-----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, KpTH9vtl6h0YfsuZA4TpdqDeQtgWNbgd3sBJr1gAexoiFAsmFylmfNQsRCYv0fMh /gAMhs3+6jY7dTcQYJDlrQ== 0000788784-96-000024.txt : 19960816 0000788784-96-000024.hdr.sgml : 19960816 ACCESSION NUMBER: 0000788784-96-000024 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 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: 96613346 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: 96613347 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 June 30, 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 July 31, 1996 ----- ---------------------------- Common Stock, without par value 244,500,130 As of July 31, 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, Six and Twelve Months Ended June 30, 1996 and 1995 ........... 1 Consolidated Balance Sheets as of June 30, 1996 and 1995, and December 31, 1995 .............................. 2 Consolidated Statements of Cash Flows for the Six and Twelve Months Ended June 30, 1996 and 1995 ............... 4 Consolidated Statements of Retained Earnings for the Three, Six, and Twelve Months Ended June 30, 1996 and 1995 ...... 5 Public Service Electric and Gas Company (PSE&G): Consolidated Statements of Income for the Three, Six and Twelve Months Ended June 30, 1996 and 1995 ............... 6 Consolidated Balance Sheets as of June 30, 1996 and 1995, and December 31, 1995 .................................... 7 Consolidated Statements of Cash Flows for the Six and Twelve Months Ended June 30, 1996 and 1995 ............... 9 Consolidated Statements of Retained Earnings for the Three, Six, and Twelve Months Ended June 30, 1996 and 1995 ...... 10 Notes to Consolidated Financial Statements - Enterprise ..... 11 Notes to Consolidated Financial Statements - PSE&G .......... 25 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Enterprise .................................... 26 PSE&G ......................................... 40 PART II. OTHER INFORMATION Item 1. Legal Proceedings .................................. 41 Item 5. Other Information .................................. 43 Item 6. Exhibits and Reports on Form 8-K ................... 46 Signatures - Public Service Enterprise Group Incorporated ... 48 Signatures - Public Service Electric and Gas Company ........ 48 i PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED PART I. FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF INCOME (Thousands of Dollars)
Three Months Ended Six Months Ended Twelve Months Ended June 30, June 30, June 30, -------------------------- -------------------------- -------------------------- 1996 1995 1996 1995 1996 1995 ------------ ------------ ------------ ------------ ------------ ------------ OPERATING REVENUES: Electric .......................... $ 987,963 $ 966,245 $ 1,946,296 $ 1,911,283 $ 4,055,855 $ 3,858,306 Gas ............................... 297,674 269,190 1,094,590 903,668 1,877,325 1,601,007 Nonutility Activities ............. 50,255 38,975 92,251 89,251 189,417 190,109 ------------ ------------ ------------ ------------ ------------ ------------ Total Operating Revenues ..... 1,335,892 1,274,410 3,133,137 2,904,202 6,122,597 5,649,422 ------------ ------------ ------------ ------------ ------------ ------------ OPERATING EXPENSES: Operation: Fuel for Electric Generation and Interchanged Power .............. 215,972 210,214 432,047 418,324 905,505 788,636 Gas Purchased and Materials for Gas Produced .................... 186,504 166,011 643,236 510,204 1,094,571 909,618 Other ............................. 253,035 239,075 509,772 473,238 1,044,269 1,034,428 Maintenance ......................... 87,240 68,038 182,656 132,083 363,183 288,252 Depreciation and Amortization ....... 150,093 149,497 303,513 294,289 606,190 575,715 Taxes: Federal Income Taxes .............. 56,095 56,344 154,195 164,635 327,526 291,126 New Jersey Gross Receipts Taxes ... 130,979 139,274 319,415 316,063 616,313 582,527 Other ............................. 20,945 20,312 45,887 43,222 79,578 81,630 ------------ ------------ ------------ ------------ ------------ ------------ Total Operating Expenses ..... 1,100,863 1,048,765 2,590,721 2,352,058 5,037,135 4,551,932 ------------ ------------ ------------ ------------ ------------ ------------ OPERATING INCOME .................... 235,029 225,645 542,416 552,144 1,085,462 1,097,490 ------------ ------------ ------------ ------------ ------------ ------------ OTHER INCOME: Allowance for Funds Used During Construction - Equity ........... -- 1,787 -- 3,269 2,055 12,396 Miscellaneous - net ............... 1,214 1,555 2,492 3,557 6,976 7,484 ------------ ------------ ------------ ------------ ------------ ------------ Total Other Income ........... 1,214 3,342 2,492 6,826 9,031 19,880 ------------ ------------ ------------ ------------ ------------ ------------ INCOME BEFORE INTEREST CHARGES AND DIVIDENDS ON PREFERRED SECURITIES ... 236,243 228,987 544,908 558,970 1,094,493 1,117,370 ------------ ------------ ------------- ------------ ------------ ------------ INTEREST CHARGES: Long-Term Debt .................... 91,082 102,665 192,527 205,620 389,120 419,139 Short-Term Debt ................... 11,331 7,592 18,520 12,419 38,923 26,461 Other ............................. 8,631 7,128 15,514 13,833 30,853 22,163 ------------ ------------ ------------- ------------ ------------ ------------ Total Interest Charges ....... 111,044 117,385 226,561 231,872 458,896 467,763 Allowance for Funds Used During Construction - Debt and Capitalized Interest ............ (3,921) (11,082) (8,468) (20,198) (21,109) (36,863) ------------ ------------ ------------- ------------ ------------ ------------ Net Interest Charges ......... 107,123 106,303 218,093 211,674 437,787 430,900 ------------ ------------ ------------- ------------ ------------ ------------ Preferred Securities Dividend Requirements .................... 12,179 12,197 24,420 24,394 49,452 46,117 Net Gain on Preferred Stock Redemptions ..................... 18,493 -- 18,493 -- 18,019 -- ------------ ------------ ------------- ------------ ------------ ------------ Income From Continuing Operations . 135,434 110,487 320,888 322,902 625,273 640,353 Discontinued Operations - Net of Income Taxes (Note 2) ........... (896) 180 7,754 357 42,433 1,927 ------------ ------------ ------------- ------------ ------------ ------------ NET INCOME ................... $ 134,538 $ 110,667 $ 328,642 $ 323,259 $ 667,706 $ 642,280 ============ ============ ============= ============ ============ ============ SHARES OF COMMON STOCK OUTSTANDING: End of Period ..................... 244,697,930 244,697,930 244,697,930 244,697,930 244,697,930 244,697,930 Average for Period ................ 244,697,930 244,697,930 244,697,930 244,697,930 244,697,930 244,697,930 EARNINGS PER AVERAGE SHARE: Income From Continuing Operations . $ 0.55 $ 0.45 $ 1.31 $ 1.32 $ 2.56 $ 2.61 Income From Discontinued Operations -- -- 0.03 -- 0.17 0.01 ------------ ------------ ------------- ------------ ------------ ------------ NET INCOME ................... $ 0.55 $ 0.45 $ 1.34 $ 1.32 $ 2.73 $ 2.62 ============ ============ ============= ============ ============ ============ DIVIDENDS PAID PER SHARE OF COMMON STOCK ............................... $ 0.54 $ 0.54 $ 1.08 $ 1.08 $ 2.16 $ 2.16 ============ ============ ============= ============ ============ ============ See Notes to Consolidated Financial Statements. /TABLE PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED CONSOLIDATED BALANCE SHEETS (Thousands of Dollars)
June 30, June 30, December 31, ASSETS 1996 1995 1995 - ------ ------------ ------------ ------------ UTILITY PLANT - Original cost: Electric ..................................................... $ 13,247,874 $ 12,598,360 $ 13,095,103 Gas .......................................................... 2,488,255 2,381,112 2,442,572 Common ....................................................... 518,251 522,689 517,104 ------------ ------------ ------------ Total ................................................... 16,254,380 15,502,161 16,054,779 Less: accumulated depreciation and amortization .............. 5,694,639 5,328,551 5,440,414 ------------ ------------ ------------ Net ..................................................... 10,559,741 10,173,610 10,614,365 Nuclear Fuel in Service, net of accumulated amortization - $272,654, $330,025, and $297,435, respectively .............. 206,195 178,454 180,018 ------------ ------------ ------------ Net Utility Plant in Service ............................ 10,765,936 10,352,064 10,794,383 Construction Work in Progress, including Nuclear Fuel in Process - $61,364, $92,846, and $104,743, respectively ..... 320,619 756,753 369,082 Plant Held for Future Use .................................... 23,966 23,966 23,966 ------------ ------------ ------------ Net Utility Plant ....................................... 11,110,521 11,132,783 11,187,431 ------------ ------------ ------------ INVESTMENTS AND OTHER NONCURRENT ASSETS: Long-Term Investments, net of amortization -$8,907, $3,489 and $6,009 and net valuation allowances - $21,415, $17,105 and $21,302, respectively ..................................... 1,866,390 1,668,331 1,808,368 Real Estate Property and Equipment, net of accumulated depreciation - $5,497, $16,141, and $6,267, and net of valuation allowance - $8,457, $23,306, and $8,228, respectively ............................................... 66,521 136,581 89,350 Other Plant, net of accumulated depreciation and amortization - $7,061, $5,825, and $6,531, respectively ................. 27,968 28,298 27,997 Nuclear Decommissioning and Other Special Funds .............. 335,355 272,895 313,178 Other Assets - Net ........................................... 6,948 21,093 3,241 ------------ ------------ ------------ Total Investments and Other Noncurrent Assets ........... 2,303,182 2,127,198 2,242,134 ------------ ------------ ------------ CURRENT ASSETS: Cash and Cash Equivalents .................................... 54,729 74,887 61,964 Accounts Receivable: Customer Accounts Receivable ............................... 484,508 387,664 525,404 Other Accounts Receivable .................................. 189,680 140,538 208,256 Less: Allowance for Doubtful Accounts ..................... 37,337 40,031 37,641 Unbilled Revenues ............................................ 153,634 128,309 246,876 Fuel, at average cost ........................................ 191,915 257,488 253,360 Materials and Supplies, net of inventory valuation reserves - $18,200, $18,200, and $20,100, respectively ................ 145,455 147,846 143,741 Prepaid Gross Receipts Taxes ................................. 279,328 304,705 -- Deferred Income Taxes ........................................ 29,568 23,967 27,571 Miscellaneous Current Assets ................................. 23,057 31,660 40,464 Net Assets of Discontinued Operations ........................ 328,475 342,459 365,905 ----------- ------------ ------------ Total Current Assets .................................... 1,843,012 1,799,492 1,835,900 ----------- ------------ ------------ DEFERRED DEBITS: Property Abandonments - net .................................. 60,700 79,308 70,120 Oil and Gas Property Write-Down .............................. 33,501 38,655 36,078 Unamortized Debt Expense ..................................... 145,011 127,747 123,833 Deferred OPEB Costs .......................................... 241,614 182,736 167,189 Underrecovered Electric Energy and Gas Costs - net ........... 206,909 138,394 170,565 Unrecovered Environmental Costs (Note 4) ..................... 124,235 134,436 130,070 Unrecovered Plant and Regulatory Study Costs ................. 34,495 35,475 35,150 Unrecovered SFAS 109 Deferred Income Taxes ................... 761,944 790,561 769,136 Deferred Decontamination and Decommissioning Costs ........... 49,872 53,016 49,872 Other ........................................................ 28,427 10,100 5,826 ------------ ------------ ------------ Total Deferred Debits ................................... 1,686,708 1,590,428 1,557,839 ------------ ------------ ------------ Total ................................................... $ 16,943,423 $ 16,649,901 $ 16,823,304 ============ ============ ============ See Notes to Consolidated Financial Statements. /TABLE PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED CONSOLIDATED BALANCE SHEETS (Thousands of Dollars)
