-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TFAYCNekMMfDv0IBBzqDeUy94+YLwY/eLt1Rg72oR3wVlvbiMuZu4cxQoozfE/ok 5hd5AAkVqaLXvQ2Q5pazTg== 0000788784-96-000015.txt : 19960517 0000788784-96-000015.hdr.sgml : 19960517 ACCESSION NUMBER: 0000788784-96-000015 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960515 SROS: NYSE SROS: PHLX FILER: COMPANY DATA: COMPANY CONFORMED NAME: PUBLIC SERVICE ENTERPRISE GROUP INC CENTRAL INDEX KEY: 0000788784 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [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: 96567339 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: ELECTRIC & OTHER SERVICES COMBINED [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: 96567340 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 ===================================================================== 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 March 31, 1996 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 April 30, 1996 ----- ----------------------------- Common Stock, without par value 244,697,930 As of April 30, 1996, 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. =================================================================== 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 and Twelve Months Ended March 31, 1996 and 1995 ................. 1 Consolidated Balance Sheets as of March 31, 1996, 1995 and December 31, 1995 ....................................... 2 Consolidated Statements of Cash Flows for the Three and Twelve Months Ended March 31, 1996 and 1995 ................. 4 Consolidated Statements of Retained Earnings for the Three and Twelve Months Ended March 31, 1996 and 1995 ....... 5 Public Service Electric and Gas Company (PSE&G): Consolidated Statements of Income for the Three and Twelve Months Ended March 31, 1996 and 1995 ................. 6 Consolidated Balance Sheets as of March 31, 1996, 1995 and December 31, 1995 .................................. 7 Consolidated Statements of Cash Flows for the Three and Twelve Months Ended March 31, 1996 and 1995 ................. 9 Consolidated Statements of Retained Earnings for the Three and Twelve Months Ended March 31, 1996 and 1995 ....... 10 Notes to Consolidated Financial Statements - Enterprise......... 11 Notes to Consolidated Financial Statements - PSE&G.............. 21 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Enterprise ....................................... 22 PSE&G ............................................ 37 i TABLE OF CONTENTS ----------------- Page ---- PART II. OTHER INFORMATION Item 1. Legal Proceedings ................................... 38 Item 4. Submission of Matters to a Vote of Security Holders .................................... 40 Item 5. Other Information ................................... 41 Item 6. Exhibits and Reports on Form 8-K .................... 48 Signatures - Public Service Enterprise Group Incorporated ..... 50 Signatures - Public Service Electric and Gas Company .......... 50 ii GLOSSARY OF TERMS The following is a glossary of frequently used abbreviations or acronyms that are found in this report:
TERM MEANING ----------------------- ------------------------------------------- AFDC................... Allowance for Funds used During Construction Alternative Rate Plan.. New Jersey Partners in Power Plan 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 DSM.................... Demand Side Management DSM Plan............... DSM Incentive Resource Plan EBIT................... Earnings before interest and taxes EDC.................... Energy Development Corporation EDHI................... Enterprise Diversified Holdings Incorporated EGDC................... Enterprise Group Development Corporation Enterprise............. Public Service Enterprise Group Incorporated EPA.................... United States Environmental Protection Agency EPACT.................. National Energy Policy Act of 1992 Fault Act.............. New Jersey Public Utility Accident Fault Determination Act FERC................... Federal Energy Regulatory Commission Fuelco................. PSE&G Fuel Corporation Funding................ Enterprise Capital Funding Corporation IRP.................... Integrated Electric Resource Plan Hope Creek............. Hope Creek Nuclear Generating Station KKR.................... Kohlberg, Kravis, Roberts and Co. KWH.................... Kilowatthours LEAC................... Electric Levelized Energy Adjustment Clause LGAC................... Levelized Gas Adjustment Charge MD&A................... Management's Discussion and Analysis of Financial Condition and Results of Operations MIPS................... Monthly Income Preferred Securities Mortgage............... First and Refunding Mortgage of PSE&G MTNs................... Medium-Term Notes MW..................... Megawatts MWH.................... Megawatthours
iii
TERM MEANING ----------------------- ------------------------------------------- NBU.................... Nuclear Business Unit NEIL................... Nuclear Electric Insurance Limited NJDEP.................. New Jersey Department of Environmental Protection NJGRT.................. New Jersey Gross Receipts and Franchise Tax NJNAA.................. New Jersey Need Assessment Act NJPDES................. New Jersey Pollution Discharge Elimination System NML.................... Nuclear Mutual Limited NOPR................... Notice of Proposal Rulemaking NPS.................... The BPU's nuclear performance standard established for nuclear generating stations owned by New Jersey electric utilities NRC.................... Nuclear Regulatory Commission OAL.................... Office of Administrative Law Partnership............ Public Service Electric and Gas Capital, L.P. Peach Bottom........... Peach Bottom Atomic Power Station, Units 2 and 3 PECO................... PECO Energy, Inc. PJM.................... Pennsylvania -- New Jersey -- Maryland Interconnection Price Anderson......... Price-Anderson liability provisions of the Atomic Energy Act of 1954, as amended PSE&G.................. Public Service Electric and Gas Company PSCRC.................. Public Service Conservation Resources Corporation PSRC................... Public Service Resources Corporation RAC.................... Remediation Adjustment Charge Ratepayer Advocate..... New Jersey Division of Ratepayer Advocate Remediation Program.... PSE&G Gas Plant Remediation Program Salem.................. Salem Nuclear Generating Station, Units 1 and 2 SEC.................... Securities and Exchange Commission Ventures............... Enterprise Ventures and Service Corporation
iv PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED The financial statements included herein as of March 31, 1996 and 1995 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, necessary for a fair presentation. CONSOLIDATED STATEMENTS OF INCOME (Thousands of Dollars)
Three Months Ended Twelve Months Ended March 31, March 31, --------------------------- --------------------------- 1996 1995 1996 1995 ------------- ------------ ------------ ------------ OPERATING REVENUES Electric ................................ $ 958,333 $ 945,038 $ 4,034,137 $ 3,795,409 Gas ..................................... 796,916 634,478 1,848,841 1,611,349 Nonutility Activities ................... 110,533 96,752 470,689 396,496 ------------- ------------ ------------ ------------ Total Operating Revenues ........... 1,865,782 1,676,268 6,353,667 5,803,254 ------------- ------------ ------------ ------------ OPERATING EXPENSES Operation Fuel for Electric Generation and Interchanged Power .................... 216,075 208,110 899,747 736,672 Gas Purchased and Materials for Gas Produced............................... 456,732 344,193 1,074,078 907,593 Other ................................... 284,274 253,906 1,149,126 1,122,251 Maintenance................................ 95,416 64,045 343,981 295,650 Depreciation and Amortization.............. 174,468 164,256 684,443 642,045 Taxes Federal Income Taxes .................... 101,426 106,789 348,729 298,866 New Jersey Gross Receipts Taxes ......... 188,436 176,789 624,608 568,653 Other ................................... 26,132 23,845 82,757 82,044 ------------- ------------ ------------ ------------ Total Operating Expenses ........... 1,542,959 1,341,933 5,207,469 4,653,774 ------------- ------------ ------------ ------------ OPERATING INCOME .......................... 322,823 334,335 1,146,198 1,149,480 ------------- ------------ ------------ ------------ OTHER INCOME Allowance for Funds Used During Construction - Equity ................. -- 1,482 3,842 12,483 Miscellaneous - net ..................... 1,278 2,002 7,317 7,277 ------------- ------------ ------------ ------------ Total Other Income ................. 1,278 3,484 11,159 19,760 ------------- ------------ ------------ ------------ INCOME BEFORE INTEREST CHARGES AND DIVIDENDS ON PREFERRED SECURITIES ....... 324,101 337,819 1,157,357 1,169,240 ------------- ------------ ------------ ------------ INTEREST CHARGES Long-Term Debt .......................... 109,141 111,604 431,603 458,650 Short-Term Debt ......................... 7,189 4,827 35,184 24,955 Other ................................... 6,883 6,705 29,350 16,659 ------------- ------------ ------------ ------------ Total Interest Charges ............. 123,213 123,136 496,137 500,264 Allowance for Funds Used During Construction - Debt and Capitalized Interest .............................. (5,457) (10,106) (32,559) (36,586) ------------- ------------ ------------ ------------ Net Interest Charges ............... 117,756 113,030 463,578 463,678 ------------- ------------ ------------ ------------ Preferred Securities Dividend Requirements........................... 12,241 12,197 49,470 44,064 Preferred Stock Redemption Premium....... -- -- 474 -- ------------- ------------ ------------ ------------ NET INCOME ......................... $ 194,104 $ 212,592 $ 643,835 $ 661,498 ============= ============ ============ ============ SHARES OF COMMON STOCK OUTSTANDING End of Period ........................... 244,697,930 244,697,930 244,697,930 244,697,930 Average for Period ...................... 244,697,930 244,697,930 244,697,930 244,697,930 EARNINGS PER AVERAGE SHARE OF COMMON STOCK. $0.79 $0.87 $2.63 $2.70 ============= ============ ============ ============ DIVIDENDS PAID PER SHARE OF COMMON STOCK .. $0.54 $0.54 $2.16 $2.16 ============= ============ ============ ============ See Notes to Consolidated Financial Statements.
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED CONSOLIDATED BALANCE SHEETS (Thousands of Dollars)
March 31, March 31, December 31, ASSETS 1996 1995 1995 - ------ ------------ ------------ ------------ UTILITY PLANT - Original cost Electric ............................................. $ 13,189,429 $ 12,470,514 $ 13,095,103 Gas .................................................. 2,458,045 2,344,557 2,442,572 Common ............................................... 511,760 515,113 517,104 ------------ ------------ ------------ Total ........................................... 16,159,234 15,330,184 16,054,779 Less: accumulated depreciation and amortization...... 5,559,788 5,229,300 5,440,414 ------------ ------------ ------------ Net ............................................. 10,599,446 10,100,884 10,614,365 Nuclear Fuel in Service, net of accumulated amortization $255,283; $305,655; and $297,435, respectively ............................. 171,218 201,637 180,018 ------------ ------------ ------------ Net Utility Plant in Service .................... 10,770,664 10,302,521 10,794,383 Construction Work in Progress, including Nuclear Fuel in Process - $108,015; $53,396; and $104,743, respectively ............................ 352,452 753,774 369,082 Plant Held for Future Use ............................ 23,966 23,861 23,966 ------------ ------------ ------------ Net Utility Plant ............................... 11,147,082 11,080,156 11,187,431 ------------ ------------ ------------ INVESTMENTS AND OTHER NONCURRENT ASSETS Long-Term Investments, net of amortization - $7,320, $3,024, and $7,213, and net of valuation allowances - $21,392, $17,105 and $21,302 respectively 1,842,395 1,653,183 1,822,160 Oil and Gas Property, Plant and Equipment, net of accumulated depreciation and amortization - $808,183, $767,792 and $786,736, respectively ................ 615,654 580,765 608,015 Real Estate Property and Equipment, net of accumulated depreciation - $5,506; $15,200 and $5,063, and net of valuation allowance -- $8,227, $23,306 and $8,228, respectively ............................... 75,188 112,036 75,558 Other Plant, net of accumulated depreciation and amortization - $6,805; $4,888 and $6,531, respectively ....................................... 27,975 36,077 27,997 Nuclear Decommissioning and Other Special Funds ...... 286,795 242,330 276,348 Other Assets - net ................................... 53,865 85,502 55,974 ------------ ------------ ------------ Total Investments and Other Noncurrent Assets.... 2,901,872 2,709,893 2,866,052 ------------ ------------ ------------ CURRENT ASSETS Cash and Cash Equivalents ............................ 546,532 131,137 76,233 Accounts Receivable: Customer Accounts Receivable ....................... 623,926 490,106 525,404 Other Accounts Receivable .......................... 304,014 207,168 260,713 Less: allowance for doubtful accounts .............. 38,123 39,734 37,641 Unbilled Revenues .................................... 177,175 152,744 246,876 Fuel, at average cost ................................ 88,022 167,020 253,360 Materials and Supplies, net of inventory valuation reserves $18,200, $18,200 and $20,100, respectively. 148,033 150,640 144,970 Deferred Income Taxes ................................ 29,734 25,135 27,571 Miscellaneous Current Assets ......................... 51,751 26,891 62,631 ------------ ------------ ------------ Total Current Assets ............................ 1,931,064 1,311,107 1,560,117 ------------ ------------ ------------ DEFERRED DEBITS Property Abandonments - net .......................... 65,439 83,817 70,120 Oil and Gas Property Write-Down ...................... 34,790 39,944 36,078 Unamortized Debt Expense ............................. 148,767 131,300 123,833 Deferred OPEB Costs .................................. 250,544 192,727 167,189 Underrecovered Electric Energy and Gas Costs - net.... 207,843 171,238 170,565 Unrecovered Environmental Costs ...................... 127,368 136,151 130,070 Unrecovered Plant and Regulatory Study Costs ......... 34,856 35,661 35,150 Unrecovered SFAS 109 Deferred Income Taxes ........... 766,908 794,665 769,136 Deferred Decontamination and Decommissioning Costs ... 49,872 53,016 49,872 Other ................................................ 28,724 25,570 5,826 ------------ ------------ ------------ Total Deferred Debits ........................... 1,715,111 1,664,089 1,557,839 ------------ ------------ ------------ Total ........................................... $ 17,695,129 $ 16,765,245 $ 17,171,439 ============ ============ ============ See Notes to Consolidated Financial Statements.
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED CONSOLIDATED BALANCE SHEETS (Thousands of Dollars)
March 31, March 31, December 31, CAPITALIZATION AND LIABILITIES 1996 1995 1995 - ------------------------------ ------------ ------------ -------------- CAPITALIZATION Common Equity Common Stock .................................... $ 3,801,157 $ 3,801,157 $ 3,801,157 Retained Earnings ............................... 1,705,753 1,590,464 1,643,785 ------------ ------------ ------------ Total Common Equity .......................... 5,506,910 5,391,621 5,444,942 Subsidiaries' Securities and Obligations Preferred Securities Preferred Stock Without Mandatory Redemption..... 324,994 384,994 324,994 Preferred Stock With Mandatory Redemption ....... 150,000 150,000 150,000 Monthly Income Preferred Securities ............. 210,000 150,000 210,000 Long-Term Debt .................................... 5,110,163 5,264,646 5,189,791 ------------ ------------ ------------ Total Capitalization ......................... 11,302,067 11,341,261 11,319,727 ------------ ------------ ------------ OTHER LONG-TERM LIABILITIES Decontamination, Decommissioning, and Low Level Radwaste Costs .................................. 49,890 57,664 50,449 Environmental Costs ............................... 96,302 108,576 96,272 Capital Lease Obligations ......................... 52,934 53,612 53,111 ------------ ------------ ------------ Total Other Long-Term Liabilities............. 199,126 219,852 199,832 ------------ ------------ ------------ CURRENT LIABILITIES Long-Term Debt due within one year ................ 92,639 364,773 90,630 Commercial Paper and Loans ........................ 1,022,318 238,223 849,567 Book Overdrafts ................................... 63,372 51,913 70,014 Accounts Payable .................................. 526,078 373,159 567,787 New Jersey Gross Receipts Taxes Accrued ........... 188,937 175,261 -- Other Taxes Accrued ............................... 90,189 142,238 34,678 Interest Accrued .................................. 108,556 120,540 108,245 Estimated Liability for Vacation Pay .............. 40,589 40,621 17,089 Customer Deposits ................................. 32,300 32,457 32,785 Liability for Injuries and Damages ................ 44,338 31,784 38,141 Miscellaneous Environmental Liabilities ........... 17,694 15,305 16,954 Other ............................................. 94,825 77,712 95,907 ------------ ------------ ------------ Total Current Liabilities .................... 2,321,835 1,663,986 1,921,797 ------------ ------------ ------------ DEFERRED CREDITS Accumulated Deferred Income Taxes ................. 3,144,616 2,912,922 3,094,620 Accumulated Deferred Investment Tax Credits ....... 387,320 407,494 392,324 Deferred OPEB Costs ............................... 250,544 192,727 167,189 Other ............................................. 89,621 27,003 75,950 ------------ ------------ ------------ Total Deferred Credits ....................... 3,872,101 3,540,146 3,730,083 ------------ ------------ ------------ COMMITMENTS AND CONTINGENCIES (note 2) Total ........................................ $ 17,695,129 $ 16,765,245 $ 17,171,439 ============ ============ ============
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS (Thousands of Dollars)
Three Months Ended Twelve Months Ended March 31, March 31, -------------------------- -------------------------- 1996 1995 1996 1995 ------------ ----------- ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income .............................. $ 194,104 $ 212,592 $ 643,835 $ 661,498 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and Amortization ........... 174,468 164,256 684,443 642,045 Amortization of Nuclear Fuel ............ 8,905 23,120 60,813 94,719 (Deferral) Recovery of Electric Energy and Gas Costs - net ................... (37,278) 1,325 (36,605) (51,034) Unrealized Gains on Investments - net...................... (10,103) (19,421) (37,350) (46,500) Provision for Deferred Income Taxes - net............................ 31,482 16,456 160,118 110,129 Investment Tax Credits - net ............ (5,004) (4,972) (20,174) (20,358) Allowance for Funds Used During Construction - Debt and Equity and Capitalized Interest................... (5,457) (11,588) (36,401) (49,069) Proceeds from Leasing Activities - net... 11,212 (14,487) 63,351 25,893 Changes in certain current assets and liabilities: Net (increase) decrease in Accounts Receivable and Unbilled Revenues..... (71,640) (1,157) (256,708) 83,450 Net decrease (increase) in Inventory - Fuel and Materials and Supplies...... 162,275 99,552 81,605 (34,999) Net (decrease) increase in Accounts Payable..................... (41,709) (60,312) 152,919 (13,289) Net change in Prepaid/Accrued Taxes................................ 252,256 273,350 (38,373) (267,678) Net change in Other Current Assets and liabilities...................... 30,090 27,661 (9,576) 20,200 Other ................................... 6,797 (7,275) 82,316 30,878 ------------ ----------- ----------- ------------ Net cash provided by operating activities ......................... 700,398 699,100 1,494,213 1,185,885 ------------ ----------- ----------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Additions to Utility Plant, excluding AFDC ........................ (96,349) (128,027) (618,205) (809,519) Additions to Oil and Gas Property, Plant and Equipment, excluding Capitalized Interest .................. (23,346) (21,304) (129,771) (133,763) Net (increase) decrease in Long-Term Investments and Real Estate ........... (7,361) (6,113) (82,512) 31,566 Increase in Decommissioning and Other Special Funds, excluding interest ..... (7,391) (7,390) (29,618) (36,976) Cost of Plant Removal - net ............. (11,101) (2,103) (38,672) (28,357) Other ................................... (2,586) 248 27,065 7,950 ------------ ----------- ----------- ------------ Net cash used in investing activities ......................... (148,134) (164,689) (871,713) (969,099) ------------ ----------- ----------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Net increase (decrease) in Short-Term Debt ....................... 172,751 (253,363) 784,095 119,721 (Decrease) increase in Book Overdrafts .. (6,642) (34,663) 11,459 13,286 Issuance of Long-Term Debt .............. 352,451 -- 508,771 449,800 Redemption of Long-Term Debt ............ (430,070) (50,976) (935,388) (547,422) Long-Term Debt Issuance and Redemption Costs ...................... (38,319) -- (47,496) (29,811) Redemption of Preferred Stock ........... -- -- (60,000) (75,000) Issuance of Monthly Income Preferred Securities .................. -- -- 60,000 150,000 Cash Dividends Paid on Common Stock ..... (132,138) (132,138) (528,548) (528,548) Other ................................... 2 -- 2 (843) ------------ ----------- ----------- ----------- Net cash used in financing activities ...................... (81,965) (471,140) (207,105) (448,817) ------------ ----------- ----------- ----------- Net increase (decrease) in Cash and Cash Equivalents ........................ 470,299 63,271 415,395 (232,031) Cash and Cash Equivalents at Beginning of Period ............................... 76,233 67,866 131,137 363,168 ------------ ----------- ----------- ----------- Cash and Cash Equivalents at End of Period........................... $ 546,532 $ 131,137 $ 546,532 $ 131,137 ============ =========== =========== =========== Income Taxes Paid ......................... $ 7,288 $ 15,136 $ 177,528 $ 166,910 Interest Paid ............................. $ 110,258 $ 94,409 $ 497,113 $ 437,932 See Notes to Consolidated Financial Statements.
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (Thousand of Dollars)
Three Months Ended Twelve Months Ended March 31, March 31, --------------------------- --------------------------- 1996 1995 1996 1995 ------------ ------------ ------------ ------------ Balance at Beginning of Period ............ $ 1,643,785 $ 1,510,010 $ 1,590,464 $ 1,458,357 Add Net Income ............................ 194,104 212,592 643,835 661,498 ------------ ------------ ------------ ------------ Total ................................ 1,837,889 1,722,602 2,234,299 2,119,855 ------------ ------------ ------------ ------------ Deduct: Cash Dividends on Common Stock .......... 132,138 132,138 528,548 528,548 Adjustment to Retained Earnings ......... (2) -- (2) 843 ------------ ------------ ------------ ------------ Total Deductions ..................... 132,136 132,138 528,546 529,391 ------------ ------------ ------------ ------------ Balance at End of Period .................. $ 1,705,753 $ 1,590,464 $ 1,705,753 $ 1,590,464 ============ -=-========= ============ ============ See Notes to Consolidated Financial Statements.
