  of  Statement  of Financial
Accounting Standards No. 101 (FAS 101), "Regulated  Enterprises - Accounting for
the Discontinuation of Application of FASB Statement No. 71, and Emerging Issues
Task Force  Issue 97-4,  Deregulation  of the  Pricing of  Electricity  - Issues
Related to the  Application of FASB Statement No. 71 "Accounting for the Effects
of Certain Types of Regulation" and No. 101 "Regulated  Enterprises - Accounting
for the  Discontinuation  of  Application of FASB Statement No. 71," (EITF Issue
97-4) with respect to their electric generation operations. The transmission and
distribution  portion of the GPU Energy  companies'  operations  continue  to be
subject to the provisions of FAS 71.

     Regulatory  assets,  net as reflected in the June 30, 1999 and December 31,
1998 Consolidated Balance Sheets in accordance with the provisions of FAS 71 and
EITF Issue 97-4 were as follows:

GPU, Inc. and Subsidiary Companies                     (in thousands)
----------------------------------              -----------------------------
                                                   June 30,     December 31,
                                                     1999           1998
                                                -------------   -------------

Competitive transition charge (CTC)
  per PaPUC Order                                 $  973,163     $1,023,815
                                                   =========      =========

Other regulatory assets, net:
Reserve for generation divestiture (JCP&L)        $  134,383     $  136,804
Oyster Creek investment                              639,958            -
Phase II reserve for generation divestiture          765,322      1,356,580
Income taxes recoverable through future rates        331,685        449,638
Income taxes refundable through future rates         (39,093)       (52,701)
Net investment in TMI-2                               63,406         65,787
TMI-2 decommissioning costs                          112,886        119,571
Nonutility generation contract buyout costs          109,833        123,208
Unamortized property losses                           76,553         80,287
Other postretirement benefits                         71,137         73,770
Environmental remediation                             48,619         50,214
N.J. unit tax                                         29,780         33,244
Unamortized loss on reacquired debt                   31,815         32,247
Load and demand-side management programs                 225         12,568
DOE enrichment facility decommissioning               27,255         28,956
Nuclear fuel disposal fee                             22,347         21,092
Storm damage                                          31,367         30,166
Deferred nonutility generation costs
  not in current rates                                32,541        (16,067)
Power purchase contract loss (JCP&L)               1,769,275            -
Power purchase contract loss not in CTC              369,290        369,290
Public utility realty taxes                            6,406          8,060
Other regulatory liabilities                         (55,190)       (50,319)
Other regulatory assets                                8,698         10,018
                                                   ---------      ---------
     Total other regulatory assets, net           $4,588,498     $2,882,413
                                                   =========      =========




                                       23

<PAGE>



JCP&L                                                  (in thousands)
-----                                           -----------------------------
                                                   June 30,     December 31,
                                                     1999           1998
                                                -------------   -------------

Other regulatory assets, net:
Reserve for generation divestiture                $  134,383     $  136,804
Oyster Creek investment                              639,958            -
Income taxes recoverable through future rates         54,118        172,752
Income taxes refundable through future rates         (22,596)       (35,535)
Net investment in TMI-2                               63,406         65,787
TMI-2 decommissioning costs                           13,063         19,192
Nonutility generation contract buyout costs          109,833        120,708
Unamortized property losses                           76,553         80,287
Other postretirement benefits                         44,828         46,486
Environmental remediation                             48,619         50,214
N.J. unit tax                                         29,780         33,244
Unamortized loss on reacquired debt                   24,658         25,981
Load and demand-side management programs                 225         12,568
DOE enrichment facility decommissioning               16,981         18,049
Nuclear fuel disposal fee                             22,347         21,092
Storm damage                                          31,367         30,166
Power purchase contract loss                       1,769,275            -
Other regulatory liabilities                         (54,843)       (49,840)
Other regulatory assets                                3,942          5,930
                                                   ---------      ---------
     Total other regulatory assets, net           $3,005,897     $  753,885
                                                   =========      =========

Met-Ed                                                 (in thousands)
------                                          -----------------------------
                                                   June 30,     December 31,
                                                     1999           1998
                                                -------------   -------------

Competitive transition charge per PaPUC Order     $  661,927     $  680,213
                                                   =========      =========

Other regulatory assets, net:
Phase II reserve for
  generation divestiture                          $  425,119     $  421,807
Income taxes recoverable through future rates        118,885        133,585
Income taxes refundable through future rates         (10,367)       (10,804)
TMI-2 decommissioning costs                           66,010         68,091
Nonutility generation contract buyout costs              -            2,500
Other postretirement benefits                         26,309         27,284
Unamortized loss on reacquired debt                    2,690          3,023
DOE enrichment facility decommissioning                6,987          7,409
Deferred nonutility generation costs
  not in current rates                                 8,365         (7,746)
Power purchase contract loss not in CTC              271,270        271,270
Public utility realty taxes                            2,952          3,699
Other regulatory liabilities                             (83)           (83)
Other regulatory assets                                2,368          1,899
                                                   ---------      ---------
     Total other regulatory assets, net           $  920,505     $  921,934
                                                   =========      =========



                                       24


<PAGE>



Penelec                                                (in thousands)
-------                                         -----------------------------
                                                   June 30,     December 31,
                                                     1999           1998
                                                -------------   -------------

Competitive transition charge per PaPUC Order     $  311,236     $  343,602
                                                   =========      =========

Other regulatory assets, net:
Phase II reserve for
  generation divestiture                             340,203        934,773
Income taxes recoverable through future rates        158,682        143,301
Income taxes refundable through future rates          (6,130)        (6,362)
TMI-2 decommissioning costs                           33,813         32,288
Unamortized loss on reacquired debt                    4,467          3,243
DOE enrichment facility decommissioning                3,287          3,498
Deferred nonutility generation costs
  not in current rates                                24,176         (8,321)
Power purchase contract loss not in CTC               98,020         98,020
Public utility realty taxes                            3,454          4,361
Other regulatory liabilities                            (264)          (396)
Other regulatory assets                                2,388          2,189
                                                   ---------      ---------
     Total other regulatory assets, net           $  662,096     $1,206,594
                                                   =========      =========


    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.

    In accordance  with FAS 121,  impairment  tests  performed by the GPU Energy
companies on the net book values of their generation  facilities determined that
the net  investments in TMI-1 and Oyster Creek were impaired.  This has resulted
in a write-down  to reflect  TMI-1 and Oyster  Creek's fair market values in the
amounts of $520 million (pre-tax) and $630 million (pre-tax),  respectively. The
majority of the TMI-1  write-down  was  recorded in 1998 while the Oyster  Creek
write-down  was  recorded  in the  quarter  ended June 30,  1999.  Of the amount
written down for TMI-1,  however, $510 million was reestablished as a regulatory
asset   because   management   believes  it  is  probable  of  recovery  in  the
restructuring  process and $10 million (the Federal Energy Regulatory Commission
jurisdictional portion) was charged to expense as an extraordinary item in 1998.
The total  impairment  amount of Oyster Creek has also been  reestablished  as a
regulatory   asset  since  the  Summary  Order  provides  for  recovery  in  the
restructuring  process.  (For further  information  relating to the Oyster Creek
impairment   write-down,   see  Note  2,   Accounting  for   Extraordinary   and
Non-recurring items.)

     In 1998,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial  Accounting  Standards No. 133 (FAS 133),  "Accounting  for Derivative
Instruments and Hedging Activities". FAS 133 establishes accounting and



                                       25


<PAGE>


reporting  standards for derivative  instruments,  including certain  derivative
instruments embedded in other contracts, and for hedging activities. FAS 133 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 requires that
companies  recognize  all  derivatives  as either assets or  liabilities  on the
balance  sheet and measure  those  instruments  at fair value.  either  gains or
losses in earnings or report them as a component of other comprehensive  income,
depending  upon the intended use and  designation  of the derivative as a hedge.
FAS 133 is effective  for all fiscal  quarters of fiscal years  beginning  after
June 15, 2000. GPU will adopt FAS 133 in the first quarter of 2001 and is in the
process of evaluating the impact of this statement.


                               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. In 1998, GPU entered into
definitive agreements to sell TMI-1 to AmerGen. Highlights of the agreements are
presented  in  the   Competitive   Environment   and  Rate  Matters  section  of
Management's Discussion and Analysis.

    At June 30,  1999 and  December  31,  1998,  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
                                   -----     ------------
           June 30, 1999
           -------------
           JCP&L                   $23            $100
           Met-Ed                   47               -
           Penelec                  23               -
                                    --             ---
             Total                 $93            $100
                                    ==             ===



                                   Net Investment (in millions)
                                   ----------------------------
                                   TMI-1     Oyster Creek
                                   -----     ------------
           December 31, 1998
           -----------------
           JCP&L                   $18            $682
           Met-Ed                   36               -
           Penelec                  17               -
                                    --             ---
             Total                 $71            $682
                                    ==             ===

     JCP&L's net  investment in TMI-2 at June 30, 1999 and December 31, 1998 was
$63 million and $66  million,  respectively.  JCP&L is  collecting  revenues for
TMI-2 on a basis which provides for the recovery of its remaining  investment in
the plant by 2008.  In 1998,  Met-Ed and Penelec  received  PaPUC  Restructuring
Orders, discontinued the application of FAS 71 and adopted the provisions of FAS
101 and EITF Issue 97-4 with respect to their  electric  generation  operations.
Accordingly, Met-Ed and Penelec wrote-off their remaining investment in TMI-2 of
$1 million and $7 million, respectively.



                                       26


<PAGE>


     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.)

     JCP&L has been  exploring the sale or early  retirement of the Oyster Creek
facility.  In May 1999, the NJBPU approved  JCP&L's request to recover the costs
associated  with an early  retirement  of Oyster Creek in 2000. 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  and  Rate
Matters.)


TMI-2:
------

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

     At the time of the TMI-2  accident,  as provided for in the  Price-Anderson
Act, the GPU Energy companies had (a) primary  financial  protection in the form
of insurance policies with groups of insurance  companies providing an aggregate
of $140 million of primary coverage,  (b) secondary financial  protection in the
form of private liability insurance under an industry  retrospective rating plan
providing  for up to an aggregate of $335 million in premium  charges under such
plan,  and (c) an  indemnity  agreement  with  the  NRC  for up to $85  million,
bringing  their total  financial  protection up to an aggregate of $560 million.
Under  the  secondary   level,  the  GPU  Energy  companies  are  subject  to  a
retrospective  premium charge of up to $5 million per reactor, or a total of $15
million.

     In 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



                                       27


<PAGE>


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

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


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

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

     In 1990, the GPU Energy  companies  submitted a report,  in compliance with
NRC  regulations,  setting forth a funding plan (employing the external  sinking
fund method) for the decommissioning of their nuclear reactors. Under this plan,
the GPU Energy  companies  intend to complete  the funding for Oyster  Creek and
TMI-1 by the end of the plants' license terms, 2009 and 2014, respectively.  The
TMI-2  funding  completion  date is 2014,  consistent  with TMI-2  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 1999
dollars) are as follows:

                                       28


<PAGE>



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

JCP&L                               $ 68        $108       $334
Met-Ed                               136         217          -
Penelec                               68         108          -
                                     ---         ---        ---
   Total                            $272        $433       $334
                                     ===         ===        ===

     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
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   (updated   in  1998),   that   considered   various
decommissioning   methods  and  estimated  the  cost  of   decommissioning   the
radiological portions and the cost of removal of the nonradiological portions of
each plant, using the prompt  removal/dismantlement  method. GPUN management has
reviewed the methodology and assumptions used in these studies,  is in agreement
with them,  and  believes  the  results are  reasonable.  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 1995  site-specific
studies,  assuming  decommissioning at the end of the plants' license terms, are
as follows (in 1999 dollars):


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

Radiological decommissioning          $358     $435        $591
Nonradiological cost of removal         88       34*         32
                                       ---       ---        ---
   Total                              $446     $469        $623
                                       ===      ===         ===

* Net of $12.6 million spent as of June 30, 1999.

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

     The 1995 Oyster Creek  site-specific  study was updated in 1998 in response
to the  previously  announced  potential  early closure of the plant in the year
2000. An early shutdown would increase the retirement  costs shown above to $632
million  ($600  million  for  radiological  decommissioning  and $32 million for
nonradiological  cost of removal).  Both estimates include substantial  spending
for an on-site dry storage facility for spent nuclear fuel and significant costs
for storing the fuel until the DOE complies with the Nuclear Waste Policy Act of
1982 (see OTHER COMMITMENTS AND CONTINGENCIES).

     In 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



                                             29


<PAGE>


AmerGen will assume all TMI-1 decommissioning  liabilities. If all the necessary
regulatory  approvals  are obtained,  the transfer of all TMI-1  decommissioning
liability and expense to AmerGen will take place at the financial  closing which
is expected by the end of 1999.

     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.


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

     The NJBPU has granted  JCP&L  annual  revenues  for TMI-1 and Oyster  Creek
retirement costs of $5.2 million and $22.5 million,  respectively.  These annual
revenues are based on the 1995 site-specific  study estimates.  Effective August
1, 1999,  annual  revenues for Oyster Creek are based on the 1998  site-specific
study estimates.

     Through 1998, the PaPUC 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 a 1988 site-specific study for nonradiological  costs
of removal.  The PaPUC also  granted  Penelec  annual  revenues of $4.2  million
through 1998 for its share of TMI-1 retirement costs, on a basis consistent with
that granted Met-Ed. In the Restructuring  Orders, the PaPUC granted recovery of
an interim level of TMI-1  decommissioning costs as part of the CTC based on the
1995 site-specific study. This amount will be adjusted in Phase II of Met-Ed and
Penelec's restructuring  proceedings,  once the net proceeds from the generation
asset divestiture are determined.

     The amounts charged to depreciation  expense for the second quarter of 1999
and the  provisions for the future  expenditure of these funds,  which have been
made in accumulated depreciation, are as follows:


                                         (in millions)
                                                   Oyster
                                        TMI-1      Creek
                                        -----      -----
Amount expensed for the
six months ended June 30, 1999:
   JCP&L                                $2.6       $11.2
   Met-Ed                                0.4          -
   Penelec                               0.2          -
                                         ---        -----
                                        $3.2       $11.2
                                        ====       =====





                                       30


<PAGE>



                                         (in millions)
                                                   Oyster
                                        TMI-1      Creek
                                        -----      -----
Accumulated depreciation
provision at June 30, 1999:
   JCP&L                                $ 48       $297
   Met-Ed                                 81          -
   Penelec                                37          -
                                         ---        ---
                                        $166       $297
                                        ====       ====

     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
June 30, 1999 and December 31, 1998 are as follows:

                                                 (in millions)
                                    GPU        JCP&L       Met-Ed     Penelec
                                    ---        -----       ------     -------

June 30, 1999                       $490       $123        $244       $123
December 31, 1998                   $484       $121        $242       $121

These amounts are based upon the 1995 site-specific study estimates (in 1999 and
1998  dollars,  respectively)  discussed  above and an  estimate  for  remaining
incremental monitored storage costs of $28 million (JCP&L $7 million; Met-Ed $14
million;  Penelec $7  million)  as of June 30,  1999 and $29  million  (JCP&L $7
million;  Met-Ed $15 million;  Penelec $7 million) as of December 31, 1998, as a
result of TMI-2's entering  long-term  monitored storage in 1993. The GPU Energy
companies  are  incurring  annual   incremental   monitored   storage  costs  of
approximately $1.8 million (JCP&L $450 thousand;  Met-Ed $900 thousand;  Penelec
$450 thousand).

