-----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, HLuaq8kd0jc+XmgSRgVCxvmNExUiUJV+TCFIe+pKrF2n3uUHBhH7v8Sas0gvtvB0 YglfAV+JkrYNHDHTYaFwXA== /in/edgar/work/20000809/0000788784-00-000021/0000788784-00-000021.txt : 20000921 0000788784-00-000021.hdr.sgml : 20000921 ACCESSION NUMBER: 0000788784-00-000021 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000809 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PUBLIC SERVICE ENTERPRISE GROUP INC CENTRAL INDEX KEY: 0000788784 STANDARD INDUSTRIAL CLASSIFICATION: [4931 ] IRS NUMBER: 222625848 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-09120 FILM NUMBER: 688948 BUSINESS ADDRESS: STREET 1: 80 PARK PLZ STREET 2: P O BOX 1171 CITY: NEWARK STATE: NJ ZIP: 07101-1171 BUSINESS PHONE: 9734307000 MAIL ADDRESS: STREET 1: 80 PARK PLZ STREET 2: PO BOX 1171 CITY: NEWARK STATE: NJ ZIP: 07101-1171 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PUBLIC SERVICE ELECTRIC & GAS CO CENTRAL INDEX KEY: 0000081033 STANDARD INDUSTRIAL CLASSIFICATION: [4931 ] IRS NUMBER: 221212800 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-00973 FILM NUMBER: 688949 BUSINESS ADDRESS: STREET 1: 80 PARK PLZ STREET 2: PO BOX 570 CITY: NEWARK STATE: NJ ZIP: 07101-0570 BUSINESS PHONE: 9734307000 MAIL ADDRESS: STREET 1: 80 PARK PLZ STREET 2: PO BOX 570 CITY: NEWARK STATE: NJ ZIP: 07101-0570 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PSEG ENERGY HOLDINGS INC CENTRAL INDEX KEY: 0001089206 STANDARD INDUSTRIAL CLASSIFICATION: [4911 ] IRS NUMBER: 222983750 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-95697 FILM NUMBER: 688950 BUSINESS ADDRESS: STREET 1: 80 PARK PLZ STREET 2: T22 CITY: NEWARK STATE: NJ ZIP: 07102-4194 BUSINESS PHONE: 9734307000 MAIL ADDRESS: STREET 1: 80 PARK PLZ STREET 2: T22 CITY: NEWARK STATE: NJ ZIP: 07102 10-Q 1 0001.txt PSEG, PSE&G AND PSEG ENERGY HOLDINGS 2ND QTR. 10-Q ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission Registrant, State of Incorporation, I.R.S. Employer File Address, and Telephone Number Identification Number No. - ---------- ------------------------------------------ ---------------- 1-9120 PUBLIC SERVICE ENTERPRISE GROUP 22-2625848 INCORPORATED (A New Jersey Corporation) 80 Park Plaza P.O. Box 1171 Newark, New Jersey 07101-1171 973 430-7000 http://www.pseg.com 1-973 PUBLIC SERVICE ELECTRIC AND GAS COMPANY 22-1212800 (A New Jersey Corporation) 80 Park Plaza P.O. Box 570 Newark, New Jersey 07101-0570 973 430-7000 PSEG ENERGY HOLDINGS, INC. 22-2983750 (A New Jersey Corporation) 80 Park Plaza-T22 Newark, New Jersey 07101-4194 973 456-3581 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. Public Service Enterprise Group Incorporated Yes X No ___ Public Service Electric and Gas Company Yes X No ___ PSEG Energy Holdings Inc. Yes ___ No X As of July 31, 2000, Public Service Enterprise Group Incorporated had outstanding 214,406,518 shares of its sole class of Common Stock without par value. As of July 31, 2000, Public Service Electric and Gas Company and PSEG Energy Holdings Inc. had issued and outstanding 132,450,344 and 100 shares of common stock, without nominal or par value, respectively, all of which were privately held, beneficially and of record by Public Service Enterprise Group Incorporated. ================================================================================ ================================================================================ PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED ================================================================================ TABLE OF CONTENTS Page ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Public Service Enterprise Group Incorporated (PSEG).................. 1 Public Service Electric and Gas Company (PSE&G)...................... 5 PSEG Energy Holdings Inc. (Energy Holdings).......................... 9 Notes to Consolidated Financial Statements -- PSEG................... 13 Notes to Consolidated Financial Statements -- PSE&G................... 23 Notes to Consolidated Financial Statements -- Energy Holdings......... 24 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations PSEG .............................................................. 25 PSE&G.............................................................. 37 Energy Holdings.................................................... 37 Item 3. Qualitative and Quantitative Disclosures About Market Risk..... 39 PART II. OTHER INFORMATION Item 1. Legal Proceedings.............................................. 40 Item 5. Other Information.............................................. 40 Item 6. Exhibits and Reports on Form 8-K............................... 42 Signatures -- PSEG..................................................... 43 Signatures -- PSE&G.................................................... 43 Signatures -- Energy Holdings.......................................... 44 ================================================================================ PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED ================================================================================ PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED CONSOLIDATED STATEMENTS OF INCOME (Millions of Dollars, except for Per Share Data) (Unaudited) Three Months Ended Six Months Ended June 30, June 30, --------------------------------- ------------------------------------ 2000 1999 2000 1999 ------------- --------------- ---------------- ---------------- OPERATING REVENUES Electric Revenues * Bundled $ -- $ 1,020 $ -- $ 1,986 Generation 555 -- 1,113 -- Transmission and Distribution 483 -- 887 -- ------------- --------------- ---------------- ---------------- Total Electric Revenues 1,038 1,020 2,000 1,986 Gas Distribution 319 277 1,066 977 Other 164 139 379 268 ------------- --------------- ---------------- ---------------- Total Operating Revenues 1,521 1,436 3,445 3,231 ------------- --------------- ---------------- ---------------- OPERATING EXPENSES Electric Energy Costs 280 238 496 463 Gas Costs 237 177 717 626 Operation and Maintenance 487 419 972 857 Depreciation and Amortization 86 122 176 288 Taxes Other Than Income Taxes 38 43 88 99 ------------- --------------- ---------------- ---------------- Total Operating Expenses 1,128 999 2,449 2,333 ------------- --------------- ---------------- ---------------- OPERATING INCOME 393 437 996 898 Other Income and Deductions 6 10 17 16 Interest Expense (137) (117) (274) (229) Preferred Securities Dividend Requirements (23) (28) (47) (52) ------------- --------------- ---------------- ---------------- INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM 239 302 692 633 Income Taxes (97) (121) (280) (264) ------------- --------------- ---------------- ---------------- INCOME BEFORE EXTRAORDINARY ITEM 142 181 412 369 Extraordinary Item (net of tax of $345) -- (790) -- (790) ------------- --------------- ---------------- ---------------- NET INCOME (LOSS) $ 142 $ (609) $ 412 $ (421) ============= =============== ================ ================ WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (000's) 215,394 219,571 215,886 221,122 ============= =============== ================ ================ EARNINGS (LOSS) PER SHARE (BASIC AND DILUTED): INCOME BEFORE EXTRAORDINARY ITEM $ 0.66 $ 0.83 $ 1.91 $ 1.67 Extraordinary Item (net of tax) -- (3.60) -- (3.57) ------------- --------------- ---------------- ---------------- NET INCOME (LOSS) $ 0.66 $ (2.77) $ 1.91 $ (1.90) ============= =============== ================ ================ DIVIDENDS PAID PER SHARE OF COMMON STOCK $ 0.54 $ 0.54 $ 1.08 $ 1.08 ============= =============== ================ ================ * Note: Bundled revenues were recorded based on the bundled rates in effect through 7/31/99. Commencing with the unbundling of rates on 8/1/99, revenues are disaggregated between Generation Revenue and Transmission and Distribution Revenue. See Notes to Consolidated Financial Statements.
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED CONSOLIDATED BALANCE SHEETS ASSETS (Millions of Dollars) (Unaudited) June 30, December 31, 2000 1999 ---------------- ------------------ CURRENT ASSETS Cash and Cash Equivalents $ 133 $ 259 Accounts Receivable: Customer Accounts Receivable 658 646 Other Accounts Receivable 490 371 Allowance for Doubtful Accounts (43) (40) Unbilled Revenues 189 241 Fuel 294 311 Materials and Supplies, net of valuation reserves-- 2000 and 1999, $11 149 130 Prepayments 280 39 Other 191 86 ---------------- ------------------ Total Current Assets 2,341 2,043 ---------------- ------------------ PROPERTY, PLANT AND EQUIPMENT Electric - Generation 2,508 2,355 Electric - Transmission and Distribution 5,214 5,113 Gas - Distribution 3,094 3,019 Other 596 534 ---------------- ------------------ Total 11,412 11,021 Accumulated depreciation and amortization (4,195) (3,943) ---------------- ------------------ Net Property, Plant and Equipment 7,217 7,078 ---------------- ------------------ NONCURRENT ASSETS Regulatory Assets 5,067 5,041 Long-Term Investments, net of accumulated amortization and valuation allowances -- 2000, $68; 1999, $65 3,957 3,848 Nuclear Decommissioning Fund 643 631 Other Special Funds 132 148 Other, net of accumulated amortization-- 2000, $19; 1999, $12 275 226 ---------------- ------------------ Total Noncurrent Assets 10,074 9,894 ---------------- ------------------ TOTAL ASSETS $ 19,632 $ 19,015 ================ ================== See Notes to Consolidated Financial Statements.
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED CONSOLIDATED BALANCE SHEETS LIABILITIES AND CAPITALIZATION (Millions of Dollars) (Unaudited) June 30, December 31, 2000 1999 ---------------- ------------------ CURRENT LIABILITIES Long-Term Debt Due Within One Year $ 778 $ 1,073 Commercial Paper and Loans 2,367 1,972 Accounts Payable 1,077 738 Other 445 394 ---------------- ------------------ Total Current Liabilities 4,667 4,177 ---------------- ------------------ NONCURRENT LIABILITIES Deferred Income Taxes and ITC 3,044 2,928 Regulatory Liabilities 564 604 Nuclear Decommissioning 643 631 OPEB Costs 420 390 Other 546 506 ---------------- ------------------ Total Noncurrent Liabilities 5,217 5,059 ---------------- ------------------ COMMITMENTS AND CONTINGENT LIABILITIES -- -- ---------------- ------------------ CAPITALIZATION: LONG-TERM DEBT 4,417 4,575 ---------------- ------------------ SUBSIDIARIES' PREFERRED SECURITIES: Preferred Stock Without Mandatory Redemption 95 95 Preferred Stock With Mandatory Redemption 75 75 Guaranteed Preferred Beneficial Interest in Subordinated Debentures 1,038 1,038 ---------------- ------------------ Total Subsidiaries' Preferred Securities 1,208 1,208 ---------------- ------------------ COMMON STOCKHOLDERS' EQUITY: Common Stock, issued: 231,957,608 shares 3,604 3,604 Treasury Stock, at cost: 2000--17,551,090 shares; 1999--15,540,390 shares (669) (597) Retained Earnings 1,371 1,193 Accumulated Other Comprehensive Loss (183) (204) ---------------- ------------------ Total Common Stockholders' Equity 4,123 3,996 ---------------- ------------------ Total Capitalization 9,748 9,779 ---------------- ------------------ TOTAL LIABILITIES AND CAPITALIZATION $ 19,632 $ 19,015 ================ ================= See Notes to Consolidated Financial Statements.
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS (Millions of Dollars) (Unaudited) Six Months Ended June 30, ---------------------------------------- 2000 1999 ---------------- ------------------ CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 412 $ (421) Adjustments to reconcile net income to net cash flows from operating activities: Extraordinary Loss - net of tax -- 790 Depreciation and Amortization 176 288 Amortization of Nuclear Fuel 45 42 Recovery of Electric Energy and Gas Costs-- net 25 106 Provision for Deferred Income Taxes and ITC-- net 63 (206) Investment Distributions 32 75 Equity Income from Partnerships (12) (45) Unrealized Gains on Investments (18) -- Net Changes in certain current assets and liabilities: Accounts Receivable and Unbilled Revenues (76) (160) Fuel and Materials and Supplies (2) 64 Prepayments (241) (246) Accounts Payable 339 137 Other Current Assets and Liabilities (54) 104 Other 7 75 ---------------- ------------------ Net Cash Provided By Operating Activities 696 603 ---------------- ------------------ CASH FLOWS FROM INVESTING ACTIVITIES Additions to Property, Plant and Equipment, excluding Capitalized Interest and AFDC (350) (172) Net Change in Long-Term Investments (68) (630) Other (16) (68) ---------------- ------------------ Net Cash Used in Investing Activities (434) (870) ---------------- ------------------ CASH FLOWS FROM FINANCING ACTIVITIES Net Change in Short-Term Debt 395 232 Issuance of Long-Term Debt 300 713 Redemption/Purchase of Long-Term Debt (777) (203) Purchase of Treasury Stock (72) (300) Cash Dividends Paid on Common Stock (234) (238) ---------------- ------------------ Net Cash (Used in) Provided By Financing Activities (388) 204 ---------------- ------------------ Net Change in Cash and Cash Equivalents (126) (63) Cash and Cash Equivalents at Beginning of Period 259 140 ---------------- ------------------ Cash and Cash Equivalents at End of Period $ 133 $ 77 ================ ================== Income Taxes Paid $ 323 $ 307 Interest Paid $ 234 $ 229 See Notes to Consolidated Financial Statements.
PUBLIC SERVICE ELECTRIC AND GAS COMPANY CONSOLIDATED STATEMENTS OF INCOME (Millions of Dollars) (Unaudited) Three Months Ended Six Months Ended June 30, June 30, ---------------------------------- ---------------------------------- 2000 1999 2000 1999 -------------- ---------------- ---------------- -------------- OPERATING REVENUES Electric Revenues * Bundled $ -- $ 1,020 $ -- $ 1,986 Generation 555 -- 1,113 -- Transmission and Distribution 483 -- 887 -- -------------- ---------------- ---------------- -------------- Total Electric Revenues 1,038 1,020 2,000 1,986 Gas Distribution 319 277 1,066 977 -------------- ---------------- ---------------- -------------- Total Operating Revenues 1,357 1,297 3,066 2,963 -------------- ---------------- ---------------- -------------- OPERATING EXPENSES Electric Energy Costs 268 235 473 456 Gas Costs 222 165 679 589 Operation and Maintenance 385 365 773 759 Depreciation and Amortization 82 120 170 285 Taxes Other than Income Taxes 39 43 88 99 -------------- ---------------- ---------------- -------------- Total Operating Expenses 996 928 2,183 2,188 -------------- ---------------- ---------------- -------------- OPERATING INCOME 361 369 883 775 Other Income and Deductions 2 -- 12 3 Interest Expense (97) (93) (194) (186) Preferred Securities Dividend Requirements (12) (12) (23) (23) -------------- ---------------- ---------------- -------------- INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM 254 264 678 569 Income Taxes (102) (107) (276) (240) -------------- ---------------- ---------------- -------------- INCOME BEFORE EXTRAORDINARY ITEM 152 157 402 329 Extraordinary Item (net of tax of $345) -- (790) -- (790) -------------- ---------------- ---------------- -------------- NET INCOME (LOSS) 152 $ (633) $ 402 $ (461) Preferred Stock Dividend Requirements (2) (2) (5) (5) -------------- ---------------- ---------------- -------------- EARNINGS (LOSS) AVAILABLE TO PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED $ 150 $ (635) $ 397 $ (466) ============== ================ ================ ============== * Note: Bundled revenues were recorded based on the bundled rates in effect through 7/31/99. Commencing with the unbundling of rates on 8/1/99, revenues are disaggregated between Generation Revenue and Transmission and Distribution Revenue. See Notes to Consolidated Financial Statements.
PUBLIC SERVICE ELECTRIC AND GAS COMPANY CONSOLIDATED BALANCE SHEETS ASSETS (Millions of Dollars) (Unaudited) June 30, December 31, 2000 1999 ---------------- ------------------ CURRENT ASSETS Cash and Cash Equivalents $ 29 $ 173 Accounts Receivable: Customer Accounts Receivable 455 529 Other Accounts Receivable 457 313 Allowance for Doubtful Accounts (37) (35) Unbilled Revenues 189 241 Fuel 288 308 Materials and Supplies, net of valuation reserves-- 2000 and 1999, $11 139 130 Prepayments 273 34 Other 159 50 ---------------- ------------------ Total Current Assets 1,952 1,743 ---------------- ------------------ PROPERTY, PLANT AND EQUIPMENT Electric - Generation 2,298 2,284 Electric - Transmission and Distribution 5,214 5,113 Gas - Distribution 3,094 3,019 Other 446 457 ---------------- ------------------ Total 11,052 10,873 Accumulated Depreciation and Amortization (4,150) (3,911) ---------------- ------------------ Net Property, Plant and Equipment 6,902 6,962 ---------------- ------------------ NONCURRENT ASSETS Regulatory Assets 5,067 5,041 Long-Term Investments 100 99 Nuclear Decommissioning Fund 643 631 Other Special Funds 132 148 Other 98 100 ---------------- ------------------ Total Noncurrent Assets 6,040 6,019 ---------------- ------------------ TOTAL ASSETS $ 14,894 $ 14,724 ================ ================== See Notes to Consolidated Financial Statements.
