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


(Mark One)

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


For the quarterly period ended   March 31, 1999                           
                              -------------------------------------------------

                                       OR

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

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


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

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

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

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

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


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

        The  number of shares  outstanding  of each of the  issuer's  classes of
voting stock, as of April 30, 1999, was as follows:
                                                                     Shares
Registrant                           Title                         Outstanding
-----------------------------------  ---------------------------  --------------

GPU, Inc.                            Common Stock, $2.50 par value   125,686,137
Jersey Central Power & Light Company Common Stock, $10 par value      15,371,270
Metropolitan Edison Company          Common Stock, no par value          859,500
Pennsylvania Electric Company        Common Stock, $20 par value       5,290,596



<PAGE>



                       GPU, Inc. and Subsidiary Companies
                          Quarterly Report on Form 10-Q
                                 March 31, 1999

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

                                                                          Page
PART I - Financial Information

        Consolidated Financial Statements:

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

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

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

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

        Combined Notes to Consolidated Financial Statements                19

        Combined Management's Discussion and Analysis
          of Financial Condition and Results of
          Operations                                                       47

PART II - Other Information                                                71

Signatures                                                                 72


                        ---------------------------------
<PAGE>

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

      This combined  Quarterly  Report on Form 10-Q is separately  filed by GPU,
Inc.,  Jersey  Central Power & Light  Company,  Metropolitan  Edison Company and
Pennsylvania  Electric  Company.  Information  contained  herein relating to any
individual  registrant is filed by such  registrant  on its own behalf.  None of
these  registrants make any  representations  as to information  relating to the
other  registrants.  This  combined Form 10-Q  supplements  and updates the 1998
Annual  Report  on Form  10-K,  filed  by the  individual  registrants  with the
Securities and Exchange Commission and should be read in conjunction therewith.

      This Form 10-Q  contains  certain  forward-looking  statements  within the
meaning of the Private Securities Litigation Reform Act of 1995. Statements made
that are not historical  facts are  forward-looking  and,  accordingly,  involve
risks and  uncertainties  that could cause actual  results or outcomes to differ
materially from those expressed in the forward-looking statements. Although such
forward-looking  statements have been based on reasonable assumptions,  there is
no  assurance  that the expected  results will be achieved.  Some of the factors
that could  cause  actual  results  to differ  materially  include,  but are not
limited  to:  the  effects  of  regulatory  decisions;  changes in law and other
governmental  actions and initiatives;  the impact of deregulation and increased
competition in the industry; industry restructuring;  expected outcomes of legal
proceedings;  the completion of generation  asset  divestiture;  fuel prices and
availability;  the effects of the Year 2000 issue;  and  uncertainties  involved
with  foreign  operations   including   political  risks  and  foreign  currency
fluctuations.



                                        2


<PAGE>
<TABLE>

<CAPTION>


                       GPU, INC. AND SUBSIDIARY COMPANIES

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

                                                                              In Thousands        
                                                                     --------------------------------
                                                                        March 31,        December 31,
                                                                          1999               1998    
                                                                     ------------        ------------
                                                                      (Unaudited)

ASSETS
Utility Plant:
<S>                                                                    <C>              <C>        
  Transmission, distribution and general plant                         $ 7,795,600      $ 7,579,455
  Generation plant                                                       3,005,000        3,445,984
                                                                        ----------       ----------
      Utility plant in service                                          10,800,600       11,025,439
  Accumulated depreciation                                              (4,373,496)      (4,460,341)
                                                                        ----------       ----------
      Net utility plant in service                                       6,427,104        6,565,098
  Construction work in progress                                            139,938           94,005
  Other, net                                                               160,885          145,792
                                                                        ----------       ----------
      Net utility plant                                                  6,727,927        6,804,895
                                                                        ----------       ----------

Other Property and Investments:
  Equity investments (Note 3)                                              717,713          682,125
  Goodwill, net                                                            828,272          545,262
  Nuclear decommissioning trusts, at market (Note 1)                       729,984          716,274
  Nuclear fuel disposal trust, at market                                   119,832          116,871
  Other, net                                                               275,208          239,411
                                                                        ----------       ----------
      Total other property and investments                               2,671,009        2,299,943
                                                                        ----------       ----------

Current Assets:
  Cash and temporary cash investments                                      102,501           72,755
  Special deposits                                                         674,807           62,673
  Accounts receivable:
    Customers, net                                                         285,876          286,278
    Other                                                                  244,116          126,088
  Unbilled revenues                                                        141,434          144,076
  Materials and supplies, at average cost or less:
    Construction and maintenance                                           161,698          155,827
    Fuel                                                                    30,356           42,697
  Investments held for sale                                                 51,342           48,473
  Deferred income taxes                                                     35,916           47,521
  Prepayments                                                              101,653           76,021
                                                                        ----------       ----------
      Total current assets                                               1,829,699        1,062,409
                                                                        ----------       ----------

Deferred Debits and Other Assets:
  Regulatory assets, net: (Note 1)
    Competitive transition charge                                          981,361        1,023,815
    Other regulatory assets, net                                         2,242,112        2,882,413
  Deferred income taxes                                                  2,273,064        2,004,278
  Other                                                                    208,850           210,356
                                                                       -----------        ----------
      Total deferred debits and other assets                             5,705,387         6,120,862
                                                                       -----------        ----------



      Total Assets                                                    $16,934,022       $16,288,109
                                                                       ==========        ==========
<FN>

The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements. 3

</FN>
</TABLE>

<PAGE>
<TABLE>
<CAPTION>


                       GPU, INC. AND SUBSIDIARY COMPANIES

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


                                                                             In Thousands        
                                                                  ---------------------------------
                                                                       March 31,       December 31,
                                                                         1999              1998    
                                                                    ------------       ------------
                                                                     (Unaudited)
LIABILITIES AND CAPITALIZATION
Capitalization:
<S>                                                                 <C>                <C>        
  Common stock                                                      $   331,958        $   331,958
  Capital surplus                                                     1,012,305          1,011,310
  Retained earnings                                                   2,421,140          2,230,425
  Accumulated other comprehensive income/(loss) (Note 5)                (32,047)           (31,304)
                                                                     ----------         ----------
      Total                                                           3,733,356          3,542,389
  Reacquired common stock, at cost                                     (131,240)           (77,741)
                                                                     ----------         ----------
      Total common stockholders' equity                               3,602,116          3,464,648
  Cumulative preferred stock:
    With mandatory redemption                                            86,500             86,500
    Without mandatory redemption                                         37,741             66,478
  Subsidiary-obligated mandatorily redeemable
    preferred securities                                                330,000            330,000
  Long-term debt                                                      4,333,368          3,825,584
                                                                     ----------         ----------
      Total capitalization                                            8,389,725          7,773,210
                                                                     ----------         ----------

Current Liabilities:
  Securities due within one year                                        434,296            563,683
  Notes payable                                                         232,378            368,607
  Obligations under capital leases                                      113,854            126,480
  Accounts payable                                                      513,211            394,815
  Taxes accrued                                                         487,210             92,339
  Interest accrued                                                       70,408             81,931
  Deferred energy credits                                                23,040              2,411
  Other                                                                 259,776            377,594
                                                                     ----------         ----------
      Total current liabilities                                       2,134,173          2,007,860
                                                                     ----------         ----------

Deferred Credits and Other Liabilities:
  Deferred income taxes                                               2,979,334          3,044,947
  Unamortized investment tax credits                                    101,057            114,308
  Three Mile Island Unit 2 future costs                                 486,743            483,515
  Nonutility generation contract loss liability                       1,760,758          1,803,820
  Other                                                               1,082,232          1,060,449
                                                                     ----------         ----------
      Total deferred credits and other liabilities                    6,410,124          6,507,039
                                                                     ----------         ----------




Commitments and Contingencies (Note 1)




<S>                                                                  <C>            <C>        
       Total Liabilities and Capitalization                          $16,934,022    $16,288,109
                                                                      ==========     ==========
<FN>

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


</FN>

                                        4
</TABLE>


<PAGE>

<TABLE>
<CAPTION>

                       GPU, INC. AND SUBSIDIARY COMPANIES

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


                                                                         In Thousands
                                                                   (Except Per Share Data)  
                                                                 -----------------------------
                                                                           Three Months
                                                                          Ended March 31,      
                                                                 -----------------------------
                                                                    1999             1998
                                                                    ----             ----

<S>                                                               <C>              <C>       
Operating Revenues                                                $1,073,733       $1,043,109
                                                                   ---------        ---------

Operating Expenses:
   Fuel                                                               96,476           96,700
   Power purchased and interchanged                                  246,509          265,745
   Deferral of energy and capacity costs, net                         20,370           (2,020)
   Other operation and maintenance                                   245,154          238,383
   Depreciation and amortization                                     117,244          127,148
   Taxes, other than income taxes                                     49,347           57,519
                                                                   ---------        ---------
         Total operating expenses                                    775,100          783,475
                                                                   ---------        ---------

Operating Income Before Income Taxes                                 298,633          259,634
   Income taxes                                                       73,925           66,293
                                                                   ---------        ---------
Operating Income                                                     224,708          193,341
                                                                   ---------        ---------

Other Income and Deductions:
   Allowance for other funds used during
      construction                                                        65              320
   Equity in undistributed earnings
      of affiliates, net (Note 3)                                     53,252           17,651
   Other income, net                                                  49,081           44,562
   Income taxes                                                      (42,341)         (19,431)
                                                                   ---------        ---------
         Total other income and deductions                            60,057           43,102
                                                                   ---------        ---------

Income Before Interest Charges
   and Preferred Dividends                                           284,765          236,443
                                                                   ---------        ---------

Interest Charges and Preferred Dividends:
   Long-term debt                                                     76,680           84,052
   Subsidiary-obligated mandatorily
     redeemable preferred securities                                   7,222            7,222
   Other interest                                                      6,009            8,984
   Allowance for borrowed funds used
     during construction                                                (608)          (1,071)
   Preferred stock dividends of subsidiaries, inclusive
     of loss on reacquisition of $1,268 in 1999                        3,920            2,975
                                                                   ---------        ---------
         Total interest charges and
           preferred dividends                                        93,223          102,162
                                                                   ---------        ---------

Minority interest net income                                             823              501
                                                                   ---------        ---------

Net Income                                                        $  190,719       $  133,780
                                                                   =========        =========

Basic  - Earnings Per Avg. Common Share                           $     1.49       $     1.07
                                                                   =========        =========
       - Avg. Common Shares Outstanding (In Thousands)               127,652          124,543
                                                                   =========        =========

Diluted  - Earnings Per Avg. Common Share                         $     1.49       $     1.07
                                                                   =========        =========
         - Avg. Common Shares Outstanding (In Thousands)             127,926          124,823
                                                                   =========        =========

Cash Dividends Paid Per Share                                     $     .515       $     .500
                                                                   =========        =========
<FN>

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


                                        5
</TABLE>


<PAGE>

<TABLE>
<CAPTION>

                       GPU, INC. AND SUBSIDIARY COMPANIES

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

                                                                         In Thousands       
                                                                 -----------------------------
                                                                         Three Months
                                                                        Ended March 31,     
                                                                 -----------------------------
                                                                       1999            1998
                                                                       ----            ----
Operating Activities:
<S>                                                                <C>             <C>      
   Net income                                                      $ 190,719       $ 133,780
   Adjustments to reconcile income to cash provided:
     Depreciation and amortization                                   128,602         138,750
     Amortization of property under capital leases                    12,855          13,091
     Gain on sale of investments                                     (38,252)        (38,452)
     Equity in undistributed earnings
       of affiliates, net of distributions received                  (48,492)        (15,775)
     Nuclear outage maintenance costs, net                             6,452           5,856
     Deferred income taxes and investment tax
       credits, net                                                 (345,848)        (27,538)
     Deferred energy and capacity costs, net                          20,478          (1,667)
     Allowance for other funds used
       during construction                                               (65)           (320)
   Changes in working capital:
     Receivables                                                     (67,716)         25,788
     Materials and supplies                                            2,956          (4,106)
     Special deposits and prepayments                               (633,054)        (49,614)
     Payables and accrued liabilities                                386,563          27,426
   Nonutility generation contract buyout costs                       (34,750)        (17,500)
   Other, net                                                         34,421          24,662
                                                                    --------        --------
      Net cash provided/(required)
        by operating activities                                     (385,131)        214,381
                                                                    --------        --------

Investing Activities:
   Capital expenditures and investments                             (457,526)        (73,652)   
   Proceeds from sale of investments                                 894,450         146,700
   Contributions to decommissioning trusts                            (8,710)        (11,256)
   Other, net                                                         26,295             209
                                                                    --------        --------
      Net cash provided by investing activities                      454,509          62,001
                                                                    --------        --------

Financing Activities:
   Issuance of long-term debt                                        705,136             -
   Decrease in notes payable, net                                   (197,717)        (53,596)
   Retirement of long-term debt                                     (382,688)       (375,878)
   Capital lease principal payments                                  (10,261)        (12,071)
  Reacquisition of common stock                                      (58,138)            -
   Issuance of common stock                                              -           269,448
   Dividends paid on common stock                                    (65,917)        (60,414)
  Redemption of preferred stock of subsidiaries                      (30,004)            -   
                                                                    --------        ---------
      Net cash required by financing activities                      (39,589)       (232,511)
                                                                    --------        --------

Effect of exchange rate changes on cash                                  (43)          1,585
                                                                    --------        --------

Net increase in cash and temporary
  cash investments from above activities                              29,746          45,456
Cash and temporary cash investments, beginning of year                72,755          85,099
                                                                    --------        --------
Cash and temporary cash investments, end of period                 $ 102,501       $ 130,555
                                                                    ========        ========

Supplemental Disclosure:
   Interest and preferred dividends paid                           $ 103,264       $ 112,471
                                                                    ========        ========
   Income taxes paid                                               $   2,374       $   4,786
                                                                    ========        ========
   New capital lease obligations incurred                          $     220       $   5,286
                                                                    ========        ========
   Common stock dividends declared but not paid                    $     -         $     -   
                                                                    ========       =========


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

                                       6
</TABLE>


<PAGE>
<TABLE>
<CAPTION>


           JERSEY CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARY COMPANY

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

                                                                              In Thousands      
                                                                     ------------------------------
                                                                        March 31,      December 31,
                                                                         1999             1998    
                                                                     ------------      ------------
                                                                      (Unaudited)

ASSETS
Utility Plant:
<S>                                                                    <C>              <C>       
  Transmission, distribution, and general plant                        $3,117,649       $3,108,697
  Generation plant                                                      1,649,038        1,646,576
                                                                        ---------        ---------
      Utility plant in service                                          4,766,687        4,755,273
  Accumulated depreciation                                             (2,263,890)      (2,217,108)
                                                                        ---------        ---------
      Net utility plant in service                                      2,502,797        2,538,165
  Construction work in progress                                            54,052           48,126
  Other, net                                                               97,954           98,491
                                                                        ---------        ---------
      Net utility plant                                                 2,654,803        2,684,782
                                                                        ---------        ---------

Other Property and Investments:
  Nuclear decommissioning trusts, at market (Note 1)                      436,111          422,277
  Nuclear fuel disposal trust, at market                                  119,832          116,871
  Other, net                                                                1,809            9,596
                                                                        ---------        ---------
       Total other property and investments                               557,752          548,744
                                                                        ---------        ---------

Current Assets:
  Cash and temporary cash investments                                      12,344            1,850
  Special deposits                                                          5,738            6,047
  Accounts receivable:
    Customers, net                                                        149,153          152,120
    Other                                                                  43,655           32,562
  Unbilled revenues                                                        72,243           56,391
  Materials and supplies, at average cost or less:
    Construction and maintenance                                           67,111           79,863
    Fuel                                                                   12,580           13,144
  Deferred income taxes                                                     9,082           20,812
  Prepayments                                                               8,134           27,648
                                                                        ---------        ---------
      Total current assets                                                380,040          390,437
                                                                        ---------        ---------

Deferred Debits and Other Assets:
  Regulatory assets, net: (Note 1)                                        694,758          753,885
   Deferred income taxes                                                  137,239          179,237
  Other                                                                    20,372           25,037
                                                                        ---------        ---------
      Total deferred debits and other assets                              852,369          958,159
                                                                        ---------        ---------






<S>                                                                    <C>              <C>       
      Total Assets                                                     $4,444,964       $4,582,122
                                                                        =========        =========


<FN>

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

                                       7
</TABLE>


<PAGE>

<TABLE>
<CAPTION>


           JERSEY CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARY COMPANY

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


                                                                              In Thousands        
                                                                     --------------------------------
                                                                        March 31,        December 31,
                                                                         1999                1998    
                                                                     ------------        ------------
                                                                      (Unaudited)

LIABILITIES AND CAPITALIZATION
Capitalization:
<S>                                                                    <C>              <C>       
 Common stock                                                          $  153,713       $  153,713
  Capital surplus                                                         510,769          510,769
  Retained earnings                                                       914,281          893,016
  Accumulated other comprehensive income/(loss)(Note 5)                      (425)            (425)
                                                                        ---------        ---------
      Total common stockholder's equity                                 1,578,338        1,557,073
  Cumulative preferred stock:
    With mandatory redemption                                              86,500           86,500
    Without mandatory redemption                                           37,741           37,741
  Company-obligated mandatorily redeemable
    preferred securities                                                  125,000          125,000
  Long-term debt                                                        1,133,593        1,173,532
                                                                        ---------        ---------
      Total capitalization                                              2,961,172        2,979,846
                                                                        ---------        ---------

