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


(Mark One)

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

For the quarterly period ended June 30, 2001
                               --------------

                                       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) 401-8200

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  registrant's  classes of
voting stock, as of July 31, 2001, was as follows:
                                                                     Shares
Registrant                           Title                         Outstanding
-----------------------------------  ----------------------------- -----------
GPU, Inc.                            Common Stock, $2.50 par value 119,539,559
Jersey Central Power & Light Company Common Stock, $10 par value    15,371,270
Metropolitan Edison Company          Common Stock, no par value        859,500
Pennsylvania Electric Company        Common Stock, $20 par value     5,290,596


<PAGE>






                       GPU, Inc. and Subsidiary Companies
                          Quarterly Report on Form 10-Q
                                  June 30, 2001


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

                                                                          Page
PART I - Financial Information                                            ----

      Combined Management's Discussion and Analysis
        of Financial Condition and Results of
        Operations                                                         1

      Consolidated Financial Statements:

          GPU, Inc.
          ---------
            Balance Sheets                                                26
            Statements of Income                                          28
            Statements of Cash Flows                                      29

          Jersey Central Power & Light Company
          ------------------------------------
            Balance Sheets                                                30
            Statements of Income                                          32
            Statements of Cash Flows                                      33

          Metropolitan Edison Company
          ---------------------------
            Balance Sheets                                                34
            Statements of Income                                          36
            Statements of Cash Flows                                      37

          Pennsylvania Electric Company
          -----------------------------
            Balance Sheets                                                38
            Statements of Income                                          40
            Statements of Cash Flows                                      41

      Combined Notes to Consolidated Financial Statements                 42

PART II - Other Information                                               67

Signatures                                                                68





      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 2000
Annual  Report  on Form  10-K,  filed  by the  individual  registrants  with the
Securities and Exchange Commission and should be read in conjunction therewith.


<PAGE>


                           SAFE HARBOR STATEMENT UNDER
              THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995


      In connection  with the safe harbor  provisions of the Private  Securities
Litigation  Reform Act of 1995, GPU, Inc., Jersey Central Power & Light Company,
Metropolitan   Edison  Company  and  Pennsylvania   Electric  Company  (the  GPU
registrants)  are hereby  filing  cautionary  statements  identifying  important
factors that could cause their actual  results to differ  materially  from those
projected in forward-looking  statements (as that term is defined in the Private
Securities  Litigation  Reform  Act of  1995)  made by or on  behalf  of the GPU
registrants  which are made in this Form 10-Q. Any statements  that express,  or
involve discussions as to, expectations, beliefs, plans, objectives, assumptions
or future events or performance (often, but not always, through the use of words
or phrases such as "anticipates," "believes," "estimates," "expects," "intends,"
"plans,"  "projects,"  "will  likely,"  "result,"  "will  continue"  or  similar
expressions) are not statements of historical facts and may be forward-looking.

      Forward-looking    statements   involve    estimates,    assumptions   and
uncertainties  and are  qualified  in their  entirety by  reference  to, and are
accompanied by, the following important factors, which are difficult to predict,
contain  uncertainties,  are beyond the control of the GPU  registrants  and may
cause  actual  results  to  differ  materially  from  those  contained  in those
forward-looking statements:

   -  the consummation of the proposed merger of GPU, Inc. with FirstEnergy
      Corp.;

   -  the effects of  regulatory  decisions,  including any  conditions  imposed
      relating to the proposed merger with FirstEnergy Corp.;

   -  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;

   -  energy prices and availability; and

   -  uncertainties  involved with foreign operations  including political risks
      and foreign currency fluctuations.

      Any  forward-looking  statement  speaks  only as of the date on which that
statement is made, and the GPU registrants undertake no obligation to update any
forward-looking  statement to reflect events or circumstances  after the date on
which that  statement  is made or to reflect  the  occurrence  of  unanticipated
events.  New  factors  emerge  from  time to  time  and it is not  possible  for
management to predict all of those factors, nor can it assess the impact of each
of those  factors  on the  business  or the  extent  to  which  any  factor,  or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statement.



<PAGE>
GPU, Inc. and Subsidiary Companies

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


      GPU, Inc. owns all the outstanding common stock of three domestic electric
utilities -- Jersey Central Power & Light Company (JCP&L),  Metropolitan  Edison
Company (Met-Ed) and Pennsylvania  Electric  Company  (Penelec).  These electric
utilities  are  conducting  business  under the name GPU Energy  and  considered
together are referred to as the "GPU Energy  companies."  GPU Capital,  Inc. and
GPU Electric,  Inc. and their subsidiaries own, operate and fund the acquisition
of electric distribution and gas transmission systems in foreign countries,  and
are referred to as "GPU  Electric." GPU  Electric's  foreign  utility  companies
include  Midlands  Electricity  plc  (conducting  business as GPU Power UK); GPU
Empresa  Distribuidora  Electrica Regional S.A.  (Emdersa);  and GPU GasNet. GPU
Power, Inc. and its subsidiaries (GPU Power) develop, own and operate generation
facilities in foreign  countries.  Other  subsidiaries of GPU, Inc.  include GPU
Advanced  Resources,  Inc. (GPU AR), which sells electric energy at retail;  GPU
Telcom    Services,     Inc.    (GPU    Telcom),    which    is    engaged    in
telecommunications-related  businesses; MYR Group Inc. (MYR), which is a utility
infrastructure  construction  services company; GPU Service,  Inc. (GPUS), which
provides legal,  accounting,  financial and other services to the GPU companies;
GPU  Diversified   Holdings  LLC,  which  makes  investments  in  energy-related
businesses;  and GPU Nuclear,  Inc.  (GPUN).  All of these companies  considered
together are referred to as "GPU."


                           GPU's RESULTS OF OPERATIONS
                           ---------------------------

EARNINGS PER SHARE CONTRIBUTION:
--------------------------------

(on a diluted basis)         Three Months Ended            Six Months Ended
                                  June 30,                     June 30,
                          -------------------------   ------------------------
                           2001     2000     Change     2001    2000    Change
                          ------   ------    ------    ------  ------   ------

Operations:
   GPU Energy companies   $ 0.56  $ 0.46   $ 0.10     $ 1.27   $ 1.25  $ 0.02
   GPU Electric             0.06    0.27    (0.21)      0.16     0.56   (0.40)
   GPU Power/GPUI (1)       0.02     -       0.02       0.04     0.03    0.01
   GPU AR                    -       -        -         0.01     0.01     -
   GPU Telcom                -     (0.01)    0.01        -      (0.01)   0.01
   MYR                      0.03    0.01     0.02       0.04     0.01    0.03
   GPU, Inc. (Corporate)   (0.05)  (0.04)   (0.01)     (0.15)   (0.08)  (0.07)
                           -----   -----    -----      -----    -----   -----
     Total operations       0.62    0.69    (0.07)      1.37     1.77   (0.40)
Non-recurring items:
   GPU Energy companies      -       -        -        (0.17)     -     (0.17)
   GPU Electric             0.10   (2.43)    2.53       0.10    (2.43)   2.53
                           -----   -----    -----      -----    -----   -----

     Total                $ 0.72  $(1.74)  $ 2.46     $ 1.30   $(0.66) $ 1.96
                           =====   =====    =====      =====    =====   =====

(1)  The 2000 results include GPU International, Inc. (GPUI), which was sold
     in December 2000.


      GPU's earnings before non-recurring items for the second quarter 2001 were
$75.1 million, or $0.62 per share,  compared with earnings before  non-recurring
items of $84.2  million,  or $0.69 per share,  for the same period in 2000.  The
lower 2001 second quarter earnings, on this basis, was primarily

                                        1


<PAGE>
GPU, Inc. and Subsidiary Companies

due to a reduction of GPU Electric earnings  resulting from: lower income earned
by GPU Power UK's independent power projects;  the absence from 2001 earnings of
GPU PowerNet income due to its sale in June 2000; the absence from 2001 earnings
of a second quarter 2000 gain related to gas supply contracts in the UK; and the
absence  from 2001  earnings of a 2000 tax benefit  affecting  GPU GasNet.  Also
contributing  to the lower  earnings  was the  Pennsylvania  energy  supply loss
reflecting  the fact that Met-Ed and Penelec had to purchase  electricity  under
their provider of last resort (PLR)  obligations at prices above the retail rate
caps at which they could resell it, as well as the effect of increasing  numbers
of  shopping  customers  returning  from  alternate   generation   suppliers  in
Pennsylvania.  On June 14, 2001,  the  Pennsylvania  Public  Utility  Commission
(PaPUC) issued an order that allows Met-Ed and Penelec to defer, for future rate
recovery from customers, energy costs in excess of their fixed generation tariff
rates starting June 1, 2001.  For  additional  information on the PaPUC's order,
see the Provider of Last Resort section of GPU Energy Supply Plan.

      Partially  offsetting the impact of these decreases was a gain recorded on
the sale of marketable securities by GPU, Inc. in the second quarter 2001.

      After  taking into  account  the 2001 and 2000  non-recurring  items,  GPU
recorded  earnings of $86.7 million,  or $0.72 per share,  in the second quarter
2001,  compared with a net loss of $210.8 million,  or $1.74 per share,  for the
same quarter in 2000. The second quarter 2001 earnings  include a  non-recurring
gain of $11.6 million  after-tax,  or $0.10 per share,  on the sale of GPU Power
UK's interest in the Humber  generating  station.  The comparable  2000 earnings
include a non-recurring loss of $295 million  after-tax,  or $2.43 per share, on
the sale of GPU  PowerNet  (during  the fourth  quarter  2000,  GPU  revised its
estimate of tax benefits associated with the GPU PowerNet sale, which ultimately
reduced the after-tax loss to $276.6 million, or $2.28 per share).

      For the six months  ended June 30,  2001,  earnings  before  non-recurring
items were $164.1 million, or $1.37 per share,  against $215.2 million, or $1.77
per share, for the first half of 2000. The same factors affecting the comparable
quarterly  results also affected the year to date comparison.  Also contributing
to the  decrease  for the first half of 2001 was lower  earnings at GPU Power UK
due to the reset of  electricity  delivery rates that took effect in April 2000,
partially  offset by higher  revenues  at GPU Energy  due to the  weather in the
first quarter 2001.

      After  taking into  account  the 2001 and 2000  non-recurring  items,  GPU
recorded  earnings  of $155.6  million,  or $1.30 per  share,  for the first six
months of 2001,  compared with a net loss of $79.8 million,  or $0.66 per share,
for the same period in 2000.  In addition  to the second  quarter  non-recurring
items  described  above,  the first-half  2001 earnings  include a non-recurring
charge of $10.7  million  after-tax,  or $0.09 per share,  for costs  related to
Voluntary Enhanced Retirement Programs (VERP) offered to certain bargaining unit
employees in Pennsylvania; and a non-recurring charge of $9.4 million after-tax,
or $0.08 per share,  for costs related to the termination of a wholesale  energy
contract  with  Allegheny  Electric  Cooperative  (AEC).  Not  including the GPU
PowerNet loss, there were no other first-half 2000 non-recurring items.



                                        2


<PAGE>
GPU, Inc. and Subsidiary Companies

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

      Operating  revenues for the second quarter 2001 increased $67.5 million to
$1.3 billion,  as compared to the second  quarter 2000. For the six months ended
June 30, 2001,  operating revenues increased $191.5 million to $2.6 billion,  as
compared  to the same  period last year.  The  components  of the changes are as
follows:
                                            2001 vs. 2000 (in millions)
                                     ----------------------------------------
                                      Three Months Ended    Six Months Ended
                                           June 30,             June 30,
                                      -----------------     ----------------
GPU Energy companies:
   Kilowatt-hour (KWH) revenues            $ 56.2                $116.8
   Energy and restructuring-related
     Revenues (NJ)                           40.2                  38.7
   Competitive transition charge
     (CTC) revenues (PA)                      1.1                   2.0
   Other revenues                            (8.0)                 (7.2)
                                            -----                 -----
     Total GPU Energy companies              89.5                 150.3
GPU Electric                                (62.5)               (123.6)
GPU Power/GPUI                              (23.6)                (47.1)
GPU AR                                       (9.6)                (20.7)
GPU Telcom                                    2.9                   9.0
MYR                                          70.8                 223.6
                                            -----                 -----
     Total increase                        $ 67.5                $191.5
                                            =====                 =====

GPU Energy companies

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

      The increase for both the periods ended June 30, 2001 was primarily due to
the  return of  numerous  shopping  customers  in  Pennsylvania  from  alternate
generation  suppliers during the first half of 2001, and higher  weather-related
sales due to colder  winter  temperatures  this year  compared  to the  previous
winter.

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

      Changes  in  energy  and  restructuring-related  revenues  do  not  affect
earnings as they are offset by  corresponding  changes in expense.  The increase
for both the periods  ended June 30, 2001 was partly due to  increased  sales to
other utilities.

Competitive transition charge (CTC) revenues (Met-Ed and Penelec only)
----------------------------------------------------------------------

      CTC revenues represent  Pennsylvania stranded cost recoveries permitted by
the PaPUC in accordance  with Met-Ed and Penelec's  final  Restructuring  Orders
effective  January 1,  1999.  Changes in CTC  revenues  generally  do not affect
earnings as they are offset by corresponding changes in expense.

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

      The decrease for both the periods ended June 30, 2001 was primarily due to
lower  transmission  revenues as a result of fewer customers  shopping for their
energy supply.


                                        3


<PAGE>
GPU, Inc. and Subsidiary Companies

GPU Electric

      The decrease for both the periods ended June 30, 2001 was primarily due to
the reset of  electricity  delivery  rates at GPU  Power UK that took  effect in
April 2000, and the absence of GPU PowerNet  revenues in 2001 due to its sale in
June 2000.

GPU Power/GPUI

      The decrease for both the periods ended June 30, 2001 was primarily due to
the absence of GPUI revenues in 2001 due to its sale in December 2000.

GPU AR

      The  decrease  for both the periods  ended June 30, 2001 was due to GPU AR
having fewer shopping customers under contract to supply electricity as a result
of significantly  higher wholesale  electricity  prices, as compared to the same
periods last year.  The higher  wholesale  electricity  prices have  essentially
caused the return of the majority of shopping customers in Pennsylvania to their
respective utility companies' fixed generation tariff rates.

GPU Telcom

      The increase for both the periods ended June 30, 2001 was primarily due to
more fiber optics miles  constructed  for private  build  customers in 2001,  as
compared to the same periods last year.

MYR

      The  increase  for both the  periods  ended  June 30,  2001 was due to the
inclusion of revenues  from MYR following  its  acquisition  by GPU, Inc. in the
second quarter 2000.

OPERATING INCOME:
-----------------

      Operating  income for the second quarter 2001 increased  $362.4 million to
$220.4 million, as compared to the second quarter 2000. For the six months ended
June 30, 2001,  operating income increased $238.6 million to $436.9 million,  as
compared  to the same  period last year.  The  components  of the changes are as
follows:

                                            2001 vs. 2000 (in millions)
                                     ----------------------------------------
                                      Three Months Ended    Six Months Ended
                                           June 30,             June 30,
                                      -----------------     ----------------
GPU Energy companies                       $  20.0              $ (44.8)
GPU Electric                                 341.0                279.3
GPU Power/GPUI                                 0.4                  1.3
GPU AR                                         1.6                 (0.6)
GPU Telcom                                     1.1                  3.1
MYR                                            3.6                  6.0
GPU, Inc.                                     (5.3)                (5.7)
                                            ------               ------
     Total increase                        $ 362.4              $ 238.6
                                            ======               ======




                                        4


<PAGE>
GPU, Inc. and Subsidiary Companies

GPU Energy companies

      The increase for the three month period ended June 30, 2001 was  primarily
due to  lower  operation  and  maintenance  (O&M)  expenses  (approximately  $60
million)  resulting  principally  from the sale of the Oyster  Creek  Generating
Station (Oyster Creek) in August 2000; and higher  transmission and distribution
(T&D)   revenues.   Partially   offsetting   these  was:   higher  energy  costs
(approximately  $78 million)  reflecting the fact that Met-Ed and Penelec had to
purchase  electricity  at prices  above the retail rate caps at which they could
resell  it,  which  impact was made worse  because of the  increasing  number of
shopping customers  returning from alternate  generation  suppliers in the first
half of 2001; and higher amortization  expenses  (approximately $14 million) due
to  increased  costs   associated  with   decommissioning   the  Saxton  Nuclear
Experimental  facility,  and increased  Oyster Creek  amortization  due to a New
Jersey  Board of Public  Utilities  (NJBPU)  order  related to the plants  sale.
Starting  June 1, 2001,  however,  as a result of the  PaPUC's  June 2001 order,
Met-Ed and Penelec  began to defer,  for future rate  recovery  from  customers,
their   energy  costs  in  excess  of  their  fixed   generation   tariff  rates
(approximately $44 million through June 30).

      The  decrease  for the six month  period  ended June 30,  2000  reflects a
non-recurring  charge of $18.3 million pre-tax,  for the costs of a VERP offered
to certain bargaining unit employees in Pennsylvania; and a non-recurring charge
of $16 million  pre-tax,  for costs  related to the  termination  of a wholesale
energy contract with AEC. In addition, the same factors affecting the comparable
quarterly  results also  affected  the year to date  comparison.  These  factors
include higher energy costs (approximately $159 million) and higher amortization
expense  (approximately  $24  million),  partially  offset by lower O&M expenses
(approximately  $100  million,  excluding the VERP) and higher sales due to this
year's winter weather.

GPU Electric

      The increase for both the periods ended June 30, 2001 was primarily due to
the absence of a pre-tax  loss of $372  million  recorded in the second  quarter
2000, on the sale of GPU PowerNet. Partially offsetting this was: lower revenues
as a result of the reset of electricity  delivery rates at GPU Power UK in April
2000; the absence in 2001 of a second quarter 2000 gain of $15.9 million related
to gas  supply  contracts  in the UK; and the  absence  in 2001 of GPU  PowerNet
operating income due to its sale in June 2000.

MYR

      The  increase  for both the  periods  ended  June 30,  2001 was due to the
inclusion of MYR following its  acquisition  by GPU, Inc. in the second  quarter
2000.

GPU, Inc.

      The lower  other  income  for both the  periods  ended  June 30,  2001 was
primarily due to the recording of an increase in GPU's estimated  liability with
respect to the Dover Gas Site (approximately  $2.4 million),  and an increase in
GPU/FirstEnergy merger-related costs (approximately $1 million).



                                        5


<PAGE>
GPU, Inc. and Subsidiary Companies

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

      Other income and deductions  for the second  quarter 2001 increased  $20.1
million to $53.5  million,  as compared to the second  quarter 2000. For the six
months ended June 30, 2001, other income and deductions  increased $20.3 million
to $76.8  million,  as compared to the same period last year.  The components of
the changes are as follows:

                                            2001 vs. 2000 (in millions)
                                     ----------------------------------------
                                      Three Months Ended    Six Months Ended
                                           June 30,             June 30,
                                      -----------------     ----------------
GPU Energy companies                       $ 11.0               $ 18.3
GPU Electric                                 (1.5)                (6.7)
GPU Power/GPUI                                1.6                 (0.9)
GPU AR                                         -                    -
GPU Telcom                                   (1.5)                (2.9)
MYR                                           0.5                  0.4
GPU, Inc.                                    10.0                 12.1
                                            -----                -----
     Total increase                        $ 20.1               $ 20.3
                                            =====                =====

GPU Energy companies

      The increase for both the periods ended June 30, 2001 was primarily due to
higher CTC interest income of approximately $10 million; and the absence in 2001
of the effect of  discounting  a long-term  receivable  due from AmerGen  Energy
Company LLC (AmerGen) related to Oyster Creek outage costs, which had the effect
of reducing 2000 earnings by $8.8 million  pre-tax.  Partially  offsetting these
was lower interest income of approximately $4 million.

GPU Electric

      The decrease for both the periods ended June 30, 2001 was primarily due to
lower income from GPU Power UK's independent power projects  (approximately  $22
million).  Largely  offsetting  these was a non-recurring  gain of $17.8 million
pre-tax,  on the  sale of GPU  Power  UK's  interest  in the  Humber  generating
station.

GPU, Inc.

      The  increase  for the three and six months  ended  June 30,  2001 was due
primarily to a gain of $10.7 million pre-tax,  on the sale of certain marketable
securities.

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

      Interest  charges and  preferred  dividends  for the second  quarter  2001
decreased  $18.3 million to $123.5  million,  as compared to the second  quarter
2000.  For the six months ended June 30, 2001,  interest  charges and  preferred
dividends  decreased  $40.3 million to $244.5  million,  as compared to the same
period last year. The components of the changes are as follows:



                                        6


<PAGE>
GPU, Inc. and Subsidiary Companies

                                            2001 vs. 2000 (in millions)
                                     ----------------------------------------
                                      Three Months Ended    Six Months Ended
                                           June 30,             June 30,
                                      -----------------     ----------------
GPU Energy companies                       $  5.3               $  6.2
GPU Electric                                (28.7)               (57.4)
GPU Power/GPUI                               (0.2)                (0.5)
GPU AR                                         -                    -
GPU Telcom                                     -                    -
MYR                                          (2.2)                (1.9)
GPU, Inc.                                     7.5                 13.3
                                            -----                -----
     Total decrease                        $(18.3)              $(40.3)
                                            =====                =====

GPU Energy companies

      The increase for both the periods ended June 30, 2001 was primarily due to
interest on the  issuance of $150  million of senior notes in May 2001 by JCP&L,
and higher average short-term debt levels.

GPU Electric

      The decrease for both the periods ended June 30, 2001 was primarily due to
lower debt  levels  resulting  primarily  from the sale of GPU  PowerNet in June
2000. Also contributing to the decrease was lower interest rates at GPU Capital,
Inc.

GPU, Inc.

      The increase for both the periods ended June 30, 2001 was primarily due to
interest on the issuance of $300 million of debentures in December 2000.


                          JCP&L's RESULTS OF OPERATIONS
                          -----------------------------

      JCP&L's earnings for the second quarter 2001 were $44.7 million,  compared
to second quarter 2000 earnings of $42.8 million. The increase was primarily due
to lower O&M  expenses  and the absence in 2001 of the effect of  discounting  a
long-term  receivable  due from AmerGen  related to Oyster  Creek outage  costs.
Partially  offsetting  these was higher  amortization  expenses,  and  increased
financing costs.

      For the six  months  ended  June 30,  2001,  JCP&L's  earnings  were $94.7
million, compared to $85.9 million for the same period in 2000. The same factors
affecting  the  comparable  quarterly  results  also  affected  the year to date
comparison.  Also  contributing  to the  increase for the first half of 2001 was
higher  weather-related  sales  due to  colder  winter  temperatures  this  year
compared to the previous winter.

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

      Operating  revenues for the second quarter 2001 increased $30.9 million to
$521.1 million, as compared to the second quarter 2000. For the six months ended
June 30, 2001,  operating  revenues  increased  $39.8 million to $982.7 million,
compared  to the same  period last year.  The  components  of the changes are as
follows:


                                        7


<PAGE>
GPU, Inc. and Subsidiary Companies

                                            2001 vs. 2000 (in millions)
                                     ----------------------------------------
                                      Three Months Ended    Six Months Ended
                                           June 30,             June 30,
                                      -----------------     ----------------
KWH revenues                                $(1.9)               $ 6.2
Energy and restructuring-related
  revenues                                   40.2                 38.7
Other revenues                               (7.4)                (5.1)
                                             ----                 ----
     Increase in revenues                   $30.9                $39.8
                                             ====                 ====

KWH revenues
------------

      The increase for the six months ended June 30, 2001 was  primarily  due to
higher demand for electricity resulting from colder weather during the winter of
2001 compared to the previous winter.

