-----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, OG90bS9mk4dRPFeK4pnDP2x4CUjAKdt2GMeTqktLFB4gWslXEma8XrM99M4m3tMc RIxpv95tvz+zuYHs4PyaPA== 0000788784-96-000038.txt : 19961118 0000788784-96-000038.hdr.sgml : 19961118 ACCESSION NUMBER: 0000788784-96-000038 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 SROS: NYSE SROS: PHLX FILER: COMPANY DATA: COMPANY CONFORMED NAME: PUBLIC SERVICE ENTERPRISE GROUP INC CENTRAL INDEX KEY: 0000788784 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 222625848 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09120 FILM NUMBER: 96666277 BUSINESS ADDRESS: STREET 1: 80 PARK PLZ STREET 2: P O BOX 1171 CITY: NEWARK STATE: NJ ZIP: 07101 BUSINESS PHONE: 2014307000 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PUBLIC SERVICE ELECTRIC & GAS CO CENTRAL INDEX KEY: 0000081033 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 221212800 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-00973 FILM NUMBER: 96666278 BUSINESS ADDRESS: STREET 1: 80 PARK PLZ STREET 2: PO BOX 570 CITY: NEWARK STATE: NJ ZIP: 07101 BUSINESS PHONE: 2014307000 10-Q 1 FORM 10-Q ================================================================================ 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 September 30, 1996 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 Number Address, and Telephone Number Identification No. - ------------ ---------------------------------------------- ------------------ 1-9120 PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED 22-2625848 (A New Jersey Corporation) 80 Park Plaza P.O. Box 1171 Newark, New Jersey 07101-1171 201 430-7000 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 201 430-7000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No The number of shares outstanding of Public Service Enterprise Group Incorporated's sole class of common stock, as of the latest practicable date, was as follows: Class: Common Stock, without par value Outstanding at October 31, 1996: 238,441,989 As of October 31, 1996, Public Service Electric and Gas Company had issued and outstanding 132,450,344 shares of common stock, without nominal or par value, all of which were privately held, beneficially and of record by Public Service Enterprise Group Incorporated. ================================================================================ TABLE OF CONTENTS - -------------------------------------------------------------------------------- Page ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Public Service Enterprise Group Incorporated (Enterprise): Consolidated Statements of Income for the Three, Nine and Twelve Months Ended September 30, 1996 and 1995.................. 1 Consolidated Balance Sheets as of September 30, 1996, 1995 and December 31, 1995............................................ 2 Consolidated Statements of Cash Flows for the Nine and Twelve Months Ended September 30, 1996 and 1995.................. 4 Consolidated Statements of Retained Earnings for the Three, Nine and Twelve Months Ended September 30, 1996 and 1995......... 5 Public Service Electric and Gas Company (PSE&G): Consolidated Statements of Income for the Three, Nine and Twelve Months Ended September 30, 1996 and 1995.................. 6 Consolidated Balance Sheets as of September 30, 1996, 1995 and December 31, 1995............................................ 7 Consolidated Statements of Cash Flows for the Nine and Twelve Months Ended September 30, 1996 and 1995.................. 9 Consolidated Statements of Retained Earnings for the Three, Nine and Twelve Months Ended September 30, 1996 and 1995......... 10 Notes to Consolidated Financial Statements - Enterprise............ 11 Notes to Consolidated Financial Statements - PSE&G................. 17 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Enterprise...................................................... 18 PSE&G ......................................................... 25 PART II. OTHER INFORMATION Item 1. Legal Proceedings........................................ 26 Item 5. Other Information........................................ 27 Item 6. Exhibits and Reports on Form 8-K......................... 29 Signatures - Public Service Enterprise Group Incorporated......... 29 Signatures - Public Service Electric and Gas Company.............. 29 ii
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED PART I. FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF INCOME (Thousands of Dollars) Three Months Ended Nine Months Ended Twelve Months Ended September 30, September 30, September 30, ---------------------------------------------------------------------------- 1996 1995 1996 1995 1996 1995 ----------- ----------- ----------- ----------- ----------- ----------- OPERATING REVENUES: Electric ..................................... $ 1,054,599 $ 1,179,373 $ 3,000,895 $ 3,090,656 $ 3,931,081 $ 3,961,985 Gas .......................................... 214,848 201,631 1,309,438 1,105,299 1,890,542 1,594,157 Nonutility Activities ........................ 64,510 51,844 156,761 141,095 202,083 200,912 ----------- ----------- ----------- ----------- ----------- ----------- Total Operating Revenues ................ 1,333,957 1,432,848 4,467,094 4,337,050 6,023,706 5,757,054 OPERATING EXPENSES: Operation: Fuel for Electric Generation and Interchanged Power ......................... 253,880 264,599 685,927 682,923 894,786 863,851 Gas Purchased and Materials for Gas Produced ................................... 140,085 115,336 783,321 625,540 1,119,320 900,231 Other ........................................ 238,969 249,309 748,741 722,547 1,033,928 1,045,418 Maintenance .................................... 62,450 76,205 245,106 208,288 349,428 293,809 Depreciation and Amortization .................. 150,861 147,896 454,374 442,185 609,155 583,957 Taxes: Federal Income Taxes ......................... 69,846 112,010 224,041 276,645 285,362 304,174 New Jersey Gross Receipts Taxes .............. 132,922 139,363 452,337 455,426 609,872 585,454 Other ........................................ 21,921 20,793 67,808 64,015 80,706 82,112 ----------- ----------- ----------- ----------- ----------- ----------- Total Operating Expenses ................ 1,070,934 1,125,511 3,661,655 3,477,569 4,982,557 4,659,006 ----------- ----------- ----------- ----------- ----------- ----------- OPERATING INCOME ............................... 263,023 307,337 805,439 859,481 1,041,149 1,098,048 OTHER INCOME: Allowance for Funds Used During Construction - Equity ...................... -- 1,329 -- 4,598 726 11,901 Miscellaneous - net .......................... (1,922) 3,047 570 6,603 2,007 8,356 ----------- ----------- ----------- ----------- ----------- ----------- Total Other Income ...................... (1,922) 4,376 570 11,201 2,733 20,257 ----------- ----------- ----------- ----------- ----------- ----------- INCOME BEFORE INTEREST CHARGES AND DIVIDENDS ON PREFERRED SECURITIES ........................ 261,101 311,713 806,009 870,682 1,043,882 1,118,305 INTEREST CHARGES: Long-Term Debt ............................... 95,653 98,610 288,180 304,229 386,165 410,552 Short-Term Debt .............................. 8,661 10,814 27,181 23,233 36,770 30,208 Other ........................................ 8,540 8,825 24,054 22,658 30,568 27,713 ----------- ----------- ----------- ----------- ----------- ----------- Total Interest Charges .................. 112,854 118,249 339,415 350,120 453,503 468,473 Allowance for Funds Used During Construction - Debt and Capitalized Interest .............. (4,331) (7,726) (12,799) (27,924) (17,715) (37,945) ----------- ----------- ----------- ----------- ----------- ----------- Net Interest Charges .................... 108,523 110,523 326,616 322,196 435,788 430,528 Preferred Securities Dividend Requirements ..... 13,229 12,233 37,649 36,627 50,448 48,206 Preferred Stock Redemption Premium ............. -- -- 18,493 -- 18,019 -- ----------- ----------- ----------- ----------- ----------- ----------- INCOME FROM CONTINUING OPERATIONS .............. 139,349 188,957 460,237 511,859 575,665 639,571 Discontinued Operations: (See Note 2) Income (Loss) From Operations - Net of Taxes ...................................... 2,992 (2,175) 10,746 (1,818) 47,600 2,313 Gain on Disposal of EDC - Net of Taxes (of $36,610) ............................... 13,492 -- 13,492 -- 13,492 -- ----------- ----------- ----------- ----------- ----------- ----------- NET INCOME .............................. $ 155,833 $ 186,782 $ 484,475 $ 510,041 $ 636,757 $ 641,884 =========== =========== =========== =========== =========== =========== SHARES OF COMMON STOCK OUTSTANDING: End of Period ................................ 240,834,130 244,697,930 240,834,130 244,697,930 240,834,130 244,697,930 Average for Period ........................... 243,114,349 244,697,930 244,166,217 244,697,930 244,299,871 244,697,930 EARNINGS PER AVERAGE SHARE: Income From Continuing Operations ............ $ 0.57 $ 0.77 $ 1.88 $ 2.09 $ 2.36 $ 2.61 Income (Loss) From Discontinued Operations ... 0.01 (0.01) 0.04 (0.01) 0.19 0.01 Gain on Disposal of Discontinued Operations .. 0.06 -- 0.06 -- 0.06 -- ----------- ----------- ----------- ----------- ----------- ----------- NET INCOME .............................. $ 0.64 $ 0.76 $ 1.98 $ 2.08 $ 2.61 $ 2.62 =========== =========== =========== =========== =========== =========== DIVIDENDS PAID PER SHARE OF COMMON STOCK ....... $ 0.54 $ 0.54 $ 1.62 $ 1.62 $ 2.16 $ 2.16 =========== =========== =========== =========== =========== =========== See Notes to Consolidated Financial Statements.
