-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, RVZc1iHYkYdz4ATe68OjWOus3bsAlM/XQYWhjDdhtIy+y0JdqPWZJfZMa+Juh5HS RHctx35V2BNWn82vE5mU9Q== 0000081033-94-000021.txt : 19940815 0000081033-94-000021.hdr.sgml : 19940815 ACCESSION NUMBER: 0000081033-94-000021 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19940630 FILED AS OF DATE: 19940812 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PUBLIC SERVICE ENTERPRISE GROUP INC CENTRAL INDEX KEY: 0000788784 STANDARD INDUSTRIAL CLASSIFICATION: 4931 IRS NUMBER: 222625848 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09120 FILM NUMBER: 94543666 BUSINESS ADDRESS: STREET 1: 80 PARK PLZ STREET 2: P O BOX 1171 CITY: NEWARK STATE: NJ ZIP: 07101 BUSINESS PHONE: 2014307000 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PUBLIC SERVICE ELECTRIC & GAS CO CENTRAL INDEX KEY: 0000081033 STANDARD INDUSTRIAL CLASSIFICATION: 4931 IRS NUMBER: 221212800 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-00973 FILM NUMBER: 94543667 BUSINESS ADDRESS: STREET 1: 80 PARK PLZ STREET 2: PO BOX 570 CITY: NEWARK STATE: NJ ZIP: 07101 BUSINESS PHONE: 2014307000 10-Q 1 FORM 10-Q PSE&G, PS ENTERPRISE 1 ============================================================================ FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1994 Commission file number 1-9120 Public Service Enterprise Group Incorporated - ----------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) New Jersey 22-2625848 - ----------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 80 Park Plaza, P. O. Box 1171, Newark, New Jersey 07101-1171 - ----------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 201 430-7000 ------------ Commission file number 1-973 Public Service Electric and Gas Company - ----------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) New Jersey 22-1212800 - ----------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 80 Park Plaza, P. O. Box 570, Newark, New Jersey 07101-0570 - ----------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 201 430-7000 ------------ 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 Public Service Enterprise Group Incorporated's sole class of common stock, as of the latest practicable date, was as follows: Class Outstanding at June 30, 1994 ----- ---------------------------- Common Stock, without par value 244,697,930 As of June 30, 1994 Public Service Electric and Gas Company had issued and outstanding 132,450,344 shares of Common Stock, without nominal or par value, all of which were privately held, beneficially and of record by Public Service Enterprise Group Incorporated. ============================================================================ 2 TABLE OF CONTENTS ----------------- -Page- ---- PART I - FINANCIAL INFORMATION Item 1. Financial Statements. Public Service Enterprise Group Incorporated (Enterprise): Consolidated Statements of Income for the Three, Six and Twelve Months Ended June 30, 1994 and 1993 .................................... 5 Consolidated Balance Sheets as of June 30, 1994, 1993 and December 31, 1993 ........ 6 Consolidated Statements of Cash Flows for the Six and Twelve Months Ended June 30, 1994 and 1993 .................................... 8 Consolidated Statements of Retained Earnings for the Three, Six and Twelve Months Ended June 30, 1994 and 1993 .................................... 9 Public Service Electric and Gas Company (PSE&G): Consolidated Statements of Income for the Three, Six and Twelve Months Ended June 30, 1994 and 1993 .................................... 10 Consolidated Balance Sheets as of June 30, 1994, 1993 and December 31, 1993 ........ 11 Consolidated Statements of Cash Flows for the Six and Twelve Months Ended June 30, 1994 and 1993 .................................... 13 Consolidated Statements of Retained Earnings for the Three, Six and Twelve Months Ended June 30, 1994 and 1993 .................................... 14 Notes to Consolidated Financial Statements Enterprise ....................................... 15 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Enterprise ................................. 28 PSE&G ...................................... 49 PART II. OTHER INFORMATION Item 5. Other Information ............................ 51 Item 6. Exhibits and Reports on Form 8-K ............. 57 Signatures - Enterprise ...................................... 58 Signatures - PSE&G ........................................... 58 3 GLOSSARY OF TERMS The following is a glossary of frequently used abbreviations or acronyms that are found throughout this report: Abbreviations or Acronyms Term - ----------------------- -------------------------------------------------- AE Act................. Atomic Energy Act of 1954, as amended AFDC................... Allowance for Funds used During Construction AIT.................... Nuclear Regulatory Commission Augmented Inspection Team Authority.............. Pollution Control Financing Authority of Salem County Mortgage Bonds......... First and Refunding Mortgage Bonds BPU.................... New Jersey Board of Public Utilities Capital................ PSEG Capital Corporation CEA.................... Community Energy Alternatives Incorporated CERCLA................. Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 DOE.................... United States Department of Energy DRIP................... Enterprise's Dividend Reinvestment and Stock Purchase Plan EBIT................... Earnings before interest and taxes to interest EDC.................... Energy Development Corporation EDHI................... Enterprise Diversified Holdings Incorporated EITF................... Financial Accounting Standards Board's Emerging Issues Task Force EGDC................... Enterprise Group Development Corporation EMF.................... Electric and Magnetic Fields Enterprise............. Public Service Enterprise Group Incorporated EPA.................... United States Environmental Protection Agency FASB................... Financial Accounting Standards Board FERC................... Federal Energy Regulatory Commission Fuelco................. PSE&G Fuel Corporation Funding................ Enterprise Capital Funding Corporation HSCA................... Commonwealth of Pennsylvania's Hazardous Sites Cleanup Act Hope Creek............. Hope Creek Nuclear Generating Station IEPNJ.................. Independent Energy Producers of New Jersey IRP.................... Integrated Electric Resource Plan LEAC................... Electric Levelized Energy Adjustment Clause LGAC................... Levelized Gas Adjustment Clause LLRW................... Low Level Radioactive Waste MW..................... Megawatts MWH.................... Megawatthours NEIL................... Nuclear Electric Insurance Limited NEPA................... National (Federal) Energy Policy Act NJDEP.................. New Jersey Department of Environmental Protection NJEDA.................. New Jersey Economic Development Authority NJGRT.................. New Jersey Gross Receipts and Franchise Tax NJPDES................. New Jersey Pollution Discharge Elimination System NRC.................... Nuclear Regulatory Commission NUGS................... Nonutility generators NWPA................... Nuclear Waste Policy Act of 1982, as amended OPEB................... Other Postretirement Benefits Peach Bottom........... Peach Bottom Atomic Power Station, Units 2 and 3 PECO................... PECO Energy Inc. 4 GLOSSARY OF TERMS - (Concluded) Abbreviations or Acronyms Term - ----------------------- ---------------------------------------------------- PJM.................... Pennsylvania--New Jersey--Maryland Interconnection PSE&G.................. Public Service Electric and Gas Company PSRC................... Public Service Resources Corporation RAC ................... Remediation Adjustment Clause Salem.................. Salem Nuclear Generating Station, Units 1 and 2 SALP................... Systemic Assessment of Licensee Performance SEC.................... Securities and Exchange Commission SFAS 106............... Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" SFAS 107............... Statement of Financial Accounting Standards No. 107, "Disclosure about Fair Value of Financial Instru- ments" SFAS 115............... Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" Standard............... The BPU's nuclear performance standard established for nuclear generating stations owned by New Jersey utilities THI.................... Temperature Humidity Index USEC................... United States Enrichment Corporation 5 PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED The consolidated financial statements included herein as of June 30, 1994 and 1993 and for the periods then ended are unaudited but, in the opinion of Enterprise's management, reflect all adjustments, consisting only of normal recurring accruals. CONSOLIDATED STATEMENTS OF INCOME (Thousands of Dollars)
Three Months Ended Six Months Ended Twelve Months Ended June 30, June 30, June 30, ----------------------- --------------------- --------------------- 1994 1993 1994 1993 1994 1993 ----------- ---------- ---------- ---------- --------- ---------- OPERATING REVENUES Electric .......................... $ 902,123 $ 889,772 $1,790,433 $1,761,940 $3,721,576 $3,525,584 Gas ............................... 279,532 258,129 1,081,189 888,208 1,787,322 1,593,860 Nonutility Activities ............. 96,708 98,436 201,166 190,897 428,404 375,134 ---------- ---------- ---------- ---------- ---------- ---------- Total Operating Revenues ...... 1,278,363 1,246,337 3,072,788 2,841,045 5,937,302 5,494,578 ---------- ---------- ---------- ---------- ---------- ---------- OPERATING EXPENSES Operation Fuel for Electric Generation and Net Interchanged Power ......... 158,250 167,300 325,451 353,861 688,726 746,959 Gas Purchased and Materials for Gas Produced ............. 163,986 158,626 624,542 487,598 1,034,829 883,546 Other ......................... 256,803 250,277 506,643 482,653 1,036,747 948,429 Maintenance ....................... 75,437 73,757 151,912 131,080 325,235 284,709 Depreciation and Amortization ..... 157,238 149,566 312,783 297,154 615,893 629,899 Property Impairment ............... - - - - 77,637 - Taxes Federal Income Taxes ........... 67,977 54,797 188,466 158,776 344,449 264,633 New Jersey Gross Receipts Taxes. 125,400 124,630 316,703 304,724 609,877 589,075 Other .......................... 20,547 18,726 44,615 40,036 80,552 72,038 ---------- ---------- ---------- ---------- ---------- ---------- Total Operating Expenses ...... 1,025,638 997,679 2,471,115 2,255,882 4,813,945 4,419,288 ---------- ---------- ---------- ---------- ---------- ---------- OPERATING INCOME ................... 252,725 248,658 601,673 585,163 1,123,357 1,075,290 ---------- ---------- ---------- ---------- ---------- ---------- OTHER INCOME Allowance for Funds Used During Construction - Equity ........... 1,874 2,807 3,662 5,445 10,482 13,909 Peach Bottom Settlement - net of Federal Income Taxes, $0, $0, $0, $0, $0 and ($7,023), respectively .................... - - - - - (13,632) Miscellaneous - net .............. 1,348 1,621 2,503 3,796 (5,071) 16,759 ---------- ---------- ---------- ---------- ---------- ---------- Total Other Income .......... 3,222 4,428 6,165 9,241 5,411 17,036 ---------- ---------- ---------- ---------- ---------- ---------- INCOME BEFORE INTEREST CHARGES AND DIVIDENDS ON PREFERRED STOCK ..... 255,947 253,086 607,838 594,404 1,128,768 1,092,326 ---------- ---------- ---------- ---------- ---------- ---------- INTEREST CHARGES Long-Term Debt ................... 115,947 120,260 228,059 238,984 458,195 475,930 Short-Term Debt .................. 6,086 3,430 9,920 5,834 17,946 11,171 Other ............................ 1,624 4,637 4,475 10,360 13,669 27,214 ---------- ---------- ---------- ---------- ---------- ---------- Total Interest Charges ...... 123,657 128,327 242,454 255,178 489,810 514,315 Allowance for Funds Used During Construction - Debt and Capitalized Interest .............. (7,739) (4,780) (15,052) (9,139) (26,746) (18,072) ---------- ---------- ---------- ---------- ---------- ---------- Net Interest Charges ............... 115,918 123,547 227,402 246,039 463,064 496,243 ---------- ---------- ---------- ---------- ---------- ---------- Preferred Stock Dividend Requirements - PSE&G............................ 10,144 9,757 20,424 18,579 39,959 35,871 ---------- ---------- ---------- ---------- ---------- ---------- Income before cumulative effect of accounting change ................. 129,885 119,782 360,012 329,786 625,745 560,212 Cumulative effect of change in accounting for income taxes ........ - - - 5,414 - 5,414 ---------- ---------- ---------- ---------- ---------- ---------- NET INCOME ......................... $ 129,885 $ 119,782 $ 360,012 $ 335,200 $ 625,745 $ 565,626 ========== ========== ========== ========== ========== ========== SHARES OF COMMON STOCK OUTSTANDING End of Period ..................... 244,697,930 241,737,468 244,697,930 241,737,468 244,697,930 241,737,468 Average for Period ................ 244,697,930 240,919,743 244,239,893 238,930,322 243,296,564 236,352,495 EARNINGS PER AVERAGE SHARE OF COMMON STOCK Before cumulative effect of accounting change ............................ $.53 $.49 $1.47 $1.38 $2.57 $2.37 Cumulative effect of change in accounting for income taxes .................. - - - .02 - .02 ---------- ---------- --------- ---------- ---------- ---------- Total earnings per average share of common stock ............................. $.53 $.49 $1.47 $1.40 $2.57 $2.39 ========== ========== ========= ========== ========== ========== DIVIDENDS PAID PER SHARE OF COMMON STOCK ...................... $.54 $.54 $1.08 $1.08 $2.16 $2.16 =========== ========== ========= ========== ========== ========== See Notes to Consolidated Financial Statements.
6 PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED CONSOLIDATED BALANCE SHEETS (Thousands of Dollars)
June 30, June 30, December 31, ASSETS 1994 1993 1993 - ------ --------------- ------------- --------------- UTILITY PLANT - Original cost Electric ............................................................ $ 12,193,592 $ 11,671,249 $ 11,920,894 Gas ................................................................. 2,227,899 2,091,472 2,177,841 Common .............................................................. 525,102 486,872 520,285 -------------- ------------- ------------- Total .......................................................... 14,946,593 14,249,593 14,619,020 Less Accumulated Depreciation and Amortization ........................ 4,980,410 4,595,962 4,772,942 -------------- ------------- ------------- Net ............................................................ 9,966,183 9,653,631 9,846,078 Nuclear Fuel in Service, net of accumulated amortization - $270,360; $254,903 and $284,162, respectively ......................... 226,282 220,659 205,237 -------------- ------------- ------------- Net Utility Plant in Service ................................... 10,192,465 9,874,290 10,051,315 Construction Work in Progress, including Nuclear Fuel in Process - $52,841; $85,745 and $98,780, respectively ........................... 680,640 590,562 735,356 Plant Held for Future Use ............................................. 17,913 22,949 17,709 -------------- ------------- ------------- Net Utility Plant .............................................. 10,891,018 10,487,801 10,804,380 -------------- ------------- ------------- INVESTMENTS AND OTHER PROPERTY Long-Term Investments, net of valuation allowances - $15,892; $17,548 and $18,018, respectively ......................................... 1,657,420 1,712,218 1,613,823 Oil and Gas Property, Plant and Equipment, net of accumulated depreciation and amortization - $736,059, $688,002 and $695,791, respectively ...................................................... 556,387 505,720 506,047 Real Estate Property and Equipment, net of accumulated depreciation - $12,525; $13,435 and $10,840, respectively and net of valuation allowances - $22,514; $3,961 and $16,684, respectively ............ 104,920 224,288 110,661 Other Plant, net of accumulated depreciation and amortization - $4,149; $3,373 and $3,735, respectively ........ 28,474 22,406 28,327 Nuclear Decommissioning and Other Special Funds ..................... 216,738 179,793 189,282 Other Investments - net ............................................. 91,374 76,056 120,711 -------------- ------------- ------------- Total Investments and Other Property ........................... 2,655,313 2,720,481 2,568,851 -------------- ------------- ------------- CURRENT ASSETS Cash and Cash Equivalents ........................................... 156,643 185,882 46,880 Accounts Receivable: Customer Accounts Receivable ...................................... 448,371 410,801 446,629 Other Accounts Receivable ......................................... 157,620 178,092 230,373 Less: Allowance for Doubtful Accounts ............................ 30,877 31,480 27,932 Unbilled Revenues ................................................... 129,973 169,478 244,497 Fuel, at average cost ............................................... 224,130 222,381 285,943 Materials and Supplies, at average cost ............................. 166,478 199,746 172,438 Prepaid Gross Receipts Taxes ........................................ 268,364 30,024 - Miscellaneous Current Assets ........................................ 28,410 26,006 49,860 Deferred Income Taxes ............................................... 15,868 3,070 12,934 -------------- ------------- ------------ Total Current Assets ........................................... 1,564,980 1,394,000 1,461,622 -------------- ------------- ------------ DEFERRED DEBITS Property Abandonments - net ......................................... 97,010 114,004 105,536 Oil and Gas Property Write-Down ..................................... 43,809 48,963 46,386 Unamortized Debt Expense ............................................ 126,571 76,417 121,278 Deferred OPEB Costs (note 6) ........................................ 133,334 46,473 58,593 Under(Over) Recovered Electric Energy and Gas Costs - net ........... 161,368 (56,450) 62,034 Unrecovered Environmental Costs (note 5) ............................ 133,328 104,566 138,531 Unrecovered Plant and Regulatory Study Costs ........................ 35,412 27,820 35,196 Deferred Decontamination and Decommissioning Costs (note 5) ......... 56,546 - 56,055 Unrecovered SFAS 109 Deferred Income Taxes .......................... 789,103 716,207 789,795 Preliminary Survey and Investigation Charges ........................ 29,156 21,670 26,292 Other ............................................................... 29,535 41,804 30,615 -------------- ------------- ------------ Total Deferred Debits .......................................... 1,635,172 1,141,474 1,470,311 -------------- ------------- ------------ Total .......................................................... $ 16,746,483 $ 15,743,756 $ 16,305,164 ============== ============= ============ See Notes to Consolidated Financial Statements.