PUBLIC SERVICE ELECTRIC AND GAS COMPANY The financial statements included herein as of March 31, 1996 and 1995 and for the periods then ended are unaudited but, in the opinion of PSE&G's management, reflect all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation. CONSOLIDATED STATEMENTS OF INCOME (Thousands of Dollars)
Three Months Ended Twelve Months Ended March 31, March 31, --------------------------- --------------------------- 1996 1995 1996 1995 ------------- ------------ ------------ ------------ OPERATING REVENUES Electric ................................ $ 958,333 $ 945,038 $ 4,034,137 $ 3,795,409 Gas ..................................... 796,916 634,478 1,848,841 1,611,349 ------------- ------------ ------------ ------------ Total Operating Revenues ........... 1,755,249 1,579,516 5,882,978 5,406,758 ------------- ------------ ------------ ------------ OPERATING EXPENSES Operation Fuel for Electric Generation and Interchanged Power.................. 216,075 208,110 899,747 736,672 Gas Purchased and Materials for Gas Produced ........................ 456,732 344,193 1,074,078 915,754 Other ................................. 242,764 220,217 971,947 964,758 Maintenance ............................. 95,416 64,045 343,981 295,650 Depreciation and Amortization ........... 152,508 143,593 600,029 559,960 Taxes Federal Income Taxes .................. 94,629 102,284 313,873 283,384 New Jersey Gross Receipts Taxes ....... 188,436 176,789 624,608 568,653 Other ................................. 23,587 21,853 72,543 75,838 ------------- ------------ ------------ ------------ Total Operating Expenses ........... 1,470,147 1,281,084 4,900,806 4,400,669 ------------- ------------ ------------ ------------ OPERATING INCOME .......................... 285,102 298,432 982,172 1,006,089 ------------- ------------ ------------ ------------ OTHER INCOME Allowance for Funds Used During Construction - Equity ................ -- 1,482 3,842 12,483 Miscellaneous - net ..................... 1,273 1,851 7,150 6,931 ------------- ------------ ------------ ------------ Total Other Income ................. 1,273 3,333 10,992 19,414 ------------- ------------ ------------ ------------ INCOME BEFORE INTEREST CHARGES AND DIVIDENDS ON PREFERRED SECURITIES ....... 286,375 301,765 993,164 1,025,503 ------------- ------------ ------------ ------------ INTEREST CHARGES Long-Term Debt .......................... 91,512 91,492 357,604 370,059 Short-Term Debt ......................... 4,034 1,950 22,824 17,866 Other ................................... 6,755 6,531 28,769 16,101 ------------- ------------ ------------ ------------ Total Interest Charges ............. 102,301 99,973 409,197 404,026 Allowance for Funds Used During Construction - Debt ..................... (4,291) (8,619) (26,615) (28,581) ------------- ------------ ------------ ------------ Net Interest Charges ...................... 98,010 91,354 382,582 375,445 Monthly Income Preferred Securities Dividend Requirements ................... 4,715 3,515 16,864 5,195 ------------- ------------ ------------ ------------ NET INCOME ................................ 183,650 206,896 593,718 644,863 ------------- ------------ ------------ ------------ Preferred Stock Dividend Requirements ..... 7,526 8,682 32,606 38,869 Preferred Stock Redemption Premium.......... -- -- 474 -- ------------- ------------ ------------ ------------ EARNINGS AVAILABLE TO PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED............ $ 176,124 $ 198,214 $ 560,638 $ 605,994 ============= ============ ============ ============ See Notes to Consolidated Financial Statements.
PUBLIC SERVICE ELECTRIC AND GAS COMPANY CONSOLIDATED BALANCE SHEETS (Thousands of Dollars)
March 31, March 31, December 31, ASSETS 1996 1995 1995 - ------ ------------ ------------ ------------- UTILITY PLANT - Original cost Electric ........................................... $ 13,189,429 $ 12,470,514 $ 13,095,103 Gas ................................................ 2,458,045 2,344,557 2,442,572 Common ............................................. 511,760 515,113 517,104 ------------ ------------ ------------ Total ............................................. 16,159,234 15,330,184 16,054,779 Less: accumulated depreciation and amortization...... 5,559,788 5,229,300 5,440,414 ------------ ------------ ------------ Net ............................................... 10,599,446 10,100,884 10,614,365 Nuclear Fuel in Service, net of accumulated amortization - $255,283; $305,655; and $297,435, respectively ............................. 171,218 201,637 180,018 ------------ ------------ ------------ Net Utility Plant in Service ...................... 10,770,664 10,302,521 10,794,383 Construction Work in Progress, including Nuclear Fuel in Process - $108,015; $53,396; and $104,743, respectively ....................................... 352,452 753,774 369,082 Plant Held for Future Use ............................ 23,966 23,861 23,966 ------------ ------------ ------------ Net Utility Plant ............................. 11,147,082 11,080,156 11,187,431 ------------ ------------ ------------ INVESTMENTS AND OTHER NONCURRENT ASSETS Long-Term Investments, net of amortization - $7,320; $3,024; and $6,009, respectively ................... 135,550 76,812 119,474 Nuclear Decommissioning and Other Special Funds ...... 286,795 242,330 276,348 Other Plant, net of accumulated depreciation and amortization - $1,936; $1,149; and $1,905, respectively................................ 24,990 32,886 24,976 ------------ ------------ ------------ Total Investments and Other Noncurrent Assets......... 447,335 352,028 420,798 ------------ ------------ ------------ CURRENT ASSETS Cash and Cash Equivalents .......................... 508,173 82,990 32,373 Accounts Receivable: Customer Accounts Receivable ...................... 623,926 490,106 525,404 Other Accounts Receivable ......................... 189,677 112,327 163,976 Less: allowance for doubtful accounts.............. 38,123 39,734 37,641 Unbilled Revenues .................................. 177,175 152,744 246,876 Fuel, at average cost .............................. 88,022 167,020 253,360 Materials and supplies, net of inventory valuation reserves - $18,200; $18,200; and $20,100, respectively ...................................... 146,772 149,193 143,741 Deferred Income Taxes .............................. 29,734 25,135 27,571 Miscellaneous Current Assets ....................... 25,124 19,706 37,130 ------------ ------------ ------------ Total Current Assets .......................... 1,750,480 1,159,487 1,392,790 ------------ ------------ ------------ DEFERRED DEBITS Property Abandonments - net ........................ 65,439 83,817 70,120 Oil and Gas Property Write-Down .................... 34,790 39,944 36,078 Unamortized Debt Expense ........................... 147,165 128,905 122,049 Deferred OPEB Costs ................................ 250,544 192,727 167,189 Underrecovered Electric Energy and Gas Costs - net.. 207,843 171,238 170,565 Unrecovered Environmental Costs .................... 127,368 136,151 130,070 Unrecovered Plant and Regulatory Study Costs ....... 34,856 35,661 35,150 Deferred Decontamination and Decommissioning Costs.. 49,872 53,016 49,872 Unrecovered SFAS 109 Deferred Income Taxes ......... 766,908 794,665 769,136 Other .............................................. 27,867 25,564 5,700 ------------ ------------ ------------ Total Deferred Debits ......................... 1,712,652 1,661,688 1,555,929 ------------ ------------ ------------ Total .......................................... $ 15,057,549 $ 14,253,359 $ 14,556,948 ============ ============ ============ See Notes to Consolidated Financial Statements.
PUBLIC SERVICE ELECTRIC AND GAS COMPANY CONSOLIDATED BALANCE SHEETS (Thousands of Dollars)
March 31, March 31, December 31, CAPITALIZATION AND LIABILITIES 1996 1995 1995 - ------------------------------ ------------ ------------ ------------ CAPITALIZATION Common Equity Common Stock ...................................... $ 2,563,003 $ 2,563,003 $ 2,563,003 Contributed Capital from Enterprise ............... 594,395 534,395 594,395 Retained Earnings ................................. 1,418,653 1,360,215 1,372,729 ------------ ------------ ------------ Total Common Equity ............................ 4,576,051 4,457,613 4,530,127 Preferred Stock without mandatory redemption .......... 324,994 384,994 324,994 Preferred Stock with mandatory redemption ............. 150,000 150,000 150,000 Monthly Income Preferred Securities of Subsidiary ..... 210,000 150,000 210,000 Long-Term Debt ........................................ 4,523,614 4,587,740 4,586,268 ------------ ------------ ------------ Total Capitalization ........................... 9,784,659 9,730,347 9,801,389 ------------ ------------ ------------ OTHER LONG-TERM LIABILITIES Decontamination, Decommissioning and Low Level Radwaste Costs ................................... 49,890 57,664 50,449 Environmental Costs ................................. 96,302 108,576 96,272 Capital Lease Obligations ........................... 52,934 53,612 53,111 ------------ ------------ ------------ Total Other Long-Term Liabilities .............. 199,126 219,852 199,832 ------------ ------------ ------------ CURRENT LIABILITIES Long-Term Debt due within one year .................. 2,000 210,200 -- Commercial Paper and Loans .......................... 736,281 94,200 567,316 Book Overdrafts ..................................... 63,372 51,913 70,014 Accounts Payable .................................... 435,457 287,958 481,632 Accounts Payable - Associated Companies ............. 70,613 81,783 8,011 New Jersey Gross Receipts Taxes Accrued ............. 188,937 175,261 -- Other Taxes Accrued ................................. 35,634 39,291 32,767 Interest Accrued .................................... 86,948 96,179 95,811 Estimated Liability for Vacation Pay ................ 40,589 40,621 17,089 Customer Deposits ................................... 32,300 32,457 32,785 Liability for Injuries and Damages .................. 44,338 31,784 38,141 Miscellaneous Environmental Liabilities ............. 17,694 15,305 16,954 Other ............................................... 62,543 48,132 50,751 ------------ ------------ ------------ Total Current Liabilities ...................... 1,816,706 1,205,084 1,411,271 ------------ ------------ ------------ DEFERRED CREDITS Accumulated Deferred Income Taxes ................... 2,555,817 2,497,959 2,535,603 Accumulated Deferred Investment Tax Credits ......... 365,867 385,010 370,610 Deferred OPEB Costs ................................. 250,544 192,727 167,189 Other ............................................... 84,830 22,380 71,054 ------------ ------------ ------------ Total Deferred Credits ......................... 3,257,058 3,098,076 3,144,456 ------------ ------------ ------------ COMMITMENTS AND CONTINGENCIES (note 2) Total ............................................ $ 15,057,549 $ 14,253,359 $ 14,556,948 ============ ============ ============
PUBLIC SERVICE ELECTRIC AND GAS COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (Thousands of Dollars)
Three Months Ended Twelve Months Ended March 31, March 31, --------------------------- --------------------------- 1996 1995 1996 1995 ------------ ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net Income ............................. $ 183,650 $ 206,896 $ 593,718 $ 644,863 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and Amortization ........ 152,508 143,593 600,029 559,960 Amortization of Nuclear Fuel ......... 8,905 23,120 60,813 94,719 (Deferral) Recovery of Electric Energy and Gas Costs - net ......... (37,278) 1,325 (36,605) (51,034) Provision for Deferred Income Taxes - net ........................ 22,442 16,148 85,615 87,838 Investment Tax Credits - net ......... (4,743) (4,711) (19,143) (19,317) Allowance for Funds Used During Construction - Debt and Equity ..... (4,291) (10,101) (30,457) (41,064) Changes in certain current assets and liabilities: Net decrease (increase) in Accounts Receivable and Unbilled Revenues . (54,040) 33,589 (237,212) 114,235 Net decrease (increase) in Inventory - Fuel and Materials and Supplies... 162,307 99,477 81,419 (34,873) Net increase (decrease) in Accounts Payable ................. 16,427 (16,941) 136,329 (73,877) Net change in Prepaid/Accrued Taxes ............................ 199,612 178,522 10,019 (276,606) Net change in Other Current Assets and Liabilities .................. 34,916 22,899 9,917 27,538 Other ................................ 3,386 (9,720) 70,264 9,762 ------------ ----------- ----------- ------------ Net cash provided by operating activities ....................... 683,801 684,096 1,324,706 1,042,144 ------------ ----------- ----------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Additions to Utility Plant, excluding AFDC ....................... (96,349) (128,027) (618,205) (809,519) Net (increase) decrease in Long-Term Investments ................ (18,770) (10,926) (73,033) 50,226 Increase in Decommissioning Funds and Other Special Funds, excluding interest ................... (7,391) (7,390) (29,618) (36,976) Cost of Plant Removal - net ............ (11,101) (2,103) (38,672) (28,357) Other .................................. (14) (7) 852 2,186 ------------ ----------- ----------- ------------ Net cash used in investing activities ....................... (133,625) (148,453) (758,676) (822,440) ------------ ----------- ----------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Net increase (decrease) in Short-Term Debt ...................... 168,965 (307,559) 642,081 (7,761) (Decrease) increase in Book Overdrafts ........................... (6,642) (34,663) 11,459 13,286 Issuance of Long-Term Debt ............. 352,451 -- 508,771 449,800 Redemption of Long-Term Debt............ (413,105) -- (781,097) (411,150) Long-Term Debt Issuance and Redemption Costs ..................... (38,319) -- (46,781) (29,731) Redemption of Preferred Stock .......... -- -- (60,000) (75,000) Issuance of Monthly Income Preferred Securities ................. -- -- 60,000 150,000 Contributed Capital..................... -- -- 60,000 -- Cash Dividends Paid .................... (137,726) (138,882) (534,806) (545,669) Other .................................. -- 953 (474) (842) ------------ ----------- ----------- ------------ Net cash used in financing activities ..................... (74,376) (480,151) (140,847) (457,067) ------------ ----------- ----------- ------------ Net increase (decrease) in Cash and Cash Equivalents ....................... 475,800 55,492 425,183 (237,363) Cash and Cash Equivalents at Beginning of Period .............................. 32,373 27,498 82,990 320,353 ------------ ----------- ----------- ------------ Cash and Cash Equivalents at End of Period .............................. $ 508,173 82,990 $ 508,173 $ 82,990 ============ =========== =========== ============ Income Taxes Paid ........................ $ 9,049 $ 27,005 $ 261,917 $ 235,615 Interest Paid ............................ $ 101,605 $ 85,972 $ 415,142 $ 350,566 See Notes to Consolidated Financial Statements.
PUBLIC SERVICE ELECTRIC AND GAS COMPANY CONSOLIDATED STATEMENT OF RETAINED EARNINGS (Thousands of Dollars)
Three Months Ended Twelve Months Ended March 31, March 31, --------------------------- --------------------------- 1996 1995 1996 1995 ------------ ------------ ------------ ------------ Balance at Beginning of Period ........... $ 1,372,729 $ 1,292,201 $ 1,360,215 $ 1,261,863 Add: Net Income ......................... 183,650 206,896 593,718 644,863 ------------ ------------ ------------ ------------ Total ............................... 1,556,379 1,499,097 1,953,933 1,906,726 ------------ ------------ ------------ ------------ Deduct: Cash Dividends Preferred Stock, at required rates ..... 7,526 8,682 32,606 38,869 Common Stock ........................... 130,200 130,200 502,200 506,800 Adjustment to Retained Earnings......... -- -- 474 842 ------------ ------------ ------------ ------------ Total Deductions .................... 137,726 138,882 535,280 546,511 ------------ ------------ ------------ ------------ Balance at End of Period ................. $ 1,418,653 $ 1,360,215 $ 1,418,653 $ 1,360,215 ============ ============ ============ ============ See Notes to Consolidated Financial Statements.
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. RATE MATTERS Alternative Rate Plan On January 16, 1996, PSE&G filed a proposal, the "New Jersey Partners in Power" Plan (Plan) with the New Jersey Board of Public Utilities (BPU) for major changes in utility regulation that include an immediate $50 million rate reduction for PSE&G's electric customers, various types of rate freezes, elimination of fuel adjustment mechanisms, assurances that future price increases related to controllable costs will be lower than the rate of inflation and funding of up to an aggregate of $55 million in two economic development initiatives. The seven-year Plan, if approved, would give PSE&G the mechanisms and incentives to compete more effectively on several fronts, including the ability to develop revenue from non-regulated products and services, accelerate or modify depreciation schedules to help mitigate any potential stranded asset issues and more aggressively manage the control of costs. In addition, the Plan would provide the foundation for ongoing price flexibility without the need for prolonged, adversarial regulatory proceedings. On April 24, 1996, the BPU orally approved intervenor status and participatory status for twenty-two entities in the proceeding in which it will consider the proposed Plan. A BPU determination on the process and procedures to be used to decide the case is being awaited. PSE&G cannot predict what other actions, if any, may be taken by the BPU with respect to the Plan or when final action on the proposal may be completed. Salem Investigation On March 14, 1996, the BPU issued an order regarding its investigation into the continuing outage of the Salem Nuclear Generating Station. The BPU's order: 1. declared PSE&G's rates related to Salem Unit 1 interim as of March 14, 1996, and subject to refund, pending further hearings referred to below; 2. required PSE&G to file briefs with regard to why the BPU should not declare rates related to Salem Unit 2 interim and subject to refund. Such briefs were filed by PSE&G on April 14, 1996 and supported PSE&G's position that Unit 2's rates should not be declared interim and subject to refund; NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 3. required PSE&G to furnish certain other financial information related to the rate treatment of each Salem unit as well as replacement power costs associated with the outage. In addition, PSE&G must provide updates of monthly actual replacement power data for each respective unit and updates on the status of the outage, including the anticipated return to service date for each unit. On April 4, 1996, PSE&G filed with the BPU the requested financial information related to actual net plant investment included in the last base rate case for each Salem unit, operation and maintenance expenses in current electric base rates for each Salem unit and replacement power costs associated with the outage of the Salem units to date. The filing supported a base revenue requirement of $205 million as well as replacement power costs and additional on-going costs of $214 million. This information was based upon facts and circumstances which existed at the date of filing and did not contain any adjustments necessary to reflect costs which would continue to safely maintain either or both units in a shutdown mode; and 4. required further proceedings to determine if each Salem unit remains "used and useful" for rate making purposes. In April and early May, the Board held evidentiary hearings for purposes of permitting the cross-examination of witnesses pertaining solely to the issue of whether rates related to Salem Unit 2 should be interim and subject to refund. During the hearings, PSE&G's witnesses testified as to the scheduled return date of Salem Unit 2 and stated that the Nuclear Regulatory Commission (NRC) has concluded that the overall restart plan, if implemented effectively, should adequately address the numerous Salem issues to support a safe plant restart. PSE&G's witnesses also stated that the remaining work activities to achieve a Salem Unit 2 restart are known and understood by PSE&G management, do not present any novel engineering issues and that such restart is achievable using standard outage processes and management techniques. An expedited briefing schedule, with briefs due in late May and reply briefs due in early June, has been established. PSE&G cannot predict the outcome of these hearings. The issue of whether or not Salem Unit 1, and possibly Salem Unit 2, are no longer used and useful will be addressed in a separate hearing before the BPU or the Office of Administrative Law (OAL). The date for such hearing has yet to be determined. Neither Enterprise nor PSE&G can predict the outcome of this proceeding. Removal of Salem Unit 1 and/or Salem Unit 2 from base rates could have a material adverse effect on PSE&G's financial position, results of operations and net cash flows. PSE&G will oppose the issuance of any order to remove either Salem unit from base rates and believes that in the event of a unit's removal from base rates, all of the replacement power costs attributable to such unit would be recoverable through its Electric Levelized Energy Adjustment Clause (LEAC) and that the estimated $12 million Nuclear Performance Standard (NPS) penalty for 1996 would be substantially reduced. (see Note 2, Commitments and Contingent Liabilities of Notes). NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Levelized Gas Adjustment Charge On April 24, 1996, the BPU orally approved PSE&G's 1995/96 Levelized Gas Adjustment Charge (LGAC), which would finalize the interim rates approved by the BPU on December 20, 1995. The approved LGAC rates are to remain in effect through December 31, 1996. Electric Levelized Energy Adjustment Clause By Order dated May 5, 1995, the BPU approved PSE&G's LEAC. Such Order also required that a hearing be convened regarding the April 1994 Salem 1 shutdown to determine whether PSE&G should be allowed to recover replacement power costs of approximately $8 million, which have been deferred. On October 18, 1995, this matter was ordered to be transferred to the OAL for a hearing which is scheduled for June 7, 1996. PSE&G cannot predict the outcome of this proceeding. Other Rate Matters On July 21, 1995, the BPU initiated a generic proceeding to expeditiously adopt specific standards to guide utility "off-tariff" negotiated rate agreement programs. Such proceeding would consider minimum prices, confidentiality, maximum contract duration, filing requirements and such other standards as may be necessary for compliance with the law. A Written Summary Decision and Order was issued on October 27, 1995, which required each New Jersey electric utility, including PSE&G, to file initial minimum tariffs, consistent with the terms of such Order, and further, indicated that such Order will be supplemented by a Final Decision and Order to fully discuss and explain the rationale for the BPU's overall decision. On November 13, 1995, PSE&G filed its compliance filing. PSE&G cannot predict what impact, if any, the generic tariff may have on its electric revenues and earnings. In September 1994, the BPU initiated a generic proceeding regarding overrecovery of capacity costs associated with electric utility power purchases from cogenerators and small power producers. The initial phase of the proceeding, which has been transferred to the OAL, seeks to determine whether there was any such overrecovery and, if so, the amount overrecovered. Hearings were initiated during the first quarter of 1996 and are currently in progress. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The New Jersey Division of Ratepayer Advocate has intervened in the proceeding and alleges, among other things, that PSE&G has overrecovered such costs in an amount ranging from $250 to $300 million during the period from August 1991 to December 1994. PSE&G denies such overrecovery because all relevant capacity cost recovery mechanisms have been previously reviewed and approved by the BPU. Additionally, PSE&G contends that a review of any individual cost item is inappropriate and is proscribed as retroactive ratemaking. While PSE&G cannot predict the outcome of this proceeding, the final resolution of this issue may impact the financial position, results of operations or net cash flows of Enterprise and PSE&G prospectively. NOTE 2. COMMITMENTS AND CONTINGENT LIABILITIES Nuclear Performance Standard The BPU has established a NPS for nuclear generating stations owned by New Jersey electric utilities, including the five nuclear units in which PSE&G has an ownership interest: Salem Units 1 and 2 -- 42.59%; Hope Creek -- 95%; and Peach Bottom Units 2 and 3 -- 42.49%. PSE&G operates Salem Units 1 and 2 and Hope Creek, while Peach Bottom is operated by PECO Energy, Inc. (PECO). The penalty/reward under the NPS is a percentage of replacement power costs. (See table below.)