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED CONSOLIDATED BALANCE SHEETS (Thousands of Dollars) September 30, September 30, December 31, ASSETS 1996 1995 1995 ---------------- ---------------- ---------------- UTILITY PLANT - Original cost: Electric ..................................................... $ 13,291,672 $ 12,983,167 $ 13,095,103 Gas .......................................................... 2,520,555 2,413,673 2,442,572 Common ....................................................... 532,763 531,024 517,104 ---------------- ---------------- ---------------- Total ................................................... 16,344,990 15,927,864 16,054,779 Less: Accumulated Depreciation and Amortization .............. 5,823,881 5,324,903 5,440,414 ---------------- ---------------- ---------------- Net ..................................................... 10,521,109 10,602,961 10,614,365 Nuclear Fuel in Service, net of accumulated amortization - $289,198, $345,412 and $297,435, respectively .............. 189,735 162,776 180,018 ---------------- ---------------- ---------------- Net Utility Plant in Service ............................ 10,710,844 10,765,737 10,794,383 Construction Work in Progress, including Nuclear Fuel in Process - $85,290, $122,368 and $104,743, respectively ..... 433,133 367,566 369,082 Plant Held for Future Use .................................... 23,966 23,966 23,966 ---------------- ---------------- ---------------- Net Utility Plant ....................................... 11,167,943 11,157,269 11,187,431 ---------------- ---------------- ---------------- INVESTMENTS AND OTHER NONCURRENT ASSETS: Long-Term Investments, net of accumulated amortization - $11,275, $4,585 and $6,009, respectively ..................... 1,889,840 1,757,811 1,808,368 Real Estate Property and Equipment, net of accumulated depreciation - $5,897, $5,151 and $6,267, respectively ....... 66,266 90,372 89,350 Other Plant, net of accumulated depreciation and amortization - $7,348, $6,128 and $6,531, respectively .................... 39,086 28,202 27,997 Nuclear Decommissioning and Other Special Funds ............... 342,956 292,405 313,178 Other Assets - net ............................................ 7,501 8,777 3,241 ---------------- ---------------- ---------------- Total Investments and Other Noncurrent Assets ........... 2,345,649 2,177,567 2,242,134 ---------------- ---------------- ---------------- CURRENT ASSETS: Cash and Cash Equivalents .................................... 454,216 64,821 61,964 Accounts Receivable: Customer Accounts Receivable ............................... 437,187 405,555 525,404 Other Accounts Receivable .................................. 160,565 156,529 200,693 Less: Allowance for Doubtful Accounts 37,427 38,578 37,641 Unbilled Revenues ............................................ 159,871 127,590 246,876 Fuel, at average cost ........................................ 305,600 311,776 253,360 Materials and Supplies, net of inventory valuation reserves - $17,761, $18,200 and $20,100, respectively ................. 148,245 143,689 143,741 Prepaid Gross Receipts Taxes - net ........................... 146,406 165,342 -- Deferred Income Taxes ........................................ 25,952 27,489 27,571 Miscellaneous Current Assets ................................. 48,036 46,800 40,464 Net Assets of Discontinued Operations ........................ -- 341,284 365,905 ---------------- ---------------- ---------------- Total Current Assets .................................... 1,848,651 1,752,297 1,828,337 ---------------- ---------------- ---------------- DEFERRED DEBITS: Property Abandonments - net .................................. 56,279 74,742 70,120 Oil and Gas Property Write-Down .............................. 32,213 37,367 36,078 Unamortized Debt Expense ..................................... 141,893 126,275 123,833 Deferred OPEB Costs .......................................... 233,159 174,706 167,189 Underrecovered Electric Energy and Gas Costs - net ........... 203,306 173,270 170,565 Unrecovered Environmental Costs (Note 4) ..................... 122,358 132,634 130,070 Unrecovered Plant and Regulatory Study Costs ................. 34,357 35,285 35,150 Unrecovered SFAS 109 Deferred Income Taxes ................... 763,243 778,642 769,136 Deferred Decontamination and Decommissioning Costs ........... 46,554 49,742 49,872 Other ........................................................ 42,755 9,313 5,826 ---------------- ---------------- ---------------- Total Deferred Debits ................................... 1,676,117 1,591,976 1,557,839 ---------------- ---------------- ---------------- Total ........................... $ 17,038,360 $ 16,679,109 $ 16,815,741 ================ ================ ================ See Notes to Consolidated Financial Statements.