7 PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED CONSOLIDATED BALANCE SHEETS (Thousands of Dollars)
June 30, June 30, December 31, CAPITALIZATION AND LIABILITIES 1994 1993 1993 - ------------------------------ -------------- ------------ -------------- CAPITALIZATION Common Equity Common Stock (note 3) ............................................... $ 3,801,157 $ 3,707,064 $ 3,772,662 Retained Earnings ................................................... 1,456,025 1,358,284 1,361,018 -------------- ------------ ------------ Total Common Equity ............................................... 5,257,182 5,065,348 5,133,680 Subsidiaries' Securities and Obligations Preferred Stock Without Mandatory Redemption ........................................ 459,994 429,994 429,994 With Mandatory Redemption (note 2) .................................. 150,000 150,000 150,000 Long-Term Debt (note 4) ............................................... 5,375,709 5,230,824 5,256,321 Capital Lease Obligations ............................................. 52,216 52,825 52,530 -------------- ------------ ------------ Total Capitalization .............................................. 11,295,101 10,928,991 11,022,525 -------------- ------------ ------------ OTHER LONG-TERM LIABILITIES Decontamination and Decommissioning Costs (note 5) .................... 56,546 - 56,055 Unrecovered Environmental Costs (note 5) .............................. 108,039 87,373 111,000 -------------- ------------ ------------ Total Other Long-Term Liabilities ................................. 164,585 87,373 167,055 -------------- ------------ ------------ CURRENT LIABILITIES Long-Term Debt and Capital Lease Obligations due within one year ...... 482,784 730,914 168,638 Commercial Paper and Loans ............................................ 703,223 218,106 577,636 Accounts Payable ...................................................... 381,886 398,177 557,761 New Jersey Gross Receipts Taxes Accrued ............................... - - 263,357 Other Taxes Accrued ................................................... 36,206 50,507 39,610 Interest Accrued ...................................................... 113,103 114,872 107,027 Other ................................................................. 141,608 141,214 157,751 -------------- ------------ ------------ Total Current Liabilities ......................................... 1,858,810 1,653,790 1,871,780 -------------- ------------ ------------ DEFERRED CREDITS Accumulated Deferred Income Taxes ..................................... 2,821,054 2,508,626 2,702,386 Accumulated Deferred Investment Tax Credits ........................... 422,790 442,437 432,713 Deferred OPEB Costs (note 6) .......................................... 133,334 46,473 58,593 Materials and Supplies ................................................ 5,762 17,932 11,847 Other ................................................................. 45,047 58,134 38,265 -------------- ------------ ------------ Total Deferred Credits ............................................ 3,427,987 3,073,602 3,243,804 -------------- ------------ ------------ COMMITMENTS AND CONTINGENT LIABILITIES (note 5) Total ............................................................. $ 16,746,483 $ 15,743,756 $ 16,305,164 ============== ============ ============
8 PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS (Thousands of Dollars)
Six Months Ended Twelve Months Ended June 30, June 30, ---------------------- ---------------------- 1994 1993 1994 1993 ---------- ---------- ----------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income ......................................... $ 360,012 $ 335,200 $ 625,745 $ 565,626 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and Amortization .................... 312,783 297,154 615,893 629,899 Amortization of Nuclear Fuel ..................... 44,827 52,590 94,955 99,912 Deferral of Electric Energy and Gas Costs - net ..................................... (99,334) (66,286) (217,818) (8,435) Loss from Property Impairments.................... 1,330 - 77,637 - Cumulative Effect of Change in Accounting for Income Taxes ............................... - (5,414) - (5,414) Amortization of Discounts on Property Abandonments and Disallowance .................. (3,481) (4,105) (7,177) (10,178) Unrealized (Gains) Losses on Investments ......... (8,906) (3,882) (13,718) 5,875 Provision for Deferred Income Taxes - net ........ 98,964 72,059 195,311 90,971 Investment Tax Credits - net ..................... (9,923) (1,931) (19,647) (12,533) Allowance for Funds Used During Construction - Debt and Equity and Capitalized Interest ....... (18,714) (14,584) (37,228) (31,981) Proceeds from Leasing Activities ................. 3,476 3,399 14,857 16,845 Changes in certain current assets and liabilities: Net decrease in Accounts Receivable and Unbilled Revenues ............................... 188,480 105,044 21,804 30,232 Net decrease (increase) in Inventory - Fuel and Materials and Supplies ........................... 67,773 52,692 31,519 (17,224) Net (decrease) increase in Accounts Payable ...... (175,875) (75,800) (16,291) 50,843 Net change in Prepaid/Accrued Taxes .............. (535,125) (576,403) (252,641) (261,259) Net change in Other Current Assets and Liabilities ..................................... 8,449 5,521 (16,577) (38,535) Other ............................................ 35,189 (8,624) 13,007 (21,088) ---------- ---------- ---------- ---------- Net cash provided by operating activities ................................. 268,595 166,630 1,109,631 1,083,556 ---------- ---------- ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to Utility Plant, excluding AFDC ......... (360,415) (285,588) (938,121) (739,929) Additions to Oil and Gas Property, Plant and Equipment, excluding Capitalized Interest .......... (92,254) (42,193) (138,029) (63,221) Net (increase) decrease in Long-Term Investments and Real Estate ....................................... (12,790) (46,915) 100,784 (96,026) Increase in Decommissioning and Other Special Funds, excluding interest ................................ (20,567) (39,905) (26,170) (48,207) Cost of Plant Removal - net ........................ (18,688) (17,933) (48,546) (41,016) Other .............................................. (1,122) (5,457) (10,603) (11,186) ---------- ---------- ---------- ---------- Net cash used in investing activities .......... (505,836) (437,991) (1,060,685) (999,585) ---------- ---------- ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase (decrease) in Short-Term Debt ......... 125,587 (173,876) 485,117 (96,940) Issuance of Long-Term Debt ......................... 664,365 1,234,000 1,642,065 1,264,000 Redemption of Long-Term Debt and Other Obligations . (231,145) (643,191) (1,745,919) (1,105,925) Deferral of Debt Expense - net ..................... (5,293) (14,283) (50,154) (15,229) Issuance of Preferred Stock ........................ 75,000 75,000 75,000 75,000 Redemption of Preferred Stock ...................... (45,000) (45,000) Issuance of Common Stock ........................... 28,495 207,881 94,093 278,797 Cash Dividends Paid on Common Stock ............... (263,797) (259,741) (525,628) (512,401) Other .............................................. (1,208) (221) (7,759) (462) ---------- ---------- ---------- ---------- Net cash provided by (used in) financing activities ..................................... 347,004 425,569 (78,185) (113,160) ---------- ---------- ---------- ---------- Net increase (decrease) in Cash and Cash Equivalents . 109,763 154,208 (29,239) (29,189) Cash and Cash Equivalents at Beginning of Period ..... 46,880 31,674 185,882 215,071 ---------- ---------- ---------- ---------- Cash and Cash Equivalents at End of Period ........... $ 156,643 $ 185,882 $ 156,643 $ 185,882 ========== ========== ========== ========== Income Taxes Paid .................................... $ 94,629 $ 73,642 $ 161,159 $ 135,900 Interest Paid ........................................ $ 212,025 $ 232,525 $ 438,456 $ 472,679 See Notes to Consolidated Financial Statements.
9 PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (Thousands of Dollars)
Three Months Ended Six Months Ended Twelve Months Ended June 30, June 30, June 30, ----------------------- ----------------------- ---------------------- 1994 1993 1994 1993 1994 1993 ---------- ---------- ----------- ---------- ----------- ---------- Balance at Beginning of Period ........... $1,458,357 $1,368,695 $1,361,018 $1,282,931 $1,358,284 $1,305,254 Add Net Income ........................... 129,885 119,782 360,012 335,200 625,745 565,626 ---------- ---------- ---------- ---------- ---------- ---------- Total ............................... 1,588,242 1,488,477 1,721,030 1,618,131 1,984,029 1,870,880 ---------- ---------- ---------- ---------- ---------- ---------- Deduct Cash Dividends on Common Stock ......... 132,137 130,132 263,797 259,741 525,628 512,401 Capital Stock Expenses ................. 80 61 1,208 106 2,376 195 ---------- ---------- ---------- ---------- ---------- ---------- Total Deductions .................... 132,217 130,193 265,005 259,847 528,004 512,596 ---------- ---------- ---------- ---------- ---------- ---------- Balance at End of Period ................. $1,456,025 $1,358,284 $1,456,025 $1,358,284 $1,456,025 $1,358,284 ========== ========== ========== ========== ========== ========== See Notes to Consolidated Financial Statements.
10 PUBLIC SERVICE ELECTRIC AND GAS COMPANY The consolidated financial statements included herein as of June 30, 1994 and 1993 and for the periods then ended are unaudited but, in the opinion of Public Service Electric and Gas Company's management, reflect all adjustments, consisting only of normal recurring accruals. CONSOLIDATED STATEMENTS OF INCOME (Thousands of Dollars)
Three Months Ended Six Months Ended Twelve Months Ended June 30, June 30, June 30, ----------------------- ----------------------- ----------------------- 1994 1993 1994 1993 1994 1993 ----------- ---------- ---------- ----------- ---------- ---------- OPERATING REVENUES Electric .............................. $ 902,123 $ 889,772 $1,790,433 $1,761,940 $3,721,576 $3,525,584 Gas ................................... 279,532 258,129 1,081,189 888,208 1,787,322 1,593,860 ---------- ---------- ---------- ----------- ---------- ----------- Total Operating Revenues ......... 1,181,655 1,147,901 2,871,622 2,650,148 5,508,898 5,119,444 ---------- ---------- ---------- ----------- ---------- ----------- OPERATING EXPENSES Operation Fuel for Electric Generation and Net Interchanged Power ....... 158,250 167,300 325,451 353,861 688,726 746,959 Gas Purchased and Materials for Gas Produced ........................ 168,064 163,182 633,204 499,244 1,053,830 917,706 Other ............................... 217,686 219,001 432,666 421,489 892,120 828,028 Maintenance ........................... 75,437 73,757 151,912 131,080 325,235 284,709 Depreciation and Amortization ......... 136,351 125,394 270,662 249,600 530,268 532,559 Taxes Federal Income Taxes ................ 63,879 51,574 177,308 152,228 333,870 247,147 New Jersey Gross Receipts Taxes ..... 125,400 124,630 316,703 304,724 609,877 589,075 Other ............................... 18,363 17,007 40,478 37,132 70,939 65,212 ---------- ---------- ---------- ----------- ---------- ----------- Total Operating Expenses ......... 963,430 941,845 2,348,384 2,149,358 4,504,865 4,211,395 ---------- ---------- ---------- ----------- ---------- ----------- OPERATING INCOME ........................ 218,225 206,056 523,238 500,790 1,004,033 908,049 ---------- ---------- ---------- ----------- ---------- ----------- OTHER INCOME Allowance for Funds Used During Construction - Equity ................. 1,874 2,807 3,662 5,445 10,482 13,909 Peach Bottom Settlement - net of Federal Income Taxes, $0, $0, $0, $0, $0 and ($7,023), respectively ........... - - - - - (13,632) Miscellaneous - net ................... 1,343 1,691 2,496 3,915 (5,260) 16,613 ---------- ---------- ---------- ----------- ---------- ----------- Total Other Income ................. 3,217 4,498 6,158 9,360 5,222 16,890 ---------- ---------- ---------- ----------- ---------- ----------- INCOME BEFORE INTEREST CHARGES AND DIVIDENDS ON PREFERRED STOCK .......... 221,442 210,554 529,396 510,150 1,009,255 924,939 ---------- ---------- ---------- ----------- ---------- ----------- INTEREST CHARGES Long-Term Debt ........................ 92,514 94,105 180,841 186,096 358,997 367,343 Short-Term Debt ....................... 4,954 1,249 7,213 1,777 11,850 3,516 Other ................................. 1,479 4,586 2,765 10,301 11,754 25,560 ---------- ---------- ---------- ----------- ---------- ----------- Total Interest Charges ........... 98,947 99,940 190,819 198,174 382,601 396,419 Allowance for Funds Used During Construction - Debt............ (5,618) (3,235) (10,975) (6,277) (19,513) (12,972) ---------- ---------- ---------- ----------- ---------- ----------- Net Interest Charges .................... 93,329 96,705 179,844 191,897 363,088 383,447 ---------- ---------- ---------- ----------- ---------- ----------- NET INCOME .............................. 128,113 113,849 349,552 318,253 646,167 541,492 ---------- ---------- ---------- ----------- ---------- ----------- Preferred Stock Dividend Requirements ... 10,144 9,757 20,424 18,579 39,959 35,871 ---------- ---------- ---------- ----------- ---------- ----------- EARNINGS AVAILABLE TO PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED ......... $ 117,969 $ 104,092 $ 329,128 $ 299,674 $ 606,208 $ 505,621 ========== ========== ========== =========== ========== =========== See Notes to Consolidated Financial Statements.