Current Liabilities:
  Securities due within one year                                           42,512            2,512
  Notes payable                                                            28,900          122,344
  Obligations under capital leases                                         77,874           85,366
  Accounts payable:
    Affiliates                                                             44,401           40,861
    Other                                                                  63,170           80,233
  Taxes accrued                                                            48,798            5,559
  Interest accrued                                                         29,864           26,678
  Deferred energy credits                                                  23,040            2,411
  Other                                                                    48,125          104,408
                                                                        ---------        ---------
      Total current liabilities                                           406,684          470,372
                                                                        ---------        ---------

Deferred Credits and Other Liabilities:
  Deferred income taxes                                                   636,117          670,961
  Unamortized investment tax credits                                       49,113           50,225
  Nuclear fuel disposal fee                                               142,856          141,270
  Three Mile Island Unit 2 future costs                                   121,694          120,904
  Other                                                                   127,328          148,544
                                                                        ---------        ---------
      Total deferred credits and other liabilities                      1,077,108        1,131,904
                                                                        ---------        ---------


Commitments and Contingencies (Note 1)



<S>                                                                    <C>              <C>       
      Total Liabilities and Capitalization                             $4,444,964       $4,582,122
                                                                        =========        =========


<FN>

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

                                        8
</FN>
</TABLE>


<PAGE>

<TABLE>
<CAPTION>


           JERSEY CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARY COMPANY

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

                                                                       In Thousands
                                                                  -------------------------
                                                                      Three Months
                                                                      Ended March 31,     
                                                                  -------------------------
                                                                     1999            1998
                                                                     ----            ----

<S>                                                               <C>              <C>     
Operating Revenues                                                $516,889         $472,334
                                                                   -------          -------

Operating Expenses:
   Fuel                                                             22,117           19,660
   Power purchased and interchanged:
     Affiliates                                                     15,949            3,115
     Others                                                        153,450          153,680
   Deferral of energy and capacity costs, net                       20,370           (2,020)
   Other operation and maintenance                                 107,846          100,730
   Depreciation and amortization                                    62,696           62,994
   Taxes, other than income taxes                                   21,334           23,857
                                                                   -------          -------
      Total operating expenses                                     403,762          362,016
                                                                   -------          -------

Operating Income Before Income Taxes                               113,127          110,318
   Income taxes                                                     35,256           32,476
                                                                   -------          -------
Operating Income                                                    77,871           77,842
                                                                   -------          -------

Other Income and Deductions:
   Allowance for other funds used during
     construction                                                       54              275
   Other income, net                                                 3,019            2,265
   Income taxes                                                     (1,419)          (1,053)
                                                                   -------          -------
      Total other income and deductions                              1,654            1,487
                                                                   -------          -------

Income Before Interest Charges                                      79,525           79,329
                                                                   -------          -------

Interest Charges:
   Long-term debt                                                   21,806           21,792
   Company-obligated mandatorily
     redeemable preferred securities                                 2,675            2,675
   Other interest                                                    1,579            2,529
   Allowance for borrowed funds used
     during construction                                              (232)            (483)
                                                                   -------          -------
      Total interest charges                                        25,828           26,513
                                                                   -------          -------

Net Income                                                          53,697           52,816
   Preferred stock dividends                                         2,432            2,738
                                                                   -------          -------
Earnings Available for Common Stock                               $ 51,265         $ 50,078
                                                                   =======          =======
<FN>


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

                                        9

</TABLE>

<PAGE>
<TABLE>
<CAPTION>



           JERSEY CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARY COMPANY

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

                                                                         In Thousands       
                                                                    -------------------------
                                                                         Three Months
                                                                        Ended March 31,     
                                                                    -------------------------
                                                                       1999         1998
Operating Activities:
<S>                                                                <C>             <C>      
   Net income                                                      $  53,697       $  52,816
   Adjustments to reconcile income to cash provided:
     Depreciation and amortization                                    70,278          68,725
     Amortization of property under capital leases                     7,546           7,065
     Nuclear outage maintenance costs, net                             4,424           3,549
     Deferred income taxes and investment tax
       credits, net                                                    9,463         (17,314)
     Deferred energy and capacity costs, net                          20,478          (1,667)
     Allowance for other funds used
       during construction                                               (54)           (275)
   Changes in working capital:
     Receivables                                                     (23,979)         13,483
     Materials and supplies                                           13,309          (3,340)
     Special deposits and prepayments                                 19,823           5,665
     Payables and accrued liabilities                                  5,253          54,517
   Nonutility generation contract buyout costs                       (30,000)        (15,000)
   Other, net                                                         21,555          23,084
                                                                    --------        --------
      Net cash provided by operating activities                      171,793         191,308
                                                                    --------        --------

Investing Activities:
   Capital expenditures and investments                              (27,972)        (40,125)
   Contributions to decommissioning trusts                            (7,228)         (6,319)
   Other, net                                                          4,596          (1,469)
                                                                    --------        --------
      Net cash used for investing activities                         (30,604)        (47,913)
                                                                    --------        --------

Financing Activities:
   Decrease in notes payable, net                                    (93,444)       (115,254)
   Capital lease principal payments                                   (4,819)         (7,499)
   Dividends paid on common stock                                    (30,000)        (10,000)
   Dividends paid on preferred stock                                  (2,432)         (2,738)
                                                                    --------        --------
      Net cash required by financing activities                     (130,695)       (135,491)
                                                                    --------        --------

Net increase in cash and temporary
  cash investments from above activities                              10,494           7,904
Cash and temporary cash investments, beginning of year                 1,850           2,994
                                                                    --------        --------
Cash and temporary cash investments, end of period                 $  12,344       $  10,898
                                                                    ========        ========

Supplemental Disclosure:
   Interest and preferred dividends paid                           $  25,248       $  25,578
                                                                    ========        ========
   Income taxes paid                                               $  (2,804)      $      96
                                                                    ========        ========
   New capital lease obligations incurred                          $      54       $   5,257
                                                                    ========        ========

<FN>


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

                                       10

</TABLE>

<PAGE>

<TABLE>
<CAPTION>


              METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANIES

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

                                                                             In Thousands       
                                                                     -----------------------------
                                                                        March 31,      December 31,
                                                                         1999              1998    
                                                                     ------------      ------------
                                                                      (Unaudited)

ASSETS
Utility Plant:
<S>                                                                    <C>              <C>       
   Transmission, distribution and general plant                        $1,484,712       $1,481,958
  Generation plant                                                        766,433          765,669
                                                                        ---------        ---------
      Utility plant in service                                          2,251,145        2,247,627
  Accumulated depreciation                                             (1,021,473)      (1,008,438)
                                                                        ---------        ---------
      Net utility plant in service                                      1,229,672        1,239,189
  Construction work in progress                                            24,081           19,380
  Other, net                                                               38,304           27,819
                                                                        ---------        ---------
      Net utility plant                                                 1,292,057        1,286,388
                                                                        ---------        ---------

Other Property and Investments:
   Nuclear decommissioning trusts, at market (Note 1)                     211,774          211,194
  Other, net                                                                6,131           11,742
                                                                        ---------        ---------
      Total other property and investments                                217,905          222,936
                                                                        ---------        ---------

Current Assets:
  Cash and temporary cash investments                                       6,230              442
  Special deposits                                                            894            1,062
  Accounts receivable:
    Customers, net                                                         56,149           60,012
    Other                                                                  57,153           41,895
  Unbilled revenues                                                        36,244           43,687
  Materials and supplies, at average cost or less:
    Construction and maintenance                                           17,302           24,727
    Fuel                                                                   10,137           12,218
  Deferred income taxes                                                     2,945            2,945
  Prepayments                                                              32,362           20,616
                                                                        ---------        ---------
      Total current assets                                                219,416          207,604
                                                                        ---------        ---------

Deferred Debits and Other Assets:
  Regulatory assets, net: (Note 1)
     Competitive transition charge                                        659,439          680,213
    Other regulatory assets, net                                          912,157          921,934
  Deferred income taxes                                                   667,260          714,202
  Other                                                                    26,251           31,692
                                                                        ---------        ---------
      Total deferred debits and other assets                            2,265,107        2,348,041
                                                                        ---------        ---------





      Total Assets                                                    $3,994,485        $4,064,969
                                                                       =========         =========
<FN>


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

                                       11
</TABLE>


<PAGE>
<TABLE>
<CAPTION>


              METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANIES

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


                                                                              In Thousands        
                                                                     -----------------------------

                                                                       March 31,         December 31,
                                                                         1999                1998    
                                                                     -----------         ------------
                                                                      (Unaudited)

LIABILITIES AND CAPITALIZATION
Capitalization:
<S>                                                                    <C>              <C>       
Common stock                                                           $   66,273       $   66,273
  Capital surplus                                                         385,200          370,200
  Retained earnings                                                       236,290          234,066
  Accumulated other comprehensive income (Note 5)                          18,166           16,520
                                                                        ---------        ---------
       Total common stockholder's equity                                  705,929          687,059
  Cumulative preferred stock                                                  -             12,056
  Company-obligated mandatorily redeemable
    preferred securities                                                  100,000          100,000
  Long-term debt                                                          546,904          546,904
                                                                        ---------        ---------
      Total capitalization                                              1,352,833        1,346,019
                                                                        ---------        ---------

Current Liabilities:
  Securities due within one year                                           30,024           30,024
  Notes payable                                                           115,700           79,540
  Obligations under capital leases                                         23,705           27,135
  Accounts payable:
    Affiliates                                                            136,881           75,933
    Other                                                                  57,489          102,390
  Taxes accrued                                                            21,146           19,463
  Interest accrued                                                         10,657           16,747
  Other                                                                    18,028           42,598
                                                                        ---------        ---------
      Total current liabilities                                           413,630          393,830
                                                                        ---------        ---------

Deferred Credits and Other Liabilities:
  Deferred income taxes                                                   987,719        1,010,982
  Unamortized investment tax credits                                       26,663           27,157
  Three Mile Island Unit 2 future costs                                   243,288          241,707
  Nuclear fuel disposal fee                                                32,270           31,912
  Nonutility generation contract loss liability                           766,058          787,440
  Other                                                                   172,024          225,922
                                                                        ---------        ---------
      Total deferred credits and other liabilities                      2,228,022        2,325,120
                                                                        ---------        ---------



Commitments and Contingencies (Note 1)




      Total Liabilities and Capitalization                             $3,994,485       $4,064,969
                                                                        =========        =========
<FN>


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

                                       12

</TABLE>

<PAGE>

<TABLE>
<CAPTION>



              METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANIES

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

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

                                                                     1999            1998
                                                                     ----            ----

<S>                                                               <C>              <C>     
Operating Revenues                                                $229,157         $234,748
                                                                   -------          -------

Operating Expenses:
   Fuel                                                             25,629           26,071
   Power purchased and interchanged:
     Affiliates                                                      2,208            1,853
     Others                                                         40,958           54,885
   Other operation and maintenance                                  51,915           52,253
   Depreciation and amortization                                    19,129           26,263
   Taxes, other than income taxes                                   13,066           15,549
                                                                   -------          -------
      Total operating expenses                                     152,905          176,874
                                                                   -------          -------

Operating Income Before Income Taxes                                76,252           57,874
   Income taxes                                                     29,404           17,562
                                                                   -------          -------
Operating Income                                                    46,848           40,312
                                                                   -------          -------

Other Income and Deductions:
   Allowance for other funds used during
     construction                                                       11               45
   Other income, net                                                 1,133              284
   Income taxes                                                       (576)            (488)
                                                                   -------          -------
      Total other income and deductions                                568             (159)
                                                                   -------          -------

Income Before Interest Charges                                      47,416           40,153
                                                                   -------          -------

Interest Charges:
   Long-term debt                                                   10,623           10,623
   Company-obligated mandatorily
     redeemable preferred securities                                 2,250            2,250
   Other interest                                                    1,887            2,753
   Allowance for borrowed funds used
     during construction                                              (176)            (203)
                                                                   -------          -------
      Total interest charges                                        14,584           15,423
                                                                   -------          -------

Net Income                                                          32,832           24,730
   Preferred stock dividends                                            66              121
  Loss on preferred stock reacquisition                                542             -  
                                                                   -------          -------
Earnings Available for Common Stock                               $ 32,224         $ 24,609
                                                                   =======          =======




<FN>


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

                                       13

</TABLE>

<PAGE>
<TABLE>
<CAPTION>


              METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANIES

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

                                                                           In Thousands       
                                                                 -----------------------------
                                                                           Three Months
                                                                          Ended March 31,     
                                                                 -----------------------------
                                                                       1999            1998
                                                                       ----            ----
Operating Activities:
<S>                                                                <C>             <C>      
   Net income                                                      $  32,832       $  24,730
   Adjustments to reconcile income to cash provided:
     Depreciation and amortization                                    22,223          29,797
     Amortization of property under capital leases                     3,540           3,659
     Nuclear outage maintenance costs, net                             1,355           1,537
     Deferred income taxes and investment tax
       credits, net                                                   13,356          (2,546)
     Allowance for other funds used
       during construction                                               (11)            (45)
   Changes in working capital:
     Receivables                                                     (11,395)          6,404
     Materials and supplies                                            9,506             921
     Special deposits and prepayments                                (11,578)        (31,730)
     Payables and accrued liabilities                                (12,930)         (5,365)
  Nonutility generation contract buyout costs                         (1,250)         (2,500)
  Other, net                                                         (27,951)         (3,296)
                                                                    --------        --------
      Net cash provided by operating activities                       17,697          21,566
                                                                    --------        --------

Investing Activities:
   Capital expenditures and investments                              (15,294)        (12,104)
   Contributions to decommissioning trusts                            (1,482)         (3,621)
   Other, net                                                            (10)            (12)
                                                                    --------        --------
      Net cash used for investing activities                         (16,786)        (15,737)
                                                                    --------        --------

Financing Activities:
   Increase in notes payable, net                                     36,160          14,321
   Capital lease principal payments                                   (3,619)         (2,683)
   Redemption of preferred stock                                     (12,598)            -
   Dividends paid on common stock                                    (30,000)        (20,000)
   Dividends paid on preferred stock                                     (66)           (121)
   Contribution from parent corporation                               15,000             -  
                                                                    --------        --------
      Net cash provided/(required)
        by financing activities                                        4,877          (8,483)
                                                                    --------        --------

Net increase/(decrease) in cash and temporary cash
  investments from above activities                                    5,788          (2,654)
Cash and temporary cash investments, beginning of year                   442           6,116
                                                                    --------        --------
Cash and temporary cash investments, end of period                 $   6,230       $   3,462
                                                                    ========        ========

Supplemental Disclosure:
   Interest and preferred dividends paid                           $  20,374       $  20,787      
Income taxes
                                                                    ========        ========
paid                                                               $   1,902       $   2,250
                                                                    ========        =========
   New capital lease obligations incurred                          $     111       $      19
                                                                    ========        ========
<FN>

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

                                       14

</TABLE>

<PAGE>
<TABLE>



             PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES

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

                                                                              In Thousands       
                                                                       -----------------------------
                                                                       March 31,        December 31,
                                                                         1999               1998    
                                                                     ------------       ------------
                                                                      (Unaudited)

ASSETS
Utility Plant:
<S>                                                                    <C>              <C>       
  Transmission, distribution and general plant                         $1,767,713       $1,768,621
  Generation plant                                                        589,529        1,033,739
                                                                        ---------        ---------
      Utility plant in service                                          2,357,242        2,802,360
  Accumulated depreciation                                             (1,003,277)      (1,175,842)
                                                                        ---------        ---------
      Net utility plant in service                                      1,353,965        1,626,518
  Construction work in progress                                            23,847           18,862
  Other, net                                                               24,627           19,482
                                                                        ---------        ---------
      Net utility plant                                                 1,402,439        1,664,862
                                                                        ---------        ---------

Other Property and Investments:
   Nuclear decommissioning trusts, at market (Note 1)                      82,099           82,803
  Other, net                                                                2,290            7,705
                                                                        ---------        ---------
      Total other property and investments                                 84,389           90,508
                                                                        ---------        ---------

Current Assets:
  Cash and temporary cash investments                                      19,123            2,750
  Special deposits                                                        612,180            2,632
  Accounts receivable:
    Customers, net                                                         66,151           69,887
    Other                                                                  40,814           28,893
  Unbilled revenues                                                        32,947           43,998
  Materials and supplies, at average cost or less:
    Construction and maintenance                                           16,973           39,452
    Fuel                                                                    7,418           17,107
  Deferred income taxes                                                     7,589            7,589
  Prepayments                                                              33,095           31,551
                                                                        ---------        ---------
      Total current assets                                                836,290          243,859
                                                                        ---------        ---------

Deferred Debits and Other Assets:
  Regulatory assets, net: (Note 1)
    Competitive transition charge                                         321,922          343,602
    Other regulatory assets, net                                          635,197        1,206,594
  Deferred income taxes                                                 1,167,038          951,471
  Other                                                                    25,084           23,911
                                                                        ---------        ---------
      Total deferred debits and other assets                            2,149,241        2,525,578
                                                                        ---------        ---------





      Total Assets                                                     $4,472,359       $4,524,807
                                                                        =========        =========
<FN>


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

                                       15

</TABLE>

<PAGE>

<TABLE>

<CAPTION>

             PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES

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


                                                                              In Thousands        
                                                                     --------------------------------
                                                                       March 31,         December 31,
                                                                         1999                1998    
                                                                     ------------        ------------
                                                                      (Unaudited)