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED CONSOLIDATED BALANCE SHEETS (Thousands of Dollars) September 30, September 30, December 31, CAPITALIZATION AND LIABILITIES 1996 1995 1995 ---------------- --------------- --------------- CAPITALIZATION: Common Equity: Common Stock ...................................................... $ 3,741,152 $ 3,801,157 $ 3,801,157 Retained Earnings ................................................. 1,674,690 1,616,077 1,636,222 ---------------- --------------- --------------- Total Common Equity ............................................ 5,415,842 5,417,234 5,437,379 Subsidiaries' Preferred Securities: Preferred Stock Without Mandatory Redemption ...................... 113,392 384,994 324,994 Preferred Stock With Mandatory Redemption ......................... 150,000 150,000 150,000 Company-Obligated Mandatorily Redeemable Preferred Securities of a Partnership holding solely PSE&G Debentures .................. 210,000 210,000 210,000 Company-Obligated Mandatorily Redeemable Preferred Securities of of a Subsidiary Trust holding solely PSE&G Debentures (QUIPS) ... 208,000 -- -- Long-Term Debt ...................................................... 4,796,539 5,182,453 5,189,791 ---------------- --------------- --------------- Total Capitalization ........................................... 10,893,773 11,344,681 11,312,164 ---------------- --------------- --------------- OTHER LONG-TERM LIABILITIES: Decontamination, Decommissioning, and Low Level Radwaste Costs ............................................................. 46,631 55,630 50,449 Environmental Costs (Note 4)......................................... 87,269 103,412 96,272 Capital Lease Obligations ........................................... 52,564 53,283 53,111 ---------------- --------------- --------------- Total Other Long-Term Liabilities .............................. 186,464 212,325 199,832 ---------------- --------------- --------------- CURRENT LIABILITIES: Long-Term Debt due within one year .................................. 389,475 2,000 61,060 Commercial Paper and Loans .......................................... 643,691 633,283 567,316 Book Overdrafts ..................................................... 135,445 61,655 70,014 Accounts Payable .................................................... 445,589 381,863 549,593 Other Taxes Accrued ................................................. 78,493 59,995 30,816 Interest Accrued .................................................... 104,012 119,736 108,245 Provision for Rate Refunds ..................................... 101,210 18,310 13,810 Estimated Liability for Vacation Pay ................................ 28,168 32,235 17,089 Customer Deposits ................................................... 32,276 32,810 32,785 Liability for Injuries and Damages .................................. 32,304 36,090 38,141 Miscellaneous Environmental Liabilities ............................. 17,602 16,652 16,954 Other ............................................................... 37,752 27,006 42,203 ---------------- --------------- --------------- Total Current Liabilities ...................................... 2,046,017 1,421,635 1,548,026 ---------------- --------------- --------------- DEFERRED CREDITS: Accumulated Deferred Income Taxes ................................... 3,191,290 3,029,739 3,083,433 Accumulated Deferred Investment Tax Credits ......................... 377,315 397,429 392,317 Deferred OPEB Costs ................................................. 233,159 174,706 167,189 Other ............................................................... 110,342 98,594 112,780 ---------------- --------------- --------------- Total Deferred Credits ......................................... 3,912,106 3,700,468 3,755,719 ---------------- --------------- --------------- COMMITMENTS AND CONTINGENT LIABILITIES (Note 4) -- -- -- ---------------- --------------- --------------- Total .......................................................... $ 17,038,360 $ 16,679,109 $ 16,815,741 ================ =============== ===============
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS (Thousands of Dollars) Nine Months Ended Twelve Months Ended September 30, September 30, ------------------------------------------------------------- 1996 1995 1996 1995 -------------- ------------- ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income .................................................... $ 484,475 $ 510,041 $ 636,757 $ 641,884 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and Amortization ............................... 454,374 442,185 609,155 583,957 Amortization of Nuclear Fuel ................................ 42,821 62,878 54,971 86,159 (Deferral) Recovery of Electric Energy and Gas Costs - net .. (32,741) (707) (30,036) 38,513 Unrealized Gains on Investments - net ....................... (19,368) (32,117) (33,919) (46,958) Provision for Deferred Income Taxes - net ................... 25,064 109,472 49,497 37,986 Investment Tax Credits - net ................................ (15,002) (15,037) (20,114) (20,198) Allowance for Funds Used During Construction - Debt and Equity and Capitalized Interest ........................... (12,799) (32,522) (18,441) (49,846) Proceeds from Leasing Activities ............................ 57,916 9,859 85,709 28,177 Changes in certain current assets and liabilities: Net decrease (increase) in Accounts Receivable and Unbilled Revenues .................................................. 215,136 115,808 (69,849) (74,053) Net (increase) decrease in Inventory - Fuel and Materials and Supplies .................................................. (56,744) (39,775) 1,620 9,463 Net (decrease) increase in Accounts Payable ................. (104,004) (40,693) 63,726 57,207 Net change in Prepaid/Accrued Taxes ......................... (98,729) (145,847) 37,434 (18,228) Net change in Other Current Assets and Liabilities .......... 78,144 41 70,786 53,016 Other ....................................................... (24,984) 88,151 (7,988) 137,919 Net cash provided by operating activities - Discontinued Operations ................................................ 53,622 91,305 65,924 99,065 ------------- ------------- ------------ ------------- Net Cash provided by operating activities ................ 1,047,181 1,123,042 1,495,232 1,564,063 ------------- ------------- ------------ ------------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to Utility Plant, excluding AFDC .................... (428,198) (475,088) (602,993) (773,545) Net (increase) decrease in Long-Term Investments and Real Estate ...................................................... (14,322) (51,105) (29,591) 34,421 Increase in Decommissioning Funds and Other Special Funds, excluding interest (17,699) (50,604) (33,542) (57,992) Cost of Plant Removal - net ................................... (19,840) (21,528) (27,986) (33,624) Other ......................................................... (15,196) (32,787) (26,011) (21,184) Change in Net Assets - Discontinued Operations .. (395,134) (116,801) (432,057) (137,010) Net Proceeds from the Sale of Discontinued Operations 707,417 -- 707,417 -- ------------- ------------- ------------ ------------- Net cash used in investing activities .................... (182,972) (747,913) (444,763) (988,934) ------------- ------------- ------------ ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in Short-Term Debt ............................... 76,375 231,524 10,408 70,618 Increase (decrease) in Book Overdrafts ........................ 65,431 (24,921) 73,790 10,955 Issuance of Long-Term Debt .................................... 370,005 100,000 426,325 197,555 Redemption of Long-Term Debt .................................. (434,842) (335,769) (424,764) (426,002) Long-Term Debt Issuance and Redemption Costs .................. (39,312) (8,406) (45,082) (24,012) Redemption of Preferred Stock ................................. (211,602) -- (271,602) (75,000) Issuance of Preferred Securities ............... 208,000 60,000 208,000 210,000 Retirement of Common Stock (104,536) -- (104,536) -- Cash Dividends Paid on Common Stock ........................... (394,944) (396,411) (527,081) (528,548) Other ......................................................... (6,532) (1,814) (6,532) (7,564) ------------- ------------- ----------- ------------- Net cash used in financing activities .................... (471,957) (375,797) (661,074) (571,998) ------------- ------------- ----------- ------------- Net increase (decrease) in Cash and Cash Equivalents ........... 392,252 (668) 389,395 3,131 Cash and Cash Equivalents at Beginning of Period ................ 61,964 65,489 64,821 61,690 ------------- ------------- ----------- ------------- Cash and Cash Equivalents at End of Period ...................... $ 454,216 $ 64,821 $ 454,216 $ 64,821 ============= ============= =========== ============= Income Taxes Paid ............................................... $ 111,927 $ 154,228 $ 143,075 $ 182,963 Interest Paid ................................................... $ 353,368 $ 323,701 $ 510,931 $ 450,120 See Notes to Consolidated Financial Statements.
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (Thousands of Dollars) Three Months Ended Nine Months Ended Twelve Months Ended September 30, September 30, September 30, -------------------------- ---------------------------- ------------------------- 1996 1995 1996 1995 1996 1995 ------------ ----------- ------------- ------------ ------------ ----------- Balance at Beginning of Period ...... $ 1,694,058 $ 1,563,246 $ 1,636,222 $ 1,504,261 $ 1,616,077 $ 1,510,305 Add: Net Income .......................... 155,833 186,782 484,475 510,041 636,757 641,884 ----------- ------------ ------------ ------------ ------------ ----------- Total 1,849,891 1,750,028 2,120,697 2,014,302 2,252,834 2,152,189 ----------- ------------ ------------ ------------ ------------ ----------- Deduct: Cash Dividends on Common Stock .... 130,670 132,137 394,944 396,411 527,081 528,548 Retirement of Common Stock ........ 44,531 -- 44,531 -- 44,531 -- Capital Securities Expenses ....... -- 1,814 6,532 1,814 6,532 7,564 ----------- ----------- ------------ ------------ ------------ ----------- Total Deductions ............. 175,201 133,951 446,007 398,225 578,144 536,112 ----------- ------------ ------------ ------------ ------------ ----------- Balance at End of Period ............ $ 1,674,690 $ 1,616,077 $ 1,674,690 $ 1,616,077 $ 1,674,690 $ 1,616,077 =========== ============ ============ ============ ============ =========== See Notes to Consolidated Financial Statements.