     Offsetting  the $490  million  liability  at June 30, 1999 is $244  million
(JCP&L $17 million;  Met-Ed $144 million;  Penelec $83 million) which management
believes is  probable of recovery  from  customers  and  included in  Regulatory
assets,  net on the  Consolidated  Balance Sheets,  and $281 million (JCP&L $110
million; Met-Ed $126 million;  Penelec $45 million) in trust funds for TMI-2 and
included  in  Nuclear  decommissioning  trusts,  at market  on the  Consolidated
Balance Sheets. Earnings on trust fund deposits are included in amounts shown on
the   Consolidated   Balance  Sheets  under   Regulatory   assets,   net.  TMI-2
decommissioning  costs charged to depreciation  expense for the six months ended
June 30, 1999 amounted to $2.6 million (JCP&L $1.1 million; Met-Ed $1.0 million;
Penelec $0.5 million).

     The NJBPU has granted JCP&L  revenues for TMI-2  retirement  costs based on
the 1995 site-specific  estimates. In addition, JCP&L is recovering its share of
TMI-2  incremental  monitored  storage  costs.  The PaPUC  Restructuring  Orders
granted Met-Ed and Penelec  recovery of TMI-2  decommissioning  costs as part of
the CTC,  but also  allowed  Met-Ed and Penelec to defer as a  regulatory  asset
those amounts that are above the level provided for in the CTC.



                                       31


<PAGE>


     At June 30,  1999,  the  accident-related  portion  of  TMI-2  radiological
decommissioning costs is considered to be $77 million (JCP&L $19 million; Met-Ed
$39 million;  Penelec $19  million),  which is the  difference  between the 1995
TMI-1 and TMI-2 site-specific  study estimates (in 1999 dollars).  In connection
with rate case  resolutions  at the time,  JCP&L,  Met-Ed and Penelec  have made
contributions  to irrevocable  external  trusts  relating to their shares of the
accident-related portions of the decommissioning liability in the amounts of $15
million, $40 million and $20 million, respectively. These contributions were not
recoverable from customers and have been expensed. The GPU Energy companies will
not pursue recovery from customers for any amounts  contributed in excess of the
$77 million accident-related portion referred to above.

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


                                   INSURANCE
                                   ---------

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

     The  decontamination  liability,  premature  decommissioning  and  property
damage  insurance  coverage for the TMI station and for Oyster Creek totals $2.7
billion per site. In accordance with NRC regulations,  these insurance  policies
generally  require that proceeds first be used for stabilization of the reactors
and then to pay for decontamination  and debris removal expenses.  Any remaining
amounts available under the policies may then be used for repair and restoration
costs and decommissioning costs. Consequently, there can be no assurance that in
the event of a nuclear  incident,  property damage  insurance  proceeds would be
available for the repair and restoration of that station.

     The  Price-Anderson  Act limits  GPU's  liability  to third  parties  for a
nuclear incident at one of its sites to approximately $9.7 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  $16.9
million;  Met-Ed  $6.6  million;  Penelec  $3.3  million)  in any one year under
insurance policies applicable to nuclear operations and facilities.




                                       32


<PAGE>


     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  12-week  waiting  period at $1.8
million  and $2.6  million  per week for 52 weeks for  Oyster  Creek and  TMI-1,
respectively, decreasing to 80% of such amounts for the next 110 weeks.


                              ENVIRONMENTAL MATTERS
                              ---------------------

     As a result of existing  and  proposed  legislation  and  regulations,  and
ongoing legal proceedings dealing with environmental matters,  including but not
limited to acid rain,  water  quality,  ambient  air  quality,  global  warming,
electromagnetic  fields,  and storage and  disposal of  hazardous  and/or  toxic
wastes,  GPU may be required to incur substantial  additional costs to construct
new equipment,  modify or replace  existing and proposed  equipment,  remediate,
decommission  or cleanup  waste  disposal and other sites  currently or formerly
used by it, including  formerly owned  manufactured gas plants (MGP),  coal mine
refuse piles and generation facilities.

     To comply with Titles I and IV of the federal  Clean Air Act  Amendments of
1990 (Clean Air Act), the GPU Energy companies have spent $242 million (JCP&L 44
million;  Met-Ed $95 million;  Penelec $103 million) to date. Effective November
1997,  the  Pennsylvania   Environmental   Quality  Board  adopted   regulations
implementing  the NOx  reductions  proposed  by the Ozone  Transport  Commission
(OTC),  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  these state
implementation  plans,  and that as a  result,  they  would  expect  to spend an
estimated $0.6 million (JCP&L $30 thousand;  Met-Ed $340 thousand;  Penelec $200
thousand)  in 1999 to meet the  seasonal  reductions  agreed upon by the OTC. In
1997 and 1998 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. The GPU Energy companies are unable
to determine what  additional  costs,  if any, will be incurred if the EPA rules
are upheld. Moreover, the timing and amounts of expenditures under the Clean Air
Act will be  dependent  upon the timing of the sales of the  related  generating
facilities.

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

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

            8         4          2           1           1          13

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



                                       33


<PAGE>


requesting  damages  (which are material in amount) for  hazardous  and/or toxic
substances  allegedly  released  into  the  environment.  The  ultimate  cost of
remediation  will  depend upon  changing  circumstances  as site  investigations
continue,  including (a) the existing technology required for site cleanup,  (b)
the remedial action plan chosen and (c) the extent of site contamination and the
portion attributed to the GPU companies involved.

    In 1997,  the EPA filed a complaint  against GPU,  Inc. in the United States
District  Court for the District of Delaware for  enforcement  of its unilateral
order issued  against GPU,  Inc. to clean up the former Dover Gas Light  Company
(Dover) manufactured gas production site in Dover,  Delaware.  Dover was part of
the AGECO/AGECORP  group of companies from 1929 until 1942 and GPU, Inc. emerged
from the AGECO/AGECORP  reorganization  proceedings.  All of the common stock of
Dover was sold in 1942 by a member of the AGECO/AGECORP group to an unaffiliated
entity,  and was  subsequently  acquired  by  Chesapeake  Utilities  Corporation
(Chesapeake).  According to the complaint, the EPA is seeking up to $0.5 million
in past costs,  $4.2 million for 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 has also sued GPU,
Inc.  for a  contribution  to the cleanup of the Dover site.  The United  States
District  Court  for the  District  of  Delaware  has  refused  to  dismiss  the
complaints  and  discovery  is  proceeding.  The  parties  continue to engage in
settlement  discussions.  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, and a third  Amendment in December 1998,
that establish a schedule for submitting a plan for long-term remediation, based
on future operating scenarios.  Penelec currently estimates that the remediation
of the Seward  station  property  will range from $12 million to $20 million and
has a recorded  liability of $12 million at June 30, 1999.  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
regulatory asset of approximately $12 million at June 30, 1999.

    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 June 30, 1999.  JCP&L has requested  recovery of
its share of  closure  costs in its  restructuring  plan filed with the NJBPU in
1997.  Met-Ed and  Penelec  expect  recovery of these costs in Phase II of their
restructuring proceedings. As a result, a regulatory asset of $17 million




                                       34


<PAGE>


(JCP&L $1 million;  Met-Ed $4 million;  Penelec $12 million) is reflected on the
Consolidated Balance Sheets at June 30, 1999.

    JCP&L  has  entered  into  agreements  with  the New  Jersey  Department  of
Environmental  Protection for the  investigation  and remediation of 17 formerly
owned MGP sites.  JCP&L has also entered into  various  cost-sharing  agreements
with other utilities for most of the sites. As of June 30, 1999, JCP&L has spent
approximately  $33 million in  connection  with the cleanup of these  sites.  In
addition, JCP&L has recorded an estimated environmental liability of $53 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 $53  million  due to  significant  uncertainties,
including  changes  in  acceptable  remediation  methods  and  technologies.  In
addition,  federal and state law provides for payment by responsible parties for
damage to natural resources.

    In 1997,  JCP&L's request to establish a Remediation  Adjustment  Clause for
the recovery of MGP  remediation  costs was  approved by the NJBPU.  At June 30,
1999, JCP&L had recorded on its Consolidated Balance Sheet a regulatory asset of
$43 million.  JCP&L is  continuing  to pursue  reimbursement  from its insurance
carriers for remediation  costs already spent and for future estimated costs. In
1994,  JCP&L  commenced  litigation  in the New Jersey  Superior  Court  against
several of its insurance  carriers,  relative to these MGP sites and has settled
with all but one of those insurance companies.


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


GPU, Inc. Investments and Guarantees:
-------------------------------------

    GPU,  Inc.  has made  significant  investments  in  foreign  businesses  and
facilities  through its  subsidiaries,  GPU Electric and the GPUI Group. At June
30, 1999,  GPU, Inc.'s  aggregate  investment in GPU Electric and the GPUI Group
was $518 million and $242 million, respectively. Although management attempts to
mitigate  the risks of investing in certain  foreign  countries  by, among other
things,  securing political risk insurance,  GPU faces additional risks inherent
to operating in such locations, including foreign currency fluctuations.

GPU Electric

    At June 30, 1999, GPU Electric had investments  located in foreign countries
totaling  approximately  $3.9 billion  (excluding the additional 50% interest in
Midlands  Electricity  plc  (Midlands)  which GPU acquired  from Cinergy in July
1999).  GPU, Inc. has also  guaranteed up to an additional  $1.19 billion of GPU
Electric  obligations.  Of the $1.19  billion,  $1.04  billion  is  included  in
Long-term debt and Securities due within one year on GPU's Consolidated  Balance
Sheet at June 30, 1999.

    Through its ownership of Midlands, GPU Electric has an investment 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.  Construction  of the  Uch  Power  Project  is
virtually complete, but testing and commercial operation have been delayed.
                                       35


<PAGE>


    Midlands'  current  investment in the Uch Power Project is approximately $75
million,  and project lenders could require Midlands to make additional  capital
contributions  to  the  project  of  approximately  $12  million  under  certain
conditions.  On June 30, 1999, the project lenders issued a notice of default to
the  project  sponsors  (including  Midlands)  for  failure to obtain  permanent
financing and repay the  construction  debt by the original  loan due date.  The
project sponsors have proposed a restructured  financing  arrangement  which the
lenders  and EXIM Bank are  currently  considering.  As part of GPU's  July 1999
purchase of Cinergy's 50% ownership interest in Midlands,  Cinergy has agreed to
fund up to an  aggregate  of $20  million of  additional  capital  contributions
and/or  certain  future  "cash  losses"  which GPU could  incur on the Uch Power
Project.  (For  further  information  on the  Midlands'  purchase,  See  Note 3,
Acquisitions.) There can be no assurance as to the outcome of this matter.

GPUI Group

    At June  30,  1999,  the GPUI  Group  had  investments  located  in  foreign
countries  totaling  approximately  $80 million.  As of that date, GPU, Inc. has
also  guaranteed  up to an additional  $33.7  million of GPUI Group  obligations
(including guarantees of $21.3 million related to domestic  operations).  Of the
$33.7  million,  $7.6 million is included in Long-term  debt and  Securities due
within one year on GPU's Consolidated  Balance Sheet at June 30, 1999, and $26.1
million relates to various other obligations of the GPUI Group.

Other:
------

    GPU's capital programs, for which substantial commitments have been incurred
and which extend over several years,  contemplate  expenditures  of $453 million
(JCP&L $183 million; Met-Ed $97 million; Penelec $98 million; Other $75 million)
during 1999.

     In July 1999,  New Jersey  experienced  a severe heat wave that resulted in
major power  outages and  temporary  service  interruptions  in JCP&L's  service
territory.  As a  result,  the  NJBPU,  with the  assistance  of the New  Jersey
Attorney General, has initiated an investigation into the reliability of JCP&L's
transmission and distribution  system and JCP&L's response to the power outages.
In addition, lawsuits have been filed in New Jersey Superior Court against JCP&L
seeking  class  action  certification  for  all  JCP&L  customers  who  incurred
financial losses, including both compensatory and punitive damages. There can be
no assurance as to the outcome of these matters.

     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  (JCP&L - 16.67%  ownership
interest in Keystone; and Met-Ed - 16.45% ownership interest in Conemaugh).  The
contracts,  which expire at various  dates  between  1999 and 2002,  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 $135 million (JCP&L $27 million;
Met-Ed $57  million;  Penelec $51  million) for 1999.  These  contracts  will be
assumed by Sithe,  upon the  closings of the sales of the GPU Energy  companies'
fossil generation facilities.

                                       36


<PAGE>


     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
629 MW in 1999, declining to 445 MW in 2000 through 2003 and 345 MW in 2004 when
the final agreement expires. Payments pursuant to these agreements are estimated
to be $114  million in 1999,  $91  million in 2000,  $99  million in 2001,  $109
million in 2002, $113 million in 2003 and $48 million in 2004.

     GPU AR has entered  into sales  contracts to supply  electricity  to retail
customers through December 31, 2000, with energy and capacity costs estimated at
$50 million.  GPU AR has also entered into various agreements to purchase energy
and capacity totaling  approximately $24 million,  of which $11 million has been
guaranteed by GPU, Inc.