Energy and restructuring-related revenues
------------------------------------------

      Changes  in  energy  and  restructuring-related  revenues  do  not  affect
earnings as they are offset by  corresponding  changes in expense.  The increase
for both the periods  ended June 30, 2001 was partly due to  increased  sales to
other utilities.

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

      The decrease for both the periods ended June 30, 2001 was primarily due to
a decrease  in  building  rental  revenues  of  approximately  $4  million,  and
decreased  transmission  revenues as a result of fewer  customers  shopping  for
their energy supply.

OPERATING INCOME:
-----------------

      Operating  income for the second  quarter 2001  decreased  $1.1 million to
$98.4  million,  as  compared  to the second  quarter  2000.  The  decrease  was
primarily due to higher  amortization  expenses of approximately $6 million as a
result of increased  costs  associated with  decommissioning  the Saxton Nuclear
Experimental  facility and increased  Oyster Creek  amortization  due to a NJBPU
order related to the plants sale.  Also  contributing to the decrease was higher
energy costs due to increased  demand for  electricity and the company's need to
purchase more electricity due to the sale of Oyster Creek.  Partially offsetting
these was lower O&M  expenses  of  approximately  $43 million as a result of the
sale of Oyster Creek in August 2000 and lower pension costs.

      For the six months ended June 30, 2001,  operating  income  increased $6.6
million to $202.1  million,  versus the same period last year.  The increase was
primarily  due to increased  KWH  revenues,  as discussed  above;  and lower O&M
expenses of approximately $76 million as a result of the sale of Oyster Creek in
August 2000.  Partially  offsetting  these was higher  amortization  expenses of
approximately  $12 million,  and higher energy costs due to increased demand for
electricity and the need to purchase more electricity as a result of the sale of
Oyster Creek.

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

      Other income and deductions  for the second  quarter 2001 increased  $11.5
million to $10.3  million,  as compared to the second  quarter 2000. For the six
months ended June 30, 2001, other income and deductions increased $13.2


                                        8


<PAGE>
GPU, Inc. and Subsidiary Companies

million to $17.6  million,  versus the same period last year. The change in both
periods was primarily due to the absence in 2001 of the effect of  discounting a
long-term  receivable  due from AmerGen  related to Oyster  Creek outage  costs,
which had the effect of reducing  2000  earnings by $8.8  million  pre-tax;  and
higher interest income of approximately $2 million.

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

      Interest  charges and  preferred  dividends  for the second  quarter  2001
increased $3.7 million to $30.4 million, as compared to the second quarter 2000.
For the six months ended June 30, 2001, interest charges and preferred dividends
increased $3.2 million to $58.1  million,  versus the same period last year. The
increase was primarily due to interest on the issuance of $150 million of senior
notes  in May  2001,  and  higher  average  short-term  debt  levels.  Partially
offsetting  these was lower  dividends  due to the  redemption  of $16.7 million
stated value  cumulative  preferred  stock  pursuant to  mandatory  and optional
sinking fund provisions in 2000.


                         MET-ED's RESULTS OF OPERATIONS
                         ------------------------------

      Met-Ed's earnings for the second quarter 2001 were $15.9 million, compared
to second  quarter 2000 earnings of $8.7  million.  The increase in earnings was
primarily  due to the PaPUC's June 2001 order that allows  Met-Ed to defer,  for
future  rate  recovery  from  customers,  energy  costs in  excess  of its fixed
generation tariff rates starting June 1, 2001. As a result, in June 2001, Met-Ed
was able to defer  approximately  $22  million  pre-tax of energy  costs that it
otherwise would have had to expense. Partially offsetting this was higher energy
costs  primarily  due to the fact that  Met-Ed had to  purchase  electricity  at
prices above the retail rate caps at which it could resell it, and the effect of
increasing  numbers of shopping  customers  returning from alternate  generation
suppliers.

      For the six  months  ended June 30,  2001,  Met-Ed's  earnings  were $31.9
million,  compared to $35.2  million  for the same  period in 2000.  Excluding a
non-recurring  charge of $5.4  million  after-tax  for costs  related  to a VERP
offered to certain  bargaining  unit  employees,  earnings for the first half of
2001 would have been $37.3  million.  The same factors  affecting the comparable
quarterly  results also affected the year to date comparison.  The higher energy
costs had a greater  impact on the first half of 2001  earnings  than it did for
the  second  quarter  since  Met-Ed  did  not  start  deferring  certain  of its
under-recovered energy costs until June 1, 2001.

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

      Operating  revenues for the second quarter 2001 increased $24.7 million to
$222.5 million, as compared to the second quarter 2000. For the six months ended
June 30, 2001,  operating  revenues  increased  $42.7 million to $443.6 million,
compared  to the same  period last year.  The  components  of the changes are as
follows:







                                        9


<PAGE>
GPU, Inc. and Subsidiary Companies

                                            2001 vs. 2000 (in millions)
                                     ----------------------------------------
                                      Three Months Ended    Six Months Ended
                                           June 30,             June 30,
                                      -----------------     ----------------
KWH revenues                                $28.6                $47.1
CTC revenues                                 (0.3)                 0.8
Other revenues                               (3.6)                (5.2)
                                             ----                 ----
     Increase in revenues                   $24.7                $42.7
                                             ====                 ====

KWH revenues
------------

      The increase for both periods was  primarily due to the return of numerous
shopping customers from alternate generation suppliers in 2001, partially offset
by a decrease of sales to other utilities.

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

      The  decrease  for both periods was  primarily  due to lower  transmission
revenues as a result of fewer customers shopping for their energy supply.

OPERATING INCOME:
-----------------

      Operating  income for the second quarter 2001  increased  $12.6 million to
$31.8  million,  as  compared  to the second  quarter  2000.  The  increase  was
primarily  due to  lower  O&M  expenses  (approximately  $8  million)  resulting
primarily  from  lower  pension  costs;  and  higher  T&D  revenues.   Partially
offsetting these was: higher energy costs (approximately $38 million) reflecting
the fact that Met-Ed had to purchase electricity at prices above the retail rate
caps at which it could  resell it,  which  impact was made worse  because of the
increasing  number of shopping  customers  returning from  alternate  generation
suppliers  in the first half of 2001.  Starting  June 1, 2001,  however,  Met-Ed
began to defer,  for future rate  recovery  from  customers,  its energy cost in
excess of its fixed generation tariff rates  (approximately  $22 million through
June 30).

      For the six months ended June 30, 2001,  operating  income decreased $11.9
million to $62.6 million, as compared to the same period last year. The decrease
for the first half of 2001 reflects a non-recurring  charge to other O&M of $9.2
million  pre-tax,  for costs related to the VERP. In addition,  the same factors
affecting  the  comparable  quarterly  results  also  affected  the year to date
comparison.  These  factors  include  higher  energy  costs  (approximately  $71
million),  partially  offset by lower O&M  expense  (approximately  $9  million,
excluding the VERP) and increased KWH revenues, as discussed above.

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

      Other income and  deductions  for the second  quarter 2001  increased $0.9
million to $9.2 million,  as compared to the second  quarter  2000.  For the six
months ended June 30, 2001,  other income and deductions  increased $6.3 million
to $17.4  million,  versus  the same  period  last  year.  The  increase  in the
six-month   period  was  primarily   due  to  higher  CTC  interest   income  of
approximately  $10  million;  partially  offset  by  lower  interest  income  of
approximately $4 million.



                                       10


<PAGE>
GPU, Inc. and Subsidiary Companies

                         PENELEC's RESULTS OF OPERATIONS
                         -------------------------------

      Penelec's earnings for the second quarter 2001 were $7.2 million, compared
to second  quarter 2000 earnings of $4.5  million.  The increase in earnings was
primarily due to the PaPUC's June 2001 order that allows  Penelec to defer,  for
future  rate  recovery  from  customers,  energy  costs in  excess  of its fixed
generation  tariff  rates  starting  June 1,  2001.  As a result,  in June 2001,
Penelec was able to defer approximately $22 million pre-tax of energy costs that
it otherwise  would have had to expense.  Partially  offsetting  this was higher
energy costs primarily due to the fact that Penelec had to purchase  electricity
at prices above the retail rate caps at which it could resell it, and the effect
of increasing numbers of shopping customers returning from alternate  generation
suppliers.

      For the six  months  ended June 30,  2001,  Penelec's  earnings  were $5.1
million,  compared to $31.5  million  for the same  period in 2000.  Excluding a
non-recurring  charge  of  $9.4  million  after-tax  for  costs  related  to the
termination of a wholesale energy contract with AEC, and a non-recurring  charge
of $5.3  million  after-tax  for costs  related  to a VERP  offered  to  certain
bargaining unit  employees,  earnings for the first half of 2001 would have been
$19.8 million.  The same factors affecting the comparable quarterly results also
affected the year to date comparison on this basis.  The higher energy costs had
a greater  impact on the first half of 2001  earnings than it did for the second
quarter since  Penelec did not start  deferring  certain of its  under-recovered
energy costs until June 1, 2001.

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

      Operating  revenues for the second quarter 2001 increased $23.8 million to
$230.6 million, as compared to the second quarter 2000. For the six months ended
June 30, 2001,  operating  revenues  increased  $47.5 million to $474.4 million,
compared  to the same  period last year.  The  components  of the changes are as
follows:
                                            2001 vs. 2000 (in millions)
                                     ----------------------------------------
                                      Three Months Ended    Six Months Ended
                                           June 30,             June 30,
                                      -----------------     ----------------
KWH revenues                                $22.1                $46.0
CTC revenues                                  1.4                  1.2
Other revenues                                0.3                  0.3
                                             ----                 ----
     Increase in revenues                   $23.8                $47.5
                                             ====                 ====

KWH revenues
------------

      The increase in KWH revenues was  primarily  due to the return of numerous
shopping customers from alternate  generation suppliers during the first half of
2001, partially offset by a decrease of sales to other utilities.

OPERATING INCOME:
-----------------

      Operating  income for the second  quarter 2001  increased  $8.4 million to
$23.1  million,  as  compared  to the second  quarter  2000.  The  increase  was
primarily  due to  lower  O&M  expenses  (approximately  $7  million)  resulting
primarily  from  lower  pension  costs;  and  higher  T&D  revenues.   Partially
offsetting these was: higher energy costs (approximately $40 million)

                                       11


<PAGE>
GPU, Inc. and Subsidiary Companies

reflecting the fact that Penelec had to purchase electricity at prices above the
retail  rate caps at which it could  resell  it,  which  impact  was made  worse
because of the increasing number of shopping customers  returning from alternate
generation  suppliers in the first half of 2001. Starting June 1, 2001, however,
Penelec began to defer, for future rate recovery from customers, its energy cost
in  excess of its fixed  generation  tariff  rates  (approximately  $22  million
through June 30).

      For the six months ended June 30, 2001,  operating  income decreased $39.8
million to $28.5 million, as compared to the same period last year. The decrease
for the first  half of 2001  reflects  a  non-recurring  charge  of $16  million
pre-tax,  for  costs  related  to the  termination  of the AEC  contract;  and a
non-recurring  charge to other O&M of $9.1 million pre-tax, for costs related to
the VERP.  In addition,  the same factors  affecting  the  comparable  quarterly
results also affected the year to date comparison.  These factors include higher
energy costs (approximately $88 million),  partially offset by lower O&M expense
(approximately $12 million,  excluding the VERP) and increased KWH revenues,  as
discussed above.

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

      Other income and  deductions  for the second  quarter 2001  decreased $1.3
million to $2.5 million,  as compared to the second  quarter  2000.  For the six
months ended June 30, 2001, other income and deductions  decreased $1 million to
$3.7 million, versus the same period last year. The decrease in both periods was
primarily due to lower interest income.

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

      Interest  charges for the second  quarter 2001  increased  $1.5 million to
$12.6 million,  as compared to the second quarter 2000. For the six months ended
June 30, 2001, interest charges increased $3.9 million to $24.1 million,  versus
the same period last year.  The  increase in both periods was  primarily  due to
interest on the issuance of $93 million of senior notes during 2000.


                 PENDING MERGER OF FIRSTENERGY CORP. AND GPU
                 -------------------------------------------

      On August 8, 2000,  GPU,  Inc.  entered  into an  agreement  to merge with
FirstEnergy, an Ohio corporation, headquartered in Akron, Ohio. Under the merger
agreement,  FirstEnergy  would  acquire all of the  outstanding  shares of GPU's
common  stock for  approximately  $4.5  billion in cash and  FirstEnergy  common
stock.

      The merger has been approved by the Boards of Directors  and  stockholders
of GPU, Inc. and  FirstEnergy and is expected to close promptly after all of the
conditions  to the  consummation  of the merger  (including  the  receipt of all
necessary  regulatory  approvals,  provided that such  approvals will not impose
terms and conditions that would  reasonably be expected to result in a "material
adverse effect," as defined in the merger  agreement,  on the combined  company,
and there being no "material  adverse effect" on either GPU or FirstEnergy since
June 30,  2000 or March  31,  2000,  respectively),  are  fulfilled  or  waived.
Relevant  factors would include the nature of any order issued by the regulatory
authorities, the financial and business conditions of each company, and whether,
and the extent by which, any developments relate to general economic conditions.
The majority of regulatory approvals

                                       12


<PAGE>
GPU, Inc. and Subsidiary Companies

required for the merger,  including that of the PaPUC,  have been received,  and
the companies are awaiting approval by the NJBPU and the Securities and Exchange
Commission (SEC). GPU and FirstEnergy expect to receive the remaining regulatory
approvals  and to complete the merger  during the fall of 2001.  There can be no
assurance as to the outcome of these matters.


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

      GPU, Inc. has 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  $2.4 billion as of June 30, 2001. At June 30, 2001, GPU, Inc. has
remaining  authorization  to finance  approximately  $536 million of  additional
investments  in FUCOs and EWGs.  GPU,  Inc.'s  investments in FUCOs and EWGs are
made through GPU Electric and GPU Power.


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

      GPU Electric owns electric distribution and gas transmission businesses in
England,  Australia  and  Argentina.  Through its ownership of GPU Power UK, GPU
Electric also has  investments  in operating  generating  facilities  located in
foreign countries  totaling 2,939 megawatts (MW) (of which GPU Electric's equity
interest represents 882 MW) of capacity. At June 30, 2001, GPU, Inc.'s aggregate
investment in GPU Electric was $576 million. GPU, Inc. has also guaranteed up to
an additional $1.4 billion of outstanding GPU Electric obligations.


                                    GPU POWER
                                    ---------

      GPU Power has ownership interests in four operating generating  facilities
located in foreign  countries  totaling  1,229 MW (of which GPU  Power's  equity
interest represents 424 MW) of capacity. At June 30, 2001, GPU, Inc.'s aggregate
investment in GPU Power was $144 million. GPU, Inc. has also guaranteed up to an
additional $26.6 million of GPU Power obligations.


                                   GPU TELCOM
                                   ----------

      GPU  Telcom  is  a  telecommunications   infrastructure   development  and
management  company and wholesale  telecommunications  provider with  operations
primarily  in the  Mid-Atlantic  region  of the US.  Its  customers  consist  of
telecommunications end-use service providers including:  interexchange carriers;
competitive local exchange  carriers;  competitive access providers and multiple
system operators;  commercial and industrial  companies  (private  networks) and
governmental  agencies;  cable television and telephone companies;  and internet
service  providers.  At June 30, 2001, GPU, Inc.'s  aggregate  investment in GPU
Telcom was $102 million.  In April 2001, GPU, Inc. guaranteed GPU Telcom's 22.5%
portion,  but not to exceed $50 million,  of the  obligations  to be incurred by
America's  Fiber Network LLC, a high-speed  fiber optics  company,  under a $180
million syndicated debt facility.





                                       13


<PAGE>
GPU, Inc. and Subsidiary Companies

                                    MYR GROUP
                                    ---------

      MYR  is a  utility  infrastructure  construction  services  company  which
provides  power  line  and  commercial/industrial  electrical  construction  for
electric  utilities,  telecommunications  providers,  commercial  and industrial
facilities  and government  agencies.  MYR also builds  cellular  towers for the
wireless  communications  market.  At  June  30,  2001,  GPU,  Inc.'s  aggregate
investment in MYR was $244 million.


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

      The  California  electricity  market was  deregulated  in 1998.  In recent
months,  certain  aspects  of  that  state's  restructuring  plan  have  created
instability and price volatility in the electricity market, negatively affecting
the California  electric  utilities.  These  utilities have defaulted on various
contractual and financial  obligations and have experienced rapid  deterioration
of their  credit  quality.  Reaction of the  financial  markets  has  included a
careful review of overall credit exposure to the electric utility industry. As a
result of this  instability,  coupled with the  inability to pass on  increasing
wholesale  power  costs  to  its  customers,  Pacific  Gas &  Electric  Company,
California's  largest utility,  filed for reorganization under Chapter 11 of the
US Bankruptcy Code in April 2001.

      Consequently,  the amount of new financing capacity available to GPU, Inc.
or its  subsidiaries  may be less  than it had  previously  been.  While the GPU
companies do not expect to require significant levels of new borrowings in 2001,
certain  existing  credit  facilities are due for renewal or refinancing  during
2001. These credit facilities currently include:  $326 million available to GPU,
Inc.  and  the  GPU  Energy  companies  under a $314  million  revolving  credit
agreement  and  various  committed  bank lines of credit;  $1 billion  under GPU
Capital,  Inc.'s (GPU Capital) senior revolving credit  agreement;  $180 million
under GPU Australia  Holdings,  Inc.'s (GPU Australia Holdings) senior revolving
credit agreement; and (pound)245 million (US $344 million) under EI UK Holdings,
Inc.'s two year term loan agreement.  These credit  facilities expire at various
times through November 2001.

      Renewal or refinancing of these facilities may require GPU's acceptance of
higher  pricing  and/or more  restrictive  terms and  conditions.  If renewal or
refinancing of the existing credit  facilities is limited or cannot be achieved,
GPU will be required to reduce  capital  spending and other  discretionary  cash
uses, including the amount and timing of future common stock dividends.

      There can be no assurance as to the outcome of these matters.

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

GPU Energy companies

      The GPU Energy  companies'  capital spending for the six months ended June
30, 2001 was $132 million  (JCP&L $78 million;  Met-Ed $25 million;  Penelec $29
million), and was used primarily to expand and improve existing transmission and
distribution  (T&D)  facilities  and for new  customer  connections.  For  2001,
capital  expenditures  for the GPU Energy  companies  are  estimated  to be $371
million (JCP&L $184 million;  Met-Ed $83 million;  Penelec $97 million; Other $7
million), primarily for ongoing T&D system development.

                                       14


<PAGE>
GPU, Inc. and Subsidiary Companies

Management  estimates  that a substantial  portion of the GPU Energy  companies'
2001 capital spending will be supplied through internally generated funds.

GPU Electric

      GPU Electric's  capital spending for the six months ended June 30, 2001 of
$79 million was used primarily to make  improvements  to Emdersa's and GPU Power
UK's distribution  networks.  For 2001, GPU Electric's capital  expenditures are
estimated to be $200 million,  and management expects that a substantial portion
of this amount will be supplied through internally generated funds.

GPU Telcom

      GPU  Telcom's  capital  spending for the six months ended June 30, 2001 of
$41  million  was  used  primarily  to make  investments  in  telecommunications
infrastructure  and businesses.  In 2001, GPU Telcom's capital  expenditures are
estimated  to be $90  million,  which  management  expects  will be  supplied by
capital contributions and internally generated funds.


Financing
---------

GPU, Inc.

      GPU has various credit  facilities in place, the most significant of which
are discussed below. These credit facilities generally provide GPU bank loans at
negotiated market rates.

      GPU,  Inc. and the GPU Energy  companies  currently  have  available  $326
million  of  short-term  borrowing  facilities,  which  include  a $314  million
revolving credit  agreement  expiring on October 31, 2001 and various bank lines
of credit.  GPU,  Inc.,  JCP&L,  Met-Ed and Penelec also have  commercial  paper
programs in amounts of up to $100 million,  $150  million,  $75 million and $100
million, respectively.  Because the short-term borrowing facilities backstop the
commercial  paper  programs,  the  aggregate  commercial  paper  and  short-term
borrowings  outstanding  at any one time cannot exceed $326  million.  Under its
revolving  credit  agreement,  GPU,  Inc. is limited to having  $100  million of
short-term borrowings outstanding at any one time. JCP&L, Met-Ed and Penelec are
limited by their charters or SEC authorization to $282 million, $150 million and
$150 million,  respectively,  of short-term debt outstanding at any one time. As
of August 3, 2001,  the GPU Energy  companies had $38 million (all at Met-Ed) of
short-term debt outstanding from these facilities.

GPU Energy companies

      JCP&L,  Met-Ed and Penelec have regulatory  approval to issue senior notes
through December 31, 2002 in the amounts of $150 million,  $150 million and $157
million,  respectively.  JCP&L and Met-Ed intend to issue  secured  senior notes
(collateralized  by first  mortgage  bonds  (FMBs)  issued  to the  senior  note
trustee)  until such time as more than 80% of the  outstanding  FMBs are held by
the senior  note  trustee.  At that  time,  the FMBs will be  cancelled  and the
outstanding  senior notes will become  unsecured  obligations.  Penelec's senior
notes are unsecured.


                                       15


<PAGE>
GPU, Inc. and Subsidiary Companies

      In May 2001,  JCP&L  issued  $150  million of 6.45%  five-year  fixed rate
senior notes.

      Maturing  long-term debt is expected to total $40 million (JCP&L) in 2001,
and $130 million (JCP&L $50 million; Met-Ed $30 million; Penelec $50 million) in
2002.  Current  plans call for each of the GPU Energy  companies to issue senior
notes  during the next three years to fund the  redemption  of  maturing  senior
securities,  refinance  outstanding  senior securities and finance  construction
activities.  Following  their initial  issuance of senior notes,  the GPU Energy
companies  would not issue any additional  FMBs other than as collateral for the
senior  notes.  The  senior  note  indentures   prohibit   (subject  to  certain
exceptions)  the GPU Energy  companies  from issuing any debt which is senior to
the senior notes.

      JCP&L's and Met-Ed's bond  indentures  include  provisions  that limit the
amount of FMBs the companies may issue.  JCP&L's and Met-Ed's  interest coverage
ratios are currently in excess of indenture restrictions.  In addition,  JCP&L's
certificate  of  incorporation  includes  provisions  that  limit the  amount of
preferred  stock it may issue.  JCP&L's  preferred  dividend  coverage  ratio is
currently in excess of this charter restriction.

      JCP&L has filed a  petition  with the NJBPU  requesting  authorization  to
issue $320 million of transition  bonds to  securitize  the recovery of bondable
stranded costs attributable to the projected net investment in Oyster Creek. The
petition  also  requests  that the NJBPU order  provide for the  imposition  and
collection of a usage-based  non-bypassable transition bond charge (TBC) and for
the transfer of the bondable  transition property relating to the TBC to another
entity.  JCP&L currently plans to sell transition bonds in the fourth quarter of
2001.

      At June  30,  2001,  JCP&L,  Met-Ed  and  Penelec  had  retained  earnings
available to pay common stock  dividends  of $813  million,  $84 million and $39
million, respectively, net of amounts restricted under each company's respective
FMB indentures.