PUBLIC SERVICE ELECTRIC AND GAS COMPANY CONSOLIDATED STATEMENTS OF INCOME (Thousands of Dollars) Three Months Ended Nine Months Ended Twelve Months Ended September 30, September 30, September 30, ------------------------------------------------------------------------------------------- 1996 1995 1996 1995 1996 1995 ----------- ----------- ----------- ----------- ----------- ------------ OPERATING REVENUES: Electric ............................ $ 1,054,599 $ 1,179,373 $ 3,000,895 $ 3,090,656 $ 3,931,081 $ 3,961,985 Gas ................................. 214,848 201,631 1,309,438 1,105,299 1,890,542 1,594,157 ----------- ----------- ----------- ----------- ----------- ----------- Total Operating Revenues ....... 1,269,447 1,381,004 4,310,333 4,195,955 5,821,623 5,556,142 OPERATING EXPENSES: Operation: Fuel for Electric Generation and Net Interchanged Power ............ 253,880 264,599 685,927 682,923 894,786 863,851 Gas Purchased and Materials for Gas Produced ...................... 140,085 115,336 783,321 625,540 1,119,320 900,318 Other ............................... 221,453 232,051 702,442 678,652 973,190 982,347 Maintenance ........................... 62,450 76,205 245,106 208,288 349,428 293,809 Depreciation and Amortization ......... 150,180 146,019 452,094 437,887 605,321 578,593 Taxes: Federal Income Taxes ................ 59,926 107,677 203,540 263,537 261,436 284,373 New Jersey Gross Receipts Taxes ..... 132,922 139,363 452,337 455,426 609,872 585,454 Other ............................... 20,586 19,229 63,404 60,139 74,170 77,184 ----------- ----------- ----------- ----------- ----------- ----------- Total Operating Expenses ....... 1,041,482 1,100,479 3,588,171 3,412,392 4,887,523 4,565,929 ----------- ----------- ----------- ----------- ----------- ----------- OPERATING INCOME ...................... 227,965 280,525 722,162 783,563 934,100 990,213 OTHER INCOME: Allowance for Funds Used During Construction - Equity ............. -- 1,329 -- 4,598 726 11,901 Miscellaneous - net ................. (1,928) 2,946 553 6,296 1,985 7,929 ----------- ----------- ----------- ----------- ----------- ---------- Total Other Income ............. (1,928) 4,275 553 10,894 2,711 19,830 ----------- ----------- ----------- ----------- ----------- ---------- INCOME BEFORE INTEREST CHARGES AND DIVIDENDS ON PREFERRED SECURITIES ..... 226,037 284,800 722,715 794,457 936,811 1,010,043 INTEREST CHARGES: Long-Term Debt ...................... 83,884 87,844 259,505 270,946 346,143 364,002 Short-Term Debt ..................... 7,433 7,600 19,799 14,383 26,156 19,716 Other ............................... 7,954 8,652 22,559 22,195 28,909 27,113 Total Interest Charges ......... 99,271 104,096 301,863 307,524 401,208 410,831 Allowance for Funds Used During Construction - Debt ............... (4,117) (7,725) (11,879) (26,724) (16,099) (35,601) ----------- ----------- ----------- ----------- ----------- ---------- Net Interest Charges ........... 95,154 96,371 289,984 280,800 385,109 375,230 Preferred Securities Dividend Requirement .................... 9,144 3,551 18,575 10,583 23,656 12,263 ----------- ----------- ----------- ----------- ----------- ---------- NET INCOME ..................... 121,739 184,878 414,156 503,074 528,046 622,550 ----------- ----------- ----------- ----------- ----------- ---------- Preferred Stock Dividend Requirements .................... 4,085 8,682 19,074 26,044 26,792 35,943 Preferred Stock Redemption Premium .. -- -- 18,493 -- 18,019 -- ----------- ----------- ----------- ----------- ----------- ---------- EARNINGS AVAILABLE TO PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED ......... $ 117,654 $ 176,196 $ 413,575 $ 477,030 $ 519,273 $ 586,607 =========== =========== =========== =========== =========== =========== See Notes to Consolidated Financial Statements.
PUBLIC SERVICE ELECTRIC AND GAS COMPANY CONSOLIDATED BALANCE SHEETS (Thousands of Dollars) September 30, September 30, December 31, ASSETS 1996 1995 1995 ----------------- ----------------- ----------------- UTILITY PLANT - Original cost: Electric ..................................................... $ 13,291,672 $ 12,983,167 $ 13,095,103 Gas .......................................................... 2,520,555 2,413,673 2,442,572 Common ....................................................... 532,763 531,024 517,104 ----------------- ----------------- ----------------- Total ................................................... 16,344,990 15,927,864 16,054,779 Less: Accumulated Depreciation and Amortization .............. 5,823,881 5,324,903 5,440,414 ----------------- ----------------- ----------------- Net ..................................................... 10,521,109 10,602,961 10,614,365 Nuclear Fuel in Service, net of accumulated amortization - $289,198, $345,412 and $297,435, respectively .............. 189,735 162,776 180,018 ----------------- ----------------- ----------------- Net Utility Plant in Service ............................ 10,710,844 10,765,737 10,794,383 Construction Work in Progress, including Nuclear Fuel in Process - $85,290, $122,368 and $104,743, respectively ..... 433,133 367,566 369,082 Plant Held for Future Use .................................... 23,966 23,966 23,966 ----------------- ----------------- ----------------- Net Utility Plant ....................................... 11,167,943 11,157,269 11,187,431 ----------------- ----------------- ----------------- INVESTMENTS AND OTHER NONCURRENT ASSETS: Long-Term Investments, net of accumulated amortization - $11,275, $4,585 and $6,009, respectively ................... 151,540 98,260 119,474 Nuclear Decommissioning and Other Special Funds .............. 342,956 292,405 313,178 Other Plant, net of accumulated depreciation and amortization - $1,991, $1,882 and $1,905, respectively ..... 25,116 24,970 24,976 ----------------- ----------------- ----------------- Total Investments and Other Noncurrent Assets ........... 519,612 415,635 457,628 ----------------- ----------------- ----------------- CURRENT ASSETS: Cash and Cash Equivalents .................................... 23,136 30,247 32,373 Accounts Receivable: Customer Accounts Receivable ............................... 437,187 405,555 525,404 Other Accounts Receivable .................................. 108,763 118,198 156,413 Less: Allowance for Doubtful Accounts ...................... 37,427 38,578 37,641 Accounts Receivable - Associated Companies ................... -- 151 -- Unbilled Revenues ............................................ 159,871 127,590 246,876 Fuel, at average cost ........................................ 305,600 311,776 253,360 Materials and supplies, net of inventory valuation reserves - $17,761, $18,200 and $20,100, respectively ...... 148,245 143,689 143,741 Prepaid Gross Receipts Taxes - net ........................... 146,406 165,342 -- Deferred Income Taxes ........................................ 25,952 27,489 27,571 Miscellaneous Current Assets ................................. 44,301 45,109 37,130 ----------------- ----------------- ----------------- Total Current Assets .................................... 1,362,034 1,336,568 1,385,227 ----------------- ----------------- ----------------- DEFERRED DEBITS: Property Abandonments - net .................................. 56,279 74,742 70,120 Oil and Gas Property Write-Down .............................. 32,213 37,367 36,078 Unamortized Debt Expense ..................................... 140,307 124,308 122,049 Deferred OPEB Costs .......................................... 233,159 174,706 167,189 Underrecovered Electric Energy and Gas Costs - net ........... 203,306 173,270 170,565 Unrecovered Environmental Costs (Note 4)...................... 122,358 132,634 130,070 Unrecovered Plant and Regulatory Study Costs ................. 34,357 35,285 35,150 Deferred Decontamination and Decommissioning Costs............ 46,554 49,742 49,872 Unrecovered SFAS 109 Deferred Income Taxes ................... 763,243 778,642 769,136 Other ........................................................ 37,244 9,313 5,700 ----------------- ----------------- ----------------- Total Deferred Debits ................................... 1,669,020 1,590,009 1,555,929 ----------------- ----------------- ----------------- Total .......................................................... $ 14,718,609 $ 14,499,481 $ 14,586,215 ================= ================= ================= See Notes to Consolidated Financial Statements.