     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.  Following  its  purchase of TMI-1,  AmerGen  will assume all
liability for disposal costs related to spent fuel generated  after the sale. In
1996,  the DOE notified the GPU Energy  companies  and other  standard  contract
holders  that it will be unable to begin  acceptance  of spent  nuclear fuel for
disposal by 1998,  as mandated by the NWPA.  The DOE  requested  recommendations
from contract  holders for handling the delay.  In January 1997,  the GPU Energy
companies,  along with other electric  utilities and state agencies,  petitioned
the U.S.  Court of Appeals to,  among other  things,  permit  utilities to cease
payments  into the Federal  Nuclear  Waste Fund until the DOE complies  with the
NWPA. In November  1997, the Court denied this request.  The DOE's  inability to
accept  spent  nuclear  fuel could have a  material  impact on GPU's  results of
operations,  as additional  costs may be incurred to build and maintain  interim
on-site storage at Oyster Creek.  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  (radwaste)  disposal  facility in New
Jersey,  which was  expected to commence  operation  by the end of 2003.  GPUN's
total share of the cost for  developing,  constructing  and site  licensing  the
facility was estimated to be $58 million.  Through June 30, 1999,  GPUN has made
payments of $6 million to fund  construction of the radwaste  disposal  facility
and JCP&L has  collected  $30 million from  customers.  As a result of the NJBPU
Summary  Order,  effective  August 1, 1999,  JCP&L will no longer be  collecting
monies  from  customers  for the  facility's  construction.  Any  over-recovered
balance  will be applied to reduce the MTC.  In  February  1998,  the New Jersey
Low-Level  Radwaste  Facility  Siting Board (Siting  Board) voted to suspend the
siting process in New Jersey.  The Siting Board is in the process of determining
what  activities  are required by law to be continued,  and the level of funding
required to support these  activities.  GPUN cannot  determine at this time what
effect, if any, this matter will have on its operations.








                                       37


<PAGE>


     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 suspended 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
effect on 1999 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 LEAC.  The New
Jersey restructuring  legislation  eliminates the nuclear performance  standard,
effective  with the  implementation  of retail  choice on  August 1,  1999.  The
calculation in 1999 is based on a 5-month  performance period from March 1, 1999
through July 31, 1999.

     GPU, Inc. and consolidated  affiliates have approximately  12,800 employees
worldwide of which nearly 8,200 are employed in the U.S and approximately  3,600
are  employed  by  Midlands  in the United  Kingdom.  The  majority  of the U.S.
workforce is employed by the GPU Energy companies,  of which approximately 4,300
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 on October 31, 1999, April 30, 2000 and May 14, 2002,
respectively. Penelec's collective bargaining agreement with the Utility Workers
Union of America expires on June 30, 2001.

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

                                       38


<PAGE>


2.   ACCOUNTING FOR EXTRAORDINARY AND NON-RECURRING ITEMS

JCP&L Restructuring Write-off

     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 FAS 71. FAS 71 requires  regulated  entities,
in  certain  circumstances,  to  defer,  as  regulatory  assets,  the  impact on
operations of costs expected to be recovered in future rates.

     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 FASB's
EITF  concluded in June 1997 that utilities are no longer subject to FAS 71, for
the  relevant  portion  of their  business,  when  they  know  details  of their
individual transition plans. 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.  Concurrent with the receipt of PaPUC Restructuring Orders
in 1998,  Met-Ed and Penelec  discontinued the application of FAS 71 and adopted
the  provisions  of  FAS  101  and  EITF  97-4  for  their  electric  generation
operations.

     On May 24,  1999,  the  NJBPU  issued a  Summary  Order  regarding  JCP&L's
unbundling,  stranded cost and restructuring  filings.  The Summary Order, among
other things,  essentially  removes from  regulation the costs  associated  with
providing electric generation service to New Jersey customers,  effective August
1, 1999 (see Recent  Regulatory  Actions section of Management's  Discussion and
Analysis for further discussion of New Jersey Restructuring). Accordingly, JCP&L
has discontinued the application of FAS 71 and has adopted the provisions of FAS
101 and EITF 97-4 with respect to its electric generation operations,  effective
with the second quarter of 1999. The transmission  and  distribution  portion of
JCP&L's operations will continue to be subject to the provisions of FAS 71.

     For the quarter  ended June 30,  1999,  JCP&L has  recorded a reduction  in
operating  revenues of $115 million relating to the Summary Order which resulted
in an  after-tax  charge to earnings of $68  million,  or $0.54 per share.  This
reduction  reflects  JCP&L's  obligation  to  refund  to  customers  (from  1999
revenues) 5% of April 30, 1997 rates for service  rendered on or after August 1,
2002.

     Since JCP&L is no longer  subject to FAS 71 for the  generation  portion of
its business,  GPU  performed an  impairment  test on Oyster Creek in accordance
with FAS 121. This test  determined that JCP&L's net investment in Oyster Creek,
including  plant,  nuclear  fuel and  materials  and supplies  inventories,  was
impaired based on the April 30, 1999 net book value. This investment was written
down  by  $630  million  (pre-tax)  to  reflect  its  fair  market  value.  This
impairment,  which was recorded as an extraordinary  deduction, was reversed and
reestablished  as a regulatory  asset since the Summary Order  provides for rate
recovery.




                                       39


<PAGE>


3.   ACQUISITIONS

GPU Electric

                         Empresa Distribuidora Electrica Regional, S.A.
                         ----------------------------------------------

     In March  1999,  GPU  Electric  acquired  Empresa  Distribuidora  Electrica
Regional,  S.A.  (Emdersa)  for US $375  million.  The fair  value of the assets
acquired  totaled  approximately  $253.4  million and the amount of  liabilities
assumed  totaled  approximately  $146.7  million.  Emdersa  owns three  electric
distribution  companies that serve three provinces in northwest  Argentina.  The
acquisition was financed through the issuance of commercial paper by GPU Capital
and a $50 million contribution from GPU, Inc. The acquisition has been accounted
for under the purchase method of accounting. The total acquisition cost exceeded
the  estimated  value of net  assets  by $268  million.  This  excess  amount is
considered  goodwill  and is being  amortized on a  straight-line  basis over 40
years.

                        Transmission Pipelines Australia
                        --------------------------------

     In June 1999, GPU Electric acquired Transmission Pipelines Australia (TPA),
a natural gas transmission business,  from the State of Victoria,  Australia for
A$1.025  billion  (approximately  US $675  million).  TPA has been  renamed  GPU
GasNet.  The fair value of the assets  acquired  totaled  approximately  US $586
million and the amount of  liabilities  assumed  totaled  approximately  US $103
million.  TPA was sold as part of  Victoria's  privatization  of the natural gas
industry.  The  GPU  GasNet  system  encompasses  1,105  miles  of  transmission
pipelines,  and  consists of two separate  networks  serving  approximately  1.3
million  residential  customers  and  about  40,000  industrial  and  commercial
customers throughout Victoria.

     The GPU GasNet  acquisition  was  financed  through  an: (1) A$750  million
(approximately US $495 million) senior credit facility, which is non-recourse to
GPU,  Inc.;  and (2) an equity  contribution  from GPU Capital of A$275  million
(approximately  US $180  million)  provided  through the issuance of  commercial
paper guaranteed by GPU, Inc.

     The GPU GasNet acquisition has been accounted for under the purchase method
of accounting.  The total  acquisition  cost exceeded the estimated value of net
assets by  $188.6  million.  This  excess is  considered  goodwill  and is being
amortized to expense on a straight-line basis over 40 years.

                            Midlands Electricity plc
                            ------------------------

     In July 1999, GPU Electric acquired Cinergy Corp.'s (Cinergy) 50% ownership
interest in Avon Energy  Partners  Holdings  (Avon),  which owns  Midlands,  for
(pound)452.5  million  (approximately  US $714  million).  GPU and  Cinergy  had
jointly formed Avon in 1996 to acquire  Midlands,  a regional  electric  company
serving 2.3 million  customers in a 5,135 square mile franchise  service area in
England. The fair value of the assets acquired by Avon totaled  approximately US
$4.2 billion and the amount of liabilities  assumed totaled  approximately US $3
billion.

     Accordingly,  (1) GPU  Electric  has  become  the sole  owner of  Midlands'
electric distribution and contracting businesses as well as independent power


                                       40


<PAGE>


plants  worldwide  totaling  1,150 MW, (2) Cinergy  will acquire  Midlands'  gas
trading operations,  with Midlands retaining liability  associated with existing
natural  gas  supply  contracts  based  upon the  current  market  price for gas
(adequate  provisions  have  previously  been  recorded  to  cover  the  current
estimated  liability),  (3) Cinergy has agreed to fund up to an aggregate of $20
million of additional  capital  contributions  and/or future "cash losses" which
could be incurred in connection with Midlands' interest in the Uch Power Project
in Pakistan, and (4) GPU Electric has agreed to transfer to Cinergy the Redditch
facility, a 29 MW combined cycle plant. (For further information relating to the
Uch Power Project, see Note 1, Commitments and Contingencies-Other.)

     GPU Electric  financed the acquisition  through a combination of equity and
debt. The equity was funded from: (1) a US $250 million  contribution  from GPU,
Inc., and (2) the issuance of US $50 million of commercial paper by GPU Capital,
which is guaranteed  by GPU, Inc. The debt has been provided  through a two-year
(pound)245 million (approximately US $382 million) credit agreement entered into
by EI UK Holdings,  of which GPU,  Inc.  has  guaranteed  approximately  US $100
million.

     In July 1999, GPU began  accounting for Midlands as a consolidated  entity,
rather  than  under  the  equity  method of  accounting  as was  previously  the
practice.  As a  result,  Goodwill,  net on the  Consolidated  Balance  Sheet is
expected to increase by approximately $1.7 billion in the third quarter of 1999.
Of this  amount,  $1.6  billion  relates to the  previous  1996  acquisition  of
Midlands by GPU and Cinergy and $121 million represents  goodwill as a result of
GPU's July 1999  purchase of Cinergy's 50% share of Midlands,  described  above.
The  goodwill  will be  amortized  to expense on a  straight-line  basis over 40
years.

     In June 1999,  Midlands sold its electric supply business to National Power
plc for approximately US $300 million.  (For further information relating to the
supply business sale, see the GPU Electric  section of  Management's  Discussion
and Analysis.)


4.   ACCOUNTING FOR DERIVATIVE INSTRUMENTS

     GPU's use of derivative financial and commodity  instruments is principally
limited  to GPU  Electric  and  the  GPUI  Group.  GPU has  not  held or  issued
derivative financial or commodity instruments for trading purposes.

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

     GPU  Electric  uses  interest  rate swap  agreements  to manage the risk of
increases in variable interest rates. At June 30, 1999, these agreements covered
approximately  $1.2  billion  of  debt,  including  commercial  paper,  and  are
scheduled to expire on various dates through November 2007. GPU Electric 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 GPU Electric.  For the quarter ended
June 30, 1999, fixed rate interest  expense  exceeded  variable rate interest by
approximately $10.5 million. (For additional  information,  see GPU Electric and
the GPUI Group section, Management's Discussion and Analysis.)




                                       41


<PAGE>


     In July 1999,  Austran  Holdings,  the parent of GPU  PowerNet,  refinanced
A$230 million of acquisition  debt  originally due in November 2000, with medium
term notes, due November 15, 2002.  Certain interest rate swap positions,  which
had been in place to convert the floating-rate  bank loans to a fixed rate, were
closed-out  at a cost of A$11.8  million  (US $7.7  million).  This cost will be
reflected in GPU's third quarter 1999 earnings.

Indexed Swap Agreement:
-----------------------

     In 1998, GPU  International  entered into a 10-year  indexed swap agreement
with Niagara Mohawk Power Corporation (NIMO) which, among other things, provides
GPU  International  a fixed revenue stream (over the life of the swap agreement)
on its investment in the Onondaga  Cogeneration  project.  At June 30, 1999, the
indexed  swap  agreement  is valued at $58.7  million and is included in Other -
Deferred  Debits  and Other  Assets on the  Consolidated  Balance  Sheets.  This
valuation was derived using the discounted  estimated cash flows of the payments
expected to be received by GPU International from NIMO over the life of the swap
agreement.



5.   EQUITY INVESTMENTS

     GPU Electric  and the GPUI Group use the equity  method of  accounting  for
investments  in which they have the  ability to exercise  significant  influence
over the operating and financial policies of the investee  (generally  evidenced
by a 20% to 50% ownership interest).


GPU Electric

     As of June 30, 1999, GPU Electric  accounted for its 50% ownership interest
in Midlands  under the equity method of  accounting.  In July 1999, GPU Electric
acquired Cinergy's 50% ownership interest in Midlands.  Therefore,  effective in
the third  quarter of 1999,  GPU will  account for  Midlands  as a  consolidated
entity, rather than under the equity method of accounting.

     Summarized   financial   information  for  GPU  Electric's   equity  method
investment in Midlands (which is not consolidated in the financial  statements),
including GPU Electric's ownership and non-ownership interest, is as follows:




                                       42


<PAGE>


Balance Sheet Data (in thousands)
------------------
                                               June 30,         December 31,
                                                 1999               1998
                                             -----------        -------------

Current Assets                               $   502,310        $   283,738
Noncurrent Assets                              3,768,196          4,367,444
Current Liabilities                           (1,489,583)        (1,638,353)
Noncurrent Liabilities                        (1,565,758)        (1,894,874)
                                              ----------         ----------
     Net Assets                              $ 1,215,165        $ 1,117,955
                                              ==========         ==========

GPU Electric's Equity in Net Assets          $   607,583        $   558,978
                                              ==========         ==========


Earnings Data (in thousands)
                                              Six months ended June 30,
                                              -------------------------
                                                 1999               1998
                                             ------------      -------------

Revenues                                     $ 1,245,192        $ 1,191,286
Operating Income                                 201,894            149,584
Net Income                                       146,983             58,010
Cash Distributions Received                          672                -

GPU Electric's Equity in Net Income          $    73,491        $    29,005
                                              ==========         ==========


GPUI Group

     The GPUI Group's investments  accounted for under the equity method at June
30, 1999 follow:


                                                               Ownership
Investment                          Location of Operations     Percentage
----------                          ----------------------     ----------
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, L.P.       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
the GPUI Group's ownership and non-ownership interests, is as follows:


                                       43


<PAGE>



Balance Sheet Data (in thousands)
------------------
                                               June 30,         December 31,
                                                 1999               1998
                                             -----------        -------------

Current Assets                               $   350,695        $   373,658
Noncurrent Assets                              1,851,194          1,746,085
Current Liabilities                           (  159,294)        (  112,237)
Noncurrent Liabilities                        (1,439,308)        (1,532,911)
                                              ----------         ----------
     Net Assets                              $   603,287        $   474,595
                                              ==========         ==========

GPUI Group's Equity in Net Assets            $   181,827        $   149,830
                                              ==========         ==========


Earnings Data (in thousands)
------------
                                              Six months ended June 30,
                                              ------------------------------
                                                 1999               1998
                                              -----------       ------------

Revenues                                     $   231,747        $   186,050
Operating Income                                  83,458             45,369
Net Income                                        25,666             10,400
Cash Distributions Received                        8,938              3,933

GPUI Group's Equity in Net Income            $     3,008        $     1,839
                                              ==========         ==========


     As of June 30,  1999 and  December  31,  1998,  Equity  investments  on the
Consolidated Balance Sheets included goodwill (net of accumulated  amortization)
relating to the GPUI Group of  approximately  $13.1  million and $12.5  million,
respectively, which is amortized to expense over periods not exceeding 40 years.
Amortization expense for the six months ended June 30, 1999 and 1998 amounted to
$0.6 million and $0.8 million, respectively.



