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


(Mark One)

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

For the quarterly period ended March 31, 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 April 30, 2001, was as follows:
                                                                      Shares
Registrant                           Title                         Outstanding
-----------------------------------  ----------------------------  -----------
GPU, Inc.                            Common Stock, $2.50 par value 119,495,650
Jersey Central Power & Light Company Common Stock, $10 par value    15,371,270
Metropolitan Edison Company          Common Stock, no par value        859,500
Pennsylvania Electric Company        Common Stock, $20 par value     5,290,596


<PAGE>






                       GPU, Inc. and Subsidiary Companies
                          Quarterly Report on Form 10-Q
                                 March 31, 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                                                23
            Statements of Income                                          25
            Statements of Cash Flows                                      26

          Jersey Central Power & Light Company
          ------------------------------------
            Balance Sheets                                                27
            Statements of Income                                          29
            Statements of Cash Flows                                      30

          Metropolitan Edison Company
          ---------------------------
            Balance Sheets                                                31
            Statements of Income                                          33
            Statements of Cash Flows                                      34

          Pennsylvania Electric Company
          -----------------------------
            Balance Sheets                                                35
            Statements of Income                                          37
            Statements of Cash Flows                                      38

      Combined Notes to Consolidated Financial Statements                 39

PART II - Other Information                                               62

Signatures                                                                63





      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
                                                  March 31,
                                       ----------------------------
                                        2001       2000     Change
                                       ------     ------    ------
Operations:
   GPU Energy companies                $ 0.71     $ 0.79    $(0.08)
   GPU Electric                          0.10       0.29     (0.19)
   GPU Power/GPUI (1)                    0.02       0.03     (0.01)
   GPU AR                                0.01       0.01       -
   GPU Telcom                             -          -         -
   MYR                                   0.01        -        0.01
   GPU, Inc. (Corporate)                (0.10)     (0.04)    (0.06)
                                        -----      -----     -----
     Total operations                    0.75       1.08     (0.33)
Non-recurring items:
   GPU Energy companies                 (0.17)       -       (0.17)
                                        -----      -----     -----
     Total                             $ 0.58     $ 1.08    $(0.50)
                                        =====      =====     =====

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


      GPU's earnings for the first quarter 2001 before  non-recurring items were
$89 million,  or $0.75 per share,  compared with  earnings of $131  million,  or
$1.08 per share, for the same period in 2000. There were no non-recurring  items
in the first quarter 2000.  The lower 2001 first quarter  earnings on this basis
was primarily due to the  Pennsylvania  energy supply loss  reflecting  the fact
that Met-Ed and Penelec had to purchase  electricity  under its provider of last
resort obligation at prices above the retail rate caps

                                        1


<PAGE>


GPU, Inc. and Subsidiary Companies

at which they could  resell it, as well as the effect of  increasing  numbers of
shopping   customers   returning   from   alternate   generation   suppliers  in
Pennsylvania; and lower earnings at GPU Power UK due to the reset of electricity
delivery rates that took effect in April 2000.

      After taking into account the 2001  non-recurring  items, GPU recorded net
income of $68.9 million, or $0.58 per share, in the first quarter 2001. The 2001
non-recurring items included: a 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 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).

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

      Operating  revenues for the first quarter 2001  increased  $124 million to
$1.3  billion,  as compared to the first  quarter  2000.  The  components of the
changes are as follows:

                                               2001 vs. 2000 (in millions)
                                               ---------------------------
                                                   Three Months Ended
                                                        March 31,
                                                   ------------------
GPU Energy companies:
  Kilowatt-hour (KWH) revenues                          $  60.6
  Energy and restructuring-related
    Revenues (NJ)                                          (1.5)
  Competitive transition charge
    (CTC) revenues (PA)                                     0.9
  Other revenues                                            0.8
                                                          -----
    Total GPU Energy companies                             60.8
GPU Electric                                              (61.1)
GPU Power/GPUI                                            (23.5)
GPU AR                                                    (11.1)
GPU Telcom                                                  6.1
MYR                                                       152.8
                                                          -----
    Total increase                                       $124.0
                                                          =====

GPU Energy companies

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

      The increase for the three months ended March 31, 2001 was  primarily  due
to the return of numerous  shopping  customers in  Pennsylvania  from  alternate
generation  suppliers during the first quarter 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.




                                        2


<PAGE>


GPU, Inc. and Subsidiary Companies

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

      CTC revenues represent  Pennsylvania stranded cost recoveries permitted by
the Pennsylvania Public Utility Commission (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.

GPU Electric

     The decrease for the three months ended March 31, 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 revenues in 2001 at GPU PowerNet due to its sale
in June 2000.

GPU Power/GPUI

      The decrease for the three months ended March 31, 2001 was  primarily  due
to the sale of GPUI in December 2000.

GPU AR

      The decrease for the three months ended March 31, 2001 was  primarily  due
to lower KWH sales as a result of fewer sales contracts  based on  significantly
higher wholesale electricity prices, as compared to the same period last year.

GPU Telcom

      The increase for the three months ended March 31, 2001 was  primarily  due
to more fiber optics miles  constructed  for private build customers in 2001, as
compared to the same period last year.

MYR

      The  increase  for the three  months  ended  March 31, 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 first quarter 2001  decreased  $123.8 million to
$216.5  million,  as compared to the first quarter 2000.  The  components of the
changes are as follows:

                                       2001 vs. 2000 (in millions)
                                       ---------------------------
                                          Three Months Ended
                                               March 31,
                                          ------------------
GPU Energy companies                           $ (64.8)
GPU Electric                                     (61.7)
GPU Power/GPUI                                     0.9
GPU AR                                            (2.2)
GPU Telcom                                         2.0
MYR                                                2.4
GPU, Inc.                                         (0.4)
                                                ------
    Total decrease                             $(123.8)
                                                ======


                                        3


<PAGE>


GPU, Inc. and Subsidiary Companies

GPU Energy companies

      The  decrease was  primarily  due to  increased  electricity  purchases by
Met-Ed and Penelec due to fewer  customers  shopping for their energy supply and
higher energy prices  (approximately  $81 million);  a  non-recurring  charge of
$18.3  million  pre-tax,  for the costs of a VERP  offered  to and  accepted  by
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.  Partially  offsetting  these  decreases  was  increased KWH
revenues, as discussed above, and lower operation and maintenance (O&M) expenses
(approximately $40 million, excluding the VERP) primarily due to the sale of the
Oyster Creek Generating Station (Oyster Creek) in August 2000.

GPU Electric

      The decrease for the three months ended March 31, 2001 was  primarily  due
to lower revenues as a result of the reset of electricity  delivery rates at GPU
Power UK. Also  contributing to the decrease in operating income was an increase
in O&M expenses  (approximately  $10 million) due  primarily to higher  employee
related  costs.  Partially  offsetting  these  decreases was lower  depreciation
expenses of approximately $6 million.

MYR

      The  increase  for the three  months  ended  March 31, 2001 was due to the
inclusion of MYR following its  acquisition  by GPU, Inc. in the second  quarter
2000.

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

      Other income and  deductions  for the first  quarter 2001  increased  $0.2
million to $23.3 million,  as compared to the first quarter 2000. The components
of the changes are as follows:

                                       2001 vs. 2000 (in millions)
                                       ---------------------------
                                          Three Months Ended
                                          ------------------
                                               March 31,
GPU Energy companies                           $  7.3
GPU Electric                                     (5.2)
GPU Power/GPUI                                   (2.5)
GPU AR                                             -
GPU Telcom                                       (1.4)
MYR                                              (0.1)
GPU, Inc.                                         2.1
                                                -----
    Total increase                             $  0.2
                                                =====


GPU Energy companies

      The increase for the three months ended March 31, 2001 was  primarily  due
to higher CTC interest income of approximately $5 million.





                                        4


<PAGE>


GPU, Inc. and Subsidiary Companies

GPU Electric

      The decrease  for the three months ended March 31, 2001 was due  primarily
to the decrease of investment  income of  approximately  $5 million at GPU Power
UK.

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

      Interest  charges  and  preferred  dividends  for the first  quarter  2001
decreased  $22 million to $121  million,  as compared to the first quarter 2000.
The components of the changes are as follows:

                                       2001 vs. 2000 (in millions)
                                       ---------------------------
                                          Three Months Ended
                                               March 31,
                                          ------------------

GPU Energy companies                           $  0.9
GPU Electric                                    (28.7)
GPU Power/GPUI                                   (0.3)
GPU AR                                             -
GPU Telcom                                         -
MYR                                               0.3
GPU, Inc.                                         5.8
                                                -----
    Total decrease                             $(22.0)
                                                =====

GPU Electric

      The decrease for the three months ended March 31, 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 the three months ended March 31, 2001 was  primarily  due
to the issuance of $300 million of debentures in December 2000.


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

      JCP&L's earnings for the first quarter 2001 were $50 million,  compared to
first quarter 2000 earnings of $43.1 million.  The increase was primarily due to
higher  weather-related  sales  due to  colder  winter  temperatures  this  year
compared to the previous winter;  and lower O&M expenses as a result of the sale
of Oyster Creek in August 2000.

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

      Operating  revenues for the first quarter 2001  increased  $8.9 million to
$461.6  million,  as compared to the first quarter 2000.  The  components of the
changes are as follows:






                                        5


<PAGE>


GPU, Inc. and Subsidiary Companies

                                       2001 vs. 2000 (in millions)
                                       ---------------------------
                                           Three Months Ended
                                                March 31,
                                           ------------------

KWH revenues                                    $ 8.1
Energy and restructuring-related
  revenues                                       (1.5)
Other revenues                                    2.3
                                                  ---
    Increase in revenues                        $ 8.9
                                                  ===


      The  increase  in KWH  revenues  was  primarily  due to higher  demand for
electricity  resulting from colder weather during the winter of 2001 compared to
the previous winter.

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

      Operating  income for the first  quarter  2001  increased  $7.7 million to
$103.7  million,  as  compared  to the first  quarter  2000.  The  increase  was
primarily  due to increased  KWH  revenues,  as discussed  above;  and lower O&M
expenses of approximately $35 million as a result of the sale of Oyster Creek in
August 2000.  Partially  offsetting  these increases was higher  deprecation and
amortization  expenses of approximately $6 million,  and higher energy costs due
to increase demand and the need to purchase more  electricity due to the sale of
Oyster Creek.

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

      Interest  charges  and  preferred  dividends  for the first  quarter  2001
decreased $0.5 million to $27.7 million,  as compared to the first quarter 2000.
The decrease was primarily 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 RESULTS OF OPERATIONS
                          ----------------------------

      Met-Ed's earnings for the first quarter 2001 were $16 million, compared to
first quarter 2000 earnings of $26.5 million.  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 quarter 2001 would have been
$21.4  million.  The decrease in earnings on this basis was primarily due to the
fact that Met-Ed had to purchase  electricity  under its provider of last resort
obligation 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.

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

      Operating  revenues for the first  quarter 2001  increased  $18 million to
$221.1  million,  as compared to the first quarter 2000.  The  components of the
changes are as follows:






                                        6


<PAGE>


GPU, Inc. and Subsidiary Companies

                                        2001 vs. 2000 (in millions)
                                        ---------------------------
                                           Three Months Ended
                                                March 31,
                                           ------------------

KWH revenues                                    $ 18.5
CTC revenues                                       1.1
Other revenues                                    (1.6)
                                                 -----
    Increase in revenues                        $ 18.0
                                                 =====


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

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

      Operating  income for the first  quarter 2001  decreased  $24.5 million to
$30.8 million, as compared to the first quarter 2000. The decrease was primarily
due to increased  electricity  purchases and higher energy prices (approximately
$33 million);  and a non-recurring  charge to other O&M expenses of $9.2 million
pre-tax, for costs related to the VERP. Partially offsetting these decreases was
increased KWH revenues, as discussed above.

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

      Other income and  deductions  for the first  quarter 2001  increased  $5.4
million to $8.2 million, as compared to the first quarter 2000. The increase was
primarily due to higher CTC interest income of approximately $5 million.