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 NPS, 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. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) While the NPS 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 NPS. PSE&G's Alternative Rate Plan proposes the elimination of the NPS. (See Note 1 - Rate Matters of Notes). Based upon current projections and assumptions regarding PSE&G's five nuclear units during 1996, including the return of Salem 2 by the end of August and the continued outage of Salem 1 for the remainder of the year, the 1996 aggregate capacity factor would be approximately 57%, which would result in a penalty of approximately $12 million. Both of the Salem units are currently out of service and their return dates are subject to completion of testing, analysis, repair activity and NRC concurrence that they are prepared to restart. Nuclear Insurance Coverages and Assessments PSE&G's insurance coverages and maximum retrospective assessments for its nuclear operations are as follows:
PSE&G MAXIMUM TOTAL ASSESSMENTS SITE FOR A SINGLE TYPE AND SOURCE OF COVERAGES COVERAGES INCIDENT - ------------------------------------- --------- ------------- (MILLIONS OF DOLLARS) Public Liability: American Nuclear Insurers........... $ 200.0 $ -- Indemnity(A)........................ 8,720.3 210.2 -------- -------- $8,920.3 (B) $ 210.2 -------- -------- Nuclear Worker Liability: American Nuclear Insurers(C)........ $ 200.0 $ 8.0 -------- -------- Property Damage: Nuclear Mutual Limited.............. $ 500.0 $ 9.2 Nuclear Electric Insurance Ltd. (NEIL II)..................... 1,400.0 8.3(D) Nuclear Electric Insurance Ltd. (NEIL III).................... 850.0 9.2 -------- -------- $2,750.0 $ 26.7 -------- -------- Replacement Power: Nuclear Electric Insurance Ltd (NEIL I)....................... $ 3.5 (E) $ 11.4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (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) In the event of a second industry loss triggering NEIL II - coverage, the maximum retrospective premium assessment can increase to $18.5 million. (E) Represents limit of coverage available to co-owners of Salem and Hope Creek, for each plant. Each co-owner purchases its own policy. PSE&G is currently covered for its percent ownership interest of this limit for each plant. 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 $8.9 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 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. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Further, a recent decision by the U.S. Supreme Court, not involving PSE&G, held that the Price Anderson Act did not preclude awards based on state law claims for punitive damages. PSE&G is a member of two industry mutual insurance companies: Nuclear Mutual Limited (NML), and Nuclear Electric Insurance Limited (NEIL). NML provides the primary property insurance at Salem and Hope Creek. NEIL provides excess property insurance through its NEIL II and NEIL III policies and replacement power coverage through its NEIL I policy. Both companies may make retrospective premium assessments in case of adverse loss experience. PSE&G's maximum potential liabilities under these assessments are included in the table and notes above. 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 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 down. Construction and Fuel Supplies PSE&G has substantial commitments as part of its ongoing construction program which include 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 strategies, 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 its electric Integrated 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 co-generation and other non-utility capacity projected to be available. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Based on PSE&G's construction program, construction expenditures are expected to aggregate approximately $2.8 billion, which includes $428 million for nuclear fuel and $84 million of Allowance for Funds used During Construction (AFDC) during the years 1996 through 2000. The estimate of construction requirements is based on expected project completion dates and includes anticipated escalation due to inflation of approximately 3%, annually. Therefore, construction delays or higher inflation levels could cause significant increases in these amounts. PSE&G expects to generate internally the funds necessary to satisfy its construction expenditures over the next five years, assuming adequate and timely recovery of costs, 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 1996 through 2000. Hazardous Waste Certain Federal and State laws authorize the United States Environmental Protection Agency (EPA) and the New Jersey Department of Environmental Protection (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 have a material adverse effect on its financial position, results of operations or net cash flows. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) PSE&G Manufactured Gas Plant Remediation Program In 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 these 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 overall 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 to PSE&G's financial position, results of operations or net cash flows. NOTE 3. LONG-TERM DEBT Enterprise's long-term debt aggregated $5.1 billion as of March 31, 1996, of which $4.5 billion was attributable to PSE&G and $600 million to Enterprise Diversified Holdings Incorporated (EDHI), the parent of Enterprise's nonutility businesses. On January 30, 1996, PSE&G issued the following series of its First and Refunding Mortgage Bonds (Bonds): $200 million principal amount of its 6-3/4% Series VV due 2016 and $150 million principal amount of its 6-1/4% WW due 2007. PSE&G applied the net proceeds from the sale of new Bonds, together with other funds, to defease in substance: $196.0 million aggregate principal amount of its 8-3/4% Series EE Bonds due 2021 and $148.5 million aggregate principal amount of its 8-3/4% Series HH Bonds due 2022. In addition, PSE&G retired $65 million of its 8-1/2% Series LL Bonds due 2022 and exercised a $2.5 million optional cash sinking fund. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 4. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT Natural Gas and Crude Oil Hedging Energy Development Corporation (EDC) sold natural gas futures contracts outstanding at March 31, 1996 and 1995 which hedged 12,630,000 mmbtu and 9,020,000 mmbtu, respectively. Such amounts represented approximately 18% of EDC's anticipated domestic natural gas production for the remainder of 1996 and 17% of EDC's production for 1995, respectively, at average sales prices of $1.83 per mmbtu and $1.95 per mmbtu, respectively. At March 31, 1996, EDC sold crude oil futures contracts outstanding which hedged 1.1 million barrels of oil representing approximately 39% of EDC's anticipated domestic oil production in 1996 at an average price of $17.81 per barrel. The deferred unrealized (losses) gains at March 31, 1996 and 1995 related to EDC's futures contracts were ($7.0) million and $1.7 million, respectively. Through March 31, 1996 and 1995, U.S. Energy Partners (USEP) entered into futures contracts and swaps to buy 2,440,000 mmbtu and 3,140,000 mmbtu of natural gas at average prices of $1.81 and $1.79 per mmbtu, respectively, related to fixed-price sales commitments. Such contracts, together with physical purchase contracts, hedged approximately 86% and 84% of fixed-price sales commitments at March 31, 1996 and 1995. USEP had deferred unrealized hedge gains of $2.1 million and $15 thousand at March 31, 1996 and 1995, respectively. PUBLIC SERVICE ELECTRIC AND GAS COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS PSE&G Except as modified below, the Notes to Consolidated Financial Statements of Enterprise are incorporated herein by reference insofar as they relate to PSE&G and its subsidiaries: Note 1. Rate Matters Note 2. Commitments and Contingencies Note 3. Long-Term Debt ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ENTERPRISE Following are the significant changes in or additions to information reported in Enterprise's Annual Report to the Securities and Exchange Commission (SEC) on Form 10-K for 1995, 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 to Consolidated Financial Statements (Notes) of Enterprise and should be read in conjunction with such statements and Notes. Overview As of March 31, 1996, PSE&G comprised 85% of Enterprise's assets. For the three months and twelve months ended March 31, 1996, PSE&G revenues were 95% and 92%, respectively, of Enterprise's revenues and PSE&G's earnings available to Enterprise for such periods were 91% and 87%, respectively, of Enterprise's net income. On December 6, 1995, Enterprise announced that it will pursue the divestiture of Energy Development Corporation (EDC) during 1996 through either a sale or spin-off. On March 13, 1996, Enterprise filed a Form S-1 Registration Statement with the SEC, which has not yet become effective, to position Enterprise to undertake an initial public offering of up to 20 percent of EDC and subsequently spin-off the remainder of EDC in a tax-free transaction to Enterprise shareholders. Enterprise continues to solicit offers from the private marketplace with the intention of further evaluating its alternatives. No determination has yet been made as to which path will be undertaken and a decision is anticipated over the next few months. Competition The regulatory structure which has historically embraced the electric and gas industry is in the process of transition. Legislative and regulatory initiatives, at both the federal and state levels, are designed to promote competition and will continue to impose additional pressures on PSE&G's ability to retain customers. In addition, new technology and interest in self generation and cogeneration have provided customers with alternative sources of energy. Over the last several years, the gas industry has been transformed. Today, commercial and industrial customers can negotiate their own gas purchases directly with producers or brokers, while PSE&G is required to provide intrastate transportation of such purchased gas to the customers' facilities. Although PSE&G is not providing gas sales service to certain commercial and industrial customers, to date there has been no negative impact on earnings since sales service and transportation service tariffs result in the same non-fuel revenue per therm. Additionally, as a result of this restructuring, PSE&G has been able to negotiate lower cost gas supplies for those customers who continue to be part of its bundled rate schedules. A potential significant competitive challenge could emerge if interstate pipeline companies are permitted to expand their facilities into PSE&G territory and provide intrastate transportation to customers. However, this type of expansion would require federal and state regulatory approvals not currently in existence. The restructuring of the electric industry is more complex and evolving at a slower pace than that of the gas industry. Federal legislation, such as the National Energy Policy Act of 1992 (EPAct) has eased restrictions on independent power producers (IPP) in an effort to increase competition in the wholesale electric generation market. As the barriers to entry in the power production business have been lowered, the construction of cogeneration facilities and independent power production facilities has been growing, with the result of creating lower cost alternatives for large commercial and industrial customers. Presently, PSE&G is in the process of assessing the potential for individual arrangements with commercial and industrial customers which have such competitive alternatives, but PSE&G believes that it does not currently have a material exposure with respect to such customers. Further, EPAct authorized the Federal Energy Regulatory Commission (FERC) to mandate utilities to transport and deliver or "wheel" energy for the supply of bulk power to wholesale customers. On April 24, 1996, the FERC issued final rules, to become effective on July 9, 1996, requiring all public utilities owning, controlling or operating transmission lines to file non-discriminatory open access tariffs that offer others the same transmission service they provide to themselves. Transmission services covered by the final rule include network and point-to-point services, as well as ancillary services. The final rules include a pro forma tariff setting minimum terms and conditions of service for non-discriminatory open access transmission service. Public utilities are required both to offer service to others under the pro forma tariff and to use the pro forma tariff for their own wholesale energy sales and purchases. No later than December 31, 1996, intra-pool transactions for power pools must be under a joint, pool-wide pro forma tariff. The final rules also provide public utilities with the opportunity to seek full recovery of prudently incurred, legitimate and verifiable wholesale stranded costs resulting from customer use of open access transmission service to move to another supplier. To be eligible for recovery, stranded costs must be associated with wholesale requirement contracts signed before July 11, 1994. After that date, recovery must be specifically provided for in the contract. The FERC ruled that stranded costs should be recovered from a utility's departing customers. The FERC also stated that if costs are stranded by retail wheeling, utilities should look to the states first to recover those costs. FERC will become involved only if state regulators lack authority under state law provide for stranded cost recovery. (See the discussion of Phase II of the New Jersey Energy Master Plan, below). There is opposition in Congress and among Northeastern governors to this FERC ruling due to environmental concerns. The assumption is that as deregulation occurs there will be a race to purchase the cheapest power available. That power will likely come from older, coal- burning generating facilities in the Midwest that are subject to very few pollution control requirements. To sell more of their cheap electricity, these facilities will have to increase their power production which will, in turn, increase the release of pollutants that eventually make their way to New Jersey and other Northeastern States due to the prevailing westerly winds and the jet stream. A New Jersey Congressman is currently gathering co-sponsors to a resolution to block the implementation of this rule and send it back to FERC to be rewritten in a way that will protect air quality in the Northeast. In the wholesale electric market, other competitive pressures, such as municipalization, may also have an impact on utilities in the evolving electric power industry. Municipalization involves the acquisition and operation of existing investor-owned facilities by a municipal utility (MUNI) through condemnation, purchase or lease or the construction and operation of duplicate, parallel facilities within a municipal boundary. As a result, utilities, such as PSE&G, could lose customers (residential, commercial and industrial) in the municipality that is served by the MUNI, as well as lose the municipal entity itself as a customer. EPAct granted the states sole authority to mandate retail wheeling. The BPU has not yet authorized retail wheeling for the State of New Jersey. New Jersey regulators have been reviewing existing regulations in an effort to develop a revised regulatory structure that would afford public utilities, such as PSE&G, increased flexibility to meet the competitive challenges of the future. Phase I of the New Jersey Energy Master Plan (Phase I), a two-phase plan to better manage the future energy needs of the State, has been completed. Phase I called for legislation that would allow New Jersey utilities to propose, subject to BPU approval, alternatives to rate base/rate of return pricing, allow for pricing flexibility under certain standards for customers with competitive options and equalize the impact of tax policies, such as the New Jersey Gross Receipts and Franchise Tax (NJGRT) currently assessed on retail energy utility sales, upon all energy producers. On June 1, 1995, the BPU issued its Order initiating a formal Phase II proceeding of the Master Plan. The proceeding will address wholesale and retail competition in New Jersey. The Phase II draft report for the New Jersey Energy Master Plan proposing policy restructuring is expected by the end of May 1996 with a final report expected to be issued by the end of 1996. This report is expected to address the recovery of any stranded costs attributable to power wheeling. Recoverability of stranded costs for PSE&G will be largely dependent on the final Phase II report and on the rules to be established by the BPU. Stranded costs that could result as the industry moves to a more competitive environment include investments in generating facilities, transmission assets, purchase power agreements where the price being paid under such an agreement exceeds the market price for electricity and regulatory assets for which recovery is based solely on continued cost based regulation. At this time, management cannot predict the level of stranded costs, if any, or the extent to which the BPU will allow recovery of such costs. A joint task force of the BPU and the New Jersey Treasury Department has proposed replacing the current gross receipts and franchise tax on electric and gas utilities with a combination of New Jersey's existing corporate business tax, New Jersey's existing state sales and use tax and a transitional tax which will be phased out over a five or six year time frame. After the phase-out is completed, the proposal is expected to significantly reduce the tax burden on electric and gas utilities and improve their competitive position vis a vis non- utility energy providers and energy providers in other states. Increased competition and the shift of risks and opportunities between rate payers and PSE&G resulting from PSE&G's filing of its proposed Alternative Rate Plan (See Note 1, Rate Matters of Notes) will increase the emphasis upon electric operational reliability, efficiency and cost. While the incremental cost of nuclear production is less expensive than PSE&G's other sources of generation, comparatively high embedded costs for nuclear plants increase the need for PSE&G to optimize the utilization of its nuclear generating capacity in order to make its actual generation output cost competitive. Nuclear Operations Both of the Salem units are currently out of service and their return dates are subject to completion of testing, analysis, repair activity and NRC concurrence that they are prepared to restart. Restart of Salem 1 will be delayed as a result of the ongoing steam generator inspection and analysis. PSE&G is currently considering three repair and replacement options for the steam generators in Salem 1. The first option, repairing of degraded tubes by sleeving, has an estimated cost of $19 to $38 million (PSE&G's share would be $8 to $16 million) and would permit Salem 1 to operate for up to one cycle. This option would, however, require further repair expenditures to permit the unit to continue to operate after this 18 month period. The second option, replacing the steam generators with unused steam generators from a utility that had previously canceled a new plant, has an estimated cost of $150 to $170 million (PSE&G's share would be $64 to $72 million) and would permit the plant to operate for the remainder of its license term. The third option would combine the first option's repair with replacement by a newly constructed steam generator at the end of three years and would cost of $169 to $208 million (PSE&G's share would be $72 to $88 million). This option could involve additional inspections, repairs and/or mid-cycle outage costs. Implementation of one or more of these options may enable Salem 1 to return to service by mid-1997. Evaluations of the repair/replacement options and decisions by the Salem co-owners on the preferred course of action are expected to be completed by the end of the second quarter of 1996. Completion of the repair/replacement option selected is not expected to materially increase PSE&G's current construction program (See Construction and Fuel Supplies). Salem 2, which is also undergoing steam generator inspection and analysis is scheduled to return to service by the end of August 1996. The inability to successfully return these units to continuous, safe operation could have a material effect on the financial position, results of operation and net cash flows of Enterprise and PSE&G. Results of Operations Earnings per share of Enterprise Common Stock were $0.79 for the three months ended March 31, 1996, a decrease of $.08 per share of Common Stock from the comparable 1995 period. Earnings per share of Enterprise Common Stock were $2.63 for the twelve-month period ended March 31, 1996, a decrease of $.07 per share of Common Stock from the comparable 1995 period. The decrease in first quarter and twelve-month earnings was primarily due to higher maintenance expenses associated with the shutdown of Salem Nuclear Generating Station, the scheduled refueling outage of the Hope Creek Nuclear Generating Station, increased depreciation expense due to more plant in service and a decrease in the Allowance for Funds Used During Construction due to a decrease in construction work in progress. These negative variances were partially offset by increased off-system gas sales and increased residential sales during this winter season. PSE&G - Earnings Available to Enterprise
Increase or (Decrease) ----------------------------------- Three Months Twelve Months Ended March 31, Ended March 31, 1996 vs. 1995 1996 vs. 1995 ---------------- --------------- Per Per Amount Share Amount Share ------ ------ ------ ------ (Millions, except Per Share Data) PSE&G Revenues (net of fuel costs and gross receipts taxes).............................. $ 43 $ .18 $ 99 $ .40 Other operation expenses....................... (23) (.09) (7) (.03) Maintenance expenses........................... (31) (.13) (48) (.20) Depreciation and amortization expenses......... (9) (.04) (40) (.16) Federal income taxes........................... 8 .03 (30) (.12) Interest charges............................... (2) (.01) (5) (.02) Allowance for Funds used During Construction (AFDC)......................................... (6) (.02) (11) (.04) Preferred Securities Dividend Requirements..... -- -- (5) (.02) Other income and expenses...................... (2) (.01) 2 .01 ----- ----- ----- ----- Earnings Available to Enterprise............... $ (22) $(.09) $(45) $ (.18) ===== ===== ===== ===== PSE&G - Revenues Electric Revenues increased $13 million, or 1%, and $239 million, or 6% for the three and twelve-month periods ended March 31, 1996 over the comparable periods of 1995 primarily due to a higher recovery of energy costs, increased residential and commercial sales due to colder weather during the current heating season and the continued moderate growth in the economy during the last few years. The significant components of these changes follow:
Increase or (Decrease) ----------------------------------- Three Months Twelve Months Ended March 31, Ended March 31, 1996 vs. 1995 1996 vs. 1995 ---------------- --------------- (Millions) Kilowatthour sales............................... $ 4 $ 30 Recovery of energy costs......................... 8 156 NJGRT............................................ 4 16 Other operating revenues......................... (3) 37 ----- ----- Total Electric Revenues.......................... $ 13 $ 239 ===== ===== Gas Revenues increased $162 million, or 26%, and $237 million, or 15% for the three and twelve-month periods ended March 31, 1996 over the comparable periods of 1995 primarily due to a higher recovery of fuel costs, increased residential sales due to colder weather during the current heating season and increased cogeneration sales. Other operating revenues increased due to an increase in off-system sales. Off-system sales are sales of excess gas to brokers and other utilities which are not part of PSE&G's firm customer base. The significant components of these changes follow:
Increase or (Decrease) ----------------------------------- Three Months Twelve Months Ended March 31, Ended March 31, 1996 vs. 1995 1996 vs. 1995 ---------------- --------------- (Millions) Therm sales................................... $ 29 $ (9) Recovery of fuel costs........................ 120 163 NJGRT......................................... 8 42 Other operating revenues...................... 5 41 ----- ----- Total Gas Revenues................ $ 162 $ 237 ===== =====
PSE&G - Expense Fuel Expenses Variances in fuel expenses do not directly affect earnings because of fuel adjustment clauses which are part of PSE&G's rates (See Note 1 - Rate Matters of Notes). However, if the proposed Alternative Rate Plan is adopted as filed, future changes in electric fuel and replacement power costs could impact earnings. Other Operation Expenses During the first quarter of 1996, other operation expenses increased $23 million or 10% from the comparable 1995 period due to increased costs associated with the Hope Creek refueling outage, increased labor costs for electric distribution related to emergency work, increased labor expenses for the gas business as a result of colder weather conditions and higher uncollectibles and conservation costs. For the twelve months ended March 31, 1996, other operation expenses increased $7 million or 1% from the comparable 1995 period due to restart and outage costs at Salem, higher conservation costs for both the electric and gas business and higher administrative and general expenses for the Peach Bottom Station. Maintenance Expenses Maintenance expenses increased $31 million and $48 million for the three and twelve-month periods ended March 31, 1996 from the same periods ended March 31, 1995. The three and twelve-month increases are due to refueling outage expenses and increased labor expenses associated with the shutdown of the Salem Nuclear Generating Station and the refueling and maintenance outage of the Hope Creek Nuclear Generating Station. Depreciation and Amortization Expenses Depreciation and amortization expenses increased $9 million and $40 million for the three and twelve-month periods ended March 31, 1996 from the same periods ended March 31, 1995. The three and twelve-month increases are primarily due to the placement in service of the repowered Bergen Generating Station, completed in September 1995, and additions to plant in service. Federal Income Taxes Federal income taxes decreased $8 million and increased $31 million for the three and twelve-month periods ended March 31, 1996 from the same periods ended March 31, 1995. The three month decrease is primarily due to the decrease in 1996 pre-tax income and the twelve- month increase is principally due to the receipt of a non-taxable insurance benefit in 1994. Interest Charges Interest charges for the three and twelve-month period ended March 31, 1996 increased $2 million and $5 million compared to the same period ended March 31, 1995. The three and twelve-month increases are primarily due to a higher daily balance of short-term debt outstanding at higher interest rates. Allowance for Funds Used During Construction For the first quarter of 1996, there was a $6 million decrease in AFDC from the first quarter of 1995. This was principally due to a lower AFDC rate and a decrease in construction work in progress, due primarily to the completion of the repowering of Bergen Generating Station and its placement into service in September 1995. For the twelve months ended March 31, 1996, there was an $11 million decrease in AFDC from the twelve months ended March 31, 1995. This was principally due to a decrease in construction work in progress, due primarily to the completion of the repowering of Bergen Generating Station and its placement into service in September 1995. Preferred Securities Dividend requirements on preferred securities increased $5 million for the twelve month period ended March 31, 1996 over the comparable twelve month period of 1995. The increase is due to the issuance of higher rate Monthly Income Preferred Securities used to redeem certain issues of PSE&G Preferred Stock. EDHI - Earnings Available to Enterprise
Increase or (Decrease) ----------------------------------- Three Months Twelve Months Ended March 31, Ended March 31, 1996 vs. 1995 1996 vs. 1995 ---------------- --------------- Per Per Amount Share Amount Share ------ ------ ------ ------ (Millions, except Per Share Data) PSRC..................... (2) (.01) (7) (.03) CEA...................... (2) (.01) (4) (.02) EDC...................... 9 .03 40 .16 EGDC..................... (1) -- (1) -- ----- ----- ----- ----- Total............ 4 .01 28 .11 ===== ===== ===== =====