GPU Electric

      GPU Capital has entered into a $1 billion 364-day senior  revolving credit
agreement  which expires in November  2001. All of the  outstanding  obligations
under the agreement are guaranteed by GPU, Inc. At June 30, 2001, $1 billion was
outstanding  under the revolving  credit agreement and included in Notes payable
on the Consolidated Balance Sheet.

      GPU GasNet has an A$750 million (US $381  million)  debt issuance  program
jointly  arranged by two banks to refinance a portion of GPU  GasNet's  maturing
bank debt. The various  agreements under the program  facilitate the issuance of
GPU GasNet  commercial  paper and medium term notes.  An A$250  million (US $127
million)  GPU GasNet  revolving  credit  agreement  serves as  backstop  for the
issuance of commercial  paper. At June 30, 2001, A$250 million (US $127 million)
of commercial paper and A$150 million (US $76 million) of medium term notes were
outstanding   under  this  program  and  included  in  Long-term   debt  on  the
Consolidated Balance Sheet.

      In  addition,  GPU GasNet has an A$375  million (US $190  million)  senior
credit facility.  At June 30, 2001, A$211 million (US $107 million) of bank debt
was  outstanding  under this facility and included in Securities  due within one
year on the Consolidated Balance Sheet.


                                       16


<PAGE>
GPU, Inc. and Subsidiary Companies

      GPU Electric  has a $150 million  credit  facility,  which  expires in May
2002, to accommodate short-term borrowing needs.  Borrowings under this facility
are guaranteed by GPU, Inc. At June 30, 2001, $150 million was outstanding under
this facility.

      GPU  Australia  Holdings  has  a  $180  million  senior  revolving  credit
facility,  which expires in November  2001.  Borrowings  under this facility are
guaranteed by GPU,  Inc. At June 30, 2001,  $176 million was  outstanding  under
this facility and included in Notes payable on the Consolidated Balance Sheet.

      EI UK Holdings,  Inc. has a (pound)245  million (US $344  million)  credit
facility consisting of two tranches ((pound)144 million and (pound)101 million).
Borrowings under the (pound)144 million tranche (US $203 million) are guaranteed
by GPU, Inc.  This credit  facility will expire on October 31, 2001. At June 30,
2001,  (pound)245  million (US $344 million) was outstanding under this facility
and  included  in  Securities  due within one year on the  Consolidated  Balance
Sheet.

        GPU Power UK maintains  separate  revolving  credit  facilities with six
banks  totaling  (pound)150  million  (US  $211  million)  for  working  capital
purposes,  expiring  at  various  dates  through  July 2005.  At June 30,  2001,
(pound)30  million (US $42 million) was outstanding  under these  facilities and
included in Notes payable on the Consolidated Balance Sheet.

      In addition,  GPU Power UK maintains a (pound)75 million (US $105 million)
bank  facility  for  working  capital  purposes.   Outstanding   borrowings  are
collateralized  by  portions of trade  accounts  receivable.  At June 30,  2001,
(pound)75  million (US $105  million) was  outstanding  under this  facility and
included in Notes payable on the Consolidated Balance Sheet.

      Maturing  long-term  debt is  expected to total $865  million in 2001,  of
which $511  million of this amount has already  been  retired or  refinanced  in
2001. For 2002, maturing long-term debt is expected to total $457 million.

GPU Power

      Maturing  long-term  debt is  expected to total $7 million in each of 2001
and 2002.  Management  anticipates  meeting these obligations through internally
generated funds.

MYR Group

      MYR maintains a $50 million  revolving credit  facility,  which expires in
November  2003,  of which up to $10  million is  available  for the  issuance of
standby letters of credit.  GPU, Inc. has guaranteed MYR's borrowings under this
facility.  As of June 30, 2001, $20 million was outstanding  under this facility
and included in Notes payable on the Consolidated Balance Sheet.


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

      In March 2001, 207 employees (Met-Ed 101 employees; Penelec 106 employees)
accepted  Voluntary  Enhanced  Retirement  Programs  (VERP)  offered  to certain
bargaining  unit  employees in  Pennsylvania.  As a result,  a pre-tax charge of
$18.3 million  (Met-Ed $9.2 million;  Penelec $9.1 million) has been recorded in
2001 Operating Income for the cost of pension and other postretirement benefits.


                                       17


<PAGE>
GPU, Inc. and Subsidiary Companies

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

      With the transition to a competitive marketplace for generation service in
New Jersey and Pennsylvania,  certain  generation-related costs, which generally
would be recoverable in a regulated  environment,  may no longer be recoverable.
These costs are generally referred to as stranded costs.

New Jersey Restructuring

      In March 2001,  the NJBPU issued a Final  Decision and Order (Final Order)
with  respect  to  JCP&L's  rate  unbundling,  stranded  cost and  restructuring
filings,  which  supersedes a Summary Order issued by the NJBPU in May 1999. The
Final Order confirms rate reductions set forth in the Summary Order, which began
in August 1999 and will remain in effect at increasing levels through July 2003,
and provides for, among other things,  deregulation of the costs associated with
providing   electric   generation   service.   The  Final  Order   confirms  the
establishment  of a  non-bypassable  societal  benefits  charge to recover costs
associated  with,  among  other  things,   nuclear  plant   decommissioning  and
manufactured  gas  plant  remediation,   as  well  as  a  non-bypassable  market
transition  charge  (MTC).  The Final Order  provides for the ability to recover
stranded costs;  however, the NJBPU deferred making a final determination of the
net proceeds and stranded  costs related to the  generating  asset  divestitures
until GPU's request for an Internal  Revenue Service (IRS) ruling  regarding the
treatment of associated federal income tax benefits is acted upon.

      In  addition,  JCP&L is  permitted  to defer for  future  collection  from
customers the amounts by which its costs of supplying basic  generation  service
(BGS) to non-shopping  customers and costs incurred under nonutility  generation
(NUG) agreements  exceed amounts  collected in BGS and MTC rates. As of June 30,
2001,  such deferred  balance  totaled $373 million.  The Final Order allows for
securitization  of the  NUG  portion  of  JCP&L's  deferred  balance  so long as
conditions of the New Jersey restructuring  legislation are met. However,  JCP&L
must seek NJBPU authorization to securitize that portion of its deferred balance
related to above-market  NUG costs.  There can be no assurance as to the extent,
if any, that the NJBPU will permit such securitization.

      The Final Order also provides for the ability to securitize stranded costs
associated  with  Oyster  Creek.  JCP&L  has  filed a  petition  with the  NJBPU
requesting authorization to issue $320 million of transition bonds to securitize
the recovery of certain of these costs.

Pennsylvania Restructuring

      In  1998,  the  PaPUC  issued  amended   Restructuring   Orders  approving
Settlement  Agreements  entered  into by Met-Ed and Penelec  which,  among other
things,  provide for customer choice of electric  generation  supplier beginning
January 1, 1999 and a one-year (1999) reduction in retail distribution rates for
all consumers.  The Orders also provide for recovery of a substantial portion of
what otherwise would have become stranded costs, subject to Phase II proceedings
following   the   completion  of  Met-Ed's  and   Penelec's   generating   asset
divestitures,  to make a final determination of the extent of that stranded cost
recovery.  In 2000,  Met-Ed and Penelec  submitted Phase II Reports to the PaPUC
supporting their actual net divestiture  proceeds and providing a reconciliation
of stranded costs pursuant to the 1998 Restructuring Orders.


                                       18


<PAGE>
GPU, Inc. and Subsidiary Companies

      In 2000,  the PaPUC  issued a Phase II Order  which,  among other  things,
disallowed  a portion of the  requested  additional  stranded  costs above those
amounts granted in the 1998 Orders.  The Phase II Order also deferred a decision
on Met-Ed's  requested  increase in rates,  beginning  in 2006,  for recovery of
Met-Ed's  generation-related  stranded  costs.  In addition,  the Order requires
Met-Ed  and  Penelec  to seek an IRS  ruling  regarding  the  return of  certain
unamortized  investment tax credits and excess  deferred  income tax benefits to
ratepayers.  If the IRS ruling ultimately  supports returning these tax benefits
to  ratepayers,  Met-Ed and  Penelec  would then  reduce  stranded  costs by $40
million plus interest and record a corresponding charge to income.

GPU Energy Supply Plan
----------------------

      As a result of the NJBPU's and the PaPUC's  Restructuring  Orders, the GPU
Energy  companies  are  required  to act as  provider  of last  resort  (PLR) by
supplying  electricity to customers who do not choose an alternate supplier.  In
1999 and 2000, the GPU Energy companies completed the sales of substantially all
their electric  generating  stations.  As a result, the GPU Energy companies now
have to supply  electricity  to  non-shopping  customers  almost  entirely  from
contracted  and open market  purchases,  as  discussed  below.  (For  additional
information  regarding  the  increased  risks  associated  with  supplying  that
electricity, see GPU Energy Supply Market Risk section.)

Generation Agreements

      As of June 30, 2001,  the GPU Energy  companies  have 285 MW of generation
capacity and related  energy  remaining to meet customer  needs.  The GPU Energy
companies  also have  contracts  with  nonutility  generators  totaling 1,595 MW
(JCP&L 926 MW; Met-Ed 273 MW; Penelec 396 MW) and agreements  with other parties
to provide  varying  amounts of capacity  through May 31, 2004.  These  capacity
amounts from third parties vary from a monthly high of approximately 4,200 MW in
2002 to 500 MW in May  2004.  Based on the  exercise  of call  options,  the GPU
Energy  companies  may  take  the  energy  associated  with up to 150 MW of this
capacity  through May 2003. The GPU Energy  companies have also purchased all of
the  capacity  and energy from their  previously  owned Three Mile Island Unit 1
(TMI-1) and Oyster Creek (sold by JCP&L)  nuclear  generating  stations  through
December 31, 2001 and March 31, 2003, respectively.  In addition, the GPU Energy
companies  have the right to 3,970 MW of  capacity  through May 31,  2002.  This
3,970 MW of capacity is associated  with  generating  stations sold in 1999. GPU
Energy's  remaining  capacity  and  energy  needs  will  be  met  by  short-  to
intermediate-term  commitments  (one month to three years).  Any residual  needs
will be purchased from the short-term  market (one hour to one month).  Payments
pursuant to these agreements,  which include firm commitments as well as certain
assumptions regarding, among other things, call/put arrangements,  are estimated
to be $839 million for the remainder of 2001,  $708 million in 2002, $79 million
in 2003, and $5 million in 2004.

      Pursuant to the mandates of the Public Utility Regulatory Policies Act and
state  regulatory  directives,  the GPU Energy  companies were required to enter
into long-term  power purchase  agreements  with NUGs for the purchase of energy
and capacity, which agreements have remaining terms of up to 19 years. The NJBPU
Final  Order  provides   JCP&L  full  recovery  of  its  NUG  costs   (including
above-market  NUG costs and certain buyout costs);  and the PaPUC  Restructuring
Orders provide Met-Ed and Penelec full recovery of their  above-market NUG costs
and certain NUG buyout  costs.  The GPU Energy  companies  have  recorded,  on a
present  value basis,  a total  liability of $2.5 billion  (JCP&L $1.5  billion;
Met-Ed $0.5 billion; Penelec $0.5 billion) on the Consolidated


                                       19


<PAGE>
GPU, Inc. and Subsidiary Companies

Balance  Sheet  for  above-market  NUG  costs.   These  amounts  are  offset  by
corresponding regulatory assets. The GPU Energy companies are continuing efforts
to reduce the above-market costs of these agreements;  however,  there can be no
assurance as to the extent to which these efforts will be successful.

Basic Generation Service ("BGS") Provider

      JCP&L is required to provide BGS to retail  customers who choose to remain
with JCP&L as generation customers for a three-year period ending July 31, 2002.
Thereafter,  BGS is to be bid out, with the details of the bidding process to be
the subject of a NJBPU  proceeding.  On June 29, 2001,  the New Jersey  electric
utilities,  including JCP&L,  filed a joint proposal seeking NJBPU approval of a
competitive  bidding  process to procure supply for the provision of BGS for the
period from August 1, 2002 through July 31, 2003.  The NJBPU has  established  a
procedural  schedule which  provides for a decision in November 2001.  Under its
Final Order, JCP&L is permitted to defer for future recovery the amount by which
its reasonable and prudently  incurred  costs  associated  with providing BGS to
non-shopping customers exceed amounts currently reflected in its rates for BGS.

Provider of Last Resort ("PLR")

      Under the 1998 PaPUC  Restructuring  Orders,  Met-Ed and Penelec customers
have been permitted to shop for their generation supplier since January 1, 1999.
The PaPUC approved a competitive  bid process  designed to assign PLR service to
licensed generation suppliers, referred to as Competitive Default Service (CDS),
for 20% of Met-Ed's 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.  Any  retail  customers
assigned to CDS may return to Met-Ed and Penelec as the default PLR.  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's  and
Penelec's rate cap.

      In 2000,  the absence of acceptable  bids  required  Met-Ed and Penelec to
supply 550 megawatts (MW) (Met-Ed 250 MW; Penelec 300 MW) of electric power more
than they had planned.  In addition,  customers  requiring  approximately 600 MW
(Met-Ed  240 MW;  Penelec 360 MW) of power  returned to Met-Ed and Penelec  from
their alternate  suppliers for the peak Summer months.  During that same period,
market prices at which Met-Ed and Penelec were required to purchase  electricity
for their retail supply  customers at times  substantially  exceeded the amounts
Met-Ed and  Penelec  were  allowed to charge for that  electricity  under  their
capped rates.  This situation  resulted in GPU's  Pennsylvania  supply  business
recording  a loss for 2000 of  approximately  $28 million  (Met-Ed $14  million;
Penelec $14  million)  after-tax,  or $0.22 per share.  Under the terms of their
restructuring  settlements,  in 2001 Met-Ed and Penelec again sought alternative
providers through a CDS bidding process for 40% of their customers; however, the
companies did not receive any bids in response to their request.

      In  November  2000,  Met-Ed and  Penelec  filed a petition  with the PaPUC
seeking  permission to defer for future recovery their energy costs in excess of
amounts  reflected in their capped  generation rates. In January 2001, the PaPUC
consolidated  this  petition  with the  GPU/FirstEnergy  merger  proceeding  for
consideration and resolution in accord with the merger procedural schedule.


                                       20


<PAGE>
GPU, Inc. and Subsidiary Companies

      In June 2001,  Met-Ed,  Penelec and FirstEnergy  entered into a Settlement
Stipulation  with all of the major  intervenors in the combined  merger and rate
relief proceedings, that, in addition to resolving certain issues concerning the
PaPUC's  approval of the  GPU/FirstEnergy  merger,  also addressed  Met-Ed's and
Penelec's  request for PLR rate  relief.  On June 20,  2001,  the PaPUC  entered
orders  approving  the  Settlement  Stipulation,  thus  approving the merger and
providing Met-Ed and Penelec PLR rate relief, as discussed below. For additional
information with respect to the effects PLR rate relief would have on Met-Ed and
Penelec upon  consummation  of the merger,  refer to the Settlement  Stipulation
filed as an exhibit to GPU's Form 8-K on June 15, 2001.

      As a result of the PaPUC's  order  approving the  Settlement  Stipulation,
Met-Ed and Penelec are  permitted to defer for future  recovery  the  difference
between their actual energy costs and those reflected in their capped generation
rates,  retroactive  to January 1, 2001.  Predicated  upon  consummation  of the
GPU/FirstEnergy merger, these "PLR deferrals" will continue through December 31,
2005.  If energy  costs  incurred by Met-Ed and  Penelec  during this period are
below their respective  capped generation rates, the difference would be used to
reduce their PLR deferrals.

      Met-Ed and Penelec have established  regulatory assets for the deferral of
excess energy costs  incurred  during the period of January 1, 2001 through June
30, 2001. However, if the  GPU/FirstEnergy  merger fails to be consummated,  the
Settlement  Stipulation  requires the  write-off of Met-Ed's and  Penelec's  PLR
deferrals  for the period of January 1, 2001  through May 31,  2001.  Therefore,
pending  consummation of the merger,  GPU has recorded an offsetting  reserve of
$29.3 million  ($13.1  million for Met-Ed and $16.2 million for Penelec) for the
PLR deferrals during the period of January 1, 2001 through May 31, 2001.

      If the GPU/FirstEnergy  merger is consummated,  Met-Ed's and Penelec's PLR
obligations  will be extended through  December 31, 2010.  Additionally,  if the
merger is  consummated,  the companies'  respective CTC revenues will be applied
first to PLR costs,  then to non-NUG  stranded  costs and lastly to NUG stranded
costs  through  December 31, 2010.  Remaining  PLR deferrals not recovered as of
December 31, 2010 would have to be written off.

      Last, if the merger is consummated,  the Settlement Stipulation requires a
revised  calculation  of NUG stranded costs being  recovered  under the terms of
Met-Ed's and Penelec's  1998  Restructuring  Orders,  retroactive  to January 1,
2001.  In  addition,  subject to  consummation  of the  merger,  the  Settlement
Stipulation  allows  Penelec to access  its NUG Trust to fund all costs  payable
under its NUG agreements, retroactive to January 1, 2001.

      If the merger is abandoned,  the Settlement  Stipulation provides that the
PLR  proceeding  would be  reopened  by the  PaPUC to permit  parties  to submit
testimony and otherwise address  prospectively the overall retail rate levels of
Met-Ed and  Penelec,  including  whether or at what  level PLR  deferrals  would
continue on a prospective basis. This proceeding, however, would not prevent the
recovery of Met-Ed's and Penelec's  PLR deferrals  from June 1, 2001 through the
date of the final PaPUC order in the reopened proceeding.

      Several  parties  have filed  Petitions  for Review with the  Commonwealth
Court of Pennsylvania  regarding the PaPUC's orders.  The Court has consolidated
most of these  appeals,  and has granted an expedited  schedule under which oral
argument is  scheduled  for November  2001.  There can be no assurance as to the
outcome of these matters.

                                       21


<PAGE>
GPU, Inc. and Subsidiary Companies

GPU Energy Supply Market Risk
-----------------------------

      With the divestiture of essentially all their generating  plants,  the GPU
Energy  companies  are in a net  short  position  (load in  excess  of  supply).
Consequently,  the GPU Energy  companies  must manage their purchase and sale of
installed  capacity and ancillary  services to minimize business risk associated
with  their  reliability  obligation  in the  PJM  Interconnection,  LLC  (PJM).
Supply/risk  management  transactions  will be made  based on the  objective  of
decreasing  price  uncertainty.   The  GPU  Energy  companies  will  enter  into
supply/hedging market arrangements for hedging purposes only.

Electricity

      The GPU  Energy  companies  are  generally  at risk of rising  prices  for
electricity  and  electricity-related  products  and  services.  These risks may
differ  during some months of the year.  To manage these  risks,  the GPU Energy
companies  employ a portfolio  approach  which  primarily  consists of two party
forward purchases and options, but may also include New York Mercantile Exchange
(NYMEX) PJM electricity futures and similar  instruments,  as they become widely
available.  This portfolio  includes  transactions of various  durations ranging
from one hour to greater than one year.

      The GPU Energy companies'  electricity  market risks can be price-related,
volume-related or cost recovery-related as follows:

-     Price-related risk refers to the price exposure  associated with having to
      purchase amounts of electricity, installed capacity and ancillary services
      for load  requirements from the PJM interchange spot market. To the extent
      the  GPU  Energy  companies  must  rely on the PJM  pool to  satisfy  load
      requirements, financial exposure exists for the difference between the PJM
      energy and installed  capacity spot market prices and the fixed rates paid
      by customers.

-     Volume-related  risk refers to the uncertainty  associated with the amount
      of load the GPU Energy  companies are required to serve.  Deregulation  of
      the electric  utility industry has resulted in the ability of customers to
      purchase   electricity  from  other  electric  suppliers.   This  customer
      shopping,  combined with weather  changes,  which affect  customer  energy
      usage, can affect the GPU Energy companies' position.

-     Cost  recovery-related  risk refers to the financial risk  associated with
      the  potential  prudency  audits  of the  NJBPU  that are part of  JCP&L's
      deferred energy and capacity cost recovery  mechanism  (Market  Transition
      Charge).  Cost  recovery-related  risk also  refers to the  prudency  risk
      associated  with future NUG cost recovery under the  Restructuring  Orders
      approved by the PaPUC and the NJBPU which require continued  mitigation of
      above-market NUG costs.

Natural Gas

      GPU Energy  purchases  natural gas for  JCP&L's  Forked  River  generating
facility.  In addition,  as part of its NUG cost mitigation program,  GPU Energy
also manages the natural gas  requirements of certain NUGs that produce and sell
energy to JCP&L under long-term  contracts.  Prudently incurred costs associated
with natural gas commodity and  transportation are included in JCP&L's BGS costs
to be recovered through BGS charges and the Market Transition Charge.

                                       22


<PAGE>
GPU, Inc. and Subsidiary Companies

      GPU Energy  employs a portfolio  approach  consisting of two party forward
purchases  and NYMEX  natural  gas futures  contracts.  GPU Energy is exposed to
price-related,  volume-related  and cost  recovery-related  market risks for its
natural gas  purchases,  similar to those  electricity  market risks  previously
described.

                              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, air and water 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  facilities;  modify or
replace existing and proposed equipment; or remediate,  decommission or clean up
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. In addition, federal and state law provide for payment by
responsible parties for damage to natural resources.

      GPU records environmental  liabilities (on an undiscounted basis) where it
is  probable  that a loss has been  incurred  and the  amount of the loss can be
reasonably  estimated,  and  adjusts  these  liabilities  as required to reflect
changes in circumstances.  At June 30, 2001, GPU had liabilities recorded on its
Consolidated  Balance Sheet for environmental  remediation  totaling $64 million
(JCP&L $53 million; Met-Ed $2 million; Penelec $5 million; other $4 million).

      For more  information,  see the  Environmental  Matters section of Note 1,
Commitments and Contingencies,  of the Combined Notes to Consolidated  Financial
Statements.


                      LEGAL MATTERS - TMI-2 ACCIDENT CLAIMS
                      -------------------------------------

      As a  result  of the 1979  Three  Mile  Island  Unit 2  (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 US
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.

      In 1996, the District Court granted a motion for summary judgment filed by
GPU,  Inc. and the GPU Energy  companies,  and  dismissed  the ten initial "test
cases"  which had been  selected  for a test case  trial,  as well as all of the
remaining 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  appealed the District  Court's ruling to the
Court of Appeals for the Third  Circuit.  In November  1999,  the Third  Circuit
affirmed the District  Court's  dismissal of the ten "test cases," but set aside
the dismissal of the additional  pending claims,  remanding them to the District
Court for further proceedings. In remanding these claims, the Third Circuit held
that the District Court had erred in extending its summary judgment  decision to
the other  plaintiffs  and imposing on these  plaintiffs  the  District  Court's
finding that radiation exposures below 10 rems were too speculative to establish
a causal  link to cancer.  The Court of Appeals  stated that the  non-test  case
plaintiffs  should be permitted to present  their own  individual  evidence that
exposure to radiation from the

                                       23


<PAGE>


GPU, Inc. and Subsidiary Companies

accident caused their cancers. In June 2000, the US Supreme Court denied
petitions for review filed by GPU, Inc., the GPU Energy companies and the
plaintiffs.