PUBLIC SERVICE ELECTRIC AND GAS COMPANY CONSOLIDATED BALANCE SHEETS LIABILITIES AND CAPITALIZATION (Millions of Dollars) (Unaudited) June 30, December 31, 2000 1999 ------------------ ------------------ CURRENT LIABILITIES Long-Term Debt Due Within One Year $ -- $ 623 Commercial Paper and Loans 1,782 1,475 Accounts Payable 1,020 676 Other 285 281 ------------------ ------------------ Total Current Liabilities 3,087 3,055 ------------------ ------------------ NONCURRENT LIABILITIES Deferred Income Taxes and ITC 2,093 2,032 Regulatory Liabilities 564 604 Nuclear Decommissioning 643 631 OPEB Costs 418 390 Other 491 479 ------------------ ------------------ Total Noncurrent Liabilities 4,209 4,136 ------------------ ------------------ COMMITMENTS AND CONTINGENT LIABILITIES -- -- ------------------ ------------------ CAPITALIZATION: LONG-TERM DEBT 3,101 3,099 ------------------ ------------------ PREFERRED SECURITIES: Preferred Stock Without Mandatory Redemption 95 95 Preferred Stock With Mandatory Redemption 75 75 Subsidiaries' Preferred Securities: Guaranteed Preferred Beneficial Interest in Subordinated Debentures 513 513 ------------------ ------------------ Total Preferred Securities 683 683 ------------------ ------------------ COMMON STOCKHOLDER'S EQUITY: Common Stock, issued: 132,450,344 shares 2,563 2,563 Contributed Capital 594 594 Retained Earnings 660 597 Accumulated Other Comprehensive Loss (3) (3) ------------------ ------------------ Total Common Stockholder's Equity 3,814 3,751 ------------------ ------------------ Total Capitalization 7,598 7,533 ------------------ ------------------ TOTAL LIABILITIES AND CAPITALIZATION $ 14,894 $ 14,724 ================== ================== See Notes to Consolidated Financial Statements.
PUBLIC SERVICE ELECTRIC AND GAS COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (Millions of Dollars) (Unaudited) Six Months Ended June 30, ---------------------------------------- 2000 1999 ---------------- ------------------ CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 402 $ (461) Adjustments to reconcile net income to net cash flows from operating activities: Extraordinary Loss - net of tax -- 790 Depreciation and Amortization 170 285 Amortization of Nuclear Fuel 45 42 Recovery of Electric Energy and Gas Costs-- net 25 106 Provision for Deferred Income Taxes and ITC-- net 61 (193) Net Changes in Certain Current Assets and Liabilities: Accounts Receivable and Unbilled Revenues (16) (146) Fuel and Materials and Supplies 11 64 Prepayments (239) (251) Accounts Payable 379 126 Other Current Assets and Liabilities (105) 107 Other 23 69 ---------------- ------------------ Net Cash Provided By Operating Activities 756 538 ---------------- ------------------ CASH FLOWS FROM INVESTING ACTIVITIES Additions to Property, Plant and Equipment, excluding Capitalized Interest and AFDC (230) (172) Other (17) (57) ---------------- ------------------ Net Cash Used in Investing Activities (247) (229) ---------------- ------------------ CASH FLOWS FROM FINANCING ACTIVITIES Net Change in Short-Term Debt 307 90 Redemption/Purchase of Long-Term Debt (621) (17) Cash Dividends Paid (339) (396) ---------------- ------------------ Net Cash Used in Financing Activities (653) (323) ---------------- ------------------ Net Change in Cash and Cash Equivalents (144) (14) Cash and Cash Equivalents at Beginning of Period 173 42 ---------------- ------------------ Cash and Cash Equivalents at End of Period $ 29 $ 28 ================ ================== Income Taxes Paid $ 387 $ 335 Interest Paid $ 190 $ 197 See Notes to Consolidated Financial Statements.
PSEG ENERGY HOLDINGS INC. CONSOLIDATED STATEMENTS OF INCOME (Millions of Dollars) (Unaudited) Three Months Ended Six Months Ended June 30, June 30, ----------------------------------- ---------------------------------- 2000 1999 2000 1999 --------------- --------------- -------------- -------------- OPERATING REVENUES Income from Joint Ventures and Partnerships $ 31 $ 30 $ 61 $ 58 Energy Service Revenues 80 36 153 57 Energy Supply Revenues 21 16 58 46 Income from Capital and Operating Leases 37 28 75 53 Net Investment Gains (Losses) (12) 22 18 41 Other 7 7 14 13 --------------- --------------- -------------- -------------- Total Operating Revenues 164 139 379 268 --------------- --------------- -------------- -------------- OPERATING EXPENSES Cost of Energy Sales 24 16 58 45 Restructure Costs -- -- 7 -- Operation and Maintenance 102 55 194 99 Depreciation and Amortization 3 2 6 3 --------------- --------------- -------------- -------------- Total Operating Expenses 129 73 265 147 --------------- --------------- -------------- -------------- OPERATING INCOME 35 66 114 121 Other Income -- 4 2 7 Interest Expense-Net (36) (21) (72) (40) --------------- --------------- -------------- -------------- INCOME (LOSS) BEFORE INCOME TAXES (1) 49 44 88 Income Taxes 1 (17) (13) (30) Minority Interests 1 -- 1 -- --------------- --------------- -------------- -------------- NET INCOME 1 32 32 58 Preferred Stock Dividend Requirements (6) (6) (13) (13) --------------- --------------- -------------- -------------- EARNINGS (LOSSES) AVAILABLE TO PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED $ (5) $ 26 $ 19 $ 45 =============== =============== ============== ============== See Notes to Consolidated Financial Statements.
PSEG ENERGY HOLDINGS INC. CONSOLIDATED BALANCE SHEETS ASSETS (Millions of Dollars) (Unaudited) June 30, December 31, 2000 1999 ------------------- -------------------- CURRENT ASSETS Cash and Cash Equivalents $ 16 $ 43 Accounts Receivable: Trade 172 111 Other 36 31 Allowance for Doubtful Accounts (5) (5) Assets Held for Sale 36 36 Notes Receivable 12 12 Other Current Assets 5 12 ------------------- -------------------- Total Current Assets 272 240 ------------------- -------------------- PROPERTY AND EQUIPMENT Real Estate, net of valuation allowances 2000 and 1999, $22 89 34 Property and Equipment 57 45 ------------------- -------------------- Total 146 79 Accumulated Depreciation and Amortization (45) (33) ------------------- -------------------- Net Property and Equipment 101 46 ------------------- -------------------- INVESTMENTS Capital Leases - Net 1,854 1,759 Corporate Joint Ventures 1,461 1,428 Partnerships Interests 463 493 Other Investments 80 73 ------------------- -------------------- Total Investments 3,858 3,753 ------------------- -------------------- OTHER ASSETS 82 75 ------------------- -------------------- TOTAL ASSETS $ 4,313 $ 4,114 =================== ==================== See Notes to Consolidated Financial Statements.
PSEG ENERGY HOLDINGS INC. CONSOLIDATED BALANCE SHEETS LIABILITIES AND CAPITALIZATION (Millions of Dollars) (Unaudited) June 30, December 31, 2000 1999 ----------------- ------------------ CURRENT LIABILITIES Long-Term Debt Due Within One Year $ 204 $ 175 Notes Payable 249 351 Accounts Payable: Trade 49 41 Interest 31 20 Other 54 43 Other Current Liabilities 12 11 ----------------- ------------------ Total Current Liabilities 599 641 ----------------- ------------------ NONCURRENT LIABILITIES Deferred Income Taxes and ITC 951 896 Other Noncurrent Liabilities 30 25 ----------------- ------------------ Total Noncurrent Liabilities 981 921 ----------------- ------------------ COMMITMENTS AND CONTINGENT LIABILITIES -- -- ----------------- ------------------ MINORITY INTERESTS 7 2 ----------------- ------------------ CAPITALIZATION LONG-TERM DEBT 1,316 1,175 ----------------- ------------------ STOCKHOLDER'S EQUITY Common Stock, issued: 100 shares -- -- Preferred Stock 509 509 Additional Paid-in Capital 790 790 Retained Earnings 291 276 Accumulated Other Comprehensive Loss (180) (200) ----------------- ------------------ Total Stockholder's Equity 1,410 1,375 ----------------- ------------------ Total Capitalization 2,726 2,550 ----------------- ------------------ TOTAL LIABILITIES AND CAPITALIZATION $ 4,313 $ 4,114 ================= ================== See Notes to Consolidated Financial Statements.
PSEG ENERGY HOLDINGS INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Millions of Dollars) (Unaudited) Six Months Ended June 30, ---------------------------------------- 2000 1999 ---------------- ------------------ CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 32 $ 58 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and Amortization 12 8 Deferred Income Taxes (Other than Leases) (1) (9) Income from Leasing Activities -- (5) Investment Distributions 32 76 Equity Income from Partnerships (3) (19) Net Gains on Investments (18) (40) Restructure Costs 7 -- Net Changes in certain current assets and liabilities: Accounts Receivable (87) (10) Taxes Payable 1 (1) Accounts Payable 66 40 Interest Payable 10 2 Other Current Assets and Liabilities (30) 2 Other 4 (3) ---------------- ------------------ Net Cash Provided By Operating Activities 25 99 ---------------- ------------------ CASH FLOWS FROM INVESTING ACTIVITIES Increase in Partnerships and Joint Ventures (61) (484) Investments in Capital Leases (77) (133) Proceeds from Sales of Capital Leases 9 -- Additions to Property and Equipment (5) (3) Additions to Deferred Project Costs (2) (5) Return on Capital from Partnerships 71 -- Other (10) (13) ---------------- ------------------ Net Cash Used in Investing Activities (75) (638) ---------------- ------------------ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from Additional Paid-in Capital -- 200 Cash Dividends Paid (17) (13) Repayment of Borrowings (154) (180) Proceeds from Borrowings 189 537 Other 5 (3) ---------------- ------------------ Net Cash Provided By Financing Activities 23 541 ---------------- ------------------ Net Change in Cash and Cash Equivalents (27) 2 Cash and Cash Equivalents at Beginning of Period 43 9 ---------------- ------------------ Cash and Cash Equivalents at End of Period $ 16 $ 11 ================ ================== Income Tax Benefits $ (57) $ (16) Interest Paid $ 31 $ 33 See Notes to Consolidated Financial Statements.
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. Basis of Presentation 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. Public Service Enterprise Group's (PSEG) and Public Service Electric and Gas Company's (PSE&G) consolidated financial statements and Notes to Consolidated Financial Statements (Notes) should be read in conjunction with their 1999 Annual Report on Form 10-K and Quarterly Report on Form 10-Q for the quarter ended March 31, 2000. PSEG Energy Holdings Inc.'s (Energy Holdings) consolidated financial statements and Notes should be read in conjunction with its Registration Statement on Form S-4 filed June 29, 2000. These Notes update and supplement matters discussed in PSEG's and PSE&G's 1999 Annual Report on Form 10-K and Energy Holdings' Registration Statement on Form S-4 filed June 29, 2000. The unaudited financial information furnished reflects all adjustments which are, in the opinion of management, necessary to fairly state the results for the interim periods presented. The year-end consolidated balance sheets were derived from the audited consolidated financial statements included in PSEG's and PSE&G's 1999 Annual Report on Form 10-K and Energy Holdings' Registration Statement on Form S-4 filed June 29, 2000. Certain reclassifications of prior period data have been made to conform with the current presentation. Note 2. Regulatory Issues and Accounting Impacts of Deregulation New Jersey Energy Master Plan Proceedings and Related Orders Following the enactment of the New Jersey Electric Discount and Energy Competition Act (Energy Competition Act), the New Jersey Board of Public Utilities (BPU) rendered its summary decision relating to PSE&G's rate unbundling, stranded costs and restructuring proceedings (Summary Order) and subsequently issued PSEG's Final Order in these matters, providing, among other things, for the transfer to an affiliate of all of its electric generation facilities, plant and equipment for $2.443 billion and all other related property, including materials, supplies and fuel at the net book value thereof, together with associated rights and liabilities. Also in 1999, the BPU issued its order approving PSE&G's petition relating to the proposed securitization transaction (Finance Order) which authorized, among other things, the issuance and sale of $2.525 billion of transition bonds, including an estimated $125 million of transaction costs. The Energy Competition Act, the BPU's Summary Order and Final Order and the related BPU proceedings, referred to as the Energy Master Plan Proceedings, opened the New Jersey energy markets to competition by allowing all New Jersey retail electric customers to, among other things, select their electric supplier commencing August 1, 1999 and all New Jersey retail gas customers to select their gas supplier commencing January 1, 2000. In October and November 1999, two appeals of certain provisions of the Final Order and two appeals of certain provisions of the related Finance Order were filed in the Appellate Division of the New Jersey Superior Court (Appellate Division) on behalf of several customers and the Office of the Ratepayer Advocate. In an order PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued issued April 13, 2000, a three-judge Appellate Division panel unanimously affirmed the Final Order and Finance Order. Thereafter, the appellants filed a Petition requesting Certification and a Notice of Appeal with the New Jersey Supreme Court seeking review of the Appellate Division decision. On July 14, 2000, the New Jersey Supreme Court granted Certification with respect to both matters. In a subsequent scheduling order, the New Jersey Supreme Court ordered the appellants to file supplemental briefs supporting their positions by August 20, 2000 and the respondents, including the BPU and PSE&G, to file their response briefs within 30 days thereafter. Oral arguments for all parties are scheduled for November 8, 2000. PSE&G is unable to predict the timing or the outcome of the Supreme Court review. As a result of this review, PSE&G's $2.525 billion securitization transaction has been delayed. Since the Energy Competition Act and the Orders require PSE&G to apply the net proceeds of securitization to reduce its capital structure, in anticipation of this transaction PSE&G has retired at maturity or through open-market purchases $1.045 billion aggregate principal amount of its long-term debt. Such retirements and purchases were funded with short-term obligations, which at June 30, 2000 were approximately $1.8 billion. Due to the delay in securitization, PSE&G has requested authority from the BPU to issue up to $1.0 billion of long-term debt with maturities not to exceed 36 months. While PSE&G expects such authority to be granted, no assurances can be given. Failure to receive such authority on a timely basis could have a material adverse effect on the financial condition, results of operations and net cash flows of PSE&G and PSEG. While PSE&G continues to believe that the Appellate Division's unanimous decision was correct, it can give no assurances with respect to the ultimate timing or disposition of these matters by the New Jersey Supreme Court. An adverse outcome to this review or substantial additional delays beyond the first quarter of 2001, could have a material adverse impact on PSEG's, PSE&G's and Energy Holdings' financial condition, results of operations and net cash flows and could require revisions to financing plans, revisions to business plans delaying or restricting current growth strategies and the imposition of other operational and/or financial measures. Extraordinary Charge and Other Accounting Impacts of Deregulation As a result of the BPU's issuance of the Summary Order in April 1999, PSE&G determined that Statement of Financial Accounting Standards (SFAS) 71 "Accounting for the Effects of Regulation" (SFAS 71) was no longer applicable to the electric generation portion of its business, in accordance with the requirements of Emerging Issues Task Force Issue 97-4, "Deregulation of the Pricing of Electricity - Issues Related to the Application of FASB Statements No. 71 and No. 101" (EITF 97-4). Accordingly, in the second quarter, PSE&G recorded an extraordinary charge to earnings of $790 million (after tax). PSE&G accounted for this charge consistent with the requirements of SFAS 101, "Regulated Enterprises - Accounting for the Discontinuation of Application of FASB Statement No. 71". The extraordinary charge recorded in 1999 consisted primarily of the write-down of PSE&G's nuclear and fossil generating stations in accordance with SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" (SFAS 121). PSE&G performed a discounted cash flow analysis on a unit-by-unit basis to determine the amount of the impairment. As a result of this impairment analysis, the net book value of the generating stations was reduced by approximately $5.0 billion (pre-tax) or approximately $3.1 billion (net of tax). This amount was offset by the creation of a $4.057 billion (pre-tax), or $2.4 billion (net of tax) regulatory asset related to the future receipt of securitization proceeds, as provided for in the Summary Order and affirmed in the Final Order. In addition to the impairment of PSE&G's electric generating stations, the extraordinary charge consisted of various accounting adjustments to reflect the absence of cost of service regulation in the electric generation portion of the business in the future. The adjustments primarily related to materials and supplies, general plant items and liabilities for certain contractual and environmental obligations. Other accounting impacts of the discontinuation of SFAS 71 included reclassifying the Accrued Nuclear Decommissioning Reserve and the Accrued Cost of Removal for generation-related assets from Accumulated Depreciation to Long-Term Liabilities. In accordance with the Final Order, PSE&G also reclassified a $569 million excess depreciation reserve related to PSE&G's electric distribution assets from Accumulated Depreciation to a Regulatory Liability. Such amount will be amortized in accordance with the terms of the Final Order over the period from January 1, 2000 to July 31, 2003. Note 3. Regulatory Assets and Liabilities At June 30, 2000 and December 31, 1999, respectively, PSEG and PSE&G had deferred the following regulatory assets and liabilities on the Consolidated Balance Sheets:
June 30, December 31, 2000 1999 --------------- ----------------- (Millions of Dollars) Regulatory Assets: Stranded Costs to be Securitized........................... $4,057 $4,057 SFAS 109 Income Taxes...................................... 284 286 OPEB Costs................................................. 227 237 Societal Benefits Charges (SBC)............................ 136 130 Demand Side Management Costs............................... 11 7 Environmental Costs........................................ 108 94 Unamortized Loss on Reacquired Debt and Debt Expense....... 110 117 Other...................................................... 134 113 --------------- ----------------- Total Regulatory Assets................................ $5,067 $5,041 =============== ================= Regulatory Liabilities: Excess Depreciation Reserve................................ $506 $569 Non-utility Generation Market Transition Charge (NTC)...... 18 20 Overrecovered Gas Costs.................................... 40 15 --------------- ----------------- Total Regulatory Liabilities........................... $564 $604 =============== =================