June 30, June 30, December 31, CAPITALIZATION AND LIABILITIES 1996 1995 1995 - ------------------------------ ------------ ------------ ------------ CAPITALIZATION: Common Equity: Common Stock ..................................................... $ 3,801,157 $ 3,801,157 $ 3,801,157 Retained Earnings ................................................ 1,708,153 1,568,995 1,643,785 ------------ ------------ ------------- Total Common Equity ........................................... 5,509,310 5,370,152 5,444,942 Subsidiaries' Preferred Securities: Preferred Stock Without Mandatory Redemption ..................... 113,392 384,994 324,994 Preferred Stock With Mandatory Redemption ........................ 150,000 150,000 150,000 Company-Obligated Mandatorily Redeemable Preferred Securities of a Partnership holding solely PSE&G Debentures ................. 210,000 150,000 210,000 Company-Obligated Mandatorily Redeemable Preferred Securities of a Subsidiary Trust holding solely PSE&G Debentures (QUIPS) (Note 5) ............................................... 208,000 -- -- Long-Term Debt ...................................................... 4,805,844 5,235,367 5,189,791 ------------ ------------ ------------- Total Capitalization ........................................... 10,996,546 11,290,513 11,319,727 ------------ ------------ ------------- OTHER LONG-TERM LIABILITIES: Decontamination, Decommissioning, and Low Level Radwaste Costs ............................................................. 49,718 59,180 50,449 Environmental Costs (Note 4)......................................... 90,765 105,600 96,272 Capital Lease Obligations ........................................... 52,752 53,450 53,111 ------------ ------------- ------------- Total Other Long-Term Liabilities .............................. 193,235 218,230 199,832 ------------ ------------ ------------- CURRENT LIABILITIES: Long-Term Debt due within one year .................................. 283,364 64,159 61,060 Commercial Paper and Loans .......................................... 736,929 725,881 567,316 Book Overdrafts ..................................................... 63,108 58,833 70,014 Accounts Payable .................................................... 490,049 394,737 549,593 Other Taxes Accrued ................................................. 15,725 48,902 30,816 Interest Accrued .................................................... 76,282 80,504 108,245 Estimated Liability for Vacation Pay ................................ 31,603 30,334 17,089 Customer Deposits ................................................... 32,312 32,942 32,785 Liability for Injuries and Damages .................................. 32,399 30,568 38,141 Miscellaneous Environmental Liabilities ............................. 17,453 14,255 16,954 Other ............................................................... 48,186 26,492 56,013 ------------ ------------ ------------- Total Current Liabilities ...................................... 1,827,410 1,507,607 1,548,026 ------------ ------------ ------------- DEFERRED CREDITS: Accumulated Deferred Income Taxes ................................... 3,174,345 2,972,094 3,083,433 Accumulated Deferred Investment Tax Credits ......................... 382,317 402,459 392,317 Deferred OPEB Costs ................................................. 241,614 182,736 167,189 Other ............................................................... 127,956 76,262 112,780 ------------ ------------ ------------- Total Deferred Credits ......................................... 3,926,232 3,633,551 3,755,719 ------------ ------------ ------------- COMMITMENTS AND CONTINGENT LIABILITIES (Note 4) Total .......................................................... $ 16,943,423 $ 16,649,901 $ 16,823,304 ============ ============ =============
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS (Thousands of Dollars)
Six Months Ended Twelve Months Ended June 30, June 30, -------------------------- -------------------------- 1996 1995 1996 1995 ------------ ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income .................................................... $ 328,642 $ 323,259 $ 667,706 $ 642,280 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and Amortization ............................... 303,513 294,289 606,190 575,715 Amortization of Nuclear Fuel ................................ 26,277 47,490 53,815 97,836 (Deferral) Recovery of Electric Energy and Gas Costs - net .. (36,344) 34,169 (68,515) 22,974 Unrealized Gains on Investments - net ....................... (1,985) (9,311) (39,342) (26,734) Provision for Deferred Income Taxes - net ................... 44,422 60,719 117,608 52,407 Investment Tax Credits - net ................................ (9,014) (10,007) (19,156) (20,331) Allowance for Funds Used During Construction - Debt and Equity and Capitalized Interest ........................... (8,468) (23,467) (23,164) (49,259) Proceeds from Leasing Activities ............................ 35,818 3,783 69,687 27,989 Changes in certain current assets and liabilities: Net decrease (increase) in Accounts Receivable and Unbilled Revenues .................................................. 152,410 150,424 (174,005) 46,576 Net decrease (increase) in Inventory - Fuel and Materials and Supplies .................................................. 59,731 10,356 67,964 (16,070) Net (decrease) increase in Accounts Payable ................. (59,544) (27,818) 95,311 32,238 Net change in Prepaid/Accrued Taxes ......................... (294,419) (296,303) (15,608) (18,680) Net change in Other Current Assets and Liabilities .......... (15,582) (49,042) 33,951 (31,875) Other ....................................................... 4,820 25,990 83,977 97,676 ------------ ------------ ------------ ------------ Net cash provided by operating activities - Continuing Operations................................................ 530,277 534,531 1,456,419 1,432,742 Net cash provided by operating activities - Discontinued Operations ................................................ 61,377 47,387 152,632 83,954 ------------- ------------ ------------ ------------ Net Cash provided by operating activities ................ 591,654 581,918 1,609,051 1,516,696 ------------- ------------ ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Additions to Utility Plant, excluding AFDC .................... (218,426) (312,685) (555,624) (801,445) Net (increase) decrease in Long-Term Investments and Real Estate ...................................................... (20,341) (63,981) (22,734) 12,629 Increase in Nuclear Decommissioning Funds and Other Special Funds, excluding interest .................................. (13,444) (34,903) (44,988) (49,730) Cost of Plant Removal - net ................................... (13,827) (13,677) (29,824) (28,951) Other ......................................................... (3,474) 8,523 (55,599) 9,367 ------------- ----------- ----------- ------------ Net Cash used in investing activities - Continuing Operations ............................................... (269,512) (416,723) (708,769) (858,130) Increase in Oil and Gas Net Assets - Discontinued Operations .. (23,947) (74,059) (138,648) (122,350) ------------- ----------- ----------- ------------ Net cash used in investing activities .................... (293,459) (490,782) (847,417) (980,480) ------------ ------------ ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in Short-Term Debt ............................... 169,613 324,122 11,048 53,886 (Decrease) increase in Book Overdrafts ........................ (6,906) (27,743) 4,275 23,372 Issuance of Long-Term Debt .................................... 368,324 100,000 424,644 285,435 Redemption of Long-Term Debt .................................. (529,967) (220,696) (634,962) (526,001) Long-Term Debt Issuance and Redemption Costs .................. (38,618) -- (47,794) (29,731) Redemption of Preferred Stock ................................. (211,602) -- (271,602) (75,000) Issuance of Monthly Income Preferred Securities ............... -- -- 60,000 150,000 Issuance of Quarterly Income Preferred Securities (QUIPS) ..... 208,000 -- 208,000 -- Cash Dividends Paid on Common Stock ........................... (264,274) (264,274) (528,548) (528,548) Other ......................................................... -- 6,853 (6,853) 6,624 ------------ ------------ ------------ ------------ Net cash used in financing activities .................... (305,430) (81,738) (781,792) (639,963) ------------ ------------ ------------ ------------ Net (decrease) increase in Cash and Cash Equivalents ............ (7,235) 9,398 (20,158) (103,747) Cash and Cash Equivalents at Beginning of Period ................ 61,964 65,489 74,887 178,634 ------------ ------------ ------------ ------------ Cash and Cash Equivalents at End of Period ...................... $ 54,729 $ 74,887 $ 54,729 $ 74,887 ============ ============ ============ ============ Income Taxes Paid ............................................... $ 83,900 $ 125,104 $ 144,172 $ 185,579 Interest Paid ................................................... $ 271,785 $ 230,210 $ 522,839 $ 451,058 See Notes to Consolidated Financial Statements. /TABLE PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (Thousands of Dollars)
Three Months Ended Six Months Ended Twelve Months Ended June 30, June 30, June 30, -------------------------- -------------------------- -------------------------- 1996 1995 1996 1995 1996 1995 ------------ ------------ ------------ ------------ ------------ ------------ Balance at Beginning of Period ...... $ 1,705,753 $ 1,590,464 $ 1,643,785 $ 1,510,010 $ 1,568,995 $ 1,456,025 Add: Net Income ........................ 134,538 110,667 328,642 323,259 667,706 642,280 ------------ ------------ ------------ ------------ ------------ ------------ Total ........................ 1,840,291 1,701,131 1,972,427 1,833,269 2,236,701 2,098,305 ------------ ------------ ------------ ------------ ------------ ------------ Deduct: Cash Dividends on Common Stock .... 132,138 132,136 264,274 264,274 528,548 528,548 Capital Stock Expenses ............ -- -- -- -- -- 762 ------------ ------------ ------------ ------------ ------------ ------------ Total Deductions ............. 132,138 132,136 264,274 264,274 528,548 529,310 ------------ ------------ ------------ ------------ ------------ ------------ Balance at End of Period ............ $ 1,708,153 $ 1,568,995 $ 1,708,153 $ 1,568,995 $ 1,708,153 $ 1,568,995 ============ ============ ============ ============ ============ ============ See Notes to Consolidated Financial Statements.