6. 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.  GPU Electric  owns,  operates and funds the
acquisition of electric and gas transmission and distribution systems in foreign
countries.  The GPUI Group develops,  owns and operates generation facilities in
the United States (GPU  International,  Inc.) and foreign  countries (GPU Power,
Inc.).  GPU AR is involved in retail  energy  sales.  Corporate  represents  the
activities of GPU, Inc., a registered holding company. GPU's reportable segments
are strategic  business units that are managed separately due to their different
operating and regulatory environments. GPU's segment information is as follows:


                                       44


<PAGE>


Balance Sheet Segment Data (in thousands)
                                            Current   Noncurrent    Current
June 30, 1999                               Assets      Assets    Liabilities
-------------                               -------   ----------  -----------

Domestic:
   GPU Energy companies                   $1,027,395  $13,555,635 $1,280,902
   GPU International, Inc.*                  112,916      431,650     59,248
   Less: The effect of consolidating
     equity investments included above       (48,874)    (186,199)   (20,144)
   Add: Equity investments
     included on the balance sheet               -         53,172        -
   GPU AR                                     23,361           78     12,039
   Corporate                                     272        8,134     72,453
                                           ---------   ----------  ---------
        Subtotal                           1,115,070   13,862,470  1,404,498
                                           ---------   ----------  ---------
Foreign:
   Australia (Electric Transmission)(GPU
     Electric)                                83,621    1,852,706     70,608
   Australia (Gas Transmission)(GPU
     Electric)                                48,485      756,501     32,532
   United Kingdom (GPU Electric)*            257,707    1,964,218    918,353
   Argentina (GPU Electric)                   50,522      469,897    113,803
   South America (GPU Power, Inc.)*          135,288      453,831     69,247
   Less: The effect of consolidating
     equity investments included above      (305,801)  (2,180,762)  (768,555)
   Add: Equity investments
     included on the balance sheet               -        638,192        -
                                           ---------   ----------  ----------
        Subtotal                             269,822    3,954,583    435,988
                                           ---------   ----------  ---------

Consolidated Total                        $1,384,892  $17,817,053 $1,840,486
                                           =========   ==========  =========

                                                        Other        Cash
                                          Long-Term   Noncurrent    Capital
June 30, 1999                                Debt     Liabilities Expenditures
-------------                             --------    ----------- ------------
Domestic:
   GPU Energy companies                   $2,077,120   $7,857,210 $  138,721
   GPU International, Inc.*                  185,291      233,928        824
   Less: The effect of consolidating
     equity investments included above      (185,291)     (18,904)      (228)
   Add: Equity investments
     included on the balance sheet               -              -        -
   GPU AR                                        -            665        -
   Corporate                                     -          2,088        -
                                           ---------    ---------  ----------
        Subtotal                           2,077,120    8,074,987    139,317
                                           ---------    ---------  ---------
Foreign:
   Australia (Electric Transmission) (GPU
     Electric)                             1,976,783       95,899      3,983
   Australia (Gas Transmission)(GPU
     Electric)                               500,634       75,213    652,068
   United Kingdom(GPU Electric)*             605,999      160,882     18,780
   Argentina (GPU Electric)                  327,855       27,289    383,320
   South America (GPU Power, Inc.)*          203,344       64,160     26,829
   Less: The effect of consolidating
     equity investments included above      (862,505)     (90,486)   (15,585)
   Add: Equity investments
     included on the balance sheet               -            -          -
                                           ---------    ---------  ----------
        Subtotal                           2,752,110      332,957  1,069,395
                                           ---------    ---------  ---------

Consolidated Total                        $4,829,230   $8,407,944 $1,208,712
                                           =========    =========  =========

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




                                             45


<PAGE>


Balance Sheet Segment Data (in thousands) (continued)

                                            Current    Noncurrent    Current
December 31, 1998                           Assets       Assets    Liabilities
-----------------                           -------    ----------- -----------

Domestic:
   GPU Energy companies                   $  807,973  $12,475,608  $1,205,733
   GPU International, Inc.*                  126,321      412,953      58,343
   Less: The effect of consolidating
     equity investments included above       (51,046)    (188,858)    (17,271)
   Add: Equity investments
     included on the balance sheet               -         66,487         -
   GPU AR                                      2,358          115       2,222
   Corporate                                   5,001        6,672     140,132
                                           ---------   ----------   ---------
        Subtotal                             890,607   12,772,977   1,389,159
                                           ---------   ----------   ---------
Foreign:
   Australia (GPU Electric)                   91,112    1,690,018     561,562
   United Kingdom (GPU Electric)*            142,854    2,213,350     836,431
   South America (GPU Power, Inc.)*          136,822      385,836      54,366
   Less: The effect of consolidating
     equity investments above               (198,986)  (2,437,992)   (833,658)
   Add: Equity investments
     included on the balance sheet               -        601,511         -
                                           ---------   ----------   ----------
        Subtotal                             171,802    2,452,723     618,701
                                           ---------   ----------   ---------

Consolidated Total                        $1,062,409  $15,225,700  $2,007,860
                                           =========   ==========   =========

                                                        Other        Cash
                                          Long-Term   Noncurrent    Capital
December 31, 1998                            Debt     Liabilities Expenditures
-----------------                         ---------- ------------ -------------
Domestic:
   GPU Energy companies                   $2,368,870   $6,211,677  $  328,418
   GPU International, Inc.*                  188,774      218,998      31,574
   Less: The effect of consolidating
     equity investments included above      (188,774)     (19,968)    (10,199)
   Add: Equity investments
     included on the balance sheet               -            -           -
   GPU AR                                        -            158          34
   Corporate                                     -          1,360         -
                                           ---------    ---------   ----------
        Subtotal                           2,368,870    6,412,225     349,827
                                           ---------    ---------   ---------
Foreign:
   Australia (GPU Electric)                1,060,877       46,397      58,549
   United Kingdom (GPU Electric)*          1,116,144      204,680      50,092
   South America (GPU Power, Inc.)*          188,928       57,032      60,096
   Less: The effect of consolidating
     equity investments included above      (909,235)    (213,295)    (50,341)
   Add: Equity investments
     included on the balance sheet               -            -           -
                                           ---------    ---------   ----------
        Subtotal                           1,456,714       94,814     118,396
                                           ---------    ---------   ---------

Consolidated Total                        $3,825,584   $6,507,039  $  468,223
                                           =========    =========   =========

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


                                       46


<PAGE>


Earnings Segment Data (in thousands)
                                                      Depreciation
For the six months                         Operating      and      Operating
ended June 30, 1999                        Revenues   Amortization  Income
-------------------                        --------   ------------  ------

Domestic:
   GPU Energy companies                    $1,722,775 $   206,963 $  267,185
   GPU International, Inc.*                    83,579       8,499      7,041
   Less: The effect of consolidating
     equity investments included above        (41,382)     (3,850)   (10,177)
   Add: Equity in undistributed earnings of
     affiliates, net on the income statement      -           -          -
   GPU AR                                      37,521         -        1,548
   Corporate                                      -           -       (4,114)
                                            ---------     -------    -------
        Subtotal                            1,802,493     211,612    261,483
                                            ---------     -------    -------
Foreign:
   Australia (Electric Transmission) (GPU
     Electric)                                 95,912      21,367     58,149
   Australia (Gas Transmission)(GPU Electric)   5,721       1,227      3,450
   United Kingdom (GPU Electric)*             623,199      29,555     83,222
   Argentina (GPU Electric)                    48,999       6,190      7,639
   South America (GPU Power, Inc.)*            38,462       7,778     11,975
   Less: The effect of consolidating
     equity investments included above       (643,324)    (34,634)   (90,329)
   Add: Equity in undistributed earnings of
     affiliates, net on the income statement      -           -          -
                                            ---------     -------    --------
        Subtotal                              168,969      31,483     74,106
                                            ---------     -------    -------

Consolidated Total                         $1,971,462 $   243,095 $  335,589
                                            =========     =======    =======

                                              Other   Interest and
For the six months                         Income and   Preferred
ended June 30, 1999                        Deductions   Dividends  Net Income
-------------------                        ----------   ---------  ----------

Domestic:
   GPU Energy companies                    $   26,687 $   114,519 $  179,353
   GPU International, Inc.*                     1,260       9,147       (846)
   Less: The effect of consolidating
     equity investments included above            230      (8,726)    (1,220)
   Add: Equity in undistributed earnings of
     affiliates, net on the income statement    1,220         -        1,220
   GPU AR                                          33         -        1,581
   Corporate                                       13       1,252     (5,353)
                                               ------     -------    -------
        Subtotal                               29,443     116,192    174,735
                                               ------     -------    -------
Foreign:
   Australia (Electric Transmission)(GPU
     Electric)                                    638      52,526      6,372
   Australia (Gas Transmission)(GPU Electric)      29       3,589       (221)
   United Kingdom (GPU Electric)*              20,448      50,049     53,622
   Argentina (GPU Electric)                     1,003       8,008        (41)
   South America (GPU Power, Inc.)*             3,012       9,797      3,514
   Less: The effect of consolidating
     equity investments included above        (34,171)    (49,221)   (75,278)
   Add: Equity in undistributed earnings of
     affiliates, net on the income statement   75,278         -       75,278
                                               ------     -------    --------
        Subtotal                               66,237      74,748     63,246
                                               ------     -------    --------

Consolidated Total                         $   95,680 $   190,940 $  237,981
                                               ======     =======    =======

* Includes  the  effect of  consolidating  ownership  interests  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)(continued)

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

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

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

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

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

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

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




                                       48



<PAGE>




7.   COMPREHENSIVE INCOME

     For the six months ended June 30, 1999 and 1998,  comprehensive  income was
as follows:


                                                          (in thousands)
                                                            Six months
                                                           Ended June 30,
                                                           --------------
GPU, Inc. and Subsidiary Companies                        1999         1998
----------------------------------                        ----         -----

Net income/(loss)                                       $237,981    $ (61,393)
                                                         -------      -------
Other comprehensive income/(loss), net of tax:
     Net unrealized gains/(losses) on investments         (4,758)       2,744
     Foreign currency translation                          8,169       (8,823)
     ----------------------------                          -----       -------
       Total other comprehensive income/(loss)             3,411       (6,079)
                                                         -------      -------
Comprehensive income/(loss)                             $241,392    $ (67,472)
                                                         =======      =======

JCP&L

Net income                                              $ 47,842    $  93,101
                                                         -------      -------
Other comprehensive income, net of tax                       -            -
                                                         -------      -------
Comprehensive income                                    $ 47,842    $  93,101
                                                         =======      =======

Met-Ed

Net income/(loss)                                       $ 51,974    $(144,002)
                                                         -------      -------
Other comprehensive income, net of tax:
     Net unrealized gains on investments                   2,816        1,829
                                                         -------      -------
Comprehensive income/(loss)                             $ 54,790    $(142,173)
                                                         =======      =======

Penelec

Net income/(loss)                                       $ 85,435    $ (41,434)
                                                         -------      -------
Other comprehensive income, net of tax:
     Net unrealized gains on investments                   1,337          915
                                                         -------      -------
Comprehensive income/(loss)                             $ 86,772    $ (40,519)
                                                         =======      =======


                                       49



<PAGE>



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


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



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


      GPU's  earnings  for the second  quarter  ended  June 30,  1999 were $47.3
million,  compared to a second quarter 1998 loss of $195.2 million. Earnings per
share on a diluted basis were $0.38 for the second quarter of 1999,  compared to
a loss of $1.54 in the second  quarter of 1998.  The second quarter 1999 results
included  non-recurring  charges of $68 million  after-tax,  or $0.54 per share,
resulting from a Summary  Restructuring Order (Summary Order) issued to JCP&L by
the New Jersey Board of Public  Utilities  (NJBPU) and a gain on the sale of the
Midlands  Electricity plc (Midlands) supply business of $9.7 million  after-tax,
or $0.08 per share.  The second  quarter 1998 results  included a  non-recurring
charge  of  $275.1  million  after-tax,  or $2.16  per  share,  as a  result  of
restructuring  orders  issued to Met-Ed and Penelec by the  Pennsylvania  Public
Utility Commission (PaPUC).  Excluding these  non-recurring  items, GPU's second
quarter  1999 and 1998  earnings  would have been $105.6  million,  or $0.84 per
share, and $79.9 million, or $0.62 per share, respectively.

      The $0.22 per share earnings increase,  exclusive of non-recurring  items,
was due primarily to the warmer weather,  increased sales to other utilities and
lower  net  energy  expenses  within  the GPU  Energy  companies,  as well as to
increased profits from operations at Midlands.

      For the six months ended June 30, 1999,  GPU's earnings were $238 million,
or $1.87 per share,  compared with losses of $61.4 million,  or $0.47 per share,
for the six months  ended  June 30,  1998.  Excluding  the  non-recurring  items
mentioned above, and the non-recurring gain of $27.8 million after-tax, or $0.22
per share, for the portion of the gain on the sale of Penelec's  interest in the
Homer City  Generating  Station  (Homer City)  related to wholesale  operations,
earnings for the six months ended June 30, 1999 and

                                       50


<PAGE>


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

1998 would have been $268.5 million,  or $2.11 per share, and $213.7 million, or
$1.69 per share, respectively.

      The $0.42 per share earnings increase,  exclusive of non-recurring  items,
was due primarily to increased sales to other utilities,  decreased depreciation
expense and increased profits from operations at Midlands.  Partially offsetting
this increase was the absence of the gain on the sale of GPU Electric's interest
in Solaris Power (Solaris) in 1998.

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

     Operating revenues for the second quarter of 1999 decreased 11.6% to $897.7
million,  as compared to the second  quarter of 1998.  For the six months  ended
June 30, 1999,  revenues decreased 4.2% to $1.97 billion as compared to the same
period last year. The components of the changes are as follows:


                                                  (in millions)
                                      ------------------------------------
                                       Three Months          Six Months
                                           Ended               Ended
                                       June 30, 1999        June 30, 1999
                                       -------------        -------------

GPU Energy companies:
   Kilowatt-hour (KWH) revenues           $(110.1)            $(163.1)
   Energy-related revenues                    0.2                31.7
   Obligation to refund revenues
     to customers per NJBPU Order          (115.0)             (115.0)
   CTC revenues                              35.6                58.7
   GPU Telcom revenues                        1.1                (1.9)
   Other revenues                              -                  5.4
                                            -----              ------
        Total GPU Energy companies         (188.2)             (184.2)
GPU Electric                                 47.6                57.6
GPUI Group                                    5.5                 7.6
GPU AR                                       17.8                32.3
                                            -----               -----
        Total decrease in revenues        $(117.3)            $( 86.7)
                                            =====               =====


GPU Energy companies

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

     The decrease in KWH  revenues  for the three and six month  periods was due
primarily to lower generation-related  revenues as a result of some Pennsylvania
customers choosing another supplier;  a decrease in nonutility  generation (NUG)
revenues  for Met-Ed and  Penelec  (which did not have a  significant  impact on
earnings);  partially offset by the absence of an earnings cap adjustment (since
JCP&L was not in an over earnings  position in 1999) which reduced  JCP&L's 1998
revenues, higher weather-related sales and increased sales to other utilities.