The net income of EDHI was $18 million for the quarter ended March 31, 1996, a $4 million increase over the comparable 1995 quarter. The increase is primarily due to Energy Development Corporation (EDC), which saw its income increase $9 million due to higher oil and gas prices and volumes. Public Service Resources Corporation 's (PSRC) income decreased $2 million due to lower income from limited partnerships, partially offset by an increase in market values of securities. Community Energy Alternative Incorporated 's (CEA) income decreased $2 million due to higher development expenses. The net income of EDHI was $83 million for the twelve month period ended March 31, 1996, an increase of $28 million over the twelve month period ended March 31, 1995. This is primarily due to EDC, which saw its income increase $40 million, of which $23 million was due to the realization of a settlement related to a take-or-pay sales contract. The remaining increase was due to higher gas prices and higher oil prices and volumes. Dividends Dividends paid to holders of PSE&G's Preferred Stock during the three and twelve month periods ended March 31, 1996 decreased $1.2 million and $6.3 million, respectively, over the comparable 1995 periods. The three and twelve-month decreases are due to the redemption of certain series of preferred stock. (See Liquidity and Capital Resources.) Dividends payable to holders of Monthly Income Preferred Securities of Public Service Electric and Gas Capital, L.P. (Partnership), a limited partnership of which PSE&G is the general partner, increased $1.2 million and $11.7 million during the three and twelve month periods ended March 31, 1996 over the comparable 1995 periods. The three and twelve-month increases are due to the issuance of additional securities. Liquidity and Capital Resources Enterprise's liquidity is affected by maturing debt, investment and acquisition activities, the capital requirements of PSE&G's and EDHI's construction and investment programs, permitted regulatory recovery of expenses and collection of revenues. Capital resources available to meet such requirements depend upon general and regional economic conditions, PSE&G's customer retention and growth, the ability of PSE&G and EDHI to meet competitive pressures and to contain costs, the adequacy and timeliness of rate relief, cost recovery and necessary regulatory approvals, the ability to continue to operate and maintain nuclear plants in accordance with NRC and BPU requirements, the impact of environmental regulations, continued access to the capital markets and continued favorable regulatory treatment of consolidated tax benefits. (For additional information see the discussion of Competition above and Note 2, Commitments and Contingent Liabilities of the Notes.) PSE&G For the three-month period ended March 31, 1996, PSE&G had utility plant additions, including AFDC, of $101 million, a decrease of $37 million from the corresponding period in 1995. For the twelve-month period ended March 31, 1996, PSE&G had utility plant additions, including AFDC, of $649 million, a decrease of $202 million from the corresponding period in 1995. Construction expenditures were related to improvements in PSE&G's existing power plants, transmission and distribution system, gas system and common facilities. PSE&G also expended, for the cost of plant removal (net of salvage), $11 million and $39 million for the three-month and twelve-month periods ended March 31, 1996, respectively, compared to $2 million and $28 million for the corresponding periods in 1995. PSE&G expects that it will be able to internally generate all of its capital requirements, including construction expenditures, over the next five years and reduce its debt outstanding by approximately $1 billion, assuming adequate and timely recovery of costs, as to which no assurances can be given. (See Note 1 -- Rate Matters and Note 2 -- Commitments and Contingent Liabilities of Notes.) EDHI During the next five years, a majority of EDHI's capital requirements are expected to be provided from operational cash flows. CEA is expected to be the primary vehicle for EDHI's business growth. A significant portion of CEA's growth is expected to occur in the international arena due to the current and anticipated growth in electric capacity required in certain regions of the world. EDC will continue to pursue a program to grow its reserve base through a combination of strategic acquisitions, high potential exploration activities and exploitation of its acquired properties and new discoveries. For discussion regarding the potential divestiture of EDC, see Overview. PSRC will continue to limit new investments to those related to energy businesses, while Enterprise Group Development Corporation (EGDC) will continue to 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. In addition, any divestiture of EDC will require the renegotiation of existing loan agreements of Enterprise Capital Funding Corporation (Funding). Any inability to extend or replace maturing debt and or existing agreements at current levels and interest rates may affect future earnings and result in an increase in EDHI's cost of capital. PSRC is a limited partner in various limited partnerships and is committed to make investments from time to time, upon the request of the respective general partners. At March 31, 1996, $58 million remained as PSRC's unfunded commitment subject to call. 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 March 31, 1996 and 1995, EDHI had a consolidated debt to equity ratio of 1.11:1 and 1.13:1, respectively, and for the twelve months ended March 31, 1996 and 1995, EBIT coverage ratios, as defined to exclude the effects of EGDC, of 2.60:1 and 1.87:1, respectively. Compliance with applicable financial covenants will depend upon future financial position and levels of earnings, as to which no assurance can be given. Long-Term Investments and Real Estate Long-Term investments and real estate increased $7 million for the three-month period ended March 31, 1996 primarily due to an increase in Public Service Conservation Resources Corporation 's (PSCRC) long- term investments. Long-Term investments and real estate increased $6 million for the three-month period ended March 31, 1995 due to PSRC and EGDC partnership investments, partially offset by CEA capital returns from partnerships. Long-Term investments and real estate increased $83 million for the twelve-month period ended March 31, 1996 primarily due to an increase in PSCRC's long-term investments. Long-Term investments and real estate decreased $32 million for the twelve-month period ended March 31, 1995 primarily due to a net decrease in PSE&G's investment in an insurance contract, partially offset by PSRC and CEA investments in partnerships. PSRC, through its Kohlberg, Kravis, Roberts and Co. (KKR) Leveraged Buy-Out Fund, was the beneficial owner of common stock in First Interstate Bank, which had a book value of $6.2 million. On April 1, 1996, First Interstate Bank was acquired by Wells Fargo Bank and, subsequent to that merger, the investment was sold by KKR resulting in a PSRC after-tax gain of approximately $11.8 million. PSRC, through its KKR Leveraged Buy-Out Fund, was also the beneficial owner of common stock in a company which has suffered earnings disappointments. In April 1996, PSRC recorded an after-tax valuation allowance of approximately $4.6 million against this investment. Continuing its program of prudently exiting the real estate business, EGDC signed an agreement in April 1996 to sell an office project located in Valley Forge, Pennsylvania for approximately the book value ($9.5 million) of the project. The sale is expected to close in July 1996. Internal Generation of Cash from Operations Enterprise's cash from operations is generated primarily from the operating activities of PSE&G. Enterprise's cash provided by operations for three months ended March 31, 1996 in the amount of $700 million was substantially the same as the corresponding period in 1995. The increase in PSE&G's revenues (partially offset by the increase in accounts receivable and unbilled revenues), was substantially offset by an increase in PSE&G's operation and maintenance expense (mainly gas purchased and the Salem outage and Hope Creek refueling, respectively). For additional information see Results of Operations. Enterprise's cash provided by operations for twelve months ended March 31, 1996 increased $308 million to $1.494 billion from the corresponding period in 1995. This increase is primarily due to the increase in PSE&G's revenues partially offset by an increase in accounts receivable and unbilled revenues and a decrease in PSE&G's gross receipts taxes. For additional information see Results of Operations. External Financings - PSE&G The BPU has authorized PSE&G to issue approximately $4.375 billion aggregate amount of additional Bonds/MTNs/Preferred Stock/Preferred Securities through 1997 for refunding purposes. Under its Mortgage, PSE&G may issue new Bonds against retired Bonds and, as of March 31, 1996, up to $2.840 billion aggregate amount of new Bonds against previous additions and improvements to utility plant, provided that the ratio of earnings to fixed charges is at least 2:1. At March 31, 1996 the ratio was 2.70:1. In January 1996, PSE&G issued $350 million of Bonds. The net proceeds from the sale were deposited in an escrow account for the purpose of refunding certain higher cost bonds at their respective first optional redemption dates in November 1996 and February 1997. On April 23, 1996, PSE&G filed a registration statement with the SEC relating to the sale of up to $350 million of Quarterly Income Preferred Securities. The proceeds from these securities will be used for general corporate purposes and to redeem outstanding preferred stock. The BPU has authorized PSE&G to issue and have outstanding at any one time through January 1, 1997 not more than $1 billion of its short- term obligations, consisting of commercial paper and other unsecured borrowings from banks and other lenders. On March 31, 1996, PSE&G had $632 million of short-term debt outstanding. To provide liquidity for its commercial paper program, PSE&G has a $500 million one year revolving credit agreement expiring in August 1996 and a $500 million five year revolving credit agreement expiring in August 2000 with a group of commercial banks, which provides for borrowing up to one year. On March 31, 1996, there were no borrowings outstanding under these credit agreements. PSE&G expects to be able to renew the credit agreement expiring in 1996. PSCRC has a $30 million revolving credit facility supported by a PSE&G subscription agreement in an aggregate amount of $30 million which terminates on March 6, 1997. As of March 31, 1996, PSCRC had $30 million outstanding under this facility. In March 1996, PSCRC entered into a secured term loan facility for loans maturing in three to five years up to $40 million. The agreement terminates in March 1998. As of March 31, 1996, there was $2 million outstanding under this facility. PSE&G Fuel Corporation (Fuelco) has a $150 million commercial paper program to finance a 42.49% share of Peach Bottom nuclear fuel, supported by a $150 million revolving credit facility with a group of banks. The credit facility expires on June 28, 1996, however, an extension is currently being negotiated. PSE&G has guaranteed repayment of Fuelco's respective obligations. As of March 31, 1996, Fuelco had commercial paper of $80 million outstanding under such program. External Financings - EDHI Funding has a commercial paper program, supported by a commercial bank letter of credit and credit facility, in the amount of $225 million expiring in March 1998. As of March 31, 1996, Funding had $186 million of borrowings outstanding under this commercial paper program. Additionally, Funding has a $225 million revolving credit facility expiring in March 1998. As of March 31, 1996, Funding had $100 million of borrowings outstanding under this facility. PSEG Capital Corporation's (Capital) MTN program provides for an aggregate principal amount of up to $650 million of MTNs so that its total debt outstanding at any time, including MTNs, would not exceed such amount. At March 31, 1996, Capital had total debt outstanding of $461 million, including $355 million of MTNs. PSE&G The information required by this item is incorporated herein by reference to the following portions of Enterprise's Management's Discussion and Analysis of Financial Condition and Results of Operations, insofar as they relate to PSE&G and its subsidiaries: Overview; Competition; Nuclear Operations; Results of Operations; Dividends; Liquidity and Capital Resources; Long-Term Investments and Real Estate; Internal Generation of Cash from Operations; and External Financings. PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED PART II. OTHER INFORMATION Item 1. Legal Proceedings - ------ ----------------- Certain information reported under Item 1 of Part I of Enterprise's and PSE&G's Annual Reports to the SEC on Form 10-K for 1995 (the "Form 10-K") is updated herein at the respective pages indicated. References are to the related pages and paragraph(s) of the Form 10-Q. As previously reported in a current report on Form 8-K filed on March 14, 1996, PSE&G and the three other co-owners of Salem filed suit in February 1996 in the United States District Court for the District of New Jersey against Westinghouse Electric Corporation (Westinghouse) seeking damages to recover the cost of replacing the steam generators at Salem Units 1 and 2. The suit alleges fraud and breach of contract by Westinghouse in the sale, installation and maintenance of the generators. Westinghouse filed an answer and $2.5 million counterclaim for unpaid work related to services at Salem on April 30, 1996. As also reported in the March 14th Form 8-K, the co-owners of Salem have filed lawsuits against Enterprise and PSE&G in the United States District Court for the Eastern District of Pennsylvania and in the New Jersey Superior Court alleging mismanagement by PSE&G in its operation of Salem and are seeking unspecified compensatory and punitive damages. PSE&G's answers regarding these matters are presently required to be filed in late May. While PSE&G cannot predict the outcome of these proceedings, PSE&G believes it has operated Salem in accordance with the requirements of the owners agreement and applicable law. PSE&G believes it has substantial and valid defenses and will vigorously oppose both of these actions. As reported in the Form 10-K at page 39 and in the March 14th Form 8-K, three shareholder derivative action civil complaints have been filed against Enterprise and certain of its directors and officers seeking to recover unspecified damages for alleged losses purportedly arising out of PSE&G's operations of Salem and Hope Creek. Enterprise's answers with respect to these actions are expected to be required to be filed in June 1996. In addition, see the following at the pages indicated: (1) Page 11. Proceedings before the BPU relating to PSE&G's proposed Alternative Rate Plan, Docket No. E096010028. Form 10-K, Page 73. PART II. OTHER INFORMATION - (Continued) Item 1. Legal Proceedings - (Concluded) - ------ ------------------------------- (2) Page 13. Proceedings before the BPU relating to PSE&G's LGAC filed October 2, 1995, Docket No. GR9510456. Form 10-K, Page 75. (3) Page 13. Proceedings before the BPU relating to recovery of replacement power costs in connection with the April 1994 Salem 1 shutdown, Docket No. ER94070293. Form 10-K, Page 75. (4) Page 13. Generic proceeding before the BPU relating to recovery of capacity costs associated with power purchases from cogenerators, Docket No. EX93060255. Form 10-K, Page 76. (5) Page 13. Generic proceedings before the BPU relating to standards for "off tariff" negotiated rate agreement programs, Docket No. EX95070320. Form 10-K, Page 76. Item 4. Submission of Matters to a Vote of Security Holders - ------ --------------------------------------------------- Enterprise's Annual Meeting of Stockholders was held on April 16, 1996. Proxies for the meeting were solicited pursuant to Regulation 14A under the Securities Exchange Act of 1934. There was no solicitation of proxies in opposition to management's nominees as listed in the proxy statement and all of management's nominees were elected to the board of directors. Details of the voting are provided below: Votes Votes For Withheld --------- -------- Proposal 1 - Election of Directors Class I - Term expiring 1997 Forrest J. Remick.............. 197,707,113 4,533,230 Class II- Term expiring 1999 T. J. Dermot Dunphy............ 197,876,136 4,364,207 Raymond V. Gilmartin........... 197,863,646 4,376,697 Josh S. Weston................. 197,806,930 4,433,413 Votes Votes Votes For Against Abstaining --------- --------- ---------- Proposal 2 - Appointment of Deloitte & Touche LLP as Independent Auditors for 1996........ 199,726,538 1,070,013 1,443,792 There were no broker non-votes with respect to either item. 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 1995 (the "Form 10-K") is updated below. References are to the related pages and paragraph(s) of the Form 10-K as printed and distributed. Credit Ratings Form 10-K, Page 5, Paragraph 6 ------------------------------ As a component of issuing ratings, each rating agency issues its opinion of the credit trend or outlook for the entity being rated. For PSE&G, each of the four rating agencies currently evaluate that trend or outlook as negative. PSE&G - Nuclear Operations Form 10-K, Page 10, Paragraph 4 ------------------------------- The scheduled 1996, 1997, and 1998 refueling outages, each estimated at eight to ten weeks duration, for PSE&G's five licensed nuclear units are expected to commence in the following months:
REFUELING OUTAGES -------------------------------------------- 1996 1997 1998 ------------- ------------- ------------- Salem 1.......... -- -- -- Salem 2.......... -- -- February Hope Creek....... -- September -- Peach Bottom 2... September -- September Peach Bottom 3... -- September --
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED PART II. OTHER INFORMATION - (Continued) Item 5. Other Information - (Continued) - ------ ------------------------------ Form 10-K, Page 10 thru Page 12 ------------------------------- With respect to Salem 1, the most recent inspection of the steam generators is not complete, but partial results from eddy current inspections in February 1996 show indications of degradation in a significant number of tubes. PSE&G has removed several tubes for laboratory examination to confirm the results of the inspections. PSE&G has been evaluating several options which include repair of degraded tubes by sleeving at locations found to contain crack-like indications, replacement of the steam generators with existing unused steam generators from a utility that had previously canceled a new plant, or repair for an interim period and then replacement of the steam generators with newly constructed steam generators. These evaluations are expected to be completed in the second quarter of 1996. Implementation of one or more of these options may enable the return to service of Salem unit 1 by mid-1997. The preliminary results of the Salem 2 inspections confirm that the condition of the Salem 2 steam generators is well within current repair limits. PSE&G had also removed several tubes from Salem 2 steam generators for laboratory analysis to confirm the results of testing. Repairs to Salem 2 steam generators will be completed in the Second Quarter of 1996 to support the scheduled return to service by the end of August 1996. PSE&G had planned to return Salem 1 to service in the second quarter of 1996 and Salem 2 in the third quarter of 1996. As a result of the extent of the previously discovered degradation in the Salem 1 steam generators, PSE&G is focusing its efforts on the return of Salem 2 to service by the end of August 1996. The conduct of the additional steam generator inspections and testing on Salem 2 is not expected to affect the timing of its restart. The timing of the restart is subject to completion of the requirements of the restart plan to the satisfaction of PSE&G and the NRC, which encompasses a review and improvement of personnel, process and equipment issues. PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED PART II. OTHER INFORMATION - (Continued) Item 5. Other Information - (Continued) - ------ ------------------------------- Form 10-K, Page 10 thru Page 12 - (Continued) --------------------------------------------- The restart plan status is as follows: Two of the five NRC Confirmatory Action Letter requirements were recognized as complete by the NRC on February 13, 1996. A third item has been addressed by PSE&G and approval by the NRC is pending; Comprehensive action plans concerning people and process issues are approximately 85% task complete; A detailed Salem 2 schedule integrating equipment maintenance, upgrades and testing has been developed and work is on schedule. Based on the above, PSE&G is not aware of any constraints which will prevent Salem 2 from returning to service by the end of August 1996. Based upon current projections and assumptions regarding PSE&G's five nuclear units during 1996, including the return of Hope Creek on March 25, 1996, the return of Salem 2 by the end of August 1996, and the continued outage of Salem 1 for the remainder of the year, the 1996 aggregate capacity factor would be approximately 57%, which would result in a penalty of approximately $12 million. PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED PART II. OTHER INFORMATION - (Continued) Item 5. Other Information - (Continued) - ------ ------------------------------- PSE&G - Nuclear Operations - Hope Creek Form 10-K, Page 12, Paragraph 7 ------------------------------- Hope Creek completed its sixth refueling and maintenance outage on March 25, 1996. PSE&G - Nuclear Operations - Hope Creek Form 10-K, Page 13, Paragraph 4 ------------------------------- By letter dated January 29, 1996, the NRC requested a meeting with PSE&G senior management to discuss its concerns regarding declining trends in performance at Hope Creek. Meetings were held with senior NRC officials on May 6th and 7th to discuss performance at both Hope Creek and Salem. The NRC acknowledged fundamental changes in PSE&G's nuclear business unit and that those changes provided an overall positive impression. The NRC said that PSE&G must demonstrate it has adequately maintained the design and licensing basis of both units, a generic issue presently being pursued by the NRC. The NRC staff indicated that it will continue to closely monitor performance at Salem and Hope Creek, including emergency preparedness performance and the effectiveness of PSE&G's corrective action program. PSE&G - Nuclear Operations - Other Nuclear Matters Form 10-K, Page 14, Paragraph 5 ------------------------------- In a separate matter, as a result of several Boiling Water Reactors (BWR) experiencing clogging of some emergency core cooling system suction strainers, which supply water from the suppression pool for emergency cooling of the core and related structures, the NRC issued a Bulletin dated May 6, 1996 to operators of BWRs requesting measures be taken to minimize the potential for clogging. The NRC has proposed three resolution options, with a request that actions be completed by the end of the unit's first refueling outage after January 1997. Alternative resolution options will be subject to NRC approval. PSE&G expects to submit its planned actions and schedules within 180 days. PSE&G cannot predict what other actions, if any, the NRC may take on this matter. PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED PART II. OTHER INFORMATION - (Continued) Item 5. Other Information - (Continued) - ------ ------------------------------- PSE&G - Nuclear Fuel Form 10-K, Page 16, Paragraph 2 ------------------------------- PECO has also advised PSE&G that it has contracted for the following segments of the nuclear fuel supply cycle for Peach Bottom 2 and 3 through the following years: Nuclear Unit Conversion Enrichment Fabrication Peach Bottom 2 (1) (2) 1999 Peach Bottom 3 (1) (2) 1998 (1) PECO has commitments for 100% of its conversion services for Peach Bottom through 1997. Approximately 40% of the conversion service requirements are covered through 2001. PECO does not anticipate any difficulties in obtaining necessary conversion services for Peach Bottom. (2) PECO has commitments for enrichment services for Peach Bottom under contract with the United States Enrichment Corporation. The commitments represent 100% of the enrichment requirements through 1998 and 70% through 1999. PECO does not anticipate any difficulties in obtaining necessary enrichment services for Peach Bottom. Environmental Controls Form 10-K, Page 22, Paragraph 1 ------------------------------- During 1995, PSE&G expended approximately $118 million for capital related expenditures to improve the environment and comply with changing regulations. It is estimated that PSE&G will expend approximately $50 million, $32 million, $27 million, $27 million and $13 million in the years 1996 through 2000, respectively, for such purposes. PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED PART II. OTHER INFORMATION - (Continued) Item 5. Other Information - (Continued) - ------ ------------------------------- FORM 10-K, Page, 26, Paragraph 6 -------------------------------- By letter dated April 30, 1996, EPA submitted a letter to PSE&G directing that PSE&G provide information concerning the nature and quantity of hazardous substances and/or wastes which may have been generated, treated, stored or disposed of at two PSE&G facilities formerly located adjacent to the Passaic River Site. The two facilities are PSE&G's former Harrison Gas Plant and Essex Generating Station. Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA) provides that EPA is authorized to direct any person to submit such information if there is a reasonable basis to believe that a release of a hazardous substance occurred at a subject facility. PSE&G is currently in the process of preparing to respond to the EPA's request for these facilities. NEW MATTERS ----------- During a recent NRC inspection, Hope Creek received four potential violations: two of the potential violations concerned failure to properly implement corrective actions, another concerned a safety evaluation for a service water system design change, and the last concerned a violation of Technical Specifications for control rod testing. An NRC enforcement conference has been scheduled for June 11, 1996. PSE&G cannot predict what actions, if any, the NRC may take on this matter. PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED PART II. OTHER INFORMATION - (Continued) Item 5. Other Information - (Continued) - ------ ------------------------------- New Information - ---------------- Employee Relations Form 10-K, Page 19 ------------------ PSE&G reached agreement for new contracts with its two largest unions, the International Brotherhood of Electrical Workers Local Union 94 (IBEW) and Local 855 of the Public Utility Construction and Gas Appliance Workers (Local 855). The six year agreements, which were effective May 1, 1996, provide for both incremental increases in base wages as well as a series of two percent lump-sum increases over the next five years. The agreements allow for some crossover work between the IBEW and Local 855. These crossover areas addressed in the agreements include meter installation/repair work, joint trenching and markouts. PSE&G also reached agreement for new contracts with the Office and Professional Employees International Union (OPEIU), Local 153 and the Consolidated Gas Workers Union. These agreements call for increases of 14% over the six years, annual two percent lump-sum payments over the first five years of the contract, improvements in shift premiums, travel and meal allowances and adjustments in medical coverages designed to provide employees with more options while increasing cost-efficiency. PSE&G has not yet reached an agreement with the Utility Co-workers Association (representing approximately 1,100 employees). Negotiations are still in progress. The negotiated agreements provide for the Pension Plan to be amended effective May 1, 1996 to allow employees the option to retire early upon attainment of age 55 and completion of 25 or more years of service. Also, between May 1, 1996 and April 30, 1997, early retirement without reduction will be available to employees who have attained age 50 and have completed 30 or more years of service. This change, coupled with other benefit modifications, will have a direct impact upon PSE&G's Pension and Postretirement Benefit Plans. Presently, the impact has not been quantified, however, it may have a material effect on results of operations for Enterprise and PSE&G. PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED PART II. 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 ------- ------------------------------------------------------ 4(A) Supplemental Indenture dated October 1, 1995 between PSE&G and First Fidelity Bank, National Association, New Jersey, as Trustee, providing for the issue of First and Refunding Mortgage Bonds, Pollution Control Series U. 4(B) Supplemental Indenture dated October 1, 1995 between PSE&G and First Fidelity Bank, National Association, New Jersey, as Trustee, providing for the issue of First and Refunding Mortgage Bonds, Pollution Control Series V. 12 Computation of Ratios of Earnings to Fixed Charges plus Preferred Securities 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 Securities Dividend Requirements (PSE&G). 27(A) Financial Data Schedule (Enterprise) 27(B) Financial Data Schedule (PSE&G) PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED (b) Reports on Form 8-K. Registrant Date of Report Item Reported - ---------- -------------- ------------- Enterprise and PSE&G 1-19-96 Item 5. Other events (Rate Matters/ Regulation, PSE&G - Nuclear Operations/Salem and Hope Creek, Credit Ratings). Enterprise and PSE&G 3-14-96 Item 5. Other events (PSE&G - Nuclear and PSE&G Operations - Hope Creek/Nuclear Performance Standard, Rate Matters/ Regulation, and Legal Proceedings). 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: May 15, 1996 EX-12 2 EX-12
EXHIBIT 12 PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES PLUS PREFERRED SECURITIES DIVIDEND REQUIREMENTS 12 Months YEARS ENDED DECEMBER 31, Ended --------------------------------------------------- March 31, 1991(A) 1992(A) 1993(A) 1994 1995 1996 -------- --------- ---------- ---------- ---------- --------- (THOUSANDS OF DOLLARS) Net Income...................... $ 543,035 $ 504,117 $ 595,519(A) $ 679,033 $ 662,323 $ 643,835 Plus Income Taxes (B)........... 274,146 253,276 316,010 322,824 364,355 358,938 -------- --------- ---------- ---------- ---------- -------- Income Before Income Taxes....... 817,181 757,393 911,529 1,001,857 1,026,678 1,002,773 -------- --------- ---------- ---------- ---------- -------- Fixed Charges and Preferred Securities Dividend Requirements: Interest Charges (C)........... 478,321 524,025 502,534 495,925 496,060 496,137 Interest Factor in Rentals..... 9,311 9,591 11,090 12,120 11,956 11,891 Preferred Securities Dividend Requirements (Pre-tax) (D)... 42,676 46,748 56,881 60,566 72,416 72,520 -------- --------- ---------- ---------- ---------- -------- Total.................. 530,308 580,364 570,505 568,611 580,432 580,548 -------- --------- ---------- ---------- ---------- -------- Earnings Before Fixed Charges and Preferred Securities Dividend Requirements................$1,347,489 $1,337,757 $1,482,034 $1,570,468 $1,607,110 $1,583,321 ======== ========= ========= ========== ========= ========== Ratio........................... 2.54 2.30 2.59 2.76 2.77 2.73 ==== ==== ==== ==== ==== ==== (A) Excludes cumulative effect of $5.4 million credit to income reflecting a change in income taxes. (See Note 9 -- Federal Income Taxes of Notes to Consolidated Financial Statements.) (B) Includes state income taxes and federal income taxes for other incomes. (C) Excludes 1991 and 1992 interest expense on decommissioning costs of $6,956 and $5,208, respectively. Effective January 1, 1992, accounting was changed to follow Federal Energy Regulatory Commission guidelines. (D) Includes a reduction for tax-deductible preferred dividends in accordance with Sections 244(a) and 11(b) of the Internal Revenue Code of 1986, as amended, before applying accounting Rule S-K of Regulation 229.503, Item 503 (d)(6).