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

      Interest  charges for the first quarter 2001 decreased $1 million to $13.1
million,  as compared to the first quarter 2000.  The decrease was primarily due
to the retirement of $50 million of first mortgage bonds in 2000.


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

      Penelec  recorded a net loss of $2.1 million for the first  quarter  2001,
compared  to  first  quarter  2000  earnings  of  $26.9  million.   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 quarter 2001 would have been
$12.6  million.  The decrease in earnings on this basis was primarily due to the
fact that Penelec had to purchase  electricity under its provider of last resort
obligation 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.






                                        7


<PAGE>


GPU, Inc. and Subsidiary Companies

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

      Operating  revenues for the first quarter 2001 increased  $23.7 million to
$243.8  million,  compared to the first  quarter  2000.  The  components  of the
changes are as follows:

                                       2001 vs. 2000 (in millions)
                                       ---------------------------
                                           Three Months Ended
                                                March 31,
                                           ------------------

KWH revenues                                    $ 23.9
CTC revenues                                      (0.2)
Other revenues                                      -_
                                                 ------
    Increase in revenues                        $ 23.7
                                                 =====

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

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

      Operating  income for the first  quarter 2001  decreased  $48.2 million to
$5.4 million,  as compared to the first quarter 2000. The decrease was primarily
due to increased  electricity  purchases and higher energy prices (approximately
$48 million);  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
expenses  of $9.1  million  pre-tax,  for costs  related to the VERP.  Partially
offsetting these decreases was increased KWH revenues, as discussed above.

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

      Interest  charges for the first  quarter  2001  increased  $2.4 million to
$11.5 million, as compared to the first quarter 2000. The increase was primarily
due to the increase of $93 million of senior notes in 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



                                        8


<PAGE>


GPU, Inc. and Subsidiary Companies

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.  In testimony before the PaPUC,  FirstEnergy stated
that  FirstEnergy will carefully review the PaPUC's action with respect to GPU's
requested provider of last resort (PLR) relief on the financial condition of GPU
to determine whether the consequences  would have a "material adverse effect" on
GPU or the combined company (for further  information on the subject of PLR, see
Provider of Last Resort  section of Competitive  Environment  and Rate Matters).
The  receipt  of  all  necessary   regulatory  approvals  is  expected  to  take
approximately twelve months from the date of the merger agreement.  There can be
no assurance as to the outcome of these matters.


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

      GPU, Inc. has Securities and Exchange  Commission  (SEC)  authorization to
finance  investments in foreign utility  companies  (FUCOs) and exempt wholesale
generators  (EWGs)  up to an  aggregate  amount  equal to 100% of GPU's  average
consolidated  retained  earnings,  or approximately $2.4 billion as of March 31,
2001.  At March 31, 2001,  GPU,  Inc.  has  remaining  authorization  to finance
approximately  $518 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 4,201 megawatts (MW) (of which GPU Electric's equity
interest  represents  1,119 MW) of  capacity.  At March 31,  2001,  GPU,  Inc.'s
aggregate  investment  in GPU  Electric  was $802  million.  GPU,  Inc. has also
guaranteed  up  to  an  additional  $1  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  March  31,  2001,  GPU,  Inc.'s
aggregate  investment  in GPU  Power  was  $141  million.  GPU,  Inc.  has  also
guaranteed up to an additional $21 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 March 31, 2001, GPU, Inc.'s aggregate  investment in GPU
Telcom was $72 million. GPU, Inc. also intends



                                        9


<PAGE>


GPU, Inc. and Subsidiary Companies

to guarantee up to $50 million of obligations  under a syndicated  bank facility
of America's  Fiber Network LLC, a high-speed  fiber optics company in which GPU
Telcom has invested.


                                    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 March  31,  2001,  GPU,  Inc.'s  aggregate
investment in MYR was $237 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.

      Furthermore,  Met-Ed's and Penelec's energy cost exposure related to their
PLR obligation in Pennsylvania  has negatively  affected  Met-Ed's and Penelec's
earnings.  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. At March 31, 2001, these credit facilities include: $433 million available
to GPU, Inc. and the GPU Energy companies under a $250 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 $360 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 will require GPU's  acceptance
of higher pricing and/or more restrictive terms and conditions,  particularly if
Met-Ed and Penelec are unable to obtain  adequate  regulatory  relief from their
PLR obligations.  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.  Moreover,  the failure to obtain PLR relief will likely
result in a further  increase  in  capital  costs,  more  restrictive  terms and
conditions and reduced access to capital  markets.  For information  relating to
the companies'  petition for PLR relief,  see Provider of Last Resort section of
Competitive Environment and Rate Matters.




                                       10


<PAGE>


GPU, Inc. and Subsidiary Companies

      GPU,  Inc.  and the GPU Energy  companies  have  reached an  agreement  in
principle  with  their  lenders  to amend  and  extend  their  revolving  credit
agreement which expires on May 6, 2001. Among other things,  the amendment would
provide for committed bank  borrowing  capacity of between $302 million and $369
million,  an  extension  of the term to not  later  than  October  31,  2001 and
additional  commitments  and other fees.  This  extension,  together  with other
bilateral  credit  commitments,  would  result in an overall  reduction  in such
committed  bank  credit of between  $64  million  and $131  million,  which,  if
necessary,  GPU believes it could fund from its other committed  facilities.  In
the event that the majority lenders conclude that the PaPUC decision on Met-Ed's
and Penelec's  pending request for PLR relief is  "unsatisfactory,"  the amended
agreement  would require the GPU Energy  companies to pledge their senior notes,
secured by their first  mortgage  bonds,  as collateral  security for borrowings
under the credit agreement and would prohibit GPU, Inc. from paying common stock
dividends and limit its ability to make  investments  in GPU Energy and non-core
businesses.  Moreover,  the  maturity  date of the  credit  agreement  would  be
shortened.  It is expected that a definitive  amendment to the credit  agreement
will be entered into on or about May 4, 2001.

      Negotiations  to extend  the EI UK  Holdings  term loan  agreement  (which
expires  on July 15,  2001)  to not  later  than  October  31,  2001 are also in
process.

      In addition, primarily as a result of these conditions (the companies' PLR
exposure and the negative publicity  surrounding the California  utilities),  in
early 2001 Met-Ed and Penelec  began  experiencing  difficulty  in selling their
commercial   paper  with  maturities   longer  than   overnight.   Under  normal
circumstances, they issue commercial paper having maturities of up to 30 days or
longer, if desired. As a result,  Met-Ed and Penelec have temporarily  withdrawn
from the commercial paper market, and instead have resorted to borrowing against
their various bank lines of credit.

      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 first quarter 2001 was
$59 million (JCP&L $33 million;  Met-Ed $12 million;  Penelec $14 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.  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 first quarter 2001 of $40 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.





                                       11


<PAGE>


GPU, Inc. and Subsidiary Companies

GPU Telcom

      GPU Telcom's  capital  spending for the first  quarter 2001 of $18 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  have  available  $433 million of
short-term borrowing  facilities,  which include a $250 million revolving credit
agreement  and various bank lines of credit.  In  addition,  GPU,  Inc.,  JCP&L,
Met-Ed and  Penelec  have  commercial  paper  programs  in amounts of up to $100
million,  $150 million, $75 million and $100 million,  respectively.  From these
sources,  GPU, Inc. has regulatory authority to have $250 million outstanding at
any one time.  JCP&L,  Met-Ed and Penelec  are limited by their  charters or SEC
authorization to $264 million, $150 million and $150 million,  respectively,  of
short-term debt outstanding at any one time. As of March 31, 2001, GPU, Inc. and
the GPU Energy  companies  had $61 million and $266 million  (JCP&L $92 million;
Met-Ed $87 million;  Penelec $87  million),  respectively,  of  short-term  debt
outstanding.

GPU Energy companies

      JCP&L,  Met-Ed and Penelec have regulatory  approval to issue senior notes
through December 31, 2002 in the amounts of $300 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.

      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.

      In August 1999, JCP&L filed a petition with the New Jersey Board of Public
Utilities  (NJBPU)  requesting   authorization  to  issue  transition  bonds  to
securitize the recovery of

                                       12


<PAGE>


GPU, Inc. and Subsidiary Companies

bondable  stranded costs  attributable to the projected net investment in Oyster
Creek at September  1, 2000.  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. In August 2000, Oyster Creek was
sold to AmerGen Energy Company LLC (AmerGen), a joint venture of PECO Energy and
British Energy.  JCP&L  currently  plans to sell transition  bonds in the fourth
quarter 2001.

      At March 31,  2001,  JCP&L,  Met-Ed  and  Penelec  had  retained  earnings
available to pay common stock  dividends  of $768  million,  $68 million and $31
million, respectively, net of amounts restricted under each company's respective
FMB indentures.

GPU Electric

      GPU Capital has established a $1 billion  commercial paper program to fund
GPU,  Inc. and GPU  Electric  acquisitions.  At March 31, 2001,  $22 million was
outstanding under this commercial paper program and included in Notes payable on
the Consolidated Balance Sheet.

      To support the issuance of GPU Capital commercial paper, GPU Capital has a
$1 billion, 364-day senior revolving credit agreement expiring in November 2001,
which,  in  combination  with  the GPU  Capital  commercial  paper  program,  is
guaranteed  by GPU,  Inc. for up to $1 billion of  outstanding  obligations.  In
early  2001,  GPU  Capital  refinanced  the  majority  of its  then  outstanding
commercial paper through this senior revolving  credit  agreement.  At March 31,
2001, $723 million was outstanding  under the senior  revolving credit agreement
and included in Notes payable on the Consolidated Balance Sheet.

      GPU GasNet has a A$750 million (US $366  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.  At March 31,  2001,  A$250
million (US $122 million) of commercial paper and A$150 million (US $73 million)
of medium  term notes  were  outstanding  under this  program  and  included  in
Long-term debt on the Consolidated Balance Sheet.

      GPU GasNet has a A$250 million (US $122 million) revolving credit facility
which serves as backstop for the issuance of GPU GasNet's  commercial  paper. At
March 31, 2001, there were no outstanding  borrowings under the revolving credit
facility.

      In  addition,  GPU GasNet has a A$375  million  (US $183  million)  senior
credit facility. At March 31, 2001, A$211 million (US $103 million) of bank debt
was  outstanding  under this  facility  and  included in  Long-term  debt on the
Consolidated Balance Sheet.

      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 March 31,  2001,  there  were no  outstanding
borrowings 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 March 31, 2001,  $176 million was  outstanding  under
this facility and included in Notes payable on the Consolidated Balance Sheet.

                                       13


<PAGE>


GPU, Inc. and Subsidiary Companies

      EI UK  Holdings,  Inc.  has a British  pounds  (BP) 245  million  (US $348
million) credit facility  consisting of a two tranches (BP 60 million and BP 185
million).  Borrowings  under the BP 60 million  tranche (US $85.3  million)  are
guaranteed by GPU, Inc. This credit  facility  expires on July 15, 2001.  GPU is
seeking an extension of the maturity date to not later than October 31, 2001. At
March 31, 2001, the entire amount of this facility was  outstanding 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 BP 150 million (US $224 million) for working capital purposes, expiring
in July 2005. At March 31, 2001, BP 48 million (US $68 million) was  outstanding
under these facilities and included in Notes payable on the Consolidated Balance
Sheet.

      In addition, GPU Power UK maintains a BP 75 million (US $107 million) bank
facility for working capital purposes. Outstanding borrowings are collateralized
by portions of trade accounts  receivable.  At March 31, 2001, BP 75 million (US
$107 million) was outstanding  under this facility and included in Notes payable
on the Consolidated Balance Sheet.

      Maturing long-term debt is expected to total $912 million in 2001 and $437
million in 2002.

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 March 31, 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
approximately  $18  million  (Met-Ed $9 million;  Penelec $9  million)  has been
recorded  in  2001   Operating   Income  for  the  cost  of  pension  and  other
postretirement benefits.