11 PUBLIC SERVICE ELECTRIC AND GAS COMPANY CONSOLIDATED BALANCE SHEETS (Thousands of Dollars)
June 30, June 30, December 31, ASSETS 1994 1993 1993 - ------ -------------- ------------- -------------- UTILITY PLANT - Original cost Electric ............................................................. $ 12,193,592 $ 11,671,249 $ 11,920,894 Gas .................................................................. 2,227,899 2,091,472 2,177,841 Common ............................................................... 525,102 486,872 520,285 ------------ ------------ ------------ Total ........................................................... 14,946,593 14,249,593 14,619,020 Less Accumulated Depreciation and Amortization ......................... 4,980,410 4,595,962 4,772,942 ------------ ------------ ------------ Net ............................................................. 9,966,183 9,653,631 9,846,078 Nuclear Fuel in Service, net of accumulated amortization - $270,360; $254,903; $284,162, respectively ..................................... 226,282 220,659 205,237 ------------ ------------ ------------ Net Utility Plant in Service .................................... 10,192,465 9,874,290 10,051,315 Construction Work in Progress, including Nuclear Fuel in Process - $52,841; $85,745; $98,780, respectively .............................. 680,640 590,562 735,356 Plant Held for Future Use .............................................. 17,913 22,949 17,709 ------------ ------------ ------------ Net Utility Plant ............................................... 10,891,018 10,487,801 10,804,380 ------------ ------------ ------------ INVESTMENTS AND OTHER PROPERTY Other Plant, net of accumulated depreciation and amortization - $1,012; $670; $872, respectively ............................................ 26,299 20,382 26,369 Nuclear Decommissioning and Other Special Funds ...................... 216,738 179,793 189,282 Long-Term Investments - net .......................................... 139,100 95,431 116,554 ------------ ------------ ------------ Total Investments and Other Property .............................. 382,137 295,606 332,205 ------------ ------------ ------------ CURRENT ASSETS Cash and Cash Equivalents ............................................ 121,523 147,914 17,673 Accounts Receivable: Customer Accounts Receivable ....................................... 448,371 410,801 446,629 Other Accounts Receivable .......................................... 105,390 112,297 160,729 Less: Allowance for Doubtful Accounts ............................. 30,877 31,480 27,932 Unbilled Revenues .................................................... 129,973 169,478 244,497 Fuel, at average cost ................................................ 224,130 222,381 285,943 Materials and Supplies, at average cost .............................. 165,134 198,354 170,910 Prepaid Gross Receipts Taxes ......................................... 268,364 30,024 - Miscellaneous Current Assets ......................................... 21,664 19,531 45,754 Deferred Income Taxes ................................................ 15,868 3,070 12,934 ------------ ------------ ------------ Total Current Assets ............................................ 1,469,540 1,282,370 1,357,137 ------------ ------------ ------------ DEFERRED DEBITS Property Abandonments - net .......................................... 97,010 114,004 105,536 Oil and Gas Property Write-Down ...................................... 43,809 48,963 46,386 Unamortized Debt Expense ............................................. 123,351 73,798 117,057 Deferred OPEB Costs (note 5).......................................... 133,334 46,473 58,593 Under(Over)Recovered Electric Energy and Gas Costs - net ............. 161,368 (56,450) 62,034 Unrecovered Environmental Costs (note 5).............................. 133,328 104,566 138,531 Unrecovered Plant and Regulatory Study Costs ......................... 35,412 27,820 35,196 Deferred Decontamination and Decommissioning Costs (note 5) .......... 56,546 - 56,055 Unrecovered SFAS 109 Deferred Income Taxes ........................... 789,103 716,207 789,795 Preliminary Survey and Investigation Charges ......................... 29,156 21,670 26,292 Other ................................................................ 29,535 41,798 30,609 ------------ ------------ ------------ Total Deferred Debits ........................................... 1,631,952 1,138,849 1,466,084 ------------ ------------ ------------ Total ........................................................... $ 14,374,647 $ 13,204,626 $ 13,959,806 ============ ============ ============
12 PUBLIC SERVICE ELECTRIC AND GAS COMPANY CONSOLIDATED BALANCE SHEETS (Thousands of Dollars)
June 30, June 30, December 31, CAPITALIZATION AND LIABILITIES 1994 1993 1993 - ------------------------------ ------------- ------------- ------------- CAPITALIZATION Common Equity Common Stock ........................................................ $ 2,563,003 $ 2,563,003 $ 2,563,003 Contributed Capital by Enterprise ................................... 534,395 534,395 534,395 Retained Earnings ................................................... 1,254,553 1,152,689 1,180,532 ------------ ------------- ------------ Total Common Equity .............................................. 4,351,951 4,250,087 4,277,930 Preferred Stock Without Mandatory Redemption .......................... 459,994 429,994 429,994 Preferred Stock With Mandatory Redemption (note 2)..................... 150,000 150,000 150,000 Long-Term Debt (note 4)................................................ 4,544,509 4,196,929 4,364,437 Capital Lease Obligations ............................................. 52,216 52,825 52,530 ------------ ------------- ------------ Total Capitalization ............................................. 9,558,670 9,079,835 9,274,891 ------------ ------------- ------------ OTHER LONG-TERM LIABILITIES Decontamination and Decommissioning Costs (note 5) .................. 56,546 - 56,055 Unrecovered Environmental Costs (note 5) ............................ 108,039 87,373 111,000 ------------ ------------- ------------ Total Other Long-Term Liabilities 164,585 87,373 167,055 ------------ ------------- ------------ CURRENT LIABILITIES Long-Term Debt and Capital Lease Obligations due within one year .... 355,173 586,392 62,274 Commercial Paper and Loans .......................................... 671,995 107,643 532,728 Accounts Payable .................................................... 333,564 362,911 519,296 Accounts Payable-Associated Companies ............................... 16,583 12,916 5,674 New Jersey Gross Receipts Taxes Accrued ............................. - - 263,357 Other Taxes Accrued ................................................. 35,074 26,893 33,710 Interest Accrued .................................................... 100,462 104,689 96,257 Other ............................................................... 116,931 114,156 122,924 ------------ ------------ ------------ Total Current Liabilities ......................................... 1,629,782 1,315,600 1,636,220 ------------ ------------ ------------ DEFERRED CREDITS Accumulated Deferred Income Taxes ................................... 2,442,652 2,193,153 2,368,778 Accumulated Deferred Investment Tax Credits ......................... 399,525 418,133 408,929 Deferred OPEB Costs (note 5)......................................... 133,334 46,473 58,593 Materials and Supplies .............................................. 5,762 17,932 11,847 Other ............................................................... 40,337 46,127 33,493 ------------ ------------- ------------ Total Deferred Credits .......................................... 3,021,610 2,721 818 2,881,640 ------------ ------------- ------------ COMMITMENTS AND CONTINGENT LIABILITIES (note 5) Total ........................................................... $ 14,374,647 $ 13,204,626 $ 13,959,806 ============ ============ ============
13 PUBLIC SERVICE ELECTRIC AND GAS COMPANY CONSOLIDATED STATEMENT OF CASH FLOWS (Thousands of Dollars)
Six Months Ended Twelve Months Ended June 30, June 30, ------------------------- ----------------------- CASH FLOWS FROM OPERATING ACTIVITIES: 1994 1993 1994 1993 ------------ ----------- ----------- ---------- Net Income ............................................................... $ 349,552 $ 318,253 $ 646,167 $ 541,492 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and Amortization ......................................... 270,662 249,600 530,268 532,559 Amortization of Nuclear Fuel .......................................... 44,827 52,590 94,955 99,912 Deferral of Electric Energy and Gas Costs - net ....................... (99,334) (66,286) (217,818) (8,435) Amortization of Discounts on Property Abandonments and Disallowance ... (3,481) (4,105) (7,177) (10,178) Provision for Deferred Income Taxes - net ............................. 74,566 73,831 176,603 75,598 Investment Tax Credits - net .......................................... (9,404) (9,204) (18,608) (19,089) Allowance for Funds Used During Construction - Debt and Equity ........ (14,637) (11,722) (29,995) (26,881) Changes in certain current assets and liabilities: Net decrease in Accounts Receivable and Unbilled Revenues ............. 171,066 83,874 8,239 48,808 Net decrease (increase) in Inventory - Fuel and Materials and Supplies. 67,589 53,038 31,471 (17,004) Net (decrease) increase in Accounts Payable ........................... (174,823) (77,269) (25,680) 63,879 Net change in Prepaid/Accrued Taxes ................................... (530,357) (586,317) (230,159) (274,066) Net change in Other Current Assets and Liabilities .................... 19,368 7,961 (16,383) (56,211) Other ................................................................. 442 (18,323) (18,677) (26,628) ----------- ----------- ----------- ----------- Net cash provided by operating activities ......................... 166,036 65,921 923,206 923,756 ----------- ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to Utility Plant, excluding AFDC ............................. (360,415) (285,588) (938,121) (739,929) Net increase in Long-Term Investments .................................. (22,546) (17,868) (43,669) (30,462) Increase in Decommissioning and Other Special Funds, excluding interest .............................................................. (20,567) (39,904) (26,171) (48,206) Cost of Plant Removal - net ............................................ (18,688) (17,933) (48,546) (41,016) Other .................................................................. (70) (4,337) (9,340) (8,909) ----------- ----------- ----------- ----------- Net cash used in investing activities ............................. (422,286) (365,630) (1,065,847) (868,522) ----------- ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase (decrease) in Short-Term Debt ............................. 139,267 (149,893) 564,352 (15,660) Issuance of Long-Term Debt ............................................. 664,365 1,164,000 1,537,065 1,164,000 Redemption of Long-Term Debt and Other Obligations ..................... (191,708) (551,308) (1,421,313) (1,013,372) Deferral of Debt Expense - net ......................................... (6,294) (14,874) (49,553) (15,229) Issuance of Preferred Stock ............................................ 75,000 75,000 75,000 75,000 Redemption of Preferred Stock .......................................... (45,000) - (45,000) - Contributed Capital by Enterprise ...................................... - 174,670 244,870 Cash Dividends Paid .................................................... (274,324) (262,779) (542,859) (521,181) Other .................................................................. (1,206) (519) (1,442) (1,444) ----------- ----------- ----------- ----------- Net cash provided by (used in) financing activities ............... 360,100 434,297 116,250 (83,016) ----------- ----------- ----------- ----------- Net increase (decrease) in Cash and Cash Equivalents ..................... 103,850 134,588 (26,391) (27,782) Cash and Cash Equivalents at Beginning of Period ......................... 17,673 13,326 147,914 175,696 ----------- ----------- ----------- ----------- Cash and Cash Equivalents at End of Period ............................... $ 121,523 $ 147,914 $ 121,523 $ 147,914 =========== =========== =========== =========== Income Taxes Paid ........................................................ $ 106,450 $ 94,972 $ 184,347 $ 185,845 Interest Paid ............................................................ $ 167,350 $ 178,296 $ 345,674 $ 363,632
14 PUBLIC SERVICE ELECTRIC AND GAS COMPANY CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (Thousands of Dollars)
Three Months Ended Six Months Ended Twelve Months Ended June 30, June 30, June 30, ----------------------- ------------------------ --------------------- 1994 1993 1994 1993 1994 1993 ---------- ----------- ----------- ---------- ---------- ---------- Balance at Beginning of Period .. $1,261,863 $1,173,841 $1,180,532 $1,097,734 $1,152,689 $1,132,975 Add Net Income .................. 128,113 113,849 349,552 318,253 646,167 541,492 ---------- ---------- ---------- ---------- ---------- ---------- Total ...................... 1,389,976 1,287,690 1,530,084 1,415,987 1,798,856 1,674,467 ---------- ---------- ---------- ---------- ---------- ---------- Deduct: Cash Dividends Preferred Stock, at required rates ............... 10,144 9,758 20,424 18,579 39,959 35,981 Common Stock .................. 125,200 125,200 253,900 244,200 502,900 485,200 Capital Stock Expenses ........ 79 43 1,207 519 1,444 597 ---------- ----------- ---------- ---------- ---------- ---------- Total Deductions ........... 135,423 135,001 275,531 263,298 544,303 521,778 ---------- ----------- ---------- ---------- ---------- ---------- Balance at End of Period ........ $1,254,553 $1,152,689 $1,254,553 $1,152,689 $1,254,553 $1,152,689 ========== =========== ========== =========== ========== ========== 15 PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. RATE MATTERS Effective July 1994, the Board of Regulatory Commissioners changed its name to Board of Public Utilities (BPU). REMEDIATION ADJUSTMENT CLAUSE In accordance with the BPU Order dated September 15, 1993 and the BPU approved Technical Conference Stipulation dated January 13, 1994, PSE&G proposes to recover, effective October 1, 1994, $3.7 million from its gas customers and $2.4 million from its electric customers for costs incurred during the period October 1, 1992 through July 31, 1994 with respect to PSE&G's Manufactured Gas Plant Remediation Program (Remediation Program). Pursuant to the above referenced Board Order and Technical Conference Stipulation costs are to be included in a Remedication Adjustment Clause (RAC) and are amortized over a rolling 7 year period, 60 percent to be recovered through the gas RAC and the remaining 40 percent to be recovered through the electric RAC. This Remediation Program has been and continues to be carried out under the direction and supervision of the New Jersey Department of Environmental Protection (NJDEP). (See Note 5 - Commitments and Contingent Liabilities of Notes to Consolidated Financial Statements). The affected gas customers include firm, interruptible, transportation and cogeneration contract customers. For firm gas rate schedules, the charge will be included in PSE&G's Levelized Gas Adjustment Clause (LGAC) and results in an approximate increase of 0.2 percent. The BPU-directed allocations of the proposed increase to the non-firm customers have been included in increased tariffs. The affected electric customers rate schedules will increase by approximately 0.1 percent for recovery of these RAC costs through the Levelized Energy Adjustment Clause (LEAC). LGAC On April 25, 1994, the BPU approved a LGAC settlement which provided for an increase of $75.3 million for the approximate ten-month period ending September 30, 1994. This approval resolved the remaining issues in the LGAC proceeding and the LGAC interim rate which went into effect December 8, 1993. On July 1, 1994, PSE&G petitioned the BPU to increase its LGAC rates to recover an additional $23.7 million, to be effective October 1, 1994. The requested increase results primarily from an expected slight increase in the cost of gas, together with an expected increase in Demand Side Management costs incurred in accordance with the BPU's approved regulations. As part of its LGAC filing, PSE&G has requested a decrease in its prices for off-peak use for certain rate schedules of approximately five cents per therm. 16 PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) LEAC On July 1, 1994, PSE&G petitioned the BPU to increase its LEAC rates, effective October 1, 1994, to recover an additional $130 million of energy costs. A significant part of the need for an increase is the larger percentage of its power that PSE&G is obligated to purchase under prior BPU approved contracts with non-regulated power producers. On July 7, 1994, the BPU approved a Stipulation which made permanent the LEAC rates that went into effect on January 1, 1993 on an interim basis and closed out the previous LEAC for the period ending December 31, 1992. The Stipulation also provides a credit of $2.5 million to the deferred fuel balance for LEAC customers in resolution of all outstanding issues related to the November 9, 1991 Salem 2 turbine generator outage and a credit of $1.3 million to reflect an adjustment of partially estimated New Jersey Gross Receipts and Franchise Tax (NJGRT) unit tax rates to actual unit tax rates. This adjustment affected the deferred fuel balance. NOTE 2. PREFERRED STOCK In February 1994, PSE&G issued and sold 600,000 shares of its 6.92% Cumulative Preferred Stock ($100 Par) and 600,000 shares of its 6.75% Cumulative Preferred Stock -$25 Par. The net proceeds from the sale of the 6.92% Cumulative Preferred Stock ($100 Par) were added to the general funds of PSE&G and used to pay a portion of its then outstanding short-term debt obligations, primarily incurred to fund a portion of its construction expenditures. The net proceeds from the sale of the 6.75% Cumulative Preferred Stock - $25 Par were used by PSE&G to redeem the 150,000 shares outstanding of its 8.08% Cumulative Preferred Stock ($100 Par) on March 1, 1994. In addition, PSE&G redeemed on March 1, 1994 all of the 300,000 shares outstanding of its 8.16% Cumulative Preferred Stock ($100 Par). 17 PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) NOTE 3. COMMON STOCK As of June 30, 1994 and December 31, 1993, 244,697,930 shares and 243,688,256 shares, respectively, of Enterprise Common Stock (Common Stock) were outstanding. This increase was due to the issuance of an aggregate 1,009,674 shares for approximately $28 million through Enterprise's Dividend Reinvestment and Stock Purchase Plan (DRIP) and Employee Stock Purchase Plan. All of such Common Stock was issued during the first quarter of 1994. NOTE 4. LONG-TERM DEBT Enterprise's long-term debt aggregated $5.376 billion as of June 30, 1994, of which $4.545 billion was attributable to PSE&G and $831 million to Enterprise Diversified Holdings Incorporated (EDHI), the parent of Enterprise's nonutility businesses. On February 10, 1994, PSE&G issued $50 million of its 5.45% Pollution Control Series O First and Refunding Mortgage Bonds (Mortgage Bonds) due 2032 to service and secure an equal principal amount of tax exempt revenue bonds issued by the Pollution Control Financing Authority of Salem County (Authority), issued for the purpose of financing certain pollution control facilities at Hope Creek Generating Station. On March 1, 1994, PSE&G redeemed $60 million outstanding principal amount of its Mortgage Bonds 4-5/8% Series due 1994. On March 15, 1994, PSE&G issued the following series of its Mortgage Bonds: $175 million principal amount 7-3/8% Series TT due 2014 and $175 million principal amount 6-3/4% Series UU due 2006. The net proceeds from the sale of the Series TT and UU Mortgage Bonds were used by PSE&G to finance a portion of its current construction program and to reimburse PSE&G's treasury for funds expended to refund and redeem certain debt obligations, including the payment of short- term debt obligations incurred for such purposes. On May 23, 1994, PSE&G issued the following Series of Medium-Term Notes, Series A (MTN's): $43.5 million 8.10% due 2009 and $16.5 million 8.16% due 2009. The net proceeds from the sale of the MTN's were added to the general funds of PSE&G and were used to finance a portion of its current construction program and to reimburse the treasury for funds expended to refund and redeem and/or defease certain debt obligations including the payment of short-term debt obligations incurred for such purposes. 