Note 4. Commitments and Contingent Liabilities Asset Purchases In May 2000, PSEG's subsidiary, PSEG Power LLC (Power) purchased Niagara Mohawk Power Corporation's (Niagara Mohawk) 400 megawatt (MW) oil and gas-fired electric generating station in Albany, New York (Albany Steam Station) for $47.5 million. Under the terms of the acquisition, Niagara Mohawk has the potential to receive up to an additional $9 million if Power chooses to pursue redevelopment of the Albany Steam Station. Under a transition power supply contract in place through September 2003, Niagara Mohawk will purchase electricity from Power's subsidiary, PSEG Energy Resources and Trade LLC (ER&T) at prices consistent with those established in Niagara Mohawk's regulatory agreement with the New York Public Service Commission. In September 1999, Power announced an agreement to acquire all of Conectiv's interests in Salem Nuclear Generating Station (Salem) and Hope Creek Nuclear Generating Station (Hope Creek) and half of Conectiv's interest in Peach Bottom Atomic Power Station (Peach Bottom) for an aggregate purchase price of $15.4 million plus the net book value of Conectiv's nuclear fuel at closing. Payment of Power's obligation under such agreement has been guaranteed by PSEG. The majority of regulatory approvals necessary for this acquisition have been obtained, including the approval by the BPU. However, in order for Conectiv to complete the sale the BPU must issue a second order to address Conectiv's stranded cost recovery. Conectiv has advised Power that it will not complete the transaction until the time for appeal following the issuance of the second BPU order has expired. PSE&G Manufactured Gas Plant Remediation Program PSE&G is currently working with New Jersey Department of Environmental Protection (NJDEP) under a program (Remediation Program) to assess, investigate and, if necessary, remediate environmental conditions at PSE&G's former manufactured gas plant sites. To date, 38 sites have been identified. The Remediation Program is periodically reviewed and revised by PSE&G based on regulatory requirements, experience with the Remediation Program and available remediation technologies. The long-term costs of the Remediation Program cannot be reasonably estimated, but experience to date indicates that costs of approximately $20 million per year could be incurred over a period of about 30 years and that the overall cost could be material. The costs for this remediation effort are recovered through the SBC. Passaic River Site The U.S. Environmental Protection Agency (EPA) has determined that a six mile stretch of the Passaic River in Newark, New Jersey is a "facility" within the meaning of that term under the Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 and that, to date, at least thirteen corporations, including PSE&G, may be potentially liable for performing required remedial actions to address potential environmental pollution at the Passaic River "facility". PSE&G and certain of its predecessors operated industrial facilities at properties within the Passaic River "facility", including the former Harrison Gas Plant and the Essex Generating Station. PSE&G cannot predict what action, if any, the EPA or any third party may take against PSE&G with respect to these matters, or in such event, what costs PSE&G may incur to address any such claims. However, such costs may be material. Energy Holdings Energy Holdings and/or PSEG Global, Inc. (Global) have guaranteed certain obligations of Global's affiliates, including equity funding for projects, performance or other obligations related to certain of their projects in an aggregate amount of approximately $419 million as of June 30, 2000. A substantial portion of such guarantees will be eliminated upon funding of project equity commitments. A subscription agreement for PSEG to purchase Global's capital stock secures approximately $3 million of such obligations. Global and a partner, through an investment in Turboven, an independent generation company in Venezuela, have constructed two gas-fired electric generation facilities with an installed capacity of 120 MW and have plans for a third of 80 MW to serve industrial customers in Venezuela. On January 28, 2000, a lawsuit was filed against Turboven by Venezuela's state power distribution company, charging that Turboven was damaging its distribution system through its supply of independently generated power from one of its plants. Turboven was ordered to cease operations by a superior court judge's decisions pending an investigation into the claim filed by the power distribution company. On May 17, 2000, the First Court for the Litigation of Administrative Matters of Venezuela issued an order lifting the injunction and rejecting the arguments of the Venezuela state power distribution company. The period of appeal has expired. On May 24, 2000, the Venezuela state power distribution company and Turboven entered into an agreement to coordinate the operations and maintenance of their respective installations. The two generation facilities have enetered commercial operation. Note 5. Financial Instruments and Risk Management PSEG's operations give rise to exposure to market risks from changes in commodity prices, interest rates, foreign currency exchange rates and securities prices. PSEG's policy is to use derivative financial instruments for the purpose of managing market risk consistent with its business plans and prudent business practices. Forward Purchase Agreement-PSEG In December 1999, as part of PSEG's share repurchase program, PSEG entered into a Forward Purchase Agreement with a third party which has purchased approximately 6.4 million shares at a cost of approximately $225 million. The transaction may be settled in cash or with shares of Common Stock. Any repurchase of these shares will not be reflected on PSEG's balance sheet until settlement of the transaction. PSEG does not expect to settle this transaction prior to the securitization financing which has been delayed from the third quarter of 2000 to at least the first quarter of 2001. Commodity-Related Instruments -- PSE&G (including Power) At June 30, 2000 and December 31, 1999, PSE&G held or issued commodity and financial instruments that reduce exposure to price fluctuations from factors such as weather, environmental policies, changes in demand, changes in supply, state and Federal regulatory policies and other events. These instruments, in conjunction with owned electric generating capacity and physical gas supply contracts, are designed to cover estimated electric and gas customer commitments. PSE&G uses futures, forwards, swaps and options to manage and hedge price risk related to these market exposures. At June 30, 2000, PSE&G had outstanding commodity financial instruments with a notional contract quantity of 49.9 million mWh of electricity and 60.8 million MMBTU of natural gas. At December 31, 1999, PSE&G had outstanding commodity financial instruments with a notional contract quantity of 36.1 million mWh of electricity and 25.5 million MMBTU of natural gas. Notional amounts are indicative only of the volume of activity and are not a measure of market risk. PSE&G's energy trading and related contracts have been marked to market and gains and losses from such contracts were included in earnings. PSE&G recorded $43.6 million and $18.5 million of gains in the six months ended June 30, 2000 and 1999, respectively, related to these contracts. Commodity-Related Instruments -- Energy Holdings In June 2000, Energy Holdings' subsidiary, PSEG Energy Technologies Inc. (Energy Technologies) outsourced certain supply services under its retail gas service agreements. With this transaction, Energy Technologies has changed the manner in which it operates its energy and gas commodity business and at June 30, 2000 there were no electric or gas commodity financial instruments outstanding. Energy Holdings had recorded $1.7 million of gains in the six months ended June 30, 2000 related to these instruments. Equity Securities -- Energy Holdings PSEG Resources Inc. (Resources) has investments in equity securities and limited partnerships. Resources carries its investments in equity securities at their approximate fair value as of the reporting date. Consequently, the carrying value of these investments is affected by changes in the fair value of the underlying securities. Fair value is determined by adjusting the market value of the securities for liquidity and market volatility factors, where appropriate. The aggregate fair values of such investments which had available market prices at June 30, 2000 and December 31, 1999 were $142 million and $131 million, respectively. The increase in fair value was primarily due to higher valuation of various securities within Resources' portfolio. The potential change in fair value resulting from a hypothetical 10% change in quoted market prices of these investments amounted to $12 million at June 30, 2000 and $11 million at December 31, 1999. Foreign Currencies -- Energy Holdings In accordance with their growth strategies, Global and Resources have made international investments of approximately $1.5 billion and $1.1 billion, respectively, as of June 30, 2000. Resources' international investments are primarily leveraged leases of assets located in Australia, New Zealand, the Netherlands, Germany and the United Kingdom with associated revenues denominated in U.S. dollars, and therefore, not subject to foreign currency risk. Global's international investments are primarily in projects that generate or distribute electricity in Argentina, Brazil, Chile, China, India, Peru and Venezuela. Investing in foreign countries involves certain additional risks. Economic conditions that result in higher comparative rates of inflation in foreign countries are likely to result in declining values in such countries' currencies. As currencies fluctuate against the U.S. dollar, there is a corresponding change in Global's investment value in terms of the U.S. dollar. Such change is reflected as an increase or decrease in the investment value and other comprehensive income, a separate component of stockholders' equity. Cumulatively, net foreign currency devaluations have reduced the reported amount of PSEG's total stockholders' equity by approximately $180 million. Global had consolidated project debt totaling approximately $94.5 million associated with Global's 32% investment in a Brazilian distribution company that is non-recourse to Global, Energy Holdings and PSEG. The debt was denominated in the Brazilian Real and was indexed to a basket of currencies, including the U.S. dollar. The debt was refinanced with funds from Energy Holdings and a $190 million United States dollar denominated loan at the Brazilian distribution company of which Global's share is $62 million. The functional currency of the distribution company is the Brazilian Real, so its debt is subject to exchange rate risk as the Brazilian Real fluctuates with the United States dollar. Changes in the exchange rate cause the loan amount, as reported in the functional currency, to be marked upward or downward, with an offset to the income statement. Global has entered into a $60 million currency collar expiring on December 29, 2000 to mitigate the potential loss caused by a significant devaluation of the functional currency against the United States dollar. By entering into the collar, Global's maximum exposure related to the loan is limited to approximately $10 million in 2000. Interest Rates PSEG, PSE&G and Energy Holdings are subject to the risk of fluctuating interest rates in the normal course of business. Their policies are to manage interest rate risk through the use of fixed rate debt, floating rate debt and interest rate swaps. As of June 30, 2000, a hypothetical 10% change in market interest rates would result in a $6 million, $13 million and $2 million change in annual interest costs related to short-term and floating rate debt at PSEG, PSE&G and Energy Holdings, respectively. Note 6. Income Taxes PSEG's effective income tax rate is as follows:
Quarter Ended Six Months Ended June 30, June 30, ------------------------- --------------------------- 2000 1999 (A) 2000 1999 (A) ---------- ----------- ------------ ----------- Federal tax provision at statutory rate................... 35.0% 35.0% 35.0% 35.0% New Jersey Corporate Business Tax, net of Federal benefit. 5.9% 5.9% 5.9% 5.9% Other-- net............................................... (0.3)% (0.9)% (0.4)% 0.7% ---------- ----------- ------------ ----------- Effective Income Tax Rate............................. 40.6% 40.0% 40.5% 41.6% ========== =========== ============ =========== (A) Excludes the impact of the extraordinary charge recorded in the second quarter of 1999.
Note 7. Financial Information by Business Segments Basis of Organization The reportable segments disclosed herein were determined based on a variety of factors including the regulatory environment of each of PSEG's lines of business and the types of products and services offered. Effective with the unbundling of PSE&G's rates on August 1, 1999 and the deregulation of the electric generation portion of PSE&G's business, the basis of segment reporting changed beginning with the third quarter of 1999. The generation and energy trading portions of PSE&G's business are now separate reportable segments, whereas they previously had been part of the Electric segment. Estimates have been used to separate historical, pre-August 1, 1999, electric segment data into the Generation, Energy Resources and Trade, and Transmission and Distribution segments of PSE&G's business. Information related to the segments of PSEG's business is detailed below:
Energy Consolidated Generation ER&T T & D Resources Global Technologies Other (A) Total ------------------------------------------------------------------------------------------- (Millions of Dollars) For the Quarter Ended June 30, 2000: Total Operating Revenues... $523 $32 $802 $26 $33 $105 $-- $1,521 Segment Net Income (Loss).. 52 16 80 3 5 (6) (8) 142 ======= ======= ======= ======= ======= ======= ======= ======= For the Quarter Ended June 30, 1999: Total Operating Revenues... $680 $17 $600 $51 $34 $54 $-- $1,436 Segment Income Before Extraordinary Item...... 119 9 29 24 8 (2) (6) 181 Segment Net Income (Loss).. (3,071) 9 2,429 24 8 (2) (6) (609) ======= ======= ======= ======= ======= ======= ======= ======= For the Six Months Ended June 30, 2000: Total Operating Revenues... $1,047 $66 $1,953 $92 $71 $216 $-- $3,445 Segment Net Income (Loss).. 161 33 204 32 14 (11) (21) 412 ======= ======= ======= ======= ======= ======= ======= ======= For the Six Months Ended June 30, 1999: Total Operating Revenues... $1,338 $35 $1,590 $97 $62 $109 $-- $3,231 Segment Income Before Extraordinary Item...... 205 17 107 46 15 (4) (17) 369 Segment Net Income (Loss).. (2,985) 17 2,507 46 15 (4) (17) (421) ======= ======= ======= ======= ======= ======= ======= ======= As of June 30, 2000: Total Assets............... $2,403 $581 $12,256 $2,201 $1,776 $296 $119 $19,632 ======= ======= ======= ======= ======= ======= ======= ======= As of December 31, 1999: Total Assets............... $3,055 $246 $11,423 $2,096 $1,715 $252 $228 $19,015 ======= ======= ======= ======= ======= ======= ======= ======= (A) PSEG's other activities include amounts applicable to PSEG (parent corporation), Energy Holdings (parent corporation), Enterprise Group Development Corporation and intercompany eliminations. The net losses primarily relate to financing and certain administrative and general costs at the parent corporations.
Geographic information for PSEG is disclosed below. The foreign investments and operations noted below were made through Energy Holdings. PSE&G does not have foreign investments or operations.
Revenues (1) Identifiable Assets --------------------------------------------------- ------------------------------- Quarter Ended Six Months Ended June 30, June 30, June 30, December 31, ----------------------- ----------------------- ----------- --------------- 2000 1999 2000 1999 2000 1999 --------- --------- ---------- --------- ----------- --------------- United States................. $1,476 $1,397 $3,352 $3,165 $17,091 $16,595 Foreign Countries (2)......... 45 39 93 66 2,541 2,420 --------- --------- ---------- --------- ----------- --------------- Total.................... $1,521 $1,436 $3,445 $3,231 $19,632 $19,015 --------- --------- ---------- --------- ----------- --------------- Identifiable investments in foreign countries include amounts from: Netherlands $712 $623 Chile and Peru 519 520 Argentina 355 356 Brazil (3) 323 330 Other 632 591 ----------- --------------- Total $2,541 $2,420 =========== =============== (1) Revenues are attributed to countries based on the locations of the investments. Global's revenue includes its share of the net income from joint ventures recorded under the equity method of accounting. (2) Total assets are net of foreign currency translation adjustment of $(200) million (pretax) as of June 30, 2000 and $(222) million (pretax) as of December 31, 1999. (3) Amount is net of foreign currency translation adjustment of $(148) million (pretax) as of June 30, 2000 and $(189) million (pretax) as of December 31, 1999.
Note 8. Accounting Matters In June 2000, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities" (SFAS 138) modifying the requirements included in SFAS 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133). PSEG, PSE&G and Energy Holdings are currently evaluating the impact of SFAS 133 as part of their implementation plan. In December 1999, the SEC released Staff Accounting Bulletin No. 101 (SAB 101) which provides guidance on the timing of revenue recognition in financial statements. The basic guidelines on revenue recognition state that revenue should not be recognized until it is realized or realizable and earned. SAB 101 provides specific criteria to assist in this determination. PSEG, PSE&G and Energy Holdings are in the process of determining the possible effects of the adoption of SAB 101 on existing revenue recognition practices. The adoption of SAB 101 is not expected to have a material adverse effect on the financial statements of PSEG, PSE&G or Energy Holdings. PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Concluded In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities -- Deferral of the Effective Date of FASB Statement No. 133" (SFAS 137) to defer the effective date of SFAS 133, for one year. Consequently, SFAS 133 will be effective for all fiscal quarters beginning after January 1, 2001. The FASB also decided to defer by one year the transition date regarding embedded derivatives in SFAS 133. SFAS 133 establishes accounting and reporting standards for derivative instruments and hedging activities. It requires an entity to recognize all derivatives, within the scope of this statement, as assets or liabilities on the balance sheet at fair value. Also, derivatives that are not hedges must be adjusted to fair value through income. If a derivative is a hedge, changes in the fair value of the derivative will either be offset against the change in fair value of the hedged asset, liability or firm commitment through earnings or be recognized in other comprehensive income until the hedged item is recognized in earnings, depending on the nature of the hedge. The ineffective portion of a hedge will be immediately recognized in earnings. PSEG, PSE&G and Energy Holdings are currently evaluating the impact of SFAS 133 as part of their implementation plan. Note 9. Comprehensive Income Comprehensive Income (Loss), Net of Tax:
Quarter Ended Six Months Ended June 30, June 30, ------------------------------ ----------------------- 2000 1999 2000 1999 ----------- ------------ --------- ---------- (Millions of Dollars) Net income (loss)................................... $142 $(609) $412 $(421) Foreign currency translation, net of tax (A)........ (8) (2) 21 (127) ----------- ------------ --------- ---------- Comprehensive income/(loss).................... $134 $(611) $433 $(548) =========== ============ ========= ========== (A) Net of tax of $(0.8) million and $(0.2) million for the quarters ended June 30, 2000 and 1999, respectively, and $2.2 million and $(14.1) million for the six months ended June 30, 2000 and 1999, respectively.