PUBLIC SERVICE ELECTRIC AND GAS COMPANY CONSOLIDATED STATEMENTS OF INCOME (Thousands of Dollars)
Three Months Ended Six Months Ended Twelve Months Ended June 30, June 30, June 30, -------------------------- -------------------------- -------------------------- 1996 1995 1996 1995 1996 1995 ------------ ------------ ------------ ------------ ------------ ------------ OPERATING REVENUES: Electric .......................... $ 987,963 $ 966,245 $ 1,946,296 $ 1,911,283 $ 4,055,855 $ 3,858,306 Gas ............................... 297,674 269,190 1,094,590 903,668 1,877,325 1,601,007 ------------ ------------ ------------ ------------ ------------ ------------ Total Operating Revenues ..... 1,285,637 1,235,435 3,040,886 2,814,951 5,933,180 5,459,313 ------------ ------------ ------------ ------------ ------------ ------------ OPERATING EXPENSES: Operation: Fuel for Electric Generation and Net Interchanged Power .......... 215,972 210,214 432,047 418,324 905,505 788,636 Gas Purchased and Materials for Gas Produced .................... 186,504 166,011 643,236 510,204 1,094,571 913,701 Other ............................. 238,225 226,384 480,989 446,601 983,788 972,925 Maintenance ......................... 87,240 68,038 182,656 132,083 363,183 288,251 Depreciation and Amortization ....... 149,406 148,275 301,914 291,868 601,160 571,190 Taxes: Federal Income Taxes .............. 48,985 53,576 143,614 155,860 309,282 273,081 New Jersey Gross Receipts Taxes ... 130,979 139,274 319,415 316,063 616,313 582,527 Other ............................. 19,231 19,057 42,818 40,910 72,717 76,532 ------------ ------------ ------------ ------------ ------------ ------------ Total Operating Expenses ..... 1,076,542 1,030,829 2,546,689 2,311,913 4,946,519 4,466,843 ------------ ------------ ------------ ------------ ------------ ------------ OPERATING INCOME .................... 209,095 204,606 494,197 503,038 986,661 992,470 ------------ ------------ ------------ ------------ ------------ ------------ OTHER INCOME: Allowance for Funds Used During Construction - Equity ........... -- 1,787 -- 3,269 2,055 12,396 Miscellaneous - net ............... 1,208 1,499 2,481 3,350 6,859 7,087 ------------ ------------ ------------ ------------ ------------ ------------ Total Other Income ........... 1,208 3,286 2,481 6,619 8,914 19,483 ------------ ------------ ------------ ------------ ------------ ------------ INCOME BEFORE INTEREST CHARGES AND DIVIDENDS ON PREFERRED SECURITIES ... 210,303 207,892 496,678 509,657 995,575 1,011,953 ------------ ------------ ------------ ------------ ------------ ------------ INTEREST CHARGES: Long-Term Debt .................... 84,109 91,610 175,621 183,102 350,103 369,155 Short-Term Debt ................... 8,332 4,833 12,366 6,783 26,323 17,745 Other ............................. 7,850 7,012 14,605 13,543 29,607 21,634 ------------ ------------ ------------ ------------ ------------ ------------ Total Interest Charges ....... 100,291 103,455 202,592 203,428 406,033 408,534 Allowance for Funds Used During Construction - Debt ............. (3,471) (10,380) (7,762) (18,999) (19,706) (33,343) ------------ ------------ ------------ ------------ ------------ ------------ Net Interest Charges ......... 96,820 93,075 194,830 184,429 386,327 375,191 ------------ ------------ ------------ ------------ ------------ ------------ Monthly Income Preferred Securities Dividend Requirements ........... 4,716 3,517 9,431 7,032 18,063 8,712 ------------ ------------ ------------ ------------ ------------ ------------ NET INCOME ................... 108,767 111,300 292,417 318,196 591,185 628,050 Preferred Stock Dividend Requirements .................... 7,463 8,680 14,989 17,362 31,389 37,405 NET GAIN ON PREFERRED STOCK REDEMPTION .......................... 18,493 -- 18,493 -- 18,019 -- ------------ ------------ ------------ ------------ ------------ ------------ EARNINGS AVAILABLE TO PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED ....... $ 119,797 $ 102,620 $ 295,921 $ 300,834 $ 577,815 $ 590,645 ============ ============ ============ ============ ============ ============ See Notes to Consolidated Financial Statements. /TABLE PUBLIC SERVICE ELECTRIC AND GAS COMPANY CONSOLIDATED BALANCE SHEETS (Thousands of Dollars)
June 30, June 30, December 31, ASSETS 1996 1995 1995 - ------ ------------ ------------ ------------ UTILITY PLANT - Original cost: Electric ...................................................... $ 13,247,874 $ 12,598,360 $ 13,095,103 Gas ........................................................... 2,488,255 2,381,112 2,442,572 Common ........................................................ 518,251 522,689 517,104 ------------ ------------ ------------ Total .................................................... 16,254,380 15,502,161 16,054,779 Less: accumulated depreciation and amortization ............... 5,694,639 5,328,551 5,440,414 ------------ ------------ ------------ Net ...................................................... 10,559,741 10,173,610 10,614,365 Nuclear Fuel in Service, net of accumulated amortization - $272,654, $330,025, and $297,435, respectively .............. 206,195 178,454 180,018 ------------ ------------ ------------ Net Utility Plant in Service ............................. 10,765,936 10,352,064 10,794,383 Construction Work in Progress, including Nuclear Fuel in Process - $61,364, $92,846, and $104,743, respectively ...... 320,619 756,753 369,082 Plant Held for Future Use ..................................... 23,966 23,966 23,966 ------------ ------------ ------------ Net Utility Plant ........................................ 11,110,521 11,132,783 11,187,431 ------------ ------------ ------------ INVESTMENTS AND OTHER NONCURRENT ASSETS: Long-Term Investments, net of amortization - $8,907, $3,489 and $6,009, respectively ........................................ 161,141 85,204 119,474 Nuclear Decommissioning and Other Special Funds ............... 335,355 272,895 313,178 Other Plant, net of accumulated depreciation and amortization - $1,962, $1,857 and $1,905, respectively ...... 25,068 24,966 24,976 ------------ ------------ ------------ Total Investments and Other Noncurrent Assets ............ 521,564 383,065 457,628 ------------ ------------ ------------ CURRENT ASSETS: Cash and Cash Equivalents ..................................... 20,614 38,146 32,373 Accounts Receivable: Customer Accounts Receivable ................................ 484,508 387,664 525,404 Other Accounts Receivable ................................... 140,249 99,829 163,976 Less: Allowance for Doubtful Accounts ...................... 37,337 40,031 37,641 Accounts Receivable - Associated Companies .................... 8,082 -- -- Unbilled Revenues ............................................. 153,634 128,309 246,876 Fuel, at average cost ......................................... 191,915 257,488 253,360 Materials and supplies, net of inventory valuation reserves - $18,200, $18,200 and $20,100, respectively ....... 145,455 147,846 143,741 Prepaid Gross Receipts Taxes - net ............................ 279,328 304,705 -- Deferred Income Taxes ......................................... 29,568 23,967 27,571 Miscellaneous Current Assets .................................. 18,464 17,971 37,130 ------------ ------------ ------------ Total Current Assets ..................................... 1,434,480 1,365,894 1,392,790 ------------ ------------ ------------ DEFERRED DEBITS: Property Abandonments - net ................................... 60,700 79,308 70,120 Oil and Gas Property Write-Down ............................... 33,501 38,655 36,078 Unamortized Debt Expense ...................................... 143,727 125,560 122,049 Deferred OPEB Costs ........................................... 241,614 182,736 167,189 Underrecovered Electric Energy and Gas Costs - net ............ 206,909 138,394 170,565 Unrecovered Environmental Costs (Note 4)....................... 124,235 134,436 130,070 Unrecovered Plant and Regulatory Study Costs .................. 34,495 35,475 35,150 Deferred Decontamination and Decommissioning Costs............. 49,872 53,016 49,872 Unrecovered SFAS 109 Deferred Income Taxes .................... 761,944 790,561 769,136 Other ......................................................... 25,754 10,100 5,700 ------------ ------------ ------------ Total Deferred Debits .................................... 1,682,751 1,588,241 1,555,929 ------------ ------------ ------------ Total .................................................... $ 14,749,316 $ 14,469,983 $ 14,593,778 ============ ============ ============ See Notes to Consolidated Financial Statements.