18 PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) NOTE 4. LONG-TERM DEBT - (Concluded) On May 25, 1994, PSE&G issued $100 million of its Mortgage Bonds 6.40% Pollution Control Series P Mortgage Bonds due 2032 to service and secure an equal principal amount of tax exempt revenue bonds issued by the New Jersey Economic Development Authority (NJEDA), issued for the purpose of financing certain pollution control facilities at Hope Creek Generating Station. Also, on May 26, 1994, PSE&G entered into an escrow agreement to defease in substance $122.5 million principal amount of its Mortgage Bonds, 9.75% Series AA due 2020. In accordance with the escrow agreement, PSE&G deposited a portfolio of United States treasury securities with a trustee sufficient to service its obligations for the Series AA Mortgage Bonds, including redemption on July 1, 1995 at 108.07% of principal amount. A portion of the portfolio of securities was acquired with the funds borrowed from the NJEDA. On June 28, 1994, PSE&G issued $104,365,000 of its 6.25% Pollution Control Series Q Mortgage Bonds due 2031 to service and secure an equal principal amount of tax exempt revenue bonds issued by the Authority, for the purpose of redeeming the $104,365,000 outstanding aggregate principal amount of the Authority's 10.5% Pollution Control Revenue Bonds, 1984 Series A (Public Service Electric and Gas Company Project) (1984 Series A Bonds) at the regular redemption price of 102.00% of principal amount. The 1984 Series A Bonds were serviced and secured by an equal principal amount of PSE&G's Mortgage Bonds, Pollution Control Series F with like maturity, terms and rate, both of which were redeemed on July 1, 1994. The Authority has announced its intention to redeem the outstanding $87.9 million aggregate principal amount of its 10 3/8% Pollution Control Revenue Bonds, 1984 Series B (Public Service Electric and Gas Company Project) due 2014, ("1984 Series B Bonds"), on September 1, 1994 at a price of 102.00% of principal. The 1984 Series B Bonds are serviced and secured by PSE&G's Pollution Control Series G Bonds with like maturity, terms and rate and which will be redeemed on the same date. 19 PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) NOTE 5. COMMITMENTS AND CONTINGENT LIABILITIES NUCLEAR PERFORMANCE STANDARD The BPU has established a nuclear performance standard (Standard) for nuclear generating stations owned by New Jersey electric utilities, including the five nuclear units in which PSE&G has an ownership interest: Salem -- 42.59%; Hope Creek -- 95%; and Peach Bottom -- 42.49%. PSE&G operates Salem and Hope Creek, while Peach Bottom is operated by PECO Energy Inc., formerly Philadelphia Electric Company, (PECO). The penalty/reward under the Standard is a percentage of replacement power costs. (See table below.) The Standard provides that the penalties will be calculated to the edge of each capacity factor range. For example, a 30% penalty applies to replacement power costs incurred in the 55% to 65% range and a 40% penalty applies to replacement power costs in the 45% to 55% range.
CAPACITY FACTOR RANGE REWARD PENALTY - ------------------------------------------------------ ------ ------- Equal to or greater than 75%.......................... 30% -- Equal to or greater than 65% and less than 75%........ None None Equal to or greater than 55% and less than 65%........ -- 30% Equal to or greater than 45% and less than 55%........ -- 40% Equal to or greater than 40% and less than 45%........ -- 50% Below 40%............................................. BPU Intervenes
Under the Standard, the capacity factor is calculated annually using maximum dependable capability of the five nuclear units in which PSE&G owns an interest. This method takes into account actual operating conditions of the units. While the Standard does not specifically have a gross negligence provision, the BPU has indicated that it would consider allegations of gross negligence brought upon a sufficient factual basis. A finding of gross negligence could result in penalties other than those prescribed under the Standard. During 1993, the five nuclear units in which PSE&G has an ownership 20 PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) NOTE 5. COMMITMENTS AND CONTINGENT LIABILITIES (Continued) NUCLEAR PERFORMANCE STANDARD (Concluded) interest aggregated a 77% combined capacity factor. In accordance with the Standard, PSE&G's combined capacity factor exceeded the 75% reward threshold, entitling PSE&G to a reward of approximately $3.9 million. PSE&G has petitioned the BPU to recover this reward through the LEAC commencing October 1, 1994. PSE&G expects that the 1994 capacity factor under the Standard will exceed 65%, although no assurances can be given. NUCLEAR INSURANCE COVERAGES AND ASSESSMENTS PSE&G's insurance coverages and maximum retrospective assessments for its nuclear operations are as follows:
PSE&G MAXIMUM ASSESSMENTS TOTAL FOR A SITE SINGLE TYPE AND SOURCE OF COVERAGES COVERAGES INCIDENT - -------------------------------------------------- --------- ---------- (MILLIONS OF DOLLARS) Public Liability: American Nuclear Insurers........................ $ 200.0 $ -- Indemnity(A)..................................... 8,958.1 210.2 -------- -------- $9,158.1 (B) $210.2 -------- -------- Nuclear Worker Liability: American Nuclear Insurers(C)..................... $ 200.0 $ 8.2 -------- -------- Property Damage: Nuclear Mutual Limited(D)........................ $ 500.0 $ 14.9 American Nuclear Insurers........................ 765.0 (E) -- Nuclear Electric Insurance Ltd. (NEIL I)......... 85.0 (F) -- Nuclear Electric Insurance Ltd. (NEIL I).......... 1,400.0 (G) 10.9 (H) -------- -------- $2,750.0 $ 25.8 -------- -------- Replacement Power: Nuclear Electric Insurance Ltd................... $ 3.5 (I) $ 11.3
21 PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) NOTE 5. COMMITMENTS AND CONTINGENT LIABILITIES (Continued) NUCLEAR INSURANCE COVERAGES AND ASSESSMENTS (Continued) (A) Retrospective premium program under the Price-Anderson liability provisions of the Atomic Energy Act of 1954, as amended, (Price- Anderson). Subject to retrospective assessment with respect to loss from an incident at any licensed nuclear reactor in the United States. Assessment adjusted for inflation effective August 20, 1993. (B) Limit of liability for each nuclear incident under Price-Anderson. (C) Industry aggregate limit representing the potential liability from workers claiming exposure to the hazard of nuclear radiation. This policy includes automatic reinstatements up to an aggregate of $200 million, thereby providing total coverage of $400 million. This policy does not increase PSE&G's obligation under Price-Anderson. (D) PSE&G has examined the Financial Accounting Standards Board's (FASB) Emerging Issues Task Force's (EITF) Issue 93-14, "Accounting for Multiple-Year Retrospectively Rated Insurance Contracts by Insurance Enterprises and Other Enterprises", and has determined that the potential insurance premium recovery is not material. (E) Includes $100 million sublimit for premature decommissioning costs. (F) New policy effective January 1, 1994. (G) Includes up to $250 million for premature decommissioning costs. (H) In the event of a second industry loss triggering NEIL coverage, the maximum retrospective premium assessment can increase to $23.4 million. (I) Weekly indemnity for 52 weeks which commences after the first 21 weeks of an outage. Beyond the first 52 weeks of coverage indemnity of $2.3 million per week for 104 weeks is afforded. Total coverage amounts to $425.9 million over three years. Price-Anderson sets the "limit of liability" for claims that could arise from an incident involving any licensed nuclear facility in the nation. The "limit of liability" is based on the number of licensed nuclear reactors and is adjusted at least every five years based on the Consumer Price Index. The current "limit of liability" is $9.2 billion. All utilities owning a nuclear reactor, including PSE&G, have provided for this exposure through a combination of private insurance and mandatory participation in a financial protection pool as established by Price-Anderson. Under Price-Anderson, each party with an ownership interest in a nuclear reactor can be assessed its share of $79.3 million per reactor per incident, payable at $10 million per 22 PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) NOTE 5. COMMITMENTS AND CONTINGENT LIABILITIES (Continued) NUCLEAR INSURANCE COVERAGES AND ASSESSMENTS (Concluded) reactor per incident per year. If the damages exceed the "limit of liability", the President is to submit to Congress a plan for providing additional compensation to the injured parties. Congress could impose further revenue raising measures on the nuclear industry to pay claims. PSE&G's maximum aggregate assessment per incident is $210.2 million (based on PSE&G's ownership interests in Hope Creek, Peach Bottom and Salem) and its maximum aggregate annual assessment per incident is $26.5 million. PSE&G purchases all the property insurance available, including decontamination expense coverage and premature decommissioning coverage, with respect to loss or damage to its nuclear facilities. PECO has advised PSE&G that it maintains similar insurance coverage with respect to Peach Bottom. Under the terms of the various insurance agreements, PSE&G could be subject to a maximum retrospective assessment for a single incident of up to $25.8 million. Certain of the policies also provide that the insurer may suspend coverage with respect to all nuclear units on a site without notice if the Nuclear Regulatory Commission (NRC) suspends or revokes the operating license for any unit on a site, issues a shutdown order with respect to such unit or issues a confirmatory order keeping such unit shut down. PSE&G is a member of an industry mutual insurance company, NEIL, which provides replacement power cost coverage in the event of a major accidental outage at a nuclear station. The policies provide for a weekly indemnity payment of $3.5 million for 52 weeks, subject to a 21-week waiting period. The policies provide for weekly indemnity payments of $2.3 million for a 104 week period beyond the first year's indemnity. The premium for this coverage is subject to retrospective assessment for adverse loss experience. Under the policies, PSE&G's present maximum share of any retrospective assessment in any year is $11.3 million. PSE&G URANIUM ENRICHMENT DECONTAMINATION AND DECOMMISSIONING FUND In accordance with the National Energy Policy Act of 1992 (NEPA), domestic utilities that own nuclear generating stations are required to pay a cumulative total of $150 million each year (adjusted for inflation) into a decontamination and decommissioning fund, based on their past purchases of enrichment services from the United States Department of Energy (DOE) Uranium Enrichment Enterprise (now a federal government corporation known as the United States Enrichment Corporation (USEC)). These amounts are being collected over a period of 15 years or until $2.25 billion (adjusted for inflation) has been collected. Under this legislation, PSE&G's obligation for its interest in both PSE&G's operated facilities consisting of Salem and Hope Creek, and PECO's operated facilities consisting of Peach Bottom, is $65.2 million. To date PSE&G has paid $8.7 million, resulting in a balance of $56.5 million. While PSE&G expects to recover its costs in the LEAC commencing October 1, 1994, it cannot predict the outcome, amount or timing of any recovery associated with this matter. 23 PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) NOTE 5. COMMITMENTS AND CONTINGENT LIABILITIES (Continued) CONSTRUCTION AND FUEL SUPPLIES PSE&G has substantial commitments as part of its ongoing construction program which includes capital requirements for nuclear fuel. PSE&G's construction program is continuously reviewed and periodically revised as a result of changes in economic conditions, revised load forecasts, changes in the scheduled retirement dates of existing facilities, changes in business plans, site changes, cost escalations under construction contracts, requirements of regulatory authorities and laws, the timing of and amount of electric and gas rate changes and the ability of PSE&G to raise necessary capital. Pursuant to an Integrated Electric Resource Plan (IRP), PSE&G periodically reevaluates its forecasts of future customers, load and peak growth, sources of electric generating capacity and Demand Side Management (DSM) to meet such projected growth, including the need to construct new electric generating capacity. The IRP takes into account assumptions concerning future demands of customers, effectiveness of conservation and load management activities, the long-term condition of PSE&G's plants, capacity available from electric utilities and other suppliers and the amounts of cogeneration and other nonutility capacity projected to be available. Based on PSE&G's 1994-1998 construction program, construction expenditures are expected to aggregate approximately $4.2 billion, which includes $483 million for nuclear fuel and $133 million of AFDC and capitalized interest during the years 1994 through 1998. The estimate of construction requirements is based on expected project completion dates and includes anticipated escalation due to inflation of approximately 4%, annually. Therefore, construction delays or higher inflation levels could cause significant increases in these amounts. PSE&G expects to generate internally a majority of the funds necessary to satisfy its construction expenditures over the next five years, assuming adequate and timely rate relief, as to which no assurances can be given. In addition, PSE&G does not presently anticipate any difficulties in obtaining sufficient sources of fuel for electric generation or adequate gas supplies during the years 1994 through 1998. 24 PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) NOTE 5. COMMITMENTS AND CONTINGENT LIABILITIES (Continued) SALEM STATION The NJDEP draft permit issued October 3, 1990 pursuant to the Federal Water Pollution Control Act with respect to Salem 1 and 2 which, if adopted as proposed, would have required the immediate shutdown of both units pending retrofit with cooling towers. On June 24, 1993, NJDEP issued a revised draft permit that permitted Salem to continue to operate with once-through cooling and require PSE&G to make certain plant modifications and to take certain other actions to enhance the ecology of the affected water body. The final five year permit, with essentially the same provisions as the revised draft permit, was issued on July 20, 1994, effective September 1, 1994. The revised draft permit had been opposed by various entities including environmental groups and PSE&G cannot predict whether any appeals of the final permit will be filed. The EPA has authority to review the issuance of the final permit issued by the NJDEP. Additional permits from various agencies will be required for implementation of certain of the measures required under the permit, as to which no assurances can be given. Estimated capital cost of compliance with the final permit is approximately $100 million, of which PSE&G's share would be 42.59% and is included in our capital spending plans. BERGEN STATION REPOWERING PSE&G is presently engaged in Phase I of a construction project to renovate (or "repower") the Bergen Station pursuant to an air pollution control permit issued by the NJDEP on May 27, 1993. The current effort would maintain the existing electric supply of the station (with a small increase from 629 MW to 669 MW), improve operational reliability and efficiency and significantly improve the environmental effects of operation of the facility. Phase II of the project, if it is undertaken by PSE&G, would increase the capacity of Bergen by an additional 650 MW. On July 12, 1993, the Independent Energy Producers of New Jersey (IEPNJ), an association of competitors of PSE&G appealed the NJDEP's issuance of the air permit for Phase I of the project to the Appellate Division of the New Jersey Superior Court, alleging that PSE&G is first required to obtain a Certificate of Need (CON) under the New Jersey Need Assessment Act (Need Assessment Act). The NJDEP determined that the Need Assessment Act was inapplicable to this renovation project and as more fully described below the Appellate Division affirmed this determination on July 8, 1994. Obtaining a CON would be a complex procedure entailing proceedings of at least a two year duration before the NJDEP, the outcome of which could not be assured. As of June 30, 1994, Phase I of the renovation project was about 76% complete and PSE&G had spent approximately $218 million on this effort. The final cost is estimated to be approximately $400 million. 25 PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) NOTE 5. COMMITMENTS AND CONTINGENT LIABILITIES (Continued) BERGEN STATION REPOWERING (Concluded) On July 8, 1994, the Appellate Division issued a decision affirming the determination of the NJDEP that a CON was not required for Phase I of the project. The Appellate Division, however, concluded that the NJDEP erred by granting a conditional air pollution control permit for Phase II of the project and accordingly, remanded this matter to NJDEP for modification of the permit to indicate that it only applies to Phase I. By Notice of Petition for Certification dated July 27, 1994, IEPNJ petitioned the Supreme Court of New Jersey for review of the Appellate Division decision that a CON was not required for Phase I of the project. PSE&G has opposed this appeal. Review by the Supreme Court of New Jersey of this matter as discretionary. PSE&G believes that a CON is not required for Phase I of the project. However, if a CON were ultimately required by the courts after exhaustion of all appeals, the permits needed to operate the plant could not be issued until after a CON was obtained. PSE&G intends to continue this renovation project and to vigorously defend its position through all available means. ENVIRONMENT GENERAL Certain Federal and State laws authorize the United States Environmental Protection Agency (EPA) and NJDEP, among other agencies, to issue orders and bring enforcement actions to compel responsible parties to take investigative and remedial actions at any site that is determined to present an imminent and substantial danger to the public or the environment because of an actual or threatened release of one or more hazardous substances. Because of the nature of PSE&G's business, including the production of electricity, the distribution of gas and, formerly, the manufacture of gas, various by- products and substances are or were produced or handled which contain constituents classified as hazardous. PSE&G generally provides for the disposal or processing of such substances through licensed independent contractors. However, these statutory provisions impose joint and several responsibility without regard to fault on all responsible parties, including the generators of the hazardous substances, for certain investigative and remediation costs at sites where these substances were disposed of or processed. PSE&G has been notified with respect to a number of such sites and the remediation of these potentially hazardous sites is receiving greater attention from the government agencies involved. Generally, actions directed at funding such site investigations and remediation include all suspected or known responsible parties. PSE&G does not expect its expenditures for any such site to be material. 