      In October  1999,  GPU  initiated a program to enhance  shareholder  value
through planned cost reductions of $100 million and through the sale of non-core
and  under-performing  assets.  A  significant  portion  of these  planned  cost
reductions were achieved in 2000, and the remaining  reductions are scheduled to
be implemented during 2001.

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.

                                       14


<PAGE>


GPU, Inc. and Subsidiary Companies

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. 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  approximately
$400 million of stranded costs  associated with Oyster Creek.  JCP&L has filed a
petition with the NJBPU  requesting  authorization  to issue transition bonds to
securitize the recovery 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.

      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

                                       15


<PAGE>


GPU, Inc. and Subsidiary Companies

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 supply  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

      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 1,598 MW (JCP&L 926 MW; Met-Ed 272
MW; Penelec 400 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  2,200 MW in 2001 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 the
capacity of Penelec's  previously  owned Homer City station (942 MW) through May
31, 2001 and the right to the capacity of several other generating stations they
sold in 1999 (3,970 MW) through May 31, 2002.  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 $1.1 billion in 2001, $454
million in 2002, $74 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 $2.7 billion  (JCP&L $1.6  billion;
Met-Ed $0.5 billion;  Penelec $0.6 billion) on the  Consolidated  Balance Sheets
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.

      In 1999,  Penelec  deposited a portion of the proceeds from its generation
asset  sale into a NUG  Trust,  which has a  balance  at March 31,  2001 of $187
million. To the extent Penelec incurs above-market NUG costs in

                                       16


<PAGE>


GPU, Inc. and Subsidiary Companies

excess of the CTC  revenues  allocated  for such  costs,  Penelec  may  withdraw
amounts from the trust.

Basic Generation Service Provider

      JCP&L is  required to provide  basic  generation  service  (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 service will be bid out
at BGS rates,  which are  pre-determined  through  July 31,  2003.  The specific
details  of the BGS  bidding  process  will be the  subject  of a  future  NJBPU
proceeding.  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

      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 February 2000,  Met-Ed and Penelec announced that they had not received
any bids in  response  to their  offer to auction  CDS  service for up to 20% of
their retail  customers  and, as a result,  would be  increasing  their  forward
purchasing of electric power to accommodate  these  customers for whom they will
now continue to be the default supplier.  At the PaPUC's  direction,  Met-Ed and
Penelec  initiated  a  collaborative  process  in June 2000 with all  interested
parties from the 1998 Restructuring Orders,  including the PaPUC, to address the
companies'  PLR risks.  This process was  concluded  without  resolution  of the
issues surrounding the companies' PLR risk.

      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.  If wholesale energy prices remain high and Met-Ed and Penelec
are not granted  state  regulatory  relief,  the  companies  expect  substantial
earnings losses to continue, as well as a reduction of cash flow. Based on their
current projection of returning customers to whom they must

                                       17


<PAGE>


GPU, Inc. and Subsidiary Companies

supply electricity under their PLR obligations,  Met-Ed and Penelec now estimate
approximately  1,100 MW (Met-Ed 560 MW; Penelec 540 MW) of additional  load will
return to them by June 1, 2001. If this projection proves to be correct,  Met-Ed
and  Penelec  estimate  that  the  cost  of  providing  energy  to  Pennsylvania
customers,  including  the  returning  1,100 MW of load,  could  result in GPU's
Pennsylvania  supply business  recording a loss for 2001 of  approximately  $150
million (Met-Ed $70 million; Penelec $80 million) after-tax, or $1.25 per share,
based on the companies' current  assessment of market energy prices.  Met-Ed and
Penelec also estimate  that if all their  shopping  customers  were to return by
June 1, 2001,  their supply  business losses could be up to  approximately  $165
million (Met-Ed $77 million; Penelec $88 million) after-tax, or $1.37 per share.

      On November 29, 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.  Various  parties to the
proceeding  filed motions to dismiss the petition.  On January 19, 2001,  Met-Ed
and Penelec made a further  request  that they be  permitted to implement  their
proposed deferral  mechanism pending the PaPUC's final action on their petition.
On January 24, 2001, the PaPUC denied, without prejudice, the motions to dismiss
Met-Ed's and  Penelec's  petition and  recommended  that the  companies  provide
support for a rate cap  exception  based on the criteria in the Customer  Choice
and Competition Act. In addition,  the PaPUC  consolidated the petition with the
GPU/FirstEnergy  merger  proceeding for  consideration  and resolution in accord
with the merger procedural schedule.  In February 2001, Met-Ed and Penelec filed
a  supplement  to their  petition  and  testimony  supporting  the  granting  of
exceptions to their rate caps. In addition, Met-Ed and Penelec stated that as an
alternative  to  the  deferral   mechanism   they   previously   proposed,   the
circumstances  warrant an immediate  increase in their present  generation  rate
caps coupled with a cost deferral mechanism.

      On April 25, 2001,  the PaPUC  Administrative  Law Judge (ALJ) assigned to
the combined  proceeding  issued his recommended  decision.  The ALJ recommended
generation  rate cap increases  totaling  $316.7 million (Met-Ed $162.5 million;
Penelec  $154.2  million)  to  address  the  companies'  exposure  to  increased
wholesale  energy  prices  under  Met-Ed's and  Penelec's  PLR  obligation.  The
generation  rate cap  increases  would be effective  on about June 1, 2001,  and
would be in lieu of Met-Ed's  and  Penelec's  proposed  deferral  mechanism  for
excess  PLR  costs.  With  respect  to  the  GPU/FirstEnergy   merger,  the  ALJ
recommended  that  the  merger  be  approved,  subject  to  certain  conditions,
including that  merger-related  savings are flowed back to ratepayers through an
extension  of each  company's  transmission  and  distribution  rate  cap  until
December  2007.  Parties  in the  proceeding  have  until  May 7,  2001  to file
exceptions to the ALJ's recommended decision,  and responses to these exceptions
must be filed by May 14, 2001. The PaPUC is  tentatively  scheduled to issue its
final decision in the combined proceeding on May 24, 2001.

      There can be no assurance  regarding  the degree,  if any, to which Met-Ed
and Penelec may be able to recover their costs to supply  electricity  in excess
of amounts currently reflected in their capped generation rates.

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

                                       18


<PAGE>


GPU, Inc. and Subsidiary Companies

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.

      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.

                                       19


<PAGE>


GPU, Inc. and Subsidiary Companies

Allegheny Complaint
-------------------

      Allegheny  Electric  Cooperative  (AEC),  a  wholesale  customer,  filed a
complaint with the Federal Energy  Regulatory  Commission (FERC) against Penelec
claiming, among other things, that Penelec should not be permitted to charge AEC
increased  purchased power costs which Penelec has incurred following  Penelec's
divestiture of its generating plants.

      In 2001,  Penelec and AEC entered into a settlement  agreement under which
Penelec will no longer be  obligated to supply  energy to AEC under its existing
wheeling and power  supply  contract,  effective  March 2001.  In  addition,  in
February  2001 Penelec paid AEC $16 million,  subject to refund in the event AEC
defaults on certain of its obligations in the agreement. The $16 million payment
was charged to operations in the first quarter 2001.

                              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 March 31,  2001,  the GPU Energy  companies  have
liabilities  recorded  on their  balance  sheets for  environmental  remediation
totaling $64 million (JCP&L $55 million; Met-Ed $2 million; Penelec $7 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

                                       20


<PAGE>


GPU, Inc. and Subsidiary Companies

"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 have taken 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.

      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.


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

      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.
FAS 133 (as amended) 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 GPU Energy  companies  use 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.  However,  the
Derivatives  Implementation Group (DIG), a committee of the Financial Accounting
Standards Board (FASB)  responsible for providing guidance on the implementation
of FAS  133,  has not  reached  a final  conclusion  regarding  the  appropriate
accounting  treatment  for  certain  types of  energy  contracts  under FAS 133.
Depending  on the  final  decision  of the  FASB,  certain  commodity  contracts
currently considered "normal purchases and sales"

                                       21


<PAGE>


GPU, Inc. and Subsidiary Companies

may no longer  qualify for this  exclusion,  and may be required to be accounted
for under FAS 133. In this case, GPU would follow the transition  provisions for
applying the  guidance in FAS 133.  Management  believes  such  contracts  would
qualify as cash flow hedges and be recorded at fair value on the balance  sheet,
with  the  effective  portion  of the  hedge  recognized  in  accumulated  other
comprehensive income.

      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,  with  offsetting  amounts,  net of tax,  recorded in
Accumulated other comprehensive income, of $59.1 million, and Regulatory assets,
net, of $51.1  million.  As of January 1, 2001,  derivative  liabilities  in the
amount of $5.8 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.  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 the amount of $1 million.

      For further  discussion  regarding GPU's use of derivative  instruments to
manage the risk of fluctuations in commodity prices,  interest rates and foreign
currencies,  and the  impact  of the  implementation  of FAS  133,  see  Note 2,
Accounting for  Derivative  Instruments,  of the Combined Notes to  Consolidated
Financial Statements.







                                       22
<PAGE>



<TABLE>
<CAPTION>

                       GPU, INC. AND SUBSIDIARY COMPANIES

                           Consolidated Balance Sheets


                                                                     In Thousands
                                                             ----------------------------------
                                                             March 31,             December 31,
                                                               2001                   2000
                                                             ---------------    ---------------
                                                                        (Unaudited)
ASSETS
Utility Plant:
<S>                                                          <C>                   <C>
   Utility plant in service                                  $ 9,953,336           $10,138,233
   Accumulated depreciation                                   (3,209,213)           (3,246,175)
                                                             -----------           -----------
         Net utility plant in service                          6,744,123             6,892,058
   Construction work in progress                                 175,831               153,417
   Other, net                                                     16,455                16,572
                                                             -----------           -----------
         Net utility plant                                     6,936,409             7,062,047
                                                             -----------           -----------

Other Property and Investments:
   Goodwill, net                                               1,889,896             1,986,449
   Nuclear decommissioning trusts, at market (Note 1)            366,740               367,805
   Nuclear fuel disposal trust, at market                        131,930               126,336
   Other, net                                                    937,104               765,783
                                                             -----------           -----------
         Total other property and investments                  3,325,670             3,246,373
                                                             -----------           -----------

Current Assets:
   Cash and temporary cash investments                           404,279               392,004
   Marketable securities                                          11,258                17,114
   Special deposits                                              116,132               126,149
   Accounts receivable:
      Customers, less provision for doubtful accounts
        of $87,232 for 2001 and $92,714 for 2000                 510,064               540,166
      Other                                                      230,294               162,048
   Unbilled revenues                                             201,294               221,810
   Cost and estimated earnings in excess of
      billings on uncompleted contracts                           35,042                29,377
   Materials and supplies, at average cost or less                87,491                79,679
   Deferred income taxes                                          50,329                33,857
   Prepayments                                                   115,010               154,775
                                                             -----------           -----------
         Total current assets                                  1,761,193             1,756,979
                                                             -----------           -----------

Deferred Debits and Other Assets:
   Regulatory assets, net (Note 1)                             4,407,707             5,033,004
   Deferred income taxes                                       1,780,667             1,732,537
   Other                                                         420,463               431,521
                                                             -----------           -----------
         Total deferred debits and other assets                6,608,837             7,197,062
                                                             -----------           -----------





         Total Assets                                        $18,632,109           $19,262,461
                                                             ===========           ===========



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

                                       23

</TABLE>

<PAGE>

<TABLE>
<CAPTION>

                       GPU, INC. AND SUBSIDIARY COMPANIES

                           Consolidated Balance Sheets


                                                                        In Thousands
                                                                --------------------------------
                                                                March 31,           December 31,
                                                                  2001                   2000
                                                               -----------          ------------
                                                               (Unaudited)
LIABILITIES AND CAPITALIZATION
Capitalization:
<S>                                                            <C>                   <C>
   Common stock                                                $   331,958           $   331,958
   Capital surplus                                               1,014,405             1,014,326
   Retained earnings                                             2,464,273             2,395,384
   Accumulated other comprehensive income/(loss) (Note 4)          (52,787)              (62,624)
         Total                                                   3,757,849             3,679,044
                                                                 ---------             ---------
   Reacquired common stock, at cost                               (356,762)             (357,994)
                                                                 ---------             ---------
         Total common stockholders' equity                       3,401,087             3,321,050
   Cumulative preferred stock:
      With mandatory redemption                                     51,500                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 5)        200,000               200,000
   Long-term debt                                                3,745,460             3,917,069
                                                                 ---------             ---------
         Total capitalization                                    7,535,696             7,627,268
                                                                 ---------             ---------