Note 10. Related Party Transactions Energy Holdings Approximately 90% of the electricity generated by the Eagle Point Power Plant, a 50% owned equity investment of Global, is sold to PSE&G under a 25-year power purchase contract terminating in May 2016. Global's share of partnership revenues received from PSE&G represented approximately $17 and $31 for the quarter and six months ended June 30, 2000 and approximately $13 and $26 for the quarter and six months ended June 30, 1999. PUBLIC SERVICE ELECTRIC AND GAS COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Notes to Consolidated Financial Statements of PSEG are incorporated by reference insofar as they relate to PSE&G and its subsidiaries: Note 1. Basis of Presentation Note 2. Regulatory Issues Note 3. Regulatory Assets and Liabilities Note 4. Commitments and Contingent Liabilities Note 5. Financial Instruments and Risk Management Note 7. Financial Information by Business Segments Note 8. Accounting Matters Note 10. Related Party Transactions Note 6. Income Taxes PSE&G's effective income tax rate is as follows:
Quarter Ended Six Months Ended June 30, June 30, ------------------------- ------------------------- 2000 1999 (A) 2000 1999 (A) ---------- ----------- --------- ----------- Federal tax provision at statutory rate.................. 35.0% 35.0% 35.0% 35.0% New Jersey Corporate Business Tax, net of Federal benefit 5.9% 5.9% 5.9% 5.9% Other-- net.............................................. (0.7)% (0.1)% (0.2)% 1.5% ---------- ----------- --------- ----------- Effective Income Tax Rate............................ 40.2% 40.8% 40.7% 42.4% ========== =========== ========= =========== (A) Excludes the impact of the extraordinary charge recorded in the second quarter of 1999.
Note 9. Comprehensive Income For the quarters ended June 30, 2000 and 1999, PSE&G's comprehensive income equaled the consolidated net income of PSE&G. PSEG ENERGY HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Notes to Consolidated Financial Statements of PSEG are incorporated by reference insofar as they relate to Energy Holdings and its subsidiaries: Note 1. Basis of Presentation Note 2. Regulatory Issues Note 3. Regulatory Assets and Liabilities Note 4. Commitments and Contingent Liabilities Note 5. Financial Instruments and Risk Management Note 7. Financial Information by Business Segments Note 8. Accounting Matters Note 10. Related Party Transactions Note 6. Income Taxes Energy Holdings' effective tax rate was 29.3% and 35.1% for the six months ended June 30, 2000 and six months ended June 30, 1999, respectively. Energy Hodlings effective tax rate differs from the statutory federal income tax rate of 35.0% primarily due to the imposition of state taxes and the accruals at the rate of 10% of Global's foreign income due to the incremental cost associated with the repatriation of foreign earnings. Energy Holdings does not consolidate foreign projects and there is no foreign income tax reflected in income tax expense in Energy Holdings' consolidated financial statements at June 30, 2000. Note 9. Comprehensive Income Comprehensive Income (Loss), Net of Tax:
Quarter Ended Six Months Ended June 30, June 30, -------------------------- --------------------------- 2000 1999 2000 1999 ----------- ----------- ------------ ----------- (Millions of Dollars) Net income (loss).................................... $(5) $26 $19 $45 Foreign currency translation, net of tax (A)......... (8) (2) 21 (127) ----------- ----------- ------------ ----------- Comprehensive income/(loss)..................... $(13) $24 $40 $(82) =========== =========== ============ ===========
Net of tax of $(0.8) million and $(0.2) million for the quarters ended June 30, 2000 and 1999, respectively, and $2.2 million and $(14.1) million for the six months ended June 30, 2000 and 1999, respectively. 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 (PSEG) and Public Service Electric and Gas Company (PSE&G) 1999 Annual Report on Form 10-K and Quarterly Report on Form 10-Q for the quarter ended March 31, 2000 and the PSEG Energy Holdings Inc.'s (Energy Holdings) Registration Statement filed on Form S-4 on June 29, 2000, affecting the consolidated financial condition and the results of operations of PSEG, PSE&G, and Energy Holdings and their subsidiaries. This discussion refers to the Consolidated Financial Statements (Statements) and related Notes to Consolidated Financial Statements (Notes) of PSEG, PSE&G and Energy Holdings and should be read in conjunction with such Statements and Notes. Overview and Future Outlook Following the enactment of the New Jersey Electric Discount and Energy Competition Act (Energy Competition Act), the New Jersey Board of Public Utilities (BPU) rendered its summary decision relating to PSE&G's rate unbundling, stranded costs and restructuring proceedings (Summary Order) and subsequently issued it's Final Order in these matters, providing, among other things, for the transfer to an affiliate of all of its electric generation facilities, plant and equipment for $2.443 billion and all other related property, including materials, supplies and fuel at the net book value thereof, together with associated rights and liabilities. Also in 1999, the BPU issued its order approving PSE&G's petition relating to the proposed securitization transaction (Finance Order) which authorized, among other things, the issuance and sale of $2.525 billion of transition bonds, including an estimated $125 million of transaction costs. The Energy Competition Act, the BPU's Summary Order and Final Order and the related BPU proceedings, referred to as the Energy Master Plan Proceedings, opened the New Jersey energy markets to competition by allowing all New Jersey retail electric customers to, among other things, select their electric supplier commencing August 1, 1999 and all New Jersey retail gas customers to select their gas supplier commencing January 1, 2000. Beginning August 1, 1999, PSE&G instituted a 5% rate reduction and implemented other applicable provisions of the Final Order. In October and November 1999, two appeals of certain provisions of the Final Order and two appeals of certain provisions of the related Finance Order were filed in the Appellate Division of the New Jersey Superior Court (Appellate Division) on behalf of several customers and the Office of the Ratepayer Advocate. In an order issued April 13, 2000, a three-judge Appellate Division panel unanimously affirmed the Final Order and Finance Order. Thereafter, the appellants filed a Petition requesting Certification and a Notice of Appeal with the New Jersey Supreme Court seeking review of the Appellate Division decision. On July 14, 2000, the New Jersey Supreme Court granted Certification with respect to both matters. In a subsequent scheduling order, the New Jersey Supreme Court ordered the appellants to file supplemental briefs supporting their positions by August 20, 2000 and the respondents, including the BPU and PSE&G, to file their response briefs within 30 days thereafter. Oral arguments for all parties are scheduled for November 8, 2000. PSE&G is unable to predict the timing or the outcome of the Supreme Court review. As a result of this review, PSE&G's $2.525 billion securitization transaction has been delayed. Since the Energy Master Plan Proceedings require PSE&G to apply the net proceeds of securitization to reduce its capital structure, in anticipation of this transaction PSE&G has retired at maturity or through open-market purchases $1.045 billion aggregate principal amount of its long-term debt. Such retirements and purchases were funded with short-term obligations, which at June 30, 2000 were approximately $1.8 billion. Due to the delay in securitization, PSE&G has requested authority from the BPU to issue up to $1.0 billion of long-term debt with maturities not to exceed 36 months. While PSE&G expects such authority to be granted, no assurances can be given. Failure to receive such authority on a timely basis could have a material adverse effect on the financial condition, results of operations and net cash flows of PSE&G and PSEG. While PSE&G continues to believe that the Appellate Division's unanimous decision was correct, it can give no assurances with respect to the ultimate timing or disposition of these matters by the New Jersey Supreme Court. An adverse outcome to this review or substantial additional delays beyond the first quarter of 2001, could have a material adverse impact on PSEG's, PSE&G's and Energy Holdings' financial condition, results of operations and net cash flows and could require revisions to financing plans, revisions to business plans delaying or restricting current growth strategies and the imposition of other operational and/or financial measures. PSEG has positioned Energy Holdings as a major part of its planned growth strategy. In order to achieve this strategy, PSEG Global Inc. (Global) will focus on generation and distribution investments within targeted high-growth regions. A significant portion of Global's growth is expected to occur internationally due to the current and anticipated growth in electric capacity required in certain regions of the world. PSEG Resources Inc. (Resources) will utilize its market access, industry knowledge and transaction structuring capabilities to expand its energy-related financial investment portfolio. PSEG Energy Technologies, Inc. (Energy Technologies) will continue to provide heating, ventilating and air conditioning (HVAC) contracting and other energy-related services to industrial and commercial customers in Northeastern and Middle Atlantic United States. As a result of the Final Order, PSEG organized PSEG Power LLC (Power) and its subsidiaries to, among other things, acquire, own and operate PSE&G's electric generation assets. PSE&G believes that all of the necessary approvals to sell the generation business to Power have been obtained. In addition to the anticipated acquisition of PSE&G's generation-related assets, Power has several facilities which are in operation which it has acquired or constructed since its formation in 1999. Due to the New Jersey Supreme Court's review of the Final Order, a planned capital market financing for Power has been delayed. To the extent that the discussion that follows reports on business conducted under full monopoly regulation of the utility businesses, it must be understood that such businesses have changed due to the deregulation of the electric generation and natural gas commodity sales businesses. Past results are not an indication of future business prospects or financial results. Results of Operations
Earnings (Losses) -------------------------------------------------------------- Quarter Ended Six Months Ended June 30, June 30, --------------------------- --------------------------- 2000 1999 2000 1999 ----------- ------------ ----------- ------------ (Millions of Dollars) PSE&G, Before Extraordinary Item............. $150 $155 $397 $324 PSE&G Extraordinary Item..................... -- (790) -- (790) ----------- ------------ ----------- ------------ Total PSE&G............................. 150 (635) 397 (466) Energy Holdings.............................. (5) 26 19 45 PSEG*........................................ (3) -- (4) -- ----------- ------------ ----------- ------------ Total PSEG.............................. $142 $(609) $412 $(421) =========== ============ =========== ============
Contribution to Earnings Per Share (Basic and Diluted) -------------------------------------------------------------- Quarter Ended Six Months Ended June 30, June 30, --------------------------- --------------------------- 2000 1999 2000 1999 ----------- ----------- ----------- ------------ PSE&G, Before Extraordinary Item............. $0.69 $0.71 $1.84 $1.46 PSE&G Extraordinary Item..................... -- (3.60) -- (3.57) ------------ ----------- ----------- ----------- Total PSE&G............................. 0.69 (2.89) 1.84 (2.11) Energy Holdings.............................. (0.02) 0.12 0.09 0.21 PSEG*........................................ (0.01) -- (0.02) -- ------------ ----------- ----------- ----------- Total PSEG.............................. $0.66 $(2.77) $1.91 $(1.90) ============ =========== =========== =========== *Interest on certain financing transactions
Basic and diluted earnings per share of PSEG common stock (Common Stock) were $0.66 for the quarter ended June 30, 2000, a decrease of $0.17 per share from the comparable 1999 period, excluding the extraordinary charge. Basic and diluted earnings per share of Common Stock were $1.91 for the six months ended June 30, 2000, an increase of $0.24 per share from the comparable 1999 period, excluding the extraordinary charge. Excluding the extraordinary charge from 1999 relating to deregulation and the discontinuation of Statement of Financial Accounting Standards (SFAS) No. 71, "Accounting for the Effects of Certain Types of Regulation" (SFAS 71), PSE&G's contribution to earnings per share of Common Stock for the quarter ended June 30, 2000 decreased $0.02 from the comparable 1999 period. The decrease for the quarter ended June 30, 2000 was primarily due to the 5% rate reduction required by the Final Order, which commenced on August 1, 1999, combined with replacement power expenses that resulted from a scheduled refueling outage at the Hope Creek Nuclear Generating Station. Higher electric and gas sales due to more favorable weather and lower depreciation and amortization resulting from the amortization of the Excess Depreciation Reserve beginning in January 2000 helped to offset some of the decrease. Excluding the extraordinary charge from 1999, PSE&G's contribution to earnings per share of Common Stock for the six months ended June 30, 2000 increased $0.38 from the comparable 1999 period. This increase was primarily due to higher electric and gas sales due to more favorable weather and lower depreciation and amortization resulting from the lower net book value of PSE&G's generation related assets and the amortization of the Excess Depreciation Reserve beginning in January 2000. These were partially offset by the 5% rate reduction required by the Final Order combined with replacement power expenses that resulted from the refueling outage at the Hope Creek Nuclear Generating Station. Energy Holdings' contribution to earnings per share of Common Stock for the quarter and six months ended June 30, 2000 decreased $0.14 and $0.12, respectively, from the comparable 1999 periods, primarily due to lower unrealized gains from Resources' investment portfolio in the second quarter of 2000. As a result of PSEG's stock repurchase program which began in September 1998, earnings per share of Common Stock for the quarter and six months ended June 30, 2000 increased $0.01 and $0.05, respectively, from the comparable 1999 periods. A total of 17.8 million shares had been repurchased at a cost of approximately $679 million under this program as of June 30, 2000. PSE&G -- Revenues Electric Revenues increased $18 million or 1.7% and $14 million or 0.7% for the quarter and six months ended June 30, 2000 from the comparable periods in 1999, respectively, primarily due to favorable weather in the second quarter of 2000 and higher profits from wholesale activities as compared to the same periods in 1999 plus adjustments made to revise estimated Demand Side Management (DSM) lost revenues. These increases were substantially offset by the 5% rate reduction required by the Final Order which decreased generation revenues for the quarter and six months ended June 30, 2000 by approximately $50 million and $96 million, respectively. Once the securitization transaction is completed, there will be an additional 2% rate reduction. In addition, customer migration from PSE&G could further reduce future basic generation service (BGS) revenues. However, such customer migration also creates the opportunity to sell available energy and capacity into the wholesale market. As of June 30, 2000 approximately 7% of the customer load traditionally served by PSE&G was being served by third party suppliers. Also, since PSE&G's distribution customers have the ability to change energy suppliers, customers could return to PSE&G for energy supply under the fixed-rate BGS tariff during summer periods when energy costs are typically higher, which could have a material adverse effect on Power and PSEG. Gas Revenues increased $42 million or 15% and $89 million or 9% for the quarter and six months ended June 30, 2000 from the comparable periods in 1999, respectively, due to several factors, including favorable weather and the strength of the New Jersey economy. Customer migration due to the opening of full competition in 2000 could reduce future revenues. PSE&G -- Expenses Electric Energy Costs Electric Energy Costs increased $33 million or 14% and $17 million or 4% for the quarter and six months ended June 30, 2000 from the comparable 1999 periods, respectively. The increase was primarily due to the replacement power expenses that resulted from the refueling outage at the Hope Creek Nuclear Generating Station. Gas Costs As a result of the increase in gas revenues discussed above, Gas Costs increased $57 million or 35% and $90 million or 15% for the quarter and six months ended June 30, 2000 from the comparable 1999 periods, respectively. Operation and Maintenance Operation and Maintenance expense increased $20 million or 5% and $14 million or 2% for the quarter and six months ended June 30, 2000 from the comparable 1999 periods, respectively. These increases were primarily due to higher transmission and distribution costs, including higher materials and support services as well as higher costs related to wholesale activities. Depreciation and Amortization Depreciation and Amortization expense decreased $38 million or 32% and $115 million or 40% for the quarter and six months ended June 30, 2000 from the comparable 1999 periods, respectively. The decrease was primarily due to the amortization of the regulatory liability for the excess electric distribution depreciation reserve, which commenced on January 1, 2000, and reduced expenses for the quarter and six months ended June 30, 2000 by approximately $31 million and $63 million, respectively. In addition, for the six months ended June 30, 2000, the lower net book value balances of PSE&G's generation-related assets which were reduced as of April 1, 1999 as a result of the impairment recorded pursuant to SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" (SFAS 121), resulting in a reduction of expenses of approximately $60 million as compared to the same period in the prior year. Once the securitization transaction is complete, PSE&G will begin to amortize the regulatory asset recorded for stranded costs with such amortization expense offsetting these decreases. Income Taxes Income Taxes decreased $5 million or 5% for the quarter ended June 30, 2000 from the comparable 1999 period, primarily due to lower pre-tax operating income and increased $36 million or 15% for the six months ended June 30, 2000 from the comparable 1999 period, primarily due to higher pre-tax operating income. Energy Holdings Energy Holdings--Revenues Revenues increased $25 million for the quarter ended June 30, 2000 as compared to the same period in 1999. The increase primarily resulted from an increase at Energy Technologies due to the addition of revenues from acquisitions of heating, ventilating and air conditioning (HVAC) and mechanical service contracting companies in 2000 and 1999, offset by a decrease at Resources due to lower income from existing financial investments. Revenues increased $111 million for the six months ended June 30, 2000 as compared to the same period in 1999. The increase was primarily due to additional revenues from Energy Technologies acquisitions of HVAC and mechanical service contracting companies. Energy Holdings--Operating Expenses Operating expenses increased $56 million and $118 million for the quarter and six months ended June 30, 2000, respectively. The increases were primarily due to the addition of operating expenses from the entities acquired by Energy Technologies in 2000 and 1999. Energy Holdings--Interest Expense and Preferred Dividends Net financing expenses increased $15 million and $32 million for the quarter and six months ended June 30, 2000. Both increases were primarily due to higher levels of debt required to finance investment and acquisition activities at Global and Resources and higher interest rates. Energy Holdings - Earnings Before Interest and Taxes (EBIT) Contribution The results of operations for each of Energy Holdings' business segments are explained below with reference to the EBIT contribution. Energy Holdings borrows on the basis of a combined credit profile to finance the activities of its subsidiaries. As such, the capital structure of each of the businesses is managed by Energy Holdings. Debt at each subsidiary is evidenced by demand notes with Energy Holdings and PSEG Capital Corporation (PSEG Capital).