26 PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) NOTE 5. COMMITMENTS AND CONTINGENT LIABILITIES (Concluded) ENVIRONMENT (Concluded) PSE&G MANUFACTURED GAS PLANT REMEDIATION PROGRAM (Concluded) In March 1988, NJDEP notified PSE&G that it had identified the need for PSE&G, pursuant to a formal arrangement, to systematically investigate and, if necessary, resolve environmental concerns extant at PSE&G's former manufactured gas plant sites. To date, NJDEP and PSE&G have identified 38 former gas plant sites. PSE&G is currently working with NJDEP under a program to assess, investigate and, if necessary, remediate environmental concerns at its former gas plant sites (Remediation Program). The Remediation Program is periodically reviewed and revised by PSE&G based on regulatory requirements, experience with the Remediation Program and available technologies. The cost of the Remediation Program cannot be reasonably estimated, but experience to date indicates that costs of at least $20 million per year could be incurred over a period of more than 30 years and that the overall cost could be material. Costs incurred through June 30, 1994 for the Remediation Program amounted to $47.2 million, net of insurance recoveries. In addition, at June 30, 1994, PSE&G's liability for estimated remediation costs, net of insurance recoveries, through March 31, 1996 aggregated $108.0 million. In accordance with a Stipulation approved by the BPU on January 21, 1992, PSE&G is recovering $32 million of its actual remediation costs to reflect costs incurred through September 30, 1992, net of insurance recoveries, over a six- year period. PSE&G will recover $5.3 million in each of its next three LGAC periods ending in 1996, net of insurance recoveries. The regulatory treatment of the remediation costs covered by this Stipulation was not changed in the BPU's September 15, 1993 written order, allowing continued collection under the terms of the January 21, 1992 Stipulation. The decision of September 15, 1993 concluded that PSE&G had met its burden of proof for establishing the reasonableness and prudence of remediation costs incurred in operating and decommissioning these facilities in the past. The remediation costs incurred during the period July 1, 1992 through September 30, 1992 were subject to audit and verification in PSE&G's 1992-93 LGAC. The audit has been completed and resulted in no disallowance of any costs. The order also approved a mechanism for costs incurred since October 1, 1992, allowing the recovery of actual costs plus carrying charges, net of insurance recoveries, over a seven-year period through PSE&G's LEAC and LGAC, with 60% charged to gas customers and 40% charged to electric customers. (See Note 1 - Rate Matters - - Remediation Adjustment Clause). In November 1988, PSE&G filed suit against certain of its insurers to recover the costs associated with addressing and resolving environmental issues of the Remediation Program. PSE&G has settled its claim with one insurer and there is a trial scheduled for January 1995 with the remaining insurers. Pending full recovery of Remediation Program costs through rates or under its insurance policies, neither of which can be assured, PSE&G will be required to finance the unreimbursed costs of its Remediation Program. 27 PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Concluded) NOTE 6. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS In accordance with SFAS 106 "Employers' Accounting for Postretirement Benefits Other Than Pensions", the BPU's December 31, 1992 base rate order, provided that (1) PSE&G's pay-as-you-go basis Other Postretirement Benefits will continue to be included in cost of service and will be recoverable in base rates on a pay-as-you-go basis; (2) prudently incurred Postretirement Benefits costs, that are accounted for on an accrual basis in accordance with Statement of Financial Accounting Standards (SFAS) 106, will be recoverable in future rates; and (3) PSE&G should account for the differences between its Postretirement Benefits costs on an accrual basis and the pay-as-you-go basis being recovered in rates as a regulatory asset. During January 1993 and subsequent to the receipt of the Order, the Financial Accounting Standards Board EITF concluded that deferral of such costs is acceptable provided regulators allow SFAS 106 costs in rates within approximately five years of the adoption of SFAS 106 for financial reporting purposes, with any cost deferrals recovered in approximately twenty years. PSE&G intends to request the BPU for full SFAS 106 recovery in accordance with the EITF's view of such standard and believes that it is probable that any deferred costs will be recovered from utility customers within such twenty year time period. Accordingly, PSE&G is accounting for the differences between its SFAS 106 accruals cost and the cash cost currently recovered through rates as a regulatory asset. PSE&G's accrued Postretirement Benefits costs which have been deferred were $133.3 million at June 30, 1994. 28 PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Following are the significant changes in or additions to information reported in Enterprise's Annual Report to the SEC on Form 10-K for 1993, affecting the consolidated financial condition and the results of operations of Enterprise and its subsidiaries. This discussion refers to the Consolidated Financial Statements and related Notes of Enterprise and should be read in conjunction with such statements and notes. As of June 30, 1994, PSE&G comprised 86% of Enterprise assets. For the three, six and twelve month periods ended June 30, 1994, PSE&G's revenues were 92%, 93% and 93%, respectively, of Enterprise's revenues and PSE&G's earnings available to Enterprise for such periods were 91%, 91% and 97%, respectively, of Enterprise's net income. COMPETITION Ongoing initiatives affecting PSE&G's electric and gas utility businesses associated with the continuing transition to a competitive market environment will have an increasingly significant impact on Enterprise and PSE&G. Federal legislation, including the National Energy Policy Act (NEPA), as well as regulatory initiatives at both the Federal and state levels that are designed to promote competition and lessen regulation of the energy supply industry can be expected to result in additional pressures on sales retention due to energy prices, especially with respect to larger industrial and commercial customers. Growth potential is limited in PSE&G's mature service territory. The shifting of rate regulation from traditional concepts based upon rate base rate of return to concepts based upon market competition and service appears to be accelerating. As a result, added emphasis will be placed upon cost containment, and utilities and their regulators will need to develop flexible ratemaking strategies to minimize adverse impacts which might otherwise occur to revenues and earnings and maximize potential opportunities presented by deregulation. The manner in which regulators address evolving competitive issues will also affect utility credit quality. This transition to a competitive market environment may also affect utilities' asset values as a result of changes from traditional utility ratemaking. A shift to a market-price determination of asset values could result in transition costs and create "stranded assets". Such assets could include electric generating units constituting excess capacity, less efficient units whose cost may be too high to be fully supported by competitively set rates, and certain regulatory assets whose costs may not be fully recoverable in a deregulated environment. If changes in rate regulation ultimately require a recognition of any such stranded assets, write-downs for utilities, including PSE&G, may occur. At this time management cannot predict the level of transition costs or stranded assets resulting from industry deregulation, if any, or whether utility regulators will allow recovery of any such transition costs from customers. However, such amounts could be material. 29
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ENTERPRISE EARNINGS Earnings per share of Enterprise Common Stock were 53 cents, $1.47, and $2.57 for the three, six and twelve months ended June 30, 1994, an increase per share of 4 cents, 7 cents and 18 cents respectively from the comparable 1993 periods, after giving effect to the issuance of additional shares of Common Stock. (See Liquidity and Capital Resources - External Financing.) The changes are summarized as follows: Increase or (Decrease) --------------------------------------------------------------- Three Months Ended Six Months Ended Twelve Months Ended June 30, June 30, June 30, 1994 vs. 1993 1994 vs. 1993 1994 vs. 1993 ------------------- -------------------- ------------------- Per Per Per Millions Share Millions Share Millions Share -------- --------- -------- --------- -------- --------- PSE&G Revenues (net of fuel costs and gross receipts taxes) ...... $ 41 $0.17 $ 104 $ 0.44 $ 284 $ 1.20 Other operation expenses ........ 2 0.01 (11) (0.05) (64) (0.27) Maintenance expenses ............ (2) (0.01) (21) (0.09) (41) (0.17) Depreciation and Amortization expenses (excluding property losses and abandonments) (10) (0.04) (16) (0.06) (23) (0.10) Federal income taxes ............ (16) (0.07) (25) (0.11) (86) (0.37) Peach Bottom Settlement - net of Federal income taxes of $0, $0 million and ($7) million, respectively .................. - - - - 14 0.06 Interest charges ................ 4 0.02 13 0.05 20 0.08 Other income .................... (4) (0.02) (7) (0.03) (3) (0.01) Other ........................... - - (5) (0.02) 4 0.02 Preferred stock dividend require- ments ......................... (1) - (2) (0.01) (4) (0.02) ---- ---- ----- ------ ----- ------ Earnings Available to Enterprise .................. 14 0.06 30 0.12 101 0.42 ---- ---- ----- ------ ----- ------- EDHI.......................... (4) (0.02) (5) (0.02) (41) (0.17) ---- ----- ----- ------ ----- ------ Net Income ...................... $ 10 0.04 $ 25 0.10 $ 60 0.25 ==== ----- ===== ------ ===== ------ Effect of additional shares of Enterprise Common Stock ....... - (0.03) (0.07) ----- ------ ------ Total ......................... $0.04 $ 0.07 $ 0.18 ===== ====== ====== Average Shares of Common Stock Outstanding 1993 .............. 240,919,743 238,930,322 236,352,495 Average Shares of Common Stock Outstanding 1994 .............. 244,697,930 244,239,893 243,296,564
30 PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) ENTERPRISE EARNINGS - (Continued) PSE&G PSE&G's earnings available to Enterprise increased $14 million, or 13%, for the quarter ended June 30, 1994 from the quarter ended June 30, 1993. The increase was principally due to weather related electric and gas sales during the second quarter of 1994. Also contributing to the increase in earnings were lower interest charges resulting from refinancing of debt at lower interest rates and lower other operation expenses (primarily lower property insurance and distribution expenses). The increased earnings were partially offset by increased federal income taxes resulting from higher pre-tax income, higher depreciation and amortization expenses and higher maintenance expenses at the Hope Creek nuclear station due to the spring 1994 refueling outage. PSE&G's earnings available to Enterprise increased $30 million, or 10% for the six months ended June 30, 1994 from the comparable six month period ended June 30, 1993. The increase was primarily due to weather-related increases in residential and commercial sales. There were increases in electric (kilowatthour) and gas (therm) sales of 2.6% and 8.5%, respectively. In addition, lower interest charges resulting from refinancing debt at lower interest rates contributed to the increase in earnings. The major factors offsetting this increase were higher federal income taxes due to higher pre- tax income, higher depreciation and amortization expenses and higher maintenance expenses at the Hope Creek nuclear station due to the spring 1994 refueling outage. Excluding the $14 million net effect of the 1992 settlement of litigation against PECO in connection with the 1987 shutdown of Peach Bottom by the NRC, PSE&G's earnings available to Enterprise increased $87 million or 17%, for the twelve month period ended June 30, 1994 from the comparable twelve month period of 1993. The principal factors contributing to the increase were PSE&G's higher electric and gas base rates that became effective January 1, 1993 and increased weather-related electric and gas sales. In addition, lower interest charges resulting from refinancing of debt at lower interest rates contributed to the increase in earnings. Partially offsetting the increase in earnings were higher federal income taxes resulting from higher pre-tax income, higher other operation expenses (comprised primarily of labor, employee benefits costs, and miscellaneous nuclear production costs) and increased maintenance expenses at the Hope Creek nuclear station due to the spring 1994 refueling outage. 31 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) ENTERPRISE EARNINGS - (Concluded) EDHI EDHI's decrease in net income of $4 million, or 24%, for the quarter ended June 30, 1994 compared to the quarter ended June 30, 1993 was primarily due to lower gas volumes and oil prices for EDC. Partially offsetting the decrease was higher income from PSRC's security investments. EDHI's net income for the six month period ended June 30, 1994 decreased $5 million, or 13%, from the comparable six month period ended June 30, 1993. The primary factors contributing to the decrease were lower gas volumes and oil prices. Partially offsetting the decrease was higher income from PSRC's security investments. Excluding the 1993 property impairment related to certain of EGDC's properties, which reduced net income by $51 million, EDHI's net income for the twelve month period ended June 30, 1994 increased by $10 million, or 17%, compared to the twelve month period ended June 30, 1993. The increase was due principally to PSRC's higher income from security investments and improved capacity factors at certain CEA projects, partially offset by lower EDC gas volumes and oil prices. 32 PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) DIVIDENDS Dividends paid to holders of Enterprise Common Stock during the three, six and twelve month periods ended June 30, 1994 increased $2 million, $4.1 million and $13.2 million, respectively, over the comparable 1993 periods. The increase in dividend payments was due to the issuance of additional shares of Enterprise Common Stock. (See Liquidity and Capital Resources.) Dividends paid to holders of PSE&G's Preferred Stock, during the three, six and twelve month periods ended June 30, 1994 increased $387 thousand, $1.8 million and $4 million over the comparable 1993 periods. The increase in such dividend payments was due to the issuance of additional shares of PSE&G's Preferred Stock, partially offset by lower dividend payment rates on certain preferred stock issues resulting from refundings. (See Liquidity and Capital Resources.) 33
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) REVENUES PSE&G ELECTRIC Revenues increased $12 million, or 1%, during the three months ended June 30, 1994, $28 million, or 2%, during the first half of 1994 and $196 million, or 6%, during the twelve months ended June 30, 1994 over the similar periods ended June 30, 1993. The significant components of these changes follow: Increase or (Decrease) ----------------------------------------------------------- Three Months Ended Six Months Ended Twelve Months Ended June 30, June 30, June 30, 1994 vs. 1993 1994 vs. 1993 1994 vs. 1993 ------------------ ---------------- -------------------- (Millions) Kilowatthour sales ............. $ 22 $ 53 $ 108 Base rate increase effective January 1, 1993 .............. - - 126 Recovery of energy costs ....... (10) (28) (52) NJGRT .......................... 1 3 15 Other operating revenues ....... (1) - (1) ----- ----- ----- Total Electric Revenues ...... $ 12 $ 28 $ 196 ===== ===== ===== Changes in kilowatthour sales by customer category are described below: Increase or (Decrease) ------------------------------------------------------------- Three Months Ended Six Months Ended Twelve Months Ended June 30, June 30, June 30, 1994 vs. 1993 1994 vs. 1993 1994 vs. 1993 ------------------ ---------------- -------------------- Residential ................... 4.8% 3.4% 8.1% Commercial .................... 1.4 2.9 3.2 Industrial .................... 2.1 1.1 0.3 Non-Jurisdictional ............ (43.2) (45.9) (24.8)
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PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) REVENUES - (Continued) PSE&G ELECTRIC - (Concluded) The 1% and 2% increases in revenues during the three and six month periods ended June 30, 1994, respectively, were primarily due to greater sales to residential, commercial and industrial customers resulting from favorable 1994 weather conditions and continued improvement in New Jersey's economy. Contributing to the 6% increase in revenues for the twelve months ended June 30, 1994, were the base rate increase which became effective January 1, 1993 and greater sales to residential, commercial and industrial customers due to 1994 weather and improvement in the New Jersey economy. PSE&G GAS Revenues increased $21 million, or 8% during the three months ended June 30, 1994, $193 million, or 22%, during the first half of 1994 and $193 million or 12% during the twelve month period ended June 30, 1994 compared to the similar periods ended June 30, 1993. The significant components of these changes follow: Increase or (Decrease) ----------------------------------------------------------- Three Months Ended Six Months Ended Twelve Months Ended June 30, June 30, June 30, 1994 vs. 1993 1994 vs. 1993 1994 vs. 1993 ------------------ ---------------- ------------------- (Millions) Therm sales ................... $ 18 $ 49 $ 33 Base rate increase effective January 1, 1993 .............. - - 26 Recovery of fuel related costs. 5 134 134 NJGRT ......................... - 9 6 Other operating revenues ...... (2) 1 (6) ---- ---- ---- Total Gas Revenues ......... $ 21 $193 $193 ==== ==== ====
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PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) REVENUES - (Continued) PSE&G GAS - (Concluded) Changes in gas sold or transported by customer category are described below: Increase or (Decrease) ------------------------------------------------------------ Three Months Ended Six Months Ended Twelve Months Ended June 30, June 30, June 30, 1994 vs. 1993 1994 vs. 1993 1994 vs. 1993 ------------------- ---------------- ------------------- Residential ............ 3.5% 10.3% 5.7% Commercial ............. (6.0) 4.3 2.2 Industrial ............. 5.9 9.7 10.3 Transportation Service . 3.6 (8.0) (5.2) The gas revenue increase of 8% for the quarter ended June 30, 1994 from the comparable quarter of 1993 is primarily due to an increase in industrial cogeneration sales as a result of increased average customer usage, partially offset by a decrease in firm sales. The gas revenue increase of 22% and 12% for the six and twelve month period ended June 30, 1994, respectively, from the comparable periods of 1993 is primarily attributable to an increase in the recovery of fuel costs principally due to higher fuel rates and significantly lower customer refunds. Residential, commercial and industrial sales increased due to favorable weather conditions and an improving economy. Sales to cogenerators was the largest contributor to the increase in industrial sales as cogeneration average customer usage for electric generation continues to increase. Also contributing to the increase in revenues for the twelve months ended June 30, 1994, was the base rate revenue increase which became effective January 1, 1993.