Current Liabilities:
   Securities due within one year                                1,006,393               992,090
   Notes payable                                                 1,607,653             1,480,667
   Bank overdraft                                                  236,626               276,456
   Accounts payable                                                460,058               481,712
   Billings in excess of cost and estimated
      earnings on uncompleted contracts                             29,882                21,315
   Taxes accrued                                                    52,213                37,604
   Interest accrued                                                102,033                95,083
   Other                                                           343,703               447,639
                                                                 ---------             ---------
         Total current liabilities                               3,838,561             3,832,566
                                                                 ---------             ---------

Deferred Credits and Other Liabilities:
   Deferred income taxes                                         3,143,408             3,093,826
   Unamortized investment tax credits                               42,948                44,344
   Three Mile Island Unit 2 future costs (Note 1)                  519,607               514,922
   Power purchase contract loss liability (Note 1)               2,665,615             3,273,968
   Other                                                           886,274               875,567
                                                                 ---------             ---------
         Total deferred credits and other liabilities            7,257,852             7,802,627
                                                                 ---------             ---------


Commitments and Contingencies (Note 1)


         Total Liabilities and Capitalization                  $18,632,109           $19,262,461
                                                               ===========           ===========



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

                                       24


<PAGE>
<TABLE>
<CAPTION>


                       GPU, INC. AND SUBSIDIARY COMPANIES

                        Consolidated Statements of Income
                                   (Unaudited)
                                                                       In Thousands
                                                                   (Except Per Share Data)
                                                               -------------------------------
                                                                        Three Months
                                                                        Ended March 31,
                                                               -------------------------------
                                                                 2001                  2000
                                                                 ----                  ----

<S>                                                           <C>                   <C>
Operating Revenues                                            $1,300,439            $1,176,444
                                                               ---------             ---------

Operating Expenses:
   Fuel                                                            4,517                19,483
   Power purchased and interchanged                              582,170               427,990
   Deferred costs, net                                           (50,737)              (33,514)
   Other operation and maintenance                               357,919               241,029
   Depreciation and amortization                                 133,461               129,595
   Taxes, other than income taxes                                 56,580                51,549
                                                               ---------             ---------
         Total operating expenses                              1,083,910               836,132
                                                               ---------             ---------

Operating Income                                                 216,529               340,312
                                                               ---------             ---------

Other Income and Deductions:
   Allowance for other funds used during
      construction                                                    51                   245
   Equity in undistributed earnings
      of affiliates, net                                           3,414                 3,652
   Other income, net                                              19,786                19,178
                                                               ---------             ---------
         Total other income and deductions                        23,251                23,075
                                                               ---------             ---------

Income Before Interest Charges
   and Preferred Dividends                                       239,780               363,387
                                                               ---------             ---------

Interest Charges and Preferred Dividends:
   Long-term debt and notes payable                              112,011               132,914
   Subsidiary-obligated trust preferred securities                 3,673                 3,673
   Subsidiary-obligated mandatorily
      redeemable preferred securities                              2,675                 2,675
   Other interest                                                  1,936                 2,070
   Allowance for borrowed funds used
      during construction                                           (737)                 (830)
   Preferred stock dividends of subsidiaries                       1,391                 2,461
                                                               ---------             ---------
      Total interest charges and
         preferred dividends                                     120,949               142,963
                                                               ---------             ---------

Income Before Income Taxes and Minority Interest                 118,831               220,424
   Income taxes                                                   48,774                88,949
   Minority interest net income                                    1,162                   477
                                                               ---------             ---------


Net Income                                                    $   68,895            $  130,998
                                                               =========             =========

Basic -  Earnings Per Avg. Common Share                       $      .58            $     1.08
                                                               =========             =========
         -    Avg. Common Shares Outstanding                     119,516               121,367
                                                               =========             =========
Diluted - Earnings Per Avg. Common Share                       $     .58            $     1.08
                                                               =========             =========
         -    Avg. Common Shares Outstanding                     119,627               121,426
                                                               =========             =========
Cash Dividends Paid Per Share                                 $     .545            $      .53
                                                               =========             =========

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

                                       25
</TABLE>



<PAGE>
<TABLE>
<CAPTION>


                       GPU, INC. AND SUBSIDIARY COMPANIES

                      Consolidated Statements of Cash Flows
                                   (Unaudited)
                                                                     In Thousands
                                                               ------------------------------
                                                                      Three Months
                                                                    Ended March 31,
                                                               -------------------------------
                                                                 2001                  2000
                                                                 ----                  ----
Operating Activities:
<S>                                                           <C>                   <C>
   Net income                                                 $  68,895             $ 130,998
   Adjustments to reconcile income to cash provided:
     Depreciation and amortization                              149,492               138,634
     Amortization of property under capital leases                  -                   3,209
     Provision for doubtful accounts                             (5,788)               (4,661)
     Regulatory assets, net                                     (36,287)              (53,478)
     Voluntary enhanced retirement programs                      18,266                   -
     Gain on sale of businesses/investments                      (2,212)                  -
     Equity in undistributed earnings
         of affiliates, net of distributions received            (2,404)               (2,266)
     Deferred income taxes and investment tax
         credits, net                                           (11,374)               17,778
     Deferred costs, net                                        (50,737)              (33,514)
   Changes in working capital:
     Receivables                                                (10,511)              (73,192)
     Materials and supplies                                      (5,262)                2,230
     Special deposits and prepayments                            24,084                44,665
     Payables and accrued liabilities                           (61,799)              131,974
   Nonutility generation contract buyout costs                      -                  (5,660)
   Other, net                                                     7,834                27,591
                                                               --------              ---------
        Net cash provided by operating activities                82,197               324,308
                                                               --------              ---------

Investing Activities:
   Capital expenditures and investments                        (117,322)             (111,551)
   Proceeds from sale of businesses/investments                   5,572                   -
   Proceeds from nonutility generation trusts                     8,465                   -
   Contributions to decommissioning trusts                       (2,677)               (7,510)
   Other, net                                                    (7,349)               (2,052)
                                                               --------              ---------
        Net cash required by investing activities              (113,311)             (121,113)
                                                               --------              ---------

Financing Activities:
   Issuance of long-term debt                                       -                  16,142
   Increase in notes payable, net                               152,243                87,427
   Retirement of long-term debt                                 (28,569)              (50,083)
   Capital lease principal payments                                 -                  (5,937)
   Reacquisition of common stock                                    -                 (22,383)
   Dividends paid on common stock                               (65,100)              (64,409)
                                                               --------              ---------
        Net cash provided/(required)
          by financing activities                                58,574               (39,243)
                                                               --------              ---------

Effect of exchange rate changes on cash                         (15,185)               18,496
                                                               --------              ---------

Net increase in cash and temporary
  cash investments from above activities                         12,275               182,448
Cash and temporary cash investments, beginning of year          392,004               471,548
                                                               --------              ---------
Cash and temporary cash investments, end of period            $ 404,279             $ 653,996
                                                               ========              ========

Supplemental Disclosure:
   Interest and preferred dividends paid                      $ 101,020             $ 134,376
                                                               ========              ========
   Income taxes paid                                          $   3,205             $   7,074
                                                               ========              ========
   New capital lease obligations incurred                     $     -               $     -
                                                               ========              ========
   Common stock dividends declared but not paid               $     -               $     -
                                                               ========              ========

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

                                       26
</TABLE>

<PAGE>
<TABLE>
<CAPTION>


           JERSEY CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARY COMPANY

                           Consolidated Balance Sheets


                                                                       In Thousands
                                                              ---------------------------------
                                                               March 31,           December 31,
                                                                 2001                  2000
                                                              ---------------------------------
                                                              (Unaudited)

ASSETS
Utility Plant:
<S>                                                           <C>                   <C>
   Utility plant in service                                   $3,283,382            $3,269,676
   Accumulated depreciation                                   (1,237,379)           (1,212,784)
                                                               ---------             ---------
         Net utility plant in service                          2,046,003             2,056,892
   Construction work in progress                                  92,548                75,201
   Other, net                                                     13,311                13,311
                                                               ---------             ---------
         Net utility plant                                     2,151,862             2,145,404
                                                               ---------             ---------


Other Property and Investments:
   Nuclear decommissioning trusts, at market (Note 1)            114,904               115,311
   Nuclear fuel disposal trust, at market                        131,930               126,336
   Other, net                                                     25,496                 6,342
                                                               ---------             ---------
         Total other property and investments                    272,330               247,989
                                                               ---------             ---------


Current Assets:
   Cash and temporary cash investments                               801                   801
   Special deposits                                                4,231                 1,220
   Accounts receivable:
      Customers, less provision for doubtful accounts
         of $18,339 for 2001 and $21,479 for 2000                139,216               156,358
      Affiliates                                                  32,080                28,853
      Other                                                      126,229                38,107
   Unbilled revenues                                              74,309                80,864
   Fuel inventory, at average cost or less                           536                   508
   Deferred income taxes                                          15,643                20,669
   Prepayments                                                     5,524                96,916
                                                               ---------             ---------
         Total current assets                                    398,569               424,296
                                                               ---------             ---------


Deferred Debits and Other Assets:
   Regulatory assets, net (Note 1)                             3,063,118             3,185,072
   Deferred income taxes                                         185,699               187,632
   Other                                                          27,258                26,962
                                                               ---------             ---------
         Total deferred debits and other assets                3,276,075             3,399,666
                                                               ---------             ---------




         Total Assets                                         $6,098,836            $6,217,355
                                                               =========             =========



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

                                       27
</TABLE>


<PAGE>
<TABLE>
<CAPTION>


           JERSEY CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARY COMPANY

                           Consolidated Balance Sheets


                                                                     In Thousands
                                                              ---------------------------------
                                                               March 31,           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                                            769,777               794,786
    Accumulated other comprehensive income/(loss) (Note 4)         2,317                    (8)
                                                               ---------             ---------
         Total common stockholder's equity                     1,436,576             1,459,260
    Cumulative preferred stock:
      With mandatory redemption                                   51,500                51,500
      Without mandatory redemption                                12,649                12,649
    Company-obligated mandatorily redeemable
      preferred securities                                       125,000               125,000
    Long-term debt                                             1,044,047             1,093,987
                                                               ---------             ---------
         Total capitalization                                  2,669,772             2,742,396
                                                               ---------             ---------


Current Liabilities:
    Securities due within one year                               100,847                50,847
    Notes payable                                                 92,300                29,200
    Accounts payable:
      Affiliates                                                  23,093                98,526
      Other                                                       94,258                95,988
    Taxes accrued                                                 44,047                 8,836
    Interest accrued                                              27,553                23,625
    Other                                                         27,569                37,786
                                                               ---------             ---------
         Total current liabilities                               409,667               344,808
                                                               ---------             ---------


Deferred Credits and Other Liabilities:
    Deferred income taxes                                        887,441               866,058
    Unamortized investment tax credits                            16,188                17,087
    Power purchase contract loss liability (Note 1)            1,572,278             1,699,473
    Nuclear fuel disposal fee                                    159,260               156,959
    Three Mile Island Unit 2 future costs (Note 1)               129,907               128,735
    Other                                                        254,323               261,839
                                                               ---------             ---------
         Total deferred credits and other liabilities          3,019,397             3,130,151
                                                               ---------             ---------


Commitments and Contingencies (Note 1)


         Total Liabilities and Capitalization                 $6,098,836            $6,217,355
                                                              ==========            ==========



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

                                       28
</TABLE>


<PAGE>
<TABLE>
<CAPTION>


           JERSEY CENTRAL POWER & LIGHT COMPANY AND SUBSIDIARY COMPANY

                        Consolidated Statements of Income
                                   (Unaudited)