LIABILITIES AND CAPITALIZATION
Capitalization:
<S>                                                                    <C>              <C>       
  Common stock                                                         $  105,812       $  105,812
  Capital surplus                                                         285,486          285,486
  Retained earnings                                                       252,264          367,653
  Accumulated other comprehensive income (Note 5)                           9,106            8,353
                                                                        ---------        ---------
      Total common stockholder's equity                                   652,668          767,304
  Cumulative preferred stock                                                  -             16,681
  Company-obligated mandatorily redeemable
    preferred securities                                                  105,000          105,000
  Long-term debt                                                          596,434          626,434
                                                                        ---------        ---------
      Total capitalization                                              1,354,102        1,515,419
                                                                        ---------        ---------


Current Liabilities:
  Securities due within one year                                           80,012           50,012
  Notes payable                                                               -             86,023
  Obligations under capital leases                                         12,275           13,979
  Accounts payable:
     Affiliates                                                            57,998           47,164
     Other                                                                 34,906           47,795
  Taxes accrued                                                           372,106           32,755
  Interest accrued                                                         10,063           19,700
  Other                                                                    22,174           37,272
                                                                        ---------        ---------
      Total current liabilities                                           589,534          334,700
                                                                        ---------        ---------


Deferred Credits and Other Liabilities:
  Deferred income taxes                                                 1,248,111        1,338,235
  Unamortized investment tax credits                                       25,281           36,926
  Three Mile Island Unit 2 future costs                                   121,761          120,904
  Nuclear fuel disposal fee                                                16,254           15,956
  Nonutility generation contract loss liability                           994,700        1,016,380
  Other                                                                   122,616          146,287
                                                                        ---------        ---------
      Total deferred credits and other liabilities                      2,528,723        2,674,688
                                                                        ---------        ---------


Commitments and Contingencies (Note 1)



      Total Liabilities and Capitalization                             $4,472,359       $4,524,807
                                                                        =========        =========
<FN>


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

                                       16
</TABLE>


<PAGE>
<TABLE>
<CAPTION>




             PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES

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

                                                                         In Thousands       
                                                                 -----------------------------
                                                                         Three Months
                                                                        Ended March 31,     
                                                                 -----------------------------
                                                                    1999             1998
                                                                    ----             ----

<S>                                                               <C>              <C>     
Operating Revenues                                                $246,249         $263,655
                                                                   -------          -------

Operating Expenses:
   Fuel                                                             36,544           42,434
   Power purchased and interchanged:
     Affiliates                                                      1,562              244
     Others                                                         39,031           54,714
   Other operation and maintenance                                  59,403           60,033
   Depreciation and amortization                                    23,053           25,644
   Taxes, other than income taxes                                   14,014           17,963
                                                                   -------          -------
      Total operating expenses                                     173,607          201,032
                                                                   -------          -------

Operating Income Before Income Taxes                                72,642           62,623
   Income taxes                                                      7,098           19,803
                                                                   -------          -------
Operating Income                                                    65,544           42,820
                                                                   -------          -------

Other Income and Deductions:
   Other income, net                                                38,909               79
   Income taxes                                                    (23,031)              14
                                                                   -------          -------
      Total other income and deductions                             15,878               93 
                                                                   -------          --------

Income Before Interest Charges                                      81,422           42,913
                                                                   -------          -------

Interest Charges:
   Long-term debt                                                   11,833           12,112
   Company-obligated mandatorily
     redeemable preferred securities                                 2,297            2,297
   Other interest                                                    2,002            2,244
   Allowance for borrowed funds used
     during construction                                              (200)            (385)
                                                                   -------          -------

      Total interest charges                                        15,932           16,268
                                                                   -------          -------

Net Income                                                          65,490           26,645
   Preferred stock dividends                                           154              116
   Loss on preferred stock reacquisition                               726           -  
                                                                   -------          -------
Earnings Available for Common Stock                               $ 64,610         $ 26,529
                                                                   =======          =======
<FN>


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


                                       17
</TABLE>

<PAGE>
<TABLE>

<CAPTION>




             PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES

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

                                                                          In Thousands       
                                                                 -----------------------------
                                                                          Three Months
                                                                         Ended March 31,     
                                                                 -----------------------------
                                                                       1999            1998
                                                                       ----            ----
Operating Activities:
<S>                                                                <C>             <C>      
   Net income                                                      $  65,490       $  26,645
   Adjustments to reconcile income to cash provided:
     Depreciation and amortization                                    22,732          26,797
     Amortization of property under capital leases                     1,769           2,018
     Gain on sale of investment                                      (38,252)         -
    Nuclear outage maintenance costs, net                                673             770
     Deferred income taxes and investment tax
       credits, net                                                 (307,797)          1,177
   Changes in working capital:
     Receivables                                                      (8,184)         (7,556)
     Materials and supplies                                           32,169          (1,687)
     Special deposits and prepayments                               (611,092)        (22,522)
     Payables and accrued liabilities                                312,561            (945)
     Nonutility generation contract buyout costs                      (3,500)            -
   Other, net                                                        (44,283)         (7,501)
                                                                    --------        --------
      Net cash provided/(required)
       by operating activities                                      (577,714)         17,196
                                                                    --------        --------

Investing Activities:
   Capital expenditures and investments                              (15,868)        (15,041)
  Proceeds from sale of investment                                   894,450          -
   Contributions to decommissioning trusts                               -            (1,316)
   Other, net                                                            911             -   
                                                                    --------        ---------
      Net cash provided/(used)
       for investing activities                                      879,493         (16,357)
                                                                    --------        --------

Financing Activities:
   Increase/(decrease) in notes payable, net                         (86,023)         38,419
   Retirement of long-term debt                                          -           (30,000)
   Redemption of preferred stock                                     (17,406)            -
   Capital lease principal payments                                   (1,823)         (1,540)
   Dividends paid on common stock                                   (180,000)            -
   Dividends paid on preferred stock                                    (154)           (174)
                                                                    --------        --------
      Net cash provided/(required)
        by financing activities                                     (285,406)          6,705 
                                                                    --------        ---------

Net increase in cash and temporary
  cash investments from above activities                              16,373           7,544
Cash and temporary cash investments, beginning of year                 2,750             -   
                                                                    --------        ---------
Cash and temporary cash investments, end of period                 $  19,123       $   7,544
                                                                    ========        ========

Supplemental Disclosure:
   Interest and preferred dividends paid                           $  25,169       $  27,018
                                                                    ========        ========
   Income taxes paid                                               $   3,409       $   2,285
                                                                    ========        ========
   New capital lease obligations incurred                          $      55       $      10
                                                                    ========        ========
<FN>

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

</FN>

                                       18

</TABLE>

<PAGE>




GPU, Inc. and Subsidiary Companies


                     COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

      These notes should be read in conjunction  with the notes to  consolidated
financial  statements  included  in the 1998  Annual  Report on Form  10-K.  The
December  31,  1998  balance  sheet data  contained  in the  attached  financial
statements  was derived  from  audited  financial  statements.  For  disclosures
required by generally accepted accounting principles, see the 1998 Annual Report
on Form 10-K.


1.    COMMITMENTS AND CONTINGENCIES

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

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

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

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

                                       19

<PAGE>


GPU, Inc. and Subsidiary Companies


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

     In 1997, JCP&L filed with the New Jersey Board of Public Utilities  (NJBPU)
its proposed  restructuring plan for a competitive  electric  marketplace in New
Jersey as required by the New Jersey Energy Master Plan (NJEMP)  released by the
NJBPU. In this plan, JCP&L estimated that its total  above-market  costs related
to power purchase commitments and company-owned  generation,  on a present value
basis,  was $1.6 billion  excluding  above-market  generation  costs  related to
Oyster  Creek.  These  estimates  were  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.  JCP&L proposed recovery of
its remaining  Oyster Creek plant  investment as a regulatory  asset,  through a
nonbypassable charge to customers.  At March 31, 1999, JCP&L's net investment in
Oyster Creek was $672 million.

     In  1999,  New  Jersey  enacted   legislation  to  deregulate  the  state's
electricity  market.  The legislation  generally provides for customer choice of
electric generation supplier for all consumers beginning no later than August 1,
1999;  a 5% rate  reduction  for all  customers  beginning  August  1, 1999 with
another 5% rate  reduction to be phased in over the next three years (which must
be  maintained  for one year  after the end of the  three  year  phase-in);  the
aggregation  of  electric   generation   service  by  a  government  or  private
aggregator;  the unbundling of customer bills;  the ability to recover  stranded
costs and the ability to securitize stranded costs.

     On April 14, 1999,  JCP&L entered into a settlement  agreement with several
parties to its stranded cost and rate unbundling  proceedings pending before the
NJBPU. The settlement agreement,  which is subject to NJBPU approval,  provides,
among other things, for a 5% rate reduction commencing August 1, 1999, a 5% rate
refund  from April 30, 1997 rates for  service  rendered  on or after  August 1,
2002,  and for average  customer  shopping  credits  beginning  at 4.9 cents per
kilowatt  hour  and  increasing  to 5.16  cents  per  kilowatt  hour in 2003 for
customers who choose an alternate supplier. The settlement agreement also allows
for the application of the net proceeds from JCP&L's  generation  asset sales to
reduce stranded  costs,  the  securitization  of  approximately  $525 million of
stranded costs associated with the Oyster Creek nuclear generating station,  and
adequate  assurance  (through a deferral and true-up mechanism) of full recovery
of above-market  costs  associated  with JCP&L's  obligations  under  nonutility
generation, utility and transition power purchase agreements.

      If approved by the NJBPU,  the  settlement  agreement  would  result in an
approximately  $195 million reduction in GPU's 1999 pre-tax  earnings,  or about
$0.90 per share  (after-tax).  The NJBPU is  expected  to act on the  settlement
agreement  in May 1999.  There can be no  assurance  as to the  outcome  of this
matter.

                                       20


<PAGE>


GPU, Inc. and Subsidiary Companies


     To the extent JCP&L is not permitted to recover its stranded costs in whole
or in part, it would result in the  recording of  liabilities  for  above-market
nonutility  generator  (NUG) costs,  decommissioning  costs,  and write-downs of
uneconomic  generation  plant and regulatory  assets recorded in accordance with
Statement of Financial Accounting Standards No. 71 (FAS 71), "Accounting for the
Effects of Certain Types of  Regulation,"  and Emerging  Issues Task Force Issue
97-4,  Deregulation  of the  Pricing  of  Electricity  - Issues  Related  to the
Application  of FASB  Statement  No. 71  "Accounting  for the Effects of Certain
Types of  Regulation"  and No. 101  "Regulated  Enterprises - Accounting for the
Discontinuation of Application of FASB Statement No. 71," (EITF Issue 97-4). The
inability to recover these stranded  costs could have a material  adverse effect
on GPU's results of operations.

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

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

     In  November  1998,  the  GPU  Energy  companies  entered  into  definitive
agreements  with Sithe  Energies and  FirstEnergy  Corporation to sell all their
remaining fossil-fuel and hydroelectric generating facilities other than JCP&L's
50%  interest in the Yards Creek Pumped  Storage  Facility  (Yards  Creek) for a
total purchase price of approximately  $1.7 billion (JCP&L $442 million;  Met-Ed
$677 million;  Penelec $604 million).  The sales are expected to be completed in
mid-1999,  subject to the timely  receipt of the necessary  regulatory and other
approvals.

     JCP&L and Public  Service  Electric & Gas Company  (PSE&G)  each hold a 50%
undivided  ownership  interest in Yards Creek.  In December 1998,  JCP&L filed a
petition with the NJBPU seeking a declaratory  order that PSE&G's right of first
refusal to purchase JCP&L's ownership interest at its current book value under a
1964 agreement between the companies is void and unenforceable. In January 1999,
the New Jersey  Superior Court held that the NJBPU had primary  jurisdiction  in
the matter and  dismissed a PSE&G  complaint  requesting  that the Court require
JCP&L to sell its ownership interest to PSE&G. Management believes that the fair
market value of JCP&L's  ownership  interest in Yards Creek is  substantially in
excess  of its  March  31,  1999  book  value of $22  million.  There  can be no
assurance of the outcome of this matter.



                                       21


<PAGE>



GPU, Inc. and Subsidiary Companies


Nonutility Generation Agreements:

     Pursuant to the mandates of the federal Public Utility Regulatory  Policies
Act and state regulatory directives, the GPU Energy companies have been required
to enter into power purchase agreements with NUGs for the purchase of energy and
capacity for  remaining  periods of up to 22 years.  The  following  table shows
actual  payments  from 1996  through  March 31,  1999,  and  estimated  payments
thereafter through 2003.

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

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

        1996                    $730          $370   $168    $192
        1997                     759           384    172     203
        1998                     788           403    174     211
        1999                     802           404    170     228
        2000                     816           404    169     243
        2001                     805           413    166     226
        2002                     819           425    169     225
        2003                     827           422    173     232

     As of March 31, 1999, NUG facilities  covered by agreements having 1,681 MW
(JCP&L 928 MW; Met-Ed 348 MW; Penelec 405 MW) of capacity were in service. While
a few of these NUG facilities are dispatchable,  most are must-run and generally
obligate the GPU Energy companies to purchase, at the contract price, the output
up to the contract limits.

     The  emerging   competitive   generation  market  has  created  uncertainty
regarding  the  forecasting  of the GPU Energy  companies'  energy supply needs,
which has caused the GPU Energy  companies to change  their  supply  strategy to
seek  shorter-term   agreements  offering  more  flexibility.   The  GPU  Energy
companies'  future  supply  plan  will  focus  on  short-  to  intermediate-term
commitments  (one month to three years)  during  periods of expected high energy
price volatility and reliance on spot market purchases during other periods. The
projected cost of energy from new  generation  supply sources has also decreased
due to  improvements  in power  plant  technologies  and lower  forecasted  fuel
prices. As a result of these developments,  the rates under virtually all of the
GPU Energy  companies' NUG agreements are substantially in excess of current and
projected prices from alternative sources.

     The 1998  PaPUC  Restructuring  Orders  and the  legislation  in New Jersey
provide for (and JCP&L's settlement agreement contemplates) full recovery of the
above-market  costs of NUG  agreements.  The GPU Energy  companies will continue
efforts to reduce the  above-market  costs of these  agreements and will,  where
beneficial,  attempt to renegotiate the prices of the agreements, offer contract
buyouts and attempt to convert must-run  agreements to dispatchable  agreements.
There can be no  assurance  as to the  extent  to which  these  efforts  will be
successful.

     In 1997, the NJBPU approved a Stipulation of Final Settlement which,  among
other things, provides for the recovery of costs associated with the

                                       22


<PAGE>


GPU, Inc. and Subsidiary Companies


buyout of the Freehold Cogeneration project. The Stipulation of Final Settlement
provides for recovery  through the levelized  energy  adjustment  clause of: (1)
buyout costs up to $130  million,  and (2) 50% of any costs from $130 million to
$140 million, over a seven-year period for the termination of the Freehold power
purchase  agreement.  The NJBPU  approved the cost  recovery on an interim basis
subject  to  refund,  pending  further  review  by the  NJBPU.  There  can be no
assurance as to the outcome of this matter.

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

     The GPU  Energy  companies  are  recovering  certain  of  their  NUG  costs
(including  certain  buyout  costs) from  customers.  The  Restructuring  Orders
provide assurance of full recovery of these costs for Met-Ed and Penelec. Met-Ed
and Penelec  recorded a liability  of $1.8  billion for their  above-market  NUG
costs,  which is fully  offset by  Regulatory  assets,  net on the  Consolidated
Balance Sheets. The restructuring  legislation in New Jersey includes provisions
for the  recovery  of costs  under NUG  agreements  and NUG buyout  costs.  (See
COMPETITIVE  ENVIRONMENT AND RATE MATTERS section of Management's Discussion and
Analysis for additional discussion.)


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

     The Met-Ed and Penelec  Restructuring Orders received in 1998,  essentially
deregulated the electric generation portion of Met-Ed and Penelec's  businesses.
Accordingly,  in 1998 Met-Ed and Penelec  discontinued the application of FAS 71
and adopted the  provisions of FAS 101 and EITF Issue 97-4 with respect to their
electric  generation  operations.  The transmission and distribution  portion of
Met-Ed and Penelec's  operations continue to be subject to the provisions of FAS
71.

     JCP&L expects to  discontinue  the  application of FAS 71 and adopt FAS 101
and EITF Issue 97-4 for its  electric  generation  operations  no later than its
receipt of NJBPU approval of its restructuring  plans,  which is expected in May
1999.