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PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) Revenues - (Concluded) EDHI EDHI revenues decreased $2 million, or 2%, during the second quarter of 1994 from the second quarter of 1993, revenues increased $7 million, or 4%, during the first half of 1994 over the first half of 1993, and revenues increased $36 million, or 9%, during the twelve month period ended June 30, 1994 over the twelve month period ended June 30, 1993. The significant factors contributing to such results are as follows: Increase or (Decrease) ----------------------------------------------------------- Three Months Ended Six Months Ended Twelve Months Ended June 30, June 30, June 30, 1994 vs. 1993 1994 vs. 1993 1994 vs. 1993 ------------------- ----------------- ------------------- (Millions) EDC .............. $(16) $(17) $(25) PSRC ............. 11 18 42 CEA .............. 3 7 19 EGDC ............. - (1) - ----- ----- ---- $ (2) $ 7 $ 36 ===== ===== ==== For the three month period, EDHI's revenues decreased as a result of lower EDC revenues due to lower gas volumes and oil prices, partially offset by higher revenues related to PSRC's security investments. For the six and twelve month periods, revenues increased principally due to higher revenues related to PSRC's security investments and improved capacity factors at certain CEA projects, partially offset by lower EDC gas volumes and oil prices.
37
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) PSE&G - ELECTRIC ENERGY COSTS Electric energy costs decreased $9 million, or 5%, $28 million, or 8% and $58 million, or 8%, during the three, six and twelve month periods ended June 30, 1994, respectively, from the comparable 1993 periods. The significant components of these changes follow: Increase or (Decrease) ----------------------------------------------------------- Three Months Ended Six Months Ended Twelve Months Ended June 30, June 30, June 30, 1994 vs. 1993 1994 vs. 1993 1994 vs. 1993 ------------------ ---------------- ------------------- (Millions) Change in prices paid for fuel and power purchases .......... $ 10 $ 41 $ 52 Kilowatthour generation ............ 5 11 32 Adjustment of actual costs to match recoveries through revenues (A) ... (24) (80) (142) ---- ---- ---- Total Electric Energy Costs......... $ (9) $(28) $(58) ==== ==== ==== (A) Reflects the change in deferred over(under) recovered energy costs. The decrease in total costs during the second quarter of 1994 from the comparable 1993 quarter was principally due to the underrecovery of energy costs, partially offset by an 11% increase in fuel burned costs, a 7% increase in purchased power costs, principally from nonutility generators (NUGS), and a 3% increase in kilowatthour generation. The decrease in total costs during the first half of 1994 from the comparable 1993 period was principally due to the underrecovery of energy costs, partially offset by a 9% increase in fuel burned costs, a 20% increase in purchased power costs, principally from NUGS and a 3% increase in kilowatthour generation. The decrease in total costs for the twelve month period ended June 30, 1994 from the comparable 1993 period was principally the result of an adjustment in the recovery of energy costs resulting from the BPU base rate case decision effective January 1, 1993, partially offset by a 3% increase in fuel burned costs, an 18% increase in purchased power costs, principally from NUGS and a 4% increase in kilowatthour generation.
38
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) GAS SUPPLY COSTS Gas supply costs increased $5 million, or 3%, $137 million, or 28% and $151 million, or 17% during the three, six and twelve month periods ended June 30, 1994, respectively, from the comparable 1993 periods. The significant components of these changes follow: Increase or (Decrease) ----------------------------------------------------------- Three Months Ended Six Months Ended Twelve Months Ended June 30, June 30, June 30, 1994 vs. 1993 1994 vs. 1993 1994 vs. 1993 ------------------- ----------------- ------------------- (Millions) Change in prices paid for gas supplies ...................... $ 1 $ 44 $ 80 Therm sendout ...................... 4 48 62 Refunds from pipeline suppliers .... (1) (9) 21 Adjustment of actual costs to match recoveries through revenues (A) .. 1 54 (12) ---- ---- ---- Total Gas Supply Costs ............. $ 5 $137 $151 ==== ==== ==== (A) Reflects the change in deferred over(under) recovered gas costs. The increases in total costs for the three, six and twelve month periods ended June 30, 1994 compared to similar periods in 1993 were primarily attributable to increased sendout as a result of the colder winter, higher gas prices and increased sales to NUGS.
39 PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) LIQUIDITY AND CAPITAL RESOURCES Enterprise's liquidity is affected by maturing debt (see Note 4 - Long- Term Debt of Notes to Consolidated Financial Statements), investment and acquisition activities and the capital requirements of PSE&G's construction program. (For additional information see Note 5 - Commitments and Contingent Liabilities of Notes to Consolidated Financial Statements.) PSE&G For the six month period ended June 30, 1994, PSE&G had utility plant additions, excluding AFDC, of $360 million, an increase of $75 million from the corresponding period in 1993. For the twelve month period ended June 30, 1994, PSE&G had utility plant additions, excluding AFDC, of $938 million, an increase of $198 million from the corresponding period in 1993. Construction expenditures were related to improvements in PSE&G's existing power plants, transmission and distribution system, gas system and common facilities. PSE&G expects that it will be able to generate internally a majority of its capital requirements including construction expenditures over the next five years, assuming adequate and timely rate relief as to which no assurances can be given. (See Note 1 - Rate Matters and Note 5 - Commitments and Contingent Liabilities of Notes to Consolidated Financial Statements.) Legislation effective January 1, 1992 phased in an acceleration of payment of the New Jersey Gross Receipts and Franchise Tax (NJGRT) during 1992-94, so that for 1994 and for each year thereafter PSE&G will be paying its estimated current year's NJGRT liability in April of each such year. In April 1993, PSE&G paid $899 million (its 1992 NJGRT plus 50% of its estimated 1993 NJGRT). In April 1994, PSE&G paid $847 million (the remainder of its 1993 NJGRT plus its 1994 estimated NJGRT). Such prepayment has been funded by PSE&G through the issuance of short-term debt. PSE&G has filed a petition with the BPU seeking to replace a portion of such short-term funding with $100 million of long-term debt. 40 PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) LIQUIDITY AND CAPITAL RESOURCES (Continued) EDHI During the next five years, a majority of EDHI's capital requirements are expected to be provided from operational cash flows. EDHI intends to focus its efforts on CEA and EDC, its energy-related core businesses. CEA is expected to be the primary vehicle for its business growth and EDC is projected to attain and maintain a reserve base at approximately 900 Billion Cubic Feet Equivalent (BCFE), approximately 11% above the December 1993 level. During 1994, EDC has expended approximately $55 million to acquire domestic and international reserves. At June 30, 1994, EDC had reserves of 825 BCFE. PSRC will make limited new investments related to the core business, while EGDC will exit the real estate business in a prudent manner. Over the next several years, EDHI and its subsidiaries will also be required to refinance a portion of their maturing debt in order to meet their capital requirements. Any inability to extend or replace maturing debt at current levels and interest rates may affect future earnings and result in an increase in EDHI's cost of capital. A partnership in which EGDC is an 80% partner is currently negotiating to extend or replace a mortgage financing of $40.2 million which is maturing before December 31, 1994. No assurances can be given that EGDC or the partnership will be able to extend this loan or obtain a replacement loan in the amount of the existing loan. Failure to extend or replace the existing loan at the current outstanding loan balance, or at current interest rates, may result in an increase in the amount of equity capital which EGDC will require. PSRC is a limited partner in various partnerships and is committed to make investments from time to time, upon the request of the respective general partners. On June 30, 1994, $133.7 million remained as PSRC's unfunded commitment subject to call. 41 PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) LIQUIDITY AND CAPITAL RESOURCES (Continued) EDHI and each of its subsidiaries are subject to restrictive business and financial covenants contained in existing debt agreements and are required to not exceed various debt to equity ratios which vary from 3:1 to 1.75:1. EDHI is also required to maintain a twelve months earnings before interest and taxes to interest (EBIT) coverage ratio of at least 1.35:1. As of June 30, 1994 and 1993, EDHI had consolidated debt to equity ratios of 1.19:1 and 1.71:1 and, for the twelve months ended June 30, 1994 and 1993, EBIT coverage ratios, as defined to exclude the effects of EGDC, of 2.22:1 and 1.84:1, respectively. Compliance with applicable financial covenants will depend upon future levels of earnings, among other things, as to which no assurance can be given. (See Note 4 - Long-Term Debt of Notes to Consolidated Financial Statements.) INTERNAL GENERATION OF CASH FROM OPERATIONS Enterprise's cash provided by operating activities increased $102 million to $269 million for the six months ended June 30, 1994 compared to the corresponding period in 1993. This increase was primarily due to a decrease in accounts receivable, an increase in net income and deferred income taxes and a decrease in NJGRT payments, partially offset by a decrease in accounts payable. (For more information see Enterprise Earnings and Revenues.) Enterprise's cash provided by operating activities for the twelve months ended June 30, 1994 increased $26 million to $1.110 billion when compared to the corresponding period in 1993. This increase was primarily due to the increase in net income, the loss from property impairment, increased deferred income taxes and a decrease in inventories. Partially offsetting these cash inflows were the lower recovery of electric energy and gas costs through PSE&G's LEAC and LGAC and a decrease in accounts payable. (For additional information see Enterprise Earnings and Revenues.) 42 PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) LIQUIDITY AND CAPITAL RESOURCES (Continued) EXTERNAL FINANCINGS Cash Flows from Financing Activities: Six Months Ended Twelve Months Ended June 30, June 30, ------------------ ------------------- 1994 1993 1994 1993 ------- -------- -------- --------- (Millions) Enterprise: Issuance of Common Stock (A) $ 28 $ 208 $ 94 $ 279 ------- -------- ------- ------- Cash Dividends Paid on Common Stock (B) (264) (260) (526) (512) ------- -------- ------- ------- PSE&G: (C) Net increase(decrease) in Short-Term Debt (D) 139 (150) 564 (16) Issuance of Long-Term Debt 664 (E) 1,164 1,537 1,164 Redemption of Long-Term Debt and Other Obligations (192)(E) (551) (1,421) (1,013) Deferral of Debt Expense - net (6) (15) (50) (15) Issuance of Preferred Stock 75 (F) 75 75 75 Redemption of Preferred Stock (45)(F) - (45) - Other (1) (1) (1) (2) -------- -------- ------- ------- Total PSE&G 634 522 659 193 -------- -------- ------- ------- EDHI: Net decrease in Short-Term Debt (G) (14) (24) (79) (81) Issuance of Long-Term Debt - 70 105 100 Redemption of Long-Term Debt and Other Obligations (39) (92) (325) (93) Other 2 2 (6) 1 -------- -------- ------- ------- Total EDHI (51) (44) (305) (73) -------- -------- ------- ------- Net cash provided by (used in) financing activities $ 347 $ 426 $ (78) $ (113) ======== ======== ======= ======= (A) During the first six months of 1994, Enterprise issued and sold 1,009,674 shares of Common Stock through its DRIP and Employee Stock Purchase Plan. All such sales of Common Stock took place during the first quarter of 1994. The net proceeds from such sales, aggregated approximately $28 million 43 PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) LIQUIDITY AND CAPITAL RESOURCES - (Continued) EXTERNAL FINANCINGS - (Continued) and were used by Enterprise to make equity investments in EDHI. EDHI utilized such funds to repay outstanding debt at maturity. Book value per share was $21.48 at June 30, 1994, compared to $20.95 at June 30, 1993 and $21.07 at December 31, 1993. (See Note 3 - Common Stock of Notes to Consolidated Financial Statements.) (B) See DIVIDENDS. (C) Under the terms of PSE&G's Mortgage and Restated Certificate of Incorporation at June 30, 1994, PSE&G would qualify to issue an additional $4.016 billion of Mortgage Bonds at a rate of 8.5% or $3.234 billion of Preferred Stock at a rate of 8.375%. PSE&G's Restated Certificate of Incorporation limits the issuance of Preferred Stock to $1.0 billion, of which $610 million is outstanding. In addition, as a prerequisite to the issuance of additional Mortgage Bonds, PSE&G's Mortgage requires a 2:1 ratio of earnings to fixed charges as computed thereunder. For the twelve months ended June 30, 1994 such ratio was 3.49:1. Under authority granted by the BPU, expiring December 31, 1994, PSE&G is authorized to issue an additional $381 million principal amount of Mortgage Bonds/MTN's substantially all of which is authorized only for refunding purposes. PSE&G presently expects to be able to obtain extension of this authority for refunding. In addition, on August 8, 1994, PSE&G filed a petition requesting authority from the BPU to issue an additional $100 million of its Mortgage Bonds/MTN's for general corporate purposes. The BPU has authorized PSE&G to issue not more than $800 million of its short-term obligations at any one time outstanding, consisting of commercial paper and other unsecured borrowings from banks and other lenders through December 31, 1994. On June 30, 1994, PSE&G had $672 million of short-term debt outstanding. PSE&G presently expects to be able to obtain extension of this authority. PSE&G expects to renew its $600 million revolving credit agreement with a group of commercial banks which expires on September 17, 1994. On June 30, 1994, there was no short-term debt outstanding under this credit agreement. (D) Includes commercial paper issued and/or redeemed by PSE&G Fuel Corporation (Fuelco) and guaranteed by PSE&G pursuant to a commercial paper program supported by a bank revolving credit facility to finance the acquisition of a 42.49% undivided interest in the nuclear fuel for Peach Bottom. Fuelco has a $150 million commercial paper program through June 1996. On June 30, 1994, Fuelco had $90.3 million of its commercial paper outstanding. 