                                                                       In Thousands
                                                              ------------------------------
                                                                       Three Months
                                                                      Ended March 31,
                                                              ------------------------------
                                                                2001                   2000
                                                                ----                   ----

<S>                                                           <C>                   <C>
Operating Revenues                                            $461,682              $452,745
                                                               -------               -------

Operating Expenses:
   Fuel                                                          1,338                 5,867
   Power purchased and interchanged:
      Affiliates                                                 8,117                20,276
      Others                                                   258,286               194,122
   Deferred costs, net                                         (50,737)              (33,514)
   Other operation and maintenance                              63,644                98,127
   Depreciation and amortization                                61,749                56,143
   Taxes, other than income taxes                               15,573                15,729
                                                               -------               -------
         Total operating expenses                              357,970               356,750
                                                               -------               -------

Operating Income                                               103,712                95,995
                                                               -------               -------

Other Income and Deductions:
   Allowance for other funds used during
      construction                                                  51                   216
   Other income, net                                             7,272                 5,432
                                                               -------               -------
         Total other income and deductions                       7,323                 5,648
                                                               -------               -------

Income Before Interest Charges                                 111,035               101,643
                                                               -------               -------

Interest Charges:
   Long-term debt and notes payable                             23,178                23,262
   Company-obligated mandatorily
      redeemable preferred securities                            2,675                 2,675
   Other interest                                                  917                   152
   Allowance for borrowed funds used
      during construction                                         (434)                 (346)
                                                               -------               -------

         Total interest charges                                 26,336                25,743
                                                               -------               -------

Income Before Income Taxes                                      84,699                75,900
   Income taxes                                                 33,317                30,330
                                                               -------               -------

Net Income                                                      51,382                45,570
   Preferred stock dividends                                     1,391                 2,461
                                                               -------               -------
Earnings Available for Common Stock                           $ 49,991              $ 43,109
                                                               =======               =======





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 Statements of Cash Flows
                                   (Unaudited)

                                                                        In Thousands
                                                              --------------------------------
                                                                        Three Months
                                                                       Ended March 31,
                                                              --------------------------------
                                                                 2001                   2000
                                                                 ----                   ----

Operating Activities:
<S>                                                           <C>                    <C>
   Net income                                                 $  51,382              $  45,570
   Adjustments to reconcile income to cash provided:
      Depreciation and amortization                              70,801                 64,494
      Provision for doubtful accounts                            (1,123)                 1,153
      Regulatory assets, net                                    (12,623)                (7,407)
      Amortization of property under capital leases                 -                    3,209
      Loss on sale of investments                                    48                    -
      Deferred income taxes and investment tax
         credits, net                                            15,512                  7,135
      Deferred costs, net                                       (50,737)               (33,514)
      Allowance for funds used during construction                  (51)                  (215)
   Changes in working capital:
      Receivables                                               (63,301)                11,477
      Materials and supplies                                        (28)                   (83)
      Special deposits and prepayments                           88,380                 14,414
      Payables and accrued liabilities                           33,266                 28,216
      Due to/from affiliates                                    (78,659)                 7,901
   Other, net                                                    (4,493)                 7,292
                                                                -------               --------
         Net cash provided by operating activities               48,374                149,642
                                                                -------               --------

Investing Activities:
   Capital expenditures and investments                         (33,113)               (24,411)
   Proceeds from sale of businesses/investments                      40                    -
   Contributions to decommissioning trusts                         (294)                (5,917)
   Other, net                                                    (1,716)                (4,100)
                                                                -------               --------
         Net cash required by investing activities              (35,083)               (34,428)
                                                                -------               --------

Financing Activities:
   Increase in notes payable, net                                63,100                    -
   Retirement of long-term debt                                     -                  (40,000)
   Capital lease principal payments                                 -                   (5,937)
   Dividends paid on common stock                               (75,000)               (45,000)
   Dividends paid on preferred stock                             (1,391)                (3,076)
                                                                -------               --------
         Net cash required by financing activities              (13,291)               (94,013)
                                                                -------               --------

Net increase in cash and temporary
   cash investments from above activities                           -                   21,201
Cash and temporary cash investments, beginning of year             801                  68,684
                                                                -------               --------
Cash and temporary cash investments, end of period            $    801               $  89,885
                                                                =======               ========

Supplemental Disclosure:
   Interest and preferred dividends paid                      $  23,040              $  25,024
                                                                =======               ========
   Income taxes paid                                          $     -                $     190
                                                                =======               ========
   New capital lease obligations incurred                     $     -                $     -
                                                                =======               ========



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

                                       30

</TABLE>


<PAGE>

<TABLE>
<CAPTION>

              METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANIES

                           Consolidated Balance Sheets


                                                                     In Thousands
                                                              ---------------------------------
                                                               March 31,           December 31,
                                                                 2001                  2000
                                                              ------------         ------------
                                                              (Unaudited)

ASSETS
Utility Plant:
<S>                                                           <C>                   <C>
   Utility plant in service                                   $1,570,618            $1,561,252
   Accumulated depreciation                                     (500,565)             (489,607)
                                                               ---------             ---------
         Net utility plant in service                          1,070,053             1,071,645
   Construction work in progress                                  24,195                22,437
   Other, net                                                        596                   596
                                                               ---------             ---------
         Net utility plant                                     1,094,844             1,094,678
                                                               ---------             ---------


Other Property and Investments:
   Nuclear decommissioning trusts, at market (Note 1)            154,397               154,068
   Other, net                                                     34,081                 4,472
                                                               ---------             ---------
         Total other property and investments                    188,478               158,540
                                                               ---------             ---------


Current Assets:
   Cash and temporary cash investments                             3,188                 3,234
   Special deposits                                                  971                   205
   Accounts receivable:
      Customers, less provision for doubtful accounts
         of 12,330 for 2001 and 13,004 for 2000                   67,006                70,118
      Affiliates                                                  54,279                49,731
      Other                                                       30,395                28,525
   Unbilled revenues                                              35,556                38,688
   Deferred income taxes                                           1,634                 1,838
   Prepayments                                                    29,630                 7,556
                                                               ---------             ---------
         Total current assets                                    222,659               199,895
                                                               ---------             ---------


Deferred Debits and Other Assets:
   Regulatory assets, net (Note 1)                               992,219             1,227,981
   Deferred income taxes                                         429,327               447,868
   Other                                                          32,692                32,417
                                                               ---------             ---------
         Total deferred debits and other assets                1,454,238             1,708,266
                                                               ---------             ---------



         Total Assets                                         $2,960,219            $3,161,379
                                                              ==========            ==========



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

                                       31


<PAGE>
<TABLE>
<CAPTION>


              METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANIES

                           Consolidated Balance Sheets


                                                                       In Thousands
                                                              ---------------------------------
                                                               March 31,           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                                             71,493                70,476
    Accumulated other comprehensive income (Note 4)                  128                    64
                                                               ---------             ---------
         Total common stockholder's equity                       538,094               537,013
    Company-obligated trust preferred securities (Note 5)        100,000               100,000
    Long-term debt                                               466,861               496,860
                                                               ---------             ---------
         Total capitalization                                  1,104,955             1,133,873
                                                               ---------             ---------


Current Liabilities:
    Securities due within one year                                30,027                    27
    Notes payable                                                 86,900                46,600
    Accounts payable:
      Affiliates                                                  63,086                69,462
      Other                                                       41,492                37,399
    Taxes accrued                                                 18,290                20,768
    Interest accrued                                               9,734                14,375
    Other                                                         11,997                13,858
                                                               ---------             ---------
         Total current liabilities                               261,526               202,489
                                                               ---------             ---------


Deferred Credits and Other Liabilities:
    Deferred income taxes                                        715,517               728,344
    Unamortized investment tax credits                            13,947                14,159
    Power purchase contract loss liability (Note 1)              507,444               727,503
    Three Mile Island Unit 2 future costs (Note 1)               259,708               257,367
    Nuclear fuel disposal fee                                     35,976                35,456
    Other                                                         61,146                62,188
                                                               ---------             ---------
         Total deferred credits and other liabilities          1,593,738             1,825,017
                                                               ---------             ---------


Commitments and Contingencies (Note 1)



         Total Liabilities and Capitalization                 $2,960,219            $3,161,379
                                                              ==========            ==========



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

                                       32
</TABLE>


<PAGE>

<TABLE>
<CAPTION>

              METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANIES

                        Consolidated Statements of Income
                                   (Unaudited)

                                                                       In Thousands
                                                               ----------------------------
                                                                       Three Months
                                                                      Ended March 31,
                                                               -----------------------------
                                                                2001                   2000
                                                                ----                   ----


<S>                                                           <C>                   <C>
Operating Revenues                                            $221,020              $203,056
                                                               -------               -------

Operating Expenses:
   Power purchased and interchanged:
      Affiliates                                                 1,173                    52
      Others                                                   124,054                92,498
   Other operation and maintenance                              36,553                28,000
   Depreciation and amortization                                17,794                15,804
   Taxes, other than income taxes                               10,632                11,383
                                                               -------               --------
          Total operating expenses                             190,206               147,737
                                                               -------               -------

Operating Income                                                30,814                55,319
                                                               -------               -------

Other Income and Deductions:
   Allowance for other funds used during
      construction                                                 -                      29
   Other income, net                                             8,186                 2,771
                                                               -------               -------
          Total other income and deductions                      8,186                 2,800
                                                               -------               -------

Income Before Interest Charges                                  39,000                58,119
                                                               -------               -------

Interest Charges:
   Long-term debt and notes payable                             10,690                11,935
   Trust preferred securities                                    1,838                 1,838
   Other interest                                                  700                   526
   Allowance for borrowed funds used
      during construction                                         (159)                 (184)
                                                               -------               -------

         Total interest charges                                 13,069                14,115
                                                               -------               -------

Income Before Income Taxes                                      25,931                44,004
   Income taxes                                                  9,914                17,511
                                                               -------               -------
Net Income                                                    $ 16,017              $ 26,493
                                                               =======               =======




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

                                       33



<PAGE>

<TABLE>
<CAPTION>

              METROPOLITAN EDISON COMPANY AND SUBSIDIARY COMPANIES

                      Consolidated Statements of Cash Flows
                                   (Unaudited)

                                                                        In Thousands
                                                                -----------------------------
                                                                        Three Months
                                                                        Ended March 31,
                                                                -----------------------------
                                                                 2001                   2000
                                                                 ----                   ----

Operating Activities:
<S>                                                           <C>                    <C>
   Net income                                                 $  16,017              $  26,493
   Adjustments to reconcile income to cash provided:
      Depreciation and amortization                              18,030                 15,883
      Provision for doubtful accounts                             1,594                  2,030
      Regulatory assets, net                                    (11,461)               (16,987)
      Voluntary enhanced retirement programs                      9,189                    -
      Deferred income taxes and investment tax
         credits, net                                             1,159                  6,211
      Allowance for funds used during construction                  -                      (29)
   Changes in working capital:
      Receivables                                                 2,781                (14,292)
      Special deposits and prepayments                          (22,841)                 1,407
      Payables and accrued liabilities                           (4,888)                 3,557
      Due to/from affiliates                                    (20,113)               (34,607)
   Nonutility generation contract buyout costs                      -                   (1,250)
   Other, net                                                     2,341                 (1,967)
                                                                 ------                 ------
         Net cash required by operating activities               (8,192)               (13,551)
                                                                 ------                 ------

Investing Activities:
   Capital expenditures and investments                         (11,793)               (11,556)
   Contributions to decommissioning trusts                       (2,371)                (1,583)
   Other, net                                                    (2,990)                   -
                                                                 ------                 ------
         Net cash required by investing activities              (17,154)               (13,139)
                                                                 ------                 ------

Financing Activities:
   Increase in notes payable, net                                40,300                 26,477
   Dividends paid on common stock                               (15,000)               (10,000)
                                                                 ------                 ------
         Net cash provided by financing activities               25,300                 16,477
                                                                 ------                 ------

