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


(Mark One)

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


For the quarterly period ended   September 30, 1997

                                       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)
                   100 Interpace Parkway
                   Parsippany, New Jersey 07054-1149
                   Telephone (973) 263-6500

1-3141             Jersey Central Power & Light Company              21-0485010
                   (a New Jersey corporation)
                   2800 Pottsville Pike
                   Reading, Pennsylvania 19605
                   Telephone (610) 929-3601

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

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


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


         The number of shares  outstanding  of each of the  issuer's  classes of
voting stock, as of October 31, 1997, was as follows:
                                                                     Shares
Registrant                           Title                         Outstanding
----------                           -----                         -----------

GPU, Inc.                            Common Stock, $2.50 par value 120,792,487
Jersey Central Power & Light Company Common Stock, $10 par value    15,371,270
Metropolitan Edison Company          Common Stock, no par value        859,500
Pennsylvania Electric Company        Common Stock, $20 par value     5,290,596


<PAGE>


                       GPU, Inc. and Subsidiary Companies
                          Quarterly Report on Form 10-Q
                               September 30, 1997

                                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                                                      46

PART II - Other Information                                                69

Signatures                                                                 70

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

    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 fo
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 1996
Annual  Report  on Form  10-K,  filed  by the  individual  registrants  with the
Securities and Exchange Commission and should be read in conjunction therewith.

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



                                       2
<PAGE>



                       GPU, INC. AND SUBSIDIARY COMPANIES

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

                                                              In Thousands
                                                              ------------
                                                     September 30,  December 31,
                                                          1997          1996
                                                          ----          ----
                                                      (Unaudited)

ASSETS
Utility Plant:
  In service, at original cost                         $ 9,873,012   $ 9,646,380
  Less, accumulated depreciation                         3,953,755     3,704,026
                                                       -----------   -----------
      Net utility plant in service                       5,919,257     5,942,354
  Construction work in progress                            223,889       277,440
  Other, net                                               170,217       168,029
                                                       -----------   -----------
         Net utility plant                               6,313,363     6,387,823
                                                       -----------   -----------

Other Property and Investments:
  GPU International Group investments, net                 850,315       924,397
  Nuclear decommissioning trusts, at market                544,607       464,011
  Nuclear fuel disposal trust, at market                   107,623       101,661
  Other, net                                                53,713        51,122
                                                       -----------   -----------
         Total other property and investments            1,556,258     1,541,191
                                                       -----------   -----------

Current Assets:
  Cash and temporary cash investments                       42,523        31,604
  Special deposits                                          29,313        47,545
  Accounts receivable:
      Customers, net                                       293,577       270,844
      Other                                                109,675        91,637
  Unbilled revenues                                        129,846       114,891
  Materials and supplies, at average cost or less:
      Construction and maintenance                         185,664       187,130
      Fuel                                                  39,600        40,207
  Deferred income taxes                                     61,031        32,148
  Prepayments                                              112,003        81,168
  Other                                                        379          --
                                                       -----------   -----------
       Total current assets                              1,003,611       897,174
                                                       -----------   -----------

Deferred Debits and Other Assets:
  Regulatory assets:
      Three Mile Island Unit 2 deferred costs              345,352       356,517
      Income taxes recoverable through future rates        526,623       527,385
      Nonutility generation contract buyout costs          251,068       242,481
      Unamortized property losses                           97,281       100,310
      Other                                                435,616       426,579
                                                       -----------   -----------
         Total regulatory assets                         1,655,940     1,653,272
  Deferred income taxes                                    365,234       332,828
  Other                                                    148,943       128,931
                                                       -----------   -----------
         Total deferred debits and other assets          2,170,117     2,115,031
                                                       -----------   -----------



         Total Assets                                  $11,043,349   $10,941,219
                                                       ===========   ===========


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



                                       3
<PAGE>


                       GPU, INC. AND SUBSIDIARY COMPANIES

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

                                                            In Thousands
                                                              ------------
                                                     September 30,  December 31,
                                                          1997          1996
                                                          ----          ----
                                                      (Unaudited)
    
LIABILITIES AND CAPITAL
Capitalization:
  Common stock                                         $   314,458   $   314,458
  Capital surplus                                          753,082       750,569
  Retained earnings                                      2,188,770     2,068,976
                                                       -----------   -----------
      Total                                              3,256,310     3,134,003
  Less, reacquired common stock, at cost                    82,391        86,416
                                                       -----------   -----------
      Total common stockholders' equity                  3,173,919     3,047,587
  Cumulative preferred stock:
      With mandatory redemption                             91,500       114,000
      Without mandatory redemption                          66,478        66,478
  Subsidiary-obligated mandatorily
      redeemable preferred securities                      330,000       330,000
  Long-term debt                                         3,211,509     3,177,016
                                                       -----------   -----------
         Total capitalization                            6,873,406     6,735,081
                                                       -----------   -----------



Current Liabilities:
  Securities due within one year                            63,816       178,583
  Notes payable                                            334,685       265,547
  Obligations under capital leases                         149,281       143,818
  Accounts payable                                         348,188       354,819
  Taxes accrued                                             33,929        25,717
  Deferred energy                                           30,922        15,559
  Interest accrued                                          53,908        70,370
  Other                                                    237,069       282,193
                                                       -----------   -----------
         Total current liabilities                       1,251,798     1,336,606
                                                       -----------   -----------



Deferred Credits and Other Liabilities:
  Deferred income taxes                                  1,574,264     1,562,979
  Unamortized investment tax credits                       125,320       133,572
  Three Mile Island Unit 2 future costs                    444,175       430,508
  Regulatory liabilities                                    92,379        89,815
  Other                                                    682,007       652,658
                                                       -----------   -----------
         Total deferred credits and other liabilities    2,918,145     2,869,532
                                                       -----------   -----------



Commitments and Contingencies (Note 1)


         Total Liabilities and Capital                 $11,043,349   $10,941,219
                                                       ===========   ===========


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



                                       4
<PAGE>

<TABLE>
<CAPTION>



                       GPU, INC. AND SUBSIDIARY COMPANIES

                        Consolidated Statements of Income
                        ---------------------------------
                                   (Unaudited)
                                
                                                                                             In Thousands
                                                                                       (Except Per Share Data)
                                                                                       -----------------------
                                                                           Three Months                   Nine Months
                                                                       Ended September 30,            Ended September 30,
                                                                       -------------------            -------------------
                                                                        1997           1996          1997            1996
                                                                        ----           ----          ----            ----
<S>                                                                 <C>            <C>            <C>            <C>    
Operating Revenues                                                  $ 1,093,598    $ 1,058,223    $ 3,062,926    $ 2,993,411
                                                                    -----------    -----------    -----------    -----------

Operating Expenses:
   Fuel                                                                  94,310         98,200        276,122        284,969
   Power purchased and interchanged                                     282,694        270,867        771,513        761,749
   Deferral of energy and capacity
       costs, net                                                         4,900          9,861         11,629         19,701
   Other operation and maintenance                                      245,206        363,848        683,834        832,201
   Depreciation and amortization                                        121,185        102,726        347,755        297,233
   Taxes, other than income taxes                                        95,186         99,263        271,589        274,046
                                                                    -----------    -----------    -----------    -----------
      Total operating expenses                                          843,481        944,765      2,362,442      2,469,899
                                                                    -----------    -----------    -----------    -----------

Operating Income Before Income Taxes                                    250,117        113,458        700,484        523,512
   Income taxes                                                          71,706         20,292        198,940        134,387
                                                                    -----------    -----------    -----------    -----------
Operating Income                                                        178,411         93,166        501,544        389,125
                                                                    -----------    -----------    -----------    -----------

Other Income and Deductions:
   Allowance for other funds used during
     construction                                                           274           (743)           935          1,741
   Other income/(expense), net                                         (162,533)         5,720       (129,512)        17,300
   Income taxes                                                          64,842          1,355         61,924         (2,590)
                                                                    -----------    -----------    -----------    -----------
      Total other income and deductions                                 (97,417)         6,332        (66,653)        16,451
                                                                    -----------    -----------    -----------    -----------

Income Before Interest Charges
   and Preferred Dividends                                               80,994         99,498        434,891        405,576
                                                                    -----------    -----------    -----------    -----------

Interest Charges and Preferred Dividends:
   Interest on long-term debt                                            45,868         45,708        137,726        138,316
   Other interest                                                         9,214          9,518         27,364         22,497
   Allowance for borrowed funds used
     during construction                                                 (1,104)        (2,555)        (3,547)        (6,378)
   Dividends on subsidiary-obligated mandatorily
     redeemable preferred securities                                      7,222          7,222         21,666         21,666
   Preferred stock dividends of
     subsidiaries                                                         2,890          3,784          9,491         11,776
                                                                    -----------    -----------    -----------    -----------
      Total interest charges and
        preferred dividends                                              64,090         63,677        192,700        187,877
                                                                    -----------    -----------    -----------    -----------

Net Income                                                          $    16,904    $    35,821    $   242,191    $   217,699
                                                                    ===========    ===========    ===========    ===========

Earnings Per Average Common Share                                   $       .14    $       .29    $      2.00    $      1.80
                                                                    ===========    ===========    ===========    ===========

Average Common Shares Outstanding                                       121,049        120,791        120,964        120,710
                                                                    ===========    ===========    ===========    ===========

Cash Dividends Paid Per Share                                       $       .50    $      .485    $     1.485    $      1.44
                                                                    ===========    ===========    ===========    ===========


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




                                       5
</TABLE>

<PAGE>



                       GPU, INC. AND SUBSIDIARY COMPANIES

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

                                                               In Thousands
                                                               ------------
                                                                Nine Months
                                                            Ended September 30,
                                                            -------------------
                                                             1997        1996
                                                             ----        ----
Operating Activities:
   Net income                                            $ 242,191    $ 217,699
   Adjustments to reconcile income to cash provided:
     Depreciation and amortization                         370,769      315,726
     Amortization of property under capital leases          36,867       42,711
     Equity in undistributed (earnings)/losses
       of affiliates                                        85,995      (15,253)
     Voluntary enhanced retirement programs                   --        122,739
     Nuclear outage maintenance costs, net                   8,685        3,597
     Deferred income taxes and investment tax
         credits, net                                      (68,815)      14,664
     Deferred energy and capacity costs, net                11,629       19,696
     Accretion income                                       (8,070)      (8,708)
     Allowance for other funds used
         during construction                                  (935)      (1,741)
   Changes in working capital:
     Receivables                                           (51,480)     (48,788)
     Materials and supplies                                  1,995       16,113
     Special deposits and prepayments                      (15,808)     (92,705)
     Payables and accrued liabilities                        1,373      (16,063)
   Nonutility generation contract buyout costs             (49,050)     (90,450)
  Other, net                                               (25,136)     (51,396)
                                                         ---------    ---------
        Net cash provided by operating activities          540,210      427,841
                                                         ---------    ---------

Investing Activities:
   Cash construction expenditures                         (235,941)    (261,185)
   Contributions to decommissioning trusts                 (30,764)     (30,136)
   GPU International Group investments                     (97,565)    (541,587)
   Other, net                                               49,132        3,703
                                                         ---------    ---------
        Net cash used for investing activities            (315,138)    (829,205)
                                                         ---------    ---------

Financing Activities:
   Issuance of long-term debt                              130,471      563,762
   Increase in notes payable, net                           60,227      177,797
   Retirement of long-term debt                           (166,601)     (71,389)
   Capital lease principal payments                        (38,884)     (42,673)
   Redemption of preferred stock of subsidiaries           (20,000)     (20,000)
   Dividends paid on common stock                         (179,188)    (173,484)
                                                         ---------    ---------
        Net cash provided/(required) by
         financing activities                             (213,975)     434,013
                                                         ---------    ---------

Effect of exchange rate changes on cash                       (178)         108

Net increase in cash and temporary
  cash investments from above activities                    10,919       32,757
Cash and temporary cash investments, beginning of year      31,604       18,422
                                                         ---------    ---------
Cash and temporary cash investments, end of period       $  42,523    $  51,179
                                                         =========    =========

Supplemental Disclosure:
   Interest and preferred dividends paid                 $ 240,524    $ 219,875
                                                         =========    =========
   Income taxes paid                                     $ 187,503    $ 137,980
                                                         =========    =========
   New capital lease obligations incurred                $  39,306    $  31,415
                                                         =========    =========
   Common stock dividends declared but not paid          $    --      $    --
                                                         =========    =========

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



                                       6
<PAGE>

           JERSEY CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARY COMPANY

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

                                                               In Thousands
                                                     September 30,  December 31,
                                                         1997          1996
                                                         ----          ----
                                                      (Unaudited) 
                                                                   
ASSETS
Utility Plant:
  In service, at original cost                           $4,627,088   $4,528,676
  Less, accumulated depreciation                          1,954,935    1,811,620
                                                         ----------   ----------
      Net utility plant in service                        2,672,153    2,717,056
  Construction work in progress                             107,635      106,512
  Other, net                                                 99,682      111,116
                                                         ----------   ----------
         Net utility plant                                2,879,470    2,934,684
                                                         ----------   ----------

Other Property and Investments:
  Nuclear decommissioning trusts, at market                 323,817      278,342
  Nuclear fuel disposal trust, at market                    107,623      101,661
  Other, net                                                  8,354        8,305
                                                         ----------   ----------
         Total other property and investments               439,794      388,308
                                                         ----------   ----------

Current Assets:
  Cash and temporary cash investments                        13,469        1,321
  Special deposits                                            6,422        6,939
  Accounts receivable:
      Customers, net                                        165,410      135,655
      Other                                                  16,887       33,228
  Unbilled revenues                                          53,636       56,522
  Materials and supplies, at average cost or less:
      Construction and maintenance                           91,558       92,761
      Fuel                                                   15,939       19,257
  Deferred income taxes                                      24,158       22,509
  Prepayments                                                53,783       21,150
                                                         ----------   ----------
       Total current assets                                 441,262      389,342
                                                         ----------   ----------

Deferred Debits and Other Assets:
  Regulatory assets:
      Income taxes recoverable through future rates         148,752      142,726
      Nonutility generation contract buyout costs           143,500      139,000
      Three Mile Island Unit 2 deferred costs               109,653      126,448
      Unamortized property losses                            92,336       94,767
      Other                                                 315,422      326,620
                                                         ----------   ----------
         Total regulatory assets                            809,663      829,561
  Deferred income taxes                                     149,879      138,903
  Other                                                      21,937       29,121
                                                         ----------   ----------
         Total deferred debits and other assets             981,479      997,585
                                                         ----------   ----------





         Total Assets                                    $4,742,005   $4,709,919
                                                         ==========   ==========


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




                                       7
<PAGE>



           JERSEY CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARY COMPANY

                           Consolidated Balance Sheets
                           ---------------------------
                                                             In Thousands
                                                     September 30,  December 31,
                                                         1997          1996
                                                         ----          ----
                                                      (Unaudited)
LIABILITIES AND CAPITAL
Capitalization:
  Common stock                                           $  153,713   $  153,713
  Capital surplus                                           510,769      510,769
  Retained earnings                                         892,230      825,001
                                                         ----------   ----------
      Total common stockholder's equity                   1,556,712    1,489,483
  Cumulative preferred stock:
      With mandatory redemption                              91,500      114,000
      Without mandatory redemption                           37,741       37,741
  Company-obligated mandatorily
      redeemable preferred securities                       125,000      125,000
  Long-term debt                                          1,173,244    1,173,091
                                                         ----------   ----------
         Total capitalization                             2,984,197    2,939,315
                                                         ----------   ----------



Current Liabilities:
  Securities due within one year                             32,511      110,075
  Notes payable                                             106,800       31,800
  Obligations under capital leases                           86,214       96,150
  Accounts payable:
      Affiliates                                             19,873       71,761
      Other                                                  98,166       94,258
  Taxes accrued                                              14,654        2,063
  Deferred energy credits                                    30,922       15,559
  Interest accrued                                           29,385       28,350
  Other                                                      86,736       80,195
                                                         ----------   ----------
         Total current liabilities                          505,261      530,211
                                                         ----------   ----------



Deferred Credits and Other Liabilities:
  Deferred income taxes                                     663,579      664,440
  Unamortized investment tax credits                         55,243       59,893
  Three Mile Island Unit 2 future costs                     111,069      107,652
  Nuclear fuel disposal fee                                 132,648      127,543
  Regulatory liabilities                                     38,722       33,250
  Other                                                     251,286      247,615
                                                         ----------   ----------
         Total deferred credits and other liabilities     1,252,547    1,240,393
                                                         ----------   ----------


Commitments and Contingencies (Note 1)


         Total Liabilities and Capital                   $4,742,005   $4,709,919
                                                         ==========   ==========


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




                                       8
<PAGE>

<TABLE>
<CAPTION>


                                       JERSEY CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARY COMPANY

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

                                                                                               In Thousands
                                                                                               ------------
                                                                         Three Months                         Nine Months
                                                                     Ended September 30,                  Ended September 30,
                                                                     -------------------                  -------------------
                                                                      1997             1996              1997              1996
                                                                      ----             ----              ----              ----
<S>                                                                <C>              <C>              <C>                <C>  
Operating Revenues                                                 $ 602,900        $ 578,274        $ 1,591,569        $ 1,583,432
                                                                   ---------        ---------        -----------        -----------

Operating Expenses:
   Fuel                                                               27,633           29,438             73,703             81,664
   Power purchased and interchanged:
     Affiliates                                                        7,513            8,673             14,719             21,896
     Others                                                          172,432          169,640            451,538            451,889
   Deferral of energy and capacity costs, net                          4,900              741             11,629             15,478
   Other operation and maintenance                                   115,531          187,964            331,808            425,306
   Depreciation and amortization                                      68,940           54,939            190,178            155,177
   Taxes, other than income taxes                                     64,050           61,539            176,878            176,899
                                                                   ---------        ---------        -----------        -----------
      Total operating expenses                                       460,999          512,934          1,250,453          1,328,309
                                                                   ---------        ---------        -----------        -----------

Operating Income Before Income Taxes                                 141,901           65,340            341,116            255,123
   Income taxes                                                       39,374           11,888             85,466             56,560
                                                                   ---------        ---------        -----------        -----------
Operating Income                                                     102,527           53,452            255,650            198,563
                                                                   ---------        ---------        -----------        -----------

Other Income and Deductions:
   Allowance for other funds used during
     construction                                                         65             (758)               332              1,224
   Other income, net                                                   1,975            2,850              2,122              4,668
   Income taxes                                                        1,583             (990)            (1,244)            (2,225)
                                                                   ---------        ---------        -----------        -----------
      Total other income and deductions                                3,623            1,102              1,210              3,667
                                                                   ---------        ---------        -----------        -----------

Income Before Interest Charges and
   Dividends on Preferred Securities                                 106,150           54,554            256,860            202,230
                                                                   ---------        ---------        -----------        -----------