44 PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) LIQUIDITY AND CAPITAL RESOURCES - (Continued) (E) Enterprise's long-term debt aggregated $5.376 billion as of June 30, 1994, of which $4.545 billion was attributable to PSE&G and $831 million to EDHI. On February 10, 1994, PSE&G issued $50 million of its 5.45% Pollution Control Series O First and Refunding Mortgage Bonds (Mortgage Bonds) due 2032 to service and secure an equal principal amount of tax exempt revenue bonds issued by the Pollution Control Financing Authority of Salem County (Authority), issued for the purpose of financing certain pollution control facilities at Hope Creek Generating Station. On March 1, 1994, PSE&G redeemed $60 million outstanding principal amount of its Mortgage Bonds 4-5/8% Series due 1994. On March 15, 1994, PSE&G issued the following series of its Mortgage Bonds: $175 million principal amount 7-3/8% Series TT due 2014 and $175 million principal amount 6-3/4% Series UU due 2006. The net proceeds from the sale of the Series TT and UU Mortgage Bonds were used by PSE&G to finance a portion of its current construction program and to reimburse PSE&G's treasury for funds expended to refund and redeem certain debt obligations, including the payment of short- term debt obligations incurred for such purposes. On May 23, 1994, PSE&G issued the following Series of Medium-Term Notes, Series A (MTN's): $43.5 million 8.10% due 2009 and $16.5 million 8.16% due 2009. The net proceeds from the sale of the MTN's were added to the general funds of PSE&G and were used to finance a portion of its current construction program and to reimburse the treasury for funds expended to refund and redeem and/or defease certain debt obligations including the payment of short-term debt obligations incurred for such purposes. 45 PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) LIQUIDITY AND CAPITAL RESOURCES - (Continued) On May 25, 1994, PSE&G issued $100 million of its Mortgage Bonds 6.40% Pollution Control Series P Mortgage Bonds due 2032 to service and secure an equal principal amount of tax exempt revenue bonds issued by the New Jersey Economic Development Authority (NJEDA), issued for the purpose of financing certain pollution control facilities at Hope Creek Generating Station. Also, on May 26, 1994, PSE&G entered into an escrow agreement to defease in substance $122.5 million principal amount of its Mortgage Bonds, 9.75% Series AA due 2020. In accordance with the escrow agreement, PSE&G deposited a portfolio of United States treasury securities with a trustee sufficient to service its obligations for the Series AA Mortgage Bonds, including redemption on July 1, 1995 at 108.07% of principal amount. A portion of the portfolio of securities was acquired with the funds borrowed from the NJEDA. On June 28, 1994, PSE&G issued $104,365,000 of its 6.25% Pollution Control Series Q Mortgage Bonds due 2031 to service and secure an equal principal amount of tax exempt revenue bonds issued by the Authority, redeeming the $104,365,000 outstanding aggregate principal amount of the Authority's 10.5% Pollution Control Revenue Bonds, 1984 Series A (Public Service Electric and Gas Company Project) (1984 Series A Bonds) at the regular redemption price of 102.00% of principal amount. The 1984 Series A Bonds were serviced and secured by an equal principal amount of PSE&G's Mortgage Bonds, Pollution Control Series F with like maturity, terms and rate, both of which were redeemed on July 1, 1994. The Authority has announced its intention to redeem the outstanding $87.5 million aggregate principal amount of its 10 3/8% Pollution Control Revenue Bonds, 1984 Series B (Public Service Electric and Gas Company Project) due 2014 ("1984 Series B Bonds"), on September 1, 1994 at a price of 102% of principal. The 1984 Series B Bonds are serviced and secured by PSE&G's Pollution Control Series G Bonds with like maturity, terms and rate and which will be redeemed on the same date. 46 PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) LIQUIDITY AND CAPITAL RESOURCES - (Concluded) EXTERNAL FINANCINGS - (Concluded) (F) In February 1994, PSE&G issued and sold 600,000 shares of its 6.75% Cumulative Preferred Stock -- $25 Par and 600,000 shares of its 6.92% Cumulative Preferred Stock ($100 Par). The net proceeds of $15 million from the sale of the Preferred Stock -- $25 Par were used by PSE&G to redeem all of the 150,000 outstanding shares of PSE&G's 8.08% Cumulative Preferred Stock ($100 Par). The net proceeds of $60 million from the sale of the Cumulative Preferred Stock ($100 Par) were added to the general funds of PSE&G and used to pay a portion of its then outstanding short-term debt obligations, which were principally incurred to fund a portion of its construction expenditures. On March 1, 1994, PSE&G redeemed all of the 300,000 shares of its 8.16% Cumulative Preferred Stock ($100 Par). Under authority granted by the BPU, expiring December 31, 1994, PSE&G is authorized to issue an additional $330 million of Preferred Stock after giving effect to the 1994 issuances of Preferred Stock. (G) Funding has a commercial paper program, supported by a commercial bank letter of credit and credit facility, through November 18, 1995 in the amount of $225 million. As of June 30, 1994, Funding had $31.3 million outstanding under this program. Funding has a $225 million revolving credit facility which terminates on November 18, 1995. As of June 30, 1994, Funding had no borrowings on this facility. NUCLEAR OPERATIONS Salem Nuclear Generating Station, Unit 1 (Salem 1) experienced an automatic reactor shutdown which occurred on April 7, 1994 due to excessive grass from the Delaware River clogging the station's water intake structure. Subsequent to the shutdown a Precautionary Alert was declared at 1:16 p.m. and this emergency classification was terminated at 8:20 p.m. No abnormal releases of radiation to the environment occurred during the event and there was no threat to the public health and safety. Salem 1 remained out of service while PSE&G and the NRC investigated the event and PSE&G implemented remedial actions. PSE&G agreed not to restart the unit until approval was obtained from the NRC. 47 PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) NUCLEAR OPERATIONS - (Continued) On April 7, 1994 the NRC sent an augmented inspection team (AIT) to Salem to investigate the event. The AIT completed its on-site investigation on April 15, 1994 and presented its preliminary findings at a public meeting held at the station site on April 26, 1994. The AIT concluded that the event had challenged the reactor coolant system pressure boundary, that operator error had occurred which complicated the event, that management had allowed equipment problems to exist which made operations difficult for plant operators, and that some equipment was degraded by the event, but overall the plant performed as designed. The AIT further concluded that operator use of emergency operating procedures was good and that investigation and trouble- shooting efforts were good. PSE&G's investigation of the event has resulted in conclusions similar to those of the AIT. On May 9, 1994, PSE&G and the NRC staff presented their findings to the NRC Commissioners, and PSE&G described the actions it had taken to prepare Salem 1 for restart. On May 11, 1994, Senator Joseph Biden, representing Delaware, wrote to the NRC expressing his concerns regarding early restart of the unit and requested assurances "that all outstanding mechanical and management problems have been resolved and that a fine in the maximum amount will be levied upon the licensees". Nevertheless, PSE&G believes that the event has been thoroughly analyzed and that all necessary corrective actions have been identified so as to permit the unit to return to service. PSE&G received authorization to restart the unit on May 14, 1994. 48 PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) NUCLEAR OPERATIONS - (Concluded) The unit returned to service on June 4, 1994. PSE&G is continuing to address matters to improve Salem's operations identified by itself, the NRC and the Institute of Nuclear Power Operations (INPO), an independent industry group consisting of utilities, including PSE&G, that provides self critical analysis of nuclear operations to member utilities. As has been previously reported, actions are being taken to improve the plant's material condition, to upgrade procedures and to enhance personnel performance, as well as other efforts. However, satisfactory operating performance on Salem 1 has not yet been achieved, and the April 7, 1994 event indicates that to date, the corrective actions taken by PSE&G to address these long-standing problems have not been fully effective, and that material condition deficiencies continue to complicate plant recovery from transients which place reliance on operator action to mitigate the consequences of the events. On July 6, 1994, the NRC notified PSE&G of six apparent violations associated with the event which were being considered for escalated enforcement: control room command function; failure to identify and correct pre-existing equipment deficiencies; communication of specific information to the NRC at initial declaration of the Precautionary Alert; sufficiency of procedural guidance for coping with transients and abnormal plant conditions; adequate measures for identification and control of parts and components; and technical specification time requirements for cooldown. An enforcement conference to discuss PSE&G's view of the apparent violations was held on July 28, 1994 at NRC Region 1 headquarters, at which time the NRC staff expressed its view that PSE&G had not made significant progress in correcting identified deficiencies. The determination by the NRC of any penalties as a result of the apparent violations is expected within two months. PSE&G cannot predict what action, if any, will be taken by the NRC. PSE&G's own assessments, as well as those by the NRC and INPO, indicate that additional efforts are required to further improve operating performance, and PSE&G is committed to taking the necessary actions to address Salem's performance needs. However, no assurance can be given as to what, if any, further or additional actions may be taken by PSE&G, or required by the NRC, to improve Salem's performance. 49
PUBLIC SERVICE ELECTRIC AND GAS COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) Following are changes in or additions to the significant factors reported in PSE&G's Annual Report to the SEC on Form 10-K for 1993, affecting the consolidated financial condition of PSE&G and its subsidiaries as reflected in their consolidated results of operations. This discussion refers to the consolidated financial statements and related notes herein of PSE&G and should be read in conjunction with such statements and notes. Except as modified below, the information required by this item is incorporated herein by reference to the following portions of Enterprise's MD&A, insofar as they relate to PSE&G and its subsidiaries: Net Income; Dividends; Revenues -- PSE&G Electric; PSE&G Gas; PSE&G Electric Energy Costs; Liquidity and Capital Resources - PSE&G and External Financings. GAS SUPPLY COSTS Gas supply costs increased $5 million, or 3%, $134 million, or 27% and $136 million, or 15% during the three, six and twelve month periods ended June 30, 1994, respectively, from the comparable 1993 periods. The significant components of these changes follow: Increase or (Decrease) ------------------------------------------------------------- Three Months Ended Six Months Ended Twelve Months Ended June 30, June 30, June 30, 1994 vs. 1993 1994 vs. 1993 1994 vs. 1993 ------------------ ----------------- -------------------- (Millions) Change in prices paid for gas supplies ...................... $ 1 $ 40 $ 63 Therm sendout ...................... 4 49 64 Refunds from pipeline suppliers .... (1) (9) 21 Adjustment of actual costs to match recoveries through revenues (A) .. 1 54 (12) ---- ---- ---- Total Gas Supply Costs ........ $ 5 $134 $136 ==== ==== ==== (A) Reflects the change in deferred over(under) recovered gas costs. The increases in total costs for the three, six and twelve month periods ended June 30, 1994 compared to similar periods in 1993 were primarily attributable to increased sendout as a result of the colder winter, higher gas prices and increased sales to NUGS.