PUBLIC SERVICE ELECTRIC AND GAS COMPANY CONSOLIDATED BALANCE SHEETS (Thousands of Dollars)
September 30, September 30, December 31, CAPITALIZATION AND LIABILITIES 1996 1995 1995 --------------- --------------- -------------- CAPITALIZATION Common Equity: Common Stock ...................................................... $ 2,563,003 $ 2,563,003 $ 2,563,003 Contributed Capital from Enterprise ............................... 594,395 534,395 594,395 Retained Earnings ................................................. 1,387,609 1,380,368 1,365,166 --------------- --------------- -------------- Total Common Equity ............................................ 4,545,007 4,477,766 4,522,564 Subsidiaries' Preferred Securities: Preferred Stock without mandatory redemption ...................... 113,392 384,994 324,994 Preferred Stock with mandatory redemption ......................... 150,000 150,000 150,000 Company-Obligated Mandatorily Redeemable Preferred Securities of a Partnership holding solely PSE&G Debentures .................. 210,000 210,000 210,000 Company-Obligated Mandatorily Redeemable Preferred Securities of a Subsidiary Trust holding solely PSE&G Debentures (QUIPS) ... 208,000 -- -- Long-Term Debt ...................................................... 4,293,202 4,585,543 4,586,268 --------------- --------------- -------------- Total Capitalization ........................................... 9,519,601 9,808,303 9,793,826 --------------- --------------- -------------- OTHER LONG-TERM LIABILITIES: Decontamination, Decommissioning, and Low Level Radwaste Costs ............................................................. 46,631 55,630 50,449 Environmental Costs (Note 4)......................................... 87,269 103,412 96,272 Capital Lease Obligations ........................................... 52,564 53,283 53,111 --------------- -------------- -------------- Total Other Long-Term Liabilities .............................. 186,464 212,325 199,832 --------------- -------------- -------------- CURRENT LIABILITIES: Long-Term Debt due within one year .................................. 250,000 2,000 -- Commercial Paper and Loans .......................................... 643,691 633,283 567,316 Book Overdrafts ..................................................... 135,445 61,655 70,014 Accounts Payable .................................................... 364,880 320,212 481,632 Accounts Payable - Associated Companies ............................. 22,662 -- 8,011 Other Taxes Accrued ................................................. 36,011 38,235 32,767 Interest Accrued .................................................... 84,073 93,709 95,811 Provision for Rate Refunds .......................................... 101,210 18,310 13,810 Estimated Liability for Vacation Pay ................................ 28,168 32,235 17,089 Customer Deposits ................................................... 32,276 32,810 32,785 Liability for Injuries and Damages .................................. 32,304 36,090 38,141 Miscellaneous Environmental Liabilities ............................. 17,602 16,652 16,954 Other ............................................................... 33,160 23,826 36,941 --------------- -------------- ------------- Total Current Liabilities ...................................... 1,781,482 1,309,017 1,411,271 --------------- -------------- ------------- DEFERRED CREDITS: Accumulated Deferred Income Taxes ................................... 2,535,867 2,526,135 2,535,603 Accumulated Deferred Investment Tax Credits ......................... 356,381 375,458 370,610 Deferred OPEB Costs ................................................. 233,159 174,706 167,189 Other ............................................................... 105,655 93,537 107,884 --------------- -------------- ------------- Total Deferred Credits ......................................... 3,231,062 3,169,836 3,181,286 --------------- -------------- ------------- COMMITMENTS AND CONTINGENT LIABILITIES (Note 4) -- -- -- --------------- -------------- ------------- Total .......................................................... $ 14,718,609 $ 14,499,481 $ 14,586,215 =============== ============== =============
PUBLIC SERVICE ELECTRIC AND GAS COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (Thousands of Dollars) Nine Months Ended Twelve Months Ended September 30, September 30, ----------------------------------------------------------- 1996 1995 1996 1995 ------------ ------------- ------------ ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income .................................................... $ 414,156 $ 503,074 $ 528,046 $ 622,550 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and Amortization ............................... 452,094 437,887 605,321 578,593 Amortization of Nuclear Fuel ................................ 42,821 62,878 54,971 86,159 (Deferral) Recovery of Electric Energy and Gas Costs - net .. (32,741) (707) (30,036) 38,513 Provision for Deferred Income Taxes - net ................... 6,157 60,347 25,131 49,310 Investment Tax Credits - net ................................ (14,229) (14,263) (19,077) (19,165) Allowance for Funds Used During Construction - Debt and Equity .................................................... (11,879) (31,322) (16,825) (47,502) Changes in certain current assets and liabilities: Net decrease (increase) in Accounts Receivable and Unbilled Revenues .................................................. 222,659 136,116 (56,226) (62,348) Net (increase) decrease in Inventory - Fuel and Materials and Supplies .............................................. (56,744) (39,775) 1,620 9,463 Net (decrease) increase in Accounts Payable ................. (102,101) (66,470) 67,330 17,892 Net change in Prepaid/Accrued Taxes ......................... (143,162) (163,137) 8,904 (31,975) Net change in Other Current Assets and Liabilities .......... 71,710 (15,704) 85,314 41,167 Other ......................................................... (19,964) 79,507 (5,482) 110,993 ------------ ------------ ------------ ------------- Net cash provided by operating activities ................ 828,777 948,431 1,248,991 1,393,650 ------------ ------------- ------------ ------------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to Utility Plant, excluding AFDC .................... (428,198) (475,088) (602,993) (773,545) Net (increase) decrease in Long-Term Investments .............. (36,719) (39,595) (62,313) 45,385 Increase in Nuclear Decommissioning and Other Special Funds, excluding interest .......................................... (17,699) (50,604) (33,542) (57,992) Cost of Plant Removal - net ................................... (19,840) (21,528) (27,986) (33,624) Other ......................................................... (140) 865 (146) 2,647 ------------ ------------- ------------ ------------- Net cash used in investing activities .................... (502,596) (585,950) (726,980) (817,129) ------------ ------------- ------------ ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in Short-Term Debt ............................... 76,375 231,524 10,408 70,618 Increase (decrease) in Book Overdrafts ........................ 65,431 (24,921) 73,790 (1,132) Issuance of Long-Term Debt .................................... 370,005 100,000 426,325 197,555 Redemption of Long-Term Debt .................................. (413,072) (309,444) (470,667) (406,583) Long-Term Debt Issuance and Redemption Costs .................. (38,842) (7,733) (44,571) (22,364) Redemption of Preferred Stock ................................. (211,602) -- (271,602) (75,000) Net Gain on Preferred Stock Redemptions ....................... 18,493 -- 18,019 -- Issuance of Preferred Securities ............... 208,000 60,000 208,000 210,000 Contributed Capital -- -- 60,000 -- Cash Dividends Paid ........................................... (403,674) (407,344) (532,292) (543,943) Other ......................................................... (6,532) (1,814) (6,532) (7,564) ------------ ------------- ------------ ------------- Net cash used in financing activities .................... (335,418) (359,732) (529,122) (578,413) ------------ ------------- ------------ ------------- Net (decrease) increase in Cash and Cash Equivalents .......... (9,237) 2,749 (7,111) (1,892) Cash and Cash Equivalents at Beginning of Period .............. 32,373 27,498 30,247 32,139 ------------ ------------- ------------ ------------- Cash and Cash Equivalents at End of Period .................... $ 23,136 $ 30,247 $ 23,136 $ 30,247 ============ ============= ============ ============= Income Taxes Paid ............................................. $ 163,179 $ 242,365 $ 200,687 $ 272,977 Interest Paid ................................................. $ 295,207 $ 275,210 $ 419,507 $ 365,727 See Notes to Consolidated Financial Statements.