Net decrease in cash and temporary cash
   investments from above activities                                (46)               (10,213)
Cash and temporary cash investments, beginning of year            3,234                 10,899
                                                                 ------                 ------
Cash and temporary cash investments, end of period            $   3,188              $     686
                                                                 ======                 ======


Supplemental Disclosure:
   Interest and preferred dividends paid                      $  16,963              $  18,448
                                                                 ======                 ======
   Income taxes paid                                          $   2,733              $   3,276
                                                                 ======                 ======
   New capital lease obligations incurred                     $     -                $     -
                                                                 ======                 ======




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

                                       34

</TABLE>


<PAGE>

<TABLE>
<CAPTION>

             PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES

                           Consolidated Balance Sheets


                                                                     In Thousands
                                                              ---------------------------------
                                                               March 31,           December 31,
                                                                 2001                  2000
                                                              --------------      -------------
                                                              (Unaudited)

ASSETS
Utility Plant:
<S>                                                           <C>                   <C>
   Utility plant in service                                   $1,797,566            $1,791,594
   Accumulated depreciation                                     (597,488)             (588,377)
                                                               ---------             ---------
         Net utility plant in service                          1,200,078             1,203,217
   Construction work in progress                                  30,226                25,895
   Other, net                                                      2,548                 2,665
                                                               ---------             ---------
         Net utility plant                                     1,232,852             1,231,777
                                                               ---------             ---------


Other Property and Investments:
   Nonutility generation trusts, at market                       187,105               190,710
   Nuclear decommissioning trusts, at market (Note 1)             97,439                98,426
   Other, net                                                     16,252                   833
                                                               ---------             ---------
         Total other property and investments                    300,796               289,969
                                                               ---------             ---------


Current Assets:
   Cash and temporary cash investments                               250                   250
   Special deposits                                                  420                   330
   Accounts receivable:
      Customers, less provision for doubtful accounts
         of $14,817 for 2001 and $14,851 for 2000                 73,607                78,001
      Affiliates                                                  24,015                25,073
      Other                                                       26,520                21,205
   Unbilled revenues                                              36,771                39,514
   Deferred income taxes                                           1,669                 1,912
   Prepayments                                                    31,748                11,869
                                                               ---------             ---------
         Total current assets                                    195,000               178,154
                                                               ---------             ---------


Deferred Debits and Other Assets:
   Regulatory assets, net (Note 1)                               352,370               619,951
   Deferred income taxes                                         709,495               708,954
   Other                                                          20,423                19,314
                                                               ---------             ---------
         Total deferred debits and other assets                1,082,288             1,348,219
                                                               ---------             ---------





         Total Assets                                         $2,810,936            $3,048,119
                                                               =========             =========



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

                                       35
</TABLE>


<PAGE>

<TABLE>
<CAPTION>

             PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES

                           Consolidated Balance Sheets


                                                                     In Thousands
                                                              ---------------------------------
                                                               March 31,           December 31,
                                                                 2001                  2000
                                                              ---------------------------------
                                                              (Unaudited)

LIABILITIES AND CAPITALIZATION
Capitalization:
<S>                                                           <C>                   <C>
    Common stock                                              $  105,812            $  105,812
    Capital surplus                                              320,487               320,487
    Retained earnings                                             41,410                43,515
    Accumulated other comprehensive income/(loss) (Note 4)          (858)                   23
                                                               ---------             ---------
         Total common stockholder's equity                       466,851               469,837
    Company-obligated trust preferred securities (Note 5)        100,000               100,000
    Long-term debt                                               517,858               517,813
                                                               ---------             ---------
         Total capitalization                                  1,084,709             1,087,650
                                                               ---------             ---------


Current Liabilities:
    Securities due within one year                                    14                    14
    Notes payable                                                 86,500                55,800
    Obligations under capital leases                                 497                   485
    Accounts payable:
      Affiliates                                                  26,886                29,788
      Other                                                       57,334                50,673
    Taxes accrued                                                 13,631                23,895
    Interest accrued                                              17,300                11,582
    Other                                                          6,700                 6,880
                                                               ---------             ---------
         Total current liabilities                               208,862               179,117
                                                               ---------             ---------


Deferred Credits and Other Liabilities:
    Deferred income taxes                                        733,707               735,750
    Unamortized investment tax credits                            12,813                13,098
    Power purchase contract loss liability (Note 1)              585,893               846,992
    Three Mile Island Unit 2 future costs (Note 1)               129,992               128,820
    Nuclear fuel disposal fee                                     17,988                17,728
    Other                                                         36,972                38,964
                                                               ---------             ---------
         Total deferred credits and other liabilities          1,517,365             1,781,352
                                                               ---------             ---------



Commitments and Contingencies (Note 1)




         Total Liabilities and Capitalization                 $2,810,936            $3,048,119
                                                               =========             =========



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

                                       36

</TABLE>

<PAGE>
<TABLE>
<CAPTION>


             PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES

                        Consolidated Statements of Income
                                   (Unaudited)

                                                                       In Thousands
                                                              ------------------------------
                                                                       Three Months
                                                                      Ended March 31,
                                                               ------------------------------
                                                                2001                   2000
                                                                ----                   ----

<S>                                                           <C>                   <C>
Operating Revenues                                            $243,827              $220,105
                                                               -------               -------

Operating Expenses:
   Power purchased and interchanged:
      Affiliates                                                   956                   157
      Others                                                   168,108               105,013
   Other operation and maintenance                              43,083                38,806
   Depreciation and amortization                                14,529                11,534
   Taxes, other than income taxes                               11,690                10,963
                                                               -------               -------
         Total operating expenses                              238,366               166,473
                                                               -------               -------

Operating Income                                                 5,461                53,632
                                                               -------               -------

Other Income and Deductions:
   Other income, net                                             1,185                   847
                                                               -------               -------
         Total other income and deductions                       1,185                   847
                                                               -------               -------

Income Before Interest Charges                                   6,646                54,479
                                                               -------               -------

Interest Charges:
   Long-term debt and notes payable                              9,410                 7,277
   Company-obligated trust preferred securities                  1,835                 1,835
   Other interest                                                  406                   296
   Allowance for borrowed funds used
      during construction                                         (144)                 (300)
                                                               -------               -------

         Total interest charges                                 11,507                 9,108
                                                               -------               -------

Income/(Loss) Before Income Taxes                               (4,861)               45,371
   Income tax expense/(benefit)                                 (2,756)               18,429
                                                               -------               -------
Net Income/(Loss)                                             $ (2,105)             $ 26,942
                                                               =======               =======



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

                                       37

</TABLE>


<PAGE>
<TABLE>
<CAPTION>




             PENNSYLVANIA ELECTRIC COMPANY AND SUBSIDIARY COMPANIES

                      Consolidated Statements of Cash Flows
                                   (Unaudited)


                                                                     In Thousands
                                                                -----------------------------
                                                                        Three Months
                                                                      Ended March 31,
                                                                ------------------------------
                                                                 2001                   2000
                                                                 ----                   ----

Operating Activities:
<S>                                                           <C>                    <C>
   Net income/(loss)                                          $  (2,105)             $  26,942
   Adjustments to reconcile income to cash provided:
      Depreciation and amortization                              13,616                 12,271
      Provision for doubtful accounts                             2,162                  2,438
      Regulatory assets, net                                    (12,203)               (29,084)
      Gain on sale of investment                                   (885)                   -
      Voluntary enhanced retirement program                       9,077                    -
      Deferred income taxes and investment tax
         credits, net                                               512                  8,885
      Allowance for other funds used during construction           (144)                   -
   Changes in working capital:
      Receivables                                                  (339)               (16,385)
      Special deposits and prepayments                          (19,969)                (2,901)
      Payables and accrued liabilities                            1,936                 11,033
      Due to/from affiliates                                    (10,920)               (64,904)
   Nonutility generation contract buyout costs                      -                   (4,410)
   Other, net                                                    (2,349)                10,798
                                                                -------                -------
         Net cash required by operating activities              (21,611)               (45,317)
                                                                -------                -------

Investing Activities:
   Capital expenditures and investments                         (14,223)               (11,494)
   Proceeds from nonutility generation trusts                     8,465                    -
   Contributions to decommissioning trusts                          (12)                   (10)
   Other, net                                                    (3,319)                 2,100
                                                                -------                -------
        Net cash required by investing activities                (9,089)                (9,404)
                                                                -------                -------

Financing Activities:
   Increase in notes payable                                     30,700                 67,600
   Dividends paid on common stock                                   -                  (45,000)
                                                                -------                -------
         Net cash provided by financing activities               30,700                 22,600
                                                                -------                -------

Net decrease in cash and temporary
   cash investments from above activities                           -                  (32,121)
Cash and temporary cash investments, beginning of year              250                 32,250
                                                                -------                -------
Cash and temporary cash investments, end of period            $     250              $     129
                                                                =======                =======

Supplemental Disclosure:
   Interest and preferred dividends paid                      $   3,301              $   2,031
                                                                =======                =======
   Income taxes paid                                          $     408              $   3,400
                                                                =======                =======
   New capital lease obligations incurred                     $     -                $     -
                                                                =======                =======



The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.
                                                              38
</TABLE>
<PAGE>





GPU, Inc. and Subsidiary Companies



             COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


      GPU, Inc. owns all the outstanding common stock of three domestic electric
utilities -- Jersey Central Power & Light Company (JCP&L),  Metropolitan  Edison
Company (Met-Ed) and Pennsylvania  Electric  Company  (Penelec).  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


                                       39


<PAGE>


GPU, Inc. and Subsidiary Companies

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 to which, any developments relate to
general economic conditions. In testimony before the Pennsylvania Public Utility
Commission  (PaPUC),  FirstEnergy  stated that FirstEnergy will carefully review
the PaPUC's action with respect to GPU's requested provider of last resort (PLR)
relief (for further  information,  see Domestic  Energy  Supply  section) on the
financial  condition of GPU to determine  whether the consequences  would have a
"material  adverse  effect" on GPU or the combined  company.  The receipt of all
necessary  regulatory  approvals is expected to take approximately twelve months
from the date of the  merger  agreement.  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 New Jersey Board of Public  Utilities  (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 NUG agreements  exceed
amounts   collected   in  BGS  and  MTC  rates.   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  approximately
$400 million of stranded costs  associated with Oyster Creek.  JCP&L has filed a
petition with the NJBPU  requesting  authorization  to issue transition bonds to
securitize the recovery of these costs.



                                       40


<PAGE>


GPU, Inc. and Subsidiary Companies

      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.

      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 supply  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.  Met-Ed and Penelec,  however,  are
unable to recover  energy  costs in excess of amounts  reflected in their capped
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 a substantial
loss of  earnings  for Met-Ed and  Penelec in 2000,  especially  during the peak
Summer months. This condition has continued in 2001, with Met-Ed's and Penelec's
supply  businesses  recognizing  after-tax  losses of $8.4  million in the first
quarter.

      On November 29, 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.  Various  parties to the
proceeding  filed motions to dismiss the petition.  On January 19, 2001,  Met-Ed
and Penelec made a further  request  that they be  permitted to implement  their
proposed deferral  mechanism pending the PaPUC's final action on their petition.
On January 24, 2001, the PaPUC denied, without prejudice,


                                       41


<PAGE>


GPU, Inc. and Subsidiary Companies

the motions to dismiss Met-Ed's and Penelec's  petition and recommended that the
companies  provide support for a rate cap exception based on the criteria in the
Customer Choice and Competition  Act. In addition,  the PaPUC  consolidated  the
petition  with the  GPU/FirstEnergy  merger  proceeding  for  consideration  and
resolution  in accord with the merger  procedural  schedule.  In February  2001,
Met-Ed and Penelec filed a supplement to their petition and testimony supporting
the granting of exceptions  to their rate caps. In addition,  Met-Ed and Penelec
stated  that  as an  alternative  to  the  deferral  mechanism  they  previously
proposed,  the  circumstances  warrant an  immediate  increase in their  present
generation rate caps coupled with a cost deferral mechanism.