      In September 2000, the defendants  filed a Motion for Summary  Judgment in
the District Court.  Meanwhile,  the plaintiffs took an interlocutory  appeal to
the Third Circuit seeking review of the District Court's  determination that the
remaining  plaintiffs should be allowed to advance causation theories based only
on the  admissible  evidence of record at the close of discovery in the case. On
April 30, 2001, the Third Circuit  affirmed the District  Court's  decision.  In
July 2001,  the  defendants  renewed  their  motion for Summary  Judgment of the
remaining 2,100 claims in the District Court.

      There can be no assurance as to the outcome of this litigation.

      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.








                                       24


<PAGE>






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                                       25



<PAGE>





<TABLE>
<CAPTION>

                       GPU, INC. AND SUBSIDIARY COMPANIES

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


                                                                               In Thousands
                                                                       --------------------------------
                                                                         June 30,        December 31,
                                                                           2001              2000
                                                                       ------------  ------------------
                                                                        (Unaudited)
ASSETS
Utility Plant:
<S>                                                                    <C>              <C>
   Utility plant in service                                            $ 9,992,570      $10,138,233
   Accumulated depreciation                                             (3,228,909)      (3,246,175)
                                                                        ----------       ----------
        Net utility plant in service                                     6,763,661        6,892,058
   Construction work in progress                                           196,345          153,417
   Other, net                                                               16,335           16,572
                                                                        ----------       ----------
        Net utility plant                                                6,976,341        7,062,047
                                                                        ----------       ----------

Other Property and Investments:
   Goodwill, net                                                         1,863,206        1,986,449
   Nuclear decommissioning trusts, at market (Note 1)                      373,566          367,805
   Nuclear fuel disposal trust, at market                                  132,776          126,336
   Other, net                                                              799,037          765,783
                                                                        ----------       ----------
        Total other property and investments                             3,168,585        3,246,373
                                                                        ----------       ----------

Current Assets:
   Cash and temporary cash investments                                     905,854          392,004
   Marketable securities                                                     4,628           17,114
   Special deposits                                                         88,607          126,149
   Accounts receivable:
     Customers, less provision for doubtful accounts
       of $67,230 for 2001 and $81,629 for 2000                            527,719          551,251
     Other                                                                 180,239          162,048
   Unbilled revenues                                                       203,473          210,725
   Cost and estimated earnings in excess of
     billings on uncompleted contracts                                      33,332           29,377
   Materials and supplies, at average cost or less                          91,783           79,679
   Deferred income taxes                                                    40,006           33,857
   Prepayments                                                             267,797          154,775
                                                                        ----------       ----------
        Total current assets                                             2,343,438        1,756,979
                                                                        ----------       ----------

Deferred Debits and Other Assets:
   Regulatory assets, net (Note 1)                                       4,323,943        5,023,624
   Deferred income taxes                                                 1,777,144        1,732,537
   Other                                                                   532,152          431,521
                                                                        ----------       ----------
        Total deferred debits and other assets                           6,633,239        7,187,682
                                                                        ----------       ----------





        Total Assets                                                  $19,121,603       $19,253,081
                                                                       ==========        ==========


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

</TABLE>

                                       26

<PAGE>
<TABLE>
<CAPTION>


                       GPU, INC. AND SUBSIDIARY COMPANIES

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


                                                                               In Thousands
                                                                       --------------------------------
                                                                         June 30,        December 31,
                                                                           2001              2000
                                                                       ------------  ------------------
                                                                        (Unaudited)
LIABILITIES AND CAPITALIZATION
Capitalization:
<S>                                                                    <C>               <C>
   Common stock                                                        $   331,958       $   331,958
   Capital surplus                                                       1,014,234         1,014,326
   Retained earnings                                                     2,485,898         2,395,384
   Accumulated other comprehensive income/(loss) (Note 5)                  (27,841)          (62,624)
                                                                        ----------        ----------
        Total                                                            3,804,249         3,679,044
   Reacquired common stock, at cost                                       (355,639)         (357,994)
                                                                        ----------        ----------
        Total common stockholders' equity                                3,448,610         3,321,050
   Cumulative preferred stock:
     With mandatory redemption                                              49,000            51,500
     Without mandatory redemption                                           12,649            12,649
   Subsidiary-obligated mandatorily redeemable
     preferred securities                                                  125,000           125,000
   Subsidiary-obligated trust preferred securities (Note 6)                200,000           200,000
   Long-term debt                                                        4,262,298         3,917,069
                                                                        ----------        ----------
        Total capitalization                                             8,097,557         7,627,268
                                                                        ----------        ----------

Current Liabilities:
   Securities due within one year                                        2,156,332           992,090
   Notes payable                                                           404,013         1,480,667
   Bank overdraft                                                          283,737           276,456
   Accounts payable                                                        492,851           481,712
   Billings in excess of cost and estimated
     earnings on uncompleted contracts                                      29,322            21,315
   Taxes accrued                                                            56,472            37,604
   Interest accrued                                                        102,853            95,083
   Other                                                                   319,126           447,639
                                                                        ----------        ----------
        Total current liabilities                                        3,844,706         3,832,566
                                                                        ----------        ----------

Deferred Credits and Other Liabilities:
   Deferred income taxes                                                 3,214,321         3,093,826
   Unamortized investment tax credits                                       41,551            44,344
   Three Mile Island Unit 2 future costs (Note 1)                          523,144           514,922
   Power purchase contract loss liability (Note 1)                       2,532,031         3,273,968
   Other                                                                   868,293           866,187
                                                                        ----------        ----------
        Total deferred credits and other liabilities                     7,179,340         7,793,247
                                                                        ----------        ----------


Commitments and Contingencies (Note 1)


        Total Liabilities and Capitalization                           $19,121,603       $19,253,081
                                                                        ==========        ==========


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

</TABLE>

                                       27


<PAGE>
<TABLE>
<CAPTION>
                       GPU, INC. AND SUBSIDIARY COMPANIES

                    Consolidated Statements of Income/(Loss)
                    ----------------------------------------
                                   (Unaudited)
                                                                      In Thousands
                                                              (Except Per Share Data)
                                                   ------------------------------------------------------
                                                        Three Months                  Six Months
                                                       Ended June 30,               Ended June 30,
                                                   --------------------------   -------------------------

                                                       2001        2000             2001         2000
                                                       ----        ----             ----         ----

<S>                                                <C>          <C>             <C>          <C>
Operating Revenues                                 $1,347,871   $1,280,374      $2,648,310   $2,456,818
                                                    ---------    ---------       ---------    ---------

Operating Expenses:
   Fuel                                                 4,155       22,073           8,672       41,556
   Power purchased and interchanged                   677,044      493,624       1,269,285      944,199
   Deferred costs, net                               (112,215)     (55,174)       (173,023)    (127,792)
   Other operation and maintenance                    365,135      411,884         723,054      669,431
   Loss on sale of business                               -        372,492             -        372,492
   Depreciation and amortization                      135,840      134,432         269,301      264,027
   Taxes, other than income taxes                      57,478       43,046         114,058       94,595
                                                    ---------    ---------       ---------    ---------
        Total operating expenses                    1,127,437    1,422,377       2,211,347    2,258,508
                                                    ---------    ---------       ---------    ---------

Operating Income/(Loss)                               220,434     (142,003)        436,963      198,310
                                                    ---------    ---------       ---------    ---------

Other Income and Deductions:
   Allowance for other funds used during
     construction                                        (107)         296             (56)         541
   Equity in undistributed earnings/
     (losses) of affiliates, net                       (9,594)       2,120          (6,180)       5,772
   Other income, net                                   63,240       31,032          83,026       50,210
                                                    ---------    ---------       ---------    ---------
        Total other income and deductions              53,539       33,448          76,790       56,523
                                                    ---------    ---------       ---------    ---------

Income/(Loss) Before Interest Charges
   and Preferred Dividends                            273,973     (108,555)        513,753      254,833
                                                    ---------    ---------       ---------    ---------

Interest Charges and Preferred Dividends:
   Long-term debt and notes payable                   114,402      134,162         226,413      267,076
   Subsidiary-obligated trust
     preferred securities                               3,672        3,672           7,345        7,345
   Subsidiary-obligated mandatorily
     redeemable preferred securities                    2,675        2,675           5,350        5,350
   Other interest                                       1,552          399           3,488        2,469
   Allowance for borrowed funds used
     during construction                                 (164)        (756)           (901)      (1,586)
   Preferred stock dividends of
     subsidiaries                                       1,391        1,661           2,782        4,122
                                                    ---------    ---------       ---------    ---------
        Total interest charges and
          preferred dividends                         123,528      141,813         244,477      284,776

                                                    ---------    ---------       ---------    ---------
Income/(Loss) Before Income Taxes
 and Minority Interest                                150,445     (250,368)        269,276      (29,943)
   Income taxes                                        63,090      (40,164)        111,864       48,786
   Minority interest net income                           604          609           1,766        1,086
                                                    ---------    ---------       ---------    ---------

Net Income/(Loss)                                  $   86,751   $ (210,813)     $  155,646   $  (79,815)
                                                    =========    =========       =========    =========
Basic   -  Earnings Per Avg. Common Share          $      .72   $    (1.74)     $     1.30   $     (.66)
                                                    =========    =========       =========    =========
        -  Avg. Common Shares Outstanding             119,559      121,199         119,538      121,284
                                                    =========    =========       =========    =========

Diluted -  Earnings Per Avg. Common Share          $      .72   $    (1.74)     $     1.30   $     (.66)
                                                    =========    =========       =========    =========
        -  Avg. Common Shares Outstanding             119,680      121,314         119,654      121,389
                                                    =========    =========       =========    =========
Cash Dividends Paid Per Share                      $     .545   $     .545      $     1.09   $    1.075
                                                    =========    =========       =========    =========
The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.
</TABLE>
                                       28


<PAGE>
<TABLE>
<CAPTION>
                       GPU, INC. AND SUBSIDIARY COMPANIES

                      Consolidated Statements of Cash Flows
                      -------------------------------------
                                   (Unaudited)
                                                                              In Thousands
                                                                       -----------------------------
                                                                                Six Months
                                                                             Ended June 30,
                                                                       -----------------------------
                                                                           2001              2000
                                                                           ----              ----
Operating Activities:
<S>                                                                    <C>               <C>
   Net income/(loss)                                                   $ 155,646         $  (79,815)
   Adjustments to reconcile income to cash provided:
     Depreciation and amortization                                       291,464            277,156
     Amortization of property under capital leases                           -                9,080
     Provision for doubtful accounts                                      (7,878)            20,214
     Regulatory assets, net                                              (39,688)           (40,989)
     Voluntary enhanced retirement programs                               18,266                -
     (Gain)/Loss on sale of businesses/investments                       (27,582)           368,408
     Equity in undistributed earnings
       of affiliates, net of distributions received                        7,187            (19,886)
     Deferred income taxes and investment tax
       credits, net                                                       65,456             67,439
     Deferred costs, net                                                (173,023)          (127,792)
   Changes in working capital:
     Receivables                                                         (41,738)          (232,894)
     Materials and supplies                                               (7,376)             2,180
     Special deposits and prepayments                                    (40,225)            82,146
     Payables and accrued liabilities                                    (25,940)            66,563
   Nonutility generation contract buyout costs                               -               (5,660)
   Other, net                                                             22,499             13,131
                                                                        --------          ---------
      Net cash provided by operating activities                          197,068            399,281
                                                                        --------          ---------

Investing Activities:
   Capital expenditures and investments                                 (255,584)          (265,903)
   Proceeds from sale of businesses/investments                           89,779          1,155,510
   Acquisitions, net of cash acquired                                        -             (220,242)
   Proceeds from nonutility generation trust                              16,185             44,809
   Trust fund established for repayment of debt                           32,491           (346,966)
   Contributions to decommissioning trusts                                (5,355)           (18,646)
   Other, net                                                             (5,949)             5,847
                                                                        --------          ---------
      Net cash provided/(required) by investing activities              (128,433)           354,409
                                                                        --------          ---------

Financing Activities:
   Issuance of long-term debt                                            148,796            421,169
   Increase in notes payable, net                                        995,220             13,461
   Retirement of long-term debt                                         (545,544)          (820,128)
   Capital lease principal payments                                          -               (9,784)
   Reacquisition of common stock                                             -              (22,383)
   Dividends paid on common stock                                       (130,226)          (130,531)
   Redemption of preferred stock of subsidiaries                          (2,500)           (21,667)
                                                                        --------          ---------
      Net cash provided/(required) by financing activities               465,746           (569,863)
                                                                        --------          ---------

Effect of exchange rate changes on cash                                  (20,531)           (20,936)
                                                                        --------          ---------

Net increase in cash and temporary
  cash investments from above activities                                 513,850            162,891
Cash and temporary cash investments, beginning of year                   392,004            471,548
                                                                        --------          ---------
Cash and temporary cash investments, end of period                     $ 905,854         $  634,439
                                                                        ========          =========

Supplemental Disclosure:
   Interest and preferred dividends paid                               $ 191,041         $  282,595
                                                                        ========          =========
   Income taxes paid                                                   $   6,838         $  150,789
                                                                        ========          =========
   New capital lease obligations incurred                              $     -           $    9,372
                                                                        ========          =========
   Common stock dividends declared but not paid                        $     -           $      -
                                                                        ========          =========

The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.
</TABLE>
                                       29


<PAGE>
<TABLE>
<CAPTION>
           JERSEY CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARY COMPANY

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


                                                                              In Thousands
                                                                      --------------------------------
                                                                        June 30,        December 31,
                                                                          2001              2000
                                                                      ------------      --------------
                                                                       (Unaudited)

ASSETS
Utility Plant:
<S>                                                                    <C>              <C>
   Utility plant in service                                            $3,305,640       $3,269,676
   Accumulated depreciation                                            (1,260,421)      (1,212,784)
                                                                        ---------        ---------
        Net utility plant in service                                    2,045,219        2,056,892
   Construction work in progress                                          112,312           75,201
   Other, net                                                              13,311           13,311
                                                                        ---------        ---------
        Net utility plant                                               2,170,842        2,145,404
                                                                        ---------        ---------


Other Property and Investments:
   Nuclear decommissioning trusts, at market (Note 1)                     116,290          115,311
   Nuclear fuel disposal trust, at market                                 132,776          126,336
   Other, net                                                              26,217            6,342
                                                                        ---------        ---------
        Total other property and investments                              275,283          247,989
                                                                        ---------        ---------


Current Assets:
   Cash and temporary cash investments                                    111,597              801
   Special deposits                                                         4,694            1,220
   Accounts receivable:
     Customers, less provision for doubtful accounts
        of $17,195 for 2001 and $21,479 for 2000                          156,532          156,358
     Affiliates                                                            12,516            8,520
     Other                                                                127,767           38,107
   Unbilled revenues                                                       92,422           80,864
   Materials and supplies, at average cost or less                          1,351              508
   Deferred income taxes                                                   27,298           20,669
   Prepayments                                                             70,451           96,916
                                                                        ---------        ---------
        Total current assets                                              604,628          403,963
                                                                        ---------        ---------


Deferred Debits and Other Assets:
   Regulatory assets, net (Note 1)                                      3,012,757        3,185,072
   Deferred income taxes                                                  189,510          187,632
   Other                                                                   47,742           47,295
                                                                        ---------        ---------
        Total deferred debits and other assets                          3,250,009        3,419,999
                                                                        ---------        ---------




        Total Assets                                                   $6,300,762       $6,217,355
                                                                        =========        =========


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

</TABLE>

                                       30

<PAGE>
<TABLE>
<CAPTION>
           JERSEY CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARY COMPANY

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


                                                                              In Thousands
                                                                      --------------------------------
                                                                        June 30,        December 31,
                                                                          2001              2000
                                                                      ------------      --------------
                                                                       (Unaudited)

LIABILITIES AND CAPITALIZATION
Capitalization:
<S>                                                                    <C>               <C>
   Common stock                                                        $  153,713        $  153,713
   Capital surplus                                                        510,769           510,769
   Retained earnings                                                      814,440           794,786
   Accumulated other comprehensive income/(loss) (Note 5)                   3,635                (8)
                                                                        ---------         ---------
        Total common stockholder's equity                               1,482,557         1,459,260
   Cumulative preferred stock:
     With mandatory redemption                                             49,000            51,500
     Without mandatory redemption                                          12,649            12,649
   Company-obligated mandatorily redeemable
     preferred securities                                                 125,000           125,000
   Long-term debt                                                       1,193,812         1,093,987
                                                                        ---------         ---------
        Total capitalization                                            2,863,018         2,742,396
                                                                        ---------         ---------


Current Liabilities:
   Securities due within one year                                         100,847            50,847
   Notes payable                                                          106,000            29,200
   Accounts payable:
     Affiliates                                                            27,304            98,526
     Other                                                                137,180            95,988
   Taxes accrued                                                           42,137             8,836
   Interest accrued                                                        25,371            23,625
   Other                                                                   24,886            37,786
                                                                        ---------         ---------
        Total current liabilities                                         463,725           344,808
                                                                        ---------         ---------


Deferred Credits and Other Liabilities:
   Deferred income taxes                                                  909,858           866,058
   Unamortized investment tax credits                                      15,289            17,087
   Power purchase contract loss liability (Note 1)                      1,509,279         1,699,473
   Nuclear fuel disposal fee                                              160,943           156,959
   Three Mile Island Unit 2 future costs (Note 1)                         130,783           128,735
   Other                                                                  247,867           261,839
                                                                        ---------         ---------
        Total deferred credits and other liabilities                    2,974,019         3,130,151
                                                                        ---------         ---------


Commitments and Contingencies (Note 1)


        Total Liabilities and Capitalization                           $6,300,762        $6,217,355
                                                                        =========         =========


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


                                       31

<PAGE>
<TABLE>
<CAPTION>
           JERSEY CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARY COMPANY

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

                                                                    In Thousands
                                                      -----------------------------------------------
                                                          Three Months              Six Months
                                                        Ended June 30,            Ended June 30,
                                                      ----------------------    ---------------------
                                                        2001        2000          2001        2000
                                                        ----        ----          ----        ----

<S>                                                   <C>         <C>           <C>        <C>
Operating Revenues                                    $521,054    $490,150      $982,736   $942,895
                                                       -------     -------       -------    -------

Operating Expenses:
   Fuel                                                  1,440       9,326        2,778      15,193
   Power purchased and interchanged:
     Affiliates                                          3,555      10,977        11,672     31,253
     Others                                            335,209     223,153       593,495    417,275
   Deferred costs, net                                 (63,137)    (33,482)     (113,874)   (66,996)
   Other operation and maintenance                      67,812     109,700       131,456    207,827
   Depreciation and amortization                        62,684      56,163       124,433    112,306
   Taxes, other than income taxes                       15,081      14,760        30,654     30,489
                                                       -------     -------       -------    -------
        Total operating expenses                       422,644     390,597       780,614    747,347
                                                       -------     -------       -------    -------

Operating Income                                        98,410      99,553       202,122    195,548
                                                       -------     -------       -------    -------

Other Income and Deductions:
   Allowance for other funds used during
     construction                                         (107)        297           (56)       513
   Other income/(expense), net                          10,435      (1,501)       17,707      3,931
                                                       -------     -------       -------    -------
        Total other income and deductions               10,328      (1,204)       17,651      4,444
                                                       -------     -------       -------    -------

Income Before Interest Charges                         108,738      98,349       219,773    199,992
                                                       -------     -------       -------    -------

Interest Charges:
   Long-term debt and notes payable                     26,043      22,560        49,221     45,822
   Company-obligated mandatorily
     redeemable preferred securities                     2,675       2,675         5,350      5,350
   Other interest                                          263         208         1,180        360
   Allowance for borrowed funds used
     during construction                                     3        (473)         (431)      (819)
                                                       -------     -------       -------    -------
        Total interest charges                          28,984      24,970        55,320     50,713
                                                       -------     -------       -------    -------

Income Before Income Taxes                              79,754      73,379       164,453    149,279
   Income taxes                                         33,700      28,945        67,017     59,275
                                                       -------     -------       -------    -------

Net Income                                              46,054      44,434        97,436     90,004
   Preferred stock dividends                             1,391       1,661         2,782      4,122
                                                       -------     -------       -------    -------
Earnings Available for Common Stock                   $ 44,663    $ 42,773      $ 94,654   $ 85,882
                                                       =======     =======       =======    =======






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

</TABLE>

                                       32


<PAGE>
<TABLE>
<CAPTION>
           JERSEY CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARY COMPANY

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

                                                                              In Thousands
                                                                       -----------------------------
                                                                                Six Months
                                                                             Ended June 30,
                                                                       -----------------------------
                                                                          2001               2000
                                                                          ----               ----

Operating Activities:
<S>                                                                    <C>                <C>
   Net income                                                          $  97,436          $  90,004
   Adjustments to reconcile income to cash provided:
     Depreciation and amortization                                       143,023            128,800
     Provision for doubtful accounts                                        (250)             3,232
     Regulatory assets, net                                              (17,091)           (14,380)
     Amortization of property under capital leases                           -                9,080
     Loss on sale of investments                                              48                -
     Deferred income taxes and investment tax
        credits, net                                                      18,119              2,690
     Deferred costs, net                                                (113,874)           (66,996)
     Allowance for funds used during construction                             56               (513)
   Changes in working capital:
     Receivables                                                        (101,141)            (9,982)
     Materials and supplies                                                 (843)            (1,151)
     Special deposits and prepayments                                     22,989            (47,911)
     Payables and accrued liabilities                                     71,762            111,921
     Due to/from affiliates                                              (75,217)            58,077
   Other, net                                                              2,469            (26,804)
                                                                        --------           --------
        Net cash provided by operating activities                         47,486            236,067
                                                                        --------           --------

Investing Activities:
   Capital expenditures and investments                                  (78,085)           (68,165)
   Contributions to decommissioning trusts                                  (598)           (14,671)
   Other, net                                                             (3,321)             2,299
                                                                        --------           --------
        Net cash required by investing activities                        (82,004)           (80,537)
                                                                        --------           --------

Financing Activities:
   Issuance of long-term debt                                            148,796                -
   Increase in notes payable, net                                         76,800                -
   Retirement of long-term debt                                              -              (40,000)
   Redemption of preferred stock                                          (2,500)           (21,667)
   Capital lease principal payments                                          -               (9,784)
   Dividends paid on common stock                                        (75,000)           (95,000)
   Dividends paid on preferred stock                                      (2,782)            (4,283)
                                                                        --------           --------
        Net cash provided/(required) by financing activities             145,314           (170,734)
                                                                        --------           --------

Net increase/(decrease) in cash and temporary
   cash investments from above activities                                110,796            (15,204)
Cash and temporary cash investments, beginning of year                       801             68,684
                                                                        --------           --------
Cash and temporary cash investments, end of period                     $ 111,597          $  53,480
                                                                        ========           ========

Supplemental Disclosure:
   Interest and preferred dividends paid                               $  54,613          $  55,469
                                                                        ========           ========
   Income taxes paid/(refunded)                                        $   7,759          $ (22,993)
                                                                        ========           ========
   New capital lease obligations incurred                              $     -            $   9,732
                                                                        ========           ========


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

</TABLE>

                                       33


<PAGE>
<TABLE>
<CAPTION>
              METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANIES

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


                                                                              In Thousands
                                                                      --------------------------------
                                                                        June 30,        December 31,
                                                                          2001              2000
                                                                      ------------      --------------
                                                                       (Unaudited)