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








                                       23


<PAGE>
<TABLE>
<CAPTION>


GPU, Inc. and Subsidiary Companies

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

<S>                                                         <C>              <C>       
Competitive transition charge per PaPUC Order               $  981,361       $1,023,815
                                                            ==========       ==========

Other regulatory assets, net:
Reserve for generation divestiture (JCP&L)                  $  135,700       $  136,804
Phase II reserve for
  generation divestiture (Met-Ed and Penelec)                  763,388        1,356,580
Income taxes recoverable through future rates                  399,694          449,638
Income taxes refundable through future rates                   (51,505)         (52,701)
Net investment in TMI-2                                         65,049           65,787
TMI-2 decommissioning costs                                    116,935          119,571
Nonutility generation contract buyout costs                    114,959          123,208
Unamortized property losses                                     78,882           80,287
Other postretirement benefits                                   72,454           73,770
Environmental remediation                                       50,347           50,214
N.J. unit tax                                                   31,528           33,244
Unamortized loss on reacquired debt                             31,024           32,247
Load and demand-side management programs                         6,427           12,568
DOE enrichment facility decommissioning                         28,205           28,956
Nuclear fuel disposal fee                                       19,857           21,092
Storm damage                                                    29,968           30,166
Deferred nonutility generation costs
  not in current rates                                          17,337          (16,067)
Future nonutility generation costs not in CTC                  369,290          369,290
Public utility realty taxes (PURTA)                              7,171            8,060
Other regulatory liabilities                                   (53,274)         (50,319)
Other regulatory assets                                          8,676           10,018
                                                                 -----           ------
     Total other regulatory assets, net                     $2,242,112       $2,882,413
                                                            ==========       ==========
<CAPTION>

JCP&L                                                              (in thousands)      
--------                                                   -----------------------------
                                                             March 31,      December 31,
                                                               1999             1998     
                                                           -----------------------------
<CAPTION>

Other regulatory assets, net:
<S>                                                         <C>              <C>       
Reserve for generation divestiture                          $  135,700       $  136,804
Income taxes recoverable through future rates                  141,060          172,752
Income taxes refundable through future rates                   (34,708)         (35,535)
Net investment in TMI-2                                         65,049           65,787
TMI-2 decommissioning costs                                     16,106           19,192
Nonutility generation contract buyout costs                    114,959          120,708
Unamortized property losses                                     78,882           80,287
Other postretirement benefits                                   45,657           46,486
Environmental remediation                                       50,347           50,214
N.J. unit tax                                                   31,528           33,244
Unamortized loss on reacquired debt                             25,310           25,981
Load and demand-side management programs                         6,427           12,568
DOE enrichment facility decommissioning                         17,615           18,049
Nuclear fuel disposal fee                                       19,857           21,092
Storm damage                                                    29,968           30,166
Other regulatory liabilities                                   (52,927)         (49,840)
Other regulatory assets                                          3,928            5,930
                                                                 -----            -----

     Total other regulatory assets, net                     $  694,758       $  753,885
                                                            ==========       ==========

                                              24

</TABLE>

<PAGE>
<TABLE>
<CAPTION>


GPU, Inc. and Subsidiary Companies


Met-Ed                                                           (in thousands)      
------                                                      -----------------------------

                                                             March 31,      December 31,
                                                               1999             1998     
                                                           -------------   -------------


<S>                                                         <C>              <C>       
Competitive transition charge per PaPUC Order               $  659,439       $  680,213
                                                            ==========       ==========

Other regulatory assets, net:
Phase II reserve for
  generation divestiture                                    $  424,642       $  421,807
Income taxes recoverable through future rates                  112,425          133,585
Income taxes refundable through future rates                   (10,584)         (10,804)
TMI-2 decommissioning costs                                     67,776           68,091
Nonutility generation contract buyout costs                          -            2,500
Other postretirement benefits                                   26,797           27,284
Unamortized loss on reacquired debt                              2,800            3,023
DOE enrichment facility decommissioning                          7,198            7,409
Deferred nonutility generation costs
  not in current rates                                           4,241           (7,746)
Future nonutility generation costs not in CTC                  271,270          271,270
Public utility realty taxes (PURTA)                              3,315            3,699
Other regulatory liabilities                                       (83)             (83)
Other regulatory assets                                          2,360            1,899
                                                                 -----            -----
     Total other regulatory assets, net                     $  912,157       $  921,934
                                                            ==========       ==========

<CAPTION>

Penelec                                                          (in thousands)      
--------                                                    -----------------------------
                                                             March 31,      December 31,
                                                               1999             1998     
                                                            ------------   --------------

<S>                                                         <C>              <C>       
Competitive transition charge per PaPUC Order               $  321,922       $  343,602
                                                            ==========       ==========

Other regulatory assets, net:
Phase II reserve for
  generation divestiture                                       338,746          934,773
Income taxes recoverable through future rates                  146,209          143,301
Income taxes refundable through future rates                    (6,213)          (6,362)
TMI-2 decommissioning costs                                     33,053           32,288
Unamortized loss on reacquired debt                              2,914            3,243
DOE enrichment facility decommissioning                          3,392            3,498
Deferred nonutility generation costs
  not in current rates                                          13,096           (8,321)
Future nonutility generation costs not in CTC                   98,020           98,020
Public utility realty taxes (PURTA)                              3,856            4,361
Other regulatory liabilities                                      (264)            (396)
Other regulatory assets                                          2,388            2,189
                                                                 -----            -----
     Total other regulatory assets, net                     $  635,197       $1,206,594
                                                            ==========       ==========


                                              25
</TABLE>


<PAGE>


GPU, Inc. and Subsidiary Companies


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

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

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


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

     The GPU Energy  companies  have made  investments  in three  major  nuclear
projects  -- TMI-1 and  Oyster  Creek,  both of which are  operating  generation
facilities, and TMI-2, which was damaged during a 1979 accident. TMI-1 and TMI-2
are jointly owned by JCP&L,  Met-Ed and Penelec in the  percentages  of 25%, 50%
and 25%,  respectively.  Oyster  Creek is owned by JCP&L.  At March 31, 1999 and
December 31, 1998, the GPU Energy  companies' net investment in TMI-1 and Oyster
Creek, including nuclear fuel, was as follows:

                                          Net Investment (in millions)
                                          ----------------------------
                                          TMI-1       Oyster Creek
                                          -----       ------------
             March 31, 1999
             --------------
             JCP&L                        $18               $672
             Met-Ed                        35                  -
             Penelec                       17                  -
                                          ----              -----
               Total                      $70               $672
                                          ===               ====


                                       26


<PAGE>


GPU, Inc. and Subsidiary Companies


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

     JCP&L's net investment in TMI-2 at March 31, 1999 and December 31, 1998 was
$65 million and $66  million,  respectively.  JCP&L is  collecting  revenues for
TMI-2 on a basis which provides for the recovery of its remaining  investment in
the plant by 2008.  In 1998,  Met-Ed and Penelec  received  PaPUC  Restructuring
Orders, discontinued the application of FAS 71 and adopted the provisions of FAS
101 and EITF Issue 97-4 with respect to their  electric  generation  operations.
Accordingly, Met-Ed and Penelec wrote-off their remaining investment in TMI-2 of
$1 million and $7 million, respectively.

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

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

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



                                       27


<PAGE>


GPU, Inc. and Subsidiary Companies


TMI-2:
------

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

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

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

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

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

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


                                       28


<PAGE>



GPU, Inc. and Subsidiary Companies

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

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

      In 1990, the GPU Energy companies  submitted a report,  in compliance with
NRC  regulations,  setting forth a funding plan (employing the external  sinking
fund method) for the decommissioning of their nuclear reactors. Under this plan,
the GPU Energy  companies  intend to complete  the funding for Oyster  Creek and
TMI-1 by the end of the plants' license terms, 2009 and 2014, respectively.  The
TMI-2  funding  completion  date is 2014,  consistent  with TMI-2  remaining  in
long-term storage and being  decommissioned at the same time as TMI-1.  Based on
NRC studies,  a comparable funding target was developed for TMI-2 which took the
accident into account.  Under the NRC regulations,  the funding targets (in 1999
dollars) are as follows:

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

JCP&L                                    $ 68          $107          $331
Met-Ed                                    135           215            -
Penelec                                    68           107            -
                                           --           ---          ----
   Total                                 $271          $429          $331
                                         ====          ====          ====

      The funding  targets,  while not considered cost estimates,  are reference
levels  designed  to  assure  that  licensees   demonstrate  adequate  financial
responsibility for decommissioning. While the NRC regulations address activities
related to the removal of the radiological  portions of the plants,  they do not
address  costs  related  to  the  removal  of  nonradiological   structures  and
materials.

      In 1995, a consultant to GPUN  performed  site-specific  studies of TMI-1,
TMI-2  and  Oyster   Creek   (updated   in  1998),   that   considered   various
decommissioning   methods  and  estimated  the  cost  of   decommissioning   the
radiological portions and the cost of removal of the nonradiological portions of
each plant, using the prompt  removal/dismantlement  method. GPUN management has
reviewed the methodology and assumptions used in these studies,  is in agreement
with them,  and  believes  the  results are  reasonable.  The NRC may require an
acceleration  of the  decommissioning  funding for Oyster  Creek if the plant is
retired  early.  The  retirement  cost  estimates  under the 1995  site-specific
studies,  assuming  decommissioning at the end of the plants' license terms, are
as follows (in 1999 dollars):

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

Radiological decommissioning                   $349       $425         $577
Nonradiological cost of removal                  86         34*          31
                                                 --         --           --
   Total                                       $435       $459         $608
                                               ====       ====         ====

* Net of $12.5 million spent as of March 31, 1999.

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


                                       29


<PAGE>


GPU, Inc. and Subsidiary Companies


      The 1995 Oyster Creek  site-specific study was updated in 1998 in response
to the  previously  announced  potential  early closure of the plant in the year
2000. An early shutdown would increase the retirement  costs shown above to $616
million  ($585  million  for  radiological  decommissioning  and $31 million for
nonradiological  cost of removal).  Both estimates include substantial  spending
for an on-site dry storage facility for spent nuclear fuel and significant costs
for storing the fuel until the DOE complies with the Nuclear Waste Policy Act of
1982 (see OTHER COMMITMENTS AND CONTINGENCIES).

      In 1998, GPU entered into definitive  agreements to sell TMI-1 to AmerGen.
The agreements provide,  among other things,  that upon closing,  the GPU Energy
companies  will fund the TMI-1  decommissioning  trusts up to $320  million  and
AmerGen will assume all TMI-1 decommissioning  liabilities. If all the necessary
regulatory  approvals,  as well as certain Internal Revenue Service rulings, are
obtained,  the transfer of all TMI-1  decommissioning  liability  and expense to
AmerGen will take place at the financial closing which is expected by the end of
1999.

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

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

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

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

      The PaPUC has granted Met-Ed annual revenues for TMI-1 retirement costs of
$8.5   million   based  on  both  the  NRC  funding   target  for   radiological
decommissioning  costs and a 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.  In the Restructuring  Orders,  the PaPUC granted recovery of an interim
level  of TMI-1  decommissioning  costs  as part of the  Competitive  Transition
Charge  (CTC).  This amount will be adjusted in Phase II of Met-Ed and Penelec's
restructuring  proceedings,  once the net  proceeds  from the  generation  asset
divestiture are determined.

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


                                              30


<PAGE>


GPU, Inc. and Subsidiary Companies


                                                 (in millions)
                                                              Oyster
                                                TMI-1         Creek
                                                -----         -----
Amount expensed for the three months ended March 31, 1999:
   JCP&L                                        $1.3          $5.6
   Met-Ed                                        0.4             -
   Penelec                                       0.2             -
                                                ----          -----
                                                $1.9          $5.6
                                                ====          ====

                                                 (in millions)
                                                              Oyster
                                                TMI-1         Creek
                                                -----         -----
Accumulated depreciation provision at March 31, 1999:
   JCP&L                                        $ 48          $284
   Met-Ed                                         84             -
   Penelec                                        39             -
                                                ----          ----
                                                $171          $284
                                                ====          ====

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

TMI-2:

     The estimated  liabilities for TMI-2 future  retirement costs (reflected as
Three Mile Island Unit 2 Future Costs on the Consolidated  Balance Sheets) as of
March 31, 1999 and December 31, 1998 are as follows:

                                                         (in millions)

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

March 31, 1999          $487          $122         $243          $122
December 31, 1998       $484          $121         $242          $121

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

      Offsetting  the $487  million  liability at March 31, 1999 is $245 million
(JCP&L $19 million;  Met-Ed $143 million;  Penelec $83 million) which management
believes is  probable of recovery  from  customers  and  included in  Regulatory
assets,  net on the  Consolidated  Balance Sheets,  and $277 million (JCP&L $107
million; Met-Ed $126 million;  Penelec $44 million) in trust funds for TMI-2 and
included  in  Nuclear  decommissioning  trusts,  at market  on the  Consolidated
Balance Sheets. Earnings on trust fund deposits are included in amounts shown on
the   Consolidated   Balance  Sheets  under   Regulatory   assets,   net.  TMI-2
decommissioning costs charged to depreciation expense in the first quarter of
                                              31


<PAGE>


GPU, Inc. and Subsidiary Companies


1999  amounted to $1.5  million  (JCP&L  $573  thousand;  Met-Ed $700  thousand;
Penelec $210 thousand).

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

      At March 31,  1999,  the  accident-related  portion of TMI-2  radiological
decommissioning costs is considered to be $76 million (JCP&L $19 million; Met-Ed
$38 million;  Penelec $19  million),  which is the  difference  between the 1995
TMI-1 and TMI-2 site-specific  study estimates (in 1999 dollars).  In connection
with rate case  resolutions  at the time,  JCP&L,  Met-Ed and Penelec  have made
contributions  to irrevocable  external  trusts  relating to their shares of the
accident-related portions of the decommissioning liability in the amounts of $15
million, $40 million and $20 million, respectively. These contributions were not
recoverable from customers and have been expensed. The GPU Energy companies will
not pursue recovery from customers for any amounts  contributed in excess of the
$76 million accident-related portion referred to above.

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


                                    INSURANCE
                                    ---------

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

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

     The  Price-Anderson  Act limits  GPU's  liability  to third  parties  for a
nuclear incident at one of its sites to approximately $9.7 billion. Coverage for
the first $200 million of such liability is provided by private  insurance.  The
remaining  coverage,   or  secondary  financial   protection,   is  provided  by
retrospective  premiums  payable by all nuclear reactor owners.  Under secondary
financial protection, a nuclear incident at any licensed nuclear power reactor


                                       32


<PAGE>


GPU, Inc. and Subsidiary Companies


in the country,  including those owned by the GPU Energy companies, could result
in  assessments  of up to $88  million per  incident  for each of the GPU Energy
companies' two operating  reactors,  subject to an annual maximum payment of $10
million per  incident  per reactor.  In addition to the  retrospective  premiums
payable under the Price-Anderson  Act, the GPU Energy companies are also subject
to  retrospective  premium  assessments  of up to  $26.8  million  (JCP&L  $16.9
million;  Met-Ed  $6.6  million;  Penelec  $3.3  million)  in any one year under
insurance policies applicable to nuclear operations and facilities.

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


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

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

     To comply with Titles I and IV of the federal  Clean Air Act  Amendments of
1990 (Clean Air Act),  the GPU Energy  companies  have spent $242 million (JCP&L
$44  million;  Met-Ed $95  million;  Penelec  $103  million) to date.  Effective
November 1997, the Pennsylvania  Environmental Quality Board adopted regulations
implementing  the NOx  reductions  proposed  by the Ozone  Transport  Commission
(OTC),  and in  December  1997,  the  New  Jersey  Department  of  Environmental
Protection  developed a proposal with the electric utility industry on a plan to
implement the OTC's proposed NOx  reductions.  The GPU Energy  companies  expect
that the U.S.  Environmental  Protection  Agency (EPA) will approve  these state
implementation  plans,  and that as a  result,  they  would  expect  to spend an
estimated $0.6 million (JCP&L $30 thousand;  Met-Ed $340 thousand;  Penelec $200
thousand)  in 1999 to meet the  seasonal  reductions  agreed upon by the OTC. In
1997 and 1998 the EPA adopted new, more stringent rules on ozone and particulate
matter.  Several groups have filed suit in the U.S. Court of Appeals to overturn
these new air quality  standards on the grounds that,  among other things,  they
are based on inadequate scientific evidence. The GPU Energy companies are unable
to determine what  additional  costs,  if any, will be incurred if the EPA rules
are upheld. Moreover, the timing and amounts of expenditures under the Clean Air
Act will be  dependent  upon the timing of the sales of the  related  generating
facilities.

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


                                       33


<PAGE>


GPU, Inc. and Subsidiary Companies


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

      8             4           2              1              1           13

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

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

     Pursuant  to federal  environmental  monitoring  requirements,  Penelec has
reported to the Pennsylvania Department of Environmental Protection (PaDEP) that
contaminants  from coal mine refuse piles were identified in storm water run-off
at Penelec's Seward station  property.  Penelec signed a modified Consent Order,
which became  effective  December 1996, and a third  Amendment in December 1998,
that establish a schedule for submitting a plan for long-term remediation, based
on future operating scenarios.  Penelec currently estimates that the remediation
of the Seward  station  property  will range from $12 million to $20 million and
has a recorded  liability of $12 million at March 31, 1999. These cost estimates
are subject to uncertainties  based on continuing  discussions with the PaDEP as
to the method of remediation,  the extent of remediation  required and available
cleanup  technologies.  Penelec expects recovery of these  remediation  costs in
Phase  II of its  restructuring  proceeding  and has  recorded  a  corresponding
regulatory asset of approximately $12 million at March 31, 1999.

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


                                       34


<PAGE>



GPU, Inc. and Subsidiary Companies


approximately $17 million to $22 million,  and a liability of $17 million (JCP&L
$1  million;  Met-Ed $4  million;  Penelec  $12  million)  is  reflected  on the
Consolidated  Balance Sheets at March 31, 1999. JCP&L has requested  recovery of
its share of  closure  costs in its  restructuring  plan filed with the NJBPU in
1997.  Met-Ed and  Penelec  expect  recovery of these costs in Phase II of their
restructuring proceedings. As a result, a regulatory asset of $17 million (JCP&L
$1  million;  Met-Ed $4  million;  Penelec  $12  million)  is  reflected  on the
Consolidated Balance Sheets at March 31, 1999.