PUBLIC SERVICE ELECTRIC AND GAS COMPANY CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (Thousands of Dollars) Three Months Ended Nine Months Ended Twelve Months Ended September 30, September 30, September 30, ------------------------- ----------------------------- -------------------------- 1996 1995 1996 1995 1996 1995 ----------- ----------- ------------ ------------ ------------ ----------- Balance at Beginning of Period ........................... $ 1,398,155 $ 1,331,535 $ 1,365,166 $ 1,286,452 $ 1,380,368 $ 1,309,325 Add: Net Income ....................... 121,739 184,878 414,156 503,074 528,046 622,550 ----------- ----------- ------------ ------------ ------------ ----------- Total ......................... 1,519,894 1,516,413 1,779,322 1,789,526 1,908,414 1,931,875 ----------- ----------- ------------ ------------ ------------ ----------- Deduct Cash Dividends: Preferred Stock, at required rates ................... 4,085 8,682 19,074 26,044 26,792 35,943 Common Stock ..................... 128,200 125,549 384,600 381,300 505,500 508,000 Capital Securities Expenses ........ -- 1,814 6,532 1,814 6,532 7,564 ----------- ----------- ------------ ------------ ------------ ----------- Total Deductions ....... 132,285 136,045 410,206 409,158 538,824 551,507 ----------- ----------- ------------ ------------ ------------ ----------- Net Gain on Preferred Stock Redemptions ....................... -- -- 18,493 -- 18,019 -- ----------- ----------- ------------ ------------ ------------ ----------- Balance at End of Period ........... $ 1,387,609 $ 1,380,368 $ 1,387,609 $ 1,380,368 $ 1,387,609 $ 1,380,368 =========== =========== ============ ============ ============ =========== See Notes to Consolidated Financial Statements.
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. Basis of Presentation The financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. However, in the opinion of management, the disclosures are adequate to make the information presented not misleading. These financial statements and notes thereto should be read in conjunction with the respective Registrant's Notes contained in the Quarterly Reports on Form 10-Q for the quarters ended March 31, 1996 and June 30, 1996 and the 1995 Annual Report on Form 10-K. The Notes contained herein update and supplement matters discussed in such Quarterly Reports and the 1995 Annual Report on Form 10-K. The unaudited financial information furnished herewith reflects all adjustments which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. Note 2. Discontinued Operations On July 1, 1996, Enterprise Diversified Holdings Incorporated (EDHI), a subsidiary of Public Service Enterprise Group Incorporated (Enterprise), entered into a contract for the sale of Energy Development Corporation (EDC) to Samedan Oil Corporation, a subsidiary of Noble Affiliates, Inc., for an aggregate purchase price of $779 million subject to various purchase price adjustments. As a result, certain financial information previously issued has been restated herein to give effect to the classification of EDC as discontinued operations. The sale, which was completed on July 31, 1996, resulted in an after-tax gain of approximately $13.5 million. Operating results of EDC for the three, nine and twelve months ended September 30, 1996 and 1995 are summarized in the following table:
Three Months Ended Nine Months Ended Twelve Months Ended September 30, September 30, September 30, (Thousands) 1996 1995 1996 1995 1996 1995 ---------- ---------- ----------- ----------- ----------- ----------- Revenues .................... $ -- $ 49,719 $ 126,259 $ 152,613 $ 221,647 $ 203,723 Operating income ............ -- (803) 22,457 10,519 70,591 18,176 Earnings (losses) before income taxes ............ -- (2,438) 9,062 (3,401) 65,762 (834) Income taxes ................ (2,992) (263) (1,684) (1,583) 18,162 (3,147) Net income (loss) ........... 2,992 (2,175) 10,746 (1,818) 47,600 2,313
The net assets of EDC included in Enterprise's Consolidated Balance Sheets at September 30 and December 31, 1995 are summarized in the following table: September 30, December 31, (Thousands) 1995 1995 --------------- -------------- Property ............................... $ 588,237 $ 608,015 Current assets, primarily receivables .. 49,464 90,986 Other assets ........................... 64,466 56,836 Current liabilities .................... 50,906 62,204 Debt ................................... 305,121 311,821 Deferred credits and other liabilities . 4,856 15,907 Net assets ............................. $ 341,284 $ 365,905 Note 3. Rate Matters Alternative Rate Plan On August 26, 1996, in response to the important electric industry restructuring issues and policy decisions currently being addressed within the Phase II proceeding of the New Jersey Energy Master Plan (Master Plan) proceedings, PSE&G petitioned the New Jersey Board of Public Utilities (BPU) to place its "New Jersey Partners in Power" Plan (Plan) on inactive status pending completion of the Phase II proceeding. The BPU is expected to issue a final decision on Phase II of the Master Plan early in 1997. PSE&G recognized that many of the issues being decided in the Master Plan parallel the issues that have been raised in PSE&G's Plan, as well as the importance of having the elements of the Plan in line with the direction of the Master Plan, which will define the structure of New Jersey's energy marketplace. On September 5, 1996, the BPU approved PSE&G's request and placed the Plan on inactive status for a period of six months. PSE&G must advise the BPU of its intent to go forward, withdraw, or modify the Plan on or before February 5, 1997. Proposed Settlement of Certain Regulatory Issues On October 23, 1996, PSE&G, the staff of the BPU (Staff) and the New Jersey Division of Ratepayer Advocate (Ratepayer Advocate) agreed upon the resolution of three regulatory issues which had been pending in proceedings before the BPU, including the "used and usefulness" of Salem Nuclear Units 1 and 2. Under the proposed Settlement Agreements (Agreements), which require approval of the BPU, PSE&G would provide electric customers with bill credits totaling $83.9 million in January and February 1997 and would forego recovery of $12 million associated with energy costs that have been deferred. The Agreements resulted in an earnings loss of $62.3 million or 26 cents per share of Enterprise common stock. Of the total, $3.3 million or 1 cent per share had been previously recorded, and the remaining $59.0 million or 25 cents per share was recorded in the third quarter of 1996. The Agreements would be effective through December 31, 1998. In addition to the settlement of the regulatory issues, PSE&G agreed to create a $30 million economic development fund and support certain customer assistance programs. Under the first of the three Agreements, Salem Nuclear Units 1 and 2 would continue in base rates without being subject to further refund. In addition, PSE&G would assume all nuclear and fossil generating fuel and performance risks, including replacement power costs associated with the Salem, Hope Creek and Peach Bottom Nuclear Stations from January 1, 1996 through December 31, 1998. As a result of PSE&G's assumption of these risks, the BPU's Nuclear Performance Standard (NPS) (see Note 4, Commitments and Contingent Liabilities) would not apply during the period of January 1, 1996 through December 31, 1998. In addition, the energy component of PSE&G's levelized energy adjustment charge (LEAC) would be fixed at its existing level, assuring PSE&G's customers of no increase in this rate until at least January 1999. The Agreement resolving the "used and useful" issue has seven key elements. First, during January and February 1997, PSE&G would provide bill credits to electric customers of $77.5 million. Second, the energy component of PSE&G's LEAC, which recovers all LEAC costs except gas plant remediation, demand side management and nuclear decommissioning, would be fixed at its current level. From January 1, 1997 through December 31, 1998, any revenue and costs related to the energy component of the LEAC would be treated as revenue and expense. In addition, from January 1, 1997 through December 