Quarter Ended Six Months Ended June 30, June 30, --------------------------- --------------------------- 2000 1999 2000 1999 ----------- ----------- ----------- ----------- (Millions of Dollars) EBIT: Global............................ $23 $22 $49 $40 Resources......................... 22 48 85 92 Energy Technologies............... (8) (2) (16) (5) Other............................. (2) 2 (2) 1 ----------- ----------- ----------- ----------- Total EBIT............................. $35 $70 $116 $128 =========== =========== =========== ===========
Global Global's investments consist primarily of minority ownership positions in projects and joint ventures, none of which it consolidates. Other than fees collected for providing operations and maintenance services, Global's revenues primarily represent its pro-rata ownership share of net income generated by project affiliates which is accounted for by the equity method of accounting. The expenses in the table below are those required to develop projects and administrative and general expenses required to operate the business as a whole. Project operating expenses are not reported as direct expenses of Global but are deducted to arrive at net income of project affiliates, a pro-rata share of which is reported as revenues by Global.
Quarter Ended Six Months Ended June 30, June 30, --------------------------- --------------------------- 2000 1999 2000 1999 ----------- ----------- ----------- ----------- (Millions of Dollars) Revenues.......................... $33 $34 $71 $62 Expenses.......................... 11 14 23 28 ----------- ----------- ----------- ----------- Operating Income.................. 22 20 48 34 Other Income...................... 1 2 1 6 ----------- ----------- ----------- ----------- Total EBIT............................. $23 $22 $49 $40 =========== =========== =========== ===========
Global's EBIT contribution increased $1 million for the quarter ended June 30, 2000 from the comparable period in 1999. Revenues for the quarter were stable as revenues from new investments in distribution companies in Chile and Peru helped to offset lower revenue from Global's Argentine distribution company, which were lower due to certain refinancings. Lower administrative and general expenses in the second quarter related to new project development also increased Global's EBIT contribution. Global's EBIT contribution increased $9 million for the six months ended June 30, 2000 from the comparable period in 1999. The increase was primarily due to higher income from the above-mentioned new investments as well as improved performance from Global's Brazilian distribution company, partially offset by lower revenue from Global's Argentine distribution company, which were lower due to certain refinancings. Resources Resources derives its leveraged lease revenues primarily from rental payments and tax benefits associated with such transactions. As a passive investor in limited partnership project financing transactions, Resources recognizes revenue from its pro-rata share of the income generated by these investments. As an owner of beneficial interests in two leveraged buyout funds, Resources recognizes revenue as the share prices of public companies in the leveraged buyout funds fluctuate. In addition, revenue is recognized as companies in the fund distribute dividend income through the fund to the investors and as the fund liquidates its holdings.
Quarter Ended Six Months Ended June 30, June 30, ------------------------- --------------------------- 2000 1999 2000 1999 ----------- ---------- ----------- ----------- (Millions of Dollars) Revenues................................... $26 $51 $92 $97 Expenses................................... 4 3 7 5 ----------- ---------- ----------- ----------- Total EBIT...................................... $22 $48 $85 $92 =========== ========== =========== ===========
Resources' EBIT contribution decreased $26 million for the quarter ended June 30, 2000 from the comparable period in 1999. The decrease was primarily due to fair value adjustments related to securities in leveraged buyout funds. Revenues decreased $25 million for the quarter ended June 30, 2000 from the comparable period in 1999. The decrease was primarily due to fair value adjustments related to securities in leveraged buyout funds as well as a gain recorded in the prior year from the sale of a leveraged lease, partially offset by higher income from new leveraged lease investments. Operating expenses remained relatively constant for both comparable periods. Resources' EBIT contribution decreased $7 million for the six months ended June 30, 2000 from the comparable period in 1999. The decrease was primarily due to fair value adjustments related to securities in leveraged buyout funds. Revenues decreased $5 million for the quarter ended June 30, 2000 from the comparable period in 1999. The decrease was primarily due to very strong performance of Resources' investments in leveraged buyout funds in the first six months of 1999 compared to moderate gains in the first six months of 2000. Revenues were also impacted by higher income from new leveraged lease investments as well as a gain recorded in the prior year from the sale of a leveraged lease. Operating expenses remained relatively constant for both comparable periods. Energy Technologies Energy Technologies derives its revenues from energy sales and the sale of energy-related equipment and services.
Quarter Ended Six Months Ended June 30, June 30, --------------------------- --------------------------- 2000 1999 2000 1999 ----------- ----------- ----------- ----------- (Millions of Dollars) Revenues................................... $105 $54 $216 $109 Expenses................................... 113 56 232 114 ----------- ----------- ----------- ----------- Total EBIT...................................... $(8) $(2) $(16) $(5) =========== =========== =========== ===========
Energy Technologies' EBIT contribution decreased $6 million for the quarter ended June 30, 2000 from the comparable period in 1999. Revenues increased $51 million and operating expenses increased $57 million primarily due to acquisitions of HVAC and mechanical service contracting companies in 2000 and 1999. Energy Technologies' EBIT contribution decreased $11 million for the six months ended June 30, 2000 from the comparable period in 1999. Revenues increased $107 million and operating expenses increased $118 million primarily due to acquisitions of HVAC and mechanical service contracting companies in 2000 and 1999. Also included in the increased operating expenses, Energy Technologies recognized a charge to income for approximately $6.6 million for the six months ended June 30, 2000. Of this amount approximately $2 million related to employee severance costs applicable to the termination of approximately 60 employees, $1.6 million related to deferred transportation costs and $3.0 million related to the write-off of computer hardware and software. As of June 30, 2000, of the 60 employees to be terminated, approximately 50 employees have been terminated and there remains an outstanding liability of approximately $0.5 million related to employee severance costs on Energy Holdings' consolidated balance sheet. Liquidity and Capital Resources PSEG and PSE&G PSEG is a holding company and, as such, has no operations of its own. The following discussion of PSEG's liquidity and capital resources is on a consolidated basis, noting the uses and contributions of PSEG's two direct operating subsidiaries in 2000, PSE&G and Energy Holdings. As noted above, on July 14, 2000, the New Jersey Supreme Court decided to hear appeals of the BPU Energy Master Plan decision. As a result, a planned $2.5 billion securitization financing by PSE&G has been delayed from the third quarter of 2000 to at least the first quarter of 2001, and a planned financing of $1.5 billion by Power has been similarly delayed. Going forward, cash generated from PSE&G's transmission and distribution business is expected to provide the majority of the funds for PSE&G's business needs. Following Power's initial external financing, Power's capital needs will be funded with cash generated from operations and may be supplemented with external financings and equity infusions from PSEG as dictated by Power's growth strategy. The delay of the securitization financing could impact the ability of PSEG to make equity infusions into Power which could affect Power's growth strategy. Also as a result of the delay in securitization, PSEG and PSE&G will utilize various medium-term financings to refinance existing debt and maturities. As previously noted, PSE&G filed a petition with the BPU on July 27, 2000 to approve the issuance of up to $1 billion of long-term debt with maturities of up to three years. On September 17, 1999, the BPU issued its Finance Order which authorized, among other things, the imposition of a non-bypassable transition bond charge on PSE&G's customers; the sale of PSE&G's property right in such charge created by the Energy Competition Act to a bankruptcy-remote financing entity; the issuance and sale of $2.525 billion of transition bonds by such entity as consideration for such property right, including an estimated $125 million of transaction costs; and the application by PSE&G of the transition bond proceeds to retire outstanding debt and/or equity. Pending a favorable resolution of matters now before the New Jersey Supreme Court, PSEG and PSE&G do not expect such sale of transition bonds and the receipt of proceeds prior to the first quarter of 2001. Both the right of PSE&G to receive the bondable transition charge pursuant to the securitization transaction and the proceeds from the transfer of its generation-related assets to Power are property subject to the lien of PSE&G's First and Refunding Mortgage (Mortgage). All such property will be released from the lien of the Mortgage at the time of receipt of the cash proceeds from such sale. In accordance with the provisions of the Mortgage, the net proceeds from the sale of such released property will be deposited with the Trustee. The Mortgage authorizes PSE&G to exercise one or more of the following options as to the application of proceeds of such released property, at its sole discretion: 1. Withdraw funds for corporate use by utilizing additions and improvements and/or retired bonds. (Option 1) 2. Direct the Trustee to invest the proceeds in U.S. Government Securities. (Option 2) 3. Direct the Trustee to purchase its Mortgage Bonds at the lowest prices obtainable, at or below par value. If the Trustee is unable to purchase sufficient Mortgage Bonds to exhaust such proceeds deposited with it, the balance may be applied on a pro rata basis towards the redemption of eligible series of Mortgage Bonds outstanding at par. (Option 3) During the twelve months ended June 30, 2000, $723 million of Mortgage Bonds matured and $318 million of Mortgage Bonds were purchased in the open market. At June 30, 2000, PSE&G had a total of $3.1 billion of Mortgage Bonds outstanding, of which $2.3 billion are taxable registered Mortgage Bonds subject to the special redemption provisions outlined in Option 3 (Redeemable Bonds). Further, $777 million of the Mortgage Bonds outstanding are tax-exempt Pollution Control Bonds and $15 million are two series of taxable coupon Mortgage Bonds due 2037 (Coupon Bonds). Neither the Pollution Control Bonds nor the Coupon Bonds are subject to the special redemption provisions outlined in Option 3. PSE&G has not yet made a final decision as to the amount and the manner in which it will retire or redeem its Mortgage Bonds. Such a decision will be made on or about the time the proceeds from securitization and the sale of the generation-related assets to Power are deposited with the Trustee, on the basis of market conditions and other factors existing at that time (see Overview and Future Outlook). Based on current information, a likely utilization of the options available to PSE&G, as noted above, could be as follows: A. Withdraw $2.4 billion of net proceeds from securitization under Option 1, above. These proceeds would be used to: i. Redeem $123.5 million of Pollution Control Bonds now redeemable; ii. Retire PSE&G's outstanding short-term debt; and iii. Reduce PSE&G common and/or preferred securities with the balance of proceeds. B. Withdraw the proceeds from the generation-related asset sale to Power under Option 1. These proceeds will be used to reduce PSE&G common and/or preferred securities. As previously reported, in anticipation of securitization, PSEG's Board of Directors has authorized the repurchase of up to an aggregate of 30 million shares of Common Stock in the open market. At June 30, 2000, PSEG had repurchased approximately 17.8 million shares of Common Stock, at a cost of approximately $679 million. The repurchased shares have been held as treasury stock or used for other corporate purposes. In December 1999, PSEG entered into a Forward Purchase Agreement with a third party which has purchased approximately 6.4 million shares at a cost of approximately $225 million. The transaction may be settled in cash or with shares of Common Stock. Any repurchase of these shares will not be reflected on PSEG's balance sheet until settlement of the transaction. Market conditions and the availability of alternative investments will dictate if and when more shares of Common Stock will be repurchased under this authorization. Dividend payments on Common Stock were $0.54 per share and totaled approximately $234 million and $238 million for the six months ended June 30, 2000 and 1999, respectively. PSEG has not increased its dividend rate in eight years in order to retain additional capital for reinvestment and to reduce its payout ratio as earnings grow. Since 1986, PSE&G has made regular cash payments to PSEG in the form of dividends on outstanding shares of PSE&G's common stock. PSE&G paid common stock dividends of $334 million and $392 million to PSEG for the six months ended June 30, 2000 and 1999, respectively. These amounts were used to fund PSEG's Common Stock dividends and to support a portion of PSEG's stock repurchase program. PSEG believes that it will have adequate earnings and cash flow in the future from PSE&G and Power to maintain Common Stock dividends at the current level. However, the amounts and dates of such dividends declared in the future will necessarily be dependent upon PSEG's future earnings, cash flows, financial requirements and other factors. Earnings and cash flows required to support the dividend will become more volatile as PSEG's business changes from one that is principally regulated to one that is principally competitive. Energy Holdings It is intended that Global and Resources will provide the earnings and cash flow for Energy Holdings' long-term growth. Resources' investments are designed to produce immediate cash flow and earnings that enable Global and Energy Technologies to focus on longer investment horizons. During the next five years, Energy Holdings will need significant capital to fund its planned growth. In addition to cash generated from operations, Energy Holdings' growth will be funded through external financings and equity infusions from PSEG. The delay of the securitization financing could impact the ability of PSEG to continue to make equity infusions into Energy Holdings which could affect Energy Holdings' growth strategy. Cash flow from operating activities decreased $74 million from $99 million to $25 million for the six months ended June 30, 2000 as compared to 1999 primarily due to an increase in days sales outstanding at Energy Technologies resulting from a delay in billing due to the transition to outsource vendors and due to lower income and investment distributions. Regulatory Restrictions ----------------------- As a result of a 1992 BPU proceeding concerning the relationship of PSE&G to PSEG's non-utility businesses (Focused Audit), the BPU approved a plan which, among other things, provided that: (1) PSEG would not permit PSEG's non-utility assets to exceed 20% of PSEG's consolidated assets without prior notice to the BPU (as of June 30, 2000, these assets were in excess of the 20% limit and such notice had been given); (2) the PSE&G Board of Directors would provide an annual certification that the business and financing plans of Energy Holdings will not adversely affect PSE&G; (3) PSEG would (a) limit debt supported by the minimum net worth maintenance agreement between PSEG and PSEG Capital to $650 million and (b) make a good-faith effort to eliminate such support by May 2003; and (4) Energy Holdings would pay PSE&G an affiliation fee of up to $2 million a year to be applied by PSE&G to reduce utility rates. As a result of the accounting impacts resulting from the Final Order and the deregulation of the electric generation business in New Jersey, PSEG and PSE&G no longer believe that the 20% non-utility asset limitation remains appropriate and believe further that modifications to the Focused Audit limitations will be required. The Final Order addressed the Focused Audit, noting that PSEG's non-regulated assets would likely exceed 20% and that, due to significant changes in the industry and, in particular, PSEG's corporate structure as a result of the Final Order, modifications to or relief from the Focused Audit might be warranted. The BPU directed PSE&G to file a petition addressing the Focused Audit prior to the end of the first quarter of 2000. In March 2000, PSE&G submitted a letter to the BPU as its initial compliance with this filing requirement in which it notified the BPU of its intention to make a filing to modify the terms of the Focused Audit within 120 days after the Final Order becomes final and non-appealable. Energy Holdings believes that, if still required, it is capable of eliminating PSEG support of PSEG Capital debt within the time period set forth in the Focused Audit. Regulatory oversight by the BPU to ensure that there is no harm to utility customers from PSEG's non-utility investments is expected to continue. PSEG and PSE&G believe that these issues will be satisfactorily resolved, although no assurances can be given. In addition, if PSEG were no longer exempt under the Public Utility Holding Company Act (PUHCA), PSEG and its subsidiaries would be subject to additional regulation by the SEC with respect to financing and investing activities, including the amount and type of non-utility investments. PSEG believes, however, that this would not have a material adverse impact on it and its subsidiaries. Capital Requirements PSEG Power On July 19, 2000, Power announced that it will construct a two-unit, 1,186 MW natural-gas fired combined-cycle generating facility at its Linden Generating Station at a cost of approximately $590 million with completion expected in May 2003. Three existing oil-fired steam units at Linden with a total capacity of 436 MW will be retired upon completion of the new facility. Also in 2000, Power announced that it will construct a 500 MW natural gas-fired, combined-cycle electric generating plant at Bergen Generating Station at a cost of approximately $290 million with completion expected in June 2002. Power has also installed four new combustion turbines at Burlington Generating Station and two new combustion turbines at Linden Generating Station, adding 186 MW and 164 MW, respectively, of electric generating capacity, at a cost of approximately $151 million. The new combustion turbines were all operational as of July 2000. In May 2000, Power acquired Niagara Mohawk Power Corporation's (Niagara Mohawk) 400 MW oil and gas-fired electric generating station in Albany, New York (Albany Steam Station) for $47.5 million. Under the terms of the acquisition agreement, Niagara Mohawk could also receive up to an additional $9 million if Power chooses to pursue redevelopment of the Albany Steam Station. In September 1999, Power announced that it had signed an agreement to acquire all of Conectiv's interests in the Salem Nuclear Generating Station (Salem) and the Hope Creek Nuclear Generating Station (Hope Creek) and half of Conectiv's interest in the Peach Bottom Atomic Power Station (Peach Bottom), totaling 544 MW for an aggregate purchase price of $15.4 million plus the net book value of nuclear fuel at closing. For further discussion, see Note 4. Commitments and Contingent Liabilities of Notes. PSE&G PSE&G has substantial commitments as part of its ongoing construction program. PSE&G's construction program is continuously reviewed and periodically revised as a result of changes in economic conditions, revised load forecasts, business strategies, site changes, cost escalations under construction contracts, requirements of regulatory authorities and laws, the timing of and amount of electric and gas transmission and/or distribution rate changes and the ability of PSE&G to raise necessary capital. For the six months ended June 30, 2000 PSE&G had net plant additions of $230 million, excluding Allowance for Funds Used During Construction (AFDC) and