     JCP&L  has  entered  into  agreements  with the New  Jersey  Department  of
Environmental  Protection for the  investigation  and remediation of 17 formerly
owned MGP sites.  JCP&L has also entered into  various  cost-sharing  agreements
with other  utilities  for most of the sites.  As of March 31,  1999,  JCP&L has
spent  approximately  $32 million in connection with the cleanup of these sites.
In  addition,  JCP&L has recorded an  estimated  environmental  liability of $52
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 $52  million  due to  significant  uncertainties,
including changes in acceptable remediation methods and technologies.

     In 1997,  JCP&L's request to establish a Remediation  Adjustment Clause for
the recovery of MGP  remediation  costs was approved by the NJBPU.  At March 31,
1999, JCP&L had recorded on its Consolidated Balance Sheet a regulatory asset of
$44 million.  JCP&L is  continuing  to pursue  reimbursement  from its insurance
carriers for remediation  costs already spent and for future estimated costs. In
1994,  JCP&L  commenced  litigation  in the New Jersey  Superior  Court  against
several of its insurance  carriers,  relative to these MGP sites and has settled
with all but one of those insurance companies.


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

GPU Electric and the GPUI Group:
--------------------------------

     At March 31, 1999, GPU Electric and the GPUI Group had investments totaling
approximately  $3.2 billion and $90 million,  respectively,  in  businesses  and
facilities  located  in  foreign  countries.  Although  management  attempts  to
mitigate  the  risk of  investing  in  certain  foreign  countries  by  securing
political risk insurance,  GPU Electric and the GPUI Group face additional risks
inherent to operating in such locations, including foreign currency fluctuations
(see Management's Discussion and Analysis - GPU Electric and the GPUI Group).

     At March 31, 1999, GPU, Inc.'s aggregate investment in GPU Electric and the
GPUI Group was $398 million and $242 million,  respectively;  GPU, Inc. has also
guaranteed up to an additional $1.07 billion and $33 million of GPU Electric and
GPUI Group obligations,  respectively. Of this amount, $1.07 billion is included
in  Long-term  debt and  Securities  due within  one year on GPU's  Consolidated
Balance  Sheet at March 31,  1999,  and $26  million  relates to  various  other
obligations of GPU Electric and the GPUI Group.


                                       35


<PAGE>


GPU, Inc. and Subsidiary Companies


     Through its 50% ownership  interest in Midlands,  GPU Electric has invested
in a power  project  in  Pakistan  (Uch  Power  Project)  which  was  originally
scheduled to begin commercial operation in late 1998. The Uch Power Project is a
586 MW facility of which Midlands is a 40% owner.  Construction of the Uch Power
Project is complete,  but commercial operation was delayed pending resolution of
a  dispute  with  the  Pakistani   government.   In  July  1998,  the  Pakistani
government-owned  utility  issued a notice of intent to  terminate  certain  key
project  agreements.  The notice  asserted that various forms of corruption were
involved in the original  granting of the agreements to the Uch investors by the
predecessor  Pakistani  government.  The  Uch  investors,   including  Midlands,
strongly deny the  allegations  and are  continuing  to explore  remedies to the
situation.  GPU Electric believes that similar notices were received by a number
of other independent power projects in Pakistan. In December 1998, the Pakistani
government offered to withdraw these notices.

     GPU Electric's current investment in the Uch Power Project is approximately
$36 million,  and project  lenders could require GPU Electric to make additional
capital  contributions  to the project of approximately $8 million under certain
conditions. There can be no assurance as to the outcome of this matter.

     Lake  Cogen,  Ltd.  (Lake),  an  independent  power  project  owned  by GPU
International,  Inc.,  is  pursuing  legal  proceedings  against  Florida  Power
Corporation (FPC) to resolve an ongoing disagreement involving the pricing under
the power  purchase  agreement  between  Lake and FPC. In April  1999,  the Lake
County  Circuit Court issued an order finding that FPC breached the avoided cost
payment  provisions of the power purchase  agreement and ruled that FPC must pay
Lake firm power  prices for all  on-peak  hours and  as-available  rates for all
off-peak  hours.  In  addition,  the court  dismissed  Lake's claim that FPC had
improperly  determined  its avoided  fuel cost and, at the same time,  dismissed
FPC's  counterclaims  against Lake.  Management is currently unable to determine
the financial  consequences  of the ruling,  and  accordingly,  Lake has filed a
Motion  for  Clarification  and  Reconsideration,  which is  currently  pending.
Separately,  the Florida Public Service  Commission  (FPSC) dismissed a petition
filed by FPC  requesting  that the FPSC assert  jurisdiction  over the  contract
dispute.  FPC has appealed the dismissal to the Florida Supreme Court. There can
be no  assurance  as to the outcome of this matter.  GPU  International,  Inc.'s
total investment in Lake, including guaranteed lease payments,  is approximately
$20 million.

Other:
------

     GPU's  capital  programs,  for  which  substantial  commitments  have  been
incurred and which extend over several years,  contemplate  expenditures of $436
million (JCP&L $183 million; Met-Ed $97 million;  Penelec $98 million; Other $58
million) during 1999.

      The GPU Energy  companies  have  entered  into  long-term  contracts  with
nonaffiliated  mining companies for the purchase of coal for certain  generating
stations  in which  they  have  ownership  interests  (JCP&L - 16.67%  ownership
interest in Keystone; and Met-Ed - 16.45% ownership interest in Conemaugh).  The
contracts,  which expire at various  dates  between  1999 and 2002,  require the
purchase of either fixed or minimum amounts of the stations' coal  requirements.
The price of the coal under the  contracts  is based on  adjustments  of indexed
cost components.  The GPU Energy  companies' share of the cost of coal purchased
under these agreements is expected to aggregate


                                       36


<PAGE>



GPU, Inc. and Subsidiary Companies


$135 million  (JCP&L $27 million;  Met-Ed $57 million;  Penelec $51 million) for
1999.  These contracts will be assumed by the  purchasers,  upon the closings of
the sales of the GPU Energy companies' fossil generation facilities.

      JCP&L has  entered  into  agreements  with  other  utilities  to  purchase
capacity and energy for various periods through 2004. These  agreements  provide
for up to 629 MW in 1999, declining to 445 MW in 2000 through 2003 and 345 MW in
2004 when the final agreement expires. Payments pursuant to these agreements are
estimated to be $114 million in 1999,  $91 million in 2000, $99 million in 2001,
$109 million in 2002, $113 million in 2003 and $48 million in 2004.

      In accordance  with the Nuclear  Waste Policy Act of 1982 (NWPA),  the GPU
Energy companies have entered into contracts with, and have been paying fees to,
the DOE for the future disposal of spent nuclear fuel in a repository or interim
storage  facility.  Following  its  purchase of TMI-1,  AmerGen  will assume all
liability for disposal costs related to spent fuel generated  after the sale. In
1996,  the DOE notified the GPU Energy  companies  and other  standard  contract
holders  that it will be unable to begin  acceptance  of spent  nuclear fuel for
disposal by 1998,  as mandated by the NWPA.  The DOE  requested  recommendations
from contract  holders for handling the delay.  In January 1997,  the GPU Energy
companies,  along with other electric  utilities and state agencies,  petitioned
the U.S.  Court of Appeals to,  among other  things,  permit  utilities to cease
payments  into the Federal  Nuclear  Waste Fund until the DOE complies  with the
NWPA. In November  1997, the Court denied this request.  The DOE's  inability to
accept  spent  nuclear  fuel could have a  material  impact on GPU's  results of
operations,  as additional  costs may be incurred to build and maintain  interim
on-site storage at Oyster Creek.  TMI-1 has sufficient  on-site storage capacity
to accommodate  spent nuclear fuel through the end of its licensed life. In June
1997,  a  consortium  of electric  utilities,  including  GPUN,  filed a license
application  with the NRC seeking  permission  to build an interim  above-ground
disposal  facility for spent nuclear fuel in northwestern  Utah. There can be no
assurance as to the outcome of these matters.

      New Jersey and  Connecticut  have  established the Northeast  Compact,  to
construct a low-level  radioactive  waste  (radwaste)  disposal  facility in New
Jersey,  which was  expected to commence  operation  by the end of 2003.  GPUN's
total share of the cost for  developing,  constructing  and site  licensing  the
facility was estimated to be $58 million.  Through  December 31, 1998,  GPUN has
made  payments of $6 million.  JCP&L is recovering  the costs to construct  this
facility from customers, and $29 million has been collected to date. In February
1998, the New Jersey  Low-Level  Radwaste  Facility  Siting Board (Siting Board)
voted to suspend the siting  process in New Jersey.  The Siting  Board is in the
process of determining what activities are required by law to be continued,  and
the level of funding  required to support  these  activities.  The Siting  Board
intended to return the unused  funds to the  generators,  but the  Governor  has
overruled this decision.  Legislation  is pending in New Jersey,  however,  that
would  mandate  returning  the unused funds to the  generators,  of which GPUN's
share is  approximately  $2.6 million.  GPUN cannot  determine at this time what
effect, if any, this matter will have on its operations.

     Pennsylvania,  Delaware,  Maryland and West Virginia have  established  the
Appalachian  Compact to  construct  a facility  for the  disposal  of  low-level
radwaste in those states,  including  low-level  radwaste  from TMI-1.  To date,
pre-construction  costs of $33 million,  out of an estimated  $88 million,  have
been  paid.   Eleven   nuclear   plants  have  so  far  shared  equally  in  the
pre-construction costs; GPUN has contributed $3 million on behalf of TMI-1.

                                       37


<PAGE>



GPU, Inc. and Subsidiary Companies


Pennsylvania has suspended the search for a low-level  radwaste disposal site in
the state. GPUN cannot determine at this time what effect, if any, this may have
on its operations.

      JCP&L's two  operating  nuclear  units are  subject to the NJBPU's  annual
nuclear  performance  standard.  Operation of these units at an aggregate annual
generating  capacity  factor  below 65% or above  75% would  trigger a charge or
credit based on replacement  energy costs.  At current cost levels,  the maximum
annual effect on net income of the performance standard charge at a 40% capacity
factor would be  approximately  $11 million before tax. While a capacity  factor
below 40% would generate no specific monetary charge, it would require the issue
to be brought before the NJBPU for review. The annual measurement period,  which
begins  in March of each  year,  coincides  with  that  used for the  LEAC.  The
Electric Discount and Energy Competition Act eliminates the nuclear  performance
standard, effective with the implementation of retail choice on August 1, 1999.

      At March  31,  1999,  GPU,  Inc.  and  consolidated  affiliates  had 9,263
employees worldwide (JCP&L 2,233; Met-Ed 2,618; Penelec 1,601; GPU Electric 928;
the GPUI Group 133; all other  companies  1,750),  of which 8,300 employees were
located in the U.S.  The  majority of the U.S.  workforce is employed by the GPU
Energy  companies,  of which  approximately  4,400 are represented by unions for
collective   bargaining   purposes.   JCP&L,  Met-Ed  and  Penelec's  collective
bargaining  agreements with the International  Brotherhood of Electrical Workers
expire on October  31,  1999,  April 30,  2000 and May 14,  2002,  respectively.
Penelec's  collective  bargaining  agreement  with the Utility  Workers Union of
America expires on June 30, 2001.

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


                                       38


<PAGE>


GPU, Inc. and Subsidiary Companies


2.   ACCOUNTING FOR DERIVATIVE INSTRUMENTS

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

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

     GPU  Electric  uses  interest  rate swap  agreements  to manage the risk of
increases  in variable  interest  rates.  At March 31,  1999,  these  agreements
covered  approximately $1.2 billion of debt, including commercial paper, and are
scheduled to expire on various dates through November 2007. GPU Electric records
amounts paid and received  under the  agreements as  adjustments to the interest
expense of the underlying  debt since the swaps are related to specific  assets,
liabilities or anticipated  transactions of GPU Electric.  For the quarter ended
March 31, 1999, fixed rate interest  expense exceeded  variable rate interest by
approximately $5.1 million.  (For additional  information,  see GPU Electric and
the GPUI Group section, Management's Discussion and Analysis.)

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

      In 1998, GPU  International  entered into a 10-year indexed swap agreement
with Niagara Mohawk Power Corporation (NIMO) which, among other things, provides
GPU  International  a fixed revenue stream (over the life of the swap agreement)
on its investment in the Onondaga  Cogeneration  project. At March 31, 1999, the
indexed  swap  agreement  is valued at $60.5  million  and is  included in Other
Deferred  Debits  and Other  Assets on the  Consolidated  Balance  Sheets.  This
valuation was derived using the discounted  estimated cash flows of the payments
expected to be received by GPU International from NIMO over the life of the swap
agreement.

                                       39


<PAGE>


GPU, Inc. and Subsidiary Companies


3.   EQUITY INVESTMENTS

     GPU Electric  and the GPUI Group use the equity  method of  accounting  for
investments  in which they have the  ability to exercise  significant  influence
over the operating and financial policies of the investee  (generally  evidenced
by a 20% to 50% ownership interest).  Investments accounted for under the equity
method at March 31, 1999 follow:

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

All of the above are GPUI Group equity investments  except Midlands  Electricity
plc, which is a GPU Electric equity investment.

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

Balance Sheet Data (in thousands)
-----------------
                                            March 31,            December 31,
                                              1999                  1998    
                                          -----------            ------------
Current Assets                            $   615,644            $   657,396
Noncurrent Assets                           5,887,354              6,113,529
Current Liabilities                        (1,648,144)            (1,750,590)
Noncurrent Liabilities                     (3,252,351)            (3,427,785)
                                           ----------             ---------- 
     Net Assets                           $ 1,602,503            $ 1,592,550
                                          ===========            ===========

GPU Electric and GPUI Group's
  Equity in Net Assets                    $   728,007            $   780,808
                                          ===========            ===========


Earnings Data (in thousands)
-------------
                                             Three months ended March 31,  
                                           ---------------------------------
                                              1999                  1998    
                                           ----------           ------------

Revenues                                  $   780,283            $   740,008
Operating Income                              170,331                105,489
Net Income/(Loss)                             118,236                 38,506
Cash Distributions Received                     4,760                  1,876
                                                -----                  -----

GPU Electric and GPUI Group's
  Equity in Net Income/(Loss)             $    53,252            $    17,651
                                          ===========            ===========

      As of March 31, 1999 and  December  31, 1998,  Equity  investments  on the
Consolidated Balance Sheets included goodwill (net of accumulated


                                       40


<PAGE>


GPU, Inc. and Subsidiary Companies


amortization)  of approximately  $12.2 million and $18.5 million,  respectively,
which is amortized to expense over periods not exceeding 40 years.  Amortization
expense for the three  months  ended  March 31,  1999 and 1998  amounted to $0.3
million and $0.4 million, respectively.

4. SEGMENT INFORMATION

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



                                       41


<PAGE>
<TABLE>
<CAPTION>





GPU, Inc. and Subsidiary Companies


Balance Sheet Segment Data (in thousands)

                                                     Current     Noncurrent     Current
March 31, 1999                                       Assets        Assets     Liabilities
--------------                                       -------     ----------    -----------

Domestic:
<S>                                                <C>           <C>            <C>       
   GPU Energy companies                            $1,512,252    $11,738,171    $1,548,299
   GPU International, Inc.*                           109,310        424,401        61,059
   Less: The effect of consolidating
      equity investments included above               (48,560)      (198,838)      (16,066)
   Add: Equity investments
      included on the balance sheet                         -         77,045             -
   GPU AR                                              17,009             46         7,465
   Corporate                                              367          6,667        12,789
                                                    ---------     ----------     ---------
         Subtotal                                   1,590,378     12,047,492     1,613,546
                                                    ---------     ----------     ---------
Foreign:
   Australia (GPU Electric)                           104,448      1,756,555       173,476
   United Kingdom (GPU Electric)*                     121,905      2,169,383       936,280
   Argentina (GPU Electric)                            49,875        469,877       110,138
   South America (GPU Power, Inc.)*                   144,283        384,773        73,351
   Less: The effect of consolidating
      equity investments included above              (181,190)    (2,364,425)     (772,618)
   Add: Equity investments
      included on the balance sheet                         -        640,668             -
                                                    ---------     ----------     ---------
         Subtotal                                     239,321      3,056,831       520,627
                                                    ---------     ----------     ---------

Consolidated Total                                 $1,829,699    $15,104,323    $2,134,173
                                                    =========     ==========     =========
<CAPTION>

                                                                   Other           Cash
                                                   Long-Term     Noncurrent       Capital
March 31, 1999                                        Debt       Liabilities  Expenditures
--------------                                        ----       ------------ ------------


Domestic:
<S>                                                <C>            <C>           <C>       
   GPU Energy companies                            $2,298,931     $6,018,252    $   60,276
   GPU International, Inc.*                           186,655        228,122           239
   Less: The effect of consolidating
      equity investments included above              (186,655)       (18,592)            -
   Add: Equity investments
      included on the balance sheet                         -              -             -
   GPU AR                                                   -            811            14
   Corporate                                                -          2,088             -
                                                    ---------      ---------     ---------
         Subtotal                                   2,298,931      6,230,681        60,529
                                                    ---------      ---------     ---------
Foreign:
   Australia (GPU Electric)                         1,466,813         68,486             -
   United Kingdom(GPU Electric)*                      938,254        208,325             -
   Argentina (GPU Electric)                           331,683         22,555       380,448
   South America (GPU Power, Inc.)*                   184,498         61,528        16,549
   Less: The effect of consolidating
      equity investments included above              (886,811)      (181,451)            -
   Add: Equity investments
      included on the balance sheet                         -              -             -
                                                    ---------      ---------     ---------
         Subtotal                                   2,034,437        179,443       396,997
                                                    ---------      ---------     ---------