31, 1998, PSE&G would have the opportunity to reduce its deferred LEAC energy balance as of December 31, 1996. Any underrecovered or overrecovered balance existing on December 31, 1998 would not be considered in any LEAC review subsequent to that date. Third, there would be no further regulatory action regarding the "used and useful" issue through December 31, 1998. Fourth, the NPS would not apply to PSE&G from January 1, 1996 through December 31, 1998. Fifth, PSE&G would be permitted to defer costs associated with the buy-out or buy-down of cogeneration contracts during the Agreement period which would be reviewed in a future BPU proceeding. Sixth, the parties to the Agreement reserved the right to review, in PSE&G's next base rate proceeding, Salem-related capitalized costs incurred since base rates were last reviewed in 1992 as part of a rate case that was effective January 1, 1993. Finally, a new LEAC rate would be established after the settlement period, with PSE&G making a filing no later than November 1, 1998. In addition to the resolution of the Salem "used and useful" issue, the two other Agreements address separate long-standing issues that PSE&G has been litigating before the BPU. The first pertains to the recovery of certain replacement power costs associated with a 58-day outage at Salem Unit 1 in 1994. Under that Agreement, PSE&G would reduce its underrecovered LEAC balance by $7 million. The second pertains to the recovery of capacity costs associated with electric utility power purchases from cogeneration producers through December 31, 1998. Under that Agreement, PSE&G would provide bill credits to electric customers totaling $6.4 million during January and February 1997. In addition, it will reduce its underrecovered LEAC balance by $5 million. In addition to the above-referenced Agreements, PSE&G and the Ratepayer Advocate agreed on a commitment by PSE&G to provide financial assistance toward economic growth and development in New Jersey. This commitment, which runs through December 31, 1999, has four key elements. First, PSE&G will create a $30 million revolving economic development fund with emphasis on stimulating jobs and developing high technology projects in urban areas. Second, PSE&G will provide incentives to encourage local public housing authorities to replace up to 4,000 refrigerators a year. Third, PSE&G will commit $1 million to develop a fund to provide innovative assistance to low-income residents who are having difficulty paying energy bills. Finally, PSE&G will develop a computer system to assist low-income residents in identifying government and community programs for which they would be eligible to receive benefits. The "used and useful" Agreement will be the subject of a public hearing before the BPU on November 25, 1996. The three Agreements require BPU approval, as to which no assurance can be given. Levelized Gas Adjustment Charge (LGAC) On July 30, 1996, PSE&G filed its 1996/97 LGAC petition with the BPU requesting that it be effective October 1, 1996 through December 31, 1997. PSE&G has requested the LGAC be modified so as to more closely track the market price of gas and avoid the distortions and dislocations resulting from the reflection of over and underrecoveries. The 1996/97 LGAC proposal requests that residential and certain other customer billings be converted from a levelized charge to one derived on a monthly basis. The requested change in the LGAC pricing is the same as the change in pricing for Large Volume Gas (LVG) and General Service Gas (GSG) customers which was approved by the BPU in PSE&G's 1995/96 LGAC filing. In addition, there would be a cap of five cents per therm in the month to month change in the 1996/97 LGAC rate for all customer classes. PSE&G has also requested that the 1996/97 LGAC reflect a refund of approximately $14 million to LVG and GSG customers in the form of bill credits, stemming from over collections which occurred during the 1995/96 LGAC. On November 6, 1996, the BPU, in an oral decision, approved an approximate $80 million increase based upon a modified Interim Stipulation in the LGAC proceeding. The BPU did not approve PSE&G's 1996/1997 LGAC proposal that residential and certain other customer billings be converted from an annual levelized charge to one derived on a monthly basis. The monthly pricing methodology for LVG and GSG customers, with minor modifications, will continue. During the months of December 1996 and January 1997, approximately $14 million will be refunded through a bill credit to customers that purchased LVG or GSG service (excluding off-peak service) during the period January 1, 1996 through October 31, 1996. The refund is based on an overcollection of gas costs from those customer classes and will be apportioned based on those customers usage during that period. PSE&G, Staff and the Ratepayer Advocate have the right to revisit all issues in a Phase II proceeding. PSE&G cannot predict the outcome of such proceedings. Remediation Adjustment Clause (RAC) On July 30, 1996, PSE&G petitioned the BPU for recovery of its Manufactured Gas Plant Remediation Program (Remediation Program) costs during the period August 1, 1995 through July 31, 1996. In 1993, the BPU approved a mechanism for such costs incurred since October 1, 1992, allowing the recovery of actual costs plus carrying charges, net of insurance recoveries over a seven year period through PSE&G's LGAC and LEAC, with 60% charged to gas customers and 40% charged to electric customers. In accordance with the Interim LGAC Stipulation dated October 11, 1996, PSE&G is expected to recover $2.7 million from gas customers and $1.8 million from electric customers during the period November 1, 1996 through October 31, 1997 (See Note 4, Commitments and Contingent Liabilities). Other Rate Matters On February 16, 1996, PSE&G filed for approval of its first Off Tariff Rate Agreement (OTRA). The OTRA is designed to consider prices, confidentially, contract duration, regulatory filing requirements and other standards as may be necessary for compliance with the law. On May 9, 1996, PSE&G filed a motion with the BPU to resolve issues regarding the confidentiality of certain terms of the OTRA. On June 19, 1996, the BPU issued an order denying PSE&G's request for confidential treatment and directed PSE&G to file, and thus make public, the information within five days. On June 21, 1996, PSE&G was granted a temporary order from the Appellate Division of the New Jersey Superior Court staying the June 19, 1996 BPU order requiring public disclosure of the information. On September 6, 1996, the BPU issued an order allowing this OTRA to go into effect, thus allowing the customer to receive the negotiated rate, pending the outcome of the Court decision on the confidentiality issue. By Order dated October 31, 1996, the Court affirmed the BPU's decision. PSE&G cannot predict what impact, if any, the OTRA may have on its financial position, results of operations, and net cash flows. On August 1, 1996, the BPU issued an Order of Inquiry which initiated a generic proceeding to resolve the regulatory and rate issues associated with Statement of Financial Accounting Standards (SFAS) 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions". In this proceeding, the BPU will determine the appropriate level of recovery, necessary rate changes and the proper funding mechanism for these costs. On August 16, 1996, in accordance with the BPU's Order in this matter, PSE&G filed testimony responding to questions contained in the BPU's Generic Order. The Staff and the Ratepayer Advocate issued requests for information and have held several group discovery and settlement-type conferences with PSE&G and other affected utilities. In accordance with the BPU's Generic Order, upon the completion of the initial phase of this proceeding, the BPU will determine whether hearings in this matter are necessary. PSE&G cannot predict what action, if any, may be taken by the BPU on this matter or when final action may be completed. On September 19, 1996, PSE&G filed a petition with the BPU to establish an interim Competition Transition Charge (CTC). The CTC is designed to recover stranded costs which may result from a