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

     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 six month period was due
primarily to a change in the estimate for unbilled revenue.

                                       51


<PAGE>


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

Obligation to refund revenues to customers per NJBPU Order
----------------------------------------------------------

      The  decrease  resulted  from the  NJBPU's  Summary  Order for JCP&L which
obligated JCP&L to refund to customers (from 1999 revenues) 5% of April 30, 1997
rates for service rendered from August 1, 2002 through July 31, 2003.

Competitive transition charge (CTC) revenues
--------------------------------------------

     Changes  in CTC  revenues  do not  affect  earnings  as they are  offset by
corresponding changes in expense.

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

     The increase in other  revenues for the six month period was due  primarily
to increased transmission revenues at Met-Ed and Penelec as a result of customer
shopping in Pennsylvania for electric generation supplier.


GPU Electric

     The increase in revenues for the three and six month periods was due mainly
to the inclusion of revenues from Empresa Distribuidora Electrica Regional, S.A.
(Emdersa), an electric distribution business in Argentina, which was acquired by
GPU Electric in March 1999. Also  contributing to the increase was the inclusion
of revenues from the GPU GasNet acquisition (see Note 3, Acquisitions).

GPUI Group

     The increase in GPUI Group revenues for the three and six month periods was
due  primarily  to an  increase in Empresa  Guaracachi  S.A.  (EGSA)  energy and
capacity  revenues,  and  the  effect  of  consolidating  Onondaga  Cogen,  L.P.
beginning  August  1998,  which was  partially  offset by lower  management  fee
revenues.

GPU AR

     The  increase  in  revenues  for the three and six  month  periods  was due
primarily to an increase in energy sales to customers  who chose GPU AR as their
electric energy supplier as part of retail customer choice in Pennsylvania.

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,  such cost variances for Met-Ed and Penelec are not subject to deferred
accounting,  except for above-market NUG costs, which are deferred in accordance
with the PaPUC  Restructuring  Orders.  The increase in PP&I for the three month
period was primarily due to increased  purchases at GPU AR. The decrease in PP&I
for the six month period is primarily due to reduced  purchases and the deferral
of above-market  NUG costs by Met-Ed and Penelec,  partially offset by increased
purchases at GPU AR.

                                       52


<PAGE>


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

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.  Met-Ed and Penelec ceased  deferred  energy  accounting as their ECRs
were  combined  with base rates in 1997.  The decrease in fuel for the three and
six month periods was  primarily due to Penelec's  sale of its interest in Homer
City;  partially  offset by increased  fuel expenses at EGSA,  and the effect of
consolidating Onondaga beginning August 1998.

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

     The increase in other O&M expenses for the three and six month  periods was
primarily  due to the  inclusion  of  Emdersa  and GPU GasNet as a result of the
acquisition by GPU Electric. This increase was partially offset by decreased O&M
expenses at Penelec due to the sale of its interest in Homer City.

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

     The decrease in depreciation and amortization expense for the three and six
month periods was due mainly to lower depreciation  expense at GPU Energy due to
the  effects  of the  impairment  writedown  of  TMI-1  in 1998  and the sale of
Penelec's  interest in Homer City.  This  decrease was  partially  offset by the
inclusion  of  Emdersa  and GPU GasNet as a result of their  acquisition  by GPU
Electric.

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.  Met-Ed and
Penelec's State Tax Adjustment  Surcharges were combined with base rates in 1997
and are no longer subject to annual adjustment for rate increases.  This did not
have a significant impact on earnings for the first six months of 1999.

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 six month periods was due to higher GPU Electric  earnings because
of the  gain on the  sale of the  Midlands  supply  business  and the  increased
earnings from Midlands'  operations.  Also  contributing to the increase for the
six month period was the gain on the sale of the Enersis generation  facility in
Portugal.

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

     The increase in other  income,  net for the three and six months period was
due primarily to the  recognition of the gain on the sale of Penelec's  interest
in Homer City relating to wholesale  operations,  partially  offset by the gains
realized in 1998 by GPU  Electric  from the sale of Solaris and the GPUI Group's
sale of a 50% interest in the Mid-Georgia cogeneration project.


                                       53


<PAGE>



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

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

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

     The increase in interest on  long-term  debt for the three month period was
due primarily to higher interest  expense at GPU Electric due to the Emdersa and
GPU GasNet acquisitions;  and the issuance of senior notes by Penelec, offset by
Penelec's redemption of first mortgage bonds (FMBs).

Preferred stock dividends of subsidiaries
-----------------------------------------

     The decrease in preferred stock dividends of subsidiaries for the three and
six month periods was primarily due to the redemption, by Met-Ed and Penelec, of
all of their outstanding  shares of cumulative  preferred stock. A reacquisition
loss of $0.5  million  and $0.7  million  was  recorded  by Met-Ed and  Penelec,
respectively.

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

     JCP&L  incurred a loss for the second  quarter  ended June 30, 1999 of $8.2
million, compared to 1998 second quarter earnings of $37.7 million. The decrease
was due to a  non-recurring  charge of $68  million,  as a result of the NJBPU's
Summary Order on JCP&L.  Excluding the  non-recurring  charge,  earnings for the
second quarter of 1999 would have been $59.8  million.  The increase in earnings
on this basis was primarily due to higher  weather-related  sales and a decrease
in depreciation and amortization expense.

     For the six months ended June 30, 1999,  earnings were $43 million compared
to $87.8  million  for the same period last year.  Excluding  the  non-recurring
charge mentioned above,  earnings would have been $111.1 million.  This increase
was due  primarily  to  higher  weather-related  sales  and  increased  usage by
residential and commercial customers.

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

     Operating  revenues for the second quarter of 1999 decreased  18.3% to $391
million,  as compared to the second  quarter of 1998.  For the six months  ended
June 30, 1999, revenues decreased 4.6% to $907.9 million as compared to the same
period last year. The components of the changes are as follows:


                                                  (in millions)
                                       -----------------------------------
                                       Three Months          Six Months
                                           Ended               Ended
                                       June 30, 1999        June 30, 1999
                                       -------------        -------------


   KWH revenues                           $  26.5             $  38.1
   Energy-related revenues                    0.2                31.7
           Obligation to refund revenues
     to customers per NJBPU Order          (115.0)             (115.0)
   Other revenues                             0.5                 1.9
                                           ------              ------
        Decrease in revenues              $ (87.8)            $ (43.3)
                                           ======              ======


                                       54


<PAGE>


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

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

     The increase in KWH revenues for the three and six month periods was due to
the  absence  of an  earnings  cap  adjustment  (since  JCP&L was not in an over
earnings position in 1999) which reduced 1998 revenues,  higher  weather-related
sales and increased  usage by residential  and commercial  customers  during the
first quarter 1999.

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 six month  period  was due  primarily  to a change in the  estimate  for
unbilled revenue.

Obligation to refund revenues to customers per NJBPU Order
----------------------------------------------------------

     The  decrease  resulted  from the  NJBPU's  Summary  Order for JCP&L  which
obligated JCP&L to refund to customers (from 1999 revenues) 5% of April 30, 1997
rates for service rendered from August 1, 2002 through July 31, 2003.

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

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

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

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

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

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.


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

     The decrease in depreciation and amortization expense for the three and six
month periods was due mainly to the effect of the impairment  writedown of TMI-1
in 1998.

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

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






                                       55


<PAGE>



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

      Met-Ed's  earnings for the second  quarter  ended June 30, 1999 were $19.1
million,  compared to 1998 second quarter losses of $168.9 million. The increase
in  earnings  was  primarily  due to the absence of an  extraordinary  charge of
$187.3 million taken in 1998 as a result of the PaPUC's  Restructuring  Order on
Met-Ed. Excluding the extraordinary charge, earnings for the second quarter 1998
would have been $18.4 million.

     For the six  months  ended  June 30,  1999,  earnings  were  $51.4  million
compared to losses of $144.2  million  for the same period last year.  Excluding
the extraordinary  charge mentioned above,  earnings for the second quarter 1998
would have been $43.1  million.  This  increase in earnings was due primarily to
lower  fuel  and  power  purchase  costs  and a  decrease  in  depreciation  and
amortization expense.

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

     Operating  revenues for the second quarter of 1999 decreased  12.4% to $198
million,  as compared to the second  quarter of 1998.  For the six months  ended
June 30, 1999, revenues decreased 7.3% to $427.2 million as compared to the same
period last year. The components of the changes are as follows:

                                                  (in millions)
                                       ------------------------------------
                                       Three Months          Six Months
                                           Ended               Ended
                                       June 30, 1999        June 30, 1999
                                       -------------        -------------

   KWH revenues                           $(49.1)             $(72.5)
   CTC revenues                             21.7                36.1
   Other revenues                           (0.6)                2.8
                                            ----               -----
       Decrease in revenues               $(28.0)             $(33.6)
                                            ====               =====

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

      The decrease in KWH  revenues for the three and six month  periods was due
primarily to lower generation-related  revenues as a result of some Pennsylvania
customers  choosing another supplier;  a decrease in NUG revenues (which did not
have  a   significant   impact  on   earnings);   partially   offset  by  higher
weather-related  sales,  increased usage by residential  customers and increased
sales to other utilities.

CTC revenues
------------

     Changes  in CTC  revenues  do not  affect  earnings  as they are  offset by
corresponding changes in expense.

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

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

     Changes in fuel and power  purchased  and  interchanged  are not subject to
deferred  accounting,  except for above-market NUG costs,  which are deferred in
accordance with the PaPUC  Restructuring  Order.  The decrease for the three and
six month periods was primarily due to lower fuel costs and power  purchases and
the deferral of above-market NUG costs.

                                       56


<PAGE>


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

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

     The decrease in depreciation and amortization expense for the three and six
month  periods was due  primarily to the effect of the  impairment  writedown of
TMI-1 in 1998.


Trust preferred securities
--------------------------

      In June 1999, Met-Ed issued $100 million of Trust preferred securities.

Preferred stock dividends and loss on preferred stock reacquisition
-------------------------------------------------------------------

     The  decrease in  preferred  stock  dividends  for the six month period was
primarily  due  to the  redemption  of all of  Met-Ed's  outstanding  shares  of
cumulative  preferred stock. As a result,  a reacquisition  loss of $0.5 million
was recorded in the first quarter of 1999.

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

      Penelec's  earnings for the second  quarter ended June 30, 1999 were $19.9
million,  compared to 1998 second quarter losses of $68.3 million.  The increase
in earnings was primarily due to the absence of an extraordinary charge of $87.8
million taken in 1998 as a result of the PaPUC's Restructuring Order on Penelec.
Excluding the extraordinary  charge,  earnings for the second quarter 1998 would
have been $19.5 million.

     For the six  months  ended June 30,  1999,  earnings  were  $84.6  million,
compared to losses of $41.8 million for the same period last year. Excluding the
non-recurring  gain of $27.8 million  after-tax,  for the portion of the gain on
the sale of Penelec's interest in Homer City,  earnings for the six months ended
June 30, 1999 would have been $56.8 million.  Excluding the extraordinary charge
mentioned above, earnings for the six months ended June 30, 1998 would have been
$46.0   million.   This  increase  in  earnings  was  due  primarily  to  higher
weather-related  sales,  lower  fuel costs and a decrease  in  depreciation  and
amortization expense.


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

     Operating revenues for the second quarter of 1999 decreased 18.1% to $205.1
million,  as compared to the second  quarter of 1998.  For the six months  ended
June 30, 1999,  revenues  decreased  12.2% to $451.3  million as compared to the
same period last year. The components of the changes are as follows:


                                                  (in millions)
                                       ---------------------------------
                                       Three Months          Six Months
                                           Ended               Ended
                                       June 30, 1999        June 30, 1999
                                       -------------        -------------

   KWH revenues                           $(59.3)             $(86.0)
   CTC revenues                             13.9                22.6
   Other revenues                            0.1                 0.7
                                           -----               -----
       Decrease in revenues               $(45.3)             $(62.7)
                                           =====               =====

                                       57


<PAGE>


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

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

    The  decrease in KWH  revenues  for the three and six month  periods was due
primarily to lower generation-related  revenues as a result of some Pennsylvania
customers  choosing another supplier;  a decrease in NUG revenues (which did not
have  a   significant   impact  on   earnings);   partially   offset  by  higher
weather-related  sales,  increased usage by residential  customers and increased
sales to other utilities.

CTC revenues
------------

     Changes  in CTC  revenues  do not  affect  earnings  as they are  offset by
corresponding changes in expense.


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

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

     Changes in fuel and power  purchased  and  interchanged  are not subject to
deferred  accounting,  except for above-market NUG costs,  which are deferred in
accordance with the PaPUC  Restructuring  Order.  The decrease for the three and
six month  periods was primarily  due to lower fuel costs,  partially  offset by
increased power purchases.

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

     The decrease in depreciation and amortization expense for the three and six
month periods was due primarily to the effect of the 1998  impairment  writedown
of TMI-1 and the sale of Penelec's interest in Homer City in March 1999.

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

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

     The increase in other  income,  net for the three and six month periods was
due primarily to the  recognition of the gain on the sale of Homer City relating
to wholesale operations.

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

      In April,  Penelec  redeemed a total of $600  million  of FMBs;  partially
offset by the issuance of $350 million of senior notes.

Trust preferred securities
--------------------------

      In May 1999, Penelec issued $100 million of Trust preferred securities.

Preferred stock dividends and loss on preferred stock reacquisition
-------------------------------------------------------------------

      The  decrease in  preferred  stock  dividends  for the three and six month
periods was  primarily  due to the  redemption  of all of Penelec's  outstanding
shares of cumulative  preferred stock. As a result, a reacquisition loss of $0.7
million was recorded in the first quarter of 1999.