Consolidated Total                                 $4,333,368     $6,410,124    $  457,526
                                                    =========      =========     =========
<FN>

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

</FN>





                                              42

</TABLE>

<PAGE>

<TABLE>
<CAPTION>


GPU, Inc. and Subsidiary Companies


Balance Sheet Segment Data (in thousands) (continued)

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

Domestic:
<S>                                                <C>           <C>             <C>       
   GPU Energy companies                            $  807,973    $12,475,608     $1,205,733
   GPU International, Inc.*                           126,321        412,953         58,343
   Less: The effect of consolidating
      equity investments included above               (51,046)      (202,985)       (17,271)
   Add: Equity investments
      included on the balance sheet                         -         80,614              -
   GPU AR                                               2,358            115          2,222
   Corporate                                            5,001          6,672        140,132
                                                    ---------     ----------      ---------
         Subtotal                                     890,607     12,772,977      1,389,159
                                                    ---------     ----------      ---------
Foreign:
   Australia (GPU Electric)                            91,112      1,690,018        561,562
   United Kingdom (GPU Electric)*                     142,854      2,213,350        836,431
   South America (GPU Power, Inc.)*                   136,822        385,836         54,366
   Less: The effect of consolidating
      equity investments above                       (198,986)    (2,437,992)      (833,658)
   Add: Equity investments
      included on the balance sheet                         -        601,511              -
                                                    ---------     ----------      ---------
         Subtotal                                     171,802      2,452,723        618,701
                                                    ---------     ----------      ---------

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

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

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

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

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


                                              43
</TABLE>


<PAGE>

<TABLE>
<CAPTION>

GPU, Inc. and Subsidiary Companies


Earnings Segment Data (in thousands)

                                                                 Depreciation
For the three months                                Operating        and         Operating
ended March 31, 1999                                Revenues     Amortization      Income  
--------------------                                --------     ------------      ------  

Domestic:
<S>                                                 <C>          <C>            <C>       
   GPU Energy companies                             $  972,925   $   104,882    $  190,441
   GPU International, Inc.*                             37,528         1,490         6,282
   Less: The effect of consolidating
      equity investments included above                (20,308)       (2,023)       (5,720)
   Add: Equity in undistributed earnings of
      affiliates, net on the income statement              -               -             -
   GPU AR                                               16,460             -         1,672
   Corporate                                                 -             -        (1,478)
                                                     ---------       -------       -------
         Subtotal                                    1,006,605       104,349       191,197
                                                     ---------       -------       -------
Foreign:
   Australia (GPU Electric)                             47,188         4,064        28,241
   United Kingdom (GPU Electric)*                      337,128        14,914        53,039
   Argentina (GPU Electric)                             10,772         7,485         2,116
   South America (GPU Power, Inc.)*                     19,064         3,890         7,057
   Less: The effect of consolidating
      equity investments included above               (347,024)      (17,458)      (59,942)
   Add:  Equity in undistributed earnings of
      affiliates, net on the income statement              -               -             -
                                                    ----------       -------       -------
         Subtotal                                       67,128        12,895        33,511
                                                     ---------       -------       -------

Consolidated Total                                  $1,073,733   $   117,244    $  224,708
                                                     =========       =======       =======
<CAPTION>

                                                       Other     Interest and
For the three months                                Income and     Preferred
ended March 31, 1999                                Deductions     Dividends     Net Income
--------------------                                ----------     ---------     ----------

Domestic:
<S>                                                 <C>          <C>            <C>       
   GPU Energy companies                             $   18,172   $    60,264    $  148,349
   GPU International, Inc.*                              1,019         4,618         2,683
   Less: The effect of consolidating
      equity investments included above                    288        (4,362)       (1,070)
   Add:  Equity in undistributed earnings of
      affiliates, net on the income statement            1,070             -         1,070
   GPU AR                                                    9             -         1,681
   Corporate                                                16           541        (2,003)
                                                        ------       -------       -------
         Subtotal                                       20,574        61,061       150,710
                                                        ------       -------       -------
Foreign:
   Australia (GPU Electric)                               (132)       24,885         3,224
   United Kingdom (GPU Electric)*                        6,210        25,464        33,785
   Argentina (GPU Electric)                                127         1,866           377
   South America (GPU Power, Inc.)*                      1,687         5,298         2,623
   Less: The effect of consolidating
      equity investments included above                (20,591)      (25,351)      (52,182)
   Add: Equity in undistributed earnings of
      affiliates, net on the income statement           52,182             -        52,182 
                                                      ------         -------       --------
         Subtotal                                       39,483        32,162        40,009 
                                                        ------       -------       --------

Consolidated Total                                  $   60,057   $    93,223    $  190,719
                                                        ======       =======       =======
<FN>

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

</FN>



                                       44

</TABLE>

<PAGE>

<TABLE>
<CAPTION>


GPU, Inc. and Subsidiary Companies


Earnings Segment Data (in thousands)(continued)

                                                                 Depreciation
For the three months                                Operating        and          Operating
ended March 31, 1998                                Revenues     Amortization   Income  
--------------------                                ---------    ------------  ---------

Domestic:
<S>                                                 <C>          <C>            <C>       
   GPU Energy companies                             $  968,888   $   114,901    $  161,796
   GPU International, Inc.*                             46,036         2,512         7,064
   Less: The effect of consolidating
      equity investments included above                (29,337)       (2,334)       (7,861)
   Add: Equity in undistributed earnings of
      affiliates, net on the income statement              -               -             -
   GPU AR                                                1,925             -          (815)
   Corporate                                                 -             -        (1,001)
                                                     ---------       -------       -------
         Subtotal                                      987,512       115,079       159,183
                                                     ---------       -------       -------
Foreign:
   Australia (GPU Electric)                             48,243        10,496        32,126
   United Kingdom (GPU Electric)*                      322,735        14,198        43,493
   South America (GPU Power, Inc.)*                     12,866         4,946           (28)
   Less: The effect of consolidating
      equity investments included above               (328,247)      (17,571)      (41,433)
   Add: Equity in undistributed earnings of
      affiliates, net on the income statement              -               -             -
                                                     ---------       -------       -------
         Subtotal                                       55,597        12,069        34,158
                                                     ---------       -------       -------

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

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

Domestic:
<S>                                                 <C>          <C>            <C>       
   GPU Energy companies                             $    1,421   $    61,179    $  102,038
   GPU International, Inc.*                              4,413         4,850         6,627
   Less: The effect of consolidating
      equity investments included above                  1,224        (4,714)       (1,923)
   Add: Equity in undistributed earnings of
      affiliates, net on the income statement            1,923             -         1,923
   GPU AR                                                   21             -          (794)
   Corporate                                                26         1,458        (2,433)
                                                        ------       -------       -------
         Subtotal                                        9,028        62,773       105,438
                                                        ------       -------       -------
Foreign:
   Australia (GPU Electric)                             17,154        29,785        19,495
   United Kingdom (GPU Electric)*                       (2,779)       30,693        10,021
   South America (GPU Power, Inc.)*                        531         1,176        (1,174)
   Less: The effect of consolidating
      equity investments included above                  3,440       (22,265)      (15,728)
   Add: Equity in undistributed earnings of
      affiliates, net on the income statement           15,728             -        15,728
                                                        ------       -------       -------
         Subtotal                                       34,074        39,389        28,342
                                                        ------       -------       -------

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

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

</FN>

                                              45
</TABLE>


<PAGE>






<PAGE>




GPU, Inc. and Subsidiary Companies


5. COMPREHENSIVE INCOME

     For the three  months ended March 31, 1999 and 1998,  comprehensive  income
was as follows:


                                                        (in thousands)
                                                         Three months
                                                        Ended March 31, 
                                                     ----------------------
GPU, Inc. and Subsidiary Companies                     1999          1998 
                                                       ----          ----

Net income                                           $190,719      $133,780
                                                     --------      --------
Other comprehensive income, net of tax:
     Net unrealized gains/(losses) on investments      (2,195)        3,820
     Foreign currency translation                       1,452        10,743
                                                     --------      --------
       Total other comprehensive income/(loss)           (743)       14,563
                                                     --------      --------
Comprehensive income                                 $189,976      $148,343
                                                     ========      ========

Met-Ed

Net income                                           $ 32,832      $ 24,730
Other comprehensive income, net of tax:
     Net unrealized gains on investments                1,646         2,547
                                                     --------      --------
Comprehensive income                                 $ 34,478      $ 27,277 
                                                     ========      ======== 

Penelec

Net income                                           $ 65,490      $ 26,645
                                                     --------      --------
Other comprehensive income, net of tax:
     Net unrealized gains on investments                  752         1,273
                                                     --------      --------
Comprehensive income                                 $ 66,242      $ 27,918
                                                     ========      ========

                                       46

<PAGE>





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


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



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


        GPU's  earnings for the first  quarter  ended March 31, 1999 were $190.7
million, compared to 1998 first quarter earnings of $133.8 million. Earnings per
share on a diluted  basis  were  $1.49 in 1999,  compared  to $1.07 per share in
1998.

        The  earnings  increase  was due to  higher  earnings  from  both  GPU's
domestic utility operations,  which are conducted by GPU Energy, and its foreign
utility  operations,  which are  conducted by GPU  Electric.  The increase  also
included the recognition of a non-recurring gain of $27.8 million after-tax,  or
$0.22 per  share,  by  Penelec,  for the  portion of the gain on the sale of its
interest in the Homer City Generating  Station (Homer City) related to wholesale
operations. Excluding this non-recurring gain, first quarter earnings would have
been $162.9 million, or $1.27 per share.

        GPU Energy's  earnings  increase over the first quarter of last year was
due  to  higher  weather-related  sales  and  lower  net  energy  expenses.  GPU
Electric's  earnings  increase  over the first  quarter  of last year was due to
increased profits from Midlands  Electricity's  (Midlands) supply business and a
gain on the sale of the Midlands' Enersis generating facility in Portugal. First
quarter 1998 results also included a gain on the sale of Solaris Power.





                                       47


<PAGE>



GPU RESULTS OF OPERATIONS (continued)

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

      Operating  revenues for the first quarter of 1999  increased 2.9% to $1.07
billion, as compared to the first quarter of 1998. The components of the changes
are as follows:

                                              (in millions)  
                                              -------------  
GPU Energy companies:
   Kilowatt-hour (KWH) revenues                   $(53.0)
   Energy-related revenues                          31.5
   CTC revenues                                     23.1
   GPU Telcom revenues                              (3.0)
   Other revenues                                    5.4
                                                   -----
        Total GPU Energy companies                   4.0
GPU Electric                                        10.0
GPUI Group                                           2.1
GPU AR                                              14.5
                                                   -----
        Total increase in revenues                $ 30.6
                                                   =====

GPU Energy Companies

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

      The decrease in KWH revenues for the three month period was due  primarily
to a decrease in  non-utility  generation  (NUG) revenues for Met-Ed and Penelec
(which did not have a significant impact on earnings);  lower generation-related
revenues due to some PA customers choosing another supplier; partially offset by
higher  weather-related  sales  due to  colder  winter  temperatures  this  year
compared to last and increased sales to other utilities.

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

      Changes in energy-related  revenues do not affect earnings as they reflect
corresponding  changes in JCP&L's  levelized  energy  adjustment  clause  (LEAC)
billed to customers and expensed.  The increase was due primarily to a change in
the estimate for unbilled revenue.

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

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

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

      The decrease in GPU Telcom  revenues for the three month period was due to
lower   revenues   from   contracts   for  the  leasing  and   construction   of
telecommunication infrastructure.

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

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

                                       48


<PAGE>


GPU RESULTS OF OPERATIONS (continued)

GPU Electric

      The  increase in revenues for the three month period was due mainly to the
inclusion  of  revenues  from  Emdersa,  an  electric  distribution  business in
Argentina, which was acquired by GPU Electric in March 1999.

GPUI Group

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

GPU AR

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

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

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

      Changes  in the energy  component  of PP&I  expense  do not  significantly
affect JCP&L's  earnings since these cost variances are passed through the LEAC.
However,  such cost variances for Met-Ed and Penelec are not subject to deferred
accounting,  except for above-market NUG costs, which are deferred in accordance
with the PaPUC  Restructuring  Orders.  The decrease in PP&I for the three month
period is primarily due to reduced  purchases  and the deferral of  above-market
NUG costs by Met-Ed and Penelec,  partially offset by increased purchases at GPU
AR.

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

      For JCP&L,  changes in fuel and deferral of energy and capacity costs, net
do not affect  earnings  as they are offset by  corresponding  changes in energy
revenues.  Met-Ed and Penelec ceased  deferred  energy  accounting as their ECRs
were combined with base rates in 1997.  The decrease in fuel for the three month
period was  primarily  due to lower fuel  expenses at Penelec due to the sale of
its interest in Homer City; partially offset by increased fuel expenses at EGSA,
and the effect of consolidating Onondaga beginning August 1998.

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

      The  increase  in other  O&M  expenses  for the  three  month  period  was
primarily due to higher GPU Electric O&M expenses resulting from the acquisition
of Emdersa in March 1999.





                                       49


<PAGE>


GPU RESULTS OF OPERATIONS (continued)

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

      The decrease in depreciation and amortization  expense for the three month
period  was due  mainly to lower  depreciation  expense at GPU Energy due to the
effects of the impairment  writedown of TMI-1 in 1998 and the sale of Homer City
in March 1999.

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

      For JCP&L,  changes in taxes other than income taxes do not  significantly
affect  earnings as they are  substantially  recovered in  revenues.  Met-Ed and
Penelec's State Tax Adjustment  Surcharges were combined with base rates in 1997
and are no longer subject to annual adjustment.  This did not have a significant
impact on earnings for the first three months of 1999.

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

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

        The increase in equity in undistributed earnings of affiliates,  net for
the three month period was due to higher GPU Electric earnings  primarily due to
increased  earnings  from  Midlands'  operations  and a gain on the  sale of the
Enersis generation facility in Portugal.

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

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

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

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

      The decrease in interest on long-term  debt for the three month period was
due primarily to lower interest costs at GPU Electric.


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

      In January  1999,  Met-Ed and Penelec  redeemed  all of their  outstanding
shares of cumulative  preferred stock. A reacquisition  loss of $0.5 million and
$0.7 million was recorded by Met-Ed and Penelec, respectively.







                                       50


<PAGE>


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

      JCP&L's  earnings  for the first  quarter  ended March 31, 1999 were $51.3
million,  compared to 1998 first quarter earnings of $50.1 million. The increase
in earnings was due primarily to higher weather-related sales this year compared
to last year and increased usage by residential and commercial customers.

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

      Operating  revenues for the first quarter of 1999 increased 9.4% to $516.9
million, as compared to the first quarter of 1998. The components of the changes
are as follows:

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

   KWH revenues                                   $ 11.6
   Energy-related revenues                          31.5
   Other revenues                                    1.4
                                                    ----
        Increase in revenues                      $ 44.5
                                                    ====

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

      The  increase in KWH revenues for the three month period was due to higher
weather-related sales due to a colder winter this year compared to last year and
increased usage by residential and commercial customers.

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

      Changes in energy-related  revenues do not affect earnings as they reflect
corresponding changes in the LEAC billed to customers and expensed. The increase
was due primarily to a change in the estimate for unbilled revenue.

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

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

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

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

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

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

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





                                       51


<PAGE>


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


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

      The  increase  in other  O&M  expenses  for the  three  month  period  was
primarily  due to higher  expenses  related  to the  reengineering  of  business
processes to position JCP&L for deregulation.

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

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

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

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


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

        Met-Ed's  earnings for the first quarter ended March 31, 1999 were $32.2
million,  compared to 1998 first quarter earnings of $24.6 million. The increase
in earnings was due primarily to higher weather-related sales this year compared
to last year, lower fuel and power purchase costs and a decrease in depreciation
and amortization expense.

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

      Operating  revenues for the first quarter of 1999 decreased 2.4% to $229.2
million as compared to the first quarter of 1998.  The components of the changes
are as follows:

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

   KWH revenues                                    $(23.4)
    CTC revenues                                     14.4
   Other revenues                                     3.4
                                                    -----
        Decrease in revenues                       $ (5.6)
                                                    =====


Kilowatt-hour revenues

        The  decrease  in KWH  revenues  for  the  three  month  period  was due
primarily to a decrease in NUG revenues (which did not have a significant impact
on earnings); lower generation-related related revenues due to some PA customers
choosing another supplier;  partially offset by higher weather-related sales due
to colder winter  temperatures  this year compared to last,  increased  usage by
residential customers and increased sales to other utilities.



                                       52


<PAGE>


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

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

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

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

      The  increase  in  other  revenues  for the  three  month  period  was due
primarily to increased  transmission  revenues as a result of customer  shopping
from Pennsylvania deregulation.

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

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

     Met-Ed ceased deferred energy  accounting as its ECR was combined with base
rates in 1997. Cost variances are not subject to deferred accounting, except for
above-market  NUG  costs,  which  are  deferred  in  accordance  with the  PaPUC
Restructuring Order. The decrease for the three month period is primarily due to
lower fuel costs and decreased  power purchases and the deferral of above-market
NUG costs.