Interest Charges and Dividends
  on Preferred Securities:
   Interest on long-term debt                                         22,434           22,204             67,779             66,921
   Other interest                                                      4,022            3,971             11,680              8,980
   Allowance for borrowed funds used
     during construction                                                (287)          (1,815)            (1,491)            (4,092)
   Dividends on company-obligated mandatorily
     redeemable preferred securities                                   2,675            2,675              8,025              8,025
                                                                   ---------        ---------        -----------        -----------
      Total interest charges and dividends
        on preferred securities                                       28,844           27,035             85,993             79,834
                                                                   ---------        ---------        -----------        -----------

Net Income                                                            77,306           27,519            170,867            122,396
   Preferred stock dividends                                           2,597            3,162              8,638              9,910
                                                                   ---------        ---------        -----------        -----------
Earnings Available for Common Stock                                $  74,709        $  24,357        $   162,229        $   112,486
                                                                   =========        =========        ===========        ===========






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



                                       9
</TABLE>

<PAGE>



                                                       
           JERSEY CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARY COMPANY

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

                                                               In Thousands
                                                               ------------
                                                                Nine Months
                                                            Ended September 30,
                                                            -------------------
                                                            1997         1996
                                                            ----         ----
Operating Activities:
   Net income                                            $ 170,867    $ 122,396
   Adjustments to reconcile income to cash provided:
     Depreciation and amortization                         201,149      163,880
     Amortization of property under capital leases          21,195       22,493
     Voluntary enhanced retirement programs                   --         62,909
     Nuclear outage maintenance costs, net                  10,925       (3,322)
     Deferred income taxes and investment tax
         credits, net                                      (29,818)       2,475
     Deferred energy and capacity costs, net                11,629       15,473
     Accretion income                                       (8,070)      (8,708)
     Allowance for other funds used
         during construction                                  (332)      (1,224)
   Changes in working capital:
     Receivables                                           (10,528)      (5,173)
     Materials and supplies                                  4,521       11,179
     Special deposits and prepayments                      (32,116)     (54,923)
     Payables and accrued liabilities                      (14,584)     (36,664)
  Nonutility generation contract buyout costs              (30,500)     (65,000)
  Other, net                                                 4,367       (2,767)
                                                         ---------    ---------
        Net cash provided by operating activities          298,705      223,024
                                                         ---------    ---------

Investing Activities:
   Cash construction expenditures                         (116,026)    (124,081)
   Contributions to decommissioning trusts                 (13,502)     (13,504)
   Other, net                                               (7,603)      (5,643)
                                                         ---------    ---------
        Net cash used for investing activities            (137,131)    (143,228)
                                                         ---------    ---------

Financing Activities:
   Increase in notes payable, net                           75,000      101,500
   Retirement of long-term debt                            (80,075)     (25,710)
   Capital lease principal payments                        (20,289)     (23,249)
   Redemption of preferred stock                           (20,000)     (20,000)
   Dividends paid on common stock                          (95,000)    (100,000)
   Dividends paid on preferred stock                        (9,062)     (10,334)
                                                         ---------    ---------
        Net cash required by financing activities         (149,426)     (77,793)
                                                         ---------    ---------

Net increase in cash and temporary
  cash investments from above activities                    12,148        2,003
Cash and temporary cash investments, beginning of year       1,321          922
                                                         ---------    ---------
Cash and temporary cash investments, end of period       $  13,469    $   2,925
                                                         =========    =========

Supplemental Disclosure:
   Interest paid                                         $  83,973    $  78,674
                                                         =========    =========
   Income taxes paid                                     $  91,518    $  70,267
                                                         =========    =========
   New capital lease obligations incurred                $  10,431    $  30,321
                                                         =========    =========






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



                                       10
<PAGE>


              METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANIES

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

                                                             In Thousands
                                                             ------------
                                                     September 30,  December 31,
                                                         1997           1996
                                                         ----           ----
                                                     (Unaudited)

ASSETS
Utility Plant:
  In service, at original cost                           $2,384,433   $2,297,100
  Less, accumulated depreciation                            896,917      841,398
                                                         ----------   ----------
      Net utility plant in service                        1,487,516    1,455,702
  Construction work in progress                              45,407       98,171
  Other, net                                                 41,457       31,000
                                                         ----------   ----------
         Net utility plant                                1,574,380    1,584,873
                                                         ----------   ----------

Other Property and Investments:
  Nuclear decommissioning trusts, at market                 156,722      131,475
  Other, net                                                 11,676       11,261
                                                         ----------   ----------
         Total other property and investments               168,398      142,736
                                                         ----------   ----------

Current Assets:
  Cash and temporary cash investments                         3,258        1,901
  Special deposits                                            1,152        1,052
  Accounts receivable:
      Customers, net                                         62,810       61,522
      Other                                                  33,479       17,368
  Unbilled revenues                                          37,299       27,019
  Materials and supplies, at average cost or less:
      Construction and maintenance                           38,974       39,739
      Fuel                                                    9,311       11,026
  Deferred income taxes                                        --          7,073
  Prepayments                                                11,983       17,254
                                                         ----------   ----------
       Total current assets                                 198,266      183,954
                                                         ----------   ----------

Deferred Debits and Other Assets:
  Regulatory assets:
      Income taxes recoverable through future rates         172,186      174,636
      Three Mile Island Unit 2 deferred costs               147,141      144,782
      Nonutility generation contract buyout costs            78,868       86,781
      Other                                                  66,618       56,184
                                                         ----------   ----------
         Total regulatory assets                            464,813      462,383
  Deferred income taxes                                      89,932       85,169
  Other                                                      18,191       13,863
                                                         ----------   ----------
         Total deferred debits and other assets             572,936      561,415
                                                         ----------   ----------





         Total Assets                                    $2,513,980   $2,472,978
                                                         ==========   ==========




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




                                       11
<PAGE>




              METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANIES

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


                                                             In Thousands
                                                             ------------
                                                     September 30,  December 31,
                                                         1997           1996
                                                         ----           ----
                                                     (Unaudited)

LIABILITIES AND CAPITAL
Capitalization:
  Common stock                                           $   66,273   $   66,273
  Capital surplus                                           370,200      370,200
  Retained earnings                                         302,500      264,044
                                                         ----------   ----------
      Total common stockholder's equity                     738,973      700,517
  Cumulative preferred stock                                 12,056       12,056
  Company-obligated mandatorily
      redeemable preferred securities                       100,000      100,000
  Long-term debt                                            576,923      563,252
                                                         ----------   ----------
         Total capitalization                             1,427,952    1,375,825
                                                         ----------   ----------



Current Liabilities:
  Securities due within one year                                 22       40,020
  Notes payable                                              65,056       50,667
  Obligations under capital leases                           40,609       29,964
  Accounts payable:
      Affiliates                                             41,852       27,556
      Other                                                  83,892       89,857
  Taxes accrued                                              11,629       11,222
  Interest accrued                                           10,246       18,279
  Other                                                      39,765       45,825
                                                         ----------   ----------
         Total current liabilities                          293,071      313,390
                                                         ----------   ----------



Deferred Credits and Other Liabilities:
  Deferred income taxes                                     409,370      401,104
  Three Mile Island Unit 2 future costs                     222,037      215,204
  Unamortized investment tax credits                         30,232       31,584
  Nuclear fuel disposal fee                                  29,964       28,811
  Regulatory liabilities                                     24,990       25,981
  Other                                                      76,364       81,079
                                                         ----------   ----------
         Total deferred credits and other liabilities       792,957      783,763
                                                         ----------   ----------


Commitments and Contingencies (Note 1)



         Total Liabilities and Capital                   $2,513,980   $2,472,978
                                                         ==========   ==========




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



                                       12
<PAGE>


<TABLE>
<CAPTION>

              METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANIES

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

                                                                                           In Thousands
                                                                                           ------------
                                                                            Three Months                       Nine Months
                                                                       Ended September 30,                 Ended September 30,
                                                                       -------------------                 -------------------
                                                                       1997             1996              1997              1996
                                                                       ----             ----              ----              ----
<S>                                                                 <C>               <C>               <C>               <C>   
Operating Revenues                                                  $ 248,161         $ 243,077         $ 711,975         $ 687,823
                                                                    ---------         ---------         ---------         ---------

Operating Expenses:
   Fuel                                                                23,472            23,645            69,998            71,612
   Power purchased and interchanged:
     Affiliates                                                         5,380             4,270            12,337            16,018
     Others                                                            59,325            50,422           164,525           152,696
   Deferral of energy costs, net                                         --               8,038              --               6,053
   Other operation and maintenance                                     58,219            81,871           161,251           188,009
   Depreciation and amortization                                       26,711            24,522            78,642            72,825
   Taxes, other than income taxes                                      15,235            19,617            44,989            47,649
                                                                    ---------         ---------         ---------         ---------
      Total operating expenses                                        188,342           212,385           531,742           554,862
                                                                    ---------         ---------         ---------         ---------

Operating Income Before Income Taxes                                   59,819            30,692           180,233           132,961
   Income taxes                                                        18,105             7,117            56,103            39,865
                                                                    ---------         ---------         ---------         ---------
Operating Income                                                       41,714            23,575           124,130            93,096
                                                                    ---------         ---------         ---------         ---------

Other Income and Deductions:
   Allowance for other funds used during
     construction                                                         138               314               439               401
   Other income/(expense), net                                            304              (105)            2,408                69
   Income taxes                                                          (165)               42            (1,087)              123
                                                                    ---------         ---------         ---------         ---------
      Total other income and deductions                                   277               251             1,760               593
                                                                    ---------         ---------         ---------         ---------

Income Before Interest Charges and
   Dividends on Preferred Securities                                   41,991            23,826           125,890            93,689
                                                                    ---------         ---------         ---------         ---------

Interest Charges and Dividends
  on Preferred Securities:
   Interest on long-term debt                                          10,981            11,182            33,275            34,119
   Other interest                                                       1,717             2,101             5,345             4,132
   Allowance for borrowed funds used
     during construction                                                 (182)              (89)             (593)             (537)
   Dividends on company-obligated mandatorily
     redeemable preferred securities                                    2,250             2,250             6,750             6,750
                                                                    ---------         ---------         ---------         ---------
      Total interest charges and dividends
        on preferred securities                                        14,766            15,444            44,777            44,464
                                                                    ---------         ---------         ---------         ---------

Net Income                                                             27,225             8,382            81,113            49,225
   Preferred stock dividends                                              120               236               362               708
                                                                    ---------         ---------         ---------         ---------
Earnings Available for Common Stock                                 $  27,105         $   8,146         $  80,751         $  48,517
                                                                    =========         =========         =========         =========






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




                                       13
</TABLE>

<PAGE>




              METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANIES

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

                                                              In Thousands
                                                              ------------
                                                               Nine Months
                                                            Ended September 30,
                                                            -------------------
                                                             1997         1996
                                                             ----         ----
Operating Activities:
   Net income                                            $  81,113    $  49,225
   Adjustments to reconcile income to cash provided:
     Depreciation and amortization                          84,706       77,173
     Amortization of property under capital leases           8,723       11,785
     Voluntary enhanced retirement programs                   --         26,204
     Nuclear outage maintenance costs, net                  (1,496)       4,618
     Deferred income taxes and investment tax
         credits, net                                        8,786        8,487
     Deferred energy costs, net                               --          6,157
     Allowance for other funds used
         during construction                                  (439)        (401)
   Changes in working capital:
     Receivables                                           (27,679)       5,652
     Materials and supplies                                  2,480        1,454
     Special deposits and prepayments                        5,171      (15,521)
     Payables and accrued liabilities                        7,311      (27,692)
  Nonutility generation contract buyout costs              (13,550)     (25,450)
  Other, net                                               (16,665)     (10,641)
                                                         ---------    ---------
        Net cash provided by operating activities          138,461      111,050
                                                         ---------    ---------

Investing Activities:
   Cash construction expenditures                          (55,273)     (52,089)
   Contributions to decommissioning trusts                 (13,315)     (12,685)
   Other, net                                                 (312)        (973)
                                                         ---------    ---------
        Net cash used for investing activities             (68,900)     (65,747)
                                                         ---------    ---------

Financing Activities:
   Issuance of long-term debt                               13,577         --
   Increase in notes payable, net                           14,389       29,687
   Retirement of long-term debt                            (40,020)     (15,019)
   Capital lease principal payments                        (10,672)     (11,255)
   Dividends paid on common stock                          (45,000)     (45,000)
   Dividends paid on preferred stock                          (478)        (708)
                                                         ---------    ---------
        Net cash required by
          financing activities                             (68,204)     (42,295)
                                                         ---------    ---------

Net increase in cash and temporary
  cash investments from above activities                     1,357        3,008
Cash and temporary cash investments, beginning of year       1,901        1,810
                                                         ---------    ---------
Cash and temporary cash investments, end of period       $   3,258    $   4,818
                                                         =========    =========

Supplemental Disclosure:
   Interest paid                                         $  51,788    $  50,840
                                                         =========    =========
   Income taxes paid                                     $  44,652    $  36,954
                                                         =========    =========
   New capital lease obligations incurred                $  18,829    $     725
                                                         =========    =========






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



                                       14
<PAGE>



             PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES

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

                                                              In Thousands
                                                              ------------
                                                    September 30,   December 31,
                                                         1997           1996
                                                         ----           ----
                                                     (Unaudited)

ASSETS
Utility Plant:
  In service, at original cost                           $2,776,508   $2,738,223
  Less, accumulated depreciation                          1,070,030    1,022,553
                                                         ----------   ----------
      Net utility plant in service                        1,706,478    1,715,670
  Construction work in progress                              70,847       72,757
  Other, net                                                 27,506       22,910
                                                         ----------   ----------
         Net utility plant                                1,804,831    1,811,337
                                                         ----------   ----------

Other Property and Investments:
  Nuclear decommissioning trusts, at market                  64,068       54,194
  Other, net                                                  7,065        7,271
                                                         ----------   ----------
         Total other property and investments                71,133       61,465
                                                         ----------   ----------

Current Assets:
  Cash and temporary cash investments                         4,236         --
  Special deposits                                            2,637        2,348
  Accounts receivable:
      Customers, net                                         65,357       73,190
      Other                                                  33,861       15,151
  Unbilled revenues                                          38,911       31,350
  Materials and supplies, at average cost or less:
      Construction and maintenance                           49,587       49,007
      Fuel                                                   14,350        9,924
  Deferred income taxes                                         466         --
  Prepayments                                                34,960       36,930
                                                         ----------   ----------
       Total current assets                                 244,365      217,900
                                                         ----------   ----------

Deferred Debits and Other Assets:
  Regulatory assets:
      Income taxes recoverable through future rates         205,685      210,023
      Three Mile Island Unit 2 deferred costs                88,558       85,287
      Other                                                  88,653       67,128
                                                         ----------   ----------
         Total regulatory assets                            382,896      362,438
  Deferred income taxes                                      58,776       67,099
  Other                                                      16,273       14,826
                                                         ----------   ----------
         Total deferred debits and other assets             457,945      444,363
                                                         ----------   ----------




         Total Assets                                    $2,578,274   $2,535,065
                                                          =========    =========



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



                                       15
<PAGE>



             PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES

                           Consolidated Balance Sheets
                           ---------------------------
                                                              In Thousands
                                                              ------------
                                                    September 30,   December 31,
                                                         1997           1996
                                                         ----           ----
                                                     (Unaudited)

LIABILITIES AND CAPITAL
Capitalization:
  Common stock                                           $  105,812   $  105,812
  Capital surplus                                           285,486      285,486
  Retained earnings                                         400,669      363,702
                                                         ----------   ----------
      Total common stockholder's equity                     791,967      755,000
  Cumulative preferred stock                                 16,681       16,681
  Company-obligated mandatorily
      redeemable preferred securities                       105,000      105,000
  Long-term debt                                            676,444      656,459
                                                         ----------   ----------
         Total capitalization                             1,590,092    1,533,140
                                                         ----------   ----------



Current Liabilities:
  Securities due within one year                             30,011       26,010
  Notes payable                                              83,529      107,680
  Obligations under capital leases                           21,096       15,881
  Accounts payable:
      Affiliates                                             20,900       20,432
      Other                                                  51,964       53,424
  Taxes accrued                                               7,914       11,223
  Interest accrued                                           10,272       19,192
  Vacations accrued                                           6,193        5,172
  Other                                                      22,062       12,052
                                                         ----------   ----------
         Total current liabilities                          253,941      271,066
                                                         ----------   ----------



Deferred Credits and Other Liabilities:
  Deferred income taxes                                     474,474      473,268
  Three Mile Island Unit 2 future costs                     111,069      107,652
  Unamortized investment tax credits                         39,845       42,095
  Nuclear fuel disposal fee                                  14,982       14,406
  Regulatory liabilities                                     30,099       31,694
  Other                                                      63,772       61,744
                                                         ----------   ----------
         Total deferred credits and other liabilities       734,241      730,859
                                                         ----------   ----------


Commitments and Contingencies (Note 1)



         Total Liabilities and Capital                   $2,578,274   $2,535,065
                                                         ==========   ==========



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



                                       16
<PAGE>

<TABLE>
<CAPTION>


             PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES

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

                                                                                               In Thousands
                                                                                               ------------
                                                                             Three Months                     Nine Months
                                                                         Ended September 30,              Ended September 30,
                                                                         -------------------              -------------------
                                                                       1997             1996               1997              1996
                                                                       ----             ----               ----              ----
<S>                                                                 <C>               <C>               <C>               <C> 
Operating Revenues                                                  $ 257,569         $ 256,143         $ 795,184         $ 772,260
                                                                    ---------         ---------         ---------         ---------

Operating Expenses:
   Fuel                                                                43,205            45,117           132,421           131,693
   Power purchased and interchanged:
     Affiliates                                                           598               166             2,672             2,245
     Others                                                            50,937            50,900           155,450           157,259
   Deferral of energy costs, net                                         --               1,082              --              (1,830)
   Other operation and maintenance                                     71,816            96,989           190,151           222,804
   Depreciation and amortization                                       25,534            23,265            78,935            69,231
   Taxes, other than income taxes                                      15,808            18,107            49,629            49,498
                                                                    ---------         ---------         ---------         ---------
      Total operating expenses                                        207,898           235,626           609,258           630,900
                                                                    ---------         ---------         ---------         ---------

Operating Income Before Income Taxes                                   49,671            20,517           185,926           141,360
   Income taxes                                                        14,227             1,287            57,371            37,962
                                                                    ---------         ---------         ---------         ---------
Operating Income                                                       35,444            19,230           128,555           103,398
                                                                    ---------         ---------         ---------         ---------