EX-12.A 3 EX-12.A
EXHIBIT 12(A) PUBLIC SERVICE ELECTRIC AND GAS COMPANY COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES 12 Months YEARS ENDED DECEMBER 31, Ended -------------------------------------------------------------- March 31, 1991 1992 1993 1994 1995 1996 ---------- ---------- ---------- ---------- ---------- --------- (THOUSANDS OF DOLLARS) Net Income..................... $ 545,479 $ 475,936 $ 614,868 $ 659,406 $ 616,964 $ 593,718 Plus Income Taxes (A).......... 261,912 223,782 307,414 301,447 325,737 317,611 -------- --------- --------- ---------- --------- ---------- Income Before Income Taxes..... 807,391 699,718 922,282 960,853 942,701 911,329 -------- --------- --------- ---------- --------- ---------- Fixed Charges Interest Charges (B)......... 358,517 401,902 389,956 395,925 406,869 409,197 Interest Factor in Rentals... 9,311 9,591 11,090 12,120 11,956 11,891 -------- --------- --------- ---------- --------- ---------- Total................ 367,828 411,493 401,046 408,045 418,825 421,088 -------- --------- --------- ---------- --------- ---------- Earnings Before Fixed Charges.. $1,175,219 $1,111,211 $1,323,328 $1,368,898 $1,361,526 $1,332,417 ======== ========= ========= ========== ========= ========== Ratio.......................... 3.20 2.70 3.30 3.35 3.25 3.16 ==== ==== ==== ==== ==== ==== (A) Includes state income taxes and federal income taxes for other income. (B) Excludes 1991 and 1992 interest expense on decommissioning costs of $6,956 and $5,208, respectively. Effective January 1, 1992, accounting was changed to follow Federal Energy Regulatory Commission guidelines.
EX-12.B 4 EX-12.B
EXHIBIT 12(B) PUBLIC SERVICE ELECTRIC AND GAS COMPANY COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES PLUS PREFERRED SECURITIES DIVIDEND REQUIREMENTS 12 Months YEARS ENDED DECEMBER 31, Ended ---------------------------------------------------------- March 31, 1991 1992 1993 1994 1995 1996 -------- ---------- ---------- ---------- ---------- --------- (THOUSANDS OF DOLLARS) Net Income..................... $ 545,479 $ 475,936 $ 614,868 $ 659,406 $ 616,964 $ 593,718 Plus Income Taxes (A).......... 261,912 223,782 307,414 301,447 325,737 317,611 -------- --------- --------- ---------- --------- ---------- Income Before Income Taxes..... 807,391 699,718 922,282 960,853 942,701 911,329 -------- --------- --------- ---------- --------- ---------- Fixed Charges and Preferred Securities Dividend Requirements: Interest Charges (B)......... 358,517 401,902 389,956 395,925 406,869 409,197 Interest Factor in Rentals... 9,311 9,591 11,090 12,120 11,956 11,891 Preferred Securities Dividend Requirements (Pre-tax) (C). 42,703 46,675 56,957 60,910 72,854 72,992 -------- --------- --------- ---------- --------- ---------- Total................ 410,531 458,168 458,003 468,955 491,679 494,080 -------- --------- --------- ---------- --------- ---------- Earnings Before Fixed Charges and Preferred Securities Dividend Requirements................. $1,175,219 $1,111,211 $1,323,328 $1,368,898 $1,361,526 $ 1,332,417 ======== ========= ========= ========== ========= ========== Ratio.......................... 2.86 2.43 2.89 2.92 2.77 2.70 ==== ==== ==== ==== ==== ==== (A) Includes state income taxes and federal income taxes for other income. (B) Excludes 1991 and 1992 interest expense on decommissioning costs of $6,956 and $5,208, respectively. Effective January 1, 1992, accounting was changed to follow Federal Energy Regulatory Commission guidelines. (C) Includes a reduction for tax-deductible preferred dividends in accordance with Sections 244(a) and 11(b) of the Internal Revenue Code of 1986, as amended, before applying accounting Rule S-K of Regulation 229.503, Item 503 (d)(6).
EX-27.A 5 FDS ENTERPRISE
UT This schedule contains summary financial information extracted from SEC Form 10-Q and is qualified in its entirety by reference to such financial statements. The referenced financial statements are unaudited but, in the opinion of Enterprise's management, reflect all adjustments, consisting only of normal recurring accruals. 0000788784 PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED 1000 3-MOS DEC-31-1995 JAN-01-1996 MAR-31-1996 PER-BOOK 11,147,082 2,901,872 1,931,064 1,715,111 0 17,695,129 3,801,157 0 1,705,753 5,506,910 360,000 324,994 5,110,163 0 0 1,022,318 92,639 0 52,934 0 5,225,171 17,695,129 1,865,782 103,882 1,439,651 1,542,959 322,823 1,278 324,101 123,213 194,104 12,241 194,104 132,138 109,141 700,398 .79 .79
State Income Taxes of $1,882 and Federal Income Taxes for Other Income of $574 were incorporated into this line item for FDS purposes. In the referenced financial statements, State Income Taxes are included in Taxes - Other and Federal Income Taxes for Other Income are included in Other Income - Miscellaneous.
EX-27.B 6 FDS PSE&G
UT This schedule contains summary financial information extracted from SEC form 10-Q and is qualified in its entirety by reference to such financial statements. The financial statements are unaudited but, in the opinion of PSE&G's management, reflect all adjustments, consisting only of normal recurring accruals. 0000081033 PUBLIC SERVICE ELECTRIC AND GAS COMPANY 1000 3-MOS DEC-31-1995 JAN-01-1996 MAR-31-1996 PER-BOOK 11,147,082 447,335 1,750,480 1,712,652 0 15,057,549 2,563,003 594,395 1,418,653 4,576,051 360,000 324,994 4,523,614 0 0 736,281 2,000 0 52,934 0 4,481,675 15,057,549 1,755,249 95,707 1,375,014 1,470,147 285,102 1,273 286,375 102,301 183,650 7,526 176,124 130,200 91,512 683,801 0 0
State Income Taxes of $504 and Federal Income Taxes for Other Income of $574 were incorporated into this line item for FDS purposes. In the referenced financial statements, State Income Taxes are included in Taxes - Other and Federal Income Taxes for Other Income are included in Other Income - Miscellaneous.
EX-4.A 7 EX-4.A SUPPLEMENTAL MORTGAGE - -------------------------------------------------------- Supplemental Indenture DATED OCTOBER 1, 1995 (NO. 1) ------------------ SUPPLEMENTAL TO FIRST AND REFUNDING MORTGAGE DATED AUGUST 1, 1924 ------------------ PUBLIC SERVICE ELECTRIC AND GAS COMPANY TO FIRST FIDELITY BANK, NATIONAL ASSOCIATION, TRUSTEE 765 BROAD STREET NEWARK, NEW JERSEY 07101 ------------------ PROVIDING FOR THE ISSUE OF FIRST AND REFUNDING MORTGAGE BONDS, POLLUTION CONTROL SERIES U - --------------------------------------------------------- RECORD IN MORTGAGE BOOK AND RETURN TO: JAMES T. FORAN, ESQ. 80 PARK PLAZA, T5B P.O. BOX 570 NEWARK, N.J. 07101 This instrument prepared by (DONALD S. LEIBOWITZ, ESQ.) TABLE OF CONTENTS ------------------ PAGE -------- RECITALS..................................... 1 FORM OF BOND................................. 4 FORM OF CERTIFICATE OF AUTHENTICATION........ 9 GRANTING CLAUSES............................. 9 ARTICLE I. BONDS OF THE POLLUTION CONTROL SERIES U. DESCRIPTION OF POLLUTION CONTROL SERIES U.... 11 ARTICLE II. REDEMPTION OF BONDS--POLLUTION CONTROL SERIES U. SECTION 2.01. Redemption--Redemption Prices.. 12 SECTION 2.02. Notice of Redemption........... 15 SECTION 2.03. Interest on Called Bonds to Cease. 17 SECTION 2.04. Bonds Called in Part........... 17 SECTION 2.05. Provisions of Indenture not Applicable................. 17 ARTICLE III. CREDITS WITH RESPECT TO THE BONDS OF THE POLLUTION CONTROL SERIES U. SECTION 3.01. Credits...................... 18 SECTION 3.02. Certificate of the Company... 19 ARTICLE IV. MISCELLANEOUS. SECTION 4.01. Authentication of Bonds of Pollution Control Series U............. 19 SECTION 4.02. Additional Restrictions on Authentication of Additional Bonds Under Indenture.............. 19 SECTION 4.03. Restriction on Dividends..... 20 SECTION 4.04. Use of Facsimile Seal and Signatures 21 SECTION 4.05. Effective Period of Supplemental Indenture.................... 21 SECTION 4.06. Time for Making of Payment... 21 SECTION 4.07. Effect of Approval of Board of Public Utilities of the State of New Jersey.................. 21 SECTION 4.08. Execution in Counterparts.... 21 Acknowledgments.............................. 22 Certificate of Residence..................... 24 SUPPLEMENTAL INDENTURE, dated the 1st day of October, 1995, for convenience of reference and effective from the time of execution and delivery hereof, between PUBLIC SERVICE ELECTRIC AND GAS COMPANY, a corporation organized under the laws of the State of New Jersey, hereinafter called the "Company", party of the first part, and FIRST FIDELITY BANK, NATIONAL ASSOCIATION, a national banking association organized under the laws of the United States of America, as Trustee under the indenture dated August 1, 1924, below mentioned, hereinafter called the "Trustee", party of the second part. WHEREAS, on July 25, 1924, the Company executed and delivered to Fidelity Union Trust Company (now known as First Fidelity Bank, National Association), a certain indenture dated August 1, 1924 (hereinafter called the "Indenture"), to secure and to provide for the issue of First and Refunding Mortgage Gold Bonds of the Company; and WHEREAS, the Indenture has been recorded in the following counties of the State of New Jersey, in the offices, and therein in the books and at the pages, as follows:
PAGE COUNTY OFFICE BOOK NUMBER NUMBER - ------- ------- ----------- -------- Atlantic Clerk's 1955 of Mortgages 160 Bergen Clerk's 94 of Chattel Mortgages 123 etc. 693 of Mortgages 88 etc. Burlington Clerk's 52 of Chattel Mortgages Folio 8 etc. 177 of Mortgages Folio 354 etc. Camden Register's 45 of Chattel Mortgages 184 etc. 239 of Mortgages 1 etc. Cumberland Clerk's 786 of Mortgages 638 & c. Essex Register's 437 of Chattel Mortgages 1-48 T-51 of Mortgages 341-392 Gloucester Clerk's 34 of Chattel Mortgages 123 etc. 142 of Mortgages 7 etc. Hudson Register's 453 of Chattel Mortgages 9 etc. 1245 of Mortgages 484 etc. Hunterdon Clerk's 151 of Mortgages 344 PAGE COUNTY OFFICE BOOK NUMBER NUMBER - ------- ------- ----------- -------- Mercer Clerk's 67 of Chattel Mortgages 1 etc. 384 of Mortgages 1 etc. Middlesex Clerk's 113 of Chattel Mortgages 3 etc. 437 of Mortgages 294 etc. Monmouth Clerk's 951 of Mortgages 291 & c. Morris Clerk's N-3 of Chattel Mortgages 446 etc. F-10 of Mortgages 269 etc. Ocean Clerk's 1809 of Mortgages 40 Passaic Register's M-6 of Chattel Mortgages 178 etc. R-13 of Mortgages 268 etc. Salem Clerk's 267 of Mortgages 249 & c. Somerset Clerk's 46 of Chattel Mortgages 207 etc. N-10 of Mortgages 1 etc. Sussex Clerk's 123 of Mortgages 10 & c. Union Register's 128 of Chattel Mortgages 28 & c. 664 of Mortgages 259 etc. Warren Clerk's 124 of Mortgages 141 etc.
and WHEREAS, the Indenture has also been recorded in the following counties of the Commonwealth of Pennsylvania, in the offices, and therein in the books and at the pages, as follows:
PAGE COUNTY OFFICE BOOK NUMBER NUMBER - ------- ------- ----------- -------- Adams Recorder's 22 of Mortgages 105 Armstrong Recorder's 208 of Mortgages 381 Bedford Recorder's 90 of Mortgages 917 Blair Recorder's 671 of Mortgages 430 Cambria Recorder's 407 of Mortgages 352 Cumberland Recorder's 500 of Mortgages 136 Franklin Recorder's 285 of Mortgages 373 Huntingdon Recorder's 128 of Mortgages 47 Indiana Recorder's 197 of Mortgages 281 Lancaster Recorder's 984 of Mortgages 1 Montgomery Recorder's 5053 of Mortgages 1221 Westmoreland Recorder's 1281 of Mortgages 198 York Recorder's 31-V of Mortgages 446
and WHEREAS, the Indenture granted, bargained, sold, aliened, remised, released, conveyed, confirmed, assigned, transferred and set over unto the Trustee certain property of the Company, more fully set forth and described in the Indenture, then owned or which might thereafter be acquired by the Company; and WHEREAS, the Company, by various supplemental indentures, supplemental to the Indenture, the last of which was dated October 1, 1994 (No. 2), has granted, bargained, sold, aliened, remised, released, conveyed, confirmed, assigned, transferred and set over unto the Trustee certain property of the Company acquired by it after the execution and delivery of the Indenture; and WHEREAS, since the execution and delivery of said supplemental indenture dated October 1, 1994 (No. 2), the Company has acquired property which, in accordance with the provisions of the Indenture, is subject to the lien thereof and the Company desires to confirm such lien; and WHEREAS, the Indenture has been amended or supplemented from time to time; and WHEREAS, it is provided in the Indenture that no bonds other than those of the 5 1/2% Series due 1959 therein authorized may be issued thereunder unless a supplemental indenture providing for the issue of such additional bonds shall have been executed and delivered by the Company to the Trustee; and WHEREAS, the New Jersey Economic Development Authority (the "Authority") has previously issued and sold its Pollution Control Revenue Bonds, 1979 Series A (Public Service Electric and Gas Company Project) (the "1979 Authority Bonds") to finance the acquisition and construction of certain pollution control facilities at the Company's Bergen Generating Station, Burlington Generating Station, Hudson Generating Station, Kearny Generating Station, Linden Generating Station, Mercer Generating Station, Sewaren Generating Station, Central Gas Plant, Harrison Gas Plant and West End Gas Plant, all of which are located within the State of New Jersey (such generating stations and gas plants being referred to individually as a "Plant" and collectively as "Plants" and the pollution control facilities being sometimes referred to herein seperately as a "Project" and collectively as "Projects"); and WHEREAS, the Authority is making provision for the issuance and sale of its Pollution Control Revenue Refunding Bonds, 1995 Series A (Public Service Electric and Gas Company Project) (the "1995 Authority Bonds") to provide funds for making a loan to the Company to provide for refinancing of a portion of the costs of the Projects, including the refunding and redemption of the 1979 Authority Bonds; and WHEREAS, the 1995 Authority Bonds are to be issued under a Trust Indenture dated as of September 1, 1995, (the "Authority Indenture"), between the Authority and First Fidelity Bank, National Association, as trustee (the "Authority Trustee"); and WHEREAS, the Company has entered into a Pollution Control Facilities Loan Agreement dated as of September 1, 1995, (the "Agreement"), with the Authority providing, among other things, for the loan by the Authority to the Company of funds to finance a portion of the costs of the Projects, including the refunding and redemption of the 1979 Authority Bonds, and for the issuance by the Company to the Authority Trustee, as assignee of the Authority, of First and Refunding Mortgage Bonds of the Company to evidence the Company's obligation to repay said loan, and for such purposes the Company desires to provide for the issue of $42,620,000 aggregate principal amount of bonds secured by the Indenture of a series to be designated as "First and Refunding Mortgage Bonds, Pollution Control Series U" (hereinafter sometimes called "Pollution Control Series U"); and WHEREAS, the text of the bonds of the Pollution Control Series U and of the certificate of authentication to be borne by the bonds of the Pollution Control Series U shall be substantially of the following tenor: [FORM OF BOND] This Bond is not transferable except as provided in the Trust Indenture dated as of September 1, 1995 between the New Jersey Economic Development Authority and First Fidelity Bank, National Association, as Trustee (the "Authority Indenture"). Capitalized terms used herein, not otherwise expressly defined herein, shall have the meanings ascribed to them in the Authority Indenture. REGISTERED REGISTERED NUMBER AMOUNT R- $42,620,000 PUBLIC SERVICE ELECTRIC AND GAS COMPANY FIRST AND REFUNDING MORTGAGE BOND, POLLUTION CONTROL SERIES U Public Service Electric and Gas Company (hereinafter called the "Company"), a corporation of the State of New Jersey, for value received, hereby promises to pay to First Fidelity Bank, National Association, as trustee under the Authority Indenture, or registered assigns, the principal sum of Forty-Two Million Six Hundred Twenty Thousand Dollars, on September 1, 2012, and to pay interest thereon from the date hereof, at the rate of 15.0% per annum, and until payment of said principal sum, provided, however, that the Company shall receive certain credits against such obligations to the extent that interest payable by the Authority from time to time for bonds issued pursuant to the Authority Indenture (the "1995 Authority Bonds") is less than interest calculated pursuant to the foregoing rate. Such interest to be payable at such times and in such manner as interest is payable on the 1995 Authority Bonds. Both the principal hereof and interest hereon shall be paid at the principal office of First Fidelity Bank, National Association, in the City of Newark, State of New Jersey, or at the corporate trust office of any paying agent appointed by the Company, in such coin or currency of the United States of America as at the time of payment shall constitute legal tender for the payment of public and private debts. This Bond is one of the First and Refunding Mortgage Bonds of the Company issued and to be issued under and pursuant to, and all equally secured by, an indenture of mortgage or deed of trust dated August 1, 1924, between the Company and First Fidelity Bank, National Association (formerly known as Fidelity Union Trust Company), a national banking association of the United States of America, as Trustee, as supplemented and amended by the supplemental indentures thereto, including the supplemental indenture dated October 1, 1995 (No. 1). This Bond is one of the Bonds of the Pollution Control Series U, which series is limited to the aggregate principal amount of $42,620,000 and is issued pursuant to said supplemental indenture dated October 1, 1995 (No. 1). Reference is hereby made to said indenture and all supplements thereto for a specification of the principal amount of Bonds from time to time issuable thereunder, and for a description of the properties mortgaged and conveyed or assigned to said Trustee or its successors, the nature and extent of the security, and the rights of the holders of said Bonds and any coupons appurtenant thereto, and of the Trustee in respect of such security. In and by said indenture, as amended and supplemented, it is provided that with the written approval of the Company and the Trustee, any of the provisions of said indenture may from time to time be eliminated or modified and other provisions may be added thereto provided the change does not alter the annual interest rate, redemption price or date, date of maturity or amount payable on maturity of any then outstanding Bond or conflict with the Trust Indenture Act of 1939 as then in effect, and provided the holders of 85% in principal amount of the Bonds secured by said indenture and then outstanding (including, if such change affect the Bonds of one or more series but less than all series then outstanding, a like percentage of the then outstanding Bonds of each series affected by such change, and excluding Bonds owned or controlled by the Company or by the parties owning at least 10% of the outstanding voting stock of the Company, as more fully specified in said indenture) consent in writing thereto, all as more fully set forth in said indenture, as amended and supplemented. First and Refunding Mortgage Bonds issuable under said indenture are issuable in series, and the Bonds of any series may be for varying principal amounts and in the form of coupon Bonds and of registered Bonds without coupons, and the Bonds of any one series may differ from the Bonds of any other series as to date, maturity, interest rate and otherwise, all as in said indenture provided and set forth. The Bonds of the Pollution Control Series U, in which this Bond is included, are designated "First and Refunding Mortgage Bonds, Pollution Control Series U". In case of the happening of an event of default as specified in said indenture and in the supplemental indenture dated March 1, 1942 supplemental thereto, the principal sum of the Bonds of this issue may be declared or may become due and payable forthwith, in the manner and with the effect in said indenture provided. The Bonds of this series are subject to redemption as provided in said supplemental indenture dated October 1, 1995 (No. 1). This Bond is transferable, but only as provided in the Authority Indenture upon surrender hereof, by the registered owner in person or by attorney duly authorized in writing, at the principal office of the Trustee; upon any such transfer a new Bond similar hereto will be issued to the transferee. No service charge shall be made for any such transfer, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto. The Company and the Trustee and any paying agent may deem and treat the person in whose name this Bond is registered as the absolute owner hereof for the purpose of receiving payment of or on account of the principal hereof and the interest hereon and for all other purposes; and neither the Company nor the Trustee nor any paying agent shall be affected by any notice to the contrary. The Bonds of this series are issuable only in fully registered form, in any denomination authorized by the Company. No recourse under or upon any obligation, covenant or agreement contained in said indenture or in any indenture supplemental thereto, or in any Bond or coupon issued thereunder, or because of any indebtedness arising thereunder, shall be had against any incorporator, or against any past, present or future stockholder, officer or director, as such, of the Company or of any successor corporation, either directly or through the Company or any successor corporation, under any rule of law, statute or constitutional provision or by the enforcement of any assessment or by any legal or equitable proceeding or otherwise; it being expressly agreed and understood that said indenture, any indenture supplemental thereto and the obligations issued thereunder, are solely corporate obligations, and that no personal liability whatever shall attach to, or be incurred by, such incorporators, stockholders, officers or directors, as such, of the Company, or of any successor corporation, or any of them, because of the incurring of the indebtedness thereby authorized, or under or by reason of any of the obligations, covenants or agreements contained in the indenture or in any indenture supplemental thereto or in any of the Bonds or coupons issued thereunder, or implied therefrom. This Bond shall not be entitled to any security or benefit under said indenture, as amended and supplemented, and shall not become valid or obligatory for any purpose, until the certificate of authentication, hereon endorsed, shall have been signed by First Fidelity Bank, National Association, as Trustee, or by its successor in trust under said indenture. IN WITNESS WHEREOF, the Company has caused this Bond to be duly executed by its proper officers under its corporate seal. Dated PUBLIC SERVICE ELECTRIC AND GAS COMPANY, By (Vice) President (Seal) Attest: (Assistant) Secretary [FORM OF CERTIFICATE OF AUTHENTICATION] CERTIFICATE OF AUTHENTICATION This Bond is one of the Bonds of the series designated therein which are described in the within-mentioned indenture and supplemental indenture dated October 1, 1995 (No. 1), as secured thereby. FIRST FIDELITY BANK, NATIONAL ASSOCIATION, TRUSTEE, BY ------------------------ Authorized Signatory WHEREAS, the execution and delivery of this supplemental indenture have been duly authorized by the Board of Directors of the Company; and WHEREAS, the Company represents that all things necessary to make the bonds of the Pollution Control Series U hereinafter described, when duly authenticated by the Trustee and issued by the Company, valid, binding and legal obligations of the Company, and to make this supplemental indenture a valid and binding agreement supplemental to the Indenture, have been done and performed: NOW, THEREFORE, THIS SUPPLEMENTAL INDENTURE WITNESSETH that the Company, in consideration of the premises and the execution and delivery by the Trustee of this supplemental indenture, and in pursuance of the covenants and agreements contained in the Indenture and for other good and valuable consideration, the receipt of which is hereby acknowledged, has granted, bargained, sold, aliened, remised, released, conveyed, confirmed, assigned, transferred and set over, and by these presents does grant, bargain, sell, alien, remise, release, convey, confirm, assign, transfer and set over unto the Trustee, its successors and assigns, forever, all the right, title and interest of the Company in and to all property of every kind and description (except cash, accounts and bills receivable and all merchandise bought, sold or manufactured for sale in the ordinary course of the Company's business, stocks, bonds or other corporate obligations or securities, other than such as are described in Part V of the Granting Clauses of the Indenture, not acquired with the proceeds of bonds secured by the Indenture, and except as in the Indenture