50 PUBLIC SERVICE ELECTRIC AND GAS COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Concluded) LIQUIDITY AND CAPITAL RESOURCES INTERNAL GENERATION OF CASH FROM OPERATIONS PSE&G's cash provided by operating activities increased $100 million to $166 million for the six months ended June 30, 1994 compared to the corresponding period in 1993. This increase was primarily due to an increase in net income, a decrease in accounts receivable and a decrease in NJGRT payments partially offset by a decrease in accounts payable. (For additional information see PSE&G - Earnings and Revenues.) PSE&G's net cash provided by operating activities for the twelve months ended June 30, 1994 decreased by less than $1 million to $923 million when compared to the corresponding period in 1993. This decrease was primarily due to a lower recovery of electric energy and gas costs through PSE&G's LEAC and LGAC, a smaller decrease in accounts receivable and a decrease in accounts payable. Substantially offsetting these cash outflows were the increase in net income, an increase in deferred income taxes, a decrease in inventories, decreased NJGRT payments and the change in other current assets and liabilities. (For additional information see PSE&G - Earnings and Revenues.) 51 PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED PART II. OTHER INFORMATION - (Continued) Item 5. Other Information. - ------ ------------------ Certain information reported under Item 1 of Part I of Enterprise's and PSE&G's Annual Reports to the Securities and Exchange Commission on Form 10-K for 1993 (Form 10-K) and Item 2 of Part II of Enterprise's and PSE&G's Quarterly Reports to the SEC on Form 10-Q for the period ended March 31, 1994 (March 10-Q) are updated below. References are to the related pages and paragraph(s) of the Form 10-K and March 10-Q. Form 10-K, page 4, paragraph 2 ------------------------------ On March 31, 1994, PSE&G filed proposed new rate schedules to implement the BPU guidelines on unbundled gas services. This will enable PSE&G's remaining industrial and commercial gas customers to participate in the competitive market after regulatory approval is received. The proposed transportation rate schedules produce the same non-fuel revenue per therm as the customers existing sales service rate schedules. Thus, PSE&G's earnings would be unaffected whether the customers remain on sales service or convert to transportation. Because of the large number of customers likely to take advantage of the new services, PSE&G has asked BPU approval for a phased implementation plan. If approved by the BPU, service under the new rate schedules is expected to begin in October 1994, with all industrial and commercial customers eligible one year after approval is granted. (See Note 1 - Rate Matters of Notes to Consolidated Financial Statements) Form 10-K, page 9, paragraph 5 and March 10-Q, page 46, paragraph 1 ------------------------------------------------------------------- For a discussion of the recent outage at the Salem Nuclear Generating Station, Unit 1 see Management's Discussion and Analysis of Financial Condition and Results of Operations - Nuclear Operations. 52 PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED PART II. OTHER INFORMATION - (Continued) Item 5. Other Information. - ------ ------------------ Form 10-K, page 10, paragraph 5 -------------------------------- PSE&G has been advised by PECO that on June 29, 1994, the NRC issued its periodic Systematic Assessment of Licensee Performance (SALP) Report for Peach Bottom for the period November 1, 1992 to April 30, 1994. The Report was issued under the revised SALP process in which the number of assessment areas has been reduced from seven to four: Operations, Engineering, Maintenance, and Plant Support. The area of Plant Support includes: radiological controls, security, emergency preparedness, fire protection, chemistry, and housekeeping. PECO has advised PSE&G that: Peach Bottom received a rating of "1," the highest of the three rating categories, in the area of Plant Operations; the areas of Engineering, Maintenance, and Plant Support received ratings of "2"; overall, the NRC found continued improvement in performance during the period; the NRC stated that enhancement in problem identification and resolution, good control of refuelings and outages, and excellent oversight by plant management of day-to-day activities in a manner that ensured safe operation of the units contributed to the improvement; despite the overall improvement, the NRC noted that some areas require continued management attention and that management needs to continue to encourage plant personnel at all levels to identify existing, and sometimes longstanding problems so that priorities can be established, and effective corrective actions implemented; the NRC also noted instances of personnel inattention to detail and failure to follow procedures which warranted additional management attention. PECO has advised PSE&G that it has taken and is taking actions to address the weaknesses discussed in the SALP Report. Form 10-K, page 11, paragraph 1 ------------------------------- As by-products of their operations, nuclear generating units, including those in which PSE&G owns an interest, produce low level radioactive waste (LLRW). Such wastes include paper, plastics, protective clothing, water purification materials and other materials which must be properly disposed. Prior to July 1, 1994 such materials were accumulated on site and disposed of at a Federally licensed permanent disposal facility. However, in accordance with the Low Level Radioactive Waste Policy Act, as amended, operating disposal sites have exercised their authority to either cease operations or deny access to states which are not members of their regional compact. For PSE&G and all other New Jersey LLRW generators, this means that effective July 1, 1994 wastes must be temporarily stored on site until New Jersey provides for permanent disposal. 53 PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED PART II. OTHER INFORMATION - (Continued) Item 5. Other Information. - ------ ------------------ Form 10-K, page 11, paragraph 1 - (Concluded) -------------------------------------------- In June 1991, New Jersey enacted legislation providing for funding of the estimated $90 million cost of establishing a disposal facility. The state recovers the costs through fees paid by LLRW generators. PSE&G's overall share is expected to be about 40% of the total cost. New Jersey has introduced a volunteer siting process as its plan for establishing a LLRW disposal facility by the year 2000. Public meetings are currently being held across the state in an effort to provide information to, and obtain feedback from the public. The plan is to be approved by November 1994 and an official invitation to municipalities will be announced sometime in 1995. Until New Jersey provides for disposal, PSE&G will temporarily store LLRW in a newly constructed facility at the plant site. This facility is expected to be completed in late August 1994 at a total cost of $6.9 million. It is expected to provide five years' storage for LLRW from Hope Creek and Salem. PECO has advised PSE&G that: the Peach Bottom plants located in Pennsylvania and operated by PECO are also providing temporary on-site storage which began July 1, 1994; Pennsylvania is pursuing site development via state selected candidate sites along with a volunteer plan option; PECO has constructed an on-site storage facility at Peach Bottom; and adequate space is available for its waste for at least five years. PSE&G will continue to accrue its expense for storing LLRW from Salem, Hope Creek and Peach Bottom with a concurrent liability for the amount to be paid at the time of ultimate disposal when New Jersey and Pennsylvania provide storage facilities. Form 10-K, page 12, paragraph 4 ------------------------------- The PSE&G DSM Plan is designed to save over the next two years a total of 344 megawatts of peak load capacity. The Plan consists of 110 megawatts of passive DSM (previously reported as 150 megawatts) plus an additional 234 megawatts of active DSM. 54 PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED PART II. OTHER INFORMATION - (Continued) Item 5. Other Information. - ------ ------------------ Form 10-K, page 15, paragraph 5 ------------------------------- On May 25, 1994, the Department of Energy (DOE) published a Notice of Inquiry indicating its preliminary view on waste acceptance. The DOE stated that it has no statutory obligation to accept spent nuclear fuel beginning in 1998 in the absence of an operational repository or other facility constructed under the Nuclear Waste Policy Act of 1982, as amended, although the DOE in implementing the standard contract may have created an expectation that it would begin accepting such spent nuclear fuel in 1998. The Notice of Inquiry is intended to elicit the views of the affected parties on 1) The Department's preliminary view on the 1998 obligation issue, 2) the need for an interim, away-from-reactor storage facility prior to repository operations, 3) options for offsetting, through the use of a nuclear waste fund, a portion of the financial burden that may be incurred by utilities to store spent fuel at reactor sites beyond 1998. Moreover, with respect to safety, on October 18, 1990, the NRC determined that spent nuclear fuel generated in any reactor can be stored safely and without significant environmental impact in reactor facility storage pools or in independent spent fuel storage installations located at reactor or away-from-reactor sites for at least 30 years beyond the licensed life for operation (which may include the term of a revised or renewed license). In June 1994, two separate lawsuits were filed by a group of states and a group of utilities, respectively, in the U. S. Court of Appeals for the D. C. Circuit to compel DOE to accept spent fuel by 1998. On July 19, 1994, the BPU voted to join the lawsuit brought by the group of states. PSE&G is not a party to the lawsuit brought by the group of utilities. Salem 1 and 2 have adequate on-site temporary storage capability through March 1998 and March 2002, respectively, when operational full core discharge capability requirements are considered. PSE&G has developed an integrated strategy to meet the longer term Salem and Hope Creek spent fuel storage needs. In May 1994, PSE&G received a license from the NRC to replace the existing high density racks in the spent fuel pools of Salem 1 and 2 with maximum density racks. The Salem re-racking project is ongoing and is expected to extend the storage capability through March 2008 for Salem 1 and March 2012 for Salem 2, considering operational full core discharge requirements. The Hope Creek pool is fully racked and it has capacity to hold spent fuel through September 2007, considering operational full core discharge requirements. PECO has advised PSE&G that spent fuel racks at Peach Bottom 2 have storage capacity until 2000 for Unit 2 and 1999 for Unit 3 prior to loss of full core reserve occurring, and that expansion of storage capacity beyond such dates is being investigated. 55 PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED PART II. OTHER INFORMATION - (Continued) Item 5. Other Information. - ------ ------------------ Form 10-K, page 20, first paragraph 1 and March 10-Q, page 47, --------------------------------------------------------------- paragraph 1 ----------- In response to a BPU directive, PSE&G surveyed EMF levels at 19 schools located within 100 feet of its electric transmission lines. In April 1994, the survey results were provided to the BPU and officials of such schools. The survey has generated requests by five schools for additional information and has resulted in a heightened concern about the emerging EMF issue. PSE&G cannot predict what actions, if any, it may hereafter be required to take to address such concerns, the costs of which could be material. Form 10-K, page 23, Salem Station --------------------------------- For additional information see Note 5 - Commitments and Contingent Liabilities of Notes to Consolidated Financial Statements. New Information --------------- Boiling Water Reactor Owner Group --------------------------------- In October 1990, General Electric (GE) reported that crack indications were discovered near the seam welds of the core shroud assembly in a GE Boiling Water Reactor (BWR) located outside the United States. As a result, GE issued a letter requesting that the owners of GE BWR plants take interim corrective actions, including a review of fabrication records and visual examinations of accessible areas of the core shroud seam welds. PSE&G (Hope Creek) and PECO (Peach Bottom) are participating in a GE BWR Owners Group to evaluate this issue and develop long-term corrective actions. During the spring 1994 refueling outage, PSE&G inspected the shroud of Hope Creek in accordance with GE's recommendations and found no cracks. PSE&G is working closely with GE and the BWR Owners Group on coordination of inspections, evaluations and repair options, if required. PSE&G expects minimal impact due to the age and materials of the Hope Creek shroud and the historical maintenance of low conductivity water chemistry. For these reasons, Hope Creek has been placed in the lowest susceptibility category by the BWR Owners Group. PECO has advised PSE&G that Peach Bottom 3 was examined in October 1993 during the last refueling outage and crack indications were identified at two locations. On November 3, 1993, PECO presented its findings to the NRC and provided justification for continued operation of Unit No. 3 for another two year cycle with crack indications. PECO has further advised PSE&G that the initial examination for Peach Bottom 2 is planned for its next scheduled refueling outage in October 1994. 56 PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED PART II. OTHER INFORMATION - (Continued) Item 5. Other Information. - ------ ------------------ Notice of Proposed Rulemaking - FERC ----------------------------------- FERC has issued a Notice Of Proposed Rulemaking (NOPR) on June 29, 1994 to establish provisions concerning the recovery of wholesale and retail stranded costs by public utilities. PSE&G is currently evaluating the NOPR to determine what possible impact it may have. 57 PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED PART II. OTHER INFORMATION - (Concluded) Item 6. Exhibits and Reports on Form 8-K. - ------ -------------------------------- (a) A listing of exhibits being filed with this document is as follows: Exhibit Number Document ------- ---------------------------------------------------------- 4a(87) Supplemental Indenture dated May 1, 1994 between PSE&G and First Fidelity Bank, National Association, New Jersey, as Trustee, providing for the issue of Mortgage Bonds, Pollution Control Series P 4a(88) Supplemental Indenture dated June 1, 1994 between PSE&G and First Fidelity Bank, National Association, New Jersey, as Trustee, providing for the issue of Mortgage Bonds, Pollution Control Series Q 12 Computation of Ratios of Earnings to Fixed Charges plus Preferred Stock Dividend Requirements (Enterprise) 12(A) Computation of Ratios of Earnings to Fixed Charges (PSE&G) 12(B) Computation of Ratios of Earnings to Fixed Charges plus Preferred Stock Dividend Requirements (PSE&G) (b) The following report on Form 8-K was filed by Enterprise and PSE&G during the second quarter of 1994 under Item 5: Date of Report Item Reported -------------- ------------- June 15, 1994 Outage of Salem Nuclear Generating Station, Unit 1. 58 PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused these reports to be signed on their respective behalf by the undersigned thereunto duly authorized. PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED PUBLIC SERVICE ELECTRIC AND GAS COMPANY -------------------------------------------- (Registrants) By PATRICIA A. RADO -------------------------------------- Patricia A. Rado Vice President and Controller (Principal Accounting Officer) Date: August 12, 1994 EX-12 2 EX-12 1
EXHIBIT 12 PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES PLUS PREFERRED STOCK DIVIDEND REQUIREMENTS 12 MONTHS YEAR ENDED DECEMBER 31, ENDED ------------------------------------------------------------- JUNE 30, 1989 1990 1991 1992 1993 1994 --------- --------- --------- --------- --------- --------- (THOUSANDS OF DOLLARS) Net Income....................... $ 523,435 $ 403,662 $ 543,035 $ 504,117 $ 595,519(A) $ 625,745 Plus Income Taxes................ 207,644 144,652 274,146 253,276 316,010 351,291 --------- --------- --------- --------- --------- --------- Net Income Before Income Taxes... 731,079 548,314 817,181 757,393 911,529 977,036 --------- --------- --------- --------- --------- --------- Fixed Charges and Preferred Stock Dividend Requirements: Interest Charges............... 408,661 457,017 478,321 524,025 502,534 489,810 Interest Factor in Rentals..... 8,908 9,162 9,311 9,591 11,090 11,621 Preferred Stock Dividend Requirements (Pre-tax)...... 39,729 38,544 42,676 46,748 58,112 62,150 --------- --------- --------- --------- --------- --------- Total.................. 457,298 504,723 530,308 580,364 571,736 563,581 --------- --------- --------- --------- --------- --------- Earnings Before Fixed Charges and Preferred Stock Dividend Requirements................... $1,188,377 $1,053,037 $1,347,489 $1,337,757 $1,483,265 $1,540,617 ========== ========== ========== ========== ========== ========== Ratio............................ 2.60 2.09 2.54 2.30 2.59 2.73 ==== ==== ==== ==== ==== ====
(A) Excludes cumulative effect of $5.4 million change in accounting for EDHI's income taxes. 1 EX-12.A 3 EX-12.A 1
EXHIBIT 12(A) PUBLIC SERVICE ELECTRIC AND GAS COMPANY COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES 12 MONTHS YEAR ENDED DECEMBER 31, ENDED ------------------------------------------------------------- JUNE 30, 1989 1990 1991 1992 1993 1994 --------- --------- --------- --------- --------- --------- (THOUSANDS OF DOLLARS) Net Income....................... $ 544,374 $ 537,619 $ 545,479 $ 475,936 $ 614,868 $ 646,167 Plus Income Taxes................ 214,299 209,360 261,912 223,782 307,414 335,047 ---------- ---------- ---------- ---------- ---------- ---------- Net Income Before Income Taxes... 758,673 746,979 807,391 699,718 922,282 981,214 ---------- ---------- ---------- ---------- ---------- ---------- Fixed Charges Interest Charges............... 333,717 346,020 358,517 401,902 389,956 382,601 Interest Factor in Rentals..... 8,908 9,162 9,311 9,591 11,090 11,621 ---------- ---------- ---------- ---------- ---------- ---------- Total.................. 342,625 355,182 367,828 411,493 401,046 394,222 ---------- ---------- ---------- ---------- ---------- ---------- Earnings Before Fixed Charges.... $1,101,298 $1,102,161 $1,175,219 $1,111,211 $1,323,328 $1,375,436 ========== ========== ========== ========== ========== ========== Ratio............................ 3.21 3.10 3.20 2.70 3.30 3.49 ==== ==== ==== ==== ==== ====
2 EX-12.B 4 EX-12.B 1
EXHIBIT 12(B) PUBLIC SERVICE ELECTRIC AND GAS COMPANY COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES PLUS PREFERRED STOCK DIVIDEND REQUIREMENTS 12 MONTHS YEAR ENDED DECEMBER 31, ENDED -------------------------------------------------------------- JUNE 30, 1989 1990 1991 1992 1993 1994 ---------- ---------- ---------- ---------- ---------- --------- (THOUSANDS OF DOLLARS) Net Income........................... $ 544,374 $ 537,619 $ 545,479 $ 475,936 $ 614,868 $ 646,167 Plus Income Taxes.................... 214,299 209,361 261,912 223,782 307,414 335,047 ---------- ---------- ---------- ---------- ---------- ---------- Net Income Before Income Taxes....... 758,673 746,980 807,391 699,718 922,282 981,214 ---------- ---------- ---------- ---------- ---------- ---------- Fixed Charges and Preferred Stock Dividend Requirements: Interest Charges................... 333,717 346,020 358,517 401,902 389,956 382,601 Interest Factor in Rentals......... 8,908 9,162 9,311 9,591 11,090 11,621 Preferred Stock Dividend Requirements (Pre-tax).......... 40,236 40,116 42,703 46,675 56,957 - ---------- ---------- ---------- ---------- ---------- ---------- Total...................... 382,861 395,298 410,531 458,168 458,003 394,222 ---------- ---------- ---------- ---------- ---------- ---------- Earnings Before Fixed Charges and Preferred Stock Dividends.......... $1,101,298 $1,102,162 $1,175,219 $1,111,211 $1,323,328 $1,375,436 ========== ========== ========== ========== ========== ========== Ratio................................ 2.88 2.79 2.86 2.43 2.89 3.03 ==== ==== ==== ==== ==== ====
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