Other Income and Deductions:
   Allowance for other funds used during
     construction                                                          71              (299)              164               116
   Other income/(expense), net                                            (57)               67             1,198              (735)
   Income taxes                                                           (13)               14              (509)               76
                                                                    ---------         ---------         ---------         ---------
      Total other income and deductions                                     1              (218)              853              (543)
                                                                    ---------         ---------         ---------         ---------

Income Before Interest Charges and
   Dividends on Preferred Securities                                   35,445            19,012           129,408           102,855
                                                                    ---------         ---------         ---------         ---------

Interest Charges and Dividends
  on Preferred Securities:
   Interest on long-term debt                                          12,453            12,322            36,672            37,276
   Other interest                                                       1,961             2,179             6,204             5,448
   Allowance for borrowed funds used
     during construction                                                 (635)             (651)           (1,463)           (1,749)
   Dividends on company-obligated mandatorily
     redeemable preferred securities                                    2,297             2,297             6,891             6,891
                                                                    ---------         ---------         ---------         ---------
      Total interest charges and dividends
        on preferred securities                                        16,076            16,147            48,304            47,866
                                                                    ---------         ---------         ---------         ---------

Net Income                                                             19,369             2,865            81,104            54,989
   Preferred stock dividends                                              173               386               491             1,158
                                                                    ---------         ---------         ---------         ---------
Earnings Available for Common Stock                                 $  19,196         $   2,479         $  80,613         $  53,831
                                                                    =========         =========         =========         =========






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


                                       17
</TABLE>

<PAGE>



             PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES

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

                                                             In Thousands
                                                              ------------
                                                               Nine Months
                                                            Ended September 30,
                                                            -------------------
                                                             1997         1996
                                                             ----         ----
                                 
Operating Activities:
   Net income                                            $  81,104    $  54,989
   Adjustments to reconcile income to cash provided:
     Depreciation and amortization                          73,989       66,236
     Amortization of property under capital leases           5,517        6,197
     Voluntary enhanced retirement programs                   --         33,626
     Nuclear outage maintenance costs, net                    (744)       2,301
     Deferred income taxes and investment tax
         credits, net                                        8,373       (1,453)
     Deferred energy costs, net                               --         (1,934)
     Allowance for other funds used
         during construction                                  (164)        (116)
   Changes in working capital:
     Receivables                                           (18,438)      15,056
     Materials and supplies                                 (5,006)       3,565
     Special deposits and prepayments                        1,681      (23,068)
     Payables and accrued liabilities                       (6,818)     (46,698)
   Nonutility generation contract buyout costs              (5,000)        --
  Other, net                                               (11,425)      (1,106)
                                                         ---------    ---------
        Net cash provided by operating activities          123,069      107,595
                                                         ---------    ---------

Investing Activities:
   Cash construction expenditures                          (63,005)     (84,119)
   Contributions to decommissioning trusts                  (3,947)      (3,947)
   Other, net                                                  417         (581)
                                                         ---------    ---------
        Net cash used for investing activities             (66,535)     (88,647)
                                                         ---------    ---------

Financing Activities:
   Issuance of long-term debt                               49,875         --
   Increase/(Decrease) in notes payable, net               (24,151)      43,535
   Retirement of long-term debt                            (26,010)     (25,009)
   Capital lease principal payments                         (6,491)      (5,933)
   Dividends paid on common stock                          (45,000)     (30,000)
   Dividends paid on preferred stock                          (521)      (1,158)
                                                         ---------    ---------
        Net cash required by financing activities          (52,298)     (18,565)
                                                         ---------    ---------

Net increase in cash and temporary
  cash investments from above activities                     4,236          383
Cash and temporary cash investments, beginning of year        --          1,367
                                                         ---------    ---------
Cash and temporary cash investments, end of period       $   4,236    $   1,750
                                                         =========    =========

Supplemental Disclosure:
   Interest paid                                         $  56,289    $  55,499
                                                         =========    =========
   Income taxes paid                                     $  44,147    $  42,863
                                                         =========    =========
   New capital lease obligations incurred                $  10,046    $     369
                                                         =========    =========



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



                                       18
<PAGE>



GPU, Inc. and Subsidiary Companies


               COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


        GPU, Inc., a Pennsylvania  corporation,  is a holding company registered
under the  Public  Utility  Holding  Company  Act of 1935.  GPU,  Inc.  does not
directly  operate any utility  properties,  but owns all the outstanding  common
stock of three domestic  electric  utilities  serving customers in New Jersey --
Jersey Central Power & Light Company (JCP&L) -- and Pennsylvania -- Metropolitan
Edison  Company  (Met-Ed)  and  Pennsylvania  Electric  Company  (Penelec).  The
customer  service,  transmission and  distribution  operations of these electric
utilities are conducting  business under the name GPU Energy.  JCP&L, Met-Ed and
Penelec  considered  together are referred to as the "GPU Energy companies." The
generation  operations  of  the  GPU  Energy  companies  are  conducted  by  GPU
Generation,  Inc. (Genco) and GPU Nuclear,  Inc. (GPUN). GPU, Inc. also owns all
the common stock of GPU  International,  Inc., GPU Power, Inc. and GPU Electric,
Inc. which develop,  own and operate  generation,  transmission and distribution
facilities in the United States and in foreign  countries.  Collectively,  these
are  referred  to  as  the  "GPU   International   Group."  Other  wholly  owned
subsidiaries  of  GPU,  Inc.  are GPU  Advanced  Resources,  Inc.  (GPU  AR),  a
nonregulated subsidiary formed to engage in energy services, retail energy sales
and  telecommunications  services;  and GPU Service, Inc. (GPUS), which provides
certain  legal,  accounting,  financial and other services to the GPU companies.
All of these companies considered together are referred to as "GPU."

        These notes should be read in conjunction with the notes to consolidated
financial  statements  included  in the 1996  Annual  Report on Form  10-K.  The
December  31,  1996  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 1996 Annual Report
on Form 10-K.


1.      COMMITMENTS AND CONTINGENCIES

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

        The GPU Energy  companies  have made  investments in three major nuclear
projects--Three  Mile Island Unit 1 (TMI-1) and Oyster Creek,  both of which are
operating generation facilities, and Three Mile Island Unit 2 (TMI-2), which was
damaged  during a 1979  accident.  TMI-1 and TMI-2 are  jointly  owned by JCP&L,
Met-Ed and Penelec in the percentages of 25%, 50% and 25%, respectively.  Oyster
Creek is owned by JCP&L.  At September  30, 1997 and December 31, 1996,  the GPU
Energy  companies' net investment in TMI-1 and Oyster Creek,  including  nuclear
fuel, was as follows:

                                               Net Investment (in millions)
                                               ----------------------------
                                               TMI-1          Oyster Creek
                                               -----          ------------
               September 30, 1997
               ------------------

               JCP&L                           $156                  $717
               Met-Ed                           302                    --
               Penelec                          148                    --
                                                ---                   ---
                 Total                         $606                  $717
                                                ===                   ===




                                       19
<PAGE>

GPU, Inc. and Subsidiary Companies

          
                                                Net Investment (in millions)
                                                ----------------------------
                                                TMI-1          Oyster Creek
                                                -----          ------------
               December 31, 1996
               -----------------

               JCP&L                            $154                  $766
               Met-Ed                            297                    --
               Penelec                           146                    --
                                                 ---                   ---
                 Total                          $597                  $766
                                                 ===                   ===

      The GPU Energy  companies'  net  investment in TMI-2 at September 30, 1997
and December 31, 1996 was $82 million and $90 million,  respectively  (JCP&L $74
million  and $81  million,  respectively;  Met-Ed  $1  million  and $1  million,
respectively;  Penelec  $7  million  and $8  million,  respectively).  JCP&L  is
collecting  revenues for TMI-2 on a basis which provides for the recovery of its
remaining  investment  in the plant by 2008.  Met-Ed and Penelec are  collecting
revenues for TMI-2 related to their wholesale customers.

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

      In addition to the continued operation of the Oyster Creek facility, JCP&L
is  exploring  the sale or early  retirement  of the  plant  to  mitigate  costs
associated with its continued operation. JCP&L is exploring these options due to
the plant's  high cost of  generation  compared to the current  market  price of
electricity.  If a decision is made to retire the plant early,  retirement would
likely occur in 2000.  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  (see  Competitive   Environment  section,
Management's Discussion and Analysis).

      In response to an inquiry regarding the possible sale of Oyster Creek, the
GPU Energy  companies  have stated that they would also consider  selling TMI-1.
Unlike  Oyster  Creek,  however,  the  early  retirement  of TMI-1 is not  being
considered because of its lower operating costs. In October 1997, the GPU Energy
companies  entered into a  confidentiality  agreement with a potential  buyer of
TMI-1 and Oyster Creek.



                                       20
<PAGE>

GPU, Inc. and Subsidiary Companies


TMI-2:
------

      The  1979  TMI-2  accident   resulted  in   significant   damage  to,  and
contamination of, the plant and a release of radioactivity to the environment. A
cleanup  program was completed in 1990, and after receiving  Nuclear  Regulatory
Commission  (NRC) approval,  TMI-2 entered into long-term  monitored  storage in
1993.

      As a result of the  accident  and its  aftermath,  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 (JCP&L $7.5 million; Met-Ed $5 million; Penelec $2.5 million).

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

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

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


                                       21
<PAGE>

GPU, Inc. and Subsidiary Companies


      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 Department of Energy (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's  remaining in
long-term storage and being  decommissioned at the same time as TMI-1.  Based on
NRC studies,  a comparable funding target was developed for TMI-2 which took the
accident into account.  Under the NRC regulations,  the funding targets (in 1997
dollars) are as follows:

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

JCP&L                                       $ 44            $ 70            $230
Met-Ed                                        89             141             --
Penelec                                       44              70             --
                                            ----            ----            ----
    Total                                   $177            $281            $230
                                            ====            ====            ====

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

      In 1995, a consultant to GPUN performed  site-specific  studies of the TMI
site, including both Units 1 and 2, and of Oyster Creek, that considered various
decommissioning   methods  and  estimated  the  cost  of   decommissioning   the
radiological portions and the cost of removal of the nonradiological portions of
each plant, using the prompt  removal/dismantlement  method. GPUN management has
reviewed the methodology and assumptions used in these studies,  is in agreement
with them,  and  believes  the  results  are  reasonable.  The  retirement  cost
estimates under the site-specific studies are as follows (in 1997 dollars):



                                       22
<PAGE>

GPU, Inc. and Subsidiary Companies

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

Radiological decommissioning                        $324        $393        $381
Nonradiological cost of removal                       80        35 *          36
                                                    ----        ----        ----
    Total                                           $404        $428        $417
                                                    ====        ====        ====

* Net of $9.3 million spent as of September 30, 1997.

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

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

      The GPU  Energy  companies  charge  to  depreciation  expense  and  accrue
retirement costs based on amounts being collected from customers. Currently, the
GPU Energy  companies are  collecting  retirement  costs which are less than the
retirement  cost estimates in the 1995  site-specific  studies,  and they do not
intend to increase these accruals until increased collections from customers are
obtained.  Customer  collections are contributed to external trust funds.  These
deposits,   including   the  related   earnings,   are   classified  as  Nuclear
Decommissioning Trusts, at Market on the Consolidated Balance Sheets. Accounting
for retirement  costs may change based upon the Financial  Accounting  Standards
Board (FASB) Exposure Draft discussed below.

      The FASB has issued an  Exposure  Draft  titled  "Accounting  for  Certain
Liabilities  Related to Closure or Removal of Long-Lived Assets," which includes
nuclear plant retirement  costs. If the Exposure Draft is adopted,  Oyster Creek
and TMI-1 future  retirement  costs would have to be  recognized  as a liability
immediately,  rather than the current industry  practice of accruing these costs
in accumulated  depreciation over the life of the plants. A regulatory asset for
amounts  probable  of recovery  through  rates  would also be  established.  Any
amounts  not  probable  of  recovery  through  rates would have to be charged to
expense.  (For TMI-2, a liability (in 1997 dollars) has already been recognized,
based on the 1995  site-specific  study because the plant is no longer operating
(see TMI-2)).  The effective date of this accounting change could be as early as
January 1, 1998.


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

      The New Jersey Board of Public Utilities  (NJBPU) has granted JCP&L annual
revenues for TMI-1 and Oyster Creek  retirement  costs of $2.5 million and $13.5
million,  respectively.  These annual revenues are based on both the NRC funding
targets for radiological  decommissioning  costs and a site-specific study which
was performed in 1988 for nonradiological costs of removal. The



                                       23
<PAGE>


GPU, Inc. and Subsidiary Companies


Stipulation of Final  Settlement  approved by the NJBPU in March 1997 allows for
JCP&L's  future  collection  of  retirement  costs to increase  annually to $5.2
million and $22.5 million for TMI-1 and Oyster Creek, respectively, beginning in
1998,  based on the 1995  site-specific  study  estimates.  (See  discussion  of
Stipulation of Final Settlement in Rate Matters section, Management's Discussion
and Analysis.)

      The  Pennsylvania  Public  Utility  Commission  (PaPUC) has granted Met-Ed
annual revenues for TMI-1 retirement costs of $8.5 million based on both the NRC
funding target for radiological decommissioning costs and the 1988 site-specific
study for  nonradiological  costs of  removal.  The PaPUC also  granted  Penelec
annual  revenues of $4.2 million for its share of TMI-1  retirement  costs, on a
basis consistent with that granted Met-Ed. As part of their  restructuring plans
filed with the PaPUC in June 1997,  Met-Ed and Penelec have requested that these
amounts be increased to reflect the estimated  retirement costs contained in the
1995 site-specific  study for radiological  decommissioning  and nonradiological
costs of removal.

      The amounts  charged to  depreciation  expense  for the nine months  ended
September 30, 1997 and the provisions for the future expenditure of these funds,
which have been made in accumulated depreciation, are as follows:

                                                  (in millions)
                                                           Oyster
                                                  TMI-1    Creek
                                                  -----    -----
Amount expensed for the nine 
months ended September 30, 1997:
     JCP&L                                        $ 2       $10
     Met-Ed                                         6        --
     Penelec                                        3        --
                                                   ---      ---
                                                   $11      $10
                                                   ===      ===


                                                  (in millions)
                                                          Oyster
                                                 TMI-1    Creek
                                                 -----    -----
Accumulated depreciation 
provision at September 30, 1997:
    JCP&L                                         $ 35     $204
    Met-Ed                                          63        -
    Penelec                                         27        -
                                                   ---      ---
                                                  $125     $204
                                                   ===      ===

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

TMI-2:
------

      The estimated  liabilities for TMI-2 future retirement costs (reflected as
Three Mile Island Unit 2 Future Costs on the Consolidated  Balance Sheets) as of
September 30, 1997 and December 31, 1996 are as follows:



                                       24
<PAGE>

GPU, Inc. and Subsidiary Companies         

                                                        (in millions)

                                           GPU       JCP&L     Met-Ed    Penelec

September 30, 1997                         $444       $111       $222       $111
December 31, 1996                          $431       $108       $215       $108

These amounts are based upon the 1995 site-specific study estimates (in 1997 and
1996  dollars,  respectively)  discussed  above and an  estimate  for  remaining
incremental monitored storage costs of $16 million (JCP&L $4 million;  Met-Ed $8
million;  Penelec $4  million)  as of  September  30, 1997 and $17 million as of
December 31, 1996, as a result of TMI-2's entering  long-term  monitored storage
in 1993. The GPU Energy  companies are incurring  annual  incremental  monitored
storage costs of  approximately  $1 million  (JCP&L $250  thousand;  Met-Ed $500
thousand; Penelec $250 thousand).

      Offsetting  the $444  million  liability  at  September  30,  1997 is $264
million  (JCP&L $37 million;  Met-Ed $146  million;  Penelec $81 million)  which
management believes is probable of recovery from customers and included in Three
Mile Island Unit 2 Deferred Costs on the Consolidated  Balance Sheets,  and $208
million  (JCP&L $83 million;  Met-Ed $90 million;  Penelec $35 million) in trust
funds for TMI-2 and included in Nuclear Decommissioning Trusts, at Market on the
Consolidated  Balance  Sheets.  Earnings on trust fund  deposits are included in
amounts shown on the Consolidated  Balance Sheets under Three Mile Island Unit 2
Deferred Costs.  TMI-2  decommissioning  costs charged to  depreciation  expense
during the nine months ended  September 30, 1997 amounted to $10 million  (JCP&L
$2 million; Met-Ed $7 million; Penelec $1 million).

      The NJBPU and PaPUC have  granted  JCP&L and Met-Ed,  respectively,  TMI-2
decommissioning  revenues for the NRC funding target and allowances for the cost
of removal of nonradiological  structures and materials.  In addition,  JCP&L is
recovering  its  share of  TMI-2's  incremental  monitored  storage  costs.  The
Stipulation  of Final  Settlement  approved  by the NJBPU in March 1997  adjusts
JCP&L's  future  revenues for retirement  costs based on the 1995  site-specific
study estimates,  beginning in 1998.  Based on Met-Ed's rate order,  Penelec has
recorded a regulatory  asset for that portion of such costs which it believes to
be probable of recovery.

      At September 30, 1997, the accident-related  portion of TMI-2 radiological
decommissioning costs is considered to be $68 million (JCP&L $17 million, Met-Ed
$34 million;  Penelec $17  million),  which is the  difference  between the 1995
TMI-1 and TMI-2 site-specific  study estimates (in 1997 dollars).  In connection
with  rate  case  resolutions  at the  time,  JCP&L,  Met-Ed  and  Penelec  made
contributions  to irrevocable  external  trusts  relating to their shares of the
accident-related  portions  of the  decommissioning  liability.  In 1990,  JCP&L
contributed $15 million and in 1991, Met-Ed and Penelec  contributed $40 million
and  $20  million,   respectively,   to  irrevocable   external  trusts.   These
contributions were not recovered from customers and have been expensed.  The GPU
Energy  companies  will not  pursue  recovery  from  customers  for any of these
amounts  contributed  in  excess  of the $68  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.

                                       25
<PAGE>

GPU, Inc. and Subsidiary Companies


                                    INSURANCE
                                    ---------

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

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

      The  Price-Anderson  Act limits  GPU's  liability  to third  parties for a
nuclear incident at one of its sites to approximately $8.9 billion. Coverage for
the first $200 million of such liability is provided by private  insurance.  The
remaining  coverage,   or  secondary  financial   protection,   is  provided  by
retrospective  premiums  payable by all nuclear reactor owners.  Under secondary
financial  protection,  a nuclear incident at any licensed nuclear power reactor
in the country,  including those owned by the GPU Energy companies, could result
in  assessments  of up to $79  million per  incident  for each of the GPU Energy
companies' two operating  reactors,  subject to an annual maximum payment of $10
million per  incident  per reactor.  In addition to the  retrospective  premiums
payable  under  Price-Anderson,  the GPU Energy  companies  are also  subject to
retrospective  premium  assessments  of up to $52  million  (JCP&L $31  million;
Met-Ed $14 million; Penelec $7 million) in any one year under insurance policies
applicable to nuclear operations and facilities.