                                       58

<PAGE>


                          INVESTMENTS IN FUCOs AND EWGs
                          -----------------------------

     GPU, Inc. has Securities and Exchange  Commission  (SEC)  authorization  to
finance  investments in foreign utility  companies  (FUCOs) and exempt wholesale
generators  (EWGs)  up to an  aggregate  amount  equal to 100% of GPU's  average
consolidated  retained  earnings,  or approximately  $2.3 billion as of June 30,
1999.  GPU,  Inc. has  remaining  authorization  to finance  approximately  $345
million of additional investments in FUCOs and EWGs (including the effect of the
Midlands  acquisition).  GPU,  Inc.'s  investments  in  FUCOs  and EWGs are made
through GPU Electric and the GPUI Group.

                                  GPU ELECTRIC
                                  ------------

     GPU Electric has ownership  interests in electric and gas  transmission and
distribution  businesses  in  England,  Australia  and  Argentina.  Through  its
investment in Midlands,  GPU Electric also has ownership  interests in operating
generating facilities located in foreign countries totaling 4,278 megawatts (MW)
(of which GPU Electric's equity interest represents 588 MW) of capacity. At June
30, 1999,  GPU,  Inc.'s  aggregate  investment in GPU Electric was $518 million.
GPU, Inc. has also guaranteed up to an additional  $1.19 billion of GPU Electric
obligations.

     In July 1999, GPU Electric acquired Cinergy Corp.'s (Cinergy) 50% ownership
interest in Avon Energy  Partners  Holdings  (Avon),  which owns  Midlands,  for
(pound)452.5  million  (approximately  US $714  million).  GPU and  Cinergy  had
jointly formed Avon in 1996 to acquire  Midlands,  an English regional  electric
company serving 2.3 million customers.  GPU's purchase from Cinergy was financed
through a combination  of equity and debt.  The equity was funded from a US $250
million  contribution from GPU, Inc.; and from the issuance of US $50 million of
commercial  paper by GPU Capital,  which is guaranteed by GPU, Inc. The debt has
been  provided  through a two-year  (pound)245  million  (approximately  US $382
million) credit agreement  entered into by EI UK Holdings of which GPU, Inc. has
guaranteed approximately US $100 million.

     In June 1999, GPU Electric acquired the business of Transmission  Pipelines
Australia  (TPA),  a  natural  gas  transmission  business,  from  the  State of
Victoria,  Australia for A$1.025 billion  (approximately  US $675 million).  TPA
(which  has  since  been  renamed  GPU  GasNet)  was sold as part of  Victoria's
privatization  of the natural gas industry.  The GPU GasNet  system  encompasses
1,105 miles of  transmission  pipelines,  and consists of two separate  networks
serving  approximately  1.3  million  residential  customers  and  about  40,000
industrial  and  commercial  customers  throughout  Victoria.   The  GPU  GasNet
acquisition was financed  through an: (1) A$750 million  (approximately  US $495
million) senior credit facility,  which is non-recourse to GPU, Inc.; and (2) an
equity  contribution  from GPU Capital of A$275 million  (approximately  US $180
million) provided through the issuance of commercial paper,  which is guaranteed
by GPU, Inc.

     In March 1999, GPU Electric acquired Emdersa for $375 million. Emdersa owns
three electric  distribution  companies that serve three  provinces in northwest
Argentina. The acquisition was financed through the issuance of commercial paper
by GPU Capital,  which is guaranteed by GPU, Inc. and a $50 million contribution
from GPU, Inc.

     In June 1999, National Power plc acquired all the assets and liabilities of
Midlands' supply business,  including obligations under Midlands' power purchase
agreements,  for $300 million  ($150 million for GPU's share) plus an adjustment
for working capital.  As a result, in the second quarter of 1999 GPU recorded an
after-tax gain on the sale of $10 million, or $0.08 per share.
                                       59

<PAGE>



     Management expects that GPU Electric 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.

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

     The GPUI  Group has  ownership  interests  in nine  operating  cogeneration
plants in the U.S.  totaling 1,147 MW (of which the GPUI Group's equity interest
represents 501 MW) of capacity and four operating generating  facilities located
in  foreign  countries  totaling  1,229 MW (of  which  the GPUI  Group's  equity
interest represents 424 MW) of capacity. At June 30, 1999, GPU, Inc.'s aggregate
investment in the GPUI Group was $242 million.  GPU, Inc. has also guaranteed up
to an additional $33.7 million of GPUI Group obligations.


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

Capital Expenditures and Investments
------------------------------------

GPU Energy Companies

     The GPU Energy  companies'  capital  spending for the six months ended June
30, 1999 was $139 million  (JCP&L $67 million;  Met-Ed $32 million;  Penelec $38
million;  Other $2  million),  and was used  primarily  to  expand  and  improve
existing  T&D  facilities  , for new  customer  connections  and to implement an
integrated information system. For 1999, capital expenditures for the GPU Energy
companies  are  estimated to be $397  million  (JCP&L $183  million;  Met-Ed $97
million;  Penelec $98 million;  Other $19  million),  primarily  for ongoing T&D
system   development  and  to  implement  an  integrated   information   system.
Expenditures  for maturing  obligations are expected to total $83 million (JCP&L
$3  million;  Met-Ed $30  million;  Penelec  $50  million)  in 1999.  Management
estimates that a substantial  portion of the GPU Energy  companies' 1999 capital
outlays will be satisfied through internally generated funds.

GPU Electric

     GPU Electric's  capital spending for the six months ended June 30, 1999 was
$1.04  billion and was used  primarily  for the  acquisition  of Emdersa and GPU
GasNet, and to improve PowerNet's facilities. For 1999, capital expenditures are
forecasted to be $19 million  (excluding the  acquisitions) and expenditures for
maturing  obligations  are expected to total $453 million.  Capital  outlays for
1999 will be satisfied  through  both  internally  generated  funds and external
financings.

GPUI Group

     The GPUI  Group's  capital  spending for the six months ended June 30, 1999
was $31 million  was used  primarily  for  construction  activities  at the GPUI
Group's South American investment. For 1999, capital expenditures are forecasted
to be $37 million and  expenditures  for  maturing  obligations  are expected to
total $28  million.  Capital  outlays for 1999 will be  satisfied  through  both
internally generated funds and external financings.


                                             60


<PAGE>


Financing
---------

GPU, Inc.

     In January 1999, the GPU, Inc. Board of Directors authorized the repurchase
of up to $350 million of GPU,  Inc.  common stock.  Through June 30, 1999,  GPU,
Inc. has  repurchased  2.6 million shares of common stock at an average price of
$39.21 per share.  Following  the  acquisition  of the remaining 50% interest in
Midlands in July 1999,  GPU,  Inc. has  temporarily  suspended  the common stock
repurchase program.

     GPU has $1.8 billion of committed credit facilities,  which include various
committed lines of credit totaling $207 million, a $250 million Revolving Credit
Agreement, and other Credit Agreements, as discussed below.

     GPU Capital has entered into a $1 billion 364-day senior  revolving  credit
facility in support of the issuance of commercial paper to fund the GPU Electric
acquisitions.  GPU Capital is the largest of three  issuers ($1  billion) in the
$1.45  billion  commercial  paper  program.  The other issuers are GPU Australia
Holdings,  Inc. ($350 million) and GPU, Inc. ($100 million).  GPU Capital, along
with GPU Australia  Holdings,  will use the proceeds from the sale of commercial
paper to finance  investments in FUCOs and EWGs.  Facility fees range from .085%
to .4%  depending  on GPU's  senior  debt rating and are  payable  quarterly.  A
separate  $360  million  credit  facility  serves  as the  backstop  for the GPU
Australia Holdings commercial paper program.

     GPU International has a Credit Agreement  providing for borrowings  through
December  1999 of up to $30 million  outstanding  at any time. Up to $15 million
may be utilized to provide  letters of credit.  An annual  facility  fee ranging
from .085% to .4% on the total  amount of the Credit  Agreement  and a letter of
credit fee ranging from .265% to 1.6% on the  outstanding  letters of credit are
payable by GPU International.

     The $250 million  Revolving  Credit  Agreement  between GPU,  Inc., the GPU
Energy  companies  and a consortium of banks expires May 6, 2001. A facility fee
of .125 of 1% is payable  annually.  Borrowing  rates and the  facility  fee are
based on the long-term debt ratings of GPU, Inc. and the GPU Energy companies.

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

GPU Energy companies

     Met-Ed and Penelec have obtained  regulatory  approval through December 31,
2000 to issue 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 has  regulatory  approval
through  December 31, 2000 to issue senior notes in the amount of $300  million,
and is seeking regulatory approval to issue up to $200 million of such amount as
preferred  securities.  Met-Ed and JCP&L will be issuing  secured  senior  notes
(collateralized  by FMBs issued to the senior note  trustee)  until such time as
more than 80% of the issued  FMBs are held by the senior note  trustee.  At that
time,  the  outstanding  senior notes will become  unsecured  obligations of the
respective  company and further  senior notes issued by Met-Ed and JCP&L will be
unsecured.  As noted  below,  in April  1999,  Penelec  issued  $350  million of
unsecured  senior notes. All further senior notes issued by Penelec will also be
unsecured.
                                       61


<PAGE>


     Current  plans call for the GPU Energy  companies to issue senior notes and
preferred  securities  during the next  three  years to fund the  redemption  of
maturing senior securities,  refinance outstanding senior securities and finance
construction activities. Following the initial issuance of senior notes, the GPU
Energy  companies  would not issue any additional  FMBs other than as collateral
for the senior  notes.  The senior note  indentures  will  prohibit  (subject to
certain  exceptions)  the GPU Energy  companies  from  issuing any debt which is
senior to the senior notes.

     The GPU Energy companies' bond indentures include provisions that limit the
amount of FMBs the  companies  may  issue.  The GPU Energy  companies'  interest
coverage ratios are currently in excess of indenture restrictions. 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.  JCP&L's
certificate  of  incorporation  includes  provisions  that  limit the  amount of
preferred stock and short-term  debt it may issue.  JCP&L's  preferred  dividend
coverage  ratio is  currently  in excess of the  charter  restrictions.  The GPU
Energy  companies have regulatory  authority to incur short-term debt, a portion
of which may be through the issuance of commercial paper.

     In June  1999,  JCP&L  redeemed  $5  million  stated  value  of  cumulative
preferred stock pursuant to mandatory and optional sinking fund provisions.

     In April 1999, Penelec redeemed $600 million of FMBs with proceeds from the
sale of its interest in Homer City. In April 1999,  Penelec  issued $350 million
of unsecured  senior  notes,  the proceeds  from which will be used to redeem or
repurchase other  outstanding  securities,  reduce short-term  borrowings,  fund
construction activities and for other corporate purposes.

     During the second  quarter of 1999,  Met-Ed and  Penelec  each  issued $100
million of Trust preferred  securities,  at 7.35% and 7.34% distribution  rates,
respectively.  In July 1999,  Penelec redeemed all of its outstanding  shares of
Company-obligated   mandatorily   redeemable  preferred  securities  for  $105.4
million.


GPU Electric

     In July 1999,  Austran  Holdings,  the parent of GPU  PowerNet,  refinanced
A$230 million of acquisition  debt  originally due in November 2000, with medium
term notes, due November 15, 2002.  Certain interest rate swap positions,  which
had been in place to convert the floating-rate  bank loans to a fixed rate, were
closed-out  at a cost of A$11.8  million  (US $7.7  million).  This cost will be
reflected in GPU's third quarter 1999 earnings.

     In  April  1999,  GPU  Australia   Holdings   refinanced  $350  million  of
outstanding  long-term debt associated with the GPU PowerNet  acquisition,  with
$345  million  of  commercial  paper  under its $350  million  commercial  paper
program.

     Austran  Holdings,  Inc.  (Austran),  a  wholly  owned  subsidiary  of  GPU
Electric,  has  established  a A$500 million  (approximately  U.S. $306 million)
commercial  paper  program.  GPU PowerNet has guaranteed  Austran's  obligations
under this program.  As of June 30, 1999, Austran had outstanding  approximately
A$427  million  (approximately  U.S. $285 million)  under the  commercial  paper
program,  the proceeds from which were used to refinance the maturing portion of
the senior debt credit facility used to finance the GPU

                                       62


<PAGE>


PowerNet acquisition. The Austran borrowings are classified as noncurrent on the
Consolidated  Balance  Sheet  since it is  management's  intent to  reissue  the
commercial paper on a long-term basis.

     For information relating to the financing of GPU Electric's  acquisition of
Midlands and GPU GasNet, see Note 3, Acquisitions.

     GPU may further reduce the outstanding  commercial paper issued  associated
with the  refinancing  of the Midlands  acquisition  debt in addition to the GPU
PowerNet  acquisition  debt with a portion of the proceeds  from the sale of the
GPU Energy  companies'  generating  facilities (see COMPETITIVE  ENVIRONMENT AND
RATE MATTERS section of Management's Discussion and Analysis).

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.  Remediation  plans and
corrective actions are well underway. The remediation plans include, among other
things,  the modification or replacement of Year 2000 Components,  which are not
ready for use beyond 1999.  In addition,  the GPU Energy  companies and the GPUI
Group have  completed  development  of  contingency  plans for  mission-critical
systems.  GPU  Electric  and  GPU AR are  scheduled  to have  contingency  plans
completed  by September  1999.  GPU's Year 2000 project is not expected to cause
any material  delay in GPU  information  technology  services  performing  other
planned projects.

     In January  and May 1999,  an  independent  consultant  retained  by GPU to
review the  adequacy of GPU's Year 2000 plans and state of  readiness  favorably
rated the GPU Energy  companies in their  progress  toward  achieving  Year 2000
readiness as measured  against the  consultant's  "best  practices"  model.  The
consultant also  identified  certain areas for additional  focus,  which GPU has
since addressed.

Regulatory Compliance for Year 2000 Readiness

    In July  1998,  the  PaPUC  entered  an Order  mandating  that  Pennsylvania
jurisdictional utilities have their mission-critical systems Year 2000 compliant
by March 31, 1999, and that utilities file contingency  plans with the PaPUC for
all  mission-critical  systems that will not be compliant by that date. With few
exceptions,  the  mission-critical  assets of Met-Ed and  Penelec  are Year 2000
ready,  and  contingency  plans were filed with the PaPUC on March 31,  1999 for
those  mission-critical  assets  that were not Year 2000 ready by that date.  In
April  1999,  the  PaPUC  ordered,  among  other  things,  that  its  Year  2000
investigation  remain open (until  compliance  is  achieved  or  enforcement  is
warranted)  for utilities that have  demonstrated  good cause for an appropriate
extension  of time within which they will fully comply with the July 1998 Order.
Met-Ed and Penelec  believe that they fall into this  category and will continue
to report to the PaPUC on the progress of their Year 2000 program.