and herein otherwise expressly excluded) acquired by the Company since the execution and delivery of the supplemental indenture dated October 1, 1994 (No. 2), supplemental to the Indenture (except any such property duly released from, or disposed of free from, the lien of the Indenture, in accordance with the provisions thereof) and all such property which at any time hereafter may be acquired by the Company; All of which property it is intended shall be included in and granted by this supplemental indenture and covered by the lien of the Indenture as heretofore and hereby amended and supplemented; UNDER AND SUBJECT to any encumbrances or mortgages existing on property acquired by the Company at the time of such acquisition and not heretofore discharged of record; and SUBJECT, also, to the exceptions, reservations and provisions in the Indenture and in this supplemental indenture recited, and to the liens, reservations, exceptions, limitations, conditions and restrictions imposed by or contained in the several deeds, grants, franchises and contracts or other instruments through which the Company acquired or claims title to the aforesaid property; and SUBJECT, also, to existing leases, to liens on easements or rights of way, to liens for taxes, assessments and governmental charges not in default or the payment of which is deferred, pending appeal or other contest by legal proceedings, pursuant to Section 4 of Article Five of the Indenture, or the payment of which is deferred pending billing, transfer of title or final determination of amount, to easements for alleys, streets, highways, rights of way and railroads that may run across or encroach upon the said property, to joint pole and similar agreements, to undetermined liens and charges, if any, incidental to construction, and other encumbrances permitted by the Indenture as heretofore and hereby amended and supplemented; TO HAVE AND TO HOLD the property hereby conveyed or assigned, or intended to be conveyed or assigned, unto the Trustee, its successor or successors and assigns, forever; IN TRUST, NEVERTHELESS, upon the terms, conditions and trusts set forth in the Indenture as heretofore and hereby amended and supplemented, to the end that the said property shall be subject to the lien of the Indenture as heretofore and hereby amended and supplemented, with the same force and effect as though said property had been included in the Granting Clauses of the Indenture at the time of the execution and delivery thereof; AND THIS SUPPLEMENTAL INDENTURE FURTHER WITNESSETH that for the considerations aforesaid, it is hereby covenanted between the Company and the Trustee as follows: ARTICLE I. BONDS OF THE POLLUTION CONTROL SERIES U. The series of bonds authorized by this supplemental indenture to be issued under and secured by the Indenture shall be designated "First and Refunding Mortgage Bonds, Pollution Control Series U"; shall be limited to the aggregate principal amount of $42,620,000; shall be issued initially to the Authority Trustee, as assignee of the Authority, to evidence the Company's obligation to repay the loan to finance a portion of the costs of the Projects made pursuant to the Agreement; and shall mature and bear interest as set forth in the form of bond hereinbefore described; provided, however, that the Company shall receive certain credits against principal and interest obligations as set forth in Section 3.01 hereof. The date of each bond of the Pollution Control Series U shall be the interest payment date next preceding the date of authentication, unless such date of authentication be an interest payment date, in which case the date shall be the date of authentication, or unless such date of authentication be prior to the first interest payment date, in which case the date shall be October 1, 1995. Bonds of the Pollution Control Series U shall be issued as fully registered bonds in any denomination authorized by the Company. Interest on bonds of the Pollution Control Series U shall be payable at such time and in such manner as interest is payable on the 1995 Authority Bonds, subject to certain credits against principal and interest as set forth in Section 3.01 hereof and shall be payable as to both principal and interest in such coin or currency of the United States of America as at the time of payment shall constitute legal tender for the payment of public and private debts, at the principal office of the Trustee, or at the corporate trust office of any paying agent appointed by the Company. Bonds of the Pollution Control Series U shall be transferable (but only as provided in the Authority Indenture) upon surrender thereof for cancellation by the registered owner in person or by attorney duly authorized in writing at said office of the Trustee. The Company hereby waives any right to make a charge for any transfer of bonds of the Pollution Control Series U, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto. ARTICLE II. REDEMPTION OF BONDS--POLLUTION CONTROL SERIES U. SECTION 2.01. Redemption--Redemption Prices. Bonds of the Pollution Control Series U shall be subject to redemption prior to maturity, under the conditions and upon the payment of the amounts specified in the following subsections, together in each case with interest accrued to the redemption date: (a) at the option of the Company (i) whenever the Interest Rate Mode for the 1995 Authority Bonds is the Daily Rate or the Weekly Rate, in whole or in part, at a redemption price of 100% of the principal amount thereof on any Interest Payment Date; (ii) whenever the Interest Rate Mode for the 1995 Authority Bonds is the Commercial Paper Rate, in whole or in part, at a redemption price of 100% of the principal amount thereof on the Interest Payment Date for each Commercial Paper Rate Period for an Authority Bond or Bonds, such redemption to be in the same principal amount of such Authority Bond or Bonds; (iii) whenever the Interest Rate Mode for the 1995 Authority Bonds is the Auction Rate, in whole or in part, at a redemption price of 100% of the principal amount thereof on the final Interest Payment Date for each Auction Period; (iv) whenever the Interest Rate Mode for the 1995 Authority Bonds is the Term Rate, in whole or in part, on the final Interest Payment Date for the then current Term Rate Period and, prior to the end of the then current Term Rate Period, at any time during the redemption periods and at the redemption prices set forth below, plus interest accrued, if any, to the redemption date:
ORIGINAL LENGTH OF CURRENT COMMENCEMENT OF REDEMPTION PRICE AS TERM RATE PERIOD (YEARS) REDEMPTION PERIOD PERCENTAGE OF PRINCIPAL - -------------------------- ----------------- ----------------------- More than 15 years Tenth anniversary of 102% declining by 1% on each commencement of succeeding anniversary of the Term Rate Period first day of the redemption period until reaching 100% and thereafter 100% More than 10 but not more Seventh anniversary 102% declining by 1% on each than 15 years of commencement of succeeding anniversary of the Term Rate Period first day of the redemption period until reaching 100% and thereafter 100% More than 5 but not more Fifth anniversary of 101% declining by 1% on each than 10 years commencement of succeeding anniversary of the Term Rate Period first day of the redemption period until reaching 100% and thereafter 100% More than 2 but not more Second anniversary of 100% on and after such second than 5 years commencement of anniversary of the first day Term Rate Period of the redemption period 2 years or less Non-callable Non-callable If, at the time of the Company's notice of a change in the Term Rate Period pursuant to Section 2.02(d) of the Authority Indenture, or its notice of Conversion of the Interest Rate Mode for the 1995 Authority Bonds to the Term Rate pursuant to Section 2.02(e) of the Authority Indenture, or, when the Interest Rate Mode for the 1995 Authority Bonds is the Term Rate, at least 35 days prior to the Purchase Date for the 1995 Authority Bonds pursuant to Section 3.01(b)(i) of the Authority Indenture, the Company provides a certification of the Remarketing Agent to the Authority Trustee and the Authority that the foregoing schedule is not consistent with prevailing market conditions and an opinion of nationally recognized bond counsel that a change in the redemption provisions of the 1995 Authority Bonds will not adversely affect the exclusion from gross income of interest on the 1995 Authority Bonds for Federal income tax purposes, the foregoing redemption periods and redemption prices may be revised effective as of the date of such change in the Term Rate Period, the Conversion Date, or that Purchase Date, as determined by the Remarketing Agent in its judgment, taking into account the then Prevailing Market Conditions, as stipulated in such certification, which shall be appended by the Trustee to its counterpart of this supplemental indenture. Any such revision of redemption periods or redemption prices shall not be considered an amendment of or supplement to this supplemental indenture and shall not require the consent of any other person or entity. (b) in whole or in part (if, in the opinion of nationally recognized bond counsel, such partial redemption will preserve the exclusion from gross income for Federal income tax purposes of interest on the remaining 1995 Authority Bonds) at any time at 100% of the principal amount thereof to be redeemed, within 180 days after a "final determination" (i.e., the issuance of a published or private ruling or technical advice) of the Internal Revenue Service or a judicial decision in a proceeding by any court of competent jurisdiction in the United States (from which ruling, advice or decision no further right of appeal exists), in all cases in which the Company has participated or been a party or has been given an opportunity to participate and has failed to do so (no such decree or judgment by any court or action by the Internal Revenue Service to be considered final unless the owner of the 1995 Authority Bonds involved in such proceeding or action has given the Company and the Authority Trustee prompt written notice of the commencement thereof and offered the Company, at the Company's expense, the opportunity to control thedefense thereof) that, as a result of a failure by the Company to observe any covenant, agreement, representation or warranty in the Agreement, the interest payable on the 1995 Authority Bonds is includable in the gross income for Federal income tax purposes of the holder thereof, other than a "substantial user" of the Project or a "related person" as provided in Section 147(a) of the Internal Revenue Code of 1986, as amended, and the applicable regulations thereunder. (c) in whole at 100% of the principal amount thereof whenever the Company receives from the Authority Trustee a copy of a written demand sent to the Trustee stating that the principal of all outstanding 1995 Authority Bonds has been declared to be immediately due and payable because of an Event of Default under the Authority Indenture. In such case, redemption of the Bonds of the Pollution Control Series U shall be any date selected by the Company, not more than 180 days after receipt by the Company of such written demand for redemption. (d) to the extent that any of the 1995 Authority Bonds shall have become Provider Bonds, (i) on the Provider Bond Redemption Date in an amount equal to the aggregate principal amount of Provider Bonds outstanding at the expiration of the Liquidity Facility at 100% of the principal amount thereof and (ii) on each of the first four anniversaries of the expiration of the Liquidity Facility at the rate of 20% per year of the aggregate principal amount of Provider Bonds outstanding at the expiration of the Liquidity Facility at 100% of the principal amount thereof. SECTION 2.02. Notice of Redemption. (a) The election of the Company under subsection (a) of Section 2.01 hereof to redeem any of the bonds of the Pollution Control Series U shall be evidenced by a resolution of the Board of Directors of the Company calling for redemption on a stated date of all or a stated principal amount thereof. To exercise its option to redeem the bonds of the Pollution Control Series U under subsection (a) of Section 2.01 hereof, the Company shall deliver to the Trustee, the Authority and the Authority Trustee a certified copy of said resolution calling all or a stated principal amount of the bonds of the Pollution Control Series U for redemption on a date not less than 20 days (35 days if the Interest Rate Mode is the Term Rate) nor more than 65 days from the date said resolution is delivered. The delivery to the Authority Trustee of a certified copy of such resolution shall constitute notice to the Authority Trustee of the redemption referred to therein, on the terms specified therein. The Company shall on or before such redemption date deposit with the Trustee, as paying agent hereunder, the total applicable redemption price of all the bonds so called, with interest accrued thereon to the redemption date, less any credits to which the Company may be entitled pursuant to Section 3.01 hereof, and the Trustee, as such paying agent, shall apply such funds on the redemption date to the redemption of the bonds so called. (b) The Company shall, within 10 days after the occurrence of a "final determination" under subsection (b) of Section 2.01 hereof, deliver to the Trustee written notice of such "final determination". The Company shall, by resolution of its Board of Directors, fix a redemption date for such redemption and shall deliver to the Trustee, the Authority and the Authority Trustee a certified copy of said resolution at least 40 days prior to the date so selected for redemption. Such redemption date may be any day not more than 180 days after the occurrence of such "final determination". If the Trustee does not receive written notice of such selection by the Company within 140 days after the date of the occurrence of such "final determination", then the redemption date shall be the 180th day after the occurrence of such "final determination". On or before such redemption date, the Company shall deposit with the Trustee, as paying agent hereunder, the total redemption price of the bonds so called, with interest accrued thereon to the redemption date, less any credits to which the Company may be entitled pursuant to Section 3.01 hereof, and the Trustee, as such paying agent, shall apply such funds, on the redemption date, to the redemption of the bonds so called. The delivery to the Authority Trustee of a certified copy of such resolution shall constitute notice to the Authority Trustee of the redemption referred to therein on the terms specified therein. (c) The Company shall, within 10 days after the receipt of a written demand under subsection (c) of Section 2.01 hereof, by resolution of its Board of Directors, fix a redemption date for such redemption and shall deliver to the Trustee, the Authority and the Authority Trustee a certified copy of said resolution at least 40 days prior to the date so selected for redemption. Such redemption date may be any day not more than 180 days after the receipt of such written demand. If the Trustee does not receive written notice of such selection by the Company within 140 days after the date of the receipt of such written demand, then the redemption date shall be the 180th day after the receipt of such written demand. On or before such redemption date, the Company shall deposit with the Trustee, as paying agent hereunder, the total redemption price of the bonds so called, with interest accrued thereon to the redemption date, less any credits to which the Company may be entitled pursuant to Section 3.01 hereof, and the Trustee, as such paying agent, shall apply such funds, on the redemption date, to the redemption of the bonds so called. SECTION 2.03. Interest on Called Bonds to Cease. Each bond or portion thereof of the Pollution Control Series U called for redemption under Section 2.02 hereof shall be due and payable at the office of the Trustee, as paying agent hereunder, at the applicable redemption price and on the specified redemption date, anything herein or in such bond to the contrary notwithstanding. From and after the date when each bond or portion thereof of the Pollution Control Series U shall be due and payable as aforesaid (unless upon said date the full amount due thereon shall not be held by or provided to the Trustee, as paying agent hereunder, and be immediately available for payment), all further interest shall cease to accrue on such bond or on such portion thereof, as the case may be. SECTION 2.04. Bonds Called in Part. If only a portion of any bond of the Pollution Control Series U shall be called for redemption pursuant to Section 2.02 hereof, the notice of redemption hereinbefore provided for shall specify the portion of the principal amount thereof to be redeemed. Upon payment of the portion so called for redemption, the Trustee, as paying agent hereunder, shall give prompt written notice thereof to the Company. SECTION 2.05. Provisions of Indenture Not Applicable. The provisions of Article Four of the Indenture, as amended and supplemented, shall not apply to the procedure for the exercise of any right of redemption reserved by the Company, or to any mandatory redemption provided in this Article in respect of the bonds of the Pollution Control Series U. There shall be no sinking fund for the bonds of the Pollution Control Series U. ARTICLE III. CREDITS WITH RESPECT TO THE BONDS OF THE POLLUTION CONTROL SERIES U. SECTION 3.01. Credits. (a) In addition to any other credit, payment or satisfaction to which the Company is entitled with respect to the Bonds of the Pollution Control Series U, the Company shall be entitled credits against amounts otherwise payable in respect of the Bonds of the Pollution Control Series U in an amount corresponding to the amount by which interest due on the Bonds of the Pollution Control Series U exceeds the interest due on the 1995 Authority Bonds. (b) The Company shall be entitled to credits against amounts otherwise payable in respect of the bonds of the Pollution Control Series U in an amount corresponding to (i) the principal amount of any 1995 Authority Bond surrendered to the Authority Trustee by the Company or the Authority, or purchased by the Authority Trustee, for cancellation and (ii) the amount of money held by the Authority Trustee and available and designated for or applied toward the payment of principal or redemption price of and interest on the 1995 Authority Bonds, as the case may be, regardless of the source of payment to the Authority Trustee of such moneys; provided, however, that the Company shall not be entitled to any such credit with respect to amounts paid to the Authority Trustee pursuant to the Bond Insurance Policy. The Trustee, as paying agent hereunder, shall give prompt written notice to the Company of any such credit with respect to the payment of interest. (c) The Trustee, as paying agent hereunder, shall (i) promptly notify the Company of each deposit in the Bond Fund under the Authority Indenture, (ii) provide evidence to the Company that such deposit has been credited to such Fund and (iii) give prompt written notice to the Company of any credits with respect to payment of principal or redemption price of and interest on the bonds of the Pollution Control Series U. SECTION 3.02. Certificate of the Company. A certificate of the Company signed by the President, any Vice President or any Assistant Treasurer, and attested to by the Secretary or any Assistant Secretary, and consented to by the Authority Trustee, stating that the Company is entitled to a credit under Section 3.01 hereof and setting forth the basis therefor in reasonable detail, shall be conclusive evidence of such entitlement, and the Trustee shall accept such certificate as such evidence without further investigation or verification of the matters stated therein. ARTICLE IV. MISCELLANEOUS. SECTION 4.01. Authentication of Bonds of Pollution Control Series U. None of the bonds of the Pollution Control Series U, the issue of which is provided for by this supplemental indenture, shall be authenticated by the Trustee except in accordance with the provisions of the Indenture, as amended and supplemented, and this supplemental indenture, and upon compliance with the conditions in that behalf therein contained. SECTION 4.02. Additional Restrictions on Authentication of Additional Bonds Under Indenture. The Company covenants that from and after the date of execution of this supplemental indenture, no additional bonds (as defined in Section 1 of Article Two of the Indenture) shall be authenticated and delivered by the Trustee under Subdivision A of Section 4 of said Article Two on account of additions or improvements to the mortgaged property (1) unless the net earnings of the Company for the period required by Subdivision C of Section 6 of said Article Two shall have been at least twice the fixed charges (in lieu of 1 3/4 times such fixed charges, as required by said Subdivision C); and for the purpose of this condition (a) such fixed charges shall in each case include interest on the bonds applied for, notwithstanding the parenthetical provision contained in clause (4) of said Subdivision C, and (b) in computing such net earnings there shall be included in expenses of operation (under paragraph (c) of said Subdivision C) all charges against earnings for depreciation, renewals or replacements, and all certificates with respect to net earnings delivered to the Trustee in connection with any authentication of additional bonds under said Article Two shall so state; and (2) except to the extent of 60% (in lieu of 75% as permitted by Subdivision A of Section 7 of said Article Two) of the cost or fair value to the Company of the additions or improvements forming the basis for such authentication of additional bonds. SECTION 4.03. Restriction on Dividends. The Company will not declare or pay any dividend on any shares of its common stock (other than dividends payable in shares of its common stock) or make any other distribution on any such shares, or purchase or otherwise acquire any such shares (except shares acquired without cost to the Company) whenever such action would reduce the earned surplus of the Company to an amount less than $10,000,000 or such lesser amount as may remain after deducting from said $10,000,000 all amounts appearing in the books of account of the Company on December 31, 1948, which shall thereafter, pursuant to any order or rule of any regulatory body entered after said date, be required to be removed, in whole or in part, from the books of account of the Company by charges to earned surplus. SECTION 4.04. Use of Facsimile Seal and Signatures. The seal of the Company and any or all signatures of the officers of the Company upon any of the bonds of the Pollution Control Series U may be facsimiles. SECTION 4.05. Effective Period of Supplemental Indenture. The preceding provisions of Articles I, II and III of this supplemental indenture shall remain in effect only so long as any of the bonds of the Pollution Control Series U shall remain outstanding. SECTION 4.06. Time for Making of Payment. All payments of principal or redemption price of and interest on the bonds of the Pollution Control Series U shall be made to the Authority Trustee in such funds as shall constitute immediately available funds when payment is due. In any case where the date of payment of the principal or redemption price of or interest on the bonds of the Pollution Control Series U or the date fixed for redemption of any such bonds shall be in the city of payment a Saturday, Sunday or a legal holiday or a day on which banking institutions are authorized by law to close, then such payment need not be made on such date but may be made on the next succeeding business day with the same force and effect as if made on the date of maturity or the date fixed for redemption, and no interest on such payment shall accrue for the period after such date. SECTION 4.07. Effect of Approval of Board of Public Utilities of the State of New Jersey. The approval of the Board of Public Utilities of the State of New Jersey of the execution and delivery of these presents and of the issue of any bonds of the Pollution Control Series U shall not be construed as approval of said Board of any other act, matter or thing which requires approval of said Board under the laws of the State of New Jersey. SECTION 4.08. Execution in Counterparts. For the purpose of facilitating the recording hereof, this supplemental indenture has been executed in several counterparts, each of which shall be and shall be taken to be an original, and all collectively but one instrument. IN WITNESS WHEREOF, Public Service Electric and Gas Company, party hereto of the first part, after due corporate and other proceedings, has caused this supplemental indenture to be signed and acknowledged or proved by its President or one of its Vice Presidents and its corporate seal hereunto to be affixed and to be attested by the signature of its Secretary or an Assistant Secretary; and First Fidelity Bank, National Association, as Trustee, party hereto of the second part, has caused this supplemental indenture to be signed and acknowledged or proved by its President, one of its Vice Presidents or one of its Assistant Vice Presidents and its corporate seal to be hereunto affixed and to be attested by the signature of one of its Assistant Vice Presidents, its Cashier, one of its Assistant Cashiers, or one of its Corporate Trust Officers. Executed and delivered this 2nd day of October, 1995. PUBLIC SERVICE ELECTRIC AND GAS COMPANY By /s/ (F. J. Riepl) Vice President Attest: /s/ (E. J. Biggins, Jr.) Assistant Secretary FIRST FIDELITY BANK, NATIONAL ASSOCIATION By /s/ (F. Gallagher) Vice President Attest: /s/ (J.J. Waters) Assistant Vice President STATE OF NEW JERSEY ss.: COUNTY OF ESSEX BE IT REMEMBERED, that on this 2nd day of October, 1995, before me, the subscriber, a Notary Public of the State of New Jersey, personally appeared F. J. Riepl who, I am satisfied, is a Vice President of PUBLIC SERVICE ELECTRIC AND GAS COMPANY, one of the corporations named in and which executed the foregoing instrument, and is the person who signed the said instrument as such officer for and on behalf of such corporation, and I having first made known to him the contents thereof, he did acknowledge that he signed the said instrument as such officer, that the said instrument was made by such corporation and sealed with its corporate seal, that the said instrument is the voluntary act and deed of such corporation, made by virtue of authority from its Board of Directors, and that said corporation, the mortgagor, has received a true copy of said instrument. Notarized by Irene Roxanne Prignamo Notary Public of New Jersey STATE OF NEW JERSEY ss.: COUNTY OF ESSEX BE IT REMEMBERED, that on this 2nd day of October, 1995, before me, the subscriber, a Notary Public of the State of New Jersey, personally appeared F. Gallagher who, I am satisfied, is a Vice President of FIRST FIDELITY BANK, NATIONAL ASSOCIATION, one of the corporations named in and which executed the foregoing instrument, and is the person who signed the said instrument as such officer, for and on behalf of such corporation, and I having first made known to him the contents thereof, he did acknowledge that he signed the said instrument as such officer, that the said instrument was made by such corporation and sealed with its corporate seal; and that the said instrument is the voluntary act and deed of such corporation, made by virtue of authority from its Board of Directors. Notarized by Jean M. Seiz Notary Public of New Jersey CERTIFICATE OF RESIDENCE First Fidelity Bank, National Association, Mortgagee and Trustee within named, hereby certifies that its precise residence is 765 Broad Street, Newark, New Jersey 07101. FIRST FIDELITY BANK, NATIONAL ASSOCIATION By /s/ (F. Gallagher) Assistant Vice President