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



                                       26
<PAGE>

GPU, Inc. and Subsidiary Companies


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

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

      The  current  market  price of  electricity  being  below the cost of some
utility-owned  generation  and power  purchase  commitments,  combined  with the
ability of some  customers  to choose their  energy  suppliers,  has created the
potential for stranded costs in the electric  utility  industry.  These stranded
costs, while potentially recoverable in a regulated environment,  are at risk in
a deregulated  and  competitive  environment.  Met-Ed and Penelec  estimate that
their  total   above-market   costs  related  to  power  purchase   commitments,
company-owned  generation,  generating plant decommissioning,  regulatory assets
and  transition  expenses,  on a present value basis at year-end  1998, are $1.4
billion  and  $1.3  billion,  respectively.   JCP&L  estimates  that  its  total
above-market  costs  related to power  purchase  commitments  and  company-owned
generation, on a present value basis at September 30, 1998, is $1.8 billion. The
$1.8 billion excludes above-market  generation costs related to Oyster Creek. In
July 1997,  JCP&L  proposed,  in its  restructuring  plans filed with the NJBPU,
recovery of its remaining Oyster Creek plant  investment as a regulatory  asset,
through  a  nonbypassable  charge  to  customers  (see  Competitive  Environment
section,  Management's  Discussion and Analysis). At September 30, 1997, JCP&L's
net investment in Oyster Creek was $717 million.  These estimates are subject to
significant  uncertainties including the future market price of both electricity
and other  competitive  energy  sources,  as well as the  timing  of when  these
above-market  costs become stranded due to customers  choosing another supplier.
The restructuring legislation in Pennsylvania and the Energy Master Plan (NJEMP)
in New Jersey provide mechanisms for utilities to recover, subject to regulatory
approval,  their  above-market  costs. These regulatory  recovery  mechanisms in
Pennsylvania  and New  Jersey  differ,  but  should  allow for the  recovery  of
non-mitigable above-market costs through either distribution charges or separate
nonbypassable charges to customers.

      In June 1997,  Met-Ed and  Penelec  filed  with the PaPUC  their  proposed
restructuring plans to implement competition and customer choice in Pennsylvania
as required by the comprehensive  restructuring  legislation enacted in 1996. In
July 1997,  JCP&L  filed with the NJBPU its  proposed  restructuring  plan for a
competitive  electric  marketplace  in New  Jersey  as  required  by the  NJEMP.
Highlights of these plans are presented in the Competitive  Environment  section
of  Management's  Discussion  and  Analysis.  The PaPUC has stated  that it will
review  and hold  hearings  on Met-Ed  and  Penelec's  restructuring  plans with
decisions due by mid 1998.  The NJBPU has stated that it intends to complete its
review of JCP&L's plan so as to permit  retail  competition  to begin in October
1998. In October 1997, GPU announced that it intends to begin a process to sell,
through an auction,  up to all of the fossil fuel and  hydroelectric  generating
facilities owned by the GPU Energy companies. The GPU Energy companies will file
supplemental  information to their  restructuring plans as a consequence of this
development. There can be no assurance as to the extent that stranded costs will
be recoverable in Pennsylvania and New Jersey.

      In 1996, the Federal Energy Regulatory Commission (FERC) issued Order 888,
which permits  electric  utilities to recover their  legitimate  and  verifiable
stranded costs incurred when a wholesale  customer  purchases power from another
supplier  using the utility's  transmission  system.  In addition,  Pennsylvania
adopted  comprehensive  legislation in 1996 which provides for the restructuring


                                       27
<PAGE>

GPU, Inc. and Subsidiary Companies


of the electric  utility  industry and will permit  utilities the opportunity to
recover  their  prudently  incurred  stranded  costs  through  a  PaPUC-approved
competitive  transition charge,  subject to certain  conditions,  including that
utilities  attempt to mitigate these costs. In 1997, the NJBPU released Phase II
of the NJEMP,  which proposes that New Jersey electric  utilities should have an
opportunity to recover their stranded costs associated with generating  capacity
commitments  and  caused by  electric  retail  competition,  provided  that they
attempt to mitigate these costs.

      The inability of the GPU Energy  companies to recover their stranded costs
in  whole  or  in  part  could  result  in  the  recording  of  liabilities  for
above-market  nonutility  generation  (NUG) costs and  writedowns  of uneconomic
generation plant and regulatory  assets recorded in accordance with Statement of
Financial  Accounting  Standards  No. (FAS) 71,  "Accounting  for the Effects of
Certain Types of Regulation."  Decommissioning  costs, for which a liability may
have to be recorded (see Nuclear Plant Retirement  Costs), and the corresponding
regulatory asset for amounts  recoverable from customers,  could also be subject
to  writedowns.  The  inability  to recover  these  stranded  costs would have a
material  adverse  effect  on  GPU's  results  of  operations.  (See  additional
discussion of stranded costs in Competitive  Environment  section,  Management's
Discussion and Analysis.)

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

      Pursuant to the  requirements  of the federal  Public  Utility  Regulatory
Policies Act (PURPA) and state regulatory  directives,  the GPU Energy companies
have entered into power purchase agreements with NUGs for the purchase of energy
and  capacity  for periods of up to 26 years  (JCP&L 25 years;  Met-Ed 26 years;
Penelec 25 years).  The following  table shows actual payments from 1994 through
1996, and estimated payments from 1997 through 2001.

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

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

   *  1994                 $528     $304     $101     $123
   *  1995                  670      381      131      158
   *  1996                  739      370      177      192
  **  1997                  736      367      173      196
      1998                  691      340      152      199
      1999                  706      344      152      210
      2000                  782      347      196      239
      2001                  805      353      225      227

*     Actual.

**    The 1997 amounts consist of actual payments through September 30, 1997
      and estimated payments for the remainder of the year.

      As of September 30, 1997, facilities covered by agreements having 1,657 MW
(JCP&L 896 MW; Met-Ed 356 MW; Penelec 405 MW) of capacity were in service. While
a few of these NUG facilities are dispatchable,  most are must-run and generally
obligate the GPU Energy companies to purchase, at the contract price, the output
up to the contract  limits.  Substantially  all unbuilt NUG facilities for which


                                       28
<PAGE>

GPU, Inc. and Subsidiary Companies


the GPU Energy companies have executed agreements are fully dispatchable.

      The  emerging  competitive   generation  market  has  created  uncertainty
regarding the  forecasting  of the  companies'  energy  supply needs,  which has
caused  the GPU  Energy  companies  to  change  their  supply  strategy  to seek
shorter-term  agreements  offering  more  flexibility.  The  cost  of  near-  to
intermediate-term  (i.e.,  one to four  years)  energy  supply  from  generation
facilities  now in service is currently and is expected to continue to be priced
below the costs of new supply  sources,  at least for some time.  The  projected
cost of energy from new  generation  supply  sources has also  decreased  due to
improvements in power plant  technologies and lower forecasted fuel prices. As a
result of these  developments,  the rates under  virtually all of the GPU Energy
companies'   NUG   agreements   for   facilities   currently  in  operation  are
substantially  in  excess of  current  and  projected  prices  from  alternative
sources.

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

      In April 1997,  Met-Ed and Penelec issued requests for proposals (RFPs) to
24 NUG projects which  currently  supply a total of  approximately  760 MW under
power  purchase  agreements.  The RFPs  requested  the NUGs to propose  buyouts,
buydowns and/or restructurings of current power purchase contracts in return for
cash  payments  which  would be funded  through the  issuance of PaPUC  approved
securitized transition bonds (see Competitive Environment section,  Management's
Discussion and Analysis).  Met-Ed and Penelec are currently negotiating with two
bidders to enter into definitive buyout agreements by the end of 1997.  Payments
would be made in 1998,  subject to Met-Ed's and Penelec's  ability to obtain the
required funding through securitization.

      JCP&L has contracts  through 2002 to purchase  between 5,100 GWH and 5,200
GWH of electric  generation  per year at prices which are  estimated to escalate
approximately 1.2% annually on a unit cost (cents/KWH) basis during this period.
From 2003 through 2008,  JCP&L has  contracts to purchase  between 4,700 GWH and
5,100 GWH of  electric  generation  per year at an average  annual  cost of $369
million.  The prices during this period are estimated to escalate  approximately
1.5%  annually.  After 2008,  when major  contracts  begin to expire,  purchases
steadily  decline to  approximately  865 GWH in 2014.  The contract unit cost is
estimated to escalate  approximately  4% annually from 2009 through 2014, with a
total  average  annual cost of $193 million  during this period.  All of JCP&L's
contracts will have expired by the end of 2017.  During this entire period,  the
NUG fuel mix is estimated to average approximately 95% natural gas.


                                       29
<PAGE>

GPU, Inc. and Subsidiary Companies


      Met-Ed has contracts  through 1999 to purchase between 2,000 GWH and 2,100
GWH of electric  generation  per year at prices which are  estimated to escalate
approximately  0.6% annually on a unit cost basis during this period.  From 2000
through 2008,  Met-Ed has contracts to purchase  between 2,900 GWH and 4,300 GWH
of electric  generation per year at an average annual cost of $241 million.  The
prices during this period are estimated to escalate  approximately 2.5% annually
on a unit cost basis.  From 2009  through  2012,  Met-Ed is forecast to purchase
between  1,500 GWH and 1,900 GWH of electric  generation  per year at an average
annual cost of $169  million.  During this period,  the prices are  estimated to
escalate  approximately 3.4% annually on a unit cost basis. After 2012, Met-Ed's
remaining  contracts  expire  rapidly  through  2015;  thereafter,  they  remain
constant until the  expiration of the last contract in 2020.  During this entire
period,  the NUG fuel  mix is  estimated  to  average  approximately  50% to 75%
coal/waste coal.

      Penelec has contracts through 2000 to purchase between 3,000 GWH and 4,000
GWH of electric  generation  per year at prices which are  estimated to escalate
approximately  1.4% annually on a unit cost basis during this period.  From 2001
through 2008,  Penelec has contracts to purchase between 3,900 GWH and 5,000 GWH
of electric  generation per year at an average annual cost of $297 million.  The
prices during this period are estimated to escalate  approximately 1.5% annually
on  a  unit  cost  basis.  From  2009  through  2017,   purchases  decline  from
approximately  3,000 GWH to  approximately  1,500 GWH in 2017. The contract unit
cost is  estimated to escalate  approximately  3.4%  annually  from 2009 through
2017, with a total average annual cost of $211 million during this period. After
2017,  Penelec's  remaining  contracts expire rapidly through 2020.  During this
entire period, the NUG fuel mix is estimated to average approximately 65% to 95%
coal/waste coal.

      In February 1997,  Met-Ed and Penelec  entered into revised power purchase
agreements with AES Power Corporation (AES) for 377 MW and 80 MW of capacity and
related energy,  respectively,  related to a combined-cycle  generating facility
that AES plans to construct in Pennsylvania.  Met-Ed and Penelec have paid $63.4
million  and  $5  million,  respectively,  to  previous  developers  and  AES to
terminate  the  original  power  purchase  agreements.  In July 1997,  the PaPUC
ordered  that the issue of recovery of the related  buyout costs and approval of
the revised  power  purchase  agreements  with AES be  considered  in Met-Ed and
Penelec's  restructuring  proceedings.  If the revised power purchase agreements
with AES are not  approved by the PaPUC,  Met-Ed and Penelec  have agreed to pay
AES up to an additional $28 million and $5 million, respectively.

      In 1994, pursuant to a PaPUC order,  Penelec entered into a power purchase
agreement with Erie Power Partners L.P.  (Erie),  the developer of a proposed 80
MW coal-fired  cogeneration facility. In November 1996, Penelec and Erie entered
into an amended power purchase  agreement and Penelec paid Erie $11.7 million to
terminate  the original  agreement.  In September  1997,  Penelec  agreed to the
buyout of the amended  power  purchase  agreement  for up to an  additional  $12
million.  Of this  amount,  Penelec  paid $5 million  to Erie in  October  1997.
Penelec will pay up to the remaining $7 million to the extent the PaPUC approves
recovery.  However,  Penelec has agreed to pay 50% of any amount not approved by
the  PaPUC.  Penelec  has  filed  with the  PaPUC  requesting  that the issue of
recovery  of  the  buyout  costs  be  considered   in  Penelec's   restructuring
proceeding.


                                       30
<PAGE>


GPU, Inc. and Subsidiary Companies


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

      The GPU Energy  companies  have been  granted  recovery of their NUG costs
(including  certain  buyout  costs)  from  customers  by the PaPUC and NJBPU and
expect to  continue to pursue  such  recovery.  Although  the  recently  enacted
legislation in Pennsylvania and the NJEMP in New Jersey both include  provisions
for the  recovery of costs under NUG  agreements  and certain NUG buyout  costs,
there can be no assurance that the GPU Energy companies will continue to be able
to recover similar costs which may be incurred in the future.  (See  Competitive
Environment  section,   Management's  Discussion  and  Analysis  for  additional
discussion.)

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

      Regulatory  Assets  and  Regulatory  Liabilities,   as  reflected  in  the
September  30,  1997 and  December  31,  1996  Consolidated  Balance  Sheets  in
accordance with the provisions of FAS 71, "Accounting for the Effects of Certain
Types of Regulation", were as follows:

GPU                                                      Assets (in thousands)
---                                                      ---------------------
                                                    September 30,   December 31,
                                                        1997             1996
                                                        ----             ----
                                                 
Income taxes recoverable through
  future rates                                       $  526,623     $  527,385
TMI-2 deferred costs                                    345,352        356,517
Nonutility generation contract buyout costs             251,068        242,481
Unamortized property losses                              97,281        100,310
Other postretirement benefits                            88,220         76,569
Environmental remediation                                90,174         78,136
N.J. unit tax                                            41,360         45,877
Unamortized loss on reacquired debt                      41,701         45,378
Load and demand-side management programs                 27,365         40,770
N.J. low-level radwaste disposal                         31,479         37,525
DOE enrichment facility decommissioning                  32,702         36,352
Nuclear fuel disposal fee                                20,273         21,552
Storm damage                                             28,937         20,226
Other                                                    33,405         24,194
                                                     ----------     ----------
     Total                                           $1,655,940     $1,653,272
                                                     ----------     ==========



                                       31
<PAGE>


GPU, Inc. and Subsidiary Companies
 
                                                     Liabilities (in thousands)
                                                     --------------------------
                                                     September 30,  December 31,
                                                        1997             1996
                                                        ----             ----
Income taxes refundable through
  future rates                                         $82,666         $87,735
Other                                                    9,713           2,080
                                                       -------         -------
     Total                                             $92,379         $89,815
                                                       =======         =======


JCP&L                                                     Assets (in thousands)
-----                                                     ---------------------
                                                     September 30,  December 31,
                                                        1997             1996
                                                        ----             ----
                                                                      
Income taxes recoverable through
  future rates                                         $148,752      $142,726
TMI-2 deferred costs                                    109,653       126,448
Nonutility generation contract buyout costs             143,500       139,000
Unamortized property losses                              92,336        94,767
Other postretirement benefits                            50,191        44,024
Environmental remediation                                61,190        55,285
N.J. unit tax                                            41,360        45,877
Unamortized loss on reacquired debt                      29,433        31,469
Load and demand-side management programs                 27,365        40,770
N.J. low-level radwaste disposal                         31,479        37,525
DOE enrichment facility decommissioning                  20,414        23,150
Nuclear fuel disposal fee                                22,416        23,319
Storm damage                                             28,937        20,226
Other                                                     2,637         4,975
                                                       --------      --------
     Total                                             $809,663      $829,561
                                                       ========      ========


                                                     Liabilities (in thousands)
                                                     --------------------------
                                                    September 30,   December 31,
                                                        1997             1996
                                                        ----             ----
                                                                      
Income taxes refundable through
  future rates                                         $30,052         $32,567
Other                                                    8,670             683
                                                       -------         -------
     Total                                             $38,722         $33,250
                                                       =======         =======



Met-Ed                                                   Assets (in thousands)
------                                                  ---------------------
                                                    September 30,   December 31,
                                                         1997             1996
                                                         ----             ----
                                                  
Income taxes recoverable through
  future rates                                       $ 172,186      $ 174,636
TMI-2 deferred costs                                   147,141        144,782
Nonutility generation contract buyout costs             78,868         86,781
Unamortized property losses                              2,769          3,113
Other postretirement benefits                           38,029         32,545
Environmental remediation                                4,121          2,575
Unamortized loss on reacquired debt                      5,523          6,223
DOE enrichment facility decommissioning                  8,192          8,801
Nuclear fuel disposal fee                               (1,454)        (1,282)
Other                                                    9,438          4,209
                                                     ---------      ---------
     Total                                           $ 464,813      $ 462,383
                                                     =========      =========



                                       32
<PAGE>

GPU, Inc. and Subsidiary Companies

                                                    Liabilities (in thousands)
                                                    --------------------------
                                                    September 30,   December 31,
                                                       1997             1996
                                                       ----             ----
                                                                       
Income taxes refundable through
  future rates                                        $22,527           $23,486
Other                                                   2,463             2,495
                                                      -------           -------
     Total                                            $24,990           $25,981
                                                      =======           =======


Penelec                                                  Assets (in thousands)
-------                                                  ---------------------
                                                    September 30,   December 31,
                                                         1997           1996
                                                         ----           ----
                                                               
Income taxes recoverable through
  future rates                                         $ 205,685      $ 210,023
TMI-2 deferred costs                                      88,558         85,287
Nonutility generation contract buyout costs               28,700         16,700
Unamortized property losses                                2,176          2,430
Environmental remediation                                 24,863         20,276
Unamortized loss on reacquired debt                        6,745          7,686
DOE enrichment facility decommissioning                    4,096          4,401
Nuclear fuel disposal fee                                   (689)          (485)
Other                                                     22,762         16,120
                                                       ---------      ---------
     Total                                             $ 382,896      $ 362,438
                                                       =========      =========


                                                     Liabilities (in thousands)
                                                     --------------------------
                                                    September 30,   December 31,
                                                          1997           1996
                                                          ----           ----
                                                       
Income taxes refundable through
  future rates                                           $30,087        $31,682
Other                                                         12             12
                                                         -------        -------
     Total                                               $30,099        $31,694
                                                         =======        =======


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

TMI-2 deferred costs:  Represents  costs that are recoverable  through rates for
the GPU  Energy  companies'  remaining  investment  in the plant and fuel  core,
radiological   decommissioning  and  the  cost  of  removal  of  nonradiological
structures  and materials in accordance  with the 1995  site-specific  study (in
1997 dollars) and JCP&L's share of long-term monitored storage costs.
For additional information, see TMI-2 Future Costs.