      On April 25, 2001,  the PaPUC  Administrative  Law Judge (ALJ) assigned to
the combined  proceeding  issued his recommended  decision.  The ALJ recommended
generation  rate cap increases  totaling  $316.7 million (Met-Ed $162.5 million;
Penelec  $154.2  million)  to  address  the  companies'  exposure  to  increased
wholesale  energy  prices  under  Met-Ed's and  Penelec's  PLR  obligation.  The
generation  rate cap  increases  would be effective  on about June 1, 2001,  and
would be in lieu of Met-Ed's  and  Penelec's  proposed  deferral  mechanism  for
excess  PLR  costs.  With  respect  to  the  GPU/FirstEnergy   merger,  the  ALJ
recommended  that  the  merger  be  approved,  subject  to  certain  conditions,
including that  merger-related  savings are flowed back to ratepayers through an
extension  of each  company's  transmission  and  distribution  rate  cap  until
December  2007.  Parties  in the  proceeding  have  until  May 7,  2001  to file
exceptions to the ALJ's recommended decision,  and responses to these exceptions
must be filed by May 14, 2001. The PaPUC is  tentatively  scheduled to issue its
final decision in the combined proceeding on May 24, 2001.

      There can be no assurance  regarding  the degree,  if any, to which Met-Ed
and Penelec may be able to recover their costs to supply  electricity  in excess
of amounts currently reflected in their capped generation rates.


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 March 31, 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 $1.1 billion in 2001,  $454 million in 2002, $74 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 nonutility generators (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


                                       42


<PAGE>


GPU, Inc. and Subsidiary Companies

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 March 31, 2001, and estimated  payments
thereafter through 2006:

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

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

      1999                $774       $388        $167        $219
      2000                 734        364         153         217
      2001                 986        552         183         251
      2002                 851        511         149         191
      2003                 856        507         153         196
      2004                 819        460         158         201
      2005                 807        448         162         197
      2006                 817        449         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 March 31, 2001,
the GPU Energy  companies  have  recorded,  on a present  value  basis,  a total
estimated  liability of $2.7 billion  (JCP&L $1.6 billion;  Met-Ed $0.5 billion;
Penelec $0.6 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.

      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  March  31,  2001  and  December  31,  2000
Consolidated Balance Sheets in accordance with the provisions of FAS 71 and EITF
Issue 97-4 were as follows:



                                       43


<PAGE>


GPU, Inc. and Subsidiary Companies

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

Market transition charge (MTC) / basic
  generation service                               $2,631,013     $2,732,926
Competitive transition charge (CTC)                   990,104      1,501,911
Income taxes recoverable through future
  rates, net                                          268,273        263,942
Costs recoverable through distribution rates          250,840        257,135
Societal benefits charge                              181,265        195,011
Three Mile Island Unit 2 (TMI-2)
  decommissioning costs                                50,814         46,089
Other, net                                             35,398         35,990
                                                    ---------      ---------
     Total regulatory assets, net                  $4,407,707     $5,033,004
                                                    =========      =========

JCP&L

MTC / basic generation service                     $2,631,013     $2,732,926
Costs recoverable through distribution rates          250,840        257,135
Societal benefits charge                              181,265        195,011
                                                    ---------      ---------
     Total regulatory assets, net                  $3,063,118     $3,185,072
                                                    =========      =========

Met-Ed

CTC                                                $  812,973     $1,056,696
Income taxes recoverable through future
  rates, net                                          120,075        114,543
TMI-2 decommissioning costs                            30,547         27,610
Other, net                                             28,624         29,132
                                                    ---------      ---------
     Total regulatory assets, net                  $  992,219     $1,227,981
                                                    =========      =========

Penelec

CTC                                                $  177,131     $  445,215
Income taxes recoverable through future
  rates, net                                          148,198        149,399
TMI-2 decommissioning costs                            20,267         18,479
Other, net                                              6,774          6,858
                                                    ---------      ---------
     Total regulatory assets, net                  $  352,370     $  619,951
                                                    =========      =========


                               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 March 31, 2001 and  December 31, 2000 was $54 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.


                                       44


<PAGE>


GPU, Inc. and Subsidiary Companies

TMI-2:
------

      As a result of the 1979 TMI-2  accident,  individual  claims  for  alleged
personal injury (including claims for punitive  damages),  which are material in
amount,   were  asserted  against  GPU,  Inc.  and  the  GPU  Energy  companies.
Approximately  2,100 of such claims were filed in the 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  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


                                       45


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GPU, Inc. and Subsidiary Companies

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 have taken 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.

      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.


                         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  $454  million  for
radiological  decommissioning and $36 million for non-radiological removal costs
(net of $12.6 million spent as of March 31, 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. Also, the cost estimate contained in this site-specific study is slightly
less than the decommissioning funding targets established by the NRC.

      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
March 31, 2001 and December 31, 2000 is $520 million (JCP&L $130 million; Met-Ed
$260 million; Penelec $130 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 $30 million  (JCP&L $7.5  million;  Met-Ed $15  million;  Penelec  $7.5
million)  and $29 million  (JCP&L $7  million;  Met-Ed $15  million;  Penelec $7
million) as of March 31, 2001 and December 31, 2000,  respectively,  as a result
of TMI-2 entering long-term monitored storage in 1993.


                                       46


<PAGE>


GPU, Inc. and Subsidiary Companies

      Offsetting the $520 million liability as of March 31, 2001 is $131 million
(JCP&L $16 million; Met-Ed $95 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 $366 million (JCP&L $115
million; Met-Ed $154 million;  Penelec $97 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 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 March 31, 2001, the  accident-related  portion of TMI-2 radiological
decommissioning costs is estimated to be $80 million (JCP&L $20 million;  Met-Ed
$40  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 March 31,  2001 was $14
million (JCP&L $6 million;  Met-Ed $5 million;  Penelec $3 million),  net of $38
million spent as of March 31, 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.


                                       47


<PAGE>


GPU, Inc. and Subsidiary Companies

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 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.

      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
March 31, 2001, a liability of  approximately  $6.1 million (JCP&L $1.6 million;
Met-Ed $0.5 million;  Penelec $0.2 million; other $3.8 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


                                       48


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GPU, Inc. and Subsidiary Companies

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.

      The parties have  reached  agreement in principle on the terms of a global
settlement,  which is to be  contained  in a Consent  Decree.  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. The
total  estimated  cost to GPU,  Inc.  under  the  global  settlement  terms,  if
ultimately implemented, would be $3.65 million.

      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 judgement 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. has filed a motion with the court requesting that
portions of RG&E's complaint be dismissed on various substantive  grounds.  RG&E
has  responded  and filed a motion  for  summary  judgment  on the issue of GPU,
Inc.'s  alleged  liability for the sites. A ruling by the court on these motions
is pending. 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 March 31,  2001,  JCP&L has
spent approximately $47.6 million in connection with the cleanup of these sites.
In addition,  JCP&L has recorded an estimated  environmental  liability of $50.2
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 $50.2  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 March 31,  2001,  JCP&L had  recorded  on its
Consolidated  Balance  Sheet  a  regulatory  asset  of  $52  million.  JCP&L  is
continuing to pursue  reimbursement  from its insurance carriers for remediation
costs  already  spent and for future  estimated  costs.  In 1994,  JCP&L filed a
complaint with the Superior Court of New Jersey against several of its insurance
carriers, relating to these MGP sites, and has settled with all but one of those
carriers.




                                       49


<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. In September
2000,   JCP&L   received  from  its  primary   insurance   carrier  the  initial
indemnification  payment for certain expenses incurred by JCP&L relative to this
action.

      Discovery  continues in the class action,  and no trial date has been set.
The GPU defendants  filed a motion with the trial court seeking  decertification
of the class,  and oral  argument  on the  decertification  was held in February
2001. There can be no assurance as to the outcome of these matters.



                                       50


<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 March 31,
2001,  GPU,  Inc.'s  investments in GPU Electric and GPU Power were $802 million
and $141 million,  respectively.  As of that date, GPU, Inc. has also guaranteed
an  additional  $1  billion  and $21  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.





                                       51


<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  March  31,  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 for $4.9 million
of capital  contributions through March 31, 2001, leaving a remaining commitment
of up to $15.1  million.  There can be no  assurance  as to the  outcome of this
matter.

      GPU  Power  UK also  owns an  18.75%  interest  in  Humber  Power  Limited
(Humber).  At March 31,  2001,  GPU Power UK's equity in the  project,  which is
located in England,  was approximately $22 million. A number of investors in the
project (not  including GPU Power UK) also have purchase power  agreements  with
Humber,  which provide for the  servicing of the project's  debt and a return on
equity.  The  purchasers  are claiming  that such  contracts,  which provide for
prices of power in excess of current  market prices,  will become  unenforceable
under a new UK regulatory  scheme which became  effective in March 2001.  Humber
and the  purchasers  have agreed to submit the matter to arbitration as provided
by the contracts. If the contracts cannot be satisfactorily reformed, the prices
at which Humber can sell its energy may not be  sufficient  to provide an equity
return to the investors or ultimately to service  Humber's debt. 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 March 31, 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

      On July 9, 1999,  DIAN (the  Colombian  national tax  authority)  issued a
"Special  Requirement"  on the  Termobarranquilla  S.A.,  Empresa  de  Servicios
Publicos  (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 (EI  Barranquilla,  a wholly owned subsidiary of GPU Power,
ABB  Barranquilla,  Corporacion  Electrica de la Costa  Atlantica  (CORELCA) and
Distral  Group  have  a  28.7%,   28.7%,  42.5%  and  0.1%  interest  in  TEBSA,
respectively).  The failure to give notice of this Special Requirement to the US
Export Import Bank (EXIM Bank) is an event of default under the loan  agreement.
GPU Power also believes that other events of default exist


                                       52


<PAGE>


GPU, Inc. and Subsidiary Companies

under the loan agreements with project  lenders  including the Overseas  Private
Investments  Corporation  (OPIC),  a  commercial  bank  syndicate.  As a result,
certain required  certifications  have not been delivered to EXIM Bank, OPIC and
the other project lenders,  which failure is, itself,  an event of default under
the loan agreements.  These issues are currently being discussed with EXIM Bank,
the other project lenders, and the Government of Colombia,  as well as the other
partners in the TEBSA project. In addition,  in January 2001 CORELCA advised GPU
Power that it was conducting its own investigation of the matter. Also, in March
2001, the DIAN initiated a review of documents relating to the project,  and GPU
Power has been advised that DIAN may conduct an audit of TEBSA's tax returns for
the years 1999 and 2000 and that DIAN has  requested  a meeting  to discuss  the
results of its review.  As of March 31,  2001,  GPU Power has an  investment  of
approximately  $96 million in TEBSA and is committed to make additional  standby
equity contributions of $21.3 million, which GPU, Inc. has guaranteed. The total
outstanding  senior debt of the TEBSA project is $358 million at March 31, 2001,
and, in addition,  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.  There can be no assurance as to the outcome of these
matters.

      With regard to the "Special Requirement" issued by DIAN, DIAN asserts that
TEBSA should be liable for approximately $4.4 million consisting of $1.3 million
in additional  tax and $3.1 million in penalties  and interest.  TEBSA has filed
both procedural and  substantive  objections to these  assertions,  the DIAN has
responded to these objections  reiterating its previous position,  and TEBSA, in
turn,  filed an appeal with the DIAN on June 2, 2000.  A response is expected by
the end of May 2001.

      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  statute.  The DIAN  requested  payment  of  approximately  $1.2  million in
additional  tax,  penalties  and  interest.  On October 12, 2000,  TEBSA filed a
response with the DIAN stating arguments supporting its tax exemption benefit.

      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 March 31, 2001 book value of $22  million.  There can be no  assurance as to
the outcome of this matter.

      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


                                       53


<PAGE>


GPU, Inc. and Subsidiary Companies

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 March  31,  2001,  GPU had a  remaining
severance  liability of $2.7 million,  included in Other current  liabilities on
the Consolidated Balance Sheet, related to 32 employees.  Management expects the
majority of the remaining employees to terminate by June 30, 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 $3.1 million as of March 31, 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 have been paying 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 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  disposal
facility for spent nuclear fuel in Utah.

