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PENNSYLVANIA ELECTRIC CO. FIRST MORTGAGE BONDS LOWERED TO 'A' BY FITCH -- FITCH FINANCIAL WIRE --

 NEW YORK, July 1 /PRNewswire/ -- Pennsylvania Electric Co.'s (Penelec), first mortgage bonds are lowered to 'A' from 'A+' and preferred stock to 'A-' from 'A'. Penelec is a wholly owned subsidiary of General Public Utilities Corp. (GPU), a registered utility holding company. The credit trend is declining.
 The lower ratings reflect expected financial deterioration due to a slow growing service territory, increasing operating and maintenance expenses, and greater external financing requirements to support a significantly expanded capital expenditure program. Financial protection levels are not anticipated to remain supportive of the prior ratings. Pretax interest coverage, 4.22 times (x) in 1992, is expected to drop below 3.25x by 1995, while debt leverage is expected to increase to about 52 percent from 46 percent during the same period. Internal cash generation, which averaged about 90 percent of net construction requirements from 1988-1992, is expected to average about 60 percent during the next five years.
 Although Penelec has no baseload capacity planned due to its adequate reserve margins, the company estimates capital expenditures will increase to $1.1 billion over the next five years, a 120 percent increase over the $503 million spent during 1988-1992. The higher expenditures are slated for transmission and distribution upgrades, compliance with the Clean Air Act (CAA) amendments, the Duquesne Light Co. transmission line project, and replacements and improvements to its electric system. Penelec has the largest CAA exposure of any GPU subsidiary. CAA expenditures are expected to total about $296 million by 2000 and require rate increases of around 6 percent, although no rate increase requests are planned any time soon. On a total system basis, GPU is expected to spend about $590 million to comply with CAA.
 Penelec owns 25 percent of the Three Mile Island nuclear power plant. Unit 1 is currently operating at near full capacity. Management intends to place Unit 2, which was disabled due to a nuclear accident, into permanent storage. In March 1993, the Pennsylvania Public Utility Commission (PUC) reversed its previous decision and allowed recovery of non-accident related Three Mile Island 2 (TMI-2) decommissioning costs for affiliate Metropolitan Edison Co. Penelec, although not presently involved in a rate case, initially recorded a $54.7 million pretax charge to 1992 earnings, but with the PUC revision, which in effect provides recovery of decommissioning costs, the $54.7 million charge was reversed. Penelec is currently recovering decommissioning costs for TMI-1 under older estimates, and intends to seek recovery for new funding targets in its next request for electric rates. TMI-2 decommissioning costs the company feels should be recoverable are being deferred for consideration in its next electric rate filing. Separately, the PUC's "show cause" order investigating the company's level of earnings was dismissed earlier this year.
 Ratings stability is anticipated with upside potential limited by a slow growing service territory, increasing construction and related financing, and significant CAA expenditures. Downside potential is limited by its strong financials, low-cost operations, limited regulatory exposure, and good nuclear and coal plant performance.
 -0- 7/1/93
 /CONTACT: Ed King of Fitch, 212-908-0574/
 (GPU)


CO: Pennsylvania Electric Co. ST: Pennsylvania IN: UTI SU: RTG

SH -- NY044 -- 7670 07/01/93 11:16 EDT
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Date:Jul 1, 1993
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