Nonutility  generation  contract buyout costs:  Represents  amounts incurred for
terminating power purchase contracts with NUGs, for which rate recovery has been
granted or is probable  (see Managing  Nonutility  Generation,  in  Management's
Discussion and Analysis).

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

Other  postretirement  benefits:  Includes costs associated with the adoption of
FAS  106,  "Employers'   Accounting  for  Postretirement   Benefits  Other  Than


                                       33
<PAGE>


GPU, Inc. and Subsidiary Companies


Pensions,"  which are deferred in  accordance  with  Emerging  Issues Task Force
Issue 92-12, "Accounting for OPEB Costs by Rate-Regulated Enterprises."

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

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

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

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

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

DOE enrichment facility  decommissioning:  Represents payments to the DOE over a
15-year period beginning in 1994.

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

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

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


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

      Historically, electric utility rates have been based on a utility's costs.
As a result,  the GPU  Energy  companies  account  for the  economic  effects of
cost-based ratemaking regulation under the provisions of FAS 71. FAS 71 requires
regulated entities, in certain circumstances, to defer as regulatory assets, the
impact on operations of costs expected to be recovered in future rates.  GPU has
recorded on the  Consolidated  Balance  Sheets $1.7 billion (JCP&L $809 million;
Met-Ed $465 million;  Penelec $382  million) in regulatory  assets in accordance
with FAS 71 (see Regulatory  Assets and  Liabilities  section of Competition and
the Changing Regulatory Environment).


                                       34
<PAGE>

GPU, Inc. and Subsidiary Companies


      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 California  investor-owned  utilities with
respect  to their  electric  generation  operations.  The GPU  Energy  companies
believe  that the  SEC's  concern  also  applies  to them  since  retail  access
legislation has been enacted in Pennsylvania and proposed in New Jersey.

      In response to the concerns  expressed by the Staff of the SEC, the FASB's
Emerging  Issues Task Force (EITF) agreed to discuss the issues  surrounding the
continued  applicability of FAS 71 to the electric utility industry.  In May and
July  1997,  the EITF met to  discuss  these  issues  and  they  concluded  that
utilities are no longer subject to FAS 71, for the  generation  portion of their
business, as soon as they know details of their individual transition plans. The
EITF also  concluded that  utilities can continue to carry  previously  recorded
regulated assets  (including those related to generation) on their balance sheet
if regulators  have  guaranteed a regulated cash flow stream to recover the cost
of these assets.  While the EITF's  consensus must be complied with, the SEC has
the final regulatory authority for accounting by public companies.

      In light of retail  access  legislation  enacted in  Pennsylvania  and the
NJEMP in New Jersey,  the GPU Energy companies  believe they will no longer meet
the requirements for continued application of FAS 71, for the generation portion
of their  business,  no later than mid 1998 for Met-Ed and Penelec,  and October
1998 for JCP&L, the expected approval dates of their  restructuring  plans filed
with state regulators.  Once the GPU Energy companies are able to determine that
the  generation  portion  of  their  operations  is no  longer  subject  to  the
provisions  of  FAS  71,  the  related  regulatory  assets,  net  of  regulatory
liabilities,  would,  to the extent that  recovery is not granted  through their
respective  restructuring  plans, have to be written off and charged to expense.
The above-market costs of power purchase  commitments would have to be expensed,
and  additional   depreciation  expense  would  have  to  be  recorded  for  any
differences  created  by the  use of a  regulated  depreciation  method  that is
different  from  that  which  would  have  been used  under  generally  accepted
accounting  principles for enterprises in general.  In addition,  write-downs of
plant assets could be required in accordance  with FAS 121,  "Accounting for the
Impairment  of Long-Lived  Assets,"  discussed  below.  The amount of write-offs
resulting from the discontinuation of FAS 71 will depend on the final outcome of
the GPU Energy companies' individual restructuring proceedings, and could have a
material adverse effect on GPU's results of operations and financial condition.

      FAS 121 requires that regulatory  assets meet the recovery criteria of FAS
71 on an  ongoing  basis in order to avoid a  writedown.  In  addition,  FAS 121
requires that long-lived assets,  identifiable  intangibles,  capital leases and
goodwill  be  reviewed  for  impairment  whenever  events  occur or  changes  in
circumstances  indicate  that  the  carrying  amount  of the  assets  may not be
recoverable. FAS 121 also requires the recognition of impairment losses when the
carrying  amounts of those  assets are  greater  than the  estimated  cash flows
expected to be generated  from the use and eventual  disposition  of the assets.
The effects of FAS 121 have not been material to GPU's results of operations.



                                       35
<PAGE>



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

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

      To comply with Titles I and IV of the federal Clean Air Act  Amendments of
1990  (Clean  Air  Act),  the GPU  Energy  companies  expect to spend up to $277
million (JCP&L $46 million;  Met-Ed $117 million;  Penelec $114 million) for air
pollution  control  equipment  by the year  2000,  of which  approximately  $242
million  (JCP&L $43  million;  Met-Ed $96  million;  Penelec  $103  million) has
already been spent. In developing their least-cost plan to comply with the Clean
Air Act,  the GPU Energy  companies  will  continue  to evaluate  major  capital
investments  compared to  participation  in the sulfur  dioxide  (SO2)  emission
allowance market, the expected nitrogen oxide (NOx) emissions trading market and
the use of  low-sulfur  fuel or  retirement of  facilities.  In 1994,  the Ozone
Transport Commission (OTC), consisting of representatives of 12 northeast states
(including New Jersey and Pennsylvania)  and the District of Columbia,  proposed
reductions  in NOx  emissions it believes  necessary to meet ambient air quality
standards  for ozone and the  statutory  deadlines set by the Clean Air Act. The
GPU Energy companies expect that the U.S. Environmental  Protection Agency (EPA)
will approve state implementation  plans consistent with the proposal,  and that
as a result, they will spend an estimated $17 million (JCP&L $1 million;  Met-Ed
$9 million;  Penelec $7 million)  (included  in the above  total),  beginning in
1997, to meet the 1999 seasonal  reductions  agreed upon by the OTC. The OTC has
stated that it anticipates  that  additional NOx reductions will be necessary to
meet the Clean Air Act's 2005 National  Ambient Air Quality  Standard for ozone.
However,  the specific  requirements  that will have to be met at that time have
not been  finalized.  In  addition,  in July  1997  the EPA  adopted  new,  more
stringent, rules on ozone and particulate matter. Several groups have filed suit
in the U.S. Court of Appeals to overturn these new air quality  standards on the
grounds  that,  among  other  things,  they are based on  inadequate  scientific
evidence.  Also,  legislation  has been  introduced  in the Congress  that would
impose a four-year  moratorium on any new standards under the Clean Air Act. The
GPU Energy companies are unable to determine what additional costs, if any, will
be incurred if the EPA rules are upheld.

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

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

           6           4          2          1           1             11




                                       36
<PAGE>

GPU, Inc. and Subsidiary Companies


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

       In August 1997, the EPA filed a complaint against GPU, Inc. in the United
States  District  Court for the  District of  Delaware  for  enforcement  of its
unilateral order issued against GPU, Inc. to clean up the former Dover Gas Light
Company (Dover) manufactured gas production site in Dover,  Delaware.  Dover was
part of the  AGECO/AGECORP group of companies from 1929 until 1942 and GPU,
Inc. emerged from the AGECO/AGECORP reorganization proceedings.  All of the
common stock of Dover was sold in 1942 by a member of the  AGECO/AGECORP group 
to an  unaffiliated  entity, and  was  subsequently  acquired  by
Chesapeake Utilities Corporation. According to the complaint, the EPA is seeking
up to $500 thousand in past costs,  $4.2 million for work in connection with
the cleanup of the Dover site and approximately  $19 million in penalties.  GPU,
Inc. has  responded  to the EPA  complaint  stating  that such claims  should be
dismissed because,  among other things,  they are barred by the operation of the
Final  Decree  entered  by the United  States  District  Court for the  Southern
District of New York at the conclusion of the 1946 reorganization proceedings of
AGECO/AGECORP. Chesapeake Utilities has also sued GPU, Inc. for a contribution
to the cleanup of the Dover site. There can be no assurance as to the outcome 
these proceedings.

       Pursuant to federal environmental  monitoring  requirements,  Penelec has
reported to the Pennsylvania Department of Environmental Protection (PaDEP) that
contaminants  from coal mine refuse piles were identified in storm water run-off
at Penelec's Seward station  property.  Penelec signed a modified Consent Order,
which became effective December 1996, that establishes a schedule for submitting
a plan for long-term remediation, based on future operating scenarios, including
reboilering  the station using  fluidized  bed  combustion  technology.  Penelec
currently  estimates that the  remediation  of the Seward station  property will
range  from $12  million to $20  million  and has a  recorded  liability  of $12
million at September 30, 1997. These cost estimates are subject to uncertainties
based on continuing  discussions with the PaDEP as to the method of remediation,
the extent of remediation required and available cleanup  technologies.  Penelec
has requested,  and expects to receive,  recovery of these  remediation costs in
its  restructuring  plan  filed  with the  PaPUC  (see  Competitive  Environment
section, Management's Discussion and Analysis), and has recorded a corresponding
regulatory asset of approximately $12 million at September 30, 1997.

       In 1997, the GPU Energy  companies filed with the PaDEP  applications for
re-permitting  seven  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 $16 million to $29 million,  and
a liability  of $16 million  (JCP&L $1 million;  Met-Ed $4 million;  Penelec 


                                       37
<PAGE>

GPU, Inc. and Subsidiary Companies


$11 million) is reflected on the Consolidated  Balance Sheets at September 30, 
1997.  JCP&L has requested  recovery of its share of closure costs in its 
restructuring plan filed  with the NJBPU in July 1997.  Penelec  and  Met-Ed 
expect  recovery through  their  restructuring  plans  filed  with the  PaPUC
in June  1997  (see Competitive  Environment section,  Management's  Discussion 
and Analysis).  As a result,  a  regulatory  asset of $16 million is  reflected
on the  Consolidated Balance Sheets at September 30, 1997.

       JCP&L has  entered  into  agreements  with the New Jersey  Department  of
Environmental  Protection for the  investigation  and remediation of 17 formerly
owned  manufactured  gas plant (MGP) sites.  JCP&L has also entered into various
cost-sharing  agreements  with  other  utilities  for most of the  sites.  As of
September 30, 1997, JCP&L has spent approximately $26 million in connection with
the  cleanup of these  sites.  In  addition,  JCP&L has  recorded  an  estimated
environmental  liability  of $46 million  relating to expected  future  costs of
these sites (as well as two other properties). This estimated liability is based
upon  ongoing site  investigations  and  remediation  efforts,  which  generally
involve  capping the sites and pumping and treatment of ground water.  Moreover,
the cost to clean up these  sites could be  materially  in excess of $46 million
due to significant  uncertainties,  including changes in acceptable  remediation
methods and technologies.

       In July 1997,  JCP&L's  request to  establish  a  Remediation  Adjustment
Clause for the  recovery of MGP  remediation  costs was approved by the NJBPU as
part  of  the  Stipulation  of  Final  Settlement  (see  Rate  Matters  section,
Management's Discussion and Analysis). At September 30, 1997, JCP&L had recorded
on its  Consolidated  Balance  Sheet a regulatory  asset of $54  million,  which
included  approximately  $46  million  related  to  expected  future  costs  and
approximately  $8  million  for  past  remediation  expenditures  in  excess  of
collections from customers (including interest).

       JCP&L  is  pursuing   reimbursement   from  its  insurance  carriers  for
remediation  costs already spent and for future  estimated costs. In 1994, JCP&L
filed a complaint with the Superior  Court of New Jersey against  several of its
insurance  carriers,   relative  to  these  MGP  sites.  Pretrial  discovery  is
continuing.

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

GPU International Group:
------------------------

       At  September  30,  1997,  the GPU  International  Group had  investments
totaling  approximately $625 million in facilities located in foreign countries.
Although  management  attempts  to  mitigate  the risk of  investing  in certain
foreign  countries by securing  political risk insurance,  the GPU International
Group faces additional risks inherent to operating in such locations,  including
foreign currency fluctuations (see GPU International Group section, Management's
Discussion and Analysis).

       At September  30,  1997,  GPU,  Inc.'s  aggregate  investment  in the GPU
International  Group was $218 million;  GPU,  Inc. has also  guaranteed up to an
additional $842 million of GPU International Group obligations.  Of this amount,
$639 million is included in Long-term debt on GPU's  Consolidated  Balance Sheet
at  September  30,  1997;   $30  million  of  that  amount   relates  to  a  GPU
International,  Inc.  revolving  credit  agreement;  and $173 million relates to
various other obligations of the GPU International Group.


                                       38
<PAGE>


       GPU  International,  Inc. has  ownership  interests in three NUG projects
which have  long-term  power  purchase  agreements  with  Niagara  Mohawk  Power
Corporation (NIMO) with an aggregate book value of approximately $31 million. In
July 1997,  NIMO and 16 independent  power  producers  (IPP),  including the GPU
International Group, executed a master agreement providing for the restructuring
or  termination  of 29 power  purchase  agreements,  pursuant  to which NIMO has
agreed to pay an aggregate of $3.6 billion in cash and/or debt  securities,  and
to issue an aggregate of 46 million  shares of NIMO common  stock.  The specific
terms of  restructured  contracts  that may be  executed  are  being  negotiated
separately with each IPP.

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

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

       In August 1997, the  Government of the United Kingdom  imposed a windfall
profits  tax  on  privatized  utilities,   including  Midlands  Electricity  plc
(Midlands), in which GPU has a 50% ownership interest. As a result, GPU recorded
a one-time charge to income in the third quarter of 1997 of $109.3  million,  or
$0.90 per share.  The tax is payable in two equal  installments  by  December 1,
1997 and 1998.

Other:
------

      In October 1997, GPU announced that it intends to begin a process to sell,
through an auction,  up to all of the fossil fuel and  hydroelectric  generating
facilities   owned  by  the  GPU  Energy   companies.   These  facilities  total
approximately  5,300 MW of capacity  and have a net book value of  approximately
$1.1 billion at September 30, 1997. The net proceeds from the sale would be used
to reduce the  capitalization  of the  respective  GPU Energy  companies.  It is
anticipated  that it will  take  approximately  twelve  to  eighteen  months  to
complete the sale.

       GPU's construction programs, for which substantial  commitments have been
incurred and which extend over several years,  contemplate  expenditures of $364
million (JCP&L $171 million; Met-Ed $84 million;  Penelec $104 million; Other $5
million) during 1997. As a consequence of reliability,  licensing, environmental
and other  requirements,  additions to utility plant may be required  relatively
late in their  expected  service  lives.  If such  additions  are made,  current
depreciation  allowance  methodology  may not make  adequate  provision  for the
recovery of such investments during their remaining lives.

       The GPU Energy  companies  have entered  into  long-term  contracts  with
nonaffiliated  mining companies for the purchase of coal for certain  generating
stations in which they have ownership interests. The contracts,  which expire at
various  dates  between  1997 and 2004,  require the purchase of either fixed or


                                       39
<PAGE>

GPU, Inc. and Subsidiary Companies


minimum amounts of the stations' coal requirements.  The price of the coal under
the  contracts  is based on  adjustments  of  indexed  cost  components.  One of
Penelec's contracts for the Homer City station also includes a provision for the
payment of postretirement  benefit costs. The GPU Energy companies' share of the
cost of coal  purchased  under these  agreements  is expected to aggregate  $133
million (JCP&L $23 million; Met-Ed $29 million; Penelec $81 million) for 1997.

       JCP&L has  entered  into  agreements  with other  utilities  to  purchase
capacity and energy for various  periods  through 2004.  These  agreements  will
provide  for up to 745 MW in  1997,  declining  to 527 MW in 1999  and 345 MW in
2000,  through the expiration of the final agreement in 2004.  Payments pursuant
to these  agreements  are estimated to be $145 million in 1997,  $128 million in
1998, $104 million in 1999, $84 million in 2000 and $99 million in 2001.

       In accordance  with the Nuclear Waste Policy Act of 1982 (NWPA),  the GPU
Energy companies have entered into contracts with, and have been paying fees to,
the DOE for the future disposal of spent nuclear fuel in a repository or interim
storage  facility.  In December 1996, the DOE notified the GPU Energy  companies
and other standard  contract  holders that it will be unable to begin acceptance
of spent  nuclear  fuel for disposal by 1998,  as mandated by the NWPA.  The DOE
requested  recommendations  from  contract  holders for handling  the delay.  In
January 1997, the GPU Energy companies,  along with other electric utilities and
state  agencies,  petitioned  the U.S.  Court of Appeals to, among other things,
permit utilities to cease payments into the Federal Nuclear Waste Fund until the
DOE complies with the NWPA. In May 1997, a joint  petition was filed  requesting
that the U.S.  Court of Appeals compel the DOE to comply with a 1996 decision in
which the Court held that the DOE has an unconditional obligation under the NWPA
to begin accepting spent nuclear fuel beginning not later than January 31, 1998.
The DOE's  inability to accept spent  nuclear fuel by 1998 could have a material
impact on GPU's results of  operations,  as additional  costs may be incurred to
build and maintain interim on-site storage at Oyster Creek. TMI-1 has sufficient
on-site  storage  capacity to accommodate  spent nuclear fuel through the end of
its licensed life. In July 1997, a consortium of electric  utilities,  including
GPUN,  filed a license  application  with the NRC seeking  permission to build a
temporary  above-ground disposal facility for spent nuclear fuel in northwestern
Utah. There can be no assurance as to the outcome of these matters.

       New Jersey and Connecticut  have  established the Northeast  Compact,  to
construct a low-level  radioactive waste disposal facility in New Jersey,  which
should commence operation by the end of 2003. GPUN's total share of the cost for
developing, constructing, and site licensing the facility is estimated to be $58
million, which will be paid through 2002. Through September 30, 1997, $6 million
has been paid. As a result, at September 30, 1997, a liability of $52 million is
reflected on the  Consolidated  Balance Sheets.  JCP&L is recovering these costs
from  customers,  and a  regulatory  asset  has  also  been  recorded.  (See the
Regulatory Assets and Liabilities section.)

       JCP&L's two  operating  nuclear  units are subject to the NJBPU's  annual
nuclear  performance  standard.  Operation of these units at an aggregate annual
generating  capacity  factor  below 65% or above  75% would  trigger a charge or
credit based on replacement  energy costs.  At current cost levels,  the maximum
annual effect on net income of the performance standard charge at a 40% capacity
factor would be approximately  $11.7 million before tax. While a capacity factor
below 40% would generate no specific monetary charge, it would require the issue



                                       40
<PAGE>

GPU, Inc. and Subsidiary Companies


to be brought before the NJBPU for review. The annual measurement period,  which
begins in March of each year,  coincides with that used for the Levelized Energy
Adjustment Clause.