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

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

Preferred stock dividends and loss on preferred stock reacquisition 

      In  January  1999,  Met-Ed  redeemed  all of  its  outstanding  shares  of
cumulative  preferred stock. As a result,  a reacquisition  loss of $0.5 million
was recorded.

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

        Penelec's earnings for the first quarter ended March 31, 1999 were $64.6
million,  compared to 1998 first quarter earnings of $26.5 million. The increase
in earnings was due  primarily to the  recognition  of a  non-recurring  gain of
$27.8 million after-tax, for the portion of the gain on the sale of its interest
in Homer  City  related  to  wholesale  operations.  Also,  contributing  to the
increase in earnings  was higher  weather-related  sales  compared to last year,
lower  fuel  and  power  purchase  costs  and a  decrease  in  depreciation  and
amortization expense.

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

      Operating  revenues for the first quarter of 1999 decreased 6.6% to $246.2
million, as compared to the first quarter of 1998. The components of the changes
are as follows:



                                       53


<PAGE>


PENELEC RESULTS OF OPERATIONS (continued)

OPERATING REVENUES:
                                               (in millions)  
                                               -------------  


   KWH revenues                                     $(26.7)
   CTC revenues                                        8.7
   Other revenues                                      0.6
                                                    -------
        Decrease in revenues                        $(17.4)
                                                    ====== 

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

     The decrease in KWH  revenues for the three month period was due  primarily
to a  decrease  in NUG  revenues  (which  did not have a  significant  impact on
earnings);  lower  generation-related  related revenues due to some PA customers
choosing another supplier;  partially offset by higher weather-related sales due
to colder winter  temperatures  this year compared to last,  increased  usage by
residential customers and increased sales to other utilities.

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

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

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

      The  increase  in  other  revenues  for the  three  month  period  was due
primarily to increased  transmission  revenues as a result of customer  shopping
from Pennsylvania deregulation.

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

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

     Penelec ceased deferred energy accounting as its ECR was combined with base
rates in 1997. Cost variances are not subject to deferred accounting, except for
above-market  NUG  costs,  which  are  deferred  in  accordance  with the  PaPUC
Restructuring Order. The decrease for the three month period is primarily due to
lower fuel costs and decreased  power purchases and the deferral of above-market
NUG costs.

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

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

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

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

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


                                       54


<PAGE>


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


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

        In January  1999,  Penelec  redeemed  all of its  outstanding  shares of
cumulative  preferred stock. As a result,  a reacquisition  loss of $0.7 million
was recorded.

                         GPU ELECTRIC AND THE GPUI GROUP
                         -------------------------------

      GPU Electric has  ownership  interests in  transmission  and  distribution
businesses in England,  Australia and Argentina. GPU Electric also has ownership
interests in six  operating  generating  facilities  through its  investment  in
Midlands  Electricity plc (Midlands) located in foreign countries totaling 3,213
megawatts (MW) (of which GPU Electric's  equity  interest  represents 397 MW) of
capacity.

      In March 1999,  GPU  Electric  acquired  Empresa  Distribuidora  Electrica
Regional,  S.A.  (Emdersa)  for  $433  million.   Emdersa  owns  three  electric
distribution  companies that serve three provinces in northwest  Argentina.  The
acquisition was financed through the issuance of commercial paper by GPU Capital
and a $50 million  contribution from GPU, Inc. The acquisition will be accounted
for under the purchase method of accounting. The total acquisition cost exceeded
the  preliminary  estimated  value of net assets by $268  million.  This  excess
amount  will be  amortized  on a  straight-line  basis over 40 years and will be
revised within twelve months when the final valuation of net assets is completed
but is not expected to be materially different.

      In 1998,  Midlands  announced the sale of its electric  supply business to
National  Power plc. GPU and Cinergy Corp.  jointly  acquired  Midlands in 1996.
National  Power will  acquire all the assets of  Midlands'  supply  business and
assume its liabilities, including obligations under all Midlands' power purchase
agreements,  for $300 million  ($150 million for GPU's share) plus an adjustment
for  working  capital at  financial  closing,  which is  expected  in the second
quarter of 1999.  Midlands will continue to own its  distribution  business,  as
well as interests in various generation stations.

      The GPUI Group has  ownership  interests  in nine  operating  cogeneration
plants in the U.S.  totaling 1,147 MW (of which the GPUI Group's equity interest
represents 498 MW) of capacity and four operating generating  facilities located
in  foreign  countries  totaling  1,107 MW (of  which  the GPUI  Group's  equity
interest represents 363 MW) of capacity.

      At March 31, 1999,  GPU, Inc.'s  aggregate  investment in GPU Electric and
the GPUI Group was $398 million and $242  million,  respectively.  GPU, Inc. has
also  guaranteed  up to an  additional  $1.07  billion  and $33  million  of GPU
Electric and GPUI Group obligations,  respectively. GPU, Inc. has Securities and
Exchange  Commission  (SEC)  authorization  to  finance  investments  in foreign
utility  companies  (FUCOs)  and  exempt  wholesale  generators  (EWGs) up to an
aggregate amount equal to 100% of GPU's average consolidated  retained earnings,
or approximately $2.2 billion as of March 31, 1999. At March 31, 1999, GPU, Inc.
has remaining  authorization to finance approximately $622 million of additional
investments  in FUCOs and EWGs.  GPU's  retained  earnings  could be  reduced by
write-offs  resulting  from  any  unfavorable   regulatory  actions  on  JCP&L's
restructuring plans in New Jersey. Such reductions would

                                       55


<PAGE>


reduce the amount of available authorization for investments in FUCOs and EWGs.

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


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

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

GPU Energy Companies

      The GPU Energy  companies'  capital  spending  for the three  months ended
March 31, 1999 was $60 million (JCP&L $28 million;  Met-Ed $15 million;  Penelec
$16  million;  Other  $1  million),  and was  used  primarily  for new  customer
connections and to expand and improve existing T&D facilities. For 1999, capital
expenditures  for the GPU Energy  companies  are  estimated  to be $397  million
(JCP&L  $183  million;  Met-Ed  $97  million;  Penelec  $98  million;  Other $19
million),  primarily  for ongoing T&D system  development  and to  implement  an
integrated  information  system.   Expenditures  for  maturing  obligations  are
expected to total $83 million (JCP&L $3 million; Met-Ed $30 million; Penelec $50
million) in 1999.  Management  estimates  that a substantial  portion of the GPU
Energy  companies'  1999 capital  outlays will be satisfied  through  internally
generated funds.

GPU Electric and the GPUI Group

      GPU Electric and the GPUI  Group's  capital  spending for the three months
ended March 31, 1999 was $380 million and $17 million, respectively and was used
primarily for the acquisition of Emdersa,  to improve PowerNet's  facilities and
construction  activities at GPUI Group's South  American  investment.  For 1999,
capital  expenditures  are  forecasted  to  be  $19  million  for  GPU  Electric
(excluding  the  Emdersa  acquisition)  and  $20  million  for the  GPUI  Group.
Expenditures  for  maturing  obligations  in 1999 for GPU  Electric and the GPUI
Group  are  expected  to  total  $453  million  and $28  million,  respectively.
Management  estimates  that GPU  Electric's  and the GPUI  Group's  1999 capital
outlays will be satisfied  through both internally  generated funds and external
financings.

Financing 
--------- 

GPU, Inc.

     In January 1999, the GPU, Inc. Board of Directors authorized the repurchase
of up to $350 million of GPU, Inc.  common stock.  Through April 30, 1999,  GPU,
Inc. has  repurchased  2.3 million shares of common stock at an average price of
$39.12 per share.

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

                                       56


<PAGE>


     GPU Capital has entered into a $1 billion 364-day senior  revolving  credit
facility to support the issuance of commercial paper. GPU Capital is the largest
of three issuers ($1 billion) in the $1.45 billion commercial paper program. The
other  issuers are GPU Australia  Holdings,  Inc.  ($350  million) and GPU, Inc.
which has requested SEC authorization to issue and sell up to $100 million under
this  program.  GPU Capital,  along with GPU  Australia  Holdings,  will use the
proceeds  from the sale of  commercial  paper to finance up to $1.35  billion of
investments  in FUCOs and EWGs.  Facility fees range from .085% to .4% depending
on GPU's senior debt rating and are payable  quarterly.  A separate $360 million
credit facility serves as the backstop for the GPU Australia Holdings commercial
paper program.

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

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

      GPU,  Inc. has requested  SEC  authorization  to issue and sell up to $100
million of commercial paper through December 2003. The proceeds from the sale of
the commercial  paper would be used for general  corporate  purposes and to make
additional  investments  in EWGs and FUCOs.  GPU,  Inc.  also has  received  SEC
approval to issue and sell up to $300  million of unsecured  debentures  through
2001. Further significant  investments by GPU Electric and or the GPUI Group, or
otherwise, may require GPU, Inc. to issue additional debt and/or common stock.

GPU Energy Companies

      Met-Ed and Penelec have obtained  regulatory approval through December 31,
2000 to issue senior notes and preferred securities in aggregate amounts of $250
million and $725  million,  respectively,  of which up to $125  million for each
company may consist of preferred securities. JCP&L is seeking similar regulatory
approval  through  December  31,  2000  to  issue  senior  notes  and  preferred
securities in the aggregate amount of $300 million,  of which up to $200 million
may consist of preferred  securities.  Met-Ed and JCP&L will be issuing  secured
senior notes  (collateralized  by First Mortgage Bonds issued to the senior note
trustee) until such time as more than 80% of the issued First Mortgage Bonds are
held by the senior note trustee. At that time, the outstanding senior notes will
become unsecured  obligations of the respective  company and it is expected that
further  senior  notes  issued by Met-Ed and JCP&L will be  unsecured.  As noted
below, in April 1999, Penelec issued $350 million of unsecured senior notes. All
further senior notes issued by Penelec are expected to be on a unsecured basis.

      Current plans call for the GPU Energy  companies to issue senior notes and
preferred  securities  during the next  three  years to fund the  redemption  of
maturing senior securities,  refinance outstanding senior securities and finance
construction activities. Following the initial issuance of senior notes, the GPU
Energy  companies  would not issue any additional  FMBs other than as collateral
for the senior notes. The senior notes will provide that, when

                                       57


<PAGE>


the note  trustee  holds  80% or more of all  FMBs,  the  FMBs  held by the note
trustee  will be  cancelled  and all future  senior  notes would be issued on an
unsecured  basis.  The senior note indentures will prohibit  (subject to certain
exceptions)  the GPU Energy  companies  from issuing any debt which is senior to
the senior notes.

      JCP&L and Penelec also have authorization to issue FMBs, including secured
medium-term  notes,  and preferred  stock through June 1999 although,  Penelec's
senior  note  indenture  prohibits  it from  issuing  FMB's  under its  existing
mortgage  indenture.   Met-Ed  has  similar  authority  through  December  1999.
Aggregate  amounts  available for issuance  under the JCP&L,  Met-Ed and Penelec
programs are $145 million, $190 million and $70 million,  respectively, of which
$100  million  for JCP&L and Met-Ed and $70  million  for Penelec may consist of
preferred stock. The GPU Energy  companies do not,  however,  expect to sell any
additional  senior  securities under these existing  authorizations,  but rather
expect to issue senior notes and preferred securities.

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

     Met-Ed and Penelec redeemed all of their  outstanding  shares of cumulative
preferred  stock on  February  19,  1999 at a price of $12.6  million  and $17.6
million for Met-Ed and Penelec,  respectively. As a result, a reacquisition loss
of $1.2  million was charged to GPU's net income  ($0.5  million and $0.7
million for Met-Ed and Penelec, respectively).

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


GPU Electric

      In January 1999, GPU Capital issued  commercial  paper for net proceeds of
$375 million which was used primarily to refinance Midlands acquisition debt. In
March 1999, GPU Capital issued  additional  commercial paper for net proceeds of
$375 million to fund a portion of the $433 million acquisition cost for Emdersa.
Also in 1998, Austran Holdings, Inc. (Austran), a wholly owned subsidiary of GPU
Electric,  entered  into a  A$500  million  (approximately  U.S.  $306  million)
commercial paper program.  PowerNet has guaranteed  Austran's  obligations under
this program. As of March 31, 1999, Austran had outstanding  approximately A$443
million  (approximately  U.S. $281 million) under the commercial  paper program,
the proceeds  from which will be used to refinance  the maturing  portion of the
senior  debt  credit  facility  used to finance the  PowerNet  acquisition.  The
Austran borrowings are classified as

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<PAGE>


noncurrent on the Consolidated  Balance Sheet since it is management's intent to
reissue the commercial paper on a long-term basis.

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

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

      On April 1, 1999, the GPU Board of Directors  declared a quarterly  common
stock dividend of $0.53 per share, an increase of 3%.

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

      GPU is  addressing  the Year 2000  issue by  undertaking  a  comprehensive
review of its computers,  software and equipment  with embedded  systems such as
microcontrollers  (together,  "Year  2000  Components"),  and  of  its  business
relationships  with third  parties,  including key customers,  lenders,  trading
partners,  vendors,  suppliers  and  service  providers.  Remediation  plans and
corrective actions are well underway. The remediation plans include, among other
things,  the  modification or replacement of Year 2000 Components  which are not
ready for use beyond 1999.  In addition,  GPU has made  significant  progress in
developing  contingency  plans for  mission-critical  systems.  GPU's  Year 2000
project is not expected to cause any material  delay in the  completion of other
planned projects by information technology services.

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

Regulatory Compliance for Year 2000 Readiness

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

      In August 1998, the New Jersey Board of Public  Utilities  (NJBPU) ordered
all  jurisdictional  utilities to submit monthly  progress  reports to the NJBPU
detailing the status of the utilities'  compliance efforts for  mission-critical
systems.  Accordingly,  since October 1998 monthly  reports have been filed with
the NJBPU detailing the Year 2000 readiness status of JCP&L's mission-critical

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<PAGE>


assets. In addition,  the NJBPU ordered all  jurisdictional  utilities to submit
Year 2000 contingency  plans,  which JCP&L expects to file with the NJBPU by the
end of June 1999. These  contingency  plans will be based on the expansive scope
of  reporting  as described in the  guidelines  of the North  American  Electric
Reliability Council (NERC).

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

Costs

      The  GPU  Energy  companies   currently  estimate  that  they  will  spend
approximately $43.1 million (JCP&L $18.5 million; Met-Ed $12.1 million;  Penelec
$12.5  million) on the Year 2000 issue,  which includes $8.1 million (JCP&L $2.7
million;  Met-Ed $2.7  million;  Penelec $2.7  million) that is being spent as a
part of the purchase and  implementation of a new integrated  information system
(Project  Enterprise),  as described below. The $43.1 million also includes $7.4
million  (JCP&L $3.4 million;  Met-Ed $1.9  million;  Penelec $2.1 million) that
would  have been spent in any event for  maintenance  and  cyclical  replacement
plans.  Approximately  48% of the expected  costs  involve the  modification  or
replacement of Year 2000 Components;  and 52% are for labor (including  contract
labor)  and  contingencies.  These  costs  are being  funded  by the GPU  Energy
companies from their operations.

      Through  March 31, 1999,  the GPU Energy  companies  have spent a total of
approximately $27.7 million (JCP&L $11.9 million;  Met-Ed $7.8 million;  Penelec
$8 million) (of the $43.1  million) in connection  with the Year 2000 issue,  of
which $7 million (JCP&L $3.1 million;  Met-Ed $1.9 million;  Penelec $2 million)
has been spent in 1999.

      GPU  Electric  and the GPUI  Group  currently  expect  to spend a total of
approximately  $8.6  million (to  replace or modify  equipment  at Midlands  and
PowerNet)  and $0.8  million,  respectively,  to  address  the Year 2000  issue.
Through  March 31,  1999,  GPU Electric and the GPUI Group have spent a total of
approximately  $3.7 million and $0.5 million,  respectively,  in connection with
the Year 2000 issue, of which $1.5 million and $0.1 million for GPU Electric and
the GPUI Group, respectively, has been spent in 1999.

      The Project Enterprise  system,  referenced above, is designed to help the
GPU Energy  companies  manage  business growth and meet the mandates of electric
utility  deregulation.  The system is scheduled to be substantially  operational
for the GPU Energy  companies  and GPUS by June 1999 and fully  operational  for
these  companies by September  1999.  GPUN and Genco are not installing  Project
Enterprise  before the year 2000, but rather are making  modifications  to their
information  systems  to  achieve  Year  2000  readiness.  Genco  has  completed
modification of its critical information systems and GPUN plans to complete such
modification by July 1, 1999.

Milestones

      GPU  has  established  Inventory,  Assessment,  Remediation,  Testing  and
Monitoring of Year 2000 Components as the primary phases for its Year 2000
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<PAGE>


program.  The Inventory of Year 2000  Components was completed for all companies
in 1998. The milestones for Assessment,  Remediation, Testing and Monitoring are
as follows:

                      Assessment     Remediation     Testing     Monitoring
                      ----------     -----------     -------     ----------
GPU Energy and GPUS   Completed      05/31/1999    05/31/1999    03/31/2000
Genco                 Completed      05/31/1999    05/31/1999    05/31/2000
GPUN                  Completed      10/31/1999    10/31/1999    03/31/2000
GPU Electric          Completed      06/30/1999    06/30/1999    03/31/2000
GPUI Group            Completed      05/31/1999    05/31/1999    03/31/2000

      Remediation  and testing of Met-Ed and  Penelec's  PaPUC  mission-critical
Year 2000  Components is essentially  complete,  except as noted below.  JCP&L's
mission-critical  Year  2000  Components  are  being  remediated  and  tested in
accordance with NERC's readiness dates. In March 1999, testing of the GPU Energy
companies'  electrical  infrastructure  was  successfully  completed  and,  as a
result, the electrical  delivery system is now considered to be Year 2000 ready.
Also, in April 1999 the GPU Energy companies (and Genco)  participated in a NERC
exercise  which  simulated a partial loss of voice and data  communications  and
conducted several internal tests in conjunction with the drill. These tests were
performed with favorable results.