     In August 1998,  the NJBPU ordered all  jurisdictional  utilities to submit
monthly  progress  reports to the NJBPU  detailing the status of the  utilities'
compliance efforts for mission-critical systems. Accordingly, since October 1998
monthly reports have been filed with the NJBPU detailing the Year 2000 readiness
status of JCP&L's mission-critical assets. In addition, the NJBPU
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<PAGE>


ordered all  jurisdictional  utilities  to submit Year 2000  contingency  plans,
which JCP&L filed with the NJBPU in July 1999. These contingency plans are based
on the expansive  scope of reporting as described in the guidelines of the North
American Electric Reliability Council (NERC).

     In  addition  to the  investigations  by the  PaPUC  and  NJBPU,  inquiries
concerning  GPU's  Year  2000  readiness  have  been  made by the  U.S.  Nuclear
Regulatory  Commission,  the U.S.  Department of Energy, the Pennsylvania Senate
Consumer Protection and Professional  Licensure  Committee,  the New York Public
Service  Commission  and by numerous  third  parties with which GPU has business
relationships.

Costs

     The GPU Energy companies currently expect to spend a total of approximately
$42.9 million (JCP&L $18.6 million;  Met-Ed $12 million;  Penelec $12.3 million)
on the Year 2000 issue, which includes $8.1 million (JCP&L $2.7 million;  Met-Ed
$2.7  million;  Penelec  $2.7  million)  that is  being  spent  as a part of the
purchase and  implementation  of a new integrated  information  system  (Project
Enterprise),  as described  below.  The $42.9 million also includes $7.4 million
(JCP&L $3.4 million; Met-Ed $1.9 million;  Penelec $2.1 million) that would have
been  spent  in any  event  for  maintenance  and  cyclical  replacement  plans.
Approximately  45% of the expected costs involve the modification or replacement
of Year 2000 Components;  and 55% are for labor  (including  contract labor) and
contingencies.  The GPU Energy  companies  are  funding  these  costs from their
operations.

     Through  June 30,  1999,  the GPU  Energy  companies  have spent a total of
approximately  $33 million  (JCP&L $14.5 million;  Met-Ed $9.2 million;  Penelec
$9.3  million)  (of the $42.9  million) on the Year 2000  issue,  of which $13.2
million (JCP&L $6.1 million; Met-Ed $3.5 million; Penelec $3.6 million) has been
spent in 1999.

     GPU  Electric  currently  expects  to  spend a total of  approximately  $16
million (to replace or modify  equipment at Midlands,  GPU PowerNet,  GPU GasNet
and Emdersa) on the Year 2000 issue.  Through  June 30,  1999,  GPU Electric has
spent a total of approximately $9.8 million on the Year 2000 issue.

     The total cost  associated  with the GPUI Group and GPU AR's achieving Year
2000  readiness is not expected to be material to GPU's  operations or financial
position.

     The Project  Enterprise  system,  referenced above, is designed to help the
GPU Energy  companies  manage  business growth and meet the mandates of electric
utility  deregulation.  The system became substantially  operational for the GPU
Energy  companies and GPUS in June 1999 and is expected to be fully  operational
for these companies by September 1999. GPUN and Genco are not installing Project
Enterprise  before 2000, but rather are making  modifications  to their existing
legacy information  systems to achieve Year 2000 readiness.  Genco has completed
the remediation and testing of its mission-critical information systems and GPUN
plans to complete such remediation and testing by September 1999.

Milestones

     GPU  has  established  Inventory,  Assessment,   Remediation,  Testing  and
Monitoring of its mission-critical Year 2000 Components as the primary phases

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for  its  Year  2000   program.   The  Inventory   and   Assessment   phases  of
mission-critical Year 2000 Components are complete. The remaining milestones for
Remediation, Testing and Monitoring are as follows:

                              Remediation    Testing        Monitoring
                              -----------    -------        ----------
GPU Energy and GPUS           09/30/1999     09/30/1999     03/31/2000
Genco                         Completed      Completed      05/31/2000
GPUN                          10/31/1999     10/31/1999     03/31/2000
GPU  Electric                 09/30/1999     09/30/1999     03/31/2000
GPUI Group                    08/31/1999     08/31/1999     03/31/2000
GPU Advanced  Resources       Completed      Completed      03/31/2000

     Remediation and testing of the GPU Energy companies'  mission-critical Year
2000 Components are essentially  complete,  with limited exceptions,  which have
been reported to State regulators and to NERC. In March 1999, testing of the GPU
Energy companies' electrical infrastructure was successfully completed and, as a
result, the electrical  delivery system is now considered to be Year 2000 ready.
Also,  in April 1999 the GPU Energy  companies  participated  in a NERC exercise
that  simulated a partial loss of voice and data  communications  and  conducted
several internal tests in conjunction with the drill. These tests were performed
with  favorable  results.  Year  2000  readiness  testing  for  the  GPU  Energy
companies' Customer Care System is scheduled to be completed in September 1999.

     Genco has completed  modification and testing of mission-critical Year 2000
Components  associated  with its  generation  capacity.  In June 1999, the PaPUC
witnessed  Year 2000 testing at the Titus  Generating  Station and, as a result,
requested various  documents,  which have been supplied.  Also in June 1999, the
PaPUC  observed  the NRC Year 2000  assessment  of TMI-1 and  requested  various
documents,  which  have  been  supplied.  In a July 1999  response  to the NRC's
Generic Letter 98-01  Supplement,  GPUN confirmed its Year 2000 readiness,  with
the following exceptions: The TMI Unit 1 Digital Turbine Control System, and two
software  applications  used by  GPUN  in  connection  with  employee  training,
radiation  exposure and access to radiation  work areas.  These  exceptions  are
expected to be resolved by October 31, 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 critical 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
several  critical  areas:  (1)  the   Pennsylvania-New   Jersey-Maryland   (PJM)
Interconnection;   (2)  electric  generation  suppliers,  such  as  cogeneration
operators and NUGs; (3) Electronic Data Interchange (EDI) with trading partners;
(4) Electronic  Funds Transfer (EFT) with financial  institutions;  (5) vendors;
and (6) customers.

     The following summarizes the actions that have been taken by the GPU Energy
companies with critical third parties:



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<PAGE>


-   PJM - Data  link  testing  with PJM and all PJM  member  companies  has been
    successfully  completed.  Phase III data link  testing  is  scheduled  to be
    conducted  simultaneously,  with all  member  companies,  during  the  third
    quarter of 1999.

-   Electric  generation  suppliers  - The GPU Energy  companies  have  received
    preliminary  readiness  information  from all critical  electric  generation
    suppliers.  Based on the information  provided, it is anticipated that these
    suppliers will achieve Year 2000 readiness prior to year-end 1999.

-   EDI/EFT - The GPU Energy companies have contacted all critical organizations
    with which it exchanges data  electronically  and conducts  electronic funds
    transfers.  Testing  has  been  successfully  completed  with  60% of  those
    contacted. Testing with the remaining critical partners is expected to occur
    in the third quarter of 1999.

    The testing of the GPU Energy  companies'  Electronic  Funds Transfer System
    (EFT) encountered Year 2000  date-related  issues that have been reported to
    the software vendor. Corrections from the vendor are expected to be received
    in the third quarter of 1999. Upon receipt and  installation of the software
    corrections,  the  appropriate  Year  2000  tests  for  the  system  will be
    performed.  In addition, the GPU Energy companies have developed contingency
    plans for EFT.

-   Vendors - The GPU Energy  companies have  completed a preliminary  readiness
    assessment  of its critical  vendors and  financial  partners.  Based on the
    information  obtained,  it is  anticipated  that all  critical  vendors will
    achieve Year 2000 readiness prior to year-end 1999.

-   Customers - A customer readiness  assessment was initiated during the fourth
    quarter  of  1998  and all  critical  customers  have  been  contacted.  The
    preliminary  assessment process has been completed and the response rate has
    exceeded the response goal.  The readiness of customers  providing in excess
    of $2 billion in annual revenue (in the aggregate) has been assessed.

GPU AR expects to complete  its review of third  party  readiness  by  September
1999.

Scenarios and Contingencies

     If GPU,  or critical  third  parties  upon whom GPU  relies,  are unable to
successfully  address  their  Year  2000  issues  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 issue
will have on its operations,  one possible  scenario could include,  among other
things,  interruptions in delivering electric service, and a temporary inability
to process transactions,  provide bills or operate electric generating stations.
GPU is in the process of evaluating  whether  mission-critical  components  that
have not as yet been  tested,  would  have a  material  adverse  effect on GPU's
operations or financial condition if they did not function properly.

     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 June 1999, the GPU Energy companies
filed with the NERC a report containing an overview of their contingency
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<PAGE>


planning  strategies,  as well as details about certain  contingency plans. hese
plans,   which  will  be  refined   throughout  1999,   include  procedures  for
supplementing  present general  emergency plans with specific  measures for Year
2000 problems and the placement of troubleshooting teams at sites where critical
components are located.

                    COMPETITIVE ENVIRONMENT AND RATE MATTERS
                    ----------------------------------------

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

     Currently,  and  increasingly in the future,  the GPU Energy companies will
serve customers in markets where there will  essentially be capped rates.  Since
the GPU Energy companies expect to exit the merchant  generation business in the
near future,  they will need to supply energy largely from contracted  purchases
and purchases in the open market.  Management  is in the process of  identifying
and  addressing  market  risks.  There can be no  assurance  that the GPU Energy
companies  will be able to supply  electricity to customers that it has obtained
at  reasonable  cost to the  respective  companies,  which could have an adverse
effect on GPU's results of operations.

     GPU  expects  to  be  in  a  regulated   business  (the   transmission  and
distribution  of  electricity).  In the  future,  GPU's  ability  to  seek  rate
increases will be more limited than it has been in the past and, notwithstanding
increases in costs, rates may be capped for varying periods.  Since GPU intends,
to a large extent,  to exit the merchant  generation  business,  it will need to
meet capacity  obligations and supply energy largely from  contracted  purchases
and  purchases  in the open  market.  In  addition,  inflation  may have various
effects  on GPU  since  it will be a  factor  in  revenue  calculations  in some
jurisdictions, but may cause increased operating costs with GPU having a limited
ability to pass these costs to its  customers  because of capped  rates in other
areas.  Management is in the process of identifying and addressing  these market
risks,  however,  there  can be no  assurance  that GPU will be able to  recover
through  these capped rates all of the costs of the  electricity  required to be
purchased for customers.
     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.

Generation Divestiture
----------------------

     In 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.

     In March 1999, Penelec completed the sale of its 50% interest in Homer City
to a subsidiary of Edison Mission Energy for  approximately  $900 million.  As a
result of the sale,  Penelec  recorded an after-tax gain of $27.8 million in the
first  quarter  of 1999,  for the  portion  of the  gain  related  to  wholesale
operations and deferred as a regulatory  liability  $596.7 million pending Phase
II of the Pennsylvania restructuring proceeding.

     In  November  1998,  the  GPU  Energy  companies  entered  into  definitive
agreements with Sithe Energies (Sithe) and The Cleveland  Electric  Illuminating
Company (CEI) Corporation to sell all their remaining fossil-fuel and

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<PAGE>


hydroelectric generating facilities other than JCP&L's 50% interest in the Yards
Creek  Pumped  Storage  Facility  (Yards  Creek) for a total  purchase  price of
approximately  $1.7 billion  (JCP&L $442 million;  Met-Ed $677 million;  Penelec
$604 million).  In July 1999,  Penelec's 20% undivided ownership interest in the
Seneca  Pumped  Storage  Facility  was  sold to CEI for $43  million,  which  is
included in this amount.  The sales to Sithe are expected to be completed in the
third quarter 1999,  subject to the timely  receipt of the necessary  regulatory
and other  approvals.  Sithe has  agreed to  assume  the  collective  bargaining
agreements  covering  union  employees and to fill  bargaining  positions on the
basis of  seniority.  Sithe has also agreed to use  reasonable  efforts to offer
positions  to Genco  non-bargaining  employees.  The GPU Energy  companies  have
agreed to assume up to $20 million (JCP&L $7 million; Met-Ed $9 million; Penelec
$4 million) of employee severance costs for employees not hired by Sithe.

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

     -   The total cash purchase  price is  approximately  $100  million,  which
         represents  $23 million to be paid at closing,  and $77 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
         and  closing  payment are  subject to certain  adjustments  for capital
         expenditures and other items.

     -   AmerGen  will make  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  closing,   GPU  will  make  additional   deposits  into  the  TMI-1
         decommissioning trusts to bring the trust totals up to $320 million and
         AmerGen   will  then   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). No liability for TMI-2 or its  decommissioning  will be
         assumed  by  AmerGen.  AmerGen  will,  however,  maintain  TMI-2  under
         contract with GPU.

     -   AmerGen will employ all employees located at TMI-1 at 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  closing.  AmerGen
         will assume 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.  In April 1999,  the NRC
approved the transfer of the TMI-1  license to AmerGen.  GPU expects to complete
the sale by the end of 1999.  There can be no  assurance  as to the  outcome  of
these matters.



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<PAGE>


     The net proceeds from these  generation  asset sales will be used to reduce
the capitalization of the respective GPU Energy companies,  repurchase GPU, Inc.
common stock,  fund  previously  incurred  liabilities  in  accordance  with the
Pennsylvania   settlement,   reduce  JCP&L's  company-owned  generation  related
stranded  costs and may also be  applied  to  reduce  short-term  debt,  finance
further acquisitions, and reduce acquisition debt of GPU Electric.

     JCP&L has been  exploring the sale or early  retirement of the Oyster Creek
facility.  In May 1999, the NJBPU approved  JCP&L's request to recover the costs
associated with an early retirement of Oyster Creek in 2000.