       GPU has  contracted  for an integrated  information  system to manage the
company's business growth, accomplish year 2000 compliance and meet the mandates
of  electric  utility  deregulation.   The  system  is  scheduled  to  be  fully
operational in early 1999. The estimated  annual project costs of the system for
the years  1997  through  1999 are $21  million,  $61  million  and $24  million
respectively.

       As of  September  30,  1997,  approximately  53% of GPU's  workforce  was
represented by unions for collective  bargaining purposes.  Penelec,  JCP&L, and
Met-Ed's  collective  bargaining  agreements  expire  in 1998,  1999  and  2000,
respectively.

       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.



                                       41
<PAGE>

GPU, Inc. and Subsidiary Companies


2.     ACQUISITION OF POWERNET

       In November 1997, GPU Electric acquired the business of PowerNet Victoria
(PowerNet)   from  the  State  of   Victoria,   Australia   for  A$2.6   billion
(approximately U.S. $1.9 billion). PowerNet owns and maintains the existing high
voltage electricity  transmission system in the State of Victoria.  The PowerNet
transmission  system  serves all of Victoria  covering an area of  approximately
87,900 square miles and a population of approximately 4.5 million.

       The PowerNet acquisition is being financed through: (1) a senior debt 
facility of A$1.9 billion (approximately U.S. $1.4 billion), which is
non-recourse to GPU, Inc.; (2) a five-year U.S. $450 million equity loan which 
is guaranteed by GPU, Inc.; and (3) an equity contribution from GPU, Inc. of 
U.S. $50 million.  In early 1998, GPU, Inc. expects to issue and sell up to 
seven million shares of common stock, the net proceeds of which will be used to
reduce indebtedness associated with the PowerNet and Midlands acquisitions.

       Pursuant to the PowerNet acquisition, the GPU International Group entered
into various  interest rate swap agreements to mitigate the risk of increases in
variable interest rates on the A$1.9 billion  (approximately  U.S. $1.4 billion)
senior debt facility.  These swaps became effective on November 6, 1997, and are
scheduled  to  expire  on  various  dates  through   November   2007.   The  GPU
International  Group  expects  to record  amounts  paid and  received  under the
agreements as adjustments to the interest expense of the underlying debt.

       The  acquisition  of PowerNet  will be  accounted  for under the purchase
method of  accounting.  The  total  acquisition  costs  exceed  the  preliminary
estimated value of net assets by  approximately  U.S. $880 million.  This excess
amount is  considered  goodwill and will be amortized on a  straight-line  basis
over 40 years.  The amount of goodwill will be revised within twelve months when
the final valuation of net assets is completed.

       GPU  Electric  owns  a  50%  interest  in  Solaris  Power  (Solaris),  an
Australian distribution company serving customers in and around Melbourne, which
was  acquired  in  1995.  Under  Victoria's  cross-ownership  restrictions,  GPU
Electric  is required  to reduce its  ownership  interest in Solaris to not more
than 20% within six  months.  GPU  Electric  plans to sell all of its  ownership
interest in Solaris and will use the net proceeds to repay debt  associated with
the Solaris acquisition (U.S. $57 million) and the balance to repay a portion of
the PowerNet equity loan.



                                       42
<PAGE>

GPU, Inc. and Subsidiary Companies


3.     GPU INTERNATIONAL GROUP EQUITY INVESTMENTS

       The GPU  International  Group  has  investments  in  joint  ventures  and
affiliates  involved in power  production,  transmission and distribution in the
United States and foreign countries. The GPU International Group uses the equity
method of accounting for its investments in which it has the ability to exercise
significant  influence.  Brooklyn Energy,  L.P. is being accounted for under the
equity method of accounting in  anticipation of a reduction of the percentage to
27%.  Investments accounted for under the equity method follow:

                                                                     Ownership
Investment                                Location of Operations     Percentage
----------                                ----------------------     ----------

Brooklyn Energy, L.P.                     Canada                       75%
Midlands Electricity plc                  United Kingdom               50%
Solaris Power                             Australia                    50%
Prime Energy, L.P.                        United States                50%
Onondaga Cogen, L.P.                      United States                50%
Pasco Cogen, Ltd.                         United States                50%
Termobarranquilla S.A                     Colombia                     29%
Polsky Energy Corporation *               United States & Canada       25%
Selkirk Cogeneration Partners, L.P.       United States                19%
EnviroTech Investment Fund                United States                10%
Ballard Generation Systems, Inc.          Canada                        8%
Project Orange Associates, L.P.           United States                 4%
OLS Power, L.P.                           United States                 1%

* Sold on September 19, 1997

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


                                                 September 30,      December 31,
Balance Sheet Data (in thousands)                    1997               1996
-------------------                                  ----               ----

Current Assets                                  $   541,699         $ 1,016,730
Noncurrent Assets                                 5,977,573           5,761,593
Current Liabilities                              (1,522,424)         (1,207,038)
Noncurrent Liabilities                           (3,864,122)         (4,080,475)
                                                -----------         -----------
Net Assets                                      $ 1,132,726         $ 1,490,810
                                                ===========         ===========

GPU International Group's
  Equity in Net Assets                          $   563,358         $   735,763
                                                ===========         ===========



                                       43
<PAGE>

GPU, Inc. and Subsidiary Companies

                                                    For the Nine Months Ended
                                                    -------------------------
                                               September 30,       September 30,
Earnings Data (in thousands)                       1997                 1996
--------------                                     ----                 ----
                                 

Revenues                                        $ 1,972,406        $1,270,796
Operating Income                                $   350,892        $  181,168
Net Income/(Loss)                               $   (85,327)       $   40,418

GPU International Group's
  Equity in Net Income/(Loss)                   $   (94,195)       $   15,252


      As of September 30, 1997 and December 31, 1996,  the amount of investments
accounted  for under the equity method  included  goodwill,  net of  accumulated
amortization,  of approximately  $45.1 million and $50.9 million,  respectively,
which is amortized to expense over periods not exceeding 40 years.  Amortization
expense  amounted  to $3.4  million and $1.9  million for the nine months  ended
September  30,  1997  and  1996,  respectively.   In  September  1997,  the  GPU
International  Group recorded a net reduction of  approximately  $2.4 million in
goodwill attributed primarily to the sale of an equity investment.

      At September 30, 1997,  the GPU  International  Group  investments in Lake
Cogen Ltd.; Mid-Georgia Cogen, L.P., a cogeneration facility under construction;
and Empresa Guaracachi S.A., a Bolivian electric generating  company,  have been
consolidated in GPU's financial statements.


                                       44
<PAGE>

GPU, Inc. and Subsidiary Companies


4.    ACCOUNTING FOR DERIVATIVE INSTRUMENTS

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

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

      The GPU  International  Group uses interest rate swap agreements to manage
the risk of increases in variable  interest rates. At September 30, 1997,  these
agreements  covered  approximately  $218  million of debt and are  scheduled  to
expire on various dates  through  November  1998.  The GPU  International  Group
records  amounts paid and received  under the  agreements as  adjustments to the
interest  expense of its underlying debt since the swaps are related to specific
assets,  liabilities or anticipated transactions of the GPU International Group.
For the nine months  ended  September  30,  1997,  fixed rate  interest  expense
exceeded variable rate interest by approximately $1.3 million.


Sterling Put Options:
---------------------

      GPU Electric uses sterling put options to reduce exposure to exchange rate
fluctuations  between  the  British  pound and the U.S.  dollar  relative to its
investment in Midlands.  These put options give GPU Electric the right,  but not
the obligation,  to sell sterling and buy U.S.  dollars at a specific price. GPU
Electric's  exposure  to losses  from  changes in the  relative  values of these
currencies is limited to its initial  investment  in the put options,  which was
$0.6 million. Mark-to-market accounting is followed for these put options, which
are recorded in Other Current Assets in the Consolidated Balance Sheets. Monthly
mark-to-market  gains and  losses,  gains from  exercising  the put  options and
amortization  of expiring  options  totaled  $40.6  thousand for the nine months
ended  September  30,  1997,  and  are  included  in  Other  Income,  Net in the
Consolidated  Statements of Income. The put options were purchased on January 3,
1997 and expire on December 31, 1997.


                                       45
<PAGE>



GPU, Inc. and Subsidiary Companies


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


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


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

      GPU's  earnings for the third quarter ended  September 30, 1997 were $16.9
million,  or $0.14 per share,  compared to 1996 third quarter  earnings of $35.8
million, or $0.29 per share. Both periods included a non-recurring charge.

      In 1997, a non-recurring charge of $109.3 million, or $0.90 per share, was
taken  for a  windfall  profits  tax  imposed  on  privatized  utilities  by the
Government  of the United  Kingdom.  In 1996,  a  non-recurring  charge of $74.5
million,  or $0.62 per share, was taken for costs related to voluntary  enhanced
retirement programs.

      Earnings  for the three months  ended  September  30, 1997 would have been
$126.2 million,  or $1.04 per share,  compared to earnings of $110.3 million, or
$0.91 per  share for the same  period  in 1996,  excluding  the  impact of third
quarter 1997 and 1996  non-recurring  items.  This  increase in earnings was due
primarily to higher weather-related sales this year compared to last.

      For the nine months ended  September 30, 1997,  GPU's earnings were $242.2
million,  or $2.00 per share,  compared to earnings of $217.7 million,  or $1.80
per share, for the same nine month period last year. Excluding the non-recurring
items,  earnings  for the nine months ended  September  30, 1997 would have been
$351.5 million, or $2.90 per share, compared with earnings of $292.2 million, or
$2.42 per share for the same period in 1996.

      The same  factors  affecting  the three  month  earnings  comparison  also
affected the nine month  comparison.  In  addition,  the nine month 1997 results
were affected by increased  earnings from GPU's May 1996 acquisition of Midlands
Electricity plc (Midlands), the recording of step increases in operating revenue
by Met-Ed and Penelec as a result of including their energy cost rates (ECRs) in
base rates and the  cessation  of deferred  energy  accounting,  both  effective
January 1, 1997.


                                       46
<PAGE>

GPU, Inc. and Subsidiary Companies

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

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

      Operating  revenues for the third quarter of 1997  increased 3.3% to $1.09
billion,  as compared to the third  quarter of 1996.  For the nine months  ended
September 30, 1997,  revenues increased 2.3% to $3.06 billion as compared to the
same period last year. The components of the changes are as follows:


                                                     (In Millions)
                                                     -------------
                                           Three Months          Nine Months
                                               Ended                Ended
                                         September 30, 1997   September 30, 1997
                                         ------------------   ------------------

   Kilowatt-hour (KWH) revenues                 $ 26.0               $ 49.6
   Energy related revenues                        12.1                 12.7
   Other revenues                                 (2.7)                 7.2
                                                 -----                -----
        Increase in revenues                    $ 35.4               $ 69.5
                                                 =====                =====

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

      The increase in KWH revenues for the three month period was due  primarily
to higher  weather-related sales to residential customers and an increase in the
number of  customers,  partially  offset  by lower  residential  and  commercial
customer  usage.  The increase in KWH revenues for the nine month period was due
primarily to the step increases recorded by Met-Ed and Penelec from inclusion of
their  ECRs in base  rates  and an  increase  in the  number of  customers.  KWH
revenues now includes Met-Ed and Penelec's  energy and tax revenues,  consistent
with the inclusion of their ECRs and State Tax Adjustment  Surcharges  (STAS) in
base rates, effective January 1, 1997 (See COMPETITIVE ENVIRONMENT).  Met-Ed and
Penelec's energy and tax revenues for the prior year have been  reclassified for
comparative purposes.

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

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

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

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


                                       47
<PAGE>


GPU, Inc. and Subsidiary Companies


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

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.
For  Met-Ed  and  Penelec,  such cost  variances  are not  subject  to  deferred
accounting  and have a  current  impact  on  earnings,  except  for  incremental
nonutility  generation  (NUG) costs,  which are being deferred (see  COMPETITIVE
ENVIRONMENT).  Lower  reserve  capacity  expense  (which is a component of PP&I)
contributed to earnings for the three and nine month periods.

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

      For JCP&L,  changes in fuel and deferral of energy and  capacity  costs do
not  affect  earnings  as they are  offset by  corresponding  changes  in energy
revenues.  Effective  January 1, 1997, Met-Ed and Penelec ceased deferred energy
accounting as their ECRs were combined with base rates, therefore cost variances
have a current impact on earnings (see COMPETITIVE ENVIRONMENT).  For Met-Ed and
Penelec,  the  changes  in fuel and  deferral  of  energy  costs  did not have a
significant impact on earnings for the first nine months of 1997.

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

      The decrease in other O&M  expenses  for the three and nine month  periods
was due  primarily  to a  $122.7  million  pre-tax  charge  in 1996  related  to
voluntary enhanced retirement programs. Lower production expense due to the 1996
retirement  of JCP&L's  Werner and Gilbert  generating  stations,  and decreased
emergency and storm related  activity,  partially  offset by increased  expenses
related to the upgrade and  modification  of certain GPU  computer  systems also
contributed  to the  decrease in other O&M expenses for the three and nine month
periods.

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

      The increase in depreciation  and  amortization  expense for the three and
nine month  periods was due  primarily to additions to plant in service.  Taxes,
other than income taxes

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

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

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

      The decrease in other  income/(expense),  net for the three and nine month
periods was due primarily to the windfall  profits tax of $109.3 million imposed
by the Government of the United Kingdom.



                                       48
<PAGE>

GPU, Inc. and Subsidiary Companies


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

Income taxes
------------

      The  decrease in income taxes on other income for the three and nine month
periods was due primarily to a reduction of GPU's U.S.  income tax liability due
to lower foreign taxable income on its worldwide operations.

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

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

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


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

      JCP&L's earnings for the third quarter ended September 30, 1997 were $74.7
million,  compared to 1996 third  quarter  earnings of $24.4  million.  The 1996
results  include  a  $39.4  million  after-tax  charge  for  voluntary  enhanced
retirement  programs.  Excluding this non-recurring item, earnings for the third
quarter of 1996 would have been $63.8  million.  This earnings  increase was due
primarily to higher weather-related sales and increased new customer sales.

      For the nine  months  ended  September  30,  1997,  earnings  were  $162.2
million,  compared to $112.5  million  for the same  period last year.  The same
non-recurring item affecting the quarterly results also affected the results for
the nine month period.  Excluding the 1996 charge for the  retirement  programs,
earnings  for the nine months  ended  September  30, 1996 would have been $151.9
million.  The same factors  affecting  the three month results also affected the
nine month results.


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

      Operating  revenues for the third quarter of 1997 increased 4.3% to $602.9
million,  as compared to the third  quarter of 1996.  For the nine months  ended
September  30,  1997,  operating  revenues  increased  0.5% to $1.6  billion  as
compared  to the same  period last year.  The  components  of the changes are as
follows:

                                                     (In Millions)
                                                     -------------
                                           Three Months           Nine Months
                                              Ended                  Ended
                                       September 30, 1997     September 30, 1997
                                       ------------------     ------------------

   Kilowatt-hour (KWH) revenues               $ 12.0                 $ (2.7)
   Energy related revenues                      12.3                   10.4
   Other revenues                                0.3                    0.4
                                               -----                  -----
        Increase in revenues                  $ 24.6                 $  8.1
                                               =====                  =====


                                       49
<PAGE>

GPU, Inc. and Subsidiary Companies


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

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

      The  increase in KWH revenues for the three month period was due to higher
weather-related sales to residential customers and increased new customer sales.
The  decrease in KWH  revenues  for the nine month period was due to lower usage
offset by higher  weather-related  sales and increased new customer sales.  Also
contributing  to the decrease for the nine month period was a charge  related to
JCP&L's Final Settlement (see RATE MATTERS), representing the portion of JCP&L's
return on equity which exceeds the maximum amount  allowed,  and must be applied
against customers' base rates.

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

      Changes  in  energy  revenues  do not  affect  earnings  as  they  reflect
corresponding changes in the energy cost rates billed to customers and expensed.
The increase in energy  revenues for the three and nine month periods was due to
an increase in weather-related sales.

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

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


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

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

      Generally,  changes  in  the  energy  component  of  PP&I  expense  do not
significantly  affect  earnings  since these cost  increases  are  substantially
recovered through the LEAC. However,  lower reserve capacity expense (which is a
component  of PP&I) due to reduced  purchases  from  Pennsylvania  Power & Light
contributed to earnings for the three and nine month periods.

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

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

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

      The decrease in other O&M  expenses  for the three and nine month  periods
was primarily due to a $62.9 million pre-tax charge in 1996 related to voluntary
enhanced retirement programs. A decrease in transmission charges from associated
companies and lower production expenses due to the 1996 retirement of the Werner
and Gilbert generating stations also contributed to the decrease.



                                       50
<PAGE>

GPU, Inc. and Subsidiary Companies


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

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

      The increase in depreciation  and  amortization  expense for the three and
nine month  period was due  primarily  to  additions  to plant in service.  Also
contributing  to the increase were charges  related to JCP&L's Final  Settlement
(see RATE MATTERS).  One of the charges represents the portion of JCP&L's return
on equity which exceeds the maximum amount allowed in accordance  with the Final
Settlement,  and must be applied against JCP&L's stranded costs.  Another charge
represents an allowance for forecasted nuclear additions.

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

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


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

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

      The decrease in other  income,  net for the nine month period was due to a
$5.5 million charge in the second quarter of 1997 to settle a lawsuit related to
the  termination  of a NUG contract.  The decrease was  partially  offset by the
effect of a 1996  writeoff of $2.4 million of inventory in  connection  with the
retirement of the Werner and Gilbert generating stations.


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

Other Interest
--------------

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


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

      Met-Ed's  earnings for the third  quarter  ended  September  30, 1997 were
$27.1 million, compared to 1996 third quarter earnings of $8.1 million. The 1996
results  include  a  $15.4  million  after-tax  charge  for  voluntary  enhanced
retirement  programs.  Excluding this non-recurring item, earnings for the third
quarter  1996 would have been $23.5  million.  This  earnings  increase  was due
primarily to increased  customer  usage,  new customer  sales and an increase in
sales to other utilities.

      For the nine months ended  September 30, 1997 earnings were $80.8 million,
compared to $48.5 million for the same period last year. The same  non-recurring
item  affecting  the  quarterly  results also  affected the results for the nine
month period.  Excluding the 1996 charge for the retirement  programs,  earnings
for the nine months ended September 30, 1996 would have been $63.9 million. This
increase was primarily due to the recording of a step increase 


                                       51
<PAGE>

GPU, Inc. and Subsidiary Companies

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

in operating  revenue  resulting from the inclusion of energy cost rates in base
rates and the cessation of deferred energy accounting, effective January 1, 1997
(See  COMPETITIVE  ENVIRONMENT).  Also affecting the nine month results were the
same factors affecting the three month results.