PUBLIC SERVICE ELECTRIC AND GAS COMPANY CONSOLIDATED BALANCE SHEETS (Thousands of Dollars)
June 30, June 30, 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 ................................................. 1,412,249 1,337,284 1,372,729 ------------ ------------ ------------ Total Common Equity ............................................ 4,569,647 4,434,682 4,530,127 Subsidiaries' Preferred Securities: Preferred Stock without mandatory redemption ...................... 113,392 384,994 324,994 Preferred Stock with mandatory redemption ......................... 150,000 150,000 150,000 Company-Obligated Mandatorily Redeemable Preferred Securities of a Partnership holding solely PSE&G Debentures .................. 210,000 150,000 210,000 Company-Obligated Mandatorily Redeemable Preferred Securities of a Subsidiary Trust holding solely PSE&G Debentures (QUIPS) (Note 5) ................................................ 208,000 -- -- Long-Term Debt ...................................................... 4,290,582 4,586,428 4,586,268 ------------ ------------ ------------ Total Capitalization ........................................... 9,541,621 9,706,104 9,801,389 ------------ ------------ ------------ OTHER LONG-TERM LIABILITIES: Decontamination, Decommissioning, and Low Level Radwaste Costs ............................................................. 49,718 59,180 50,449 Environmental Costs (Note 4)......................................... 90,765 105,600 96,272 Capital Lease Obligations ........................................... 52,752 53,450 53,111 ------------ ------------ ------------ Total Other Long-Term Liabilities .............................. 193,235 218,230 199,832 ------------ ------------ ------------ CURRENT LIABILITIES: Long-Term Debt due within one year .................................. 250,000 60,200 -- Commercial Paper and Loans .......................................... 736,929 725,881 567,316 Book Overdrafts ..................................................... 63,108 58,833 70,014 Accounts Payable .................................................... 423,391 324,536 481,632 Accounts Payable - Associated Companies ............................. -- 488 8,011 Other Taxes Accrued ................................................. 32,595 37,104 32,767 Interest Accrued .................................................... 66,185 69,560 95,811 Estimated Liability for Vacation Pay ................................ 31,603 30,334 17,089 Customer Deposits ................................................... 32,312 32,942 32,785 Liability for Injuries and Damages .................................. 32,399 30,568 38,141 Miscellaneous Environmental Liabilities ............................. 17,453 14,255 16,954 Other ............................................................... 44,546 23,947 50,751 ------------ ------------ ------------ Total Current Liabilities ...................................... 1,730,521 1,408,648 1,411,271 ------------ ------------ ------------ DEFERRED CREDITS: Accumulated Deferred Income Taxes ................................... 2,558,020 2,502,304 2,535,603 Accumulated Deferred Investment Tax Credits ......................... 361,124 380,234 370,610 Deferred OPEB Costs ................................................. 241,614 182,736 167,189 Other ............................................................... 123,181 71,727 107,884 ------------ ------------ ------------ Total Deferred Credits ......................................... 3,283,939 3,137,001 3,181,286 ------------ ------------ ------------ COMMITMENTS AND CONTINGENT LIABILITIES (Note 4) Total .......................................................... $ 14,749,316 $ 14,469,983 $ 14,593,778 ============ ============ ============
PUBLIC SERVICE ELECTRIC AND GAS COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (Thousands of Dollars)
Six Months Ended Twelve Months Ended June 30, June 30, ------------------------- ------------------------- 1996 1995 1996 1995 ----------- ----------- ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income .................................................... $ 292,417 $ 318,196 $ 591,185 $ 628,050 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and Amortization ............................... 301,914 291,868 601,160 571,190 Amortization of Nuclear Fuel ................................ 26,277 47,490 53,815 97,836 (Deferral) Recovery of Electric Energy and Gas Costs - net .. (36,344) 34,169 (68,515) 22,974 Provision for Deferred Income Taxes - net ................... 29,609 24,597 84,333 58,194 Investment Tax Credits - net ................................ (9,486) (9,487) (19,110) (19,291) Allowance for Funds Used During Construction - Debt and Equity .................................................... (7,762) (22,268) (21,761) (45,739) Changes in certain current assets and liabilities: Net decrease (increase) in Accounts Receivable and Unbilled Revenues .................................................. 149,479 173,261 (173,365) 77,086 Net decrease (increase) in Inventory - Fuel and Materials and Supplies .............................................. 59,731 10,356 67,964 (16,070) Net (decrease) increase in Accounts Payable ................. (66,252) (61,658) 98,367 (12,873) Net change in Prepaid/Accrued Taxes ......................... (279,500) (303,631) 13,060 (34,311) Net change in Other Current Assets and Liabilities .......... (10,364) (37,070) 24,606 (20,193) Other ......................................................... 6,994 46,752 54,230 74,222 ----------- ------------ ------------ ------------ Net cash provided by operating activities ................ 456,713 512,575 1,305,969 1,381,075 ----------- ------------ ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Additions to Utility Plant, excluding AFDC .................... (218,426) (312,685) (555,624) (801,444) Net (increase) decrease in Long-Term Investments .............. (44,632) (24,827) (84,994) 48,387 Increase in Nuclear Decommissioning and Other Special Funds, excluding interest .......................................... (13,444) (34,903) (44,988) (49,730) Cost of Plant Removal - net ................................... (13,827) (13,677) (29,824) (28,951) Other ......................................................... (92) 7,913 (7,146) 9,675 ----------- ------------ ------------ ------------ Net cash used in investing activities .................... (290,421) (378,179) (722,576) (822,063) ----------- ------------ ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in Short-Term Debt ............................... 169,613 324,122 11,048 53,886 (Decrease) Increase in Book Overdrafts ........................ (6,906) (27,743) 4,275 23,372 Issuance of Long-Term Debt .................................... 368,324 100,000 424,644 285,435 Redemption of Long-Term Debt .................................. (414,010) (250,359) (530,690) (537,881) Long-Term Debt Issuance and Redemption Costs .................. (38,573) -- (47,035) (29,731) Redemption of Preferred Stock ................................. (211,602) -- (271,602) (75,000) Net Gain on Preferred Stock Redemptions ....................... 18,493 -- 18,019 -- Issuance of Monthly Income Preferred Securities ............... -- -- 60,000 150,000 Issuance of Quarterly Income Preferred Securities .(QUIPS) .... 208,000 -- 208,000 -- Contributed Capital ........................................... -- -- 60,000 -- Cash Dividends Paid ........................................... (271,390) (273,112) (534,239) (544,555) Other ......................................................... -- 3,344 (3,345) 8,874 ----------- ------------ ------------ ------------ Net cash used in financing activities .................... (178,051) (123,748) (600,925) (665,600) ----------- ------------ ------------ ------------ Net increase (decrease) in Cash and Cash Equivalents .......... (11,759) 10,648 (17,532) (106,588) Cash and Cash Equivalents at Beginning of Period .............. 32,373 27,498 38,146 144,734 ----------- ------------ ------------ ------------ Cash and Cash Equivalents at End of Period .................... $ 20,614 $ 38,146 $ 20,614 $ 38,146 =========== ============ ============ ============ Income Taxes Paid ............................................. $ 142,751 $ 158,502 $ 264,122 $ 261,248 Interest Paid ................................................. $ 214,403 $ 188,795 $ 425,117 $ 367,312 See Notes to Consolidated Financial Statements. /TABLE PUBLIC SERVICE ELECTRIC AND GAS COMPANY CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (Thousands of Dollars)
Three Months Ended Six Months Ended Twelve Months Ended June 30, June 30, June 30, -------------------------- -------------------------- -------------------------- 1996 1995 1996 1995 1996 1995 ------------ ------------ ------------ ------------ ------------ ------------ Balance at Beginning of Period ........................... $ 1,418,653 $ 1,360,215 $ 1,372,729 $ 1,292,201 $ 1,337,284 $ 1,254,553 Add: Net Income ....................... 108,767 111,300 292,417 318,196 591,185 628,050 ------------ ------------ ------------ ------------ ------------ ------------ Total ......................... 1,527,420 1,471,515 1,665,146 1,610,397 1,928,469 1,882,603 ------------ ------------ ------------ ------------ ------------ ------------ Deduct Cash Dividends: Preferred Stock, at required rates ................... 7,463 8,680 14,989 17,362 31,389 37,405 Common Stock ..................... 126,201 125,550 256,401 255,750 502,850 507,150 Capital Stock Expenses ........... -- 1 -- 1 -- 764 ------------ ------------ ------------ ------------ ------------ ------------ Total Deductions ....... 133,664 134,231 271,390 273,113 534,239 545,319 ------------ ------------ ------------ ------------ ------------ ------------ Net Gain on Preferred Stock Redemptions ....................... 18,493 -- 18,493 -- 18,019 -- ------------ ------------ ------------ ------------ ------------ ------------ Balance at End of Period ........... $ 1,412,249 $ 1,337,284 $ 1,412,249 $ 1,337,284 $ 1,412,249 $ 1,337,284 ============ ============ ============ ============ ============ ============ See Notes to Consolidated Financial Statements.
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. BASIS OF PRESENTATION The financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. However, in the opinion of management, the disclosures are adequate to make the information presented not misleading. It is recommended that these financial statements and notes thereto be read in conjunction with the financial statements and the notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 1995. The unaudited financial information furnished herewith reflects all adjustments which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. NOTE 2. DISCONTINUED OPERATIONS On July 1, 1996, Enterprise Diversified Holdings Incorporated (EDHI), a subsidiary of Public Service Enterprise Group Incorporated (Enterprise), entered into a contract for the sale of Energy Development Corporation (EDC) to Samedan Oil Corporation (Samedan), a subsidiary of Noble Affiliates, Inc., for an aggregate purchase price of $779 million subject to various purchase price adjustments. As a result, certain financial information previously issued has been restated herein to give effect to the classification of EDC as discontinued operations. The sale, which was completed on July 31, 1996, resulted in an after-tax gain of approximately $13.5 million. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Operating results of EDC for the three, six, and twelve months ended June 30, 1996 and 1995 are summarized in the following table.
----------------------------------------------------------------- Three Months Ended Six Months Ended Twelve Months Ended June 30, June 30, June 30, 1996 1995 1996 1995 1996 1995 -------- -------- -------- -------- -------- -------- (Thousands) Revenues ......................... $ 58,914 $ 54,766 126,259 $102,894 $271,367 $208,990 Operating income.................. 4,163 5,506 22,457 11,322 69,790 21,330 Earnings (losses) before income taxes .......................... (3,638) 13 9,062 (963) 63,324 (2,889) Income taxes ..................... (2,742) (167) 1,308 (1,320) 20,891 (4,816) Net income (loss) ................ (896) 180 7,754 357 42,433 1,927
The net assets of EDC included in Enterprise's Consolidated Balance Sheets at June 30, 1996 and 1995, and December 31, 1995 are summarized in the following table.