ASSETS
Utility Plant:
<S>                                                                    <C>              <C>
   Utility plant in service                                            $1,585,063       $1,561,252
   Accumulated depreciation                                              (509,743)        (489,607)
                                                                        ---------        ---------
        Net utility plant in service                                    1,075,320        1,071,645
   Construction work in progress                                           20,264           22,437
   Other, net                                                                 596              596
                                                                        ---------        ---------
        Net utility plant                                               1,096,180        1,094,678
                                                                        ---------        ---------


Other Property and Investments:
   Nuclear decommissioning trusts, at market (Note 1)                     158,763          154,068
   Other, net                                                              42,117            4,472
                                                                        ---------        ---------
        Total other property and investments                              200,880          158,540
                                                                        ---------        ---------


Current Assets:
   Cash and temporary cash investments                                     72,576            3,234
   Special deposits                                                         1,094              205
   Accounts receivable:
     Customers, less provision for doubtful accounts
        of $12,842 for 2001 and $13,004 for 2000                           71,267           70,118
     Affiliates                                                            47,614           37,313
     Other                                                                 31,405           28,525
   Unbilled revenues                                                       38,504           38,688
   Deferred income taxes                                                    1,621            1,838
   Prepayments                                                             24,963            7,556
                                                                        ---------        ---------
        Total current assets                                              289,044          187,477
                                                                        ---------        ---------


Deferred Debits and Other Assets:
   Regulatory assets, net (Note 1)                                        980,076        1,224,370
   Deferred income taxes                                                  429,558          447,868
   Other                                                                   44,665           44,835
                                                                        ---------        ---------
        Total deferred debits and other assets                          1,454,299        1,717,073
                                                                        ---------        ---------






        Total Assets                                                   $3,040,403       $3,157,768
                                                                        =========        =========


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

</TABLE>

                                       34

<PAGE>

<TABLE>
<CAPTION>

              METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANIES

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


                                                                              In Thousands
                                                                      --------------------------------
                                                                        June 30,        December 31,
                                                                          2001              2000
                                                                      ------------      --------------
                                                                       (Unaudited)

LIABILITIES AND CAPITALIZATION
Capitalization:
<S>                                                                    <C>              <C>
   Common stock                                                        $   66,273       $   66,273
   Capital surplus                                                        400,200          400,200
   Retained earnings                                                       87,385           70,476
   Accumulated other comprehensive income (Note 5)                          5,333               64
                                                                        ---------        ---------
        Total common stockholder's equity                                 559,191          537,013
   Company-obligated trust preferred securities (Note 6)                  100,000          100,000
   Long-term debt                                                         466,861          496,860
                                                                        ---------        ---------
        Total capitalization                                            1,126,052        1,133,873
                                                                        ---------        ---------


Current Liabilities:
   Securities due within one year                                          30,027               27
   Notes payable                                                           98,000           46,600
   Accounts payable:
     Affiliates                                                           107,318           69,462
     Other                                                                 57,289           37,399
   Taxes accrued                                                           20,198           20,768
   Interest accrued                                                        14,765           14,375
   Other                                                                   11,007           13,858
                                                                        ---------        ---------
        Total current liabilities                                         338,604          202,489
                                                                        ---------        ---------


Deferred Credits and Other Liabilities:
   Deferred income taxes                                                  729,659          728,344
   Unamortized investment tax credits                                      13,735           14,159
   Power purchase contract loss liability (Note 1)                        474,957          727,503
   Three Mile Island Unit 2 future costs (Note 1)                         261,574          257,367
   Nuclear fuel disposal fee                                               36,356           35,456
   Other                                                                   59,466           58,577
                                                                        ---------        ---------
        Total deferred credits and other liabilities                    1,575,747        1,821,406
                                                                        ---------        ---------


Commitments and Contingencies (Note 1)


        Total Liabilities and Capitalization                           $3,040,403       $3,157,768
                                                                        =========        =========

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


                                       35

<PAGE>
<TABLE>
<CAPTION>


              METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANIES

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

                                                                    In Thousands
                                                      -----------------------------------------------
                                                          Three Months              Six Months
                                                        Ended June 30,            Ended June 30,
                                                      ----------------------    ---------------------
                                                        2001        2000          2001        2000
                                                        ----        ----          ----        ----

<S>                                                   <C>         <C>           <C>        <C>
Operating Revenues                                    $222,536    $197,814      $443,556   $400,870
                                                       -------     -------       -------    -------

Operating Expenses:
   Power purchased and interchanged:
     Affiliates                                          1,214       1,296         2,387      1,348
     Others                                            151,851     113,986       275,609    220,555
   Deferred costs, net                                 (24,690)     (2,420)      (24,394)   (16,491)
   Other operation and maintenance                      30,287      38,205        66,840     66,205
   Depreciation and amortization                        21,435      15,941        39,229     31,745
   Taxes, other than income taxes                       10,601      11,593        21,233     22,976
                                                       -------     -------       -------    -------
        Total operating expenses                       190,698     178,601       380,904    326,338
                                                       -------     -------       -------    -------

Operating Income                                        31,838      19,213        62,652     74,532
                                                       -------     -------       -------    -------

Other Income and Deductions:
   Allowance for other funds used during
     construction                                          -            (1)          -           28
   Other income, net                                     9,199       8,249        17,385     11,020
                                                       -------     -------       -------    -------
        Total other income and deductions                9,199       8,248        17,385     11,048
                                                       -------     -------       -------    -------

Income Before Interest Charges                          41,037      27,461        80,037     85,580
                                                       -------     -------       -------    -------

Interest Charges:
   Long-term debt and notes payable                     11,761      11,405        22,451     23,340
   Company-obligated trust
     preferred securities                                1,837       1,837         3,675      3,675
   Other interest                                          531         560         1,231      1,086
   Allowance for borrowed funds used
     during construction                                   (27)        (84)         (186)      (268)
                                                       -------     -------       -------    -------
        Total interest charges                          14,102      13,718        27,171     27,833
                                                       -------     -------       -------    -------

Income Before Income Taxes                              26,935      13,743        52,866     57,747
   Income taxes                                         11,043       5,076        20,957     22,587
                                                       -------     -------       -------    -------
Net Income                                            $ 15,892    $  8,667      $ 31,909   $ 35,160
                                                       =======     =======       =======    =======



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


                                       36


<PAGE>
<TABLE>
<CAPTION>
              METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANIES

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

                                                                              In Thousands
                                                                       -----------------------------
                                                                                Six Months
                                                                             Ended June 30,
                                                                       -----------------------------
                                                                          2001               2000
                                                                          ----               ----

Operating Activities:
<S>                                                                    <C>                <C>
   Net income                                                          $  31,909          $  35,160
   Adjustments to reconcile income to cash provided:
     Depreciation and amortization                                        39,985             31,616
     Provision for doubtful accounts                                       3,808              6,919
     Regulatory assets, net                                              (17,325)           (21,003)
     Voluntary enhanced retirement programs                                9,189                -
     Deferred income taxes and investment tax
        credits, net                                                      10,453              8,138
     Deferred costs, net                                                 (24,394)           (16,491)
   Changes in working capital:
     Receivables                                                          (7,653)           (18,354)
     Special deposits and prepayments                                    (18,296)              (333)
     Payables and accrued liabilities                                     16,859            (16,285)
     Due to/from affiliates                                               18,366            (47,487)
   Nonutility generation contract buyout costs                               -               (1,250)
   Other, net                                                              4,360              2,033
                                                                        --------           --------
        Net cash provided/(required) by operating activities              67,261            (37,337)
                                                                        --------           --------

Investing Activities:
   Capital expenditures and investments                                  (25,022)           (23,191)
   Contributions to decommissioning trusts                                (4,742)            (3,955)
   Other, net                                                             (4,555)               -
                                                                        --------           ---------
        Net cash required by investing activities                        (34,319)           (27,146)
                                                                        --------           --------

Financing Activities:
   Increase in notes payable, net                                         51,400            128,600
   Retirement of long-term debt                                              -              (50,000)
   Dividends paid on common stock                                        (15,000)           (25,000)
                                                                        --------           --------
        Net cash provided by financing activities                         36,400             53,600
                                                                        --------           --------

Net increase/(decrease) in cash and temporary cash
   investments from above activities                                      69,342            (10,883)
Cash and temporary cash investments, beginning of year                     3,234             10,899
                                                                        --------           --------
Cash and temporary cash investments, end of period                     $  72,576          $      16
                                                                        ========           ========

Supplemental Disclosure:
   Interest and preferred dividends paid                               $  25,145          $  27,803
                                                                        ========           ========
   Income taxes paid                                                   $   2,355          $  45,736
                                                                        ========           ========
   New capital lease obligations incurred                              $     -            $     -
                                                                        ========           ========



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



                                       37


<PAGE>
<TABLE>
<CAPTION>


             PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES

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


                                                                              In Thousands
                                                                      --------------------------------
                                                                        June 30,        December 31,
                                                                          2001              2000
                                                                      ------------      --------------
                                                                       (Unaudited)

ASSETS
Utility Plant:
<S>                                                                    <C>              <C>
   Utility plant in service                                            $1,806,968       $1,791,594
   Accumulated depreciation                                              (608,023)        (588,377)
                                                                        ---------        ---------
        Net utility plant in service                                    1,198,945        1,203,217
   Construction work in progress                                           33,708           25,895
   Other, net                                                               2,428            2,665
                                                                        ---------        ---------
        Net utility plant                                               1,235,081        1,231,777
                                                                        ---------        ---------


Other Property and Investments:
   Nonutility generation trust, at market                                 181,805          190,710
   Nuclear decommissioning trusts, at market (Note 1)                      98,513           98,426
   Other, net                                                              20,766              833
                                                                        ---------        ---------
        Total other property and investments                              301,084          289,969
                                                                        ---------        ---------


Current Assets:
   Cash and temporary cash investments                                    131,249              250
   Special deposits                                                           437              330
   Accounts receivable:
     Customers, less provision for doubtful accounts
        of $14,745 for 2001 and $14,851 for 2000                           76,936           78,001
     Affiliates                                                               959            9,558
     Other                                                                 25,652           21,205
   Unbilled revenues                                                       35,232           39,514
   Deferred income taxes                                                    1,615            1,912
   Prepayments                                                             22,818           11,869
                                                                        ---------        ---------
        Total current assets                                              294,898          162,639
                                                                        ---------        ---------


Deferred Debits and Other Assets:
   Regulatory assets, net (Note 1)                                        331,110          614,182
   Deferred income taxes                                                  712,054          708,954
   Other                                                                   36,683           34,829
                                                                        ---------        ---------
        Total deferred debits and other assets                          1,079,847        1,357,965
                                                                        ---------        ---------



        Total Assets                                                   $2,910,910       $3,042,350
                                                                        =========        =========
</TABLE>


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


                                       38

<PAGE>
<TABLE>
<CAPTION>
             PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES

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


                                                                              In Thousands
                                                                      --------------------------------
                                                                        June 30,        December 31,
                                                                          2001              2000
                                                                      ------------      --------------
                                                                       (Unaudited)

LIABILITIES AND CAPITALIZATION
Capitalization:
<S>                                                                    <C>              <C>
   Common stock                                                        $  105,812       $  105,812
   Capital surplus                                                        370,487          320,487
   Retained earnings                                                       48,600           43,515
   Accumulated other comprehensive income (Note 5)                          2,726               23
                                                                        ---------        ---------
        Total common stockholder's equity                                 527,625          469,837
   Company-obligated trust preferred securities (Note 6)                  100,000          100,000
   Long-term debt                                                         492,905          517,813
                                                                        ---------        ---------
        Total capitalization                                            1,120,530        1,087,650
                                                                        ---------        ---------


Current Liabilities:
   Securities due within one year                                          25,014               14
   Notes payable                                                          109,000           55,800
   Obligations under capital leases                                           510              485
   Accounts payable:
     Affiliates                                                            65,553           29,788
     Other                                                                 67,065           50,673
   Taxes accrued                                                           18,251           23,895
   Interest accrued                                                        12,101           11,582
   Other                                                                    6,119            6,880
                                                                        ---------        ---------
        Total current liabilities                                         303,613          179,117
                                                                        ---------        ---------


Deferred Credits and Other Liabilities:
   Deferred income taxes                                                  747,651          735,750
   Unamortized investment tax credits                                      12,527           13,098
   Power purchase contract loss liability (Note 1)                        547,795          846,992
   Three Mile Island Unit 2 future costs (Note 1)                         130,787          128,820
   Nuclear fuel disposal fee                                               18,178           17,728
   Other                                                                   29,829           33,195
                                                                        ---------        ---------
        Total deferred credits and other liabilities                    1,486,767        1,775,583
                                                                        ---------        ---------


Commitments and Contingencies (Note 1)


        Total Liabilities and Capitalization                           $2,910,910       $3,042,350
                                                                        =========        =========


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


                                       39

<PAGE>
<TABLE>
<CAPTION>
             PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES

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

                                                                    In Thousands
                                                      -----------------------------------------------
                                                         Three Months              Six Months
                                                         Ended June 30,            Ended June 30,
                                                      ----------------------    ---------------------
                                                        2001        2000          2001        2000
                                                        ----        ----          ----        ----

<S>                                                   <C>         <C>           <C>        <C>
Operating Revenues                                    $230,600    $206,789      $474,427   $426,894
                                                       -------     -------       -------    -------

Operating Expenses:
   Power purchased and interchanged:
     Affiliates                                          1,138         876         2,094      1,033
     Others                                            165,577     140,090       344,052    270,136
   Deferred costs, net                                 (24,388)    (19,272)      (34,755)   (44,305)
   Other operation and maintenance                      37,682      44,425        80,765     83,231
   Depreciation and amortization                        15,099      13,469        29,628     25,003
   Taxes, other than income taxes                       12,461      12,523        24,151     23,486
                                                       -------     -------       -------    -------
        Total operating expenses                       207,569     192,111       445,935    358,584
                                                       -------     -------       -------    -------

Operating Income                                        23,031      14,678        28,492     68,310
                                                       -------     -------       -------    -------

Other Income and Deductions:
   Other income, net                                     2,534       3,858         3,719      4,705
                                                       -------     -------       -------    -------
        Total other income and deductions                2,534       3,858         3,719      4,705
                                                       -------     -------       -------    -------

Income Before Interest Charges                          25,565      18,536        32,211     73,015
                                                       -------     -------       -------    -------

Interest Charges:
   Long-term debt and notes payable                     10,251       9,124        19,661     16,401
   Company-obligated trust
     preferred securities                                1,835       1,835         3,670      3,670
   Other interest                                          671         311         1,077        607
   Allowance for borrowed funds used
     during construction                                  (140)       (199)         (284)      (499)
                                                       -------     -------       -------    -------
        Total interest charges                          12,617      11,071        24,124     20,179
                                                       -------     -------       -------    -------

Income Before Income Taxes                              12,948       7,465         8,087     52,836
   Income taxes                                          5,758       2,926         3,002     21,355
                                                       -------     -------       -------    -------
Net Income                                            $  7,190    $  4,539      $  5,085   $ 31,481
                                                       =======     =======       =======    =======




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

</TABLE>

                                       40


<PAGE>
<TABLE>
<CAPTION>
             PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES

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


                                                                              In Thousands
                                                                       -----------------------------
                                                                                Six Months
                                                                             Ended June 30,
                                                                       -----------------------------
                                                                          2001               2000
                                                                          ----               ----

Operating Activities:
<S>                                                                    <C>                <C>
   Net income                                                          $   5,085          $  31,481
   Adjustments to reconcile income to cash provided:
     Depreciation and amortization                                        26,858             24,702
     Provision for doubtful accounts                                       5,031              6,987
     Regulatory assets, net                                               (5,272)            (5,606)
     Voluntary enhanced retirement programs                                9,077                -
     Deferred income taxes and investment tax
        credits, net                                                       8,311             12,753
     Deferred costs, net                                                 (34,755)           (44,305)
     Allowance for other funds used during construction                     (284)               -
   Changes in working capital:
     Receivables                                                          (4,130)           (16,766)
     Special deposits and prepayments                                    (11,056)              (222)
     Payables and accrued liabilities                                     10,508            (88,410)
     Due to/from affiliates                                               35,287            (29,085)
   Nonutility generation contract buyout costs                               -               (4,410)
   Other, net                                                                512             18,032
                                                                        --------           --------
        Net cash provided/(required) by operating activities              45,172            (94,849)
                                                                        --------           --------

Investing Activities:
   Capital expenditures and investments                                  (29,372)           (29,452)
   Proceeds from nonutility generation trust                              16,185             44,809
   Contributions to decommissioning trusts                                   (15)               (20)
   Other, net                                                             (4,171)             2,047
                                                                        --------           --------
        Net cash provided/(required) by investing activities             (17,373)            17,384
                                                                        --------           --------

Financing Activities:
   Increase in notes payable, net                                         53,200             50,800
   Issuance of long-term debt                                                -               50,000
   Contributions from parent corporation                                  50,000                -
   Dividends paid on common stock                                            -              (55,000)
                                                                        --------           --------
        Net cash provided by financing activities                        103,200             45,800
                                                                        --------           --------

Net increase/(decrease) in cash and temporary cash
   investments from above activities                                     130,999            (31,665)
Cash and temporary cash investments, beginning of year                       250             32,250
                                                                        --------           --------
Cash and temporary cash investments, end of period                     $ 131,249          $     585
                                                                        ========           ========

Supplemental Disclosure:
   Interest and preferred dividends paid                               $  18,581          $  10,914
                                                                        ========           ========
   Income taxes paid/(refunded)                                        $  (9,148)         $ 115,575
                                                                        ========           ========
   New capital lease obligations incurred                              $     -            $     -
                                                                        ========           ========

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

</TABLE>

                                       41


<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).  These electric
utilities  are  conducting  business  under the name GPU Energy  and  considered
together are referred to as the "GPU Energy  companies."  GPU Capital,  Inc. and
GPU Electric,  Inc. and their subsidiaries own, operate and fund the acquisition
of electric distribution and gas transmission systems in foreign countries,  and
are referred to as "GPU  Electric." GPU  Electric's  foreign  utility  companies
include  Midlands  Electricity  plc  (conducting  business as GPU Power UK); GPU
Empresa  Distribuidora  Electrica Regional S.A.  (Emdersa);  and GPU GasNet. GPU
Power, Inc. and its subsidiaries (GPU Power) develop, own and operate generation
facilities in foreign  countries.  Other  subsidiaries of GPU, Inc.  include GPU
Advanced  Resources,  Inc. (GPU AR), which sells electric energy at retail;  GPU
Telcom    Services,     Inc.    (GPU    Telcom),    which    is    engaged    in
telecommunications-related  businesses; MYR Group Inc. (MYR), which is a utility
infrastructure  construction  services company; GPU Service,  Inc. (GPUS), which
provides legal,  accounting,  financial and other services to the GPU companies;
GPU  Diversified   Holdings  LLC,  which  makes  investments  in  energy-related
businesses;  and GPU Nuclear,  Inc.  (GPUN).  All of these companies  considered
together are referred to as "GPU."


1.  COMMITMENTS AND CONTINGENCIES

                 PENDING MERGER OF FIRSTENERGY CORP. AND GPU
                 -------------------------------------------

      In  August  2000,  GPU,  Inc.  entered  into an  agreement  to merge  with
FirstEnergy, an Ohio corporation, headquartered in Akron, Ohio. Under the merger
agreement,  FirstEnergy  would  acquire all of the  outstanding  shares of GPU's
common  stock for  approximately  $4.5  billion in cash and  FirstEnergy  common
stock.

      Under the agreement,  GPU stockholders would receive $36.50 for each share
of GPU common stock they own,  payable in cash or the  equivalent  of $36.50 per
share in FirstEnergy  common stock, as long as FirstEnergy's  common stock price
is between $24.24 and $29.63.  Each GPU  stockholder  would be able to elect the
form of consideration,  subject to proration so that the aggregate consideration
to all GPU  stockholders  will be 50  percent  cash and 50  percent  FirstEnergy
common stock.  Each GPU share converted into  FirstEnergy  common stock would be
exchanged  for not  less  than  1.2318  and  not  more  than  1.5055  shares  of
FirstEnergy common stock,  depending on the average closing price of FirstEnergy
stock during the 20-day trading period ending on the sixth trading date prior to
the merger closing.

      The merger has been approved by the Boards of Directors  and  stockholders
of GPU, Inc. and  FirstEnergy and is expected to close promptly after all of the
conditions  to the  consummation  of the merger  (including  the  receipt of all
necessary  regulatory  approvals,  provided that such  approvals will not impose
terms and conditions that would  reasonably be expected to result in a "material
adverse effect," as defined in the merger  agreement,  on the combined  company,
and there being no "material  adverse effect" on either GPU or FirstEnergy since
June 30,  2000 or March  31,  2000,  respectively),  are  fulfilled  or  waived.
Relevant factors would include the nature of any order


                                       42


<PAGE>
GPU, Inc. and Subsidiary Companies

issued by the regulatory  authorities,  the financial and business conditions of
each company,  and whether,  and the extent to which, any developments relate to
general economic  conditions.  The majority of regulatory approvals required for
the  merger,  including  that  of the  Pennsylvania  Public  Utility  Commission
(PaPUC), have been received,  and the companies are awaiting approval by the New
Jersey  Board of  Public  Utilities  (NJBPU)  and the  Securities  and  Exchange
Commission (SEC). GPU and FirstEnergy expect to receive the remaining regulatory
approvals  and to complete the merger  during the fall of 2001.  There can be no
assurance as to the outcome of these matters.

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

Stranded Costs and Regulatory Restructuring Orders:
--------------------------------------------------

      With the transition to a competitive marketplace for generation service in
New Jersey and Pennsylvania,  certain  generation-related costs, which generally
would be recoverable in a regulated  environment,  may no longer be recoverable.
These costs are generally referred to as stranded costs.

      In March 2001,  the NJBPU issued a Final  Decision and Order (Final Order)
with  respect  to  JCP&L's  rate  unbundling,  stranded  cost and  restructuring
filings,  which  supersedes a Summary Order issued by the NJBPU in May 1999. The
Final Order confirms rate reductions set forth in the Summary Order, which began
in August 1999 and will remain in effect at increasing levels through July 2003,
and provides for, among other things,  deregulation of the costs associated with
providing   electric   generation   service.   The  Final  Order   confirms  the
establishment  of a  non-bypassable  societal  benefits  charge to recover costs
associated  with,  among  other  things,   nuclear  plant   decommissioning  and
manufactured  gas  plant  remediation,   as  well  as  a  non-bypassable  market
transition  charge  (MTC).  The Final Order  provides for the ability to recover
stranded costs;  however, the NJBPU deferred making a final determination of the
net proceeds and stranded  costs related to the  generating  asset  divestitures
until GPU's request for an Internal  Revenue Service (IRS) ruling  regarding the
treatment of associated federal income tax benefits is acted upon.

      In  addition,  JCP&L is  permitted  to defer for  future  collection  from
customers the amounts by which its costs of supplying basic  generation  service
(BGS) to non-shopping  customers and costs incurred under nonutility  generation
(NUG) agreements  exceed amounts  collected in BGS and MTC rates. As of June 30,
2001,  such deferred  balance  totaled $373 million.  The Final Order allows for
securitization  of the  NUG  portion  of  JCP&L's  deferred  balance  so long as
conditions of the New Jersey restructuring  legislation are met. However,  JCP&L
must seek NJBPU authorization to securitize that portion of its deferred balance
related to above-market  NUG costs.  There can be no assurance as to the extent,
if any, that the NJBPU will permit such securitization.