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

New Jersey Restructuring

     On May 24, 1999,  the NJBPU issued a Summary  Order with respect to JCP&L's
rate unbundling,  stranded cost and  restructuring  filings.  This Summary Order
provides for, among other things, the following:

     -   customer  choice of electric  generation  supplier  for all  consumers
         beginning August 1, 1999. On October 25, 1999,  utilities are to begin
         accepting customer selection of suppliers;

     -   a 5% rate reduction commencing August 1, 1999; additional reductions of
         1% in 2000 and 2% in 2001;  and an additional  net 3% reduction in 2002
         inclusive  of a 5% rate  refund  from April 30,  1997 rates for service
         rendered on or after August 1, 2002,  partially offset by a 2% increase
         in the Market  Transition Charge (MTC). The total rate reduction of 11%
         will remain in effect through July 2003;

     -   the removal from  regulation  of the costs  associated  with  providing
         electric  generation  service.  JCP&L  must  provide  basic  generation
         service  (BGS)to  retail  customers  who do not  choose an  alternative
         generation  supplier during the three-year period ending July 31, 2002.
         BGS after this period will be bid out;

     -   the  average  shopping  credits  will range from 5.14 cents per KWH in
         1999 to 5.40 cents in 2003;

     -   an average distribution rate of 3.35 cents per KWH;

     -   the ability to recover stranded costs;

     -   the ability to securitize approximately $400 million of stranded costs
         associated with Oyster Creek;

     -   effective  August 1, 1999,  JCP&L is no longer  subject to an earnings
         cap;

     -   the  establishment  of a  non-bypassable  societal  benefits  clause to
         recover   costs   associated   with  nuclear   plant   decommissioning,
         demand-side management,  manufactured gas plant remediation,  universal
         service fund, and consumer education; and

     -   the  NJBPU  will  conduct  an  annual  review  and  assessment  of  the
         reasonableness   and  prudency  of  costs  incurred  by  JCP&L  in  the
         procurement of energy and capacity  needed to serve BGS load as well as
         of NUG and utility power purchase agreement stranded costs.
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<PAGE>


     In addition,  JCP&L will implement a non-bypassable MTC through which JCP&L
will collect:

     -   above-market  costs  associated  with  long-term NUG and utility power
         purchase agreements;

     -   any under-recovered  deferred costs as of August 1, 1999 resulting from
         JCP&L's current levelized energy adjustment clause;

     -   the recovery,  over 11-years,  of $130 million in early  retirement and
         severance-related  costs should Oyster Creek be retired from service in
         2000; and

     -   the amortization of Oyster Creek sunk costs, pending securitization.

    A final  Restructuring  Order containing a full discussion of the issues, is
expected to be received in the third quarter of 1999.

Pennsylvania Restructuring
--------------------------

     In 1996,  Pennsylvania adopted  comprehensive  legislation (Customer Choice
Act) which provides for the restructuring of the electric utility  industry.  In
October  1998,  the  PaPUC  issued  amended  Restructuring   Orders,   approving
Settlement  Agreements  entered  into by Met-Ed  and  Penelec.  An appeal by one
intervenor  in  the  restructuring  proceedings  is  still  pending  before  the
Pennsylvania  Commonwealth Court. There can be no assurance as to the outcome of
this appeal.

     The results of Met-Ed and  Penelec's  sale of their  generating  facilities
(see Generation Divestiture) will be addressed in a Phase II of the Pennsylvania
restructuring  proceeding.  There can be no assurance as to the outcome of these
matters.

Federal Regulation
------------------

      In  November  1997,  the FERC issued an order to the PJM Power Pool which,
among  other  things,   directed  the  GPU  Energy   companies  to  implement  a
single-system  transmission rate, effective April 1, 1998. The implementation of
the single-system rate has not affected total transmission revenues, however, it
has  increased  the pricing  for  transmission  service in Met-Ed and  Penelec's
service territories and reduced the pricing for transmission  service in JCP&L's
service territory.

      The GPU Energy  companies have requested the FERC to reconsider its ruling
requiring a single-system transmission rate. The Restructuring Orders for Met-Ed
and Penelec provide for a transmission  and  distribution  rate cap exception to
recover the increase in the  transmission  rate from Met-Ed and Penelec's retail
customers  in the event the FERC denies the request for  reconsideration  of the
single-system  transmission  rate.  The FERC's ruling may also have an effect on
JCP&L's  distribution rates. There can be no assurance as to the outcome of this
matter.

      Several  bills  have  been   introduced   in  Congress   providing  for  a
comprehensive  restructuring  of the  electric  utility  industry.  These  bills
proposed,  among other  things,  retail  choice for all utility  customers,  the
opportunity for utilities to recover their prudently  incurred stranded costs in
varying degrees,  and repeal of both the Public Utility Regulatory  Policies Act
(PURPA) and the Public Utility Holding Company Act of 1935 (PUHCA).
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<PAGE>


      In April 1999, the Clinton  administration  introduced  the  Comprehensive
Electricity  Competition  Act which  proposes a flexible  mandate  for  customer
choice by January 1, 2003, reliability standards,  environmental provisions, and
the repeal of both PURPA and PUHCA.  The flexible  mandate  allows states to opt
out of the  mandate  if they  believe  consumers  would be  better  served by an
alternative policy.

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

      Pursuant to the mandates of PURPA and state regulatory directives, the GPU
Energy companies have been required to enter into power purchase agreements with
NUGs for the purchase of energy and capacity for  remaining  periods of up to 22
years.  Although a few of these facilities are  dispatchable,  most are must-run
and  generally  obligate the GPU Energy  companies to purchase,  at the contract
price,  the output up to the contract  limits.  As of June 30, 1999,  facilities
covered  by these  agreements  having  1,681 MW (JCP&L  928 MW;  Met-Ed  348 MW;
Penelec 405 MW) of capacity were in service.

      The NJBPU Summary  Order and PaPUC  Restructuring  Orders  provide the GPU
Energy  companies  assurance  of full  recovery  of their NUG  costs  (including
above-market  NUG costs and certain buyout costs).  Accordingly,  the GPU Energy
companies have recorded a liability of $3.5 billion (JCP&L $1.7 billion;  Met-Ed
$0.8  billion;  Penelec  $1  billion)  on the  Consolidated  Balance  Sheets for
above-market  NUG costs  which is fully  offset by  Regulatory  assets,  net. In
addition,  JCP&L  recorded a liability of $75 million for  above-market  utility
purchase power agreements with a corresponding  offset to Regulatory assets, net
since  there is  assurance  of full  recovery.  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. (See the Competition and the Changing Regulatory Environment
section of Note 1 of the Notes to Consolidated Financial Statements.)

      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.


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

     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.  In light of retail access  legislation  enacted in
Pennsylvania and New Jersey, the extent to which competition will affect the GPU
Energy  companies'  supply plan remains  uncertain.  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 do not
choose a competitive supplier and continue to receive energy supplied by the GPU
Energy  companies  and  whom  the  GPU  Energy  companies  continue  to  have an
obligation to serve.

     After the pending sales of the GPU Energy companies'  generating facilities
have been completed, GPU will have 819 MW of capacity and related

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<PAGE>


energy from Oyster Creek and Yards Creek  remaining to meet customer  needs (see
the Oyster Creek section of NUCLEAR  FACILITIES for a discussion of the possible
sale or early  retirement of Oyster Creek).  The GPU Energy  companies also have
contracts  with NUG facilities  totaling 1,681 MW and JCP&L has agreements  with
other utilities to provide for up to 629 MW of capacity and related energy.  The
GPU Energy companies have agreed to purchase all of the capacity and energy from
TMI-1 through December 31, 2001. In addition,  the GPU Energy companies have the
right to call the  capacity of the Homer City station (942 MW) for two years and
the  capacity  of the  generating  stations  sold to Sithe  (4,117 MW) for three
years, from the dates of sale. The GPU Energy companies'  remaining capacity and
energy needs will focus on short- to intermediate-term commitments (one month to
three  years)  during  periods of expected  high  energy  price  volatility  and
reliance on spot market  purchases  during other  periods.  Management is in the
process of identifying and addressing the GPU Energy  companies' future capacity
and energy needs, and the impact of customer shopping and changes in demand.

     As a result of the  NJBPU and the  PaPUC's  restructuring  orders,  the GPU
Energy companies are required to provide  generation service to customers who do
not choose an alternate supplier (For additional  information,  see the Provider
of Last Resort and Basic Generation  Service sections below.) Given that the GPU
Energy  companies  are  divesting  their  generation  business,  there  will  be
increased  market risks associated with providing  generation  service since the
GPU  Energy  companies  will have to supply  energy  to  non-shopping  customers
entirely from contracted and open market  purchases.  GPU Energy may not be able
to recover the cost of the energy  purchased  through  rates which may be capped
for varying periods.  However,  as part of the Summary Order, JCP&L is permitted
to recover  reasonable and prudently  incurred costs  associated  with providing
basic  generation  service.  Management  is in the  process of  identifying  and
addressing these market risks,  however,  there can be no assurance that the GPU
Energy  companies  will be able to supply  electricity  to customers  who do not
choose an alternate  supplier at a reasonable cost to the respective  companies,
which would have an adverse effect on GPU's results of operations.

Provider of Last Resort
-----------------------

     Under the PaPUC Restructuring Orders, Met-Ed and Penelec customers may shop
for their  generation  supplier  beginning  January  1, 1999.  A PaPUC  approved
competitive  bid process will assign  provider of last resort (PLR)  service for
20% of Met-Ed and  Penelec's  retail  customers on June 1, 2000,  40% on June 1,
2001,  60% on June 1, 2002,  and 80% on June 1,  2003,  to  licensed  generation
suppliers referred to as Competitive Default Service (CDS). If no qualified bids
for CDS are received at or below their generation rate caps,  Met-Ed and Penelec
will  continue to provide  PLR service at the rate cap levels  until 2010 unless
modified by the PaPUC. Any retail customers assigned to CDS may return to Met-Ed
and Penelec as the default PLR at no additional  charge.  Met-Ed and Penelec may
meet any remaining PLR obligation at rates not less than the lowest rate charged
by the winning CDS provider, but no higher than Met-Ed and Penelec's rate cap.

Basic Generation Service Provider
---------------------------------

     The NJBPU  Summary Order states that JCP&L must provide BGS to those retail
customers  who  choose  to  remain  with  JCP&L as  generation  customers  for a
three-year period ending July 31, 2002. JCP&L's BGS rates will be pre-determined
for the period through July 31, 2003.
The responsibility for BGS

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<PAGE>


after July 31, 2002 will be bid out.  Bidders  will bid for the right to provide
BGS during the year commencing  August 1, 2002 at the  pre-established  shopping
credits.  Any payment  received or required by JCP&L  resulting from the bidding
process will be included in the deferred balance for future refund or recovery.

                               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 Issue 97-4)
concluded in June 1997 that  utilities are no longer  subject to FAS 71, for the
relevant  portion of their business,  when they know details of their individual
transition plans to a competitive electric generation marketplace. The EITF also
concluded that  utilities can continue to carry  previously  recorded  regulated
assets,  as well as any newly  established  regulated  assets  (including  those
related to generation),  on their balance sheets if regulators have guaranteed a
regulated cash flow stream to recover the cost of these assets.

      On May 24,  1999,  the NJBPU  issued a  Summary  Order  regarding  JCP&L's
unbundling,   stranded  cost  and   restructuring   filings  which   essentially
deregulated the electric generation portion of JCP&L's business. Accordingly, in
the second quarter of 1999,  JCP&L  discontinued  the  application of FAS 71 and
adopted the  provisions of Statement of Financial  Accounting  Standards No. 101
(FAS 101),  "Regulated  Enterprises  -  Accounting  for the  Discontinuation  of
Application  of FASB  Statement  No. 71" and EITF Issue 97-4 with respect to its
electric generation operations. In 1998, Met-Ed and Penelec, in conjunction with
receiving their Restructuring Orders, discontinued the application of FAS 71 and
adopted the provisions of FAS 101 and EITF 97-4 for their generation  operation.
The  transmission  and  distribution   portion  of  the  GPU  Energy  companies'
operations continue to be subject to the provisions of FAS 71.

    In accordance  with FAS 121,  impairment  tests  performed by the GPU Energy
companies on the net book values of their generation  facilities determined that
the net  investments in TMI-1 and Oyster Creek were impaired.  This has resulted
in a write-down  to reflect  TMI-1 and Oyster  Creek's fair market values in the
amounts of $520 million (pre-tax) and $630 million (pre-tax),  respectively. The
majority of the TMI-1  write-down  was  recorded in 1998 while the Oyster  Creek
write-down  was  recorded  in the  quarter  ended June 30,  1999.  Of the amount
written down for TMI-1,  $510 million was  reestablished  as a regulatory  asset
because  management  believes it is  probable  of recovery in the  restructuring
process and $10 million (the FERC jurisdictional portion) was charged to expense
as an extraordinary  item in 1998. The total  impairment  amount of Oyster Creek
was reversed and  reestablished  as a regulatory  asset since the Summary  Order
provides  for rate  recovery.  (For further  information  relating to the Oyster
Creek  impairment  write-down,  see Note 2,  Accounting  for  Extraordinary  and
Non-recurring items.)

     In 1998,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial  Accounting  Standards No. 133 (FAS 133),  "Accounting  for Derivative
Instruments and Hedging Activities." FAS 133 establishes accounting and

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<PAGE>


reporting  standards for derivative  instruments,  including certain  derivative
instruments  embedded in other contracts,  and for hedging  activities.  FAS 133
requires  that  companies   recognize  all   derivatives  as  either  assets  or
liabilities  on the balance sheet and measure those  instruments  at fair value.
GPU will be required to include its derivative transactions on its balance sheet
at fair value,  and  recognize  the  subsequent  changes in fair value as either
gains or losses in earnings or report them as a component of other comprehensive
income,  depending upon the intended use and  designation of the derivative as a
hedge.  FAS 133 is effective for all fiscal  quarters of fiscal years  beginning
after June 15, 2000.  GPU will adopt FAS 133 in the first quarter of 2001 and is
in the process of evaluating the impact of this statement.






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<PAGE>


PART II

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

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

ITEM 6 -    EXHIBITS AND REPORTS ON FORM 8-K
            --------------------------------

            (a) Exhibits


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

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

              (27)..Financial Data Schedules

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

            (b) Reports on Form 8-K:

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

                  Dated May 12, 1999, under Item 5 (Other Events).
                  Dated May 26, 1999, under Item 5 (Other Events).
                  Dated July 6, 1999, under Item 5 (Other Events).
                  Dated July 20, 1999, under Item 5 (Other Events).

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

                  Dated May 26, 1999, under Item 5 (Other Events).
                  Dated August 5, 1999 under Item 5 (Other Events).

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

                  Dated May 28, 1999, under Item 5 (Other Events).

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

                  Dated June 17, 1999, under Item 5 (Other Events).
                  Dated August 5, 1999 under Item 5 (Other Events).



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<PAGE>




                                  Signatures
                                  ----------


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


                                    GPU, INC.



August 10, 1999                     By:    /s/ B. L. Levy
                                          ----------------------------------
                                          B. L. Levy, Senior Vice President
                                          (Chief Financial Officer)



August 10, 1999                     By:    /s/ P. E. Maricondo
                                          ----------------------------------
                                          P. E. Maricondo, Vice President
                                          and Comptroller
                                          (Chief Accounting Officer)



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



August 10, 1999                     By:    /s/ D. Baldassari
                                          ----------------------------------
                                          D. Baldassari, President
                                          (Principal Operating Officer)


August 10, 1999                     By:    /s/ C. A. Mascari
                                          ----------------------------------
                                          C. A. Mascari,
                                          Vice President - Power Services
                                          and Comptroller
                                          (Principal Accounting Officer)




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