customer leaving PSE&G's system as a full requirements customer. If approved by the BPU as filed, this charge would apply to customers who, after September 19, 1996, commit to an alternate source of electric power while remaining physically located in PSE&G's electric franchise area. Further, this interim charge would be limited to customers with present billing demands in excess of 500KW. The proposed charge would be interim pending BPU resolution of the Master Plan Phase II proceeding which will address the stranded cost issue on a generic basis. PSE&G cannot predict what action the BPU may take with respect to the CTC petition. Note 4. Commitments and Contingent Liabilities Nuclear Performance Standard The BPU has established an NPS for nuclear generating units owned by New Jersey electric utilities, including the five nuclear units in which PSE&G has an ownership interest: Salem Units 1 and 2 - 42.59%; Hope Creek - 95%; and Peach Bottom Units 2 and 3 - 42.49%. PSE&G operates Salem and Hope Creek, while Peach Bottom is operated by PECO Energy, Inc. (PECO). The penalty/reward under the NPS is a percentage of replacement power costs (see table below). Capacity Factor Range Reward Penalty - ---------------------------------------------------- ------- ------- Equal to or greater than 75% ....................... 30% -- Equal to or greater than 65% and less than 75% ..... None None Equal to or greater than 55% and less than 65% ..... -- 30% Equal to or greater than 45% and less than 55% ..... -- 40% Equal to or greater than 40% and less than 45% ..... -- 50% Below 40% .......................................... BPU Intervenes Under the NPS, the composite capacity factor is calculated annually using maximum dependable capability of the five nuclear units in which PSE&G owns an interest. This method takes into account actual operating conditions of the units. While the NPS does not specifically have a gross negligence provision, the BPU has indicated that it would consider allegations of gross negligence brought upon a sufficient factual basis. A finding of gross negligence could result in penalties other than those prescribed under the NPS. Based upon current projections and assumptions regarding PSE&G's five nuclear units during 1996, including the continued outage of Salem Unit 1 and 2 for the remainder of the year, the 1996 aggregate capacity factor would be approximately 53%, which would result in a penalty of approximately $17 million. However, if the October 23, 1996 Agreement resolving the "used and useful" issue related to PSE&G's Salem Units is approved by the BPU, the NPS would not apply to PSE&G during the period of January 1, 1996 through December 31, 1998 (see Note 3, Rate Matters). Nuclear Insurance Coverages and Assessments PSE&G's insurance coverages and maximum retrospective assessments for its nuclear operations are as follows:
PSE&G Maximum Total Site Assessments For A Type and Source of Coverages Coverages Single Incident - --------------------------------------------------- -------------------- ---------------------- (Millions) Public Liability: American Nuclear Insurers $ 200.0 $ -- Indemnity(A)................................... 8,720.3 210.2 ----------------- ---------------------- $ 8,920.3 (B) $ 210.2 ----------------- ---------------------- Nuclear Worker Liability: American Nuclear Insurers (C) ................. $ 200.0 $ 8.0 ----------------- ---------------------- Property Damage: Nuclear Mutual Limited ........................ $ 500.0 9.2 Nuclear Electric Insurance Ltd. (NEIL II) ..... 1,400.0 8.3 (D) Nuclear Electric Insurance Ltd. (NEIL III) .... 850.0 9.2 ----------------- ---------------------- $ 2,750.0 $ 26.7 ----------------- ---------------------- Replacement Power: Nuclear Electric Insurance Ltd. (NEIL I) ...... $ 3.5 (E) $ 11.4
(A) Retrospective premium program under the Price-Anderson liability provisions of the Atomic Energy Act of 1954, as amended (Price-Anderson). Subject to retrospective assessment with respect to loss from an incident at any licensed nuclear reactor in the United States. Assessment adjusted for inflation effective August 20, 1993. (B) Limit of liability for each nuclear incident under Price-Anderson. (C) Industry aggregate limit representing the potential liability from workers claiming exposure to the hazard of nuclear radiation. This policy includes automatic reinstatements up to an aggregate of $200 million, thereby providing total coverage of $400 million. This policy does not increase PSE&G's obligation under Price-Anderson. (D) In the event of a second industry loss triggering NEIL II - coverage, the maximum retrospective premium assessment can increase to $18.5 million. (E) Represents limit of coverage available to co-owners of Salem and Hope Creek, for each plant. Each co-owner purchases its own policy. PSE&G is currently covered for its percent ownership interest in each plant for this limit. Price-Anderson sets the "limit of liability" for claims that could arise from an incident involving any licensed nuclear facility in the nation. The "limit of liability" is based on the number of licensed nuclear reactors and is adjusted at least every five years based on the Consumer Price Index. The current "limit of liability" is $8.9 billion. All utilities owning a nuclear reactor, including PSE&G, have provided for this exposure through a combination of private insurance and mandatory participation in a financial protection pool as established by Price-Anderson. Under Price-Anderson, each party with an ownership interest in a nuclear reactor can be assessed its share of $79.3 million per reactor per incident, payable at $10 million per reactor per incident per year. If the damages exceed the "limit of liability," the President is to submit to Congress a plan for providing additional compensation to the injured parties. Congress could impose further revenue raising measures on the nuclear industry to pay claims. PSE&G's maximum aggregate assessment per incident is $210.2 million (based on PSE&G's ownership interests in Hope Creek, Peach Bottom and Salem) and its maximum aggregate annual assessment per incident is $26.5 million. Further, a recent decision by the U.S. Supreme Court, not involving PSE&G, held that the Price-Anderson Act did not preclude awards based on state law claims for punitive damages. PSE&G is a member of two industry mutual insurance companies: Nuclear Mutual Limited (NML) and Nuclear Electric Insurance Limited (NEIL). NML provides the primary property insurance at Salem and Hope Creek. NEIL provides excess property insurance through its NEIL II and NEIL III policies and replacement power coverage through its NEIL I policy. Both companies may make retrospective premium assessments in case of adverse loss experience. PSE&G's maximum potential liabilities under these assessments are included in the table and notes above. Certain of the policies also provide that the insurer may suspend coverage with respect to all nuclear units on a site without notice if the NRC suspends or revokes the operating license for any unit on a site, issues a shutdown order with respect to such unit or issues a confirmatory order keeping such unit down. While the NRC has issued confirmatory action letters with respect to the Salem shutdown, PSE&G does not expect any action to be taken by any insurer as a result of these NRC letters. Construction and Fuel Supplies PSE&G has substantial commitments as part of its ongoing construction program, which include capital requirements for nuclear fuel. PSE&G's construction program is continuously reviewed and periodically revised as a result of changes in economic conditions, revised load forecasts, changes in the scheduled retirement dates of existing facilities, changes in business strategies, site changes, cost escalations under construction contracts, requirements of regulatory authorities and laws, the timing of and amount of electric and gas rate changes and the ability of PSE&G to raise necessary capital. Pursuant to its electric Integrated Resource Plan (IRP), PSE&G periodically reevaluates its forecasts of future customers, load and peak growth, sources of electric generating capacity and demand side management (