      At March 31,  2001,  GPU has  recorded a liability of $213 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.

      On July 26,  2000,  GPUN filed suit in the United  States  Court of Claims
seeking to recover damages as a result of the DOE's failure to commence disposal
of GPUN's spent  nuclear  fuel on January 31, 1998,  as required by the terms of
the Standard Contract 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.
The  Government's  motion to reassign  GPUN's case,  and all other similar cases
brought  against the Government,  to a single judge,  after which the Government
states that it would seek  consolidation of all the cases, is pending before the
Court. There can be no assurance as to the outcome of this matter.


                                       54


<PAGE>


GPU, Inc. and Subsidiary Companies

      GPU, Inc. and consolidated  affiliates have approximately 14,300 employees
worldwide,  of whom  10,200  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 (4,850) and
MYR  (5,040),  of  which  approximately  2,900  and  4,300,  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.

      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
approximately  $18  million  (Met-Ed $9 million;  Penelec $9  million)  has been
recorded  in  2001   Operating   Income  for  the  cost  of  pension  and  other
postretirement benefits.

      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 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


                                       55


<PAGE>


GPU, Inc. and Subsidiary Companies

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 $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.  However,  the Derivatives  Implementation  Group (DIG), a committee of the
Financial  Accounting  Standards Board (FASB) responsible for providing guidance
on the  implementation of FAS 133, has not reached a final conclusion  regarding
the appropriate accounting treatment for certain types of energy contracts under
FAS  133.  Depending  on the  final  decision  of the  FASB,  certain  commodity
contracts  currently  considered  "normal  purchases  and  sales"  may no longer
qualify for this  exclusion,  and may be required to be accounted  for under FAS
133. In this case, GPU would follow the  transition  provisions for applying the
guidance in FAS 133.  Management  believes such contracts  would qualify as cash
flow  hedges  and be  recorded  at fair  value on the  balance  sheet,  with the
effective  portion of the hedge  recognized in accumulated  other  comprehensive
income.

      The energy options 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 $13.3 million  (JCP&L $8.2 million;
Met-Ed $2.7 million;  Penelec $2.4 million) as of March 31, 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 $2.5 million (JCP&L $2.3 million;  Met-Ed $.1
million; Penelec $.1 million) recorded in Accumulated other comprehensive income
as of March 31, 2001, GPU expects a pre-tax gain of  approximately  $3.7 million
(JCP&L $3.3 million;  Met-Ed $.2 million;  Penelec $.2 million) to be recognized
in income  within  the next  twelve  months.  The  ineffective  portion of these
commodity contracts was immaterial for the quarter ended March 31, 2001.

                                       56


<PAGE>


GPU, Inc. and Subsidiary Companies

      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 March 31,  2001,  this amount
totaled $53 million  (JCP&L $13.2 million;  Met-Ed $26.6 million;  Penelec $13.2
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 March 31, 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 March 31, 2001.


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 $7.9  million  (Penelec  $1.7
million;  GPU Electric  $6.2  million) as of March 31,  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 $7.2 million
(Penelec $1 million;  GPU Electric $6.2 million)  recorded in Accumulated  other
comprehensive  income  as of March 31,  2001,  GPU  expects  a  pre-tax  loss of
approximately  $1.3 million (Penelec) to be recognized in income within the next
twelve months. The ineffective portion of the interest rate swaps was immaterial
for the quarter ended March 31, 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
$3.3  million  as of March 31,  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 $1.4 million for the quarter ended March 31, 2001.

      As  of  March  31,  2001,  the  interest  rate  swap  agreements   covered
approximately  $484 million (Penelec $50 million;  GPU Electric $434 million) of
debt,  and were  scheduled to expire on various dates through June 2006. For the
quarter ended March 31, 2001,  the amount by which fixed rate  interest  expense
exceeded variable rate interest was immaterial.





                                       57


<PAGE>


GPU, Inc. and Subsidiary Companies

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 $96.4
million as of March 31, 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
$62.7 million recorded in Accumulated other comprehensive income as of March 31,
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 March 31, 2001.

      As of March 31,  2001,  these  currency  swap  agreements  covered  BP 598
million  (US $850  million)  of debt.  Interest  expense  would have been BP 9.8
million (US $14.1  million) as compared to BP 9.6 million (US $13.9 million) for
the quarter ended March 31, 2001 had these agreements not been in place.


3.  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 three  months  ended March 31,  2001,  GPU's  non-recurring  items
totaled a net charge of $20.1 million after-tax, and consisted of the following:
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.
There were no non-recurring items for the three months ended March 31, 2000.








                                       58


<PAGE>

<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 three months
ended March 31, 2001

Domestic Segments:
   Electric Utility Operations
<S>                               <C>         <C>            <C>         <C>          <C>         <C>             <C>
        (GPU Energy)              $  910,514  $   94,072     $ 52,303    $ 54,695     $83,951     $12,142,363     $ 59,129
   Electric Retail Energy Sales
        (GPU AR)                      12,274        -            -            252         431          17,674           -
   Telecommunications
        Infrastructure
        (GPU Telcom)                   7,923         249         -            205         259         125,552       17,971
   Construction Services
        (MYR) (c)                    152,768       2,252          334         840       1,059         345,440          499
                                  ----------  ----------     --------    --------   ---------     -----------     --------
       Subtotal                    1,083,479      96,573       52,637      55,992      85,700      12,631,029       77,599
                                  ----------  ----------     --------    --------   ---------     -----------     --------

Foreign Segments:
   Electric/Gas Utility
        Operations:
        (GPU Electric)
     Electric Distribution -
        United Kingdom               148,356      27,635       41,048       5,936      12,204( f)   4,259,069       30,517
     Electric Distribution -
        Argentina                     49,287       4,440        7,233       1,275       2,166         665,215        8,362
     Gas Transmission -
        Australia                     10,151       3,149        8,405        (642)     (1,896)        784,872          716
   Independ Power Prod -
        S. America (GPU Power)         9,166       1,534          789       1,185       2,322         257,906           11
                                  ----------  ----------     --------    --------   ---------     -----------     --------
       Subtotal                      216,960      36,758       57,475       7,754      14,796       5,967,062       39,606
                                  ----------  ----------     --------    --------   ---------     -----------     --------

Corporate and Eliminations              -            130       10,837        (752)    (11,553)         34,018          117

                                  ----------  ----------     --------    --------   ---------     -----------     --------
       Consolidated Total         $1,300,439  $  133,461     $120,949    $ 62,994     $88,943     $18,632,109     $117,322
                                  ==========  ==========     ========    ========   =========     ===========     ========

For the three months
 ended March 31, 2000

Domestic Segments:
   Electric Utility Operations
        (GPU Energy)              $  849,721  $   83,481     $ 51,427    $ 66,270     $96,544     $12,647,529     $ 47,808
   Independ Power Prod
        (GPU International) (e)       23,010       2,332          254         828       1,251               -        4,183
   Electric Retail Energy Sales
        (GPU AR)                      23,329        -            -          1,120       1,645          19,943            7
   Telecommunications
        Infrastructure
        (GPU Telcom)                   1,810         217         -            (78)       (112)        104,061        6,193
   Construction Services
        (MYR) (c)                        -           -           -           -            -           354,197           -

                                  ----------  ----------     --------    --------   ---------     -----------     --------
       Subtotal                      897,870      86,030       51,681      68,140      99,328      13,125,730       58,191
                                  ----------  ----------     --------    --------   ---------     -----------     --------

Foreign Segments:
   Electric/Gas Utility
          Operations:
          (GPU Electric)
     Electric Distribution -
          United Kingdom             166,298      25,562       46,626      19,068     33,043(g )    4,367,405       44,010
     Electric Distribution -
          Argentina                   43,422       3,313        7,208         400         745         635,050        5,199
     Electric Transmission -
          Australia (d)               47,208      10,271       24,014       1,589       2,952            -           1,689
     Gas Transmission -
          Australia                   11,942       2,805       10,543      (1,426)     (2,004)        862,939        1,936
   Independ Power Prod -
          S. America (GPU Power)       9,704       1,614        1,076       1,178       2,135         255,166           26
                                  ----------  ----------     --------    --------   ---------     -----------     --------
       Subtotal                      278,574      43,565       89,467      20,809      36,871       6,120,560       52,860
                                  ----------  ----------     --------    --------   ---------     -----------     --------

Corporate and Eliminations               -           -          1,815         -        (5,201)         16,171          500
                                  ----------  ----------     --------    --------   ---------     -----------     --------
       Consolidated Total         $1,176,444  $  129,595     $142,963    $ 88,949   $ 130,998     $19,262,461     $111,551
                                  ==========  ==========     ========    ========   =========     ===========     ========

(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 $2.8 million.
(g)   Includes  income  from GPU Power UK's  investments  in  independent  power
      projects accounted for under the cost method of $4.7 million.


                                                              59

</TABLE>

<PAGE>

<TABLE>
<CAPTION>



GPU, Inc. and Subsidiary Companies

4.  COMPREHENSIVE INCOME

         For the  three  months  ended  March 31,  2001 and 2000,  comprehensive
income is summarized below.
                                                                  In Thousands
                                                             ------------------------
                                                                  Three months
                                                                 Ended March 31,
                                                             ------------------------
GPU, Inc. and Subsidiary Companies                              2001             2000
----------------------------------                              ----             ----

<S>                                                          <C>              <C>
Net income                                                   $ 68,895         $130,998
                                                              -------          -------
Other comprehensive income/(loss), net of tax:
      Net unrealized gain/(loss) on investments                (1,924)          14,089
      Foreign currency translation                            (46,215)         (39,487)
      Cumulative effect of change in accounting
        for derivative instruments at 1/1/01                   55,730              -
      Net unrealized gains on derivative instruments            2,246              -
                                                              -------          -------
       Total other comprehensive income/(loss)                  9,837          (25,398)
                                                              -------          -------
Comprehensive income                                         $ 78,732         $105,600
                                                              =======          =======

JCP&L
-----

Net income                                                   $ 51,382         $ 45,570
                                                              -------          -------
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            (2,855)             -
                                                              -------          -------
        Total other comprehensive income                        2,325              -
                                                              -------          -------
 Comprehensive income                                        $ 53,707         $ 45,570
                                                              =======          =======

Met-Ed
------

Net income                                                   $ 16,017         $ 26,493
                                                              -------          -------
Other comprehensive income/(loss), net of tax:
      Net unrealized gain/(loss) on investments                    10             (728)
      Net unrealized gain on derivative instruments                54              -
                                                              -------          -------
        Total other comprehensive income/(loss)                    64             (728)
                                                              -------          -------
Comprehensive income                                         $ 16,081         $ 25,765
                                                              =======          =======

Penelec
-------

Net income/(loss)                                            $ (2,105)        $ 26,942
                                                              -------          -------
Other comprehensive income/(loss), net of tax:
      Net unrealized gain/(loss) on investments                     7             (366)
      Cumulative effect of change in accounting
        for derivative instruments at 1/1/01                     (535)             -
      Net unrealized loss on derivative instruments              (353)             -
                                                              -------          -------
        Total other comprehensive income/(loss)                  (881)            (366)
                                                              -------          -------
Comprehensive income/(loss)                                  $ (2,986)        $ 26,576
                                                              =======          =======


5.  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

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</TABLE>


<PAGE>


GPU, Inc. and Subsidiary Companies

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

                         None




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<PAGE>


GPU, Inc. and Subsidiary Companies

                                   Signatures
                                   ----------

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


                                  GPU, INC.



May 3, 2001                  By:  /s/ B. L. Levy
                                  ---------------------------------
                                  B. L. Levy, Senior Vice President
                                  and Chief Financial Officer



May 3, 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



May 3, 2001                  By:  /s/ M. J. Chesser
                                  ---------------------------------
                                  M. J. Chesser, President and
                                  Chief Executive Officer


May 3, 2001                  By:  /s/ P. E. Maricondo
                                  ---------------------------------
                                  P. E. Maricondo, Comptroller
                                  (principal accounting officer)





                                       63