      The Final Order also provides for the ability to securitize stranded costs
associated  with  Oyster  Creek.  JCP&L  has  filed a  petition  with the  NJBPU
requesting authorization to issue $320 million of transition bonds to securitize
the recovery of certain of these costs.

      In  1998,  the  PaPUC  issued  amended   Restructuring   Orders  approving
Settlement  Agreements  entered  into by Met-Ed and Penelec  which,  among other
things, provide for customer choice of electric generation supplier beginning


                                       43


<PAGE>
GPU, Inc. and Subsidiary Companies

January 1, 1999 and a one-year (1999) reduction in retail distribution rates for
all consumers.  The Orders also provide for recovery of a substantial portion of
what otherwise would have become stranded costs, subject to Phase II proceedings
following   the   completion  of  Met-Ed's  and   Penelec's   generating   asset
divestitures,  to make a final determination of the extent of that stranded cost
recovery.  In 2000,  Met-Ed and Penelec  submitted Phase II Reports to the PaPUC
supporting their actual net divestiture  proceeds and providing a reconciliation
of stranded costs pursuant to the 1998 Restructuring Orders.

      In 2000,  the PaPUC  issued a Phase II Order  which,  among other  things,
disallowed  a portion of the  requested  additional  stranded  costs above those
amounts granted in the 1998 Orders.  The Phase II Order also deferred a decision
on Met-Ed's  requested  increase in rates,  beginning  in 2006,  for recovery of
Met-Ed's  generation-related  stranded  costs.  In addition,  the Order requires
Met-Ed  and  Penelec  to seek an IRS  ruling  regarding  the  return of  certain
unamortized  investment tax credits and excess  deferred  income tax benefits to
ratepayers.  If the IRS ruling ultimately  supports returning these tax benefits
to  ratepayers,  Met-Ed and  Penelec  would then  reduce  stranded  costs by $40
million plus interest and record a corresponding charge to income.

Supply of Electricity:
---------------------

      As a result of the NJBPU's and the PaPUC's  Restructuring  Orders, the GPU
Energy  companies  are  required  to act as  provider  of last  resort  (PLR) by
supplying  electricity  to customers  who do not choose an  alternate  supplier.
Given that the GPU  Energy  companies  have  essentially  exited the  generation
business and will have to supply  electricity to non-shopping  customers  almost
entirely  from  contracted  and open market  purchases,  there will be increased
risks  associated with supplying that  electricity.  JCP&L is permitted to defer
for future  recovery the amount by which its reasonable  and prudently  incurred
costs  associated  with  providing  basic  generation  service  to  non-shopping
customers exceeds amounts currently  reflected in its rates for basic generation
service.  However,  under the 1998 Restructuring Orders, Met-Ed and Penelec have
been  unable to recover  energy  costs in excess of amounts  reflected  in their
capped generation rates, which are in effect for varying periods.

      During 2000,  market  prices at which Met-Ed and Penelec were  required to
purchase  electricity for their retail supply  customers at times  substantially
exceeded  the  amounts  Met-Ed  and  Penelec  were  allowed  to charge  for that
electricity  under  their  capped  rates.  This  situation   resulted  in  GPU's
Pennsylvania  supply  business  recording a loss for 2000 of  approximately  $28
million (Met-Ed $14 million; Penelec $14 million) after-tax, or $0.22 per share.
In November  2000,  Met-Ed and Penelec  filed a petition  with the PaPUC seeking
permission to defer for future  recovery their energy costs in excess of amounts
reflected  in  their  capped  generation  rates.  In  January  2001,  the  PaPUC
consolidated  this  petition  with the  GPU/FirstEnergy  merger  proceeding  for
consideration and resolution in accord with the merger procedural schedule.

      In June 2001,  Met-Ed,  Penelec and FirstEnergy  entered into a Settlement
Stipulation  with all of the major  intervenors in the combined  merger and rate
relief proceedings, that, in addition to resolving certain issues concerning the
PaPUC's  approval of the  GPU/FirstEnergy  merger,  also addressed  Met-Ed's and
Penelec's request for PLR rate relief. On June 20, 2001, the PaPUC


                                       44


<PAGE>
GPU, Inc. and Subsidiary Companies

entered orders approving the Settlement  Stipulation,  thus approving the merger
and  providing  Met-Ed and Penelec PLR rate  relief,  as  discussed  below.  For
additional information with respect to the effects PLR rate relief would have on
Met-Ed and Penelec  upon  consummation  of the merger,  refer to the  Settlement
Stipulation filed as an exhibit to GPU's Form 8-K on June 15, 2001.

      As a result of the PaPUC's  order  approving the  Settlement  Stipulation,
Met-Ed and Penelec are  permitted to defer for future  recovery  the  difference
between their actual energy costs and those reflected in their capped generation
rates,  retroactive  to January 1, 2001.  Predicated  upon  consummation  of the
GPU/FirstEnergy merger, these "PLR deferrals" will continue through December 31,
2005.  If energy  costs  incurred by Met-Ed and  Penelec  during this period are
below their respective  capped generation rates, the difference would be used to
reduce their PLR deferrals.

      Met-Ed and Penelec have established  regulatory assets for the deferral of
excess energy costs  incurred  during the period of January 1, 2001 through June
30, 2001. However, if the  GPU/FirstEnergy  merger fails to be consummated,  the
Settlement  Stipulation  requires the  write-off of Met-Ed's and  Penelec's  PLR
deferrals  for the period of January 1, 2001  through May 31,  2001.  Therefore,
pending  consummation of the merger,  GPU has recorded an offsetting  reserve of
$29.3 million  ($13.1  million for Met-Ed and $16.2 million for Penelec) for the
PLR deferrals during the period of January 1, 2001 through May 31, 2001.

      If the GPU/FirstEnergy  merger is consummated,  Met-Ed's and Penelec's PLR
obligations  will be extended through  December 31, 2010.  Additionally,  if the
merger is consummated,  the companies' respective  Competitive Transition Charge
(CTC)  revenues  will be applied  first to PLR costs,  then to non-NUG  stranded
costs and lastly to NUG stranded costs through December 31, 2010.  Remaining PLR
deferrals not recovered as of December 31, 2010 would have to be written off.

      Last, if the merger is consummated,  the Settlement Stipulation requires a
revised  calculation  of NUG stranded costs being  recovered  under the terms of
Met-Ed's and Penelec's  1998  Restructuring  Orders,  retroactive  to January 1,
2001.  In  addition,  subject to  consummation  of the  merger,  the  Settlement
Stipulation  allows  Penelec to access  its NUG Trust to fund all costs  payable
under its NUG agreements, retroactive to January 1, 2001.

      If the merger is abandoned,  the Settlement  Stipulation provides that the
PLR  proceeding  would be  reopened  by the  PaPUC to permit  parties  to submit
testimony and otherwise address  prospectively the overall retail rate levels of
Met-Ed and  Penelec,  including  whether or at what  level PLR  deferrals  would
continue on a prospective basis. This proceeding, however, would not prevent the
recovery of Met-Ed's and Penelec's  PLR deferrals  from June 1, 2001 through the
date of the final PaPUC order in the reopened proceeding.

      Several  parties  have filed  Petitions  for Review with the  Commonwealth
Court of Pennsylvania  regarding the PaPUC's orders.  The Court has consolidated
most of these  appeals,  and has granted an expedited  schedule under which oral
argument is  scheduled  for November  2001.  There can be no assurance as to the
outcome of these matters.



                                       45


<PAGE>
GPU, Inc. and Subsidiary Companies

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

      The  evolving  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 seek  shorter-term  agreements
offering  more  flexibility.  The GPU Energy  companies'  supply plan focuses on
short- to  intermediate-term  commitments  (one month to three years),  with any
residual needs then being purchased from the short-term  market (one hour to one
month).

      The GPU Energy  companies  have entered into  agreements  with third party
suppliers to purchase  capacity and energy  through  2004.  As of June 30, 2001,
payments pursuant to these agreements, which include firm commitments as well as
certain assumptions regarding,  among other things,  call/put arrangements,  are
estimated  to be $839 million for the  remainder of 2001,  $708 million in 2002,
$79 million in 2003 and $5 million in 2004.

      Pursuant to the mandates of the federal Public Utility Regulatory Policies
Act and state regulatory  directives,  the GPU Energy companies were required to
enter into  long-term  power purchase  agreements  with NUGs for the purchase of
energy and capacity,  which  agreements  have remaining terms of up to 19 years.
The rates under  virtually all of the GPU Energy  companies'  NUG agreements are
substantially  in  excess of  current  and  projected  prices  from  alternative
sources,  except for periods  when GPU Energy is required to meet high  customer
demand, typically during periods of extremely hot weather or when power supplies
are limited.  The following  table shows actual  payments from 1999 through June
30, 2001, and estimated payments thereafter through 2006:

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

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

      1999                $774       $388        $167        $219
      2000                 734        364         153         217
      2001                 756        412         148         196
      2002                 821        480         149         192
      2003                 829        480         153         196
      2004                 831        472         158         201
      2005                 822        462         162         198
      2006                 826        458         167         201

      The NJBPU Final Order provides JCP&L assurance of full recovery of its NUG
costs (including above-market NUG costs and certain buyout costs); and the PaPUC
Restructuring  Orders provide  Met-Ed and Penelec  assurance of full recovery of
their above-market NUG costs and certain NUG buyout costs. At June 30, 2001, the
GPU Energy companies have recorded,  on a present value basis, a total estimated
liability of $2.5 billion (JCP&L $1.5 billion; Met-Ed $0.5 billion; Penelec $0.5
billion) on the  Consolidated  Balance Sheet for above-market NUG costs which is
offset  by  corresponding  regulatory  assets.  The  GPU  Energy  companies  are
continuing efforts to reduce the above-market  costs of these agreements.  There
can be no assurance as to the extent to which these efforts will be successful.


                                       46


<PAGE>
GPU, Inc. and Subsidiary Companies

      In 1997, the NJBPU approved a Stipulation of Final Settlement which, among
other things,  provided for the recovery of costs  associated with the buyout of
the Freehold  Cogeneration power purchase agreement (Freehold buyout). The NJBPU
approved the cost recovery of up to $135 million,  over a seven-year  period, on
an interim  basis subject to refund.  The NJBPU's  Final Order  provides for the
continued  recovery of the  Freehold  buyout in the MTC, but has not altered the
interim  nature of such recovery,  pending a final decision by the NJBPU.  There
can be no assurance as to the outcome of this matter.


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

      JCP&L,  in  1999,  and  Met-Ed  and  Penelec  in  1998,  discontinued  the
application  of  Statement of Financial  Accounting  Standards  No. 71 (FAS 71),
"Accounting  for the Effects of Certain  Types of  Regulation,"  and adopted the
provisions  of Statement of Financial  Accounting  Standards  No. 101 (FAS 101),
"Regulated  Enterprises - Accounting for the  Discontinuation  of Application of
FASB  Statement  No.  71," and  Emerging  Issues Task Force  (EITF)  Issue 97-4,
"Deregulation  of the Pricing of Electricity - Issues Related to the Application
of FAS 71 and FAS 101," with respect to their  electric  generation  operations.
The  transmission  and  distribution   portion  of  the  GPU  Energy  companies'
operations  continues  to be subject  to the  provisions  of FAS 71.  Regulatory
assets, net as reflected in the June 30, 2001 and December 31, 2000 Consolidated
Balance  Sheets in accordance  with the provisions of FAS 71 and EITF Issue 97-4
were as follows:

                                                         (in thousands)
                                                      June 30,   December 31,
GPU, Inc. and Subsidiary Companies                      2001         2000
----------------------------------                  -----------  ------------

Market transition charge (MTC) / basic
  generation service                                 $2,520,678   $2,646,027
Competitive transition charge (CTC)                     958,129    1,492,531
Costs recoverable through distribution rates            634,342      644,287
Societal benefits charge                                117,441      153,191
Income taxes recoverable through future
  MTC / distribution rates, net                          93,353       87,588
                                                      ---------    ---------
     Total regulatory assets, net                    $4,323,943   $5,023,624
                                                      =========    =========

JCP&L
-----

MTC / basic generation service                       $2,520,678   $2,646,027
Costs recoverable through distribution rates            281,285      298,266
Societal benefits charge                                117,441      153,191
Income taxes recoverable through future
  MTC / distribution rates, net                          93,353       87,588
                                                      ---------    ---------
     Total regulatory assets, net                    $3,012,757   $3,185,072
                                                      =========    =========

Met-Ed
------

CTC                                                  $  802,545   $1,053,085
Costs recoverable through distribution rates:
  Income taxes recoverable through future rates, net    120,433      114,543
  TMI-2 decommissioning costs                            29,391       27,610
  Other, net                                             27,707       29,132
                                                      ---------    ---------
     Total regulatory assets, net                    $  980,076   $1,224,370
                                                      =========    =========




                                       47


<PAGE>
GPU, Inc. and Subsidiary Companies

                                                         (in thousands)
                                                      June 30,   December 31,
Penelec                                                 2001         2000
-------                                             -----------  ------------

CTC                                                  $  155,584   $  439,446
Costs recoverable through distribution rates:
  Income taxes recoverable through future rates, net    148,799      149,399
  TMI-2 decommissioning costs                            20,140       18,479
  Other, net                                              6,587        6,858
                                                      ---------    ---------
     Total regulatory assets, net                    $  331,110   $  614,182
                                                      =========    =========

      As of June 30, 2001,  Regulatory  assets, net includes $252 million (JCP&L
$373  million;   Met-Ed  $37  million;   Penelec  $(158)  million)  of  deferred
energy-related costs plus interest (net of collections),  which deferred balance
includes the under-recovered costs of supplying electricity to customers who did
not choose an alternate  supplier,  as well as above-market  NUG costs. The $252
million excludes the net generation asset  divestiture  gains which were used to
reduce  stranded  costs.  For additional  information,  see  Competition and the
Changing Regulatory Environment section.


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

Investments:
-----------

      In 1999, the GPU Energy companies sold Three Mile Island Unit 1 (TMI-1) to
AmerGen Energy Company,  LLC (AmerGen) for  approximately  $100 million,  and in
2000, JCP&L sold Oyster Creek to AmerGen for approximately $10 million.  As part
of the sales,  AmerGen has assumed full  responsibility for  decommissioning the
plants,  and the GPU Energy  companies  have  transferred  $320 million and $430
million of TMI-1 and Oyster Creek decommissioning trust funds, respectively,  to
AmerGen. JCP&L, Met-Ed and Penelec jointly own TMI-2, which was damaged during a
1979 accident, in the percentages of 25%, 50% and 25%, respectively. JCP&L's net
investment  in TMI-2 as of June 30, 2001 and  December  31, 2000 was $52 million
and $55 million, respectively. JCP&L is collecting revenues for TMI-2 on a basis
which  provides for the  recovery of its  remaining  investment  in the plant by
2008. Met-Ed's and Penelec's remaining  investments in TMI-2 were written off in
1998 after receiving the PaPUC's Restructuring Orders.

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 US 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 Nuclear Regulatory Commission (NRC)
for up to $85 million, bringing


                                       48


<PAGE>
GPU, Inc. and Subsidiary Companies

their total financial  protection up to an aggregate of $560 million.  Under the
secondary level, the GPU Energy companies are subject to a retrospective premium
charge of up to $5 million per  reactor,  or a total of $15 million  (JCP&L $7.5
million; Met-Ed $5 million; Penelec $2.5 million).

      In 1995,  the US 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 US 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  the ten initial "test
cases"  which had been  selected  for a test case  trial,  as well as all of the
remaining 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  appealed the District  Court's ruling to the
Court of Appeals for the Third  Circuit.  In November  1999,  the Third  Circuit
affirmed the District  Court's  dismissal of the ten "test cases," but set aside
the dismissal of the additional  pending claims,  remanding them to the District
Court for further proceedings. In remanding these claims, the Third Circuit held
that the District Court had erred in extending its summary judgment  decision to
the other  plaintiffs  and imposing on these  plaintiffs  the  District  Court's
finding that radiation exposures below 10 rems were too speculative to establish
a causal  link to cancer.  The Court of Appeals  stated that the  non-test  case
plaintiffs  should be permitted to present  their own  individual  evidence that
exposure to radiation from the accident caused their cancers.  In June 2000, the
US Supreme Court denied  petitions for review filed by GPU, Inc., the GPU Energy
companies and the plaintiffs.

      In September 2000, the defendants  filed a Motion for Summary  Judgment in
the District Court.  Meanwhile,  the plaintiffs took an interlocutory  appeal to
the Third Circuit seeking review of the District Court's  determination that the
remaining  plaintiffs should be allowed to advance causation theories based only
on the  admissible  evidence of record at the close of discovery in the case. On
April 30, 2001, the Third Circuit  affirmed the District  Court's  decision.  In
July 2001,  the  defendants  renewed  their  motion for Summary  Judgment of the
remaining 2,100 claims in the District Court.

      There can be no assurance as to the outcome of this litigation.




                                       49


<PAGE>
GPU, Inc. and Subsidiary Companies

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


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

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

      In 1995,  a  consultant  performed  a  site-specific  study of TMI-2  that
considered   various   decommissioning   methods  and   estimated  the  cost  of
decommissioning  the  radiological  portion  and  the  cost  of  removal  of the
nonradiological  portion  of the plant,  using the prompt  removal/dismantlement
method.  Management has reviewed the methodology  and  assumptions  used in this
study, is in agreement with them, and believes the results are  reasonable.  The
TMI-2  funding  completion  date is 2014,  consistent  with TMI-2  remaining  in
long-term  storage.  The retirement  cost estimate under the 1995  site-specific
study,  assuming   decommissioning  of  TMI-2  in  2014,  is  $458  million  for
radiological  decommissioning and $37 million for non-radiological removal costs
(net of $12.6 million spent as of June 30, 2001)(in 2001 dollars).

      Each of the GPU Energy  companies is responsible  for retirement  costs in
proportion to its respective ownership percentage. The ultimate cost of retiring
TMI-2 may be different  from the cost estimate  contained in this  site-specific
study. The NRC has established a decommissioning funding target which, while not
an actual cost estimate,  is a reference level designed to assure that licensees
demonstrate adequate financial  responsibility for decommissioning.  The current
NRC funding target exceeds the site-specific study cost estimate by $13 million.

      The estimated  liability for future TMI-2  retirement  costs (reflected as
Three Mile Island Unit 2 future costs on the Consolidated  Balance Sheets) as of
June 30, 2001 and December 31, 2000 is $523 million (JCP&L $131 million;  Met-Ed
$261 million; Penelec $131 million) and $515 million (JCP&L $129 million; Met-Ed
$257 million; Penelec $129 million),  respectively. This liability is based upon
the 1995 site-specific  study estimate (in 2001 and 2000 dollars,  respectively)
discussed  above and an estimate for  remaining  incremental  monitored  storage
costs of $29 million (JCP&L $7 million; Met-Ed $15 million;  Penelec $7 million)
and $29 million (JCP&L $7 million; Met-Ed $15 million; Penelec $7 million) as of
June 30, 2001 and December 31, 2000, respectively, as a result of TMI-2 entering
long-term monitored storage in 1993.

      Offsetting the $523 million  liability as of June 30, 2001 is $129 million
(JCP&L $16 million; Met-Ed $93 million;  Penelec $20 million),  which management
believes is  probable of recovery  from  customers  and  included in  Regulatory
assets,  net on the  Consolidated  Balance  Sheet,  and $373 million (JCP&L $116
million; Met-Ed $159 million;  Penelec $98 million) in trust funds for TMI-2 and
included  in  Nuclear  decommissioning  trusts,  at market  on the  Consolidated
Balance Sheet.

      The NJBPU has granted JCP&L revenues for TMI-2  retirement  costs based on
the 1995  site-specific  study  estimate.  In  addition,  JCP&L is  recovering a
portion of 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; however, Penelec has recovered


                                       50


<PAGE>
GPU, Inc. and Subsidiary Companies

these costs through the divestiture of its generating  assets. The 1996 Customer
Choice Act also allows  Met-Ed and Penelec to defer as a regulatory  asset those
amounts that are above the level provided for in the CTC for future recovery.

      As of June 30, 2001, the  accident-related  portion of TMI-2  radiological
decommissioning costs is estimated to be $81 million (JCP&L $20 million;  Met-Ed
$41  million;  Penelec $20  million),  which is based on the 1995  site-specific
study (in 2001 dollars). In connection with rate case resolutions, JCP&L, Met-Ed
and  Penelec  made  contributions  to  irrevocable  external  trusts  for  their
respective  shares  of  the  accident-related  portion  of  the  decommissioning
liability in amounts of $15 million, $40 million and $20 million,  respectively.
These  contributions  were not  recoverable  from customers and were expensed in
1990, in the case of JCP&L, and in 1991 for Met-Ed and Penelec.

      The GPU Energy  companies  intend to seek  recovery  for any  increases in
TMI-2 retirement costs, but recognize that recovery cannot be assured.

      The GPU Energy companies own all of the common stock of the Saxton Nuclear
Experimental  Corporation,  which owns a small  demonstration  nuclear  reactor.
Decommissioning  of the plant is expected to be completed in 2002. The estimated
liability  for  future  Saxton  decommissioning  costs at June 30,  2001 was $17
million (JCP&L $8 million;  Met-Ed $5 million;  Penelec $4 million),  net of $40
million spent as of June 30, 2001.


                                    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.  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.

      GPU has  purchased  property and  decontamination  insurance  coverage for
TMI-2 totaling $150 million.

      The  Price-Anderson  Act  limits an  owner's  liability  to third  parties
resulting from a nuclear  incident to approximately  $9.5 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.  Although TMI-2 is
exempt from retrospective premium assessments, the plant is still covered by the
provisions of the Price-Anderson Act. In addition,  the GPU Energy companies are
subject  to  other   retrospective   premium  assessments  related  to  policies
applicable to TMI-1 prior to its sale to AmerGen.


                              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, air and water 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  facilities;  modify or
replace existing and proposed equipment; or remediate, decommission



                                       51


<PAGE>
GPU, Inc. and Subsidiary Companies

or clean up 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.  In  addition,  federal and state laws  provide for
payment by responsible parties for damage to natural resources.

      At June 30, 2001, GPU had liabilities recorded on its Consolidated Balance
Sheet for  environmental  remediation  totaling $64 million  (JCP&L $53 million;
Met-Ed $2 million;  Penelec $5 million; other $4 million). These liabilities are
discussed in further detail below.

      GPU has been formally  notified by the US Environmental  Protection Agency
(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 11 hazardous
and/or  toxic waste  sites (in some cases,  more than one company is named for a
given site).


     JCP&L       MET-ED      PENELEC      GPUN       GPU,INC.    TOTAL
     -----       ------      -------      ----       -------     -----
       7            4           3          1            1         11

      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/or  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. As of
June 30, 2001, a liability of  approximately  $4.9 million  (JCP&L $0.8 million;
Met-Ed $0.2 million;  Penelec $0.2 million; other $3.7 million) was recorded for
PRP sites  where it is  probable  that a loss has been  incurred  and the amount
could be reasonably estimated.