June 30, June 30, December 31, 1996 1995 1995 --------- --------- ----------- (Thousands) Property ............................. $ 632,042 $ 589,088 $ 608,015 Current assets, primarily receivables 73,563 58,444 90,986 Other assets .......................... 56,309 82,318 56,836 Current liabilities .................. 60,791 46,808 62,204 Debt ................................. 350,000 335,821 311,821 Deferred credits and other liabilities 22,648 4,762 15,907 Net assets ........................... $328,475 $342,459 $365,905
The amount of debt included in determining the net assets of EDC is the actual EDC debt balance up to $350 million, which is the amount of external debt to be repaid from the proceeds of the sale of EDC. NOTE 3. 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) that includes a $50 million rate reduction for PSE&G's electric customers, various types of rate freezes, elimination of the electric fuel adjustment mechanism, 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. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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 earn 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 approved intervenor status and participatory status for twenty-two entities in the proceeding in which it will consider the proposed Plan. On June 21, 1996, after extensive briefing during the first and second quarter, the BPU issued its written Order defining the process and procedures which the parties will follow and on which the BPU will rely when deciding this case. The Order declared 1) that PSE&G has the burden of proving that the Plan comports with the established legislative standards and 2) that it will not be necessary to conduct a full traditional rate base/rate of return review to evaluate the reasonableness of PSE&G's current rates. As a result of the BPU's Order, the regulatory review process pertaining to the Plan has now commenced. PSE&G cannot predict what further actions, if any, may be taken by the BPU with respect to the Plan or when final action 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 Order: 1. declared PSE&G's rates related to Salem Unit 1 interim and subject to refund as of March 14, 1996, pending hearings referred to below; 2. required PSE&G to file briefs explaining 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. 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, the Order requires PSE&G to provide updates of monthly actual replacement power data for each 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 the requested financial information related to net plant investment included in the last base rate case for each unit, operation and maintenance expenses in current electric base rates for each unit and replacement power costs associated with the outage of the units to date. The data provided by PSE&G indicates that the portion of its annual base rates attributable to the Salem units is $192 million. However, PSE&G has also submitted data which indicates that removal of the units from base rates would justify an offsetting increase in revenue requirements totaling $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 continuing costs 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. PSE&G cannot predict the outcome of these hearings. On June 26, 1996, the BPU issued its Decision and Order declaring Salem Unit 2 base rates interim and subject to refund, effective as of that date. The issue of whether or not Salem Unit 1 and Salem Unit 2 are no longer used and useful will be addressed in a separate joint investigatory hearing before the BPU. The hearings are scheduled to be held in October 1996. 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 believes the units should not be removed from base rates and believes that, in the event of a unit's removal from base rates, the replacement power costs attributable to such unit, approximately $4 to $6 million per month, would be recoverable through its current Electric Levelized Energy Adjustment Clause (LEAC), and that the estimated $18 million Nuclear Performance Standard (NPS) penalty for 1996 would be substantially reduced. PSE&G cannot predict the outcome of this proceeding. (See Note 4, Commitments and Contingent Liabilities). NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Levelized Gas Adjustment Charge (LGAC) On April 24, 1996, the BPU approved PSE&G's 1995/96 LGAC, which finalizes the interim rates approved by the BPU on December 20, 1995. On July 30, 1996, PSE&G filed its 1996/97 LGAC petition with the BPU requesting that it be effective October 1, 1996 through December 31, 1997. PSE&G has requested the LGAC be modified so as to more closely track the market price of gas and avoid the distorted price signals and dislocations resulting from the reflection of over and under recoveries. The 1996/97 LGAC requests that residential and certain other customer billings be converted from a levelized charge to one derived on a monthly basis. The requested change in the LGAC pricing is the same as the change in pricing for Large Volume Gas (LVG) and General Service Gas (GSG) customers which was approved by the BPU in PSE&G's 1995/96 LGAC filing. In addition, there would be a cap of five cents per therm in the month to month change in the 1996/97 LGAC rate for all customer classes. PSE&G has also requested that the 1996/97 LGAC reflect a refund of approximately $14 million to LVG and GSG customers in the form of bill credits, stemming from over collections which occurred during the 1995/96 LGAC. Electric Levelized Energy Adjustment Clause By Order dated May 5, 1995, the BPU approved PSE&G's LEAC. Such Order also required that hearings 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 hearing. Hearings have been held and a briefing schedule established. PSE&G cannot predict the outcome of this proceeding. Remediation Adjustment Clause (RAC) On July 30, 1996, PSE&G petitioned the BPU for recovery of its Remediation Program Costs incurred during the period August 1995 through July 1996. In accordance with the BPU'S Order dated November 4, 1994, the petition proposes to recover, effective October 1, 1996, $4.3 million from gas customers and $2.9 million from electric customers from October 1, 1996 through September 30, 1997. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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 with respect to floor prices. These were eventually modified and approved by the BPU in April 1996. 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 completed on July 25, 1996. Briefs are expected to be filed during the third quarter of 1996. 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 and net cash flows of Enterprise and PSE&G prospectively. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) On August 1, 1996, the BPU issued an Order of Inquiry which essentially initiated a generic proceeding to resolve the regulatory and rate issues associated with Statement of Financial Accounting Standards (SFAS) 106, "Employers Accounting for Postretirement Benefits Other Than Pensions" (OPEB). In this proceeding, the BPU will determine the appropriate level of recovery, necessary rate changes and the proper funding mechanism for these costs. PSE&G cannot predict what action, if any, may be taken by the BPU on this matter or when final action may be completed. On July 31, 1996, PSE&G filed a motion for reconsideration of a declaratory ruling by the BPU that a proposed on-site cogeneration project to supply the total energy needs of a large PSE&G industrial customer did not constitute a public utility for the purposes of regulation by the BPU. In that motion, PSE&G has requested the BPU to impose on that customer an interim competition transition charge. Such a charge would be imposed to permit PSE&G the ability to recover its stranded costs which may result from the customer's leaving the PSE&G system as a full requirements customer. The filing is intended to ensure that departing customers bear their fair share of any stranded costs. PSE&G cannot predict what action the BPU may take in this matter. NOTE 4. COMMITMENTS AND CONTINGENT LIABILITIES Nuclear Performance Standard (NPS) The BPU has established a NPS for nuclear generating units 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 and Hope Creek, while Peach Bottom is operated by PECO Energy, Inc. (PECO). NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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 composite capacity factor is calculated annually using maximum dependable capability of the five nuclear units in which PSE&G owns an interest. This method takes into account actual operating conditions of the units. While the 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. Based upon current projections and assumptions regarding PSE&G's five nuclear units during 1996, including the return of Salem 2 late in the fourth quarter and the continued outage of Salem 1 for the remainder of the year, the 1996 aggregate capacity factor would be approximately 53%, which would result in a penalty of approximately $18 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 Nuclear Regulatory Commission (NRC) concurrence that they are prepared to restart. In the event the Salem Units are removed from base rates, PSE&G believes the projected $18 million NPS penalty would be substantially reduced. (See Note 3, Rate Matters). NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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
(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. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (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 in each plant for this limit. 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. 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 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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. Based on PSE&G's construction program, construction expenditures are expected to aggregate approximately $2.8 billion during the years 1996 through 2000, which includes $428 million for nuclear fuel and $84 million of Allowance for Funds used During Construction (AFDC). 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 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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. 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 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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. (See Note 3, Rate Matters.) NOTE 5. PREFERRED STOCK On June 26, 1996, PSE&G Capital Trust I (Trust), a special purpose statutory business trust controlled by PSE&G, issued $208 million of 8.625% Company-Obligated Mandatorily Redeemable Preferred Securities of a Subsidiary Trust holding solely Subordinated Debentures of PSE&G (QUIPS). The QUIPS pay a quarterly dividend and have a liquidation amount of $25. The proceeds were loaned to PSE&G. The sole asset of the Trust is PSE&G's 8.625% Series A Deferrable Interest Subordinated Debenture, evidenced by such loan, in an aggregate principal amount of $214,433,000 with a stated maturity date of June 26, 2045. PSE&G's service payments on the loan will be used by the Trust to pay dividends on the QUIPS. If and for as long as payments on PSE&G's Deferred Interest Subordinated Debentures have been deferred, or PSE&G has defaulted on the indenture related thereto or its guarantee thereof, PSE&G may not pay any dividends on its Capital Stock. PSE&G used the proceeds to redeem all 500,000 shares of each of its 7.52% and 7.40% Cumulative Preferred Stock at $101 per share on June 28, 1996. In addition, PSE&G purchased, pursuant to a tender offer, an aggregate $111.6 million of its 4.08%, 4.18%, 4.30%, 5.05%, 5.28%, 6.80% and 6.92% Cumulative Preferred Stock. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 6. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT Natural Gas and Crude Oil Hedging Continuing Operations Through June 30, 1996 and 1995, U.S. Energy Partners (USEP), a subsidiary of Public Service Resources Corporation (PSRC), entered into futures contracts and swaps to buy 2,530,000 mmbtu and 3,190,000 mmbtu of natural gas at average prices of $2.05 per mmbtu and $1.83 per mmbtu, respectively, related to fixed-price sales commitments. Such contracts, together with physical purchase contracts, hedged approximately 90% and 77% of its fixed- price sales commitments at June 30, 1996 and 1995, respectively. USEP had deferred unrealized hedge gains (losses) of $1.5 million and($445) thousand at those respective dates. Discontinued Operations EDC sold natural gas futures contracts outstanding at June 30, 1996 and 1995, which hedged 5,130,000 mmbtu and 3,670,000 mmbtu, respectively. Such amounts represented approximately 11.9% of EDC's anticipated domestic natural gas production for the remainder of 1996 and 10.5% of EDC's production for the remainder of 1995, at average sales prices of $1.89 per mmbtu and $1.96 per mmbtu, respectively. At June 30, 1996 and 1995, EDC sold crude oil futures contracts outstanding which hedged 420,000 barrels and 250,000 barrels of oil, respectively, at an average price of $17.65 per barrel and $19.83 per barrel, respectively. EDC has also entered into collar agreements which have the effect of establishing a floor and ceiling price for 1,355,000 barrels of oil. The floor price is $18.00 per barrel and the ceiling price is $20.015 per barrel. There was no cost to EDC to enter into these agreements. Based upon EDC's outstanding crude oil futures and the collar agreements at June 30, 1996 and 1995, EDC had hedged approximately 78% and 12%, respectively, of its anticipated oil production for the remainder of the respective periods. The deferred unrealized gains (losses) at June 30, 1996 and 1995 related to EDC's futures contracts was ($5.8) million and $2.1 million, respectively. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Public Service Electric and Gas Company Notes To Consolidated Financial Statements 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. Basis of Presentation Note 3. Rate Matters Note 4. Commitments and Contingent Liabilities Note 5. Preferred Stock PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Following are the significant changes in or additions to information reported in the Public Service Enterprise Group Incorporated (Enterprise) 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. Recent Developments On July 1, 1996, Enterprise Diversified Holdings Incorporated (EDHI) entered into a contract with Samedan Oil Corporation (Samedan), a subsidiary of Noble Affiliates, Inc., pursuant to which EDHI sold Energy Development Corporation (EDC) to Samedan for an aggregate purchase price of $779 million subject to various purchase price adjustments. The sale was completed on July 31, 1996. Enterprise expects to record an after-tax gain of approximately $ 13.5 million, or 6 cents per share, in the third quarter. The proceeds from the sale will be used to repay approximately $350 million of EDHI debt related to EDC and initiate a repurchase program of up to $350 million of Enterprise Common Stock. As of July 31, 1996, approximately $260 million of the EDHI debt related to EDC had been repaid. On July 16, 1996, Enterprise announced that its Board of Directors had authorized the repurchase of up to $350 million of its Common Stock. Under the authorization, repurchases will be made in the open market at the discretion of Enterprise management. If the entire authorized amount were to be repurchased, it would represent about 5% of Enterprise's outstanding 244.7 million shares of Common Stock based on current market prices. Competition There continues to be opposition in Congress and among Northeastern governors to FERC's recent open access ruling, Order No. 888, due to environmental concerns. The concern is that, as a result of open access on high voltage interstate electric transmission facilities, there will be an increase in nitrogen oxide (nox) emissions due to increased outputs from older, dirtier coal-fired plants in the Midwest that are subject to less restrictive pollution control requirements. These facilities, by increasing their power production in order to sell into the higher priced markets including the East, 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. On May 13, 1996, the EPA referred FERC's ruling to the Council for Environmental Quality (CEQ). CEQ responded to the EPA's referral on June 14, 1996. The potential for significant air quality impacts from the FERC's ruling was affirmed by the CEQ's response. The CEQ's response, which follows a year-long environmental review during which the EPA, environmental organizations, industry groups, and other stakeholders raised serious concerns over increased pollution from FERC's open access and electricity restructuring policies, provides support for addressing clean air issues and pursuing mitigation options to safeguard against emissions increases from open access. 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. On May 23, 1996 the BPU voted to release the Phase II Proceeding Staff Status Report: Restructuring the Electric Power Industry in New Jersey (Status Report). The BPU also voted to adopt the recommended procedures cited in the Status Report to reach a resolution and render its final decisions concerning electric power industry restructuring by approximately year-end 1996. The BPU also agreed to follow a concurrent, two pronged process to address the outstanding issues and render final decisions. Therefore, the BPU will 1) conduct formal public and legislative-type hearings to take testimony on the outstanding issues as well as accept advance written comments to develop a formal record in this matter and 2) establish a negotiating group comprised of representatives of the various interest groups in this proceeding. The BPU indicated its intention to release its recommended findings by approximately October 1996, either via a unilateral decision based upon the record before it, or via a consensus in the event that one can be reached. Final comments will then be taken and a final decision is expected to be announced by year end. 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, purchased 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 NJGRT with a combination of existing corporate business tax, existing state sales and use tax and a transitional tax which will be phased out over an expected 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. PSE&G cannot predict when or if this proposal will be adopted. Nuclear Operations Both of PSE&G's Salem Nuclear Generating Units are currently out of service and their return dates are subject to completion of the requirements of their respective restart plans to the satisfaction of PSE&G and the NRC, which encompasses a substantial review and improvement of personnel, process and equipment issues. On May 23, 1996, PSE&G and the co-owners of Salem signed an agreement to purchase the steam generators from the owner of the unfinished Seabrook Nuclear Unit 2 for installation in Salem Unit 1. Removal of the steam generators from the Seabrook site has begun. They will be shipped to the Salem site and are expected to arrive at Salem before the end of the year. By using these replacement steam generators, PSE&G expects to return Salem 1 to service in mid-1997. The cost of replacement, including installation, will be approximately $150 to $170 million (PSE&G's share would be $64 to $72 million). In addition, the cost of disposal of the four old steam generators could be as much as $20 million (PSE&G's share would be $9 million). The disposal options include storing them at the Salem site or shipping them to another location. (For discussion of replacement power costs, see Note 3, Rate Matters, of Notes.) On July 22, 1996, PSE&G announced that although substantial progress has been made in upgrading Salem Unit 2's major systems, some of the originally scheduled work, along with additional work that had since been identified, remained to be completed and that the outage at this unit would continue well into the fourth quarter of 1996. This change to the Unit 2 schedule is not presently expected to impact the restart of Salem Unit 1. The inability to successfully return these units to continuous, safe operation could have a material adverse effect on the financial position, results of operations and net cash flows of Enterprise and PSE&G. (See Note 3, Rate Matters, of Notes.) Given the additional scope of work associated with the Salem Unit 2 delay, Unit 1 restart activities (excluding the steam generator replacement) and various cost saving initiatives in progress, it is expected that PSE&G's share of Salem operation and maintenance expenditures will increase approximately $12 million from original plans developed in late 1995, to a total of $130 million for 1996. Results of Operations Earnings per share of Enterprise Common Stock was $0.55 for the three-month period ended June 30, 1996, an increase of $0.10 per share of Common Stock over the comparable 1995 period. Earnings per share of Enterprise Common Stock was $1.34 for the six-month period ended June 30, 1996, an increase of $0.02 per share of Common Stock over the comparable 1995 period. Earnings per share of Enterprise Common Stock was $2.73 for the twelve-month period ended June 30, 1996, an increase of $0.11 per share of Common Stock over the comparable 1995 period. Earnings per share for the three, six and twelve-month periods ended June 30, 1996 increased primarily due to higher electric and gas sales by PSE&G resulting from favorable weather conditions in 1996, the purchase of certain of PSE&G's outstanding cumulative preferred stock at discounts to par, increased income from discontinued operations - EDC and increased investment income from Public Service Resources Corporation (PSRC). These increases were partially offset by increased maintenance and operation expenses related to the outage at Salem and Hope Creek, a decrease in the Allowance for Funds Used During Construction (AFDC) that resulted from a decrease in construction work in progress and increased depreciation expenses due to more plant in service. PSE&G - Earnings Available to Enterprise
Increase or (Decrease) ----------------------------------------------- Three Months Six Months Twelve Months Ended June 30, Ended June 30, Ended June 30, 1996 vs. 1995 1996 vs. 1995 1996 vs. 1995 ------------- -------------- -------------- Per Per Per Amount Share Amount Share Amount Share ------ ----- ------ ----- ------ ----- (Millions, except Per Share Data) PSE&G Revenues (net of fuel costs and gross..... receipts taxes)......................... $ 33 $ .14 $ 76 $ .31 $ 142 $ .58 Other operation expenses.................. (12) (.05) (34) (.14) (11) (.04) Maintenance expenses...................... (19) (.08) (51) (.21) (75) (.31) Depreciation and amortization expenses.... (1) -- (10) (.04) (30) (.12) Federal income taxes...................... 5 .02 12 .05 (36) (.15) Interest charges.......................... 3 .01 1 -- 3 .01 Allowance for Funds used During Construction(AFDC)..................... (9) (.04) (14) (.06) (24) (.10) Preferred securities dividend requirements -- -- -- -- (4) (.01) Other income ............................. 17 .07 16 .07 22 .09 ------ ----- ------ ------ ------ ----- Earnings Available to Enterprise.......... $ 17 $ .07 $ (4) $ (.02) $ (13) $(.05) ====== ====== ====== ====== ====== =====
PSE&G - Revenues Electric Revenues increased $22 million or 2%, $35 million or 2%, and $198 million or 5% for the three, six and twelve-month periods ended June 30, 1996 over the comparable periods of 1995 primarily due to higher recovery of energy costs, increased residential and commercial sales attributable to warmer than normal weather in the second quarter of 1996 and the continued moderate growth in the economy. Increased residential and commercial sales were slightly offset by lower industrial sales. The significant components of these changes follow:
Increase or (Decrease) ----------------------------------------------- Three Months Six Months Twelve Months Ended June 30, Ended June 30, Ended June 30, 1996 vs. 1995 1996 vs. 1995 1996 vs. 1995 ------------- -------------- -------------- Amount Amount Amount -------------- -------------- -------------- (Millions) Kilowatt-hour sales....................... $ 11 $15 $ 45 Recovery of energy costs................. 8 16 113 NJGRT.................................... -- 4 14 Other operating revenues................. 1 (4) 18 PSCRC ................................... 2 4 8 -------------- -------------- -------------- Total Electric Revenues.................. $ 22 $ 35 $ 198 ============== ============== ==============
Gas Revenues increased $28 million or 11%, $191 million or 21%, and $276 million or 17% for the three, six and twelve- month periods ended June 30, 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 most recent heating season and increased cogeneration sales. Other operating revenues reflect increases in offsystem sales which are sales of excess gas to brokers and other utilities which are not part of PSE&G's firm customer base. The effects of those gains on total revenues for the three-month and six-month periods were depressed by approximately $13 million due to a special rate adjustment in 1995. The significant components of these changes follow:
Increase or (Decrease) ---------------------------------------------- Three Months Six Months Twelve Months Ended June 30, Ended June 30, Ended June 30, 1996 vs. 1995 1996 vs. 1995 1996 vs. 1995 ------------- -------------- -------------- Amount Amount Amount -------------- -------------- -------------- (Millions) Therm sales............................ $ 24 $ 40 $ 53 Recovery of fuel costs................. 20 141 187 NJGRT.................................. (8) -- 21 Other operating revenues............... (8) 10 15 ------------ ------------- -------------- Total Gas Revenues..................... $ 28 $ 191 $ 276 ============= ============= ===============