capitalized interest, a $58 million increase from the corresponding 1999 period. Energy Holdings Investment activity in 2000 will be subject to periodic review and revision and may vary significantly depending upon the opportunities presented. Factors affecting actual expenditures and investments include availability of capital and suitable investment opportunities, market volatility and local economic trends. Over the next several years, Energy Holdings, certain of its project affiliates and PSEG Capital will be required to refinance maturing debt, incur additional debt and provide equity to fund investment activity. Any inability to obtain required additional external capital or to extend or replace maturing debt and/or existing agreements at current levels and reasonable interest rates may affect Energy Holdings' financial condition, results of operations and net cash flows (see Liquidity and Capital Resources-Regulatory Restrictions above). External Financings PSEG At June 30, 2000, PSEG had a committed $150 million revolving credit facility which will expire in December 2002. At June 30, 2000, there were no borrowings under this revolving credit facility. On September 8, 1999, PSEG entered into an uncommitted line of credit with a bank with no stated limit. At June 30, 2000, PSEG had $121 million outstanding under this line of credit. PSEG has an $850 million commercial paper program to provide funds for general corporate purposes and, until securitization proceeds are received, provide funds for Power. On June 30, 2000, PSEG had commercial paper of $214 million outstanding. To provide liquidity for its commercial paper program, PSEG has a $570 million revolving credit facility expiring in March 2001 and a $280 million revolving credit facility expiring in March 2005. These agreements are with a group of banks and provide for borrowings with maturities of up to one year. As of June 30, 2000 there were no borrowings outstanding under these facilities. In 1998, PSEG issued $100 million of Extendible Notes, Series A, due November 22, 2000. These Notes were automatically tendered and remarketed in February 2000. The interest rate through maturity is at the three-month London Interbank Offered Rate (LIBOR) plus 0.22%, reset quarterly. Also in 1998, PSEG issued $175 million of Extendible Notes, Series B, due November 22, 2000. These Notes were automatically tendered and remarketed in May 2000. The interest rate through maturity is at the three-month LIBOR plus 0.32%, reset quarterly. In 1999, PSEG issued $300 million of Extendible Notes, Series C, due June 15, 2001. These Notes were automatically tendered and remarketed in March 2000. The interest rate through September 2000 is at three-month LIBOR plus 0.20% reset quarterly. These Notes will again be automatically tendered and remarketed in September 2000. PSE&G As of June 30, 2000, the Mortgage would permit up to $2.9 billion aggregate principal amount of new Mortgage Bonds to be issued against previous additions and improvements, the level of which will be impacted by the actions ultimately taken in connection with securitization and the sale of generation-related assets to Power (see Liquidity and Capital Resources -- PSEG and PSE&G). In addition to the refinancing of existing long-term debt authorized by the BPU in the Final Order, PSE&G will need to obtain BPU authorization to issue any incremental debt financing necessary for its capital program. PSE&G expects to apply for and receive necessary BPU authorization for external financings to meet its requirements over the next five years, as needed. While PSE&G expects such authority to be granted, no assurances can be given. Failure to receive such authority on a timely basis could have a material adverse effect on the financial condition, results of operations and net cash flows of PSE&G and PSEG. On July 27, 2000, PSE&G filed a petition with the BPU requesting authority to issue up to $1 billion of new long-term debt on the basis of previously matured, redeemed or purchased debt. On May 1, 2000, $288 million of PSE&G's 6.0% Bonds, Series QQ, matured. On June 1, 2000, $235 million of PSE&G's 6.5% Bonds, Series XX, matured. PSE&G maintains a $1.5 billion commercial paper program. To provide liquidity for this program, PSE&G has a $450 million revolving credit agreement expiring in June 2001, a $650 million credit facility expiring in June 2002 and a $400 million credit facility expiring in September 2000. These agreements provide for borrowings with maturities of up to one year. As of June 30, 2000, there were no borrowings outstanding under these facilities. The BPU has authorized PSE&G to issue and have outstanding at any one time through January 2, 2001, not more than $2.0 billion of short-term obligations, consisting of commercial paper and other unsecured borrowings from banks and other lenders. PSE&G has several uncommitted lines of credit with banks. On June 30, 2000, PSE&G had $1.7 billion of short-term debt outstanding, including $313 million borrowed against its uncommitted bank lines of credit. PSE&G Fuel Corporation (Fuelco) has a $125 million commercial paper program to finance a 42.49% share of Peach Bottom nuclear fuel, supported by a $125 million revolving credit facility with a group of banks, which expires on June 28, 2001. PSE&G has guaranteed repayment of Fuelco's respective obligations under this program. As of June 30, 2000, Fuelco had commercial paper of $60 million outstanding. After the purchase of PSE&G's generation-related assets is completed, it is anticipated that Fuelco's commercial paper program will be discontinued and financing of Peach Bottom nuclear fuel will be funded through Power. Energy Holdings Energy Holdings expects to complete an exchange offer in August 2000 exchanging $400 million of publicly traded 10.0% Senior Notes due October 2009 for notes which were issued in October 1999 in a private placement. In May 2000, Energy Holdings extended its $165 million 364-day revolving line of credit to May 2001. As of June 30, 2000 there were no amounts outstanding under this line. Global In June 2000, Global repaid at maturity a $71.0 million loan which was incurred to partially finance its investment in EDEN/EDES, a distribution company in Argentina. In May 2000, Global refinanced a $94.5 million loan which financed a portion of its investment in RGE, a distribution company in Brazil. The debt was refinanced with funds from Energy Holdings and a $190 million United States dollar denominated loan at the Brazilian distribution company, of which Global's share is $62 million. For a further discussion, see Note 5. Financial Instruments and Risk Management. Foreign Operations In accordance with their growth strategies, Global and Resources have made approximately $1.5 billion and $1.1 billion, respectively, of international investments. As of June 30, 2000, foreign investments represented 12.9% of PSEG's consolidated assets and the revenues from those foreign investments contributed 2.7% to consolidated revenues for the six months ended June 30, 2000. For discussion of the foreign currency risk, see Note 5. Financial Instruments and Risk Management of Notes. PSE&G and Energy Holdings The information required by this item is incorporated herein by reference to the following portions of PSEG's Management's Discussion and Analysis of Financial Condition and Results of Operations, insofar as they relate to PSE&G and Energy Holdings and their subsidiaries: Overview and Future Outlook; Results of Operations; Liquidity and Capital Resources; External Financings and Foreign Operations. Forward Looking Statements Except for the historical information contained herein, certain of the matters discussed in this report constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks and uncertainties which could cause actual results to differ materially from those anticipated. Such statements are based on management's beliefs as well as assumptions made by and information currently available to management. When used herein, the words "will", "anticipate", "intend", "estimate", "believe", "expect", "plan", "hypothetical", "potential", variations of such words and similar expressions are intended to identify forward-looking statements. PSEG, PSE&G and Energy Holdings undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The following review of factors should not be construed as exhaustive or as any admission regarding the adequacy of disclosures made by PSEG, PSE&G and Energy Holdings prior to the effective date of the Private Securities Litigation Reform Act of 1995. In addition to any assumptions and other factors referred to specifically in connection with such forward-looking statements, factors that could cause actual results to differ materially from those contemplated in any forward-looking statements include, among others, the following: deregulation and the unbundling of energy supplies and services and the establishment of a competitive energy marketplace for products and services; managing rapidly changing wholesale energy trading operations in conjunction with electricity and gas production, transmission and distribution systems; managing foreign investments and electric generation and distribution operations in locations outside of the traditional utility service territory; political and foreign currency risks; an increasingly competitive energy marketplace; sales retention and growth potential in a mature PSE&G service territory; ability to complete development or acquisition of current and future investments; partner and counterparty risk; exposure to market price fluctuations and volatility of fuel and power supply, power output, marketable securities, among others; ability to obtain adequate and timely rate relief, cost recovery, and other necessary regulatory approvals; ability to obtain securitization proceeds; Federal, state and foreign regulatory actions; regulatory oversight with respect to utility and non-utility affiliate relations and activities; operating restrictions, increased cost and construction delays attributable to environmental regulations; nuclear decommissioning and the availability of storage facilities for spent nuclear fuel; licensing and regulatory approval necessary for nuclear and other operating stations; the ability to economically and safely operate nuclear facilities in accordance with regulatory requirements; environmental concerns; and market risk and debt and equity market concerns associated with these issues. ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK The market risk inherent in PSEG's market risk sensitive instruments and positions is the potential loss arising from adverse changes in commodity prices, pollution credits, equity security prices, interest rates and foreign currency exchange rates as discussed below. PSEG's policy is to use derivatives to manage risk consistent with its business plans and prudent practices. PSEG has a Risk Management Committee comprised of executive officers which utilizes an independent risk oversight function to ensure compliance with corporate policies and prudent risk management practices. PSEG is exposed to credit losses in the event of non-performance or non-payment by counterparties. PSEG also has a credit management process which is used to assess, monitor and mitigate counterparty exposure for PSEG and its subsidiaries. In the event of non-performance or non-payment by a major counterparty, there may be a material adverse impact on PSEG's and its subsidiaries' financial condition, results of operations or net cash flows. For discussion of interest rates, commodity-related instruments, equity securities and foreign currency risks, see Note 5. Financial Instruments and Risk Management of Notes. Commodity-Related Instruments The availability and price of energy commodities are subject to fluctuations from factors such as weather, environmental policies, changes in supply and demand and state and Federal regulatory policies. To reduce price risk caused by market fluctuations, PSE&G enters into derivative contracts, including forwards, futures, swaps and options with approved counterparties, to hedge its anticipated demand. These contracts, in conjunction with owned electric generating capacity and physical gas supply contracts, are designed to cover estimated electric and gas customer commitments. PSEG uses a value-at-risk model to assess the market risk of its commodity business. This model includes fixed price sales commitments, owned generation, native load requirements, physical and financial contracts. Value-at-risk represents the potential gains or losses for instruments or portfolios due to changes in market factors, for a specified time period and confidence level. PSEG estimates value-at-risk across its commodity business using a model with historical volatilities and correlations. The measured value-at-risk using a variance/co-variance model with a 95% confidence level over a one-week time horizon at June 30, 2000 was approximately $12 million, compared to the December 31, 1999 level of $3 million. PSEG's calculated value-at-risk represents an estimate of the potential change in the value of its portfolio of physical and financial derivative instruments. These estimates, however, are not necessarily indicative of actual results, which may differ due to the fact that actual market rate fluctuations may differ from forecasted fluctuations and due to the fact that the portfolio of hedging instruments may change over the holding period. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Certain information reported under Item 3 of Part I of PSEG's and PSE&G's 1999 Annual Report on Form 10-K and Quarterly Report on Form 10-Q for the quarter ended March 31, 2000 and Energy Holdings' Registration Statement on Form S-4, filed June 29, 2000, is updated below. (1) Form 10-K, pages 5, 27, 33, 64 and 69 and March 31, 2000 Form 10-Q, pages 9 and 17. See Pages 13 and 25. Proceedings before the BPU in the matter of the Energy Master Plan Phase II Proceeding to investigate the future structure of the Electric Power Industry, Docket Nos. EX94120585Y, EO97070462 and EO97070463. (2) Form 10-K, pages 8, 27, 34 and 69 and March 31, 2000 Form 10-Q, pages 9 and 17. See Pages 13 and 25. Appeals of the BPUs Final Order and Finance Order in the Energy Master Plan Proceedings, Docket Nos. C1263-99, C-1265-99 and C-1413-99. (3) Form S-4 pages 41, 42, F-33 and F-38. See Page 16. Proceedings before the First Court for the Litigation of Administrative Matters of Venezuela regarding electric generation facilities owned and operated by Turboven in Venezuela in which Global has invested. ITEM 5. OTHER INFORMATION Certain information reported under PSEG's and PSE&G's 1999 Annual Report on Form 10-K and Quarterly Report on Form 10-Q for the quarter ended March 31, 2000 and Energy Holdings' Registration Statement on Form S-4, filed June 29, 2000, is updated below. References are to the related pages on the Form 10-K, Form 10-Q or Form S-4, as appropriate, as printed and distributed. Investment in Pantellos Corporation New Matter. In June 2000, Resources invested $4 million in Pantellos Corporation, a company founded by 21 leading North American energy and utility companies to operate and manage an open, independent internet marketplace for the purchase of goods and services between the energy industry and its suppliers. It is expected that PSEG's operating companies will utilize this exchange with the goal of reducing their total cost of procurement. Metering, Billing and Account Services Form 10-K, page 8 and March 31, 2000 Form 10-Q, page 29. In accordance with the Energy Competition Act, the BPU has reached a settlement with the electric utilities and suppliers, in determining the extent to which metering, billing and customer services may become competitive. As a result of the settlement, competition is limited to consolidated billing for energy services. The metering and other support functions will remain with PSE&G until August 2003, although proceedings on these issues will commence in 2002. The effects of competition in the consolidated billing process for energy services is not expected to have a material effect on the results of operations, cash flows or financial position of PSE&G or PSEG. Gas Unbundling Form 10-K, page 9. In January 2000, the BPU issued a verbal order approving, with certain modifications, PSE&G's stipulation regarding its gas unbundling filing. The verbal order provided for the unbundling of firm rate schedules into commodity and transportation components. It also provides for changes in existing rate schedules. On July 31, 2000, the BPU issued a written order memorializing the verbal order which calls for the new rates to be implemented for all service provided on and after August 1, 2000. Levelized Gas Adjustment Clause (LGAC) Form 10-K, page 9. On July 27, 2000, PSE&G filed an amended motion with the BPU requesting interim authorization by September 1, 2000 to change the monthly pricing mechanism in PSE&G's LGAC to cover currently estimated price increases on a per month basis, excercisable in any month with no annual limit. The change will also allow PSE&G to decrease prices if the expected increases in gas costs do not occur. PSE&G cannot predict the outcome of this matter at this time. Affiliate Standards Form 10-K, page 9 and March 31, 2000 Form 10-Q, page 29. On March 15, 2000, the BPU issued a written order, Affiliate Relations, Fair Competition and Accounting Standards and Related Reporting Requirements (Affiliate Standards), as required by the Energy Competition Act. PSE&G filed a compliance plan on June 15, 2000 to describe the internal policy and procedures necessary to ensure compliance with such Affiliate Standards. The BPU will subsequently conduct an audit of utilities' competitive activities and compliance with such Affiliate Standards. Management believes that the adoption of Affiliate Standards will not have a material adverse effect on PSEG's or PSE&G's financial condition, results of operations or net cash flows. PJM Interconnection LLC (PJM) Form 10-K, page 12. To establish PJM as an Independent System Operator, it was necessary for the Office of Interconnection of PJM to have access to certain computer hardware and software. Accordingly, the PJM transmission owners jointly paid for the development and/or acquisition of certain information systems, intellectual property and other related assets for this purpose. PJM and the PJM transmission owners have filed with the FERC for the sale of these assets to PJM. Since PJM will recover its costs from its customers over several years, PSE&G's estimated $23 million of proceeds from this sale, which is expected to occur in 2000, will be largely offset by the increased costs. Nuclear Fuel Disposal Form 10-K, page 15. Pursuant to NRC rules, spent nuclear fuel generated in any reactor can be stored in reactor facility storage pools or in independent spent fuel storage installations located at or away-from-reactor sites for at least 30 years beyond the licensed life for reactor operation (which may include the term of a revised or renewed license). As a result of reracking the two spent fuel pools at Salem, the availability of adequate spent fuel storage capacity is estimated through 2012 for Salem 1 and 2016 for Salem 2, prior to losing an operational full core discharge reserve. The Hope Creek pool is also fully racked and it is expected to provide storage capacity until 2007, prior to losing an operational full core discharge reserve. PSE&G is currently assessing available options which could satisfy the potential need for additional storage capacity, including the option of constructing an on-site storage facility that would satisfy the spent fuel storage needs of both Salem and Hope Creek. PECO Energy has advised PSE&G that it has constructed an on-site dry storage facility at Peach Bottom which is now operational to provide additional storage capacity through the end of the current licenses for the two Peach Bottom units. Under the Nuclear Waste Policy Act of 1982 (NWPA), the United States Department of Energy (DOE) is required to begin taking possession of all spent nuclear fuel generated by the Company's nuclear units for disposal by no later than 1998. DOE construction of a permanent disposal facility has not begun and DOE has announced that it does not expect a facility to be available earlier than 2010. PECO Energy has advised PSE&G that it had signed an agreement with the DOE applicable to Peach Bottom under which PECO would be reimbursed for costs resulting from the DOE's delay in accepting spent nuclear fuel. The agreement allows PECO to reduce the charges paid to the Nuclear Waste Fund to reflect costs reasonably incurred due to the DOE's delay. Past and future expenditures associated with Peach Bottom's recently completed on-site dry storage facility would be eligible for this reduction in future DOE fees. Negotiations of settlements relating to other plants will be conducted on a plant-by-plant basis. Low Level Radioactive Waste Form 10-K, page 16. On July 1, 2000, New Jersey, Connecticut and South Carolina formed the Atlantic Compact. This arrangement gives New Jersey nuclear generators, including PSE&G, continued access to the Barnwell LLRW disposal facility (Barnwell), which is owned by South Carolina. PSEG and PSE&G believe that the formation of the Atlantic Compact will provide for adequate radioactive waste disposal for Salem and Hope Creek through the end of their current licenses, although no assurances can be given. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) A listing of exhibits being filed with this document is as follows: -------------- -------------------------------------------------------------------------- Exhibit Document Number --------------------------- -------------- -------------------------------------------------------------------------- 12 Computation of Ratios of Earnings to Fixed Charges (PSEG) PSEG 27(A) Financial Data Schedule (PSEG) --------------------------- -------------- -------------------------------------------------------------------------- 3b(1) By Laws of PSE&G 12(A) Computation of Ratios of Earnings to Fixed Charges (PSE&G) PSE&G 12(B) Computation of Ratios of Earnings to Fixed Charges plus Preferred Stock Dividend Requirements (PSE&G) 27(B) Financial Data Schedule (PSE&G) --------------------------- -------------- -------------------------------------------------------------------------- 12(C) Computation of Ratios of Earnings to Fixed Charges (Energy Holdings) ENERGY HOLDINGS 27(C) Financial Data Schedule (Energy Holdings) --------------------------- -------------- --------------------------------------------------------------------------