      The ultimate cost of  remediation of all these and other  hazardous  waste
sites 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 US District
Court for the  District of Delaware  for  enforcement  of its  Unilateral  Order
(Order)  issued against GPU, Inc. to clean up the former Dover Gas Light Company
(Dover)  manufactured gas production site (Site) in Dover,  Delaware.  Dover was
part of the  AGECO/AGECORP  group of companies  from 1929 until 1942;  GPU, Inc.
emerged  from the  AGECO/AGECORP  reorganization  proceedings  in  1946.  All of
Dover's  common stock,  which was sold in 1942 to an  unaffiliated  entity,  was
subsequently  acquired by Chesapeake Utilities Corporation  (Chesapeake),  which
merged with Dover in 1960. In its complaint,  the EPA sought (1)  enforcement of
the  Order  against  GPU;  (2)  recovery  of  its  past  response  costs;  (3) a
declaratory  judgment that GPU is liable for any remaining  cleanup costs of the
Site;  and (4)  statutory  penalties  for  noncompliance  with the Order.  As of
December 31, 2000, the EPA claimed past costs of $1.1 million,  and GPU,  Inc.'s
maximum penalty exposure for noncompliance  with the Order was approximately $44
million.  Chesapeake has also filed suit against GPU, Inc. for  contribution  to
the cleanup of the Site.  As of December  31, 2000,  Chesapeake  claimed to have
spent in excess of $10 million on site cleanup costs,  and was seeking  recovery
of at least $5 million from GPU, Inc. through the contribution claim.


                                       52


<PAGE>
GPU, Inc. and Subsidiary Companies

      The parties have  reached  agreement in principle on the terms of a global
settlement,  which is to be contained in a Consent  Decree.  The total estimated
cost to GPU, Inc. under the global settlement terms, if ultimately  implemented,
would be $3.65 million, which is comprised of the following elements.  Under the
global settlement terms, GPU, Inc. would perform certain work at the Site, at an
estimated  cost of $0.6  million.  GPU,  Inc.  would also pay $1.7 million for a
portion of the EPA's and Chesapeake's  past costs. In addition,  GPU, Inc. would
make a cash-out  payment  of $1.25  million  for  future  costs and would make a
penalty payment to the EPA of $0.1 million for noncompliance with the Order.

      In August 2000,  Rochester  Gas & Electric  Corporation  (RG&E) filed suit
against GPU, Inc. in the US District Court for the Western  District of New York
for the  reimbursement  of $5.2  million of costs and  damages it has  allegedly
incurred,  and a declaratory  judgment with respect to future costs and damages,
in connection  with two former MGP sites and a third  property where wastes from
one of those sites were allegedly  deposited.  All of the properties are located
in Rochester,  New York. RG&E was an indirect  subsidiary of AGECO from May 1929
until  January  1946,  and a  subsidiary  of GPU,  Inc.  from January 1946 until
October 1949,  when it was divested by order of the SEC under the Public Utility
Holding  Company Act. GPU, Inc.  filed a motion with the Court  requesting  that
portions of RG&E's complaint be dismissed on various substantive  grounds.  RG&E
responded  and filed a motion for summary  judgment on the issue of GPU,  Inc.'s
alleged liability for the sites. By Order dated July 17, 2001, the Court granted
in part GPU's motion and denied without  prejudice RG&E's State law claims.  The
Court also denied RG&E's motion for summary judgment.  There can be no assurance
as to the outcome of this matter.

      JCP&L has  entered  into  agreements  with the New  Jersey  Department  of
Environmental  Protection for the  investigation  and remediation of 17 formerly
owned MGP sites.  JCP&L has also entered into  various  cost-sharing  agreements
with other utilities for most of the sites. As of June 30, 2001, JCP&L has spent
approximately  $48 million in  connection  with the cleanup of these  sites.  In
addition,  JCP&L has  recorded an  estimated  environmental  liability  of $49.1
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.  The cost to clean  up these  sites  could be
materially  in excess of the $49.1  million  due to  significant  uncertainties,
including changes in acceptable remediation methods and technologies.

      The NJBPU has granted JCP&L recovery of MGP remediation  costs through the
Societal  Benefits  Charge.  As of June 30,  2001,  JCP&L  had  recorded  on its
Consolidated  Balance Sheet a regulatory asset of $40.2 million.  In 1994, JCP&L
filed a complaint with the Superior  Court of New Jersey against  several of its
insurance  carriers,  relating to these MGP sites.  JCP&L has settled with those
carriers and the recoveries  from those  settlements  will be used to reduce the
amounts collected from ratepayers to remediate these sites.





                                       53


<PAGE>
GPU, Inc. and Subsidiary Companies

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

Class Action Litigation:
-----------------------

GPU Energy

      In July 1999,  the  Mid-Atlantic  states  experienced  a severe heat storm
which  resulted in power  outages  throughout  the service  territories  of many
electric utilities,  including the territory of JCP&L.  Following these outages,
the NJBPU  initiated  an  investigation  into the causes of the  outages and the
reliability of the transmission and distribution  systems of all four New Jersey
electric  utilities.  This investigation was essentially  completed in May 2000,
with the  issuance  of Phase I and Phase II reports  and orders  from the NJBPU.
Both the Phase I and Phase II reports and orders  contain,  among other  things,
directions for JCP&L to undertake  certain  actions and report back to the NJBPU
on the results.  Additionally,  the NJBPU Phase II order concluded that there is
not a prima facie case  demonstrating  that,  overall,  JCP&L  provided  unsafe,
inadequate or improper service to its customers.

      Two class action  lawsuits were commenced in New Jersey  Superior Court in
July 1999. These suits were subsequently  consolidated into a single proceeding,
and they  seek  compensatory  and  punitive  damages  arising  from the  service
interruptions of July 1999 in the JCP&L  territory.  The GPU defendants named in
these suits (i.e.,  GPU, Inc.,  JCP&L,  GPUS and GPU Generation,  Inc.) moved to
dismiss or stay the  litigation  pending  the  NJBPU's  exercise  of its primary
jurisdiction  to investigate  the causes of the outages.  The trial court denied
that motion,  and also certified a plaintiff class consisting of JCP&L customers
and their "dependents,  tenants,  employees and other intended  beneficiaries of
customers who suffered damages as a result" of the service interruptions.

      In  January  2000,  the New  Jersey  Appellate  Division  granted  the GPU
defendants'  motion  for  leave to take an  interlocutory  appeal  of the  trial
court's  decision on the issue of primary  jurisdiction.  On June 14, 2000,  the
Appellate  Division  affirmed  the trial court but  determined  that the NJBPU's
findings   in  the   exercise   of  its   "exclusive   jurisdiction"   could  be
"probative...but  not  determinative"  of at  least  some of the  issues  in the
litigation,  and leaving it to the trial court to "decide in the first  instance
just what weight and validity to give the [NJBPU's] findings and conclusions."

      In response to the GPU defendants' demand for a statement of damages,  the
plaintiffs  have  stated  that they are  seeking  $700  million,  subject to the
results of pretrial discovery.  JCP&L has notified its insurance carriers of the
plaintiffs'  allegations.  The primary  insurance carrier has stated that, while
the substance of the plaintiffs'  allegations is covered under the policy, it is
reserving its rights  concerning  coverage as circumstances  develop.  JCP&L has
received indemnification payments from its primary insurance carrier for certain
expenses incurred by JCP&L relative to this action.

      Discovery  continues in the class action,  and no trial date has been set.
In  May  2001,  the  court  denied  without   prejudice   GPU's  motion  seeking
decertification  of the class.  There can be no  assurance  as to the outcome of
these matters.



                                       54


<PAGE>
GPU, Inc. and Subsidiary Companies

GPU Electric

      As a result of the  September  1998  fire and  explosion  at the  Longford
natural gas plant in Victoria, Australia,  Victorian gas users (plaintiffs) have
brought a class action in the  Australian  Federal Court against Esso  Australia
Limited and its  affiliate  (Esso),  the owner and  operator  of the plant,  for
losses suffered due to the lack of natural gas supply and related  damages.  The
plaintiffs  claim that Esso was,  among other  things,  negligent in  designing,
maintaining  and  operating  the Longford  plant,  and also assert  claims under
Australian fair trade practices law.

      Esso has joined as third party  defendants  the State of Victoria  (State)
and various State-owned entities which operated the Victorian gas industry prior
to its privatization,  including  Transmission Pipelines Australia (TPA) and its
affiliate  Transmission  Pipelines (Assets) Australia (TPAA). GPU, Inc., through
GPU GasNet,  acquired the assets of TPA and the shares of TPAA from the State in
June 1999.  Esso asserts that the State and the gas industry  were  negligent in
that,  among  other  things,  they  failed to ensure  that the gas system  would
provide a secure  supply  of gas to users,  and also  asserts  claims  under the
Australian fair trade  practices law. In addition,  GPU GasNet and other private
entities that purchased the Victorian gas assets from the State have joined Esso
as third party  defendants.  Esso  asserts that if the gas industry is liable as
alleged,  that  liability  has been  transferred  to the  Buyers  as part of the
State's privatization process.

      The Australian  Federal Court has recently  ordered that the proceeding be
transferred to the Superior Court of the State of Victoria.

      Under the acquisition agreement with the State, GPU GasNet has indemnified
TPA and the State against third party claims arising out of, among other things,
the operation of TPA's  business.  TPA and the State have commenced  proceedings
against GPU GasNet to enforce the indemnity in respect of any liability that may
flow to TPA as a result of Esso's claim.

      GPU GasNet and TPAA have filed  answers  denying  liability  to Esso,  the
State and TPA, which could be material.  GPU GasNet and TPAA have notified their
insurance  carriers of this action.  The insurers  have notified GPU GasNet that
they have  formed  the  preliminary  view that GPU  GasNet  is not  entitled  to
coverage under the liability policy.  GPU GasNet believes that it is entitled to
coverage,  and  discussions  with the insurers are  continuing.  There can be no
assurance as to the outcome of this matter.

Investments and Guarantees:
--------------------------

GPU, Inc.

      GPU,  Inc. has made  significant  investments  in foreign  businesses  and
facilities through its subsidiaries,  GPU Electric and GPU Power. As of June 30,
2001,  GPU,  Inc.'s  investments in GPU Electric and GPU Power were $576 million
and $144 million,  respectively.  As of that date, GPU, Inc. has also guaranteed
an  additional  $1.4  billion and $26.6  million of GPU  Electric  and GPU Power
outstanding obligations,  respectively. Although management attempts to mitigate
the risks of  investing in certain  foreign  countries  by, among other  things,
securing  political  risk  insurance,  GPU faces  additional  risks  inherent in
operating in such locations, including foreign currency fluctuations.




                                       55


<PAGE>
GPU, Inc. and Subsidiary Companies

GPU Electric

      GPU  Power  UK has a 40%  equity  interest  in a 586 MW power  project  in
Pakistan  (the Uch Power  Project),  which  commenced  commercial  operations in
October 2000.

      GPU's  investment  in the Uch  Power  Project  as of  June  30,  2001  was
approximately $38 million, plus a guaranty letter of credit of $3.6 million, and
its share of the  projected  completion  costs  represents  an  additional  $3.1
million  commitment.  Cinergy (the former  owner of 50% of Midlands  Electricity
plc) agreed to fund up to an aggregate  of $20 million of the  required  capital
contributions,  for a period of one year from July 15, 1999,  and "cash losses,"
which  could be  incurred  on the Uch Power  Project,  for a period of up to ten
years from July 15,  1999.  Cinergy has  reimbursed  GPU  Electric  $4.9 million
through June 30, 2001, leaving a remaining  commitment for future cash losses of
up to $15.1 million. There can be no assurance as to the outcome of this matter.

      GPU Power UK has gas contracts, extending to 2002, which require GPU Power
UK to purchase or sell gas at fixed prices. The estimated out-of-market position
of these  contracts  at June 30, 2001 was $23 million;  however,  GPU Power UK's
exposure to future price changes is reduced since these  contracts  include both
sales and purchases.

      Emdersa's operating companies are subject to a number of government claims
related to Value-added tax liabilities and to Social Security taxes collected in
their electric rates, which aggregate  approximately $29 million. The claims are
generally  related to  transitional  issues  surrounding  the  privatization  of
Argentina's electricity industry. There can be no assurance as to the outcome of
these matters.

GPU Power

      EI  Barranquilla,  a wholly owned  subsidiary  of GPU Power,  is an equity
investor in Termobarranquilla S.A., Empresa de Servicios Publicos (TEBSA), which
owns a Colombian independent power generation project. A subsidiary of GPU Power
provides  operations and maintenance  services for the project.  EI Barranquilla
and  ABB  Barranquilla,  an  affiliate  of  the  engineering,   procurement  and
construction  contractor  for the project,  each own a 28.7%  interest in TEBSA;
Corporacion  Electrica  de la Costa  Atlantica  (CORELCA),  a  government  owned
Colombian electric utility, owns a 42.5% interest; and Distral Group owns a 0.1%
interest.  Pursuant to a related power purchase agreement,  all of the output of
the TEBSA project is sold to CORELCA.

      As of June 30, 2001, GPU Power has an investment of  approximately  $100.1
million  in  TEBSA  and is  committed,  under  certain  circumstances,  to  make
additional standby equity contributions of $21.3 million,  which obligation GPU,
Inc. has guaranteed.  The total outstanding  senior debt of the TEBSA project is
$344  million  at June 30,  2001.  The  lenders  include  the  Overseas  Private
Investment  Corporation  (OPIC),  US  Export  Import  Bank  (Ex-Im  Bank)  and a
commercial  bank  syndicate.  GPU, Inc. has  guaranteed  the  obligations of the
operators  of the  TEBSA  project,  up to a  maximum  of $5  million,  under the
project's operations and maintenance agreement.


                                       56


<PAGE>
GPU, Inc. and Subsidiary Companies

      GPU believes that various  events of default have occurred  under the loan
agreements  relating  to  the  TEBSA  project.  As a  result,  certain  required
certifications have not been delivered to Ex-Im Bank, OPIC and the other project
lenders,  the  non-delivery  of  such  certification   themselves   constituting
independent events of default under the loan agreements. In addition,  questions
have been raised as to the accuracy and  completeness  of information  which was
provided to the various  parties to the project in connection with the formation
of the project.  These issues and related  matters have been  discussed with the
project lenders and are being reviewed by the Government of Colombia.

      Also,  in March 2001,  the DIAN (the  Colombian  national  tax  authority)
initiated  a review of  documents  relating to the TEBSA  Project.  The DIAN has
advised TEBSA that,  based upon its preliminary  review,  certain tax deductions
taken during 1999 and 2000 may not be  allowable  and has  requested  that TEBSA
provide  additional  information  and  respond to the DIAN  position.  TEBSA has
provided a response to the DIAN supporting the deductions.

      Previously,  in July 1999, the DIAN issued a "Special  Requirement" on the
TEBSA 1996 income tax return, which challenges the exclusion from taxable income
of an  inflation  adjustment  related  to the  value of  assets  used for  power
generation. The DIAN asserts that TEBSA is liable for approximately $4.5 million
consisting of $1.3 million in  additional  tax and $3.2 million in penalties and
interest.  TEBSA has filed both procedural and  substantive  objections to these
assertions,  the DIAN has responded to the objections  reiterating  its previous
position,  and TEBSA,  in turn,  filed an appeal with the DIAN in June 2000.  In
June 2001, the DIAN rejected TEBSA's appeal. TEBSA intends to appeal this matter
to the Colombian courts.

      In July 2000, the DIAN issued a "Special  Requirement"  on the 1997 income
tax return of TEBSA challenging a tax exemption benefit under a Colombian income
tax  statue.  The DIAN  requested  payment  of  approximately  $1.2  million  in
additional tax, penalties and interest.  In July 2001, TEBSA settled this matter
with the DIAN for approximately $270 thousand.

      In July 2001,  the  Controller  of  Colombia  was quoted as saying that he
considers  many of the power  purchase  agreements  entered into by CORELCA with
various  projects,  including  TEBSA,  to be overpriced and that he considers it
necessary, if circumstances permit, to seek to renegotiate such agreements.

      There can be no assurance as to the outcome of these matters.

Other:
-----

      JCP&L and Public  Service  Electric & Gas Company  (PSE&G) each hold a 50%
undivided  ownership  interest in Yards Creek  Pumped  Storage  Facility  (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.  Management  believes that the fair market
value of JCP&L's ownership interest in Yards Creek is substantially in excess of
its June 30, 2001 book value of $22 million. There can be no assurance as to the
outcome of this matter.



                                       57


<PAGE>
GPU, Inc. and Subsidiary Companies


      In March  1999,  Penelec  and New York State  Electric  & Gas  Corporation
(NYSEG)  each sold their 50%  undivided  ownership  interests  in the Homer City
Station  to a  subsidiary  of Edison  Mission  Energy  (EME) for a total of $1.9
billion.  In connection with the sale,  Penelec and NYSEG  indemnified the buyer
with  respect to certain  contingent  liabilities,  including  costs or expenses
which the EPA might  impose for  failure to comply  with New Source  Performance
Standards,  Prevention  of  Significant  Deterioration  and  New  Source  Review
regulations  under the Clean Air Act prior to the date of the sale. In 1998, the
EPA  had  conducted  inspections  at  Homer  City  with  regard  to the  plant's
compliance with these regulations. On October 30, 2000, EME notified Penelec and
NYSEG that the EPA had concluded  that these  regulations  applied to Homer City
prior to the sale to EME and that Homer City was operating in violation of these
Clean Air Act regulations. If it is ultimately determined that these regulations
were  applicable  to Homer  City,  the EPA  could  assess  substantial  monetary
penalties and require  capital  modifications  to the plant,  the costs of which
would be material.  To the extent  Penelec and NYSEG are  obligated to indemnify
EME for any of these costs, they would each be severally liable for a 50% share.
There can be no assurance as to the outcome of this matter.

      In July 1999, GPU began to evaluate  existing  restructuring  plans at GPU
Power UK and formulate additional plans to reduce operating expenses and achieve
ongoing cost  reductions.  In total,  the final cost reduction  plan,  which was
approved in 1999, identified 631 employees to be terminated, and, as a result, a
liability of $65 million was recorded. In early 2000, the liability for the then
remaining  employees was reduced by approximately $6.9 million,  due to a change
in  investment  return  assumptions.  At June  30,  2001,  GPU  had a  remaining
severance  liability of $1.2 million,  included in Other current  liabilities on
the Consolidated Balance Sheet, related to 13 employees.  Management expects the
remaining employees to terminate by December 31, 2001.

      GPU  AR has  entered  into  contracts  to  supply  electricity  to  retail
customers  through May 2002. In connection with meeting its supply  obligations,
GPU AR has  entered  into  purchase  commitments  for energy and  capacity  with
payment  obligations  totaling  approximately  $50 thousand as of June 30, 2001.
GPU, Inc. has guaranteed these payments,  as well as certain other  obligations,
up to a maximum of $19 million.

      In accordance  with the Nuclear  Waste Policy Act of 1982 (NWPA),  the GPU
Energy companies have entered into contracts with, and paid fees to, the DOE for
the future  disposal of spent  nuclear fuel in a repository  or interim  storage
facility.  In 1996, the DOE notified the GPU Energy companies and other Standard
Contract  holders that it would be unable to begin  acceptance  of spent nuclear
fuel for  disposal  by  January  31,  1998,  as  mandated  by the NWPA.  The DOE
requested  recommendations from contract holders for handling the delay. 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
storage facility for spent nuclear fuel in Utah.

      At June 30, 2001, GPU has recorded a liability of $215 million owed to the
Nuclear Waste Fund,  related to spent nuclear fuel generated  prior to the sales
of TMI-1 and Oyster  Creek to AmerGen.  AmerGen has  assumed all  liability  for
disposal costs related to spent nuclear fuel generated following its purchase of
the plants.


                                       58


<PAGE>
GPU, Inc. and Subsidiary Companies


      On July 26,  2000,  GPUN filed suit in the United  States Court of Federal
Claims  seeking to recover  damages as a result of the DOE's failure to commence
disposal of GPUN's spent  nuclear  fuel by January 31, 1998,  as required by the
terms of the  Standard  Contracts  between  GPUN and DOE.  The  complaint  seeks
damages from the  Government in an amount to be  determined  at trial.  GPUN has
alleged that it is entitled to damages  attributable to operations at both TMI-1
and Oyster  Creek.  In filings  made in the Court of Federal  Claims  related to
suits  brought  against the DOE by other  utilities  for breach of the  Standard
Contract,  the  Government  acknowledged  that  the  DOE's  inability  to  begin
providing  the services  required by the  Standard  Contract by January 31, 1998
constituted a partial breach of the Standard Contract.  The Government stated in
those  filings that GPUN may lack  standing to maintain its suit because it sold
its  interests  in TMI-1 and Oyster  Creek and notified DOE that it assigned the
Standard Contract to the facilities'  buyer. There can be no assurance as to the
outcome of this matter.

      GPU, Inc. and consolidated  affiliates have approximately 13,700 employees
worldwide, of whom 9,600 are employed in the US, 3,600 are in the United Kingdom
(UK) and the remaining 500 are in South America and  Australia.  The majority of
the US  workforce  is  employed  by the GPU  Energy  companies  (4,800)  and MYR
(4,600), of which approximately 2,800 and 4,100,  respectively,  are represented
by unions for collective bargaining purposes. In the UK, approximately 2,400 GPU
Power UK employees are  represented  by unions,  and the terms and conditions of
various bargaining  agreements are generally reviewed annually,  on April 1. The
JCP&L,   Met-Ed  and  Penelec   collective   bargaining   agreements   with  the
International  Brotherhood of Electrical Workers expire on October 31, 2004, May
1,  2005  and  May  14,  2004,  respectively.  Penelec's  collective  bargaining
agreement with the Utility Workers Union of America expires on August 31, 2003.

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


2.  ACCOUNTING FOR NON-RECURRING ITEMS

      In May  2001,  GPU  Power UK sold its  18.75%  interest  in  Humber  Power
Limited.  As a result of the sale,  GPU  recorded a pre-tax  gain in the quarter
ended June 30, 2001 of $17.8  million  ($11.6  million  after-tax,  or $0.10 per
share) in Other income, net on the Consolidated Statements of Income.

      In March 2001, 207 employees (Met-Ed 101 employees; Penelec 106 employees)
accepted  Voluntary Enhanced  Retirement  Programs offered to certain bargaining
unit  employees in  Pennsylvania.  As a result,  in the quarter  ended March 31,
2001,  a pre-tax  charge of $18.3  million  (Met-Ed $9.2  million;  Penelec $9.1
million),  or $10.7 million after-tax (Met-Ed $5.4;  Penelec $5.3), or $0.09 per
share,  was  recorded  in  Operating  Income for the cost of  pension  and other
postretirement benefits.



                                       59


<PAGE>
GPU, Inc. and Subsidiary Companies

      In February 2001,  Penelec paid Allegheny  Electric  Cooperative  (AEC), a
wholesale  customer,  $16 million pre-tax ($9.4 million after-tax,  or $0.08 per
share), for costs related to the termination of a wholesale energy contract. The
$16 million payment was recorded in Operating  Income in the quarter ended March
31, 2001.

      In June  2000,  GPU,  Inc.  sold GPU  PowerNet,  its  Australian  electric
transmission  company,  to  Singapore  Power  International  for  A$2.1  billion
(approximately  US $1.26  billion).  As a result of the sale,  GPU recorded,  in
Operating Income on the Consolidated Statements of Income, a pre-tax loss in the
quarter ended June 30, 2000 of $372 million ($295  million  after-tax,  or $2.43
per share),  including a $94 million  foreign  currency loss.  During the fourth
quarter 2000,  there was a change in the  estimated tax benefits,  which reduced
GPU's after-tax loss on the sale to $276.6 million, or $2.28 per share.