EX-4.B 8 EX-4.B SUPPLEMENTAL MORTGAGE - ----------------------------------------------------------------- Supplemental Indenture DATED OCTOBER 1, 1995 (NO. 2) ------------------ SUPPLEMENTAL TO FIRST AND REFUNDING MORTGAGE DATED AUGUST 1, 1924 ------------------ PUBLIC SERVICE ELECTRIC AND GAS COMPANY TO FIRST FIDELITY BANK, NATIONAL ASSOCIATION, TRUSTEE 765 BROAD STREET NEWARK, NEW JERSEY 07101 ------------------ PROVIDING FOR THE ISSUE OF FIRST AND REFUNDING MORTGAGE BONDS, POLLUTION CONTROL SERIES V - ------------------------------------------------------------------ RECORD IN MORTGAGE BOOK AND RETURN TO: JAMES T. FORAN, ESQ. 80 PARK PLAZA, T5B P.O. BOX 570 NEWARK, N.J. 07101 This instrument prepared by (EDWARD C. FEDAK, ESQ.) TABLE OF CONTENTS ------------------ PAGE ----- RECITALS................................................. 1 FORM OF BOND............................................. 4 FORM OF CERTIFICATE OF AUTHENTICATION.................... 9 GRANTING CLAUSES......................................... 9 ARTICLE I. BONDS OF THE POLLUTION CONTROL SERIES V. DESCRIPTION OF POLLUTION CONTROL SERIES V................ 11 ARTICLE II. REDEMPTION OF BONDS--POLLUTION CONTROL SERIES V. SECTION 2.01. Redemption--Redemption Prices............ 12 SECTION 2.02. Notice of Redemption..................... 15 SECTION 2.03. Interest on Called Bonds to Cease........ 17 SECTION 2.04. Bonds Called in Part..................... 17 SECTION 2.05. Provisions of Indenture not Applicable... 17 ARTICLE III. CREDITS WITH RESPECT TO THE BONDS OF THE POLLUTION CONTROL SERIES V. SECTION 3.01. Credits.................................. 18 SECTION 3.02. Certificate of the Company............... 19 ARTICLE IV. MISCELLANEOUS. SECTION 4.01. Authentication of Bonds of Pollution Control Series V............................... 19 SECTION 4.02. Additional Restrictions on Authentication of Additional Bonds Under Indenture.... 19 SECTION 4.03. Restriction on Dividends................. 20 SECTION 4.04. Use of Facsimile Seal and Signatures..... 21 SECTION 4.05. Effective Period of Supplemental Indenture.. 21 TABLE OF CONTENTS ------------------ PAGE ----- SECTION 4.06. Time for Making of Payment............... 21 SECTION 4.07. Effect of Approval of Board of Public Utilities of the State of New Jersey... 21 SECTION 4.08. Execution in Counterparts................ 21 Acknowledgments.......................................... 22 Certificate of Residence................................. 24
SUPPLEMENTAL INDENTURE, dated the 1st day of October, 1995, for convenience of reference and effective from the time of execution and delivery hereof, between PUBLIC SERVICE ELECTRIC AND GAS COMPANY, a corporation organized under the laws of the State of New Jersey, hereinafter called the "Company", party of the first part, and FIRST FIDELITY BANK, NATIONAL ASSOCIATION, a national banking association organized under the laws of the United States of America, as Trustee under the indenture dated August 1, 1924, below mentioned, hereinafter called the "Trustee", party of the second part. WHEREAS, on July 25, 1924, the Company executed and delivered to Fidelity Union Trust Company (now known as First Fidelity Bank, National Association), a certain indenture dated August 1, 1924 (hereinafter called the "Indenture"), to secure and to provide for the issue of First and Refunding Mortgage Gold Bonds of the Company; and WHEREAS, the Indenture has been recorded in the following counties of the State of New Jersey, in the offices, and therein in the books and at the pages, as follows: PAGE COUNTY OFFICE BOOK NUMBER NUMBER - ------- -------- -------------------- --------------- Atlantic Clerk's 1955 of Mortgages 160 Bergen Clerk's 94 of Chattel Mortgages 123 etc. 693 of Mortgages 88 etc. Burlington Clerk's 52 of Chattel Mortgages Folio 8 etc. 177 of Mortgages Folio 354 etc. Camden Register's 45 of Chattel Mortgages 184 etc. 239 of Mortgages 1 etc. Cumberland Clerk's 786 of Mortgages 638 & c. Essex Register's 437 of Chattel Mortgages 1-48 T-51 of Mortgages 341-392 Gloucester Clerk's 34 of Chattel Mortgages 123 etc. 142 of Mortgages 7 etc. Hudson Register's 453 of Chattel Mortgages 9 etc. 1245 of Mortgages 484 etc. Hunterdon Clerk's 151 of Mortgages 344 Mercer Clerk's 67 of Chattel Mortgages 1 etc. 384 of Mortgages 1 etc. Middlesex Clerk's 113 of Chattel Mortgages 3 etc. COUNTY OFFICE BOOK NUMBER NUMBER - ------- -------- -------------------- --------------- 437 of Mortgages 294 etc. Monmouth Clerk's 951 of Mortgages 291 & c. Morris Clerk's N-3 of Chattel Mortgages 446 etc. F-10 of Mortgages 269 etc. Ocean Clerk's 1809 of Mortgages 40 Passaic Register's M-6 of Chattel Mortgages 178 etc. R-13 of Mortgages 268 etc. Salem Clerk's 267 of Mortgages 249 & c. Somerset Clerk's 46 of Chattel Mortgages 207 etc. N-10 of Mortgages 1 etc. Sussex Clerk's 123 of Mortgages 10 & c. Union Register's 128 of Chattel Mortgages 28 & c. 664 of Mortgages 259 etc. Warren Clerk's 124 of Mortgages 141 etc.
and WHEREAS, the Indenture has also been recorded in the following counties of the Commonwealth of Pennsylvania, in the offices, and therein in the books and at the pages, as follows: PAGE COUNTY OFFICE BOOK NUMBER NUMBER - -------- ----------- ---------------------- ----------- Adams Recorder's 22 of Mortgages 105 Armstrong Recorder's 208 of Mortgages 381 Bedford Recorder's 90 of Mortgages 917 Blair Recorder's 671 of Mortgages 430 Cambria Recorder's 407 of Mortgages 352 Cumberland Recorder's 500 of Mortgages 136 Franklin Recorder's 285 of Mortgages 373 Huntingdon Recorder's 128 of Mortgages 47 Indiana Recorder's 197 of Mortgages 281 Lancaster Recorder's 984 of Mortgages 1 Montgomery Recorder's 5053 of Mortgages 1221 Westmoreland Recorder's 1281 of Mortgages 198 York Recorder's 31-V of Mortgages 446
and WHEREAS, the Indenture granted, bargained, sold, aliened, remised, released, conveyed, confirmed, assigned, transferred and set over unto the Trustee certain property of the Company, more fully set forth and described in the Indenture, then owned or which might thereafter be acquired by the Company; and WHEREAS, the Company, by various supplemental indentures, supplemental to the Indenture, the last of which was dated October 1, 1994 (No. 2), has granted, bargained, sold, aliened, remised, released, conveyed, confirmed, assigned, transferred and set over unto the Trustee certain property of the Company acquired by it after the execution and delivery of the Indenture; and WHEREAS, since the execution and delivery of said supplemental indenture dated October 1, 1994 (No. 2), the Company has acquired property which, in accordance with the provisions of the Indenture, is subject to the lien thereof and the Company desires to confirm such lien; and WHEREAS, the Indenture has been amended or supplemented from time to time; and WHEREAS, it is provided in the Indenture that no bonds other than those of the 5 1/2% Series due 1959 therein authorized may be issued thereunder unless a supplemental indenture providing for the issue of such additional bonds shall have been executed and delivered by the Company to the Trustee; and WHEREAS, the York County Industrial Development Authority (the "Authority") has previously issued and sold its Pollution Control Revenue Bonds, 1976 Series A (Public Service Electric and Gas Company Peach Bottom Project) (the "1976 Authority Bonds") to finance the Company's share of the cost of the acquisition and construction of certain pollution control facilities at the Peach Bottom Atomic Power Station Units 1 and 2 located principally in Peach Bottom Township, York County, Pennsylvania (such station being referred to as the "Plant" and the pollution control facilities being referred to herein as the "Project"); and WHEREAS, the Authority is making provision for the issuance and sale of its Pollution Control Revenue Refunding Bonds, 1995 Series A (Public Service Electric and Gas Peach Bottom Company Project) (the "1995 Authority Bonds") to provide funds to pay a portion of the costs of refunding through redemption of the 1976 Authority Bonds; and WHEREAS, the 1995 Authority Bonds are to be issued under a Trust Indenture dated as of September 1, 1995, (the "Authority Indenture"), between the Authority and First Fidelity Bank, National Association, as trustee (the "Authority Trustee"); and WHEREAS, the Company has entered into a Pollution Control Facilities Agreement dated as of October 1, 1976, (the "Agreement"), with the Authority and the other owners of the Plant providing, among other things, for the sale and conveyance by the Authority to the Company of the Project, and for the issuance by the Company to the Authority Trustee, as assignee of the Authority, of First and Refunding Mortgage Bonds of the Company to evidence the Company's obligation to pay the purchase price for the Project, and for such purposes, in connection with the issuance of the 1995 Authority Bonds, the Company desires to provide for the issue of $13,700,000 aggregate principal amount of bonds secured by the Indenture of a series to be designated as "First and Refunding Mortgage Bonds, Pollution Control Series V" (hereinafter sometimes called "Pollution Control Series V"); and WHEREAS, the text of the bonds of the Pollution Control Series V and of the certificate of authentication to be borne by the bonds of the Pollution Control Series V shall be substantially of the following tenor: [FORM OF BOND] This Bond is not transferable except as provided in the Trust Indenture dated as of September 1, 1995 between the York County Industrial Development Authority and First Fidelity Bank, National Association, as Trustee (the "Authority Indenture"). Capitalized terms used herein, not otherwise expressly defined herein, shall have the meanings ascribed to them in the Authority Indenture. REGISTERED REGISTERED NUMBER AMOUNT R- $13,700,000
PUBLIC SERVICE ELECTRIC AND GAS COMPANY FIRST AND REFUNDING MORTGAGE BOND, POLLUTION CONTROL SERIES V Public Service Electric and Gas Company (hereinafter called the "Company"), a corporation of the State of New Jersey, for value received, hereby promises to pay to First Fidelity Bank, National Association, as trustee under the Authority Indenture, or registered assigns, the principal sum of Thirteen Million Seven Hundred Thousand Dollars, on September 1, 2020, and to pay interest thereon from the date hereof, at the rate of 15.0% per annum, and until payment of said principal sum, provided, however, that the Company shall receive certain credits against such obligations to the extent that interest payable by the Authority from time to time for bonds issued pursuant to the Authority Indenture (the "1995 Authority Bonds") is less than interest calculated pursuant to the foregoing rate. Such interest to be payable at such times and in such manner as interest is payable on the 1995 Authority Bonds. Both the principal hereof and interest hereon shall be paid at the principal office of First Fidelity Bank, National Association, in the City of Newark, State of New Jersey, or at the corporate trust office of any paying agent appointed by the Company, in such coin or currency of the United States of America as at the time of payment shall constitute legal tender for the payment of public and private debts. This Bond is one of the First and Refunding Mortgage Bonds of the Company issued and to be issued under and pursuant to, and all equally secured by, an indenture of mortgage or deed of trust dated August 1, 1924, between the Company and First Fidelity Bank, National Association (formerly known as Fidelity Union Trust Company), a national banking association of the United States of America, as Trustee, as supplemented and amended by the supplemental indentures thereto, including the supplemental indenture dated October 1, 1995 (No. 2). This Bond is one of the Bonds of the Pollution Control Series V, which series is limited to the aggregate principal amount of $13,700,000 and is issued pursuant to said supplemental indenture dated October 1, 1995 (No. 2). Reference is hereby made to said indenture and all supplements thereto for a specification of the principal amount of Bonds from time to time issuable thereunder, and for a description of the properties mortgaged and conveyed or assigned to said Trustee or its successors, the nature and extent of the security, and the rights of the holders of said Bonds and any coupons appurtenant thereto, and of the Trustee in respect of such security. In and by said indenture, as amended and supplemented, it is provided that with the written approval of the Company and the Trustee, any of the provisions of said indenture may from time to time be eliminated or modified and other provisions may be added thereto provided the change does not alter the annual interest rate, redemption price or date, date of maturity or amount payable on maturity of any then outstanding Bond or conflict with the Trust Indenture Act of 1939 as then in effect, and provided the holders of 85% in principal amount of the Bonds secured by said indenture and then outstanding (including, if such change affect the Bonds of one or more series but less than all series then outstanding, a like percentage of the then outstanding Bonds of each series affected by such change, and excluding Bonds owned or controlled by the Company or by the parties owning at least 10% of the outstanding voting stock of the Company, as more fully specified in said indenture) consent in writing thereto, all as more fully set forth in said indenture, as amended and supplemented. First and Refunding Mortgage Bonds issuable under said indenture are issuable in series, and the Bonds of any series may be for varying principal amounts and in the form of coupon Bonds and of registered Bonds without coupons, and the Bonds of any one series may differ from the Bonds of any other series as to date, maturity, interest rate and otherwise, all as in said indenture provided and set forth. The Bonds of the Pollution Control Series V, in which this Bond is included, are designated "First and Refunding Mortgage Bonds, Pollution Control Series V". In case of the happening of an event of default as specified in said indenture and in the supplemental indenture dated March 1, 1942 supplemental thereto, the principal sum of the Bonds of this issue may be declared or may become due and payable forthwith, in the manner and with the effect in said indenture provided. The Bonds of this series are subject to redemption as provided in said supplemental indenture dated October 1, 1995 (No. 2). This Bond is transferable, but only as provided in the Authority Indenture upon surrender hereof, by the registered owner in person or by attorney duly authorized in writing, at the principal office of the Trustee; upon any such transfer a new Bond similar hereto will be issued to the transferee. No service charge shall be made for any such transfer, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto. The Company and the Trustee and any paying agent may deem and treat the person in whose name this Bond is registered as the absolute owner hereof for the purpose of receiving payment of or on account of the principal hereof and the interest hereon and for all other purposes; and neither the Company nor the Trustee nor any paying agent shall be affected by any notice to the contrary. The Bonds of this series are issuable only in fully registered form, in any denomination authorized by the Company. No recourse under or upon any obligation, covenant or agreement contained in said indenture or in any indenture supplemental thereto, or in any Bond or coupon issued thereunder, or because of any indebtedness arising thereunder, shall be had against any incorporator, or against any past, present or future stockholder, officer or director, as such, of the Company or of any successor corporation, either directly or through the Company or any successor corporation, under any rule of law, statute or constitutional provision or by the enforcement of any assessment or by any legal or equitable proceeding or otherwise; it being expressly agreed and understood that said indenture, any indenture supplemental thereto and the obligations issued thereunder, are solely corporate obligations, and that no personal liability whatever shall attach to, or be incurred by, such incorporators, stockholders, officers or directors, as such, of the Company, or of any successor corporation, or any of them, because of the incurring of the indebtedness thereby authorized, or under or by reason of any of the obligations, covenants or agreements contained in the indenture or in any indenture supplemental thereto or in any of the Bonds or coupons issued thereunder, or implied therefrom. This Bond shall not be entitled to any security or benefit under said indenture, as amended and supplemented, and shall not become valid or obligatory for any purpose, until the certificate of authentication, hereon endorsed, shall have been signed by First Fidelity Bank, National Association, as Trustee, or by its successor in trust under said indenture. IN WITNESS WHEREOF, the Company has caused this Bond to be duly executed by its proper officers under its corporate seal. Dated PUBLIC SERVICE ELECTRIC AND GAS COMPANY, By (Vice) President (Seal) Attest: (Assistant) Secretary [FORM OF CERTIFICATE OF AUTHENTICATION] CERTIFICATE OF AUTHENTICATION This Bond is one of the Bonds of the series designated therein which are described in the within-mentioned indenture and supplemental indenture dated October 1, 1995 (No. 2), as secured thereby. FIRST FIDELITY BANK, NATIONAL ASSOCIATION, TRUSTEE, BY Authorized Signatory ------------------------ WHEREAS, the execution and delivery of this supplemental indenture have been duly authorized by the Board of Directors of the Company; and WHEREAS, the Company represents that all things necessary to make the bonds of the Pollution Control Series V hereinafter described, when duly authenticated by the Trustee and issued by the Company, valid, binding and legal obligations of the Company, and to make this supplemental indenture a valid and binding agreement supplemental to the Indenture, have been done and performed: NOW, THEREFORE, THIS SUPPLEMENTAL INDENTURE WITNESSETH that the Company, in consideration of the premises and the execution and delivery by the Trustee of this supplemental indenture, and in pursuance of the covenants and agreements contained in the Indenture and for other good and valuable consideration, the receipt of which is hereby acknowledged, has granted, bargained, sold, aliened, remised, released, conveyed, confirmed, assigned, transferred and set over, and by these presents does grant, bargain, sell, alien, remise, release, convey, confirm, assign, transfer and set over unto the Trustee, its successors and assigns, forever, all the right, title and interest of the Company in and to all property of every kind and description (except cash, accounts and bills receivable and all merchandise bought, sold or manufactured for sale in the ordinary course of the Company's business, stocks, bonds or other corporate obligations or securities, other than such as are described in Part V of the Granting Clauses of the Indenture, not acquired with the proceeds of bonds secured by the Indenture, and except as in the Indenture and herein otherwise expressly excluded) acquired by the Company since the execution and delivery of the supplemental indenture dated October 1, 1994 (No. 2), supplemental to the Indenture (except any such property duly released from, or disposed of free from, the lien of the Indenture, in accordance with the provisions thereof) and all such property which at any time hereafter may be acquired by the Company; All of which property it is intended shall be included in and granted by this supplemental indenture and covered by the lien of the Indenture as heretofore and hereby amended and supplemented; UNDER AND SUBJECT to any encumbrances or mortgages existing on property acquired by the Company at the time of such acquisition and not heretofore discharged of record; and SUBJECT, also, to the exceptions, reservations and provisions in the Indenture and in this supplemental indenture recited, and to the liens, reservations, exceptions, limitations, conditions and restrictions imposed by or contained in the several deeds, grants, franchises and contracts or other instruments through which the Company acquired or claims title to the aforesaid property; and SUBJECT, also, to existing leases, to liens on easements or rights of way, to liens for taxes, assessments and governmental charges not in default or the payment of which is deferred, pending appeal or other contest by legal proceedings, pursuant to Section 4 of Article Five of the Indenture, or the payment of which is deferred pending billing, transfer of title or final determination of amount, to easements for alleys, streets, highways, rights of way and railroads that may run across or encroach upon the said property, to joint pole and similar agreements, to undetermined liens and charges, if any, incidental to construction, and other encumbrances permitted by the Indenture as heretofore and hereby amended and supplemented; TO HAVE AND TO HOLD the property hereby conveyed or assigned, or intended to be conveyed or assigned, unto the Trustee, its successor or successors and assigns, forever; IN TRUST, NEVERTHELESS, upon the terms, conditions and trusts set forth in the Indenture as heretofore and hereby amended and supplemented, to the end that the said property shall be subject to the lien of the Indenture as heretofore and hereby amended and supplemented, with the same force and effect as though said property had been included in the Granting Clauses of the Indenture at the time of the execution and delivery thereof; AND THIS SUPPLEMENTAL INDENTURE FURTHER WITNESSETH that for the considerations aforesaid, it is hereby covenanted between the Company and the Trustee as follows: ARTICLE I. BONDS OF THE POLLUTION CONTROL SERIES V. The series of bonds authorized by this supplemental indenture to be issued under and secured by the Indenture shall be designated "First and Refunding Mortgage Bonds, Pollution Control Series V"; shall be limited to the aggregate principal amount