(B) Reports on Form 8-K None. 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 8, 2000 PSEG ENERGY HOLDINGS INC. 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. PSEG ENERGY HOLDINGS INC. (Registrant) By: DEREK DIRISIO ---------------------------- Derek DiRisio Vice President and Controller (Principal Accounting Officer) Date: August 8, 2000 EX-3.II 2 0002.txt PSE&G BY-LAWS BY-LAWS OF PUBLIC SERVICE ELECTRIC AND GAS COMPANY ---------- As in effect January 18, 2000 ------------------------------------------------------------- BY-LAWS OF PUBLIC SERVICE ELECTRIC AND GAS COMPANY ------------------------- ARTICLE I. DIRECTORS SECTION 1. The Board of Directors shall consist of such number of directors, not less than 3 nor more than 16, as shall be fixed from time to time by the Board of Directors. The directors shall be elected annually at the annual meeting of the stockholders by those stockholders entitled to vote at the election of directors. If the holders of Preferred Stock and the holders of Preferred Stock-$25 Par are entitled to vote at elections of directors, such stockholders, voting as a single class separately from the holders of Common Stock, shall be entitled to elect the smallest number of directors which will be more than on-half of the total number of directors, and the holders of Common Stock, voting separately as a single class, shall be entitled to elect all other directors. As used in these By-Laws, the term "entire Board" means the total number of directors which the corporation would have if there were no vacancies. Directors shall hold office for one year and until their successors are duly elected and qualified, but if, in accordance with the provisions of the third paragraph of Section 6 of Article IX of these By-Laws, a special meeting of stockholders is convened at which a quorum of the holders of Preferred Stock and the holders of Preferred Stock-$25 Par is present, the terms of office of all directors shall terminate, and at such meeting, the holders of Preferred Stock and the holders of Preferred Stock-$25 Par, voting as a single class separately form the holders of Common Stock, shall be entitled to elect the smallest number of directors which will be more than one-half the total number of directors, and the holders of Common Stock, voting separately as a single class shall be entitled to elect all other directors. If the office of any director becomes vacant, the remaining directors, by a majority vote, may elect a successor, who shall hold office for the unexpired term, and until his successor is duly elected and qualified except that if the holders of Preferred Stock and the holders of Preferred Stock-$25 Par are entitled to voting rights to elect directors, any vacancy in the Board of Directors caused by the death or resignation of any director elected by the holders of Preferred Stock and the holder of Preferred Stock-$25 Par shall be entitled to fill upon any increase in the number of directors shall, until the next meeting of the stockholders for the election directors, in each case be filled by majority vote of the remaining or other directors elected by the holders of Preferred Stock and the holders of Preferred Stock-$25 Par. Upon the termination of such voting rights of the holders of Preferred Stock and the holders of Preferred Stock-$25 Par, the terms of office of all persons who shall have been elected directors by vote of such holders, or by vote of the directors elected by such holders, shall forthwith terminate, and the vacancies thereby created may be filled by majority vote of the remaining directors, though less than a quorum. SECTION 2. The Board of Directors, by the affirmative vote of a majority of directors in office and irrespective of any personal interest of any of them, may establish reasonable compensation of directors for services to the corporation as directors, officers, or otherwise. ARTICLE II. OFFICERS SECTION 1. The elective officers of the corporation shall include a President, one or more Vice Presidents, a Secretary, one or more Assistant Secretaries, a Treasurer, and one or more Assistant Treasurers, and may also include a Chairman of the Board, one or more Senior Executive Vice Presidents, one or more Executive Vice Presidents, one or more Senior Vice Presidents and a Chief Nuclear Officer. All elective officers of the corporation shall be elected by the Board of Directors at the first meeting thereof after the annual election of directors. The Board of Directors shall also have power, at any time, to elect additional Senior Executive Vice Presidents, Executive Vice Presidents, Senior Vice Presidents, Vice Presidents, Assistant Secretaries and Assistant Treasurers. The Board of Directors may appoint such other officers as it shall from time to time deem necessary, who shall have such powers and perform such duties as may be assigned to them by the Board of Directors, the Executive Committee, or the person exercising the authority of chief executive officer of the corporation. Any two or more offices may be held by the same person. The Board of Directors shall have power to fill any vacancy in any existing office or to fill any newly created office, at any time. The Chairman of the Board, the President, each Senior Executive Vice President, each Executive Vice President, each Senior Vice President, each Vice President and the Chief Nuclear Officer, severally, shall have power to sign deeds, contracts, and other instruments. Each elective officer shall have such powers and perform such duties as may be assigned to him by the Board of Directors, the Executive Committee, or the chief executive officer, in addition to any powers and duties that are assigned to him specifically by these By-Laws. The term of office of each officer shall be from the time of his election or appointment and qualification until the first meeting of the Board of Directors after the last annual election of Directors, or such other term of office as shall be provided in the resolution of election or appointment, and until the election or appointment and qualification of his successor, subject to earlier termination by removal or resignation. ARTICLE III. CHAIRMAN OF THE BOARD; PRESIDENT; SENIOR EXECUTIVE VICE PRESIDENTS; EXECUTIVE VICE PRESIDENTS; SENIOR VICE PRESIDENTS; CHIEF NUCLEAR OFFICER SECTION 1. If there be a Chairman of the Board, he shall preside at all meetings of the stockholders and of the Board of Directors, and shall have such other powers and perform such other duties as may be assigned to him by the Board of Directors or the Executive Committee. SECTION 2. If there be a Chairman of the Board, the Board of Directors shall designate either the Chairman of the Board or the President as the chief executive officer of the corporation with plenary powers of supervision and direction of the business and affairs of the corporation, unless such offices are occupied by the same person. If there be no Chairman of the Board, the President shall be the chief executive officer. SECTION 3. If there be a Chairman of the Board and if he be designated as the chief executive officer of the corporation, the President shall have charge of the coordination and supervision of all matters of operation of the corporation. In the absence of the Chairman of the Board, the President shall have the powers and perform the duties of the Chairman of the Board. SECTION 4. The Senior Executive Vice Presidents, severally, in the order designated by the chief executive officer, shall, in the absence of the president, have the powers and perform the duties of the President, and if there be a Chairman of the Board, they shall, in the absence of the Chairman of the Board and the President, have the powers and perform the duties of the Chairman of the Board. SECTION 5. The Executive Vice Presidents, severally, in the order designated by the chief executive officer, shall, in the absence of the President and the Senior Executive Vice Presidents, have the powers and perform the duties of the President, and if there be a Chairman of the Board, they shall, in the absence of the Chairman of the Board and the President, have the powers and perform the duties of the Chairman of the Board. SECTION 6. The Senior Vice Presidents, severally, in the order designated by the chief executive officer, shall, in the absence of the President, the Senior Executive Vice Presidents and the Executive Vice Presidents, have the powers and perform the duties of the President, and if there be a Chairman of the Board, they shall, in the absence of the Chairman of the Board, the President, the Senior Executive Vice Presidents and the Executive Vice Presidents, have the powers and perform the duties of the Chairman of the Board. SECTION 7. The Chief Nuclear Officer shall, in the absence of the President, the Senior Executive Vice Presidents, the Executive Vice Presidents and the Senior Vice Presidents have the powers and perform the duties of the President, and if there be a Chairman of the Board, the Chief Nuclear Officer shall, in the absence of the Chairman of the Board, the President the Senior Executive Vice Presidents, the Executive Vice Presidents and the Senior Vice Presidents have the powers and perform the duties of the Chairman of the Board. ARTICLE IV. VICE PRESIDENTS SECTION 1. The Vice Presidents, severally, in the order designated by the chief executive officer, shall, in the absence of the President, the Senior Executive Vice Presidents, the Executive Vice Presidents, and the Senior Vice Presidents, have the powers and perform the duties of the President, and if there be a Chairman of the Board, they shall, in the absence of the Chairman of the Board, the President, the Senior Executive Vice President, the Executive Vice Presidents and the Senior Vice presidents, have the powers and perform the duties of the Chairman of the Board. ARTICLE V. SECRETARY SECTION 1. The Secretary shall keep minutes of all meetings of the stockholders of the Board of Directors and of the Executive Committee, and shall give notices of meetings of the stockholders, of the Board of Directors, and of the Executive Committee. He shall have custody of all deeds, contracts, and other instruments, documents and records, except as otherwise provided in these By-Laws, or by the Board of Directors, and shall attend to such correspondence of the corporation as the Board of Directors or the chief executive officer shall direct. He shall be the custodian of the seal of the corporation and shall affix it to any instrument requiring the same, except as otherwise provided herein or by the Board of Directors. ARTICLE VI. ASSISTANT SECRETARIES SECTION 1. Each Assistant Secretary shall have such powers and perform such duties as may be assigned to him by the Secretary. In the absence of the Secretary, the Assistant Secretaries, in the order designated by the Secretary, shall have the powers and perform the duties of the Secretary. ARTICLE VII. TREASURER SECTION 1. The Treasurer shall have charge of all receipts and disbursements of the corporation and shall be the custodian of the corporation's funds. He shall have full authority to receive and give receipts for all moneys due and payable to the corporation from any source whatever, and to endorse or cause to be endorsed checks, drafts, warrants, and other instruments for the payment of money in its name and on its behalf, and full discharge for the same to give. The funds of the corporation shall be deposited in its name in such depositories as may be designated from time to time by the Board of Directors, or by the Treasurer if the Board of Directors shall authorize him to do so. All checks, drafts and other instruments for the payment of money, and all notes and other evidences of indebtedness, issued in the name of the corporation, shall be signed by such officer or officers, employee or employees, agent or agents, of the corporation, and in such manner, including the use of facsimile signatures, as shall be determined from time to time by the Board of Directors, or by the Treasurer if the Board of Directors shall authorize him to make such determination. A report of the financial condition of the corporation shall be made by the Treasurer whenever requested by the chief executive officer. If required by the Board of Directors he shall give bond for the faithful performance of his duties, in such sum and with such surety or sureties as the Board of Directors may determine. ARTICLE VIII. ASSISTANT TREASURERS SECTION 1. Each Assistant Treasurer shall have such powers and perform such duties as may be assigned to him by the Treasurer. In the absence of the Treasurer, the Assistant Treasurers, in the order designated by the Treasurer, shall have the powers and perform the duties of the Treasurer. ARTICLE IX. MEETINGS SECTION 1. The meetings of the stockholders shall, unless otherwise provided by law, be held at such place, within or without the State of New Jersey, as may be fixed by the Board of Directors and stated in the notice of the meeting. Each annual meeting of the stockholders for the election of directors for the ensuing year, and for the transaction of such other business as may be brought before the meeting, shall be held at such time, not more than 13 months after the last annual meeting, as may be fixed by the Board of Directors. SECTION 2. Except as herein or in the Restated Certificate of Incorporation expressly provided to the contrary or as otherwise required by law, all voting rights in the corporation shall be vested exclusively in the holders of Common Stock, and the holders of Preferred Stock and the holders of Preferred Stock-$25 Par shall have no right to vote or to participate in any meeting of the stockholders of the corporation or to receive any notice of any such meeting. Except as herein or in the Restated Certificate of Incorporation expressly provided to the contrary or as otherwise required by law, at all meetings of stockholders the holders of Common Stock shall be entitled to cast one vote for each share of Common Stock held. At any meeting of the stockholders of the corporation at which the holders of Preferred Stock and the holders of Preferred Stock-$25 Par shall be entitled to vote as a single class, the holders of Preferred stock shall be entitled to cast one vote for each share of Preferred Stock held and the holders of Preferred Stock-$25 Par shall be entitled to cast 1/4 vote for each Preferred Stock-$25 Par held. At all elections of directors each holder of Common Stock shall be entitled to as many votes as shall equal the number of his shares of Common Stock multiplied by the number of directors to be elected, and, in each case, the stockholder may cast all such votes for a single director or may distribute them among the number to be voted for, or any two or more of them as he may see fit; provided that whenever the holders of Preferred Stock and the holders of Preferred Stock-$25 Par, voting separately as a single class, are entitled to elect directors, (i) each holder of Preferred Stock shall be entitled to as many votes as shall equal the numbers of his shares of stock, and each holder of Preferred Stock-$25 Par shall be entitled to as many votes as shall equal one-fourth the number of his shares of stock, in each case multiplied by the number of directors to be elected by the holders of Preferred Stock and the holders of Preferred Stock-$25 Par, and (ii) each holder of Common Stock shall be entitled to as many votes as shall equal the number of his shares of stock, multiplied by the number of directors to be elected by the holders of Common Stock. SECTION 3. So long as any Preferred Stock or Preferred Stock-$25 Par shall be outstanding, if dividends upon any shares of Preferred Stock-$25 Par shall be in arrears to an amount equal to the annual dividend thereon, the holders of Preferred Stock and the holders of Preferred Stock-$25 Par shall become entitled, to the extent, herein provided, to vote at all elections of directors for the corporation and to receive notice of stockholders' meetings to be held for such purpose. Such voting rights of the holders of Preferred Stock and the holders of Preferred Stock-$25 Par to elect directors shall continue until all the accumulated and unpaid dividends on Preferred Stock and Preferred Stock-$25 Par shall have been paid, whereupon all such voting rights shall cease, subject to being again revived from time to time upon the recurrence of the conditions described above as giving rise thereto. SECTION 4. Every stockholder entitled to vote at a meeting of stockholders or to express consent or dissent without a meeting may authorize another person or persons to act for him by proxy. No proxy shall be valid after 11 months from the date of its execution, unless a longer time is expressly provided therein, but in no event shall a proxy be valid after three years from the date of execution. A proxy shall not be revoked by the death or incapacity of a stockholder but shall continue in force until revoked by the personal representative or guardian of the stockholder. The presence at any meeting of any stockholder who has given a proxy shall not revoke such proxy unless the stockholder shall file written notice of such revocation with the secretary of the meeting prior to the voting of such proxy. A person named in a proxy as the attorney or agent of a stockholder may, if the proxy so provides, substitute another person to act in his place, including any other person named as an attorney or agent in the same proxy. The substitution shall not be effective until an instrument effecting it is filed with the Secretary. SECTION 5. All elections for directors shall be by ballot, and the polls at every such election shall remain open so long as may be reasonably necessary to permit all stockholders entitled to vote at such meeting, present in person or by proxy, to cast their votes. SECTION 6. Special meetings of the stockholders may be called at any time by the Board of Directors or by the chief executive officer or upon the written request of the holders of the capital stock entitled to cast a majority of votes thereat. Except as otherwise provided by law, and unless waived, written notice of the time, place and purposes of every meeting of stockholders shall be given not less than 10 nor more than 60 days before the date of the meeting, to each stockholder of record entitled to vote at the meeting, either personally or by mailing a notice to him at his last post office address appearing on the books of the corporation. At any time after the accrual to the holders of Preferred Stock and the holders of Preferred Stock-$25 Par of voting rights to elect directors, a special meeting of the stockholders for the purpose of electing directors shall be held upon not less than 30 days' notice upon call of the Secretary at the written request of any holder of shares of Preferred Stock or Preferred Stock-$25 Par at the time outstanding, or, if the Secretary should fail or neglect to call such meeting within 30 days after receipt of such request, then upon call by any such holder. SECTION 7. At any meeting of the stockholders the holders of stock entitled to cast a majority of the votes at the meeting, present in person or by proxy, shall constitute a quorum of the stockholders for all purposes unless the representation of a larger number shall be required by law, and in that case