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. However, if the proposed Alternative Rate Plan is adopted as filed, future changes in electric fuel and replacement power costs could impact earnings. (See Note 3, Rate Matters, of Notes) Other Operation Expenses Other operation expenses increased $12 million or 5%, $34 million or 8% and $11 million or 1% for the three, six and twelve-month periods ended June 30, 1996 from the comparable 1995 periods. The increases during the three, six and twelve-month periods were due to higher refueling outage expenses and restart activities at Salem and Hope Creek, increased labor and material expenses in the gas business as a result of greater than anticipated repair work and increased conservation costs which were offset by higher Demand Side Management (DSM) revenue recovered through rates. Maintenance Expenses Maintenance expenses increased $19 million or 28%, $51 million or 38% and $75 million or 26% for the three, six and twelve-month periods ended June 30, 1996 from the comparable 1995 periods. The three, six and twelve-month increases were due to refueling outage expenses associated with the ongoing shutdown of Salem and the 1995 refueling and maintenance outage of Hope Creek. Depreciation and Amortization Expenses Depreciation and amortization expenses increased $1 million or 1%, $10 million or 3% and $30 million or 5% for the three, six and twelve-month periods ended June 30, 1996 over the comparable 1995 periods. The increases were due to the completion of the repowering of Bergen Generating Station in September 1995. Federal Income Taxes Federal income taxes decreased $5 million or 9% and $12 million or 8% for the three and six-month periods ended June 30, 1996 from the comparable 1995 periods. There was an increase of $36 million or 13% for the twelve-month period ended June 30, 1996 when compared to the same 1995 period. The three and six-month decreases were primarily due to the decrease in 1996 pre-tax income. The twelve-month increase was principally due to the receipt of a non-taxable insurance benefit in 1994. Allowance for Funds Used During Construction AFDC used during construction decreased $9 million or 71%, $14 million or 65% and $24 million or 52% during the three, six and twelve-month periods ended June 30, 1996 from the comparable 1995 periods. The three, six and twelve-month decreases were primarily the result of a decrease in construction work in progress resulting from the completion of the repowering of Bergen Generating Station in September 1995. In addition, a lower AFDC rate contributed to the decrease. Other Income Other income increased $17 million or 98%, $16 million or 43% and $22 million or 31% for the three, six and twelve- month periods over the comparable 1995 periods primarily due to an $18 million net gain on the repurchase of certain of PSE&G's outstanding cumulative preferred stock at discounts to par. EDHI - Net Income
Increase or ----------------------------------------------- Three Months Six Months Twelve Months Ended June 30, Ended June 30, Ended June 30, 1996 vs. 1995 1996 vs. 1995 1996 vs. 1995 ------------- -------------- -------------- Per Per Per Amount Share Amount Share Amount Share ------ ------ ------ ------ ------ ----- (Millions, except Per Share Data) PSRC ................................... 10 .04 8 .03 7 .03 CEA.................................... (1) (.01) (4) (.02) (7) (.03) EGDC................................... (1) -- (1) -- (2) (.01) Discontinued Operations - EDC ......... (1) -- 7 .03 40 .17 ------ ------ ------ ------ ------ ----- Total............................. $ 7 $ .03 $ 10 $ .04 $ 38 $ .16 ====== ====== ====== ====== ====== =====
EDHI The net income of EDHI was $15 million for the quarter ended June 30, 1996, a $7 million increase over the period ended June 30, 1995. The increase was primarily due to PSRC's increased income from its Kohlberg, Kravis, Roberts and Co. (KKR) Leveraged Buy-Out Fund investment due to a gain related to the sale of certain assets. PSE&G For the six-month period ended June 30, 1996, PSE&G had utility plant additions, including AFDC, of $226 million, a decrease of $109 million from the corresponding 1995 period. For the twelve-month period ended June 30, 1996, PSE&G had utility plant additions, including AFDC, of $577 million, a decrease of $270 million from the corresponding 1995 period. The six and twelve-month decreases were primarily due to the completion of the Bergen Generating Station repowering project. 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 3, Rate Matters, and Note 4, 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. On July 1, 1996, EDHI entered into a contract with Samedan for the sale of EDC to Samedan for $779 million. For additional discussion regarding the sale of EDC, see Recent Developments. 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. On June 20, 1996, EGDC sold an office project located in Valley Forge, Pennsylvania. Over the next several years, EDHI and its subsidiaries will be required to refinance a portion of their maturing debt in order to meet their capital requirements. Any inability to extend or replace maturing debt and or existing agreements at current levels and interest rates may affect future earnings and 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 June 30, 1996, $86 million remained as PSRC's unfunded commitment related to these investments subject to call. EDHI and each of its subsidiaries are subject to restrictive business and financial covenants contained in existing debt agreements. Prior to the sale of EDC, EDHI was required to maintain debt to equity ratios which varied from 3:1 to 1.75:1 and twelve-month earnings before interest and taxes (EBIT) coverage ratio of at least 1.35:1. As of June 30, 1996 and 1995, EDHI had a consolidated debt to equity ratio of 1.06:1 and 1.15:1, respectively, and for the twelve months ended June 30, 1996 and 1995, EBIT coverage ratios, as defined to exclude the effects of EGDC, of 2.75:1 and 1.81:1, respectively. Beginning July 31, 1996, EDHI is required to maintain a debt to equity ratio of no more than 2.00:1 and a twelve- month EBIT coverage ratio of at least 1.50:1. As of June 30, 1996 and 1995, excluding the discontinued operations of EDC and $350 million of dividends by EDHI to Enterprise, EDHI had consolidated debt to equity ratios of 1.21 and 1.25, respectively. For the twelve months ended June 30, 1996 and 1995, excluding the discontinued operations of EDC, the EBIT coverage ratios, as defined to exclude the effects of EGDC, were 2.45:1 and 2.32:1, respectively. Compliance with applicable financial covenants will depend upon future financial position and levels of earnings, as to which no assurance can be given. Internal Generation of Cash From Continuing Operations Enterprise's cash provided by operations for the six months ended June 30, 1996 decreased $4 million to $530 million from the corresponding 1995 period. Enterprise's cash provided by operations for the twelve months ended June 30, 1996 increased $24 million to $1.456 billion from the corresponding 1995 period. External Financings - Enterprise Enterprise has a $25 million line of credit with a bank. At June 30, 1996, Enterprise had no borrowings under this line. External Financings - PSE&G The BPU has authorized PSE&G to issue approximately $4.852 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 previous additions and improvements and/or retired Bonds provided that the ratio of earnings to fixed charges is at least 2:1. As of June 30, 1996, up to $2.92 billion aggregate principal amount of new bonds could be issued against previous additions and improvements. At June 30, 1996, the ratio of earnings to fixed charges was 2.77:1. In January 1996, PSE&G issued $350 million of its First and Refunding Mortgage Bonds (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 June 26, 1996, PSE&G Capital Trust I issued $208 million of 8.625% Quarterly Income Preferred Securities (QUIPS). For additional information, see Note 5, Preferred Stock, of Notes. 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 short-term obligations, consisting of commercial paper and other unsecured borrowings from banks and other lenders. On June 30, 1996, PSE&G had $631 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 borrowings of up to one year. On June 30, 1996, there were no borrowings outstanding under either of these credit agreements. PSE&G expects to be able to renew the credit agreement expiring in 1996. Public Service Conservation Resources Corporation (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 June 30, 1996, PSCRC had $30 million outstanding under this facility. In March 1996, PSCRC entered into a $40 million secured term loan facility for loans maturing in three to five years. The agreement terminates in March 1998. As of June 30, 1996, there was $18 million outstanding under this facility. PSE&G Fuel Corporation (Fuelco) has a $125 million commercial paper program to finance PSE&G's 42.49% share of Peach Bottom nuclear fuel, supported by a $125 million revolving credit facility with a group of banks. The credit facility expires in 2001. PSE&G has guaranteed repayment of Fuelco's respective obligations. As of June 30, 1996, Fuelco had commercial paper of $76 million outstanding under the program and the facility. External Financings - EDHI Through July 31, 1996, Enterprise Capital Funding Corporation (Funding) had 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 June 30, 1996, Funding had $186 million of borrowings outstanding under this commercial paper program. Additionally, Funding had a $225 million revolving credit facility expiring in March 1998. As of June 30, 1996, Funding had $70 million of borrowings outstanding under this facility. On July 31, 1996, Funding amended and restated its commercial paper program and revolving credit facility in conjunction with the sale of EDC, reducing the total amount from $450 to $300 million and extending the maturity from March 1998 to July 1999. The $225 million commercial paper program was eliminated and the $225 million revolving credit facility was increased to $300 million. As of July 31, 1996, Funding had no borrowings outstanding under the amended and restated facility. PSE&G 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 June 30, 1996, Capital had total debt outstanding of $461 million, including $355 million of MTNs. Public Service Electric and Gas Company 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: Recent Developments; Competition; Nuclear Operations; Results of Operations; Liquidity and Capital Resources; Internal Generation of Cash from Operations; and External Financings. INFORMATION REGARDING FORWARD LOOKING STATEMENTS This Quarterly Report on Form 10-Q includes forward looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Although Enterprise and PSE&G believe that their expectations are based on reasonable assumptions, they can give no assurance that their expectations will be achieved. PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED PART II. OTHER INFORMATION Item 1. Legal Proceedings - ------ ----------------- As previously reported, 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. In April 1996, Westinghouse filed an answer and $2.5 million counterclaim for unpaid work related to services at Salem. The parties to this litigation have been ordered by the Court to participate in mediation on the matter and the discovery process has been stayed. PSE&G cannot predict the outcome of these proceedings. Also previously reported, 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 in these matters have been filed and discovery is proceeding. 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 and that it has substantial and valid defenses to these claims. On July 30, 1996, the Judge in the Eastern District of Pennsylvania matter issued an Order scheduling discovery and setting a trial for May 1997. Certain information reported under Item 3 of Part I of Enterprise's and PSE&G's Annual Report 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 this report. As previously reported in the Form 10-K at page 39 and in a prior 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. These three actions have been consolidated and a case management order to deal with discovery and motions has been issued. A fourth shareholder derivative action, alleging substantially similar claims, was filed on July 3, 1996. In addition, see the following at the pages indicated: (1) Page 12. Proceedings before the BPU relating to PSE&G's proposed Alternative Rate Plan, Docket No. E096010028. Form 10-K, Page 73. (2) Page 15. Proceedings before the BPU relating to PSE&G's LGAC filed October 2, 1995, Docket No. GR9510456. Form 10-K, Page 75. (3) Page 15. 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 16. 