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

      Operating  revenues for the third quarter of 1997 increased 2.1% to $248.2
million as compared  to the third  quarter of 1996.  For the nine  months  ended
September 30, 1997, revenues increased 3.5% to $712.0 million as compared to the
same period last year. The components of the changes are as follows:


                                                     (In Millions)
                                                     -------------
                                          Three Months           Nine Months
                                             Ended                  Ended
                                      September 30, 1997     September 30, 1997
                                      ------------------     ------------------

   Kilowatt-hour (KWH) revenues             $ 6.2                 $ 21.5
   Other revenues                            (1.2)                   2.6
                                             ----                  -----
        Increase in revenues                $ 5.0                 $ 24.1
                                             ====                  =====


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

      The increase in KWH revenues for the three and nine month  periods was due
primarily to increased  customer usage,  new customer sales,  and an increase in
sales  to  other  utilities.   Partially   offsetting  these  items  were  lower
weather-related  residential  sales.  Also  contributing to the increase for the
nine months was the step  increase  resulting  from the inclusion of energy cost
rates in base rates, amounting to $13 million.

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

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

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

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

      Effective January 1, 1997, Met-Ed ceased deferred energy accounting as its
energy cost rates were combined with base rates. Thus, energy cost variances now
have a current impact on earnings,  except for incremental nonutility generation
(NUG) costs, which are being deferred (see COMPETITIVE ENVIRONMENT).  Changes in
fuel and power purchased and interchanged  did not have a significant  impact on
earnings for the first nine months of 1997.



                                       52
<PAGE>

GPU, Inc. and Subsidiary Companies


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

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

      The decrease in other O&M  expenses  for the three and nine month  periods
was due to a $26.2 million pre-tax charge in 1996 related to voluntary  enhanced
retirement programs.

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

      The increase in depreciation  and  amortization  expense for the three and
nine month periods was due to additions to plant in service,  and an increase in
depreciation rates.

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

      Effective  January 1, 1997,  Met-Ed's STAS is included with base rates and
is no longer subject to annual  adjustment.  (see  COMPETITIVE  ENVIRONMENT) The
changes for the three and nine month periods did not have a  significant  impact
on earnings.


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

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

      The increase in other income/(expense),  net for the nine month period was
due to an increase in interest income.


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

Other Interest
--------------

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





                                       53
<PAGE>



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

      Penelec's  earnings for the third  quarter  ended  September 30, 1997 were
$19.2 million, compared to 1996 third quarter earnings of $2.4 million. The 1996
results  include  a  $19.7  million  after-tax  charge  for  voluntary  enhanced
retirement  programs.  Excluding this non-recurring item, earnings for the third
quarter  1996 would have been $22.1  million.  This  earnings  decrease  was due
primarily to increased depreciation expense due to additions to plant in service
and higher depreciation rates.

      For the nine months ended  September 30, 1997 earnings were $80.6 million,
compared to $53.8 million for the same period last year. The same  non-recurring
item  affecting  the  quarterly  results also  affected the results for the nine
month period.  Excluding the 1996 charge for the retirement  programs,  earnings
for the nine months ended September 30, 1996 would have been $73.5 million. This
increase was primarily due to the step increase in operating  revenue  resulting
from the  inclusion of the energy cost rates in base rates and the  cessation of
deferred  energy   accounting,   effective  January  1,  1997  (See  COMPETITIVE
ENVIRONMENT).  Also  affecting  the nine month results were  increased  sales to
other utilities, partially offset by increased depreciation expense.


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

      Operating  revenues for the third quarter of 1997 increased 0.6% to $257.6
million,  as compared to the third  quarter of 1996.  For the nine months  ended
September 30, 1997, revenues increased 3.0% to $795.2 million as compared to the
same period last year. The components of the changes are as follows:

                                                       (In Millions)
                                                       -------------
                                            Three Months          Nine Months
                                                Ended                Ended
                                         September 30, 1997   September 30, 1997
                                         ------------------   ------------------

   Kilowatt-hour (KWH) revenues                 $  7.2               $ 22.7
   Other revenues                                 (5.8)                 0.2 
         Increase in revenues                   $  1.4               $ 22.9
         
Kilowatt-hour revenues
----------------------

      The increase in KWH revenues for the three and nine month  periods was due
to increased sales to other utilities. Also affecting the nine month results was
the step  increase  resulting  from the  inclusion  of energy cost rates in base
rates, amounting to $15 million.

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

      Generally,  changes in other  revenues do not affect  earnings as they are
offset  by  corresponding  changes  in  expense.   Lower  transmission  revenues
contributed to the decrease for the three month period.



                                       54

<PAGE>

GPU, Inc. and Subsidiary Companies


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

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

Fuel and Power purchases and interchanged
-----------------------------------------

      Effective  January 1, 1997,  Penelec ceased deferred energy  accounting as
its energy cost rates were combined with base rates. Thus, energy cost variances
now have a  current  impact  on  earnings,  except  for  incremental  nonutility
generation (NUG) costs, which are being deferred (see COMPETITIVE  ENVIRONMENT).
Changes in fuel and power purchased and  interchanged did not have a significant
impact on earnings for the first nine months of 1997.

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

      The decrease in other O&M  expenses  for the three and nine month  periods
was due to a $33.6 million pre-tax charge in 1996 related to voluntary  enhanced
retirement programs.

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

      The increase in depreciation  and  amortization  expense for the three and
nine month periods was due to additions to plant in service,  and an increase in
depreciation rates. Taxes, other than income taxes

      Effective January 1, 1997,  Penelec's STAS is included with base rates and
is no longer subject to annual  adjustment.  (see  COMPETITIVE  ENVIRONMENT) The
changes for the three and nine month periods did not have a  significant  impact
on earnings.


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

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

      The increase in other income/(expense),  net for the nine month period was
due to an increase in interest income.

PREFERRED STOCK DIVIDENDS:
--------------------------

      The decrease in preferred  stock  dividends  for the nine month period was
due to Penelec reacquiring portions of its preferred stock in 1996.



                                       55
<PAGE>

GPU, Inc. and Subsidiary Companies


                             GPU INTERNATIONAL GROUP
                             -----------------------

         The GPU  International  Group  develops,  owns  and  operates  electric
generation,  transmission  and  distribution  facilities in the U.S. and foreign
countries. It has also made investments in certain advanced technologies related
to the  electric  power  industry.  The GPU  International  Group has  ownership
interests in distribution and supply businesses in England and Australia,  eight
operating  cogeneration  plants  in the U.S.  totaling  847 MW (of which the GPU
International Group's equity interest represents 308 MW) of capacity, and twelve
operating  generating  facilities located in foreign countries totaling 3,662 MW
(of which the GPU  International  Group's equity interest  represents 704 MW) of
capacity.

         In  November  1997,  GPU  Electric  acquired  the  business of PowerNet
Victoria  (PowerNet)  from the State of Victoria,  Australia  for A$2.6  billion
(approximately U.S. $1.9 billion)(see Financing section of LIQUIDITY AND CAPITAL
RESOURCES).  PowerNet owns and  maintains the existing high voltage  electricity
transmission system in the State of Victoria.  The PowerNet  transmission system
serves all of Victoria covering an area of approximately 87,900 square miles and
a population of approximately 4.5 million.  GPU expects the PowerNet acquisition
to be accretive to its 1998 earnings. For additional information,  see Note 2 of
the Combined Notes to Consolidated Financial Statements.

         The  GPU  International   Group  is  continuing  to  pursue  investment
opportunities and has commitments, both domestically and internationally, in six
generating  facilities  under  construction  totaling 2,118 MW (of which the GPU
International Group's equity interest represents 609 MW) of capacity.

         At September  30, 1997,  GPU,  Inc.'s  aggregate  investment in the GPU
International  Group was $218 million;  GPU,  Inc. has also  guaranteed up to an
additional $842 million of GPU International Group obligations. At September 30,
1997, GPU, Inc. had Securities and Exchange Commission (SEC) approval to finance
investments in foreign utility companies (FUCOs) and exempt wholesale generators
(EWGs) up to an  aggregate  amount  equal to 50% of GPU's  average  consolidated
retained earnings,  or approximately  $1.1 billion.  In November 1997, GPU, Inc.
received SEC approval to increase this limit to 100% of its average consolidated
retained  earnings,  or  to  approximately  $2.2  billion.  As a  result,  after
including  the effect of the  PowerNet  acquisition,  GPU,  Inc.  has  remaining
authorization to finance approximately $730 million of additional investments in
FUCOs and EWGs.

         In August 1997, the Government of the United Kingdom imposed a windfall
profits tax on privatized utilities,  including Midlands, in which GPU has a 50%
ownership interest. As a result, GPU recorded a one-time charge to income in the
third quarter of 1997 of $109.3 million,  or $0.90 per share. The tax is payable
in two equal installments by December 1, 1997 and 1998.

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

         For   additional   information   on  the  GPU   International   Group's
investments,  see  Note  3 of  the  Combined  Notes  to  Consolidated  Financial
Statements.


                                       56
<PAGE>

GPU, Inc. and Subsidiary Companies

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

Capital Needs
-------------

      GPU's cash  construction  expenditures for the nine months ended September
30, 1997 were $236 million (JCP&L $116 million; Met-Ed $55 million;  Penelec $63
million;  Other  $2  million).   Construction  expenditures  for  the  year  are
forecasted to be $364 million (JCP&L $171 million;  Met-Ed $84 million;  Penelec
$104 million;  Other $5 million).  Expenditures  for maturing  obligations  will
total $179 million (JCP&L $110 million; Met-Ed $40 million; Penelec $26 million;
Other $3  million) in 1997.  GPU and the GPU Energy  companies  estimate  that a
substantial  portion  of their 1997  capital  needs  will be  satisfied  through
internally generated funds.

Financing
---------

      GPU,  Inc.  has received SEC approval to issue and sell up to $300 million
of  unsecured  debentures  through  2001  and  up to  seven  million  shares  of
additional  common stock through 1998. In early 1998, GPU, Inc. expects to issue
and sell up to the seven  million  shares of common  stock,  the net proceeds of
which  will be used to reduce  indebtedness  associated  with the  PowerNet  and
Midlands acquisitions.

      In November 1997, GPU Electric acquired the Australian business, PowerNet,
which owns and  maintains the  transmission  system in the State of Victoria for
A$2.6  billion  (approximately  U.S. $1.9  billion).  The  acquisition  is being
financed  through:  (1) a senior debt facility of A$1.9  billion  (approximately
U.S. $1.4  billion),  which is  non-recourse  to GPU, Inc.; (2) a five-year U.S.
$450 million  equity loan which is  guaranteed by GPU,  Inc.;  and (3) an equity
contribution from GPU, Inc. of U.S. $50 million. See Note 2 to Combined Notes to
Consolidated  Financial  Statements  for  further  discussion  of  the  PowerNet
acquisition.

      As a result of Pennsylvania  legislation  (see  COMPETITIVE  ENVIRONMENT),
Met-Ed and Penelec  each plan to sell  securitized  transition  bonds  through a
separate  trust or other  similar  entity,  and would use the proceeds to reduce
capitalization  and further  mitigate  stranded  costs  resulting  from customer
choice.  Met-Ed and  Penelec  plan to use  securitization  proceeds  to fund NUG
contract buyout costs (see the Managing Nonutility Generation section of THE GPU
ENERGY  COMPANIES'  SUPPLY PLAN).  The timing and amount of any sale will depend
upon PaPUC  approval  of  restructuring  plans and an Internal  Revenue  Service
private  letter  ruling on certain  tax  issues,  as well as market  conditions.
Similarly,  JCP&L fully supports the enactment of New Jersey  legislation  which
would  provide for  securitization  as part of the  restructuring  process.  See
COMPETITIVE ENVIRONMENT for further discussion of these bonds.

      JCP&L and  Penelec  have  regulatory  authority  to issue  and sell  first
mortgage bonds (FMBs),  including secured medium-term notes, and preferred stock
through June 1999.  Met-Ed has similar  authority  through December 1997. Met-Ed
has  requested  PaPUC  approval to extend this  authorization  for an additional
two-year period.  Under existing  authorizations,  JCP&L, Met-Ed and Penelec may
issue these senior securities in aggregate amounts of $145 million, $190 million


                                       57
<PAGE>


GPU, Inc. and Subsidiary Companies


and $70 million,  respectively, of which up to $100 million for JCP&L and Met-Ed
and $70  million for Penelec  may  consist of  preferred  stock.  The GPU Energy
companies also have regulatory  authority to incur short-term debt, a portion of
which may be through the issuance of commercial paper.

      On September 1, 1997,  JCP&L redeemed at maturity $25.9 million  principal
amount of 6 5/8% FMBs.  On September 11, 1997,  Met-Ed  redeemed at maturity $20
million principal amount of 9.2% FMBs.

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


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

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

      In 1996, Pennsylvania adopted comprehensive legislation which provides for
the restructuring of the electric utility industry. The legislation, among other
things,  permits  one-third  of  Pennsylvania  retail  consumers to choose their
electric supplier beginning January 1, 1999, and all retail consumers by January
1, 2001.  The  legislation  requires the  unbundling of rates for  transmission,
distribution  and generation  services.  Utilities would have the opportunity to
recover  their  prudently  incurred  stranded  costs that result from  customers
choosing  another  supplier  through  a PaPUC  approved  competitive  transition
charge,  subject to certain conditions,  including that they attempt to mitigate
these costs.  For a discussion of stranded  costs,  see the  Competition and the
Changing  Regulatory  Environment  section  of Note 1 of the  Combined  Notes to
Consolidated Financial Statements.

      The  legislation  provides  utilities  the  opportunity  to  reduce  their
stranded costs through the issuance of transition bonds with maturities of up to
10 years.  The sale proceeds could be used to buy out or buy down uneconomic NUG
contracts, to reduce capitalization, or both. Principal and interest payments on
the  bonds  would  be paid  by all  distribution  service  customers  through  a
nonbypassable  intangible transition charge.  Reduced financing costs associated
with the sale of transition  bonds would be used to provide rate  reductions for
all customers.  In order to securitize stranded costs, each Pennsylvania utility
is  required  to file with the PaPUC for a  qualified  rate  order.  Met-Ed  and
Penelec expect to file for such rate orders during 1998.

      Effective January 1, 1997,  transmission and distribution rates charged to
Pennsylvania  retail  customers  are  generally  capped  for  4 1/2  years,  and
generation  rates are generally  capped for up to nine years.  Transmission  and
distribution of electricity will continue as a regulated  monopoly and the PaPUC
will  ensure  that  adequate  electrical  reserves  exist to  maintain  reliable
service.   An  independent   system  operator  (ISO)  will  be  responsible  for


                                       58
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GPU, Inc. and Subsidiary Companies


coordinating  the generation and transmission of electricity in an efficient and
nondiscriminatory manner.

      As part of this restructuring, Met-Ed and Penelec filed, in December 1996,
tariff  supplements  requesting  approval to, among other things,  include their
currently  effective  ECRs  and  STAS in base  rates,  effective  for all  bills
rendered  after  January 1,  1997.  In  February  1997 the PaPUC  approved  this
request.  Since rates that can be charged to customers for generation are capped
for up to nine years,  to the extent Met-Ed and Penelec remain in the generation
business,  their future earnings are subject to market volatility.  Increases or
decreases  in fuel costs are no longer  subject to deferred  accounting  and are
reflected in net income as  incurred.  Met-Ed and Penelec  will  continue  their
efforts to manage  fuel costs and will  mitigate,  to the extent  possible,  any
excessive risks.

      In June 1997,  Met-Ed and  Penelec  filed  with the PaPUC  their  proposed
restructuring   plans  to  implement   competition   and   customer   choice  in
Pennsylvania. Highlights of these plans include:

-    One-third of electric retail customers would be able to choose their
     supplier  beginning on January 1, 1999,  expanding to include all customers
     by January 1, 2001.

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

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

-    A "NUG Cost Rate" is being  proposed  to capture  future  payments to NUGs.
     This clause will provide for a full reconciliation of amounts paid to NUGs,
     and  recovered  from  customers.  This will  ensure that  customers  do not
     overpay  for  these  obligations,  and it will also  provide a vehicle  for
     flowing   through  to  customers  the  full  benefits  of  any  prospective
     reductions in NUG  obligations  that result from the requests for proposals
     (RFPs) or other future NUG mitigation.  At September 30, 1997, the deferred
     NUG balances  for Met-Ed and Penelec  were $6.4  million and $7.4  million,
     respectively,   and  are  included  in  Other  Regulatory   Assets  on  the
     Consolidated Balance Sheet.

-    Stranded costs at the time of initial  customer choice (December 31, 1998),
     on a present value basis, are estimated at $1.4 billion for Met-Ed and $1.3
     billion for  Penelec.  These  stranded  costs  include  above-market  costs
     related to power purchase commitments, company owned generation, generating
     plant decommissioning, regulatory assets and transition expenses.

-    Ongoing  stranded  cost  mitigation   efforts  include  the  buyout  and/or
     renegotiation  of  several   above-market   NUG  agreements;   the  planned
     retirement  of  uneconomical  generating  units  as well as the  continuing
     evaluation of remaining  generating  facilities;  and workforce  reductions
     achieved primarily through voluntary retirement and severance programs.


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GPU, Inc. and Subsidiary Companies


-    Met-Ed and Penelec have requested  rate recovery of prudently  incurred and
     previously  approved costs associated with the buyout and  restructuring of
     NUG projects that are not currently being recovered in rates. The requested
     increase,  based upon a three-year  recovery of the buyout costs,  is $10.5
     million for Met-Ed and $1.7 million for Penelec.  It is expected that these
     increases will be offset by lower interest  expense related to the issuance
     of transition bonds. The estimated  customer savings  associated with these
     contract buyouts/restructurings is $900 million for Met-Ed and $500 million
     for Penelec.

-    Met-Ed and Penelec support  securitization  as a mechanism to help mitigate
     stranded  costs  and  have  initiated  a  RFP  which  is  expected  to  use
     securitization  proceeds  to reduce  above-market  NUG costs.  (See THE GPU
     ENERGY COMPANIES' SUPPLY PLAN.)

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

      Met-Ed  and  Penelec   will  file   supplemental   information   to  their
restructuring  plans to reflect the recent  announcement  regarding the proposed
sale of their generating facilities.  (See additional discussion under the Other
heading of this section.) The PaPUC continues to review and hold hearings on the
restructuring plans, and has stated that a decision is expected by mid 1998.

      The PaPUC has also issued a final order that sets forth the guidelines for
retail access pilot programs in Pennsylvania  that give customers the ability to
choose their  electricity  supplier.  These pilot programs include  residential,
commercial and industrial class customers,  and utilities are required to commit
about 5% of load to retail  access  programs and  unbundle  their rates to allow
customers to choose their electric generation supplier.  The pilot program began
November 1, 1997 and will run until the first phase of retail competition begins
on January 1, 1999.  Met-Ed and Penelec's pilot programs  include  approximately
51,000 (Met-Ed 23,000; Penelec 28,000) customers.