3.  ACCOUNTING FOR DERIVATIVE INSTRUMENTS

      GPU's use of  derivative  instruments  is  intended  to manage the risk of
price,  interest rate and foreign  currency  fluctuations.  GPU does not hold or
issue derivative instruments for trading purposes.

      Effective January 1, 2001, GPU adopted  Statement of Financial  Accounting
Standards  No.  133,   "Accounting   for  Derivative   Instruments  and  Hedging
Activities," as amended by FAS 137,  "Accounting for Derivative  Instruments and
Hedging  Activities - Deferral of the Effective  Date of FASB Statement No. 133"
and FAS 138, "Accounting for Certain Derivative  Instruments and Certain Hedging
Activities - An Amendment of FASB  Statement No. 133"  (collectively,  FAS 133).
FAS  133   establishes   accounting  and  reporting   standards  for  derivative
instruments,   including  certain  derivative   instruments  embedded  in  other
contracts, and for hedging activities.

      In general,  FAS 133 requires that companies  recognize all derivatives as
either assets or liabilities on the balance sheet, measured at their fair value.
Derivatives  not  designated  as hedges  must be  adjusted to fair value with an
offset to income.  If the derivative is designated as a hedge,  depending on the
nature of the hedge,  changes in fair value of the  derivative are either offset
against the change in fair value of the asset or liability  through  income,  or
recognized in accumulated  other  comprehensive  income until the hedged item is
recognized in income.  To the extent the hedge is determined to be  ineffective,
that portion of the derivative's change in fair value is immediately  recognized
in income.  FAS 133 provides an exemption for certain  contracts that qualify as
"normal  purchases and sales." To qualify for this exclusion,  certain criteria,
including  that it must be probable  that the  contract  will result in physical
delivery, must be met.

      The adoption of FAS 133 on January 1, 2001 resulted in the  recognition of
derivative  assets on the  Consolidated  Balance Sheet at January 1, 2001 in the
amount of $114.8 million (JCP&L $21.8 million;  Met-Ed $13 million;  Penelec $26
million;  GPU  Electric  $54  million),  with  offsetting  amounts,  net of tax,
recorded in Accumulated other comprehensive income, of $59.1 million (JCP&L $5.1
million;  GPU Electric $54 million) and Regulatory assets, net, of $51.1 million
(JCP&L $13 million; Met-Ed $12.2 million;  Penelec $25.9 million). As of January
1, 2001, derivative liabilities in the amount of


                                       60


<PAGE>
GPU, Inc. and Subsidiary Companies

$5.8 million (Penelec $1 million;  GPU Electric $4.8 million) were also recorded
as a result of adopting FAS 133, with an offsetting amount, net of tax, recorded
in  Accumulated  other  comprehensive  income,  of $3.4  million  (Penelec  $0.5
million; GPU Electric $2.9 million).  As of January 1, 2001, a cumulative effect
of accounting  change was  recognized as an expense in Other income,  net on the
Consolidated  Statement of Income in an amount  totaling $1 million  (Met-Ed $.1
million; Penelec $.8 million; GPU Electric $(1.9) million).

Commodity Derivatives:
---------------------

      The GPU Energy companies use New York Mercantile  Exchange (NYMEX) futures
and Over-the-Counter (OTC) forward contracts and options on forward contracts to
manage the risk of  fluctuations  in the market  price of  electricity.  The GPU
Energy  companies  also  manage the  natural  gas  requirements  of certain  NUG
facilities that generate and sell energy to JCP&L under long-term contracts. The
majority of the forward commodity contracts are considered "normal purchases and
sales," as defined by FAS 133, and  therefore are excluded from the scope of FAS
133.

      The energy options, forward contracts and gas futures contracts determined
to be derivatives under FAS 133 are accounted for as cash flow hedges and expire
on various dates through August 2002. These contracts are recorded at fair value
on the  Consolidated  Balance Sheet in the amount of $24.2  million  (JCP&L $7.8
million;  Met-Ed $9.6 million;  Penelec $6.8  million) as of June 30, 2001.  The
offset  of  the  change  in  fair  value  is  recorded  in   Accumulated   other
comprehensive income, net of tax, and subsequently  recognized as a component of
Power purchased and  interchanged on the  Consolidated  Statement of Income when
the underlying power being hedged is purchased. Of the $19.7 million (JCP&L $6.1
million; Met-Ed $9 million;  Penelec $4.6 million) recorded in Accumulated other
comprehensive  income  as of June  30,  2001,  GPU  expects  a  pre-tax  gain of
approximately $36.6 million (JCP&L $10.4 million; Met-Ed $15.4 million;  Penelec
$10.8  million) to be recognized in income  within the next twelve  months.  The
ineffective  portion of these commodity contracts was immaterial for the quarter
ended June 30, 2001.

      When GPU sold TMI-1 to AmerGen,  the  parties  entered  into an  agreement
which calls for an  adjustment  to the  purchase  price of TMI-1 in the event of
future energy price increases.  If the future price of energy exceeds the strike
price during the contract  year as defined per the  agreement,  GPU will receive
payments from  AmerGen,  subject to a market price cap.  However,  if the future
price of energy is less than the strike price  during a contract  year, a credit
is applied against future contract payments that would be received from AmerGen.
This agreement qualifies as a derivative as defined by FAS 133, and its value is
recorded on the  Consolidated  Balance  Sheet based on the present  value of the
contract's projected future cash flows. As of June 30, 2001, this amount totaled
$53.9 million (JCP&L $13.5 million; Met-Ed $26.9 million; Penelec $13.5 million)
and was included in Other Property and  Investments - Other,  net. An offsetting
regulatory  liability in the amount of $52 million (JCP&L $13.2 million;  Met-Ed
$26.3 million;  Penelec $12.5 million) was recorded against  Regulatory  assets,
net on the  Consolidated  Balance  Sheet as of June 30, 2001,  representing  the
obligation  to treat the retail  portion of payments  received as stranded  cost
revenues when received.  The non-retail  portion is recorded on the Consolidated
Statement of Income in Other  income,  net. This amount was  immaterial  for the
quarter ended June 30, 2001.



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GPU, Inc. and Subsidiary Companies


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

      Penelec  and GPU  Electric  (through  GPU  GasNet  and GPU  Power  UK) use
interest  rate swap  agreements  to manage  the risk of  increases  in  variable
interest  rates.  The interest rate swap agreements were entered into to convert
variable  rate debt to fixed rate debt.  The interest  rate swap  agreements  of
Penelec and GPU GasNet are  accounted  for as cash flow hedges under FAS 133 and
are recorded at fair value on the Consolidated Balance Sheet in Deferred Credits
and Other  Liabilities  - Other in the  amount  of $3.2  million  (Penelec  $1.7
million;  GPU  Electric  $1.5  million) as of June 30,  2001.  The offset of the
change in fair value is recorded in Accumulated other comprehensive  income, net
of tax, and subsequently  recognized as a component of Interest expense when the
related  interest  payments  being  hedged are  recognized.  Of the $2.5 million
(Penelec $1 million;  GPU Electric $1.5 million)  recorded in Accumulated  other
comprehensive  income  as of June  30,  2001,  GPU  expects  a  pre-tax  loss of
approximately $2.6 million (Penelec $1.5 million;  GPU Electric $1.1 million) to
be recognized in income within the next twelve months.  The ineffective  portion
of the interest rate swaps was immaterial for the quarter ended June 30, 2001.

      The  interest  rate  swaps of GPU Power UK were not  designated  as hedges
because  hedge  effectiveness  could  not be  demonstrated  for  the  period  in
accordance with FAS 133. As a result,  these interest rate swaps are recorded at
fair value as a liability  on the  Consolidated  Balance  Sheet in the amount of
$0.9  million  as of June 30,  2001.  The  offset of the change in fair value is
recorded in Other  income,  net on the  Consolidated  Statement of Income in the
amount of $1.6 million for the quarter ended June 30, 2001.

      As  of  June  30,  2001,  the  interest  rate  swap   agreements   covered
approximately  $492.6 million (Penelec $50 million; GPU Electric $442.6 million)
of debt,  and were  scheduled to expire on various dates  through 2006.  For the
quarter  ended June 30, 2001,  the amount by which fixed rate  interest  expense
exceeded variable rate interest was immaterial.

Currency Swap Agreements:
------------------------

      GPU Electric uses currency swap  agreements to manage currency risk caused
by  fluctuations in the US dollar exchange rate related to debt issued in the US
by Avon Energy  Partners  Holdings.  These swap agreements  effectively  convert
principal  and  interest  payments  on this US  dollar  debt to  fixed  sterling
principal and interest payments,  and expire on the maturity dates of the bonds.
These  instruments  are  accounted for as cash flow hedges under FAS 133 and are
recorded at fair value on the Consolidated Balance Sheet in the amount of $112.1
million as of June 30, 2001.  The offset of the change in fair value is recorded
in  Accumulated  other  comprehensive  income,  net  of  tax,  and  subsequently
recognized as a component of Interest expense on the  Consolidated  Statement of
Income when the related  interest  payments being hedged are recognized.  Of the
$77.1 million recorded in Accumulated other comprehensive  income as of June 30,
2001, GPU expects a pre-tax gain of approximately $13.2 million to be recognized
in income within the next twelve months. The ineffective portion of the currency
swaps agreements was immaterial for the quarter ended June 30, 2001.

      As of June 30, 2001,  these currency swap  agreements  covered  (pound)604
million (US $850 million) of debt.  Interest expense would have been (pound)19.8
million (US $28.4 million) as compared to (pound)19.4 million (US $27.8 million)
for the quarter ended June 30, 2001 had these agreements not been in place.


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GPU, Inc. and Subsidiary Companies


4.  SEGMENT INFORMATION

      The  following  is  presented in  accordance  with  Statement of Financial
Accounting  Standards No. 131,  "Disclosures about Segments of an Enterprise and
Related Information."

      GPU's  reportable  segments are strategic  business units that are managed
separately due to their different operating and regulatory  environments.  GPU's
management  evaluates the  performance  of its business  units based upon income
before extraordinary and non-recurring items (the adjustments to income for each
of the periods  presented  are  described  below).  For the purpose of providing
segment  information,  domestic  electric  utility  operations  (GPU  Energy) is
comprised of the three electric utility operating companies serving customers in
New  Jersey  and  Pennsylvania,  as  well  as  GPUN  and  GPUS.  For  additional
information on GPU's organizational structure and businesses, see preface to the
Combined Notes to Consolidated Financial Statements.

      For the six months ended June 30, 2001, GPU's  non-recurring items totaled
a net charge of $8.5 million after-tax,  and consisted of the following:  a gain
of $11.6  million  after-tax  on the sale of GPU Power UK's  interest  in Humber
Power  Limited;  a charge  of $10.7  million  after-tax,  for costs  related  to
Voluntary  Enhanced  Retirement  Programs  offered  to certain  bargaining  unit
employees in  Pennsylvania;  and a charge of $9.4 million  after-tax,  for costs
related  to the  termination  of a  wholesale  energy  contract  with  Allegheny
Electric   Cooperative.   For  the  six  months  ended  June  30,  2000,   GPU's
non-recurring items totaled a net charge of $295 million after-tax,  relating to
the sale of GPU PowerNet.



                                       63



<PAGE>

<TABLE>
<CAPTION>
GPU, Inc. and Subsidiary Companies

Business Segment Data (in thousands)
                                                                                              Income
                                                                    Interest                Before Extra-
                                                    Depreciation  Charges and  Income Tax   ordinary and                Capital
                                         Operating       and      Preferred    Expense/    Non-recurring   Total      Expenditures
                                         Revenues   Amortization   Dividends   (Benefit)(a)    Items       Assets(b) and Investments
                                         ---------  ------------  ----------- ------------  ------------  ---------  -------------
For the six months ended June 30, 2001
--------------------------------------

Domestic Segments:
   Electric Utility Operations
<S>                                     <C>          <C>         <C>           <C>          <C>          <C>           <C>
        (GPU Energy)                    $1,875,922   $  193,290  $  109,397    $  105,196   $  151,696   $12,479,938   $  134,469
   Electric Retail Energy Sales
        (GPU AR)                            19,216         -           -              504          956        14,732         -
   Telecommunications Infrastructure
        (GPU Telcom)                        13,448          549        -             (518)        (418)      146,781       41,447
   Construction Services
        (MYR) (c)                          321,751        5,082         538         4,518        5,437       351,991          790
                                         ---------    ---------   ---------     ---------    ---------    ----------    ---------
       Subtotal                          2,230,337      198,921     109,935       109,700      157,671    12,993,442      176,706
                                         ---------    ---------   ---------     ---------    ---------    ----------    ---------

Foreign Segments:
   Electric/Gas Utility Operations:
        (GPU Electric)
     Electric Distribution -
        United Kingdom                     279,567       51,836      83,241         6,977       14,388(f)  4,319,014       58,146
     Electric Distribution -
        Argentina                           96,736        9,273      13,631         2,883        5,212       688,591       19,568
     Gas Transmission -
        Australia                           24,001        6,018      15,566           187         (773)      838,264        1,063
   Independ Power Prod -
        S. America (GPU Power)              17,669        2,994       1,573         2,186        4,613       256,374          101
                                         ---------    ---------   ---------     ---------    ---------    ----------    ---------
       Subtotal                            417,973       70,121     114,011        12,233       23,440     6,102,243       78,878
                                         ---------    ---------   ---------     ---------    ---------    ----------    ---------

Corporate and Eliminations                    -             259      20,531        (2,052)     (17,017)       25,918          -
                                         ---------    ---------   ---------     ---------    ---------    ----------    ---------

       Consolidated Total               $2,648,310   $  269,301  $  244,477    $  119,881   $  164,094   $19,121,603   $  255,584
                                         =========    =========   =========     =========    =========    ==========    =========

For the six months ended June 30, 2000
----------------------------------------

Domestic Segments:
   Electric Utility Operations
        (GPU Energy)                    $1,725,627   $  169,054  $  102,847    $  103,217   $  152,523   $12,638,149   $  121,939
   Independ Power Prod
        (GPU International) (e)             43,692        4,700         416            73         (446)         -           4,266
   Electric Retail Energy Sales
        (GPU AR)                            39,874         -           -              848        1,221        19,943            8
   Telecommunications Infrastructure
        (GPU Telcom)                         4,462          302        -             (495)        (704)      104,061       36,423
   Construction Services (MYR) (c)          99,532        1,311       2,389         1,147          613       354,197        1,284
                                         ---------    ---------   ---------     ---------    ---------    ----------    ---------

       Subtotal                          1,913,187      175,367     105,652       104,790      153,207    13,116,350      163,920
                                         ---------    ---------   ---------     ---------    ---------    ----------    ---------

Foreign Segments:
   Electric/Gas Utility Operations:
        (GPU Electric)
     Electric Distribution -
        United Kingdom                     325,106       52,376      91,451        29,795       49,978(g)  4,367,405       74,937
     Electric Distribution -
        Argentina                           81,614        7,663      12,749         6,881        2,942       635,050       18,091
     Electric Transmission -
        Australia (d)                       90,007       19,947      46,822       (10,921)       9,242          -           4,993
     Gas Transmission -
        Australia                           27,183        5,520      21,114        (6,675)       5,672       862,939        3,389
   Independ Power Prod -
        S. America (GPU Power)              21,082        3,154       2,183         2,408        4,344       255,166           73
                                         ---------    ---------   ---------     ---------    ---------    ----------    ---------
       Subtotal                            544,992       88,660     174,319        21,488       72,178     6,120,560      101,483
                                         ---------    ---------   ---------     ---------    ---------    ----------    ---------

Corporate and Eliminations                  (1,361)         -         4,805           -        (10,200)       16,171          500
                                         ---------    ---------   ---------     ---------    ---------    ----------    ---------

       Consolidated Total               $2,456,818   $  264,027  $  284,776    $  126,278   $  215,185   $19,253,081   $  265,903
                                         =========    =========   =========     =========    =========    ==========    =========
</TABLE>

(a)    Represents income taxes on income before extraordinary and non-recurring
       items.
(b)    The comparative 2000 Total Assets is as of December 31, 2000.
(c)    MYR was acquired in April 2000.
(d)    Represents GPU PowerNet, which was sold in June 2000.
(e)    GPU International was sold in December 2000.
(f)    Includes  income from GPU Power UK's  investments in  independent  power
       projects  accounted  for  under  the  equity  and cost  methods  of $3.1
       million.
(g)    Includes  income from GPU Power UK's  investments in  independent  power
       projects accounted for under the cost method of $15.6 million.



                                       64

<PAGE>
GPU, Inc. and Subsidiary Companies

5.  COMPREHENSIVE INCOME

      For the six months ended June 30, 2001 and 2000,  comprehensive  income is
summarized below.

                                                             In Thousands
                                                        ----------------------
                                                              Six months
                                                            Ended June 30,
                                                        ----------------------
GPU, Inc. and Subsidiary Companies                         2001        2000
----------------------------------                         ----        -----

Net income                                              $155,646    $ (79,815)
                                                         -------     --------
Other comprehensive income/(loss), net of tax:
     Net unrealized gain/(loss) on investments            (5,844)      13,028
     Foreign currency translation                        (47,162)     (41,852)
     Cumulative effect of change in accounting
       for derivative instruments at 1/1/01               55,730          -
     Net unrealized gains on derivative instruments       32,059          -
                                                         -------     --------
       Total other comprehensive income/(loss)            34,783      (28,824)
                                                         -------     --------
Comprehensive income/(loss)                             $190,429    $(108,639)
                                                         =======      =======

JCP&L
-----

Net income                                              $ 97,436    $  90,004
                                                         -------     --------
Other comprehensive income, net of tax:
     Cumulative effect of change in accounting
       for derivative instruments at 1/1/01                5,180          -
     Net unrealized loss on derivative instruments        (1,537)         -
                                                         -------     --------
       Total other comprehensive income                    3,643          -
                                                         -------     --------
Comprehensive income                                    $101,079    $  90,004
                                                         =======     =========

Met-Ed
------

Net income                                              $ 31,909    $  35,160
                                                         -------     --------
Other comprehensive income/(loss), net of tax:
     Net unrealized gain/(loss) on investments               -         (2,141)
     Net unrealized gain on derivative instruments         5,269          -
                                                         -------     --------
       Total other comprehensive income/(loss)             5,269       (2,141)
                                                         -------     --------
Comprehensive income                                    $ 37,178    $  33,019
                                                         =======     ========

Penelec
-------

Net income/(loss)                                       $  5,085    $  31,481
                                                         -------     --------
Other comprehensive income/(loss), net of tax:
     Net unrealized gain/(loss) on investments                 1       (1,076)
     Cumulative effect of change in accounting
       for derivative instruments at 1/1/01                 (535)         -
     Net unrealized loss on derivative instruments         3,237          -
                                                         -------     --------
       Total other comprehensive income/(loss)             2,703       (1,076)
                                                         -------     --------
Comprehensive income                                    $  7,788    $  30,405
                                                         =======     ========

                                       65


<PAGE>
GPU, Inc. and Subsidiary Companies

6.  COMPANY-OBLIGATED TRUST PREFERRED SECURITIES

      In 1999, Met-Ed Capital Trust, a wholly-owned subsidiary of Met-Ed, issued
$100 million of trust preferred  securities (Met-Ed Trust Preferred  Securities)
at 7.35%,  due 2039.  The sole  assets  of  Met-Ed  Capital  Trust are the 7.35%
Cumulative  Preferred  Securities of Met-Ed Capital II, L.P. (Met-Ed Partnership
Preferred Securities) and its only revenues are the quarterly cash distributions
it receives on the Met-Ed Partnership  Preferred  Securities.  Each Met-Ed Trust
Preferred Security represents a Met-Ed Partnership  Preferred  Security.  Met-Ed
Capital  II,  L.P.  is a  wholly-owned  subsidiary  of Met-Ed and the sponsor of
Met-Ed  Capital  Trust.  The sole assets of Met-Ed Capital II, L.P. are Met-Ed's
7.35%  Subordinated  Debentures,  Series A, due 2039,  which  have an  aggregate
principal  amount  of $103.1  million.  Met-Ed  has  fully  and  unconditionally
guaranteed the Met-Ed Partnership  Preferred  Securities,  and,  therefore,  the
Met-Ed Trust Preferred Securities.

      In 1999,  Penelec  Capital Trust,  a  wholly-owned  subsidiary of Penelec,
issued $100  million of trust  preferred  securities  (Penelec  Trust  Preferred
Securities) at 7.34%, due 2039. The sole assets of Penelec Capital Trust are the
7.34%  Cumulative  Preferred  Securities  of Penelec  Capital II, L.P.  (Penelec
Partnership  Preferred  Securities) and its only revenues are the quarterly cash
distributions it receives on the Penelec Partnership Preferred Securities.  Each
Penelec Trust  Preferred  Security  represents a Penelec  Partnership  Preferred
Security.  Penelec Capital II, L.P. is a wholly-owned  subsidiary of Penelec and
the sponsor of Penelec  Capital  Trust.  The sole assets of Penelec  Capital II,
L.P. are Penelec's 7.34% Subordinated Debentures, Series A, due 2039, which have
an  aggregate  principal  amount  of  $103.1  million.  Penelec  has  fully  and
unconditionally  guaranteed the Penelec Partnership Preferred  Securities,  and,
therefore, the Penelec Trust Preferred Securities.




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<PAGE>
GPU, Inc. and Subsidiary Companies


                                        PART II

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

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

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

            (a) Exhibits

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

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


            (b) Reports on Form 8-K

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

                 Dated May 8, 2001, under Item 5 (Other  Events)
                 Dated May 25, 2001, under Item 5 (Other  Events)
                 Dated June 12, 2001, under Item 5 (Other Events)
                 Dated June 15, 2001, under Item 5 (Other  Events)

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

                 Dated May 8, 2001, under Item 5 (Other Events)
                 Dated May 25, 2001, under Item 5 (Other Events)
                 Dated June 12, 2001, under Item 5 (Other Events)
                 Dated June 15, 2001, under Item 5 (Other Events)

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

                 Dated May 8, 2001, under Item 5 (Other Events)
                 Dated May 25, 2001, under Item 5 (Other Events)
                 Dated June 12, 2001, under  Item 5 (Other Events)
                 Dated June 15, 2001, under Item 5 (Other Events)

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

                 Dated May 8, 2001, under Item 5 (Other Events)
                 Dated May 25, 2001, under Item 5 (Other Events)
                 Dated June 12, 2001, under Item 5 (Other Events)
                 Dated June 15, 2001, under Item 5 (Other Events)




                                       67


<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.



August 7, 2001                   By:  /s/ B. L. Levy
                                     -----------------------------------
                                    B. L. Levy, Senior Vice President
                                    and Chief Financial Officer



August 7, 2001                   By:  /s/ P. E. Maricondo
                                     -----------------------------------
                                    P. E. Maricondo, Vice President
                                    and Comptroller
                                    (principal accounting officer)



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



August 7, 2001                   By:  /s/ M. J. Chesser
                                     -----------------------------------
                                    M. J. Chesser, President and
                                    Chief Executive Officer


August 7, 2001                   By:  /s/ P. E. Maricondo
                                     -----------------------------------
                                    P. E. Maricondo, Comptroller
                                    (principal accounting officer)



                                       68