the representation of the number so required shall constitute a quorum. If the holders of the amount of stock necessary to constitute a quorum shall fail to attend in person or by proxy at the time and place fixed for any meeting of the stockholders, the meeting may be adjourned from time to time by the vote of the majority of the votes cast by the holders of stock present in person or represented by proxy at such meeting, without notice other than by announcement at the meeting, and at any such adjourned meeting held more than one week after such time the holders of stock entitled to cast 40% of the votes at such meeting, present in person or represented by proxy, shall constitute a quorum of the stockholders for all purposes unless the representation of a larger number shall be required by law, and in that case the representation of the number so required shall constitute a quorum. At any such adjourned meeting, whenever held, at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting originally called. In any case where the holders of Preferred Stock and the holders of Preferred Stock-$25 Par are entitled to vote separately as a single class, or the holders of Common Stock are entitled to vote separately as a single class; meetings of each such class may be held and adjourned (by the vote of a majority of the votes cast by the holders of stock of such class present in person or represented by proxy at such meeting) without notice other than by announcement at the meeting, separately or together, and a quorum of each such class at any meeting or adjourned meeting thereof shall be the same percentage of the votes entitled to be cast by the stockholders of such class as is hereinabove required for a quorum of stockholders of the corporation entitled to vote at a meeting or adjourned meeting as the case may be. SECTION 8. Regular meetings of the Board of Directors shall be held monthly unless otherwise determined by resolution of the Board. Special meetings of the Board of Directors may be called at any time by the Chairman of the Board, or by the President if he be the chief executive officer. The Secretary shall also call such meetings on the written request on a majority of the directors. No notice shall be required for regular meetings of the Board of Directors. The meeting for organization may be held on the day and after the annual meeting of stockholders. At least two days' notice of a special meeting of the Board of Directors shall be given, but this notice may be waived in writing or by telegraph, either before or after the meeting. A meeting may be held without notice at any time when all the directors are present. At all meetings of the Board of Directors a majority of the directors in office, or one-third of the entire Board, whichever is greater, shall constitute a quorum for the transaction of business. A less number than a quorum, however, may meet and adjourn to any day. SECTION 9. The Board of Directors may, in advance of any meeting of stockholders, appoint one or more inspectors to act at the meeting or any adjournment thereof. If inspectors are not so appointed by the Board of Directors or shall fail to qualify, the person presiding at a meeting of stockholders may, and on the request of any stockholder entitled to vote thereat, shall make such appointment. In case any person appointed as inspector fails to appear or act, the vacancy may be filled by appointment made by the Board of Directors in advance of the meeting of stockholders or at the meeting by the person presiding at the meeting. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his ability. No person shall be elected a director at a meeting at which he has served as an inspector. ARTICLE X. RECORD DATE FOR DETERMINATION OF RIGHT OF STOCKHOLDERS SECTION 1. For the purpose of determining the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to or dissent from any proposal without a meeting, or for the purpose of determining stockholders entitled to receive payment of any dividend or allotment of any right, or for the purpose of any other action, the Board of Directors may fix, in advance, a date as the record date for any such determination of stockholders. Such date shall not be more than 60 nor less than 10 days before the date of such meeting, nor more than 60 days prior to any other action. When a determination of stockholders entitled to notice of or to vote at any meeting of stockholders has been so made, such determination shall apply to any adjournment thereof, unless the Board of Directors fixes a new record date for the adjourned meeting. ARTICLE XI. COMMITTEES SECTION 1. The Board of Directors, by resolution adopted by a majority of the entire Board, may appoint from among its members an Executive Committee and one or more other committees. Except as otherwise provided by law, the Executive Committee shall have and may exercise all the authority of the Board of Directors when the Board is not in session, and each such other committee of the Board shall have and may exercise the authority of the Board to the extent provided in the resolution of appointment. The Board of Directors, by resolution adopted by a majority of the entire Board, may (a) fill any vacancy in any committee of the Board, (b) appoint one or more directors to serve as alternate members of any such committee, to act in the absence or disability of members of any such committee with all the powers of such absent or disabled members, (c) abolish any such committee at its pleasure, and (d) remove any director from membership on such committee at any time, with or without cause. Actions taken at a meeting of any committee of the Board of Directors shall be reported to the Board at its next meeting following such committee meeting; except that, when the meeting of the Board is held within two days after the committee meeting, such report shall, if not made at the first meeting, be made to the Board at its second meeting following such committee meeting. SECTION 2. The Board of Directors may appoint and prescribe the powers duties of other committees, the members of which may be but need not be directors and shall serve at the pleasure of the Board. SECTION 3. One-third of the entire committee, or two members, whichever is greater, shall constitute a quorum for the transaction of business. SECTION 4. Each committee shall fix its own rules of procedure, shall meet where and as provided by such rules of procedure or by resolution of the Board of Directors, shall keep full records of its proceedings and shall report from time to time to the Board, as called upon by the Board. ARTICLE XII. VOTING UPON STOCK OWNED BY THE CORPORATION SECTION 1. Unless otherwise ordered by the Board of Directors, the Chairman of the Board, the President, the Senior Executive Vice Presidents, the Executive Vice Presidents, the Senior Vice Presidents, and the Vice Presidents, severally, shall each have full power and authority on behalf of the corporation to attend, act, and vote at any meeting of the stockholders of any corporation in which this corporation may hold stock, and to appoint one or more other persons as proxy or proxies to attend, act, and vote at any such meeting, and such office or such proxy or proxies shall possess and may exercise on behalf of this corporation any and all rights and powers incident to its ownership of such stock. The Board of Directors or the Executive Committee from time to time by resolution may confer like powers upon any other person or persons. ARTICLE XIII. STOCK SECTION 1. The certificates which shall be issued for shares of stock in this corporation shall be signed by the Chairman of the Board, the President, or a Vice President, and either the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary. If the certificate is countersigned by a transfer agent or registrar, who is not an officer or employee of the corporation, any and all other signatures may be facsimiles. SECTION 2. The shares issued by this corporation shall be transferable only on the books of the corporation by the holder or owner thereof in person or by power of attorney, on surrender of the certificate therefor. SECTION 3. The Treasurer shall make and certify a complete list of the stockholders entitled to vote at a meeting of stockholders or any adjournment thereof. Such list shall be arranged alphabetically within each class and series, with the address of, and the number of shares held by, each stockholder, shall be produced at the time and the place of the meeting, and shall be subject to the inspection of any stockholder during the whole time of the meeting. ARTICLE XIV. FISCAL YEAR SECTION 1. The fiscal year of the corporation shall begin on January 1 of each year. ARTICLE XV. SEAL SECTION 1. The seal of the corporation shall be circular in form, and shall have inscribed thereon the following words and figures "PUBLIC SERVICE ELECTRIC AND GAS COMPANY INCORPORATED 1924". ARTICLE XVI. AMENDMENTS SECTION 1. Except as otherwise provided by law, the Board of Directors shall have the power to make, alter, or repeal any by-laws. By-Laws made by the Board may be altered or repealed and new by-laws made, by the stockholders. ARTICLE XVII. ADVANCEMENT OF EXPENSES SECTION 1. Expenses incurred by any person made, or threatened to be made, a party to any pending, threatened or completed civil, criminal, administrative or arbitrative action, suit or proceeding and any appeal therein (and any inquiry or investigation which could lead to such action, suit or proceeding) by reason of the fact that he is or was a director, officer or employee of the corporation or serves or served any other enterprise as a director, officer or employee at the request of the corporation, shall be paid by the corporation in advance of the final disposition of the action, suit or proceeding promptly upon receipt of an undertaking by or on behalf of such person to repay such amount if it shall ultimately be determined that such person is not entitled to be indemnified by the corporation. EX-12 3 0003.txt PSEG COMPUTATION OF RATIOS
EXHIBIT 12 - -------------------------------------------------------------------------------------------------------------------------- PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED - -------------------------------------------------------------------------------------------------------------------------- COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES 12 Months Ended YEARS ENDED DECEMBER 31, June 30, ------------- ------------ ------------- ------------ ------------ ----------- 1995 1996 1997 1998 1999 2000 ------------- ------------ ------------- ------------ ------------ ----------- Earnings as Defined in Regulation S-K (A): Income from Continuing Operations (B) $627 $588 $560 $644 $723 $766 Income Taxes (C) 348 297 284 428 563 579 Fixed Charges 549 527 543 577 615 664 ------------- ------------ ------------- ------------ ----------- ----------- Earnings $1,524 $1,412 $1,387 $1,649 $1,901 $2,009 ============= ============ ============= ============ =========== =========== Fixed Charges as Defined in Regulation S-K (D): Total Interest Expense (E) $464 $453 $470 $481 $506 $560 Interest Factor in Rentals 12 12 11 11 10 10 Subsidiaries' Preferred Securities Dividend Requirements 16 28 44 71 85 80 Preferred Stock Dividends 34 22 12 9 9 9 Adjustment to Preferred Stock Dividends to state on a pre-income tax basis 23 12 6 5 5 5 ------------- ------------ ------------- ------------ ----------- ----------- Total Fixed Charges $549 $527 $543 $577 $615 $664 ============= ============ ============= ============ =========== =========== Ratio of Earnings to Fixed Charges 2.78 2.68 2.55 2.86 3.09 3.03 ============= ============ ============= ============ =========== =========== (A) The term "earnings" shall be defined as pretax income from continuing operations. Add to pretax income the amount of fixed charges adjusted to exclude (a) the amount of any interest capitalized during the period and (b) the actual amount of any preferred stock dividend requirements of majority-owned subsidiaries which were included in such fixed charges amount but not deducted in the determination of pretax income. (B) Excludes income from discontinued operations and extraordinary item. (C) Includes State income taxes and Federal income taxes for other income and excludes taxes applicable to extraordinary item. (D) 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 and preferred stock dividends, increased to reflect the pre-tax earnings requirement for Public Service Enterprise Group Incorporated. (E) Excludes interest expense from discontinued operations.
EX-12.A 4 0004.txt PSE&G COMPUTATION OF RATIOS
EXHIBIT 12 (A) - ---------------------------------------------------------------------------------------------------------------------------- PUBLIC SERVICE ELECTRIC AND GAS COMPANY - ---------------------------------------------------------------------------------------------------------------------------- COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES 12 Months Ended YEARS ENDED DECEMBER 31, June 30, ----------- ------------ ------------- ------------ ------------ ---------- 1995 1996 1997 1998 1999 2000 ----------- ------------ ------------- ------------ ------------ ---------- Earnings as Defined in Regulation S-K (A): Net Income (B) $617 $535 $528 $602 $653 $726 Income Taxes (C) 326 268 256 404 510 546 Fixed Charges 419 438 450 446 450 458 ----------- ------------ ------------- ------------ ------------ ----------- Earnings $1,362 $1,241 $1,234 $1,452 $1,613 $1,730 =========== ============ ============= ============ ============ =========== Fixed Charges as Defined in Regulation S-K (D): Total Interest Expense $407 $399 $395 $390 $394 $402 Interest Factor in Rentals 12 11 11 11 10 10 Subsidiaries' Preferred Securities Dividend Requirements -- 28 44 45 46 46 ----------- ------------ ------------- ------------ ------------ ----------- Total Fixed Charges $419 $438 $450 $446 $450 $458 =========== ============ ============= ============ ============ =========== Ratio of Earnings to Fixed Charges 3.25 2.83 2.74 3.27 3.58 3.78 =========== ============ ============= ============ ============ =========== (A) The term "earnings" shall be defined as pretax income from continuing operations. Add to pretax income the amount of fixed charges adjusted to exclude (a) the amount of any interest capitalized during the period and (b) the actual amount of any preferred stock dividend requirements of majority-owned subsidiaries which were included in such fixed charges amount but not deducted in the determination of pretax income. (B) Excludes extraordinary item. (C) Includes State income taxes and Federal income taxes for other income and excludes taxes applicable to extraordinary item. (D) 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.
EX-12.B 5 0005.txt PSE&G COMPUTATION OF RATIOS
EXHIBIT 12 (B) - ----------------------------------------------------------------------------------------------------------------------------- PUBLIC SERVICE ELECTRIC AND GAS COMPANY - ----------------------------------------------------------------------------------------------------------------------------- COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES PLUS PREFERRED STOCK DIVIDEND REQUIREMENTS 12 Months Ended YEARS ENDED DECEMBER 31, June 30, ------------ ------------- ------------ ------------ ------------- ------------ 1995 1996 1997 1998 1999 2000 ------------ ------------- ------------ ------------ ------------- ------------ Earnings as Defined in Regulation S-K (A): Net Income (B) $617 $535 $528 $602 $653 $726 Income Taxes (C) 326 268 256 404 510 546 Fixed Charges 419 438 450 446 450 458 ------------ ------------- ------------ ------------ ------------- ------------- Earnings $1,362 $1,241 $1,234 $1,452 $1,613 $1,730 ============ ============= ============ ============ ============= ============ Fixed Charges as Defined in Regulation S-K (D): Total Interest Expense $407 $399 $395 $390 $394 $402 Interest Factor in Rentals 12 11 11 11 10 10 Subsidiaries' Preferred Securities Dividend Requirements -- 28 44 45 46 46 Preferred Stock Dividends 49 23 12 9 9 9 Adjustment to Preferred Stock Dividends to state on a pre-income Tax basis 24 12 6 6 7 7 ------------ ------------- ------------ ------------ ------------- ------------ Total Fixed Charges $492 $473 $468 $461 $466 $474 ============ ============= ============ ============ ============= ============ Ratio of Earnings to Fixed Charges 2.77 2.62 2.64 3.15 3.46 3.65 ============ ============= ============ ============ ============= ============ (A) The term "earnings" shall be defined as pretax income from continuing operations. Add to pretax income the amount of fixed charges adjusted to exclude (a) the amount of any interest capitalized during the period and (b) the actual amount of any preferred stock dividend requirements of majority-owned subsidiaries which were included in such fixed charges amount but not deducted in the determination of pretax income. (B) Excludes extraordinary item. (C) Includes State income taxes and Federal income taxes for other income and excludes taxes applicable to extraordinary item. (D) 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 and preferred stock dividends, increased to reflect the pre-tax earnings requirement for Public Service Electric and Gas Company.
EX-12.C 6 0006.txt PSEG ENERGY HOLDINGS INC. COMPUTATION OF RATIOS
EXHIBIT 12(C) - -------------------------------------------------------------------------------------------------------------------------- PSEG ENERGY HOLDINGS INCORPORATED - -------------------------------------------------------------------------------------------------------------------------- COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES 6 Months Ended YEARS ENDED DECEMBER 31, June 30, ------------- ------------ ------------- ------------ ------------ ----------- 1995 1996 1997 1998 1999 2000 ------------- ------------ ------------- ------------ ------------ ----------- Earnings as Defined in Regulation S-K (A): Income from Continuing Operations $71 $73 $73 $98 $176 $44 (Income)/Loss from equity investees net of distributions 13 50 (35) 30 9 (7) Fixed Charges 60 61 79 94 106 81 Amortization of capitalized interest 0 0 0 0 0 0 Capitalized interest (2) (1) (5) (1) (8) (8) ------------- ------------ ------------- ------------ ----------- ----------- Earnings $142 $183 $113 $221 $282 $111 ============= ============ ============= ============ =========== =========== Fixed Charges as Defined in Regulation S-K (B): Total Interest Expense $59 $60 $77 $92 $103 $80 Interest in rental expense 1 1 2 2 3 1 ------------- ------------ ------------- ------------ ----------- ----------- Total Fixed Charges $60 $61 $79 $94 $106 $81 ============= ============ ============= ============ =========== =========== Ratio of Earnings to Fixed Charges 2.38 3.01 1.42 2.35 2.66 1.37 ============= ============ ============= ============ =========== =========== (A) The term "earnings" shall be defined as pretax income from continuing operations before adjustment for minority interests or income or loss from equity investees. Add fixed charges adjusted to exclude (a) the amount of any interest capitalized during the period and (b) amortization of capitalized interest and (c) distributed income of equity investees. From the total, subtract interest capitalized. (B) Fixed Charges represent (a) interest, whether expensed or capitalized, (b) amortization of debt discount, premium and expense, and (c) an estimate of interest implicit in rentals.
EX-27.A 7 0007.txt FDS PSEG
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. 0000788784 PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED 1000000 6-MOS DEC-31-1999 JAN-01-2000 JUN-30-2000 PER-BOOK 7,217 5,047 2,341 5,342 0 19,632 2,935 0 1,371 4,123 1,113 95 4,417 0 0 2,367 778 0 52 2 6,685 19,632 3,445 280 2,449 2,729 716 17 733 321 412 47 412 234 149 658 1.91 1.91 Includes Treasury Stock of ($669). Includes Foreign Currency Translation Adjustment of ($180). Federal and State Income Taxes are included in this line item for FDS purposes. Total interest expense includes Preferred Securities Dividends Requirements.
EX-27.B 8 0008.txt 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. 0000081033 PUBLIC SERVICE ELECTRIC AND GAS COMPANY 1000000 6-MOS DEC-31-1999 JAN-01-2000 JUN-30-2000 PER-BOOK 6,902 875 1,952 5,165 0 14,894 2,563 594 660 3,814 588 95 3,101 0 0 1,782 0 0 52 2 5,460 14,894 3,066 276 2,183 2,459 607 12 619 217 402 5 397 339 149 658 0 0 Federal and State Income Taxes are included in this line item for FDS purposes. Total interest expense includes Preferred Securities Dividend Requirements.
EX-27.C 9 0009.txt PSEG ENERGY HOLDINGS INC.
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. 1089206 PSEG ENERGY HOLDINGS INCORPORATED 1000000 6-MOS DEC-31-1999 JAN-01-2000 JUN-30-2000 PER-BOOK 101 3,857 272 21 61 4,313 0 790 291 1,081 0 509 1,316 0 0 0 203 0 0 0 1,203 4,313 379 13 265 278 114 1 116 72 32 13 19 0 0 19 0 0
-----END PRIVACY-ENHANCED MESSAGE-----