      In August 1997, PECO Energy Company reached a partial settlement,  subject
to PaPUC approval,  in its restructuring  proceeding.  Among other things,  this
settlement provides for a 10% retail rate reduction beginning in September 1998.
It is not known what effect,  if any,  this  settlement  will have on Met-Ed and
Penelec's restructuring proceedings.

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

      In April 1997,  the NJBPU issued final  findings and  recommendations  for
restructuring the electric utility industry in New Jersey and submitted the plan
to the  Governor  and the  Legislature  for their  consideration.  The NJBPU has
recommended,  among other  things,  that certain  electric  retail  customers be
permitted to choose their supplier beginning October 1998,  expanding to include
all retail  customers  by July 1, 2000.  The NJBPU also  recommends  a near-term
electric rate reduction of 5% to 10% with the phase in of retail competition, as
well as additional  rate  reductions  accomplished as a result of new energy tax
legislation, as discussed below.



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GPU, Inc. and Subsidiary Companies


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

      In addition, the NJBPU is proposing that beginning October 1998, utilities
unbundle  their rates and allow  customers to choose their  electric  generation
supplier.  Transmission  and  distribution  of  electricity  would continue as a
regulated  monopoly and utilities would be responsible for connecting  customers
to the system and for providing distribution service. Transmission service would
be provided by an ISO, who would be responsible  for maintaining the reliability
of the  regional  power  grid  and  would be  regulated  by the  Federal  Energy
Regulatory Commission (FERC).

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

      In July 1997, JCP&L filed with the NJBPU its proposed  restructuring  plan
for a competitive electric marketplace in New Jersey.  Included in the plan were
stranded cost and unbundled rate filings. Highlights of the plan include:

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

-    As required by the New Jersey Energy Master Plan,  JCP&L would unbundle its
     rates and these rates would apply to all distribution  customers,  with the
     exception of a Production  Charge,  which would be charged to customers who
     do not choose an alternative energy supplier.  The unbundled rate structure
     would include:

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

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

          --      a Production Charge for the estimated average market price for
                  electricity  (EAMPE)  provided to customers who elect JCP&L as


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GPU, Inc. and Subsidiary Companies


                  their  electric  generation  supplier.   JCP&L  would  be  the
                  supplier  of last  resort for  customers  who cannot or do not
                  wish to  purchase  energy  from  an  alternative  supplier.  A
                  deferred  market price  adjustment  account will be set up for
                  the  difference  between the EAMPE and the actual market price
                  for electricity,  plus interest.  The EAMPE will be calculated
                  every six months during the transition  period and adjusted by
                  a true-up factor.

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

          --      a Market  Transition  Charge (MTC) to recover non-NUG stranded
                  generation   costs.  This  charge  would  include  both  owned
                  generation  and  utility  purchase  power  commitments.  It is
                  expected that the MTC would be in effect for  approximately  a
                  four-year period.

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

-    The  unbundling  plan calls for an estimated 10% rate  reduction,  of which
     2.1% became effective as part of JCP&L's global rate settlement approved by
     the NJBPU in April 1997 (see RATE MATTERS).  The remaining reductions would
     be phased in over a two-year period beginning October 1, 1998, and would be
     achieved  through,  among other things,  the proposed  early  retirement of
     Oyster Creek for ratemaking  purposes in September 2000 and, if legislation
     is enacted,  the securitization of above-market  costs. In addition to this
     rate reduction,  JCP&L customers would receive an additional rate reduction
     of  approximately 6% to be phased in over the next five to seven years as a
     result of energy tax legislation signed into law in July 1997.

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

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

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


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GPU, Inc. and Subsidiary Companies


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

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

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

-    Stranded costs at the time of initial customer choice (September 30, 1998),
     on a present  value basis,  are  estimated at $1.8  billion,  of which $1.6
     billion  is for  above-market  NUG  contracts.  The $1.8  billion  excludes
     above-market generation costs related to Oyster Creek.

-    Ongoing  stranded cost  mitigation  efforts have included the buyout and/or
     renegotiation  of several  above-market  NUG agreements;  the retirement of
     uneconomical steam generating units at Gilbert and Werner stations in 1996;
     the planned retirement of additional units at Sayreville station in 1999 as
     well as the continuing evaluation of remaining generating  facilities;  and
     workforce  reductions  achieved primarily through voluntary  retirement and
     severance programs.

-    JCP&L  fully  supports   securitization   of  above-market   costs  in  the
     restructuring  process.  JCP&L  expects  to  request   securitization,   if
     legislation is enacted, of certain costs associated with generation assets,
     regulatory assets and the buyout or renegotiation of NUG contracts.

      JCP&L will file  supplemental  information  to its  restructuring  plan to
reflect the recent  announcement  regarding the proposed sale of its  generating
facilities. (See additional discussion under the Other heading of this section.)
The NJBPU  intends to  complete  its review and  approval  of this plan so as to
permit retail competition to begin in October 1998.

      JCP&L has received  NJBPU  approval of a one-year  pilot program  offering
customers  in Monroe  Township,  New  Jersey a choice of their  electric  energy
supplier.  The pilot program began in September  1997, and can be extended until
the first phase of competition  begins in October 1998. Monroe Township had been
exploring the possibility of establishing its own municipal electric system.

Other
-----

      In October 1997, GPU announced that it intends to begin a process to sell,
through an auction,  up to all of the fossil fuel and  hydroelectric  generating
facilities   owned  by  the  GPU  Energy   companies.   These  facilities  total
approximately  5,300 MW of capacity  and have a net book value of  approximately
$1.1 billion at September 30, 1997. The net proceeds from the sale would be used
to reduce the  capitalization  of the  respective  GPU Energy  companies.  It is
anticipated  that it will  take  approximately  twelve  to  eighteen  months  to
complete the sale. The GPU Energy companies will file  supplemental  information
to their  restructuring plans in Pennsylvania and New Jersey to reflect the sale
of these assets.


                                       63
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GPU, Inc. and Subsidiary Companies


      In addition to the continued operation of the Oyster Creek facility, JCP&L
is  exploring  the sale or early  retirement  of the  plant  to  mitigate  costs
associated with its continued operation. In response to an inquiry regarding the
possible sale of Oyster Creek,  the GPU Energy  companies  have stated that they
would also consider  selling  TMI-1.  Unlike Oyster  Creek,  however,  the early
retirement  of TMI-1 is not being  considered  because  of its  lower  operating
costs. In October 1997, the GPU Energy companies  entered into a confidentiality
agreement with a potential buyer of these facilities.

      Several  bills  have  been   introduced   in  Congress   providing  for  a
comprehensive  restructuring  of the  electric  utility  industry.  These  bills
propose,  among other things,  retail choice for all utility customers beginning
as early as January  1999,  the  opportunity  for  utilities  to  recover  their
prudently  incurred  stranded costs in varying  degrees,  and repeal of both the
Public Utility  Regulatory  Policies Act (PURPA) and the Public Utility  Holding
Company Act of 1935.

      In 1996, the GPU Energy  companies,  along with six other electric utility
members of the Pennsylvania-New  Jersey-Maryland (PJM) Power Pool (together, the
supporting  PJM  companies),  filed  with the  FERC a  transmission  tariff  and
agreements  (including,  among other things,  establishing an ISO to operate the
energy market and transmission system), that would create a new wholesale energy
market to meet the  requirements of FERC Order 888, and to increase  competition
in the  Mid-Atlantic  region.  Also in 1996, PECO Energy Company  (PECO),  which
opposes the supporting PJM companies' proposed restructuring plan, filed its own
plan with the FERC. Although the PJM companies are continuing with their efforts
to operate as an ISO, there still remain a number of unresolved issues.

      In  February  1997,  the FERC issued an order  directing  PJM to adopt all
recommendations  proposed by the supporting PJM companies  except with regard to
congestion  pricing,  as to which  the FERC  ordered  implementation  of  PECO's
proposal on an interim basis.  The FERC has stated that it expects it will order
PJM to adopt the supporting PJM companies'  proposal on congestion pricing after
certain  issues  are  resolved  concerning   implementation  of  this  proposal.
Effective  March 31, 1997, the PJM Power Pool  converted to a limited  liability
company  governed  by an  independent  board  of  managers;  in June  1997,  the
supporting  PJM companies  filed with the FERC an  application to permit the PJM
Interconnection to be recognized as an ISO.


                                  RATE MATTERS
                                  ------------

      Pennsylvania adopted comprehensive  legislation in 1996 which provides for
the restructuring of the electric utility industry.  For additional  information
and related rate matters, see COMPETITIVE ENVIRONMENT.

      In 1996, the NJBPU  approved a provisional  settlement for a combined LEAC
and  Demand-Side  Factor (DSF)  increase of $27.9 million  annually.  The DSF is
applied to customer  rates so electric  utilities can recover their  demand-side
management  program  costs,   which  include  activities   designed  to  improve
efficiency in customer electricity use and load-management  programs that reduce
peak demand.



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GPU, Inc. and Subsidiary Companies


      Also in 1996,  JCP&L, the staff of the NJBPU and the Division of Ratepayer
Advocate reached an agreement on a variety of pending  rate-related  issues.  An
Administrative  Law Judge (ALJ) issued a decision  recommending  approval of the
Final Settlement,  but the NJBPU ordered additional  evidentiary hearings on the
recovery of buyout costs for the Freehold  cogeneration project discussed below.
In December 1996, the ALJ issued a further decision  recommending  that recovery
of the  Freehold  buyout costs be approved,  subject to possible  revocation  or
modification,  if it was determined  that the project was not viable when it was
bought out. In December  1996,  an Addendum  revising the Final  Settlement  was
agreed  upon by JCP&L,  the staff of the NJBPU  and the  Division  of  Ratepayer
Advocate. In January 1997, the NJBPU staff recommended that rate recovery of the
Freehold buyout costs be permitted.  In March 1997, the NJBPU approved the Final
Settlement,  including  the  recovery of Freehold  buyout  costs.  However,  the
Freehold  cost  recovery  was  granted on an interim  basis,  subject to refund,
pending further review by the NJBPU. There can be no assurance as to the outcome
of this matter.

      Provisions of the Final Settlement, as revised by the Addendum,  include a
further  annual  increase  of $7 million in the LEAC in  addition to those noted
above and an annual  reduction  of $11  million  in base  rates.  Base rates are
frozen at that level  until the year 2000,  and the LEAC rate is frozen  through
the  year  1999.  The  final  settlement  provides  for the  establishment  of a
remediation  adjustment  clause (RAC) for the recovery of manufactured gas plant
remediation costs. JCP&L could seek a LEAC/DSF/RAC rate increase if the combined
LEAC/DSF/RAC balance is projected to exceed $40 million, or a base rate increase
under certain other conditions, such as a major change in the current regulatory
environment. The Final Settlement provides for recovery in base rates, beginning
in 1998,  of all  postretirement  benefit  costs  recorded  in  accordance  with
Statement  of  Financial   Accounting   Standards  No.  106,  including  amounts
previously deferred,  and an increase in decommissioning  expense to reflect the
radiological  decommissioning and nonradiological removal costs estimated in the
1995 site-specific  studies performed for GPUN. Also,  included in base rates is
recovery  of the  remaining  investments  in the 58 MW  Werner  Unit 4 and 72 MW
Gilbert Unit 3 generating plants, which were retired in 1996.

      The Final  Settlement also provides for recovery  through the LEAC of: (1)
buyout costs up to $130 million,  and 50% of any costs from $130 million to $140
million,  over a seven-year  period for the  termination  of the Freehold  power
purchase  agreement (such recovery is interim and is subject to refund,  pending
further  review);  and (2) $14 million of the $17 million  buyout costs,  over a
two-year period, for the termination of the agreement to purchase power from the
proposed 200 MW Crown/Vista project. JCP&L wrote-off the remaining $3 million of
buyout costs for the Crown/Vista project in the second quarter of 1996.

      In addition,  the Final Settlement resolves the NJBPU's generic proceeding
regarding  recovery of capacity costs  associated  with electric power purchases
from NUG projects which the Division of the Ratepayer Advocate claimed to result
in a double  recovery.  JCP&L is not  required to refund any amounts  previously
collected.  The Final Settlement  provides annual allowances for the recovery of
forecasted  additions to nuclear plant.  The Final Settlement also provides that
if JCP&L's return on equity exceeds 12.2%,  excluding demand-side management and


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GPU, Inc. and Subsidiary Companies


nuclear performance incentives,  the excess will be used to reduce both customer
rates and certain regulatory assets.



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

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

      The GPU Energy  companies have contracts and anticipated  commitments with
NUG  suppliers  under  which a total of 1,657 MW (JCP&L  896 MW;  Met-Ed 356 MW;
Penelec 405 MW) of capacity are  currently in service.  For  information  on NUG
costs, see the Competition and the Changing  Regulatory  Environment  section of
Note 1 of the Combined Notes to Consolidated Financial Statements.

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

      In April 1997,  Met-Ed and Penelec  issued RFPs to 24 NUG  projects  which
currently  supply  a  total  of  approximately   760  MW  under  power  purchase
agreements.  The RFPs  requested the NUGs to propose  buyouts,  buydowns  and/or
restructurings  of current power purchase  contracts in return for cash payments
which  would be  funded  through  the  issuance  of PaPUC  approved  securitized
transition bonds (see COMPETITIVE ENVIRONMENT). Met-Ed and Penelec are currently
negotiating with two bidders to enter into definitive  buyout  agreements by the
end of 1997.  Payments would be made in 1998,  subject to Met-Ed's and Penelec's
ability to obtain the required funding through securitization.



                               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 California  investor-owned  utilities with respect to
their electric generation operations.  The GPU Energy companies believe that the
SEC's  concern also applies to them,  since retail access  legislation  has been
enacted in  Pennsylvania  and proposed in New Jersey.  In May and July 1997, the
FASB's  Emerging  Issues Task Force (EITF) met to discuss  these issues and they

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GPU, Inc. and Subsidiary Companies


concluded  that  utilities are no longer  subject to FAS 71, for the  generation
portion of their  business,  as soon as they know  details  of their  individual
transition  plans.  The EITF also concluded that utilities can continue to carry
previously  recorded regulated assets (including those related to generation) on
their balance sheet if regulators  have  guaranteed a regulated cash flow stream
to recover the cost of these assets. While the EITF's consensus must be complied
with,  the SEC has the  final  regulatory  authority  for  accounting  by public
companies.

      In light of retail access legislation  enacted in Pennsylvania and the New
Jersey Energy Master Plan in New Jersey,  the GPU Energy companies  believe they
will no longer meet the requirements for continued application of FAS 71 for the
generation  portion  of their  business,  no later  than mid 1998 for Met-Ed and
Penelec,  and  October  1998 for JCP&L,  the  expected  approval  dates of their
restructuring  plans filed with state regulators.  Once the GPU Energy companies
are able to determine  that the  generation  portion of their  operations  is no
longer subject to the provisions of FAS 71, the related  regulatory  assets, net
of  regulatory  liabilities,  would,  to the extent that recovery is not granted
through their respective restructuring plans, have to be written off and charged
to expense.  The above-market costs of power purchase  commitments would have to
be expensed,  and additional  depreciation expense would have to be recorded for
any differences  created by the use of a regulated  depreciation  method that is
different  from  that  which  would  have  been used  under  generally  accepted
accounting  principles for  enterprises in general.  In addition,  writedowns of
plant assets could be required in accordance  with FAS 121,  "Accounting for the
Impairment of  Long-Lived  Assets." The amount of writeoffs  resulting  from the
discontinuation  of FAS 71 will  depend on the final  outcome  of the GPU Energy
companies'  individual  restructuring  proceedings,  and could  have a  material
adverse effect on GPU's results of operations and financial condition.

      In March 1997,  Statement of Financial  Accounting  Standards No. 128 (FAS
128),  "Earnings Per Share", was issued. FAS 128 requires a dual presentation of
basic and  diluted  earnings  per share for  companies  that have  common  stock
equivalents,  including GPU. The two earnings per share computations for GPU are
not  expected  to be  materially  different  from one  another.  FAS 128 will be
effective for year-end reporting.

      In June 1997,  Statement of Financial  Accounting  Standards  No. 130 (FAS
130),  "Reporting  Comprehensive  Income", was issued to establish standards for
reporting  and  displaying   comprehensive   income.   This  statement  requires
disclosure of the  components of  comprehensive  income  including,  among other
things,  foreign currency  translation  adjustments,  minimum pension  liability
items and  unrealized  gains or losses on  decommissioning  and other trust fund
assets.  GPU will be required to show  components of  comprehensive  income in a
financial  statement  displayed as prominently  as the other required  financial
statements. The statement is effective for fiscal years beginning after December
15, 1997.

      In June 1997,  Statement of Financial  Accounting  Standards  No. 131 (FAS
131) "Disclosures about Segments of an Enterprise and Related Information",  was
issued.  FAS 131 requires that companies  disclose segment  information based on
how  management  makes  decisions  about  allocating  resources  to segments and
measures segment performance.  Also required are disclosures about the countries


                                       67
<PAGE>

GPU, Inc. and Subsidiary Companies


in which a  company  holds  material  assets  and  reports  revenues,  its major
customers,  and disclosure of segment information.  The Statement will supersede
FAS 14,  "Financial  Reporting  for Segments of a Business  Enterprise,"  and is
effective for fiscal years beginning after December 15, 1997.


                                       68
<PAGE>

                                     PART II

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

                  Information  concerning  the current  status of certain  legal
                  proceedings  instituted against the Company and the GPU Energy
                  companies as a result of the March 28, 1979  nuclear  accident
                  at Unit 2 of the Three Mile Island nuclear  generating station
                  discussed  in Part I of  this  report  in  Combined  Notes  to
                  Consolidated  Financial  Statements is incorporated  herein by
                  reference and made a part hereof.

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

                  Information  concerning the  acquisition of PowerNet  Victoria
                  discussed  in  Note  2  of  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

                      (27)  Financial Data Schedule

                  (b) Reports on Form 8-K:

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

                      Dated October 15, 1997, under Item 5 (Other Events).


                                       69
<PAGE>


GPU, Inc. and Subsidiary Companies

                                   Signatures
                                   ----------


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


                                    GPU, INC.
                                    ---------



November 12, 1997                    By:    /s/ J. G. Graham
                                            -----------------
                                            J. G. Graham, Senior Vice President
                                            (Chief Financial Officer)



November 12, 1997                    By:    /s/ F. A. Donofrio
                                            -------------------
                                            F. A. Donofrio, Vice President
                                            and Comptroller
                                            (Chief Accounting Officer)



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



November 12, 1997                    By:    /s/ D. Baldassari
                                            -----------------
                                            D. Baldassari, President



November 12, 1997                    By:    /s/ D. W. Myers
                                            ----------------
                                            D. W. Myers, Vice President -
                                            Finance and Rates &Comptroller
                                            (Principal Accounting Officer)



                                       70