of $13,700,000; shall be issued initially to the Authority Trustee, as assignee of the Authority, to evidence the Company's obligation under the Agreement with respect to the 1995 Authority Bonds; and shall mature and bear interest as set forth in the form of bond hereinbefore described; provided, however, that the Company shall receive certain credits against principal and interest obligations as set forth in Section 3.01 hereof. The date of each bond of the Pollution Control Series V shall be the interest payment date next preceding the date of authentication, unless such date of authentication be an interest payment date, in which case the date shall be the date of authentication, or unless such date of authentication be prior to the first interest payment date, in which case the date shall be October 1, 1995. Bonds of the Pollution Control Series V shall be issued as fully registered bonds in any denomination authorized by the Company. Interest on bonds of the Pollution Control Series V shall be payable at such time and in such manner as interest is payable on the 1995 Authority Bonds, subject to certain credits against principal and interest as set forth in Section 3.01 hereof and shall be payable as to both principal and interest in such coin or currency of the United States of America as at the time of payment shall constitute legal tender for the payment of public and private debts, at the principal office of the Trustee, or at the corporate trust office of any paying agent appointed by the Company. Bonds of the Pollution Control Series V shall be transferable (but only as provided in the Authority Indenture) upon surrender thereof for cancellation by the registered owner in person or by attorney duly authorized in writing at said office of the Trustee. The Company hereby waives any right to make a charge for any transfer of bonds of the Pollution Control Series V, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto. ARTICLE II. REDEMPTION OF BONDS--POLLUTION CONTROL SERIES V. SECTION 2.01. Redemption--Redemption Prices. Bonds of the Pollution Control Series V shall be subject to redemption prior to maturity, under the conditions and upon the payment of the amounts specified in the following subsections, together in each case with interest accrued to the redemption date: (a) at the option of the Company (i) whenever the Interest Rate Mode for the 1995 Authority Bonds is the Daily Rate or the Weekly Rate, in whole or in part, at a redemption price of 100% of the principal amount thereof on any Interest Payment Date; (ii) whenever the Interest Rate Mode for the 1995 Authority Bonds is the Commercial Paper Rate, in whole or in part, at a redemption price of 100% of the principal amount thereof on the Interest Payment Date for each Commercial Paper Rate Period for an Authority Bond or Bonds, such redemption to be in the same principal amount of such Authority Bond or Bonds; (iii) whenever the Interest Rate Mode for the 1995 Authority Bonds is the Auction Rate, in whole or in part, at a redemption price of 100% of the principal amount thereof on the final Interest Payment Date for each Auction Period; (iv) whenever the Interest Rate Mode for the 1995 Authority Bonds is the Term Rate, in whole or in part, on the final Interest Payment Date for the then current Term Rate Period and, prior to the end of the then current Term Rate Period, at any time during the redemption periods and at the redemption prices set forth below, plus interest accrued, if any, to the redemption date: ORIGINAL LENGTH OF CURRENT COMMENCEMENT OF REDEMPTION PRICE AS TERM RATE PERIOD (YEARS) REDEMPTION PERIOD PERCENTAGE OF PRINCIPAL - -------------------------- ----------------------------- --------------------------------- More than 15 years Tenth anniversary of 102% declining by 1% on each commencement of Term Rate succeeding anniversary of the Period first day of the redemption period until reaching 100% and thereafter 100% More than 10 but not more Seventh anniversary of 102% declining by 1% on each than 15 years commencement of Term Rate succeeding anniversary of the Period first day of the redemption period until reaching 100% and thereafter 100% More than 5 but not more Fifth anniversary of 101% declining by 1% on each than 10 years commencement of Term Rate succeeding anniversary of the Period first day of the redemption period until reaching 100% and thereafter 100% More than 2 but not more Second anniversary of 100% on and after such second than 5 years commencement of Term Rate anniversary of the first day of Period the redemption period 2 years or less Non-callable Non-callable
If, at the time of the Company's notice of a change in the Term Rate Period pursuant to Section 2.02(d) of the Authority Indenture, or its notice of Conversion of the Interest Rate Mode for the 1995 Authority Bonds to the Term Rate pursuant to Section 2.02(e) of the Authority Indenture, or, when the Interest Rate Mode for the 1995 Authority Bonds is the Term Rate, at least 35 days prior to the Purchase Date for the 1995 Authority Bonds pursuant to Section 3.01(b)(i) of the Authority Indenture, the Company provides a certification of the Remarketing Agent to the Authority Trustee and the Authority that the foregoing schedule is not consistent with prevailing market conditions and an opinion of nationally recognized bond counsel that a change in the redemption provisions of the 1995 Authority Bonds will not adversely affect the exclusion from gross income of interest on the 1995 Authority Bonds for Federal income tax purposes, the foregoing redemption periods and redemption prices may be revised effective as of the date of such change in the Term Rate Period, the Conversion Date, or that Purchase Date, as determined by the Remarketing Agent in its judgment, taking into account the then Prevailing Market Conditions, as stipulated in such certification, which shall be appended by the Trustee to its counterpart of this supplemental indenture. Any such revision of redemption periods or redemption prices shall not be considered an amendment of or supplement to this supplemental indenture and shall not require the consent of any other person or entity. (b) in whole or in part (if, in the opinion of nationally recognized bond counsel, such partial redemption will preserve the exclusion from gross income for Federal income tax purposes of interest on the remaining 1995 Authority Bonds) at any time at 100% of the principal amount thereof to be redeemed, within 180 days after a "final determination" (i.e., the issuance of a published or private ruling or technical advice) of the Internal Revenue Service or a judicial decision in a proceeding by any court of competent jurisdiction in the United States (from which ruling, advice or decision no further right of appeal exists), in all cases in which the Company has participated or been a party or has been given an opportunity to participate and has failed to do so (no such decree or judgment by any court or action by the Internal Revenue Service to be considered final unless the owner of the 1995 Authority Bonds involved in such proceeding or action has given the Company and the Authority Trustee prompt written notice of the commencement thereof and offered the Company, at the Company's expense, the opportunity to control the defense thereof) that, as a result of a failure by the Company to observe any covenant, agreement, representation or warranty in the Agreement, the interest payable on the 1995 Authority Bonds is includable in the gross income for Federal income tax purposes of the holder thereof, other than a "substantial user" of the Project or a "related person" as provided in Section 147(a) of the Internal Revenue Code of 1986, as amended, and the applicable regulations thereunder. (c) in whole at 100% of the principal amount thereof whenever the Company receives from the Authority Trustee a copy of a written demand sent to the Trustee stating that the principal of all outstanding 1995 Authority Bonds has been declared to be immediately due and payable because of an Event of Default under the Authority Indenture. In such case, redemption of the Bonds of the Pollution Control Series V shall be any date selected by the Company, not more than 180 days after receipt by the Company of such written demand for redemption. (d) to the extent that any of the 1995 Authority Bonds shall have become Provider Bonds, (i) on the Provider Bond Redemption Date in an amount equal to the aggregate principal amount of Provider Bonds outstanding at the expiration of the Liquidity Facility at 100% of the principal amount thereof and (ii) on each of the first four anniversaries of the expiration of the Liquidity Facility at the rate of 20% per year of the aggregate principal amount of Provider Bonds outstanding at the expiration of the Liquidity Facility at 100% of the principal amount thereof. SECTION 2.02. Notice of Redemption. (a) The election of the Company under subsection (a) of Section 2.01 hereof to redeem any of the bonds of the Pollution Control Series V shall be evidenced by a resolution of the Board of Directors of the Company calling for redemption on a stated date of all or a stated principal amount thereof. To exercise its option to redeem the bonds of the Pollution Control Series V under subsection (a) of Section 2.01 hereof, the Company shall deliver to the Trustee, the Authority and the Authority Trustee a certified copy of said resolution calling all or a stated principal amount of the bonds of the Pollution Control Series V for redemption on a date not less than 20 days (35 days if the Interest Rate Mode is the Term Rate) nor more than 65 days from the date said resolution is delivered. The delivery to the Authority Trustee of a certified copy of such resolution shall constitute notice to the Authority Trustee of the redemption referred to therein, on the terms specified therein. The Company shall on or before such redemption date deposit with the Trustee, as paying agent hereunder, the total applicable redemption price of all the bonds so called, with interest accrued thereon to the redemption date, less any credits to which the Company may be entitled pursuant to Section 3.01 hereof, and the Trustee, as such paying agent, shall apply such funds on the redemption date to the redemption of the bonds so called. (b) The Company shall, within 10 days after the occurrence of a "final determination" under subsection (b) of Section 2.01 hereof, deliver to the Trustee written notice of such "final determination". The Company shall, by resolution of its Board of Directors, fix a redemption date for such redemption and shall deliver to the Trustee, the Authority and the Authority Trustee a certified copy of said resolution at least 40 days prior to the date so selected for redemption. Such redemption date may be any day not more than 180 days after the occurrence of such "final determination". If the Trustee does not receive written notice of such selection by the Company within 140 days after the date of the occurrence of such "final determination", then the redemption date shall be the 180th day after the occurrence of such "final determination". On or before such redemption date, the Company shall deposit with the Trustee, as paying agent hereunder, the total redemption price of the bonds so called, with interest accrued thereon to the redemption date, less any credits to which the Company may be entitled pursuant to Section 3.01 hereof, and the Trustee, as such paying agent, shall apply such funds, on the redemption date, to the redemption of the bonds so called. The delivery to the Authority Trustee of a certified copy of such resolution shall constitute notice to the Authority Trustee of the redemption referred to therein on the terms specified therein. (c) The Company shall, within 10 days after the receipt of a written demand under subsection (c) of Section 2.01 hereof, by resolution of its Board of Directors, fix a redemption date for such redemption and shall deliver to the Trustee, the Authority and the Authority Trustee a certified copy of said resolution at least 40 days prior to the date so selected for redemption. Such redemption date may be any day not more than 180 days after the receipt of such written demand. If the Trustee does not receive written notice of such selection by the Company within 140 days after the date of the receipt of such written demand, then the redemption date shall be the 180th day after the receipt of such written demand. On or before such redemption date, the Company shall deposit with the Trustee, as paying agent hereunder, the total redemption price of the bonds so called, with interest accrued thereon to the redemption date, less any credits to which the Company may be entitled pursuant to Section 3.01 hereof, and the Trustee, as such paying agent, shall apply such funds, on the redemption date, to the redemption of the bonds so called. SECTION 2.03. Interest on Called Bonds to Cease. Each bond or portion thereof of the Pollution Control Series V called for redemption under Section 2.02 hereof shall be due and payable at the office of the Trustee, as paying agent hereunder, at the applicable redemption price and on the specified redemption date, anything herein or in such bond to the contrary notwithstanding. From and after the date when each bond or portion thereof of the Pollution Control Series V shall be due and payable as aforesaid (unless upon said date the full amount due thereon shall not be held by or provided to the Trustee, as paying agent hereunder, and be immediately available for payment), all further interest shall cease to accrue on such bond or on such portion thereof, as the case may be. SECTION 2.04. Bonds Called in Part. If only a portion of any bond of the Pollution Control Series V shall be called for redemption pursuant to Section 2.02 hereof, the notice of redemption hereinbefore provided for shall specify the portion of the principal amount thereof to be redeemed. Upon payment of the portion so called for redemption, the Trustee, as paying agent hereunder, shall give prompt written notice thereof to the Company. SECTION 2.05. Provisions of Indenture Not Applicable. The provisions of Article Four of the Indenture, as amended and supplemented, shall not apply to the procedure for the exercise of any right of redemption reserved by the Company, or to any mandatory redemption provided in this Article in respect of the bonds of the Pollution Control Series V. There shall be no sinking fund for the bonds of the Pollution Control Series V. ARTICLE III. CREDITS WITH RESPECT TO THE BONDS OF THE POLLUTION CONTROL SERIES V. SECTION 3.01. Credits. (a) In addition to any other credit, payment or satisfaction to which the Company is entitled with respect to the Bonds of the Pollution Control Series V, the Company shall be entitled credits against amounts otherwise payable in respect of the Bonds of the Pollution Control Series V in an amount corresponding to the amount by which interest due on the Bonds of the Pollution Control Series V exceeds the interest due on the 1995 Authority Bonds. (b) The Company shall be entitled to credits against amounts otherwise payable in respect of the bonds of the Pollution Control Series V in an amount corresponding to (i) the principal amount of any 1995 Authority Bond surrendered to the Authority Trustee by the Company or the Authority, or purchased by the Authority Trustee, for cancellation and (ii) the amount of money held by the Authority Trustee and available and designated for or applied toward the payment of principal or redemption price of and interest on the 1995 Authority Bonds, as the case may be, regardless of the source of payment to the Authority Trustee of such moneys; provided, however, that the Company shall not be entitled to any such credit with respect to amounts paid to the Authority Trustee pursuant to the Bond Insurance Policy. The Trustee, as paying agent hereunder, shall give prompt written notice to the Company of any such credit with respect to the payment of interest. (c) The Trustee, as paying agent hereunder, shall (i) promptly notify the Company of each deposit in the Bond Fund under the Authority Indenture, (ii) provide evidence to the Company that such deposit has been credited to such Fund and (iii) give prompt written notice to the Company of any credits with respect to payment of principal or redemption price of and interest on the bonds of the Pollution Control Series V. SECTION 3.02. Certificate of the Company. A certificate of the Company signed by the President, any Vice President or any Assistant Treasurer, and attested to by the Secretary or any Assistant Secretary, and consented to by the Authority Trustee, stating that the Company is entitled to a credit under Section 3.01 hereof and setting forth the basis therefor in reasonable detail, shall be conclusive evidence of such entitlement, and the Trustee shall accept such certificate as such evidence without further investigation or verification of the matters stated therein. ARTICLE IV. MISCELLANEOUS. SECTION 4.01. Authentication of Bonds of Pollution Control Series V. None of the bonds of the Pollution Control Series V, the issue of which is provided for by this supplemental indenture, shall be authenticated by the Trustee except in accordance with the provisions of the Indenture, as amended and supplemented, and this supplemental indenture, and upon compliance with the conditions in that behalf therein contained. SECTION 4.02. Additional Restrictions on Authentication of Additional Bonds Under Indenture. The Company covenants that from and after the date of execution of this supplemental indenture, no additional bonds (as defined in Section 1 of Article Two of the Indenture) shall be authenticated and delivered by the Trustee under Subdivision A of Section 4 of said Article Two on account of additions or improvements to the mortgaged property (1) unless the net earnings of the Company for the period required by Subdivision C of Section 6 of said Article Two shall have been at least twice the fixed charges (in lieu of 1 3/4 times such fixed charges, as required by said Subdivision C); and for the purpose of this condition (a) such fixed charges shall in each case include interest on the bonds applied for, notwithstanding the parenthetical provision contained in clause (4) of said Subdivision C, and (b) in computing such net earnings there shall be included in expenses of operation (under paragraph (c) of said Subdivision C) all charges against earnings for depreciation, renewals or replacements, and all certificates with respect to net earnings delivered to the Trustee in connection with any authentication of additional bonds under said Article Two shall so state; and (2) except to the extent of 60% (in lieu of 75% as permitted by Subdivision A of Section 7 of said Article Two) of the cost or fair value to the Company of the additions or improvements forming the basis for such authentication of additional bonds. SECTION 4.03. Restriction on Dividends. The Company will not declare or pay any dividend on any shares of its common stock (other than dividends payable in shares of its common stock) or make any other distribution on any such shares, or purchase or otherwise acquire any such shares (except shares acquired without cost to the Company) whenever such action would reduce the earned surplus of the Company to an amount less than $10,000,000 or such lesser amount as may remain after deducting from said $10,000,000 all amounts appearing in the books of account of the Company on December 31, 1948, which shall thereafter, pursuant to any order or rule of any regulatory body entered after said date, be required to be removed, in whole or in part, from the books of account of the Company by charges to earned surplus. SECTION 4.04. Use of Facsimile Seal and Signatures. The seal of the Company and any or all signatures of the officers of the Company upon any of the bonds of the Pollution Control Series V may be facsimiles. SECTION 4.05. Effective Period of Supplemental Indenture. The preceding provisions of Articles I, II and III of this supplemental indenture shall remain in effect only so long as any of the bonds of the Pollution Control Series V shall remain outstanding. SECTION 4.06. Time for Making of Payment. All payments of principal or redemption price of and interest on the bonds of the Pollution Control Series V shall be made to the Authority Trustee in such funds as shall constitute immediately available funds when payment is due. In any case where the date of payment of the principal or redemption price of or interest on the bonds of the Pollution Control Series V or the date fixed for redemption of any such bonds shall be in the city of payment a Saturday, Sunday or a legal holiday or a day on which banking institutions are authorized by law to close, then such payment need not be made on such date but may be made on the next succeeding business day with the same force and effect as if made on the date of maturity or the date fixed for redemption, and no interest on such payment shall accrue for the period after such date. SECTION 4.07. Effect of Approval of Board of Public Utilities of the State of New Jersey. The approval of the Board of Public Utilities of the State of New Jersey of the execution and delivery of these presents and of the issue of any bonds of the Pollution Control Series V shall not be construed as approval of said Board of any other act, matter or thing which requires approval of said Board under the laws of the State of New Jersey. SECTION 4.08. Execution in Counterparts. For the purpose of facilitating the recording hereof, this supplemental indenture has been executed in several counterparts, each of which shall be and shall be taken to be an original, and all collectively but one instrument. IN WITNESS WHEREOF, Public Service Electric and Gas Company, party hereto of the first part, after due corporate and other proceedings, has caused this supplemental indenture to be signed and acknowledged or proved by its President or one of its Vice Presidents and its corporate seal hereunto to be affixed and to be attested by the signature of its Secretary or an Assistant Secretary; and First Fidelity Bank, National Association, as Trustee, party hereto of the second part, has caused this supplemental indenture to be signed and acknowledged or proved by its President, one of its Vice Presidents or one of its Assistant Vice Presidents and its corporate seal to be hereunto affixed and to be attested by the signature of one of its Assistant Vice Presidents, its Cashier, one of its Assistant Cashiers, or one of its Corporate Trust Officers. Executed and delivered this 2nd day of October, 1995. PUBLIC SERVICE ELECTRIC AND GAS COMPANY By /s/ (F. J. Riepl) Vice President Attest: /s/ (E. J. Biggins, Jr.) Assistant Secretary FIRST FIDELITY BANK, NATIONAL ASSOCIATION By /s/ (F. Gallagher) Vice President Attest: /s/ (J.J. Waters) Assistant Vice President STATE OF NEW JERSEY ss.: COUNTY OF ESSEX BE IT REMEMBERED, that on this 2nd day of October, 1995, before me, the subscriber, a Notary Public of the State of New Jersey, personally appeared F. J. Riepl who, I am satisfied, is a Vice President of PUBLIC SERVICE ELECTRIC AND GAS COMPANY, one of the corporations named in and which executed the foregoing instrument, and is the person who signed the said instrument as such officer for and on behalf of such corporation, and I having first made known to him the contents thereof, he did acknowledge that he signed the said instrument as such officer, that the said instrument was made by such corporation and sealed with its corporate seal, that the said instrument is the voluntary act and deed of such corporation, made by virtue of authority from its Board of Directors, and that said corporation, the mortgagor, has received a true copy of said instrument. Notarized by Irene Roxanne Prignano Notary Public of New Jersey STATE OF NEW JERSEY ss.: COUNTY OF ESSEX BE IT REMEMBERED, that on this 2nd day of October, 1995, before me, the subscriber, a Notary Public of the State of New Jersey, personally appeared F. Gallagher who, I am satisfied, is a Vice President of FIRST FIDELITY BANK, NATIONAL ASSOCIATION, one of the corporations named in and which executed the foregoing instrument, and is the person who signed the said instrument as such officer, for and on behalf of such corporation, and I having first made known to him the contents thereof, he did acknowledge that he signed the said instrument as such officer, that the said instrument was made by such corporation and sealed with its corporate seal; and that the said instrument is the voluntary act and deed of such corporation, made by virtue of authority from its Board of Directors. Notarized by Jean M. Seiz Notary Public of New Jersey CERTIFICATE OF RESIDENCE First Fidelity Bank, National Association, Mortgagee and Trustee within named, hereby certifies that its precise residence is 765 Broad Street, Newark, New Jersey 07101. FIRST FIDELITY BANK, NATIONAL ASSOCIATION By /s/ (F. Gallagher) Vice President -----END PRIVACY-ENHANCED MESSAGE-----