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 16. Generic proceedings before the BPU relating to standards for "off tariff" negotiated rate agreement programs, Docket No. EX95070320. Form 10-K, Page 76. (6) Page 15. Proceedings before the BPU relating to PSE&G's LGAC filed July 30, 1996, Docket No. GR96070554. (7) Page 15. Proceedings before the BPU relating to PSE&G's RAC filed July 30, 1996, Docket No. GR96070555. (8) Page 17. Generic proceeding before the BPU relating to the matter of an inquiry into methods of implementation of FAS-106, Docket No. AX96070530. (9) Page 16. Proceedings before the BPU for reconsideration of a declaratory ruling related to a cogeneration project at the site of a large industrial customer and for imposition of an interim competition transition charge. Docket No. EE95100486. 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. Pennsylvania - New Jersey - Maryland Interconnection Form 10-K, Page 7, Paragraph 6 ------------------------------ On July 24, 1996, the member companies of Pennsylvania- New Jersey-Maryland Interconnection (PJM), except PECO, filed their proposal to reorganize into an independent system operator in response to FERC's open access proposed rulemaking and plan to implement a restructured pool by year- end 1996 if approved by FERC. PECO has filed a separate proposal with FERC. PSE&G cannot predict what action FERC will take regarding this matter. PSE&G - Nuclear Fuel Form 10-K, Page 7, Paragraph 2 and 1st Quarter 10-Q, Page 45 -------------------------------------------------------- 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 2004. PECO does not anticipate any difficulties in obtaining necessary enrichment services for Peach Bottom. PSE&G - Nuclear Operations Form 10-K, Page 10 and 1st Quarter 10-Q, Page 42 ------------------------------------------------ Both of PSE&G's Salem Nuclear Generating Units are currently out of service. PSE&G expects to return Salem 1 to service in mid-1997 while Salem 2 is expected to return to service late in the fourth quarter of 1996. Their return dates are subject to completion of the requirements of the restart plan to the satisfaction of PSE&G and the NRC, which encompasses a substantial review and improvement of personnel, process, and equipment issues. For further discussion of the Salem Units, see Nuclear Operations in MD&A. Nuclear Fuel Disposal Form 10-K, Page 17, Paragraph 3 ------------------------------- In a decision issued July 23, 1996, the Court of Appeals found that the DOE is obligated to begin accepting spent nuclear fuel for disposal no later than January 31, 1998. PSE&G cannot predict when or if the DOE will accept nuclear fuel as no repository or other storage facility currently exists or is under construction. Form 10-K, Page 17, Paragraph 5 ------------------------------- As a result of reracking the two spent fuel pools at Salem, the availability of adequate spent fuel storage capacity is estimated through 2008 for Salem 1 and 2012 for Salem 2, prior to losing an operational full core discharge reserve. The current shutdown of the Salem Units is expected to extend these dates further by a few years. Employee Relations ------------------ Form 10-K, Page 19, and 1st Quarter 10-Q, Page 47 ------------------------------------------------- PSE&G and the unions representing all of its represented employees have entered into new six year contracts which will expire April 30, 2002. The recent amendments to PSE&G's pension plan, coupled with other benefit modifications, had a direct impact upon PSE&G's Pension and Postretirement Benefit Plans which required that actuarial assumptions be modified and assets and liabilities be remeasured. This resulted in an immaterial increase to the annual expense. New Matters ----------- Following an NRC inspection in early 1996, Hope Creek received notice of 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 was held on June 11, 1996 to discuss these potential violations, one of which PSE&G contested. PSE&G cannot predict what actions the NRC will take on these matters. New Matters ----------- On June 24, 1996, PSE&G and PECO announced the commissioning of a study to investigate competitive alternatives to the current independent nuclear power plant operations of the two companies. The goal of this effort is to determine if feasible alternatives exist to permit diversification of financial risks and reduction of costs for both companies in order to increase competitiveness. New Matters ----------- On July 5, 1996, the NRC notified PSE&G of the need for a predecisional enforcement conference for apparent violations involving alleged discrimination against two employees for their engagement in protected activities in accordance with federal regulations. The enforcement conference has been scheduled for September 11, 1996. PSE&G cannot predict what actions the NRC may take in this matter. 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 ------- ------------------------------------------- 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) (b) Reports on Form 8-K. Registrant Date of Report Item Reported - ---------- -------------- ------------- Enterprise and PSE&G 5-24-96 Item 5. Other events (PSE&G Nuclear Operations - Salem) Enterprise and PSE&G 6-10-96 Item 5. Other events (PSE&G Rate Matters - Salem Investigation and Nuclear Operations- Salem) Enterprise 7-2-96 Item 5. Other events (Enterprise) Item 7. Financial Statements and Exhibits Enterprise and PSE&G 7-22-96 Item 5. Other events (PSE&G Nuclear Operations - Salem) Item 7. Financial Statements and Exhibits PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused these reports to be signed on their respective behalf by the undersigned thereunto duly authorized. PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED PUBLIC SERVICE ELECTRIC AND GAS COMPANY -------------------------------------------- (Registrants) By: PATRICIA A. RADO -------------------------------------- Patricia A. Rado Vice President and Controller (Principal Accounting Officer) Date: August 14, 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 ---------------------------------------------------------------- June 30, 1991(A) 1992(A) 1993(A) 1994 1995 1996 --------- --------- ---------- ---------- ---------- --------- (THOUSANDS OF DOLLARS) Earnings as Defined in Regulation S-K: Net Income ...................... 543,035 504,117 595,519 679,033 662,323 667,706 Federal Income Taxes (B) ........ 274,146 253,276 316,010 322,824 364,355 337,111 Fixed Charges ................... 530,308 580,364 570,505 568,611 580,432 516,289 Earnings ........................ 1,347,489 1,337,757 1,482,034 1,570,468 1,607,110 1,521,106 --------- --------- ---------- ---------- ---------- --------- Fixed Charges as Defined in Regulation S-K (C): Total Interest Expense (D) ...... 478,321 524,025 502,534 495,925 496,060 437,787 Interest Factor in Rentals ...... 9,311 9,591 11,090 12,120 11,956 11,790 Subsidiaries' Preferred Stock Dividend Requirements ......... 29,012 31,907 38,114 42,163 49,426 49,452 Adjustment to preferred and preference stock dividends to state on a pre-income tax basis 13,664 14,841 18,767 18,403 22,990 17,260 --------- --------- ---------- ---------- ---------- --------- Total Fixed Charges ...... 530,308 580,364 570,505 568,611 580,432 516,289 ========= ========= ========== ========== ========== ========= Ratio of Earnings to Fixed Charges ...................... 2.54 2.30 2.59 2.76 2.77 2.94 ==== ==== ==== ==== ==== ==== (A) Excludes cumulative effect of $5.4 million credit to income reflecting a change in income taxes. (B) Includes state income taxes and federal income taxes for other incomes. (C) Fixed Charges represent (a) interest, whether expensed or capitalized, (b) amortization of debt discount, premium and expense, (c) an estimate of interest implicit in rentals, and (d) preferred securities dividend requirements of subsidiaries, increased to reflect the pre-tax earnings requirement for Public Service Enterprise Group Incorporated. (D) 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.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 -------------------------------------------------------------- June 30, 1991 1992 1993 1994 1995 1996 ---------- ---------- ---------- ---------- ---------- --------- (THOUSANDS OF DOLLARS) Earnings as Defined in Regulation S-K: Net Income .................... 545,479 475,936 614,868 659,406 616,964 591,185 Federal Income Taxes (A) ...... 261,912 223,782 307,414 301,447 325,737 312,888 Fixed Charges ................. 367,828 411,493 401,046 408,045 418,825 435,886 Earnings ...................... 1,175,219 1,111,211 1,323,328 1,368,898 1,361,526 1,339,959 ---------- ---------- ---------- ---------- ---------- ---------- Fixed Charges as Defined in Regulation S-K (B) Total Interest Expense (C) .... 358,517 401,902 389,956 395,925 406,869 406,033 Interest Factor in Rentals .... 9,311 9,591 11,090 12,120 11,956 11,790 Subsidiaries' Preferred Stock Dividend Requirements ....... -- -- -- -- -- 18,063 Total Fixed Charges .... 367,828 411,493 401,046 408,045 418,825 435,886 ========= ========= ========== ========== ========== ========== Ratio of Earnings to Fixed Charges ..................... 3.20 2.70 3.30 3.35 3.25 3.07 ==== ==== ==== ==== ==== ==== (A) Includes state income taxes and federal income taxes for other income. (B) Fixed Charges represent (a) interest, whether expensed or capitalized, (b) amortization of debt discount, premium and expense, (c) an estimate of interest implicit in rentals, and (d) preferred securities dividend requirements of subsidiaries, increased to reflect the pre-tax earnings requirement for Public Service Electric and Gas Company. (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.
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 -------------------------------------------------------------- June 30, 1991 1992 1993 1994 1995 1996 ---------- ---------- ---------- ---------- ---------- ---------- (THOUSANDS OF DOLLARS) Earnings as Defined in Regulation S-K: Net Income ......................... 545,479 475,936 614,868 659,406 616,964 591,185 Federal Income Taxes (A) ........... 261,912 223,782 307,414 301,447 325,737 312,888 Fixed Charges ...................... 367,828 411,493 401,046 408,045 418,825 435,886 Earnings ........................... 1,175,219 1,111,211 1,323,328 1,368,898 1,361,526 1,339,959 ---------- ---------- ---------- ---------- ---------- ---------- Fixed Charges as Defined in Regulation S-K (B): Total Interest Expense (C) ......... 358,517 401,902 389,956 395,925 406,869 406,033 Interest Factor in Rentals ......... 9,311 9,591 11,090 12,120 11,956 11,790 Subsidiaries' Preferred Stock Dividend Requirements ............ -- -- -- -- -- 18,063 Preferred Stock Dividends .......... 29,012 31,907 38,114 42,147 49,426 31,389 Adjustment to preferred and preference stock dividends tp state on a pre-income tax basis ............. 13,691 14,768 18,843 18,763 23,428 16,564 ---------- ---------- ---------- ---------- ---------- ---------- Total Fixed Charges ...... 410,531 458,168 458,003 468,955 491,679 483,839 ========== ========== ========== ========== ========== ========== Ratio of Earnings to Fixed Charges .......................... 2.86 2.43 2.89 2.92 2.77 2.77 ==== ==== ==== ==== ==== ==== (A) Includes state income taxes and federal income taxes for other income. (B) Fixed Charges represent (a) interest, whether expensed or capitalized, (b) amortization of debt discount, premium and expense, (c) an estimate of interest implicit in rentals, and (d) preferred securities dividend requirements of Subsidiaries, increased to reflect the pre-tax earnings requirement for Public Service Electric and Gas Company. (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.
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, necessary for a fair presentation. 0000788784 PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED 1000 6-MOS DEC-31-1995 JAN-01-1996 JUN-30-1996 PER-BOOK 11,110,521 2,303,182 1,843,012 1,686,708 0 16,943,423 3,801,157 0 1,708,153 5,509,310 568,000 113,392 4,805,844 0 0 736,929 283,364 0 52,752 0 4,873,832 16,943,423 3,133,137 158,408 2,433,398 2,590,721 542,416 2,492 544,908 235,992 328,642 14,989 328,642 264,274 192,527 591,654 1.34 1.34
State Income Taxes of $3,128 and Federal Income Taxes for Other Income of $1,085 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. Total interest expense includes tax deductible Subsidiary Preferred Dividend Requirements. Preferred Stock Dividends include non-tax deductible Subsidiary Preferred Dividend Requirements.
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, necessary for a fair presentation. 0000081033 PUBLIC SERVICE ELECTRIC AND GAS COMPANY 1000 6-MOS DEC-31-1995 JAN-01-1996 JUN-30-1996 PER-BOOK 11,110,521 521,564 1,434,480 1,682,751 0 14,749,316 2,563,003 594,395 1,412,249 4,569,647 568,000 113,392 4,290,582 0 0 736,929 250,000 0 52,752 0 4,168,014 14,749,316 3,040,886 145,358 2,402,416 2,546,689 494,197 2,481 496,678 212,023 292,417 14,989 295,921 256,401 175,621 456,713 0 0
State Income Taxes of $659 and Federal Income Taxes for Other Income of $1,085 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. Total interest expense includes tax deductible Subsidiary Preferred Dividend Requirements. Preferred Stock Dividends include non-tax deductible Subsidiary Preferred Dividend Requirements.
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