      Genco has completed modification and testing of mission-critical Year 2000
Components   associated  with  its  generation  capacity.   GPUN  has  completed
modification and testing of approximately 95% of its mission-critical  Year 2000
Components.  Modification  and testing of TMI-1's Digital Turbine Control System
is scheduled for completion during the plant's refueling outage in September and
October 1999.

Third Party Qualification

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

      With respect to computer software and equipment with embedded systems, GPU
has  analyzed  where it is  dependent  upon third party data and has  identified
several  critical  areas:  (1)  the   Pennsylvania-New   Jersey-Maryland   (PJM)
Interconnection;   (2)  electric  generation  suppliers,  such  as  cogeneration
operators and nonutility  generators  (NUGs);  (3) Electronic  Data  Interchange
(EDI) with trading partners;  (4) Electronic Funds Transfer (EFT) with financial
institutions; (5) vendors; and (6) customers.

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

- PJM - Data link testing with PJM has been completed with favorable results.

-    Electric  generation  suppliers - GPU has contacted and received  responses
     from all critical electric generation suppliers concerning their readiness.
     Those  responses have indicated  readiness dates that extend into September
     1999.
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<PAGE>


-    EDI/EFT  -  GPU  has  sent   readiness   questionnaires   to  all  critical
     organizations  with which it  exchanges  data  electronically  and conducts
     electronic funds transfers.  GPU has received  responses from approximately
     90% of those contacted. Testing with GPU's primary EFT partner is scheduled
     for completion by May 31, 1999.

-    Vendors - All critical vendors have responded as to their readiness through
     a supply  chain  survey.  Those  vendors  that have  provided  insufficient
     information  will be further  evaluated to determine the potential need for
     employing contingency plans.

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

Scenarios and Contingencies

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

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


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

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

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

     GPU  expects  to  be  in  a  regulated   business  (the   transmission  and
distribution of electricity). In the future, GPU's ability to seek rate

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<PAGE>



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

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

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

      In 1997, GPU announced its intention to begin a process to sell, through a
competitive  bid  process,  up to  all  of  the  fossil-fuel  and  hydroelectric
generating facilities owned by the GPU Energy companies.

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

      In  November  1998,  the GPU  Energy  companies  entered  into  definitive
agreements  with Sithe  Energies and  FirstEnergy  Corporation to sell all their
remaining fossil-fuel and hydroelectric generating facilities other than JCP&L's
50%  interest in the Yards Creek Pumped  Storage  Facility  (Yards  Creek) for a
total purchase price of approximately  $1.7 billion (JCP&L $442 million;  Met-Ed
$677 million; Penelec $604 million).  Penelec's 20% undivided ownership interest
in the Seneca Pumped Storage Facility  (Seneca) is being sold to FirstEnergy for
$43  million,  which is included in this  amount.  The sales are  expected to be
completed by mid-1999, subject to the timely receipt of the necessary regulatory
and other  approvals.  Sithe has  agreed to  assume  the  collective  bargaining
agreements  covering  union  employees and to fill  bargaining  positions on the
basis of  seniority.  Sithe has also agreed to use  reasonable  efforts to offer
positions  to Genco  non-bargaining  employees.  The GPU Energy  companies  have
agreed to assume up to $20 million (JCP&L $7 million; Met-Ed $9 million; Penelec
$4 million) of employee severance costs for employees not hired by Sithe.

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

      -    The total cash purchase price is  approximately  $100 million,  which
           represents $23 million to be paid at closing, and $77 million for the

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<PAGE>



           nuclear  fuel  in  the  reactor  to be  paid  in  five  equal  annual
           installments beginning one year after the closing. The purchase price
           and closing  payment are subject to certain  adjustments  for capital
           expenditures and other items.

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

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

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

      -    GPU will  continue  to own and hold the license for Three Mile Island
           Unit 2 (TMI-2). No liability for TMI-2 or its decommissioning will be
           assumed by  AmerGen.  AmerGen  will,  however,  maintain  TMI-2 under
           contract with GPU.

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

      The sale is  subject  to  various  conditions,  including  the  receipt of
satisfactory federal and state regulatory approvals,  as well as certain rulings
from the Internal  Revenue  Service which will be necessary  with respect to the
maintenance or transfer of the  decommissioning  trusts.  In April 1999, the NRC
approved the transfer of the TMI-1  license to AmerGen.  GPU expects to complete
the sale by the end of 1999.  There can be no  assurance  as to the  outcome  of
these matters.

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

      In addition to the  continued  operation of Oyster  Creek,  JCP&L has been
exploring the sale or early retirement of the plant to mitigate costs associated
with its continued operation. GPU does not anticipate making a final decision on
the plant before the NJBPU rules on JCP&L's restructuring filing.

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

New Jersey Restructuring

     On April 14, 1999,  JCP&L entered into a settlement  agreement with several
parties to its stranded cost and rate unbundling proceedings pending before


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<PAGE>


the  NJBPU.  The  settlement  agreement,  which is  subject  to NJBPU  approval,
provides, among other things, for a 5% rate reduction commencing August 1, 1999,
a 5% rate  refund  from April 30,  1997 rates for  service  rendered on or after
August 1, 2002, and for average customer shopping credits beginning at 4.9 cents
per kilowatt  hour and  increasing  to 5.16 cents per kilowatt  hour in 2003 for
customers who choose an alternate supplier. The settlement agreement also allows
for the application of the net proceeds from JCP&L's  generation  asset sales to
reduce stranded  costs,  the  securitization  of  approximately  $525 million of
stranded costs associated with the Oyster Creek nuclear generating station,  and
adequate  assurance  (through a deferral and true-up mechanism) of full recovery
of above-market  costs  associated  with JCP&L's  obligations  under  nonutility
generation, utility and transition power purchase agreements.

      If approved by the NJBPU,  the  settlement  agreement  would  result in an
approximately  $195 million reduction in GPU's 1999 pre-tax  earnings,  or about
$0.90 per share  (after-tax).  The NJBPU is  expected  to act on the  settlement
agreement  in May 1999.  There can be no  assurance  as to the  outcome  of this
matter.

      Evidentiary  hearings  before  the  NJBPU  with  respect  to the  separate
restructuring filings were held jointly with the other New Jersey utilities, and
briefing  has been  completed.  The NJBPU has  stated  that it  intends to issue
generic  implementation orders with respect to the restructuring filings for all
New Jersey utilities during the second quarter of 1999.

      In January 1999, New Jersey enacted  legislation to deregulate the state's
electricity market. The legislation  generally provides for, among other things,
the following:

      -    Customer choice of electric generation supplier for all consumers
           beginning no later than August 1, 1999;

      -    A 5% rate reduction for all customers  beginning August 1, 1999, with
           another 5% rate  reduction to be phased in over the next three years.
           The rate  reduction  must be maintained for one year after the end of
           the three year phase-in;

      -    the aggregation of electric generation service by a government or
           private aggregator;

      -    the unbundling of customer bills;

      -    the ability to recover stranded costs; and

      -    the ability to securitize stranded costs.

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

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

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<PAGE>


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

      -    A rate reduction from January 1, 1999 through  December 31, 1999, for
           all  customers,  whether  they choose an  alternate  supplier or not,
           reflecting  Met-Ed  and  Penelec's  obligation  to  make  refunds  to
           customers  from 1998 revenues  (2.5% for Met-Ed  customers and 3% for
           Penelec customers from December 1996 levels);

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

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

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

      -    A rate cap for the cost of delivering  electricity  (transmission
           and distribution) until 2004;

      -    A rate cap for electricity purchased from Met-Ed and Penelec, as 
           providers of  last resort, until 2010;

      -    PaPUC approval for Met-Ed and Penelec to sell all of their generating
           stations, including Three Mile Island Unit 1 (TMI-1);

      -    Recovery of $658  million in stranded  costs for Met-Ed over 12 years
           and $332  million  for  Penelec  over 11 years,  primarily  for NUGs.
           Future NUG  operating  costs for which rate recovery has been assured
           may be adjusted  every five years over the life of each NUG contract.
           (These  amounts  reflect  the  effects  of using  the  estimated  net
           proceeds  from  selling  Met-Ed and  Penelec's  generating  plants to
           reduce  stranded  costs and will be adjusted based on actual net sale
           proceeds);

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

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

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


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<PAGE>


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

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

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

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

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

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

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

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

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

        Pursuant to the mandates of PURPA and state regulatory  directives,  the
GPU Energy companies have been required to enter into power purchase  agreements
with NUGs for the purchase of energy and capacity for remaining periods of up to
22 years. Although a few of these facilities are dispatchable, most are must-run
and  generally  obligate the GPU Energy  companies to purchase,  at the contract
price,  the output up to the contract limits.  As of March 31, 1999,  facilities
covered  by these  agreements  having  1,681 MW (JCP&L  928 MW;  Met-Ed  348 MW;
Penelec 405 MW) of capacity were in service.

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<PAGE>


        The 1998 PaPUC  Restructuring  Orders and the  legislation in New Jersey
provide for full recovery of the above-market  costs of NUG agreements.  The GPU
Energy companies will continue efforts to reduce the above-market costs of these
agreements and will, where beneficial,  attempt to renegotiate the prices of the
agreements, offer contract buyouts and attempt to convert must-run agreements to
dispatchable  agreements.  There can be no  assurance  as to the extent to which
these  efforts  will be  successful.  (See  the  Competition  and  the  Changing
Regulatory  Environment section of Note 1 of the Notes to Consolidated Financial
Statements.)

        The  GPU  Energy  companies  intend  to  avoid,  to the  maximum  extent
practicable,  entering  into any new NUG  agreements  that are not needed or not
consistent  with  current  market  pricing and  continue to support  legislative
efforts to repeal PURPA.

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

      Under  traditional  retail  regulation,  supply  planning in the  electric
utility  industry is directly  related to projected  sales growth in a utility's
franchise service territory.  In light of retail access  legislation  enacted in
Pennsylvania and New Jersey, the extent to which competition will affect the GPU
Energy  companies'  supply plan remains  uncertain.  As the GPU Energy companies
prepare to operate in a competitive environment,  their supply planning strategy
will focus on providing  for the needs of existing  retail  customers who do not
choose a competitive supplier and continue to receive energy supplied by the GPU
Energy  companies  and  whom  the  GPU  Energy  companies  continue  to  have an
obligation to serve.

      After the sale of the GPU Energy companies' generating facilities has been
completed, GPU will have 819 MW of capacity and related energy from Oyster Creek
and Yards Creek  remaining to meet customer  needs (see the Oyster Creek section
of NUCLEAR  FACILITIES for a discussion of the possible sale or early retirement
of  Oyster  Creek).  The GPU  Energy  companies  also  have  contracts  with NUG
facilities  totaling 1,681 MW and JCP&L has agreements  with other  utilities to
provide  for up to  629 MW of  capacity  and  related  energy.  The  GPU  Energy
companies  have agreed to  purchase  all of the  capacity  and energy from TMI-1
through December 31, 2001. In addition,  the GPU Energy companies have the right
to call the  capacity of the Homer City  station  (942 MW) for two years and the
capacity of the  generating  stations  sold to Sithe (4,117 MW) for three years,
from the dates of sale. The GPU Energy companies'  remaining capacity and energy
needs will focus on short- to intermediate-term  commitments (one month to three
years) during  periods of expected high energy price  volatility and reliance on
spot market  purchases  during other  periods.  Management  is in the process of
identifying and addressing the GPU Energy  companies' future capacity and energy
needs, and the impact of customer shopping and changes in demand.

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

      Under the PaPUC  Restructuring  Orders,  Met-Ed and Penelec  customers may
shop for their generation  supplier  beginning January 1, 1999. A PaPUC approved
competitive  bid process will assign  provider of last resort (PLR)  service for
20% of Met-Ed and  Penelec's  retail  customers on June 1, 2000,  40% on June 1,
2001,  60% on June 1, 2002,  and 80% on June 1,  2003,  to  licensed  generation
suppliers referred to as Competitive Default Service (CDS). If no qualified bids
for CDS are received at or below their generation rate caps,

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<PAGE>



Met-Ed and Penelec  will  continue to provide PLR service at the rate cap levels
until 2010 unless modified by the PaPUC.  Any retail  customers  assigned to CDS
may return to Met-Ed and  Penelec as the default  PLR at no  additional  charge.
Met-Ed and Penelec may meet any remaining PLR  obligation at rates not less than
the lowest rate charged by the winning CDS  provider,  but no higher than Met-Ed
and  Penelec's  rate cap. The  restructuring  legislation  enacted in New Jersey
requires  that  JCP&L  be the PLR for at least  three  years  starting  with the
implementation  of  customer  choice on August 1,  1999.  JCP&L is  entitled  to
recover  reasonable  and prudently  incurred  costs for PLR service.  Within the
three-year  period,  the  NJBPU is to  determine  whether  to make  PLR  service
available on a competitive basis.


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

        Statement of Financial Accounting Standards No. 71 (FAS 71), "Accounting
for the Effects of Certain Types of Regulation,"  applies to regulated utilities
that have the  ability to recover  their  costs  through  rates  established  by
regulators and charged to customers.  In response to the continuing deregulation
of  the  electric  utility  industry,  the  SEC  has  questioned  the  continued
applicability  of FAS 71 by  investor-owned  utilities  with  respect  to  their
electric  generation  operations.  In response to these concerns,  the Financial
Accounting Standards Board's (FASB) Emerging Issues Task Force (EITF Issue 97-4)
concluded in June 1997 that  utilities are no longer  subject to FAS 71, for the
relevant  portion of their business,  when they know details of their individual
transition plans to a competitive electric generation marketplace. The EITF also
concluded that  utilities can continue to carry  previously  recorded  regulated
assets,  as well as any newly  established  regulated  assets  (including  those
related to generation),  on their balance sheets if regulators have guaranteed a
regulated cash flow stream to recover the cost of these assets.

        The  Met-Ed  and  Penelec   Restructuring   Orders   received  in  1998,
essentially  deregulated the electric generation portion of Met-Ed and Penelec's
businesses. Accordingly, in 1998 Met-Ed and Penelec discontinued the application
of FAS 71 and  adopted the  provisions  of  Statement  of  Financial  Accounting
Standards  No.  101  (FAS  101),  "Regulated   Enterprises  Accounting  for  the
Discontinuation  of  Application  of FASB  Statement No. 71" and EITF Issue 97-4
with respect to their  electric  generation  operations.  The  transmission  and
distribution  portion of Met-Ed and Penelec's  operations continue to be subject
to the provisions of FAS 71. JCP&L expects to discontinue the application of FAS
71 and adopt FAS 101 and EITF Issue 97-4 for its electric generation  operations
no later than its receipt of NJBPU approval of its restructuring plans, which is
expected in the second quarter of 1999.

        In 1998, the Financial  Accounting  Standards Board issued  Statement of
Financial  Accounting  Standards No. 133 (FAS 133),  "Accounting  for Derivative
Instruments  and  Hedging  Activities".   FAS  133  establishes  accounting  and
reporting  standards for derivative  instruments,  including certain  derivative
instruments  embedded in other contracts,  and for hedging  activities.  FAS 133
requires  that  companies   recognize  all   derivatives  as  either  assets  or
liabilities  on the balance sheet and measure those  instruments  at fair value.
GPU will be required to include its derivative transactions on its balance sheet
at fair value,  and  recognize  the  subsequent  changes in fair value as either
gains or losses in earnings or report them as a component of other


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<PAGE>



comprehensive  income,  depending  upon the intended use and  designation of the
derivative as a hedge.  FAS 133 is effective  for all fiscal  quarters of fiscal
years beginning after June 15, 1999. GPU will adopt FAS 133 in the first quarter
of 2000 and is in the process of evaluating the impact of this statement.



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<PAGE>



                                           PART II

ITEM 1 -       LEGAL PROCEEDINGS

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


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

               (a) Exhibits

                    (3)    Restated Articles of Incorporation
                           A - Met-Ed
                           B - Penelec


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

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

                    (27)     Financial Data Schedules

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

               (b) Reports on Form 8-K:

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

                      Dated April 16, 1999, under Item 5 (Other Events).

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

                      Dated April 16, 1999, under Item 5 (Other Events).

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

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





                                              71


<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.



May 5, 1999                By:    /s/ B. L. Levy                   
                                 ----------------------------------
                                 B. L. Levy, Senior Vice President
                                 (Chief Financial Officer)



May 5, 1999                By:    /s/ P. E. Maricondo             
                                 ---------------------------------
                                 P. E. Maricondo, Vice President
                                 and Comptroller
                                 (Chief Accounting Officer)



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



May 5, 1999                By:    /s/ D. Baldassari                  
                                 ---------------------------------
                                 D. Baldassari, President
                                 Principal Operating Officer)


May 5, 1999                By:    /s/ C. A. Mascari                
                                 -----------------------------------
                                 C. A.Mascari, Vice President - 
                                 Power Services  and Comptroller
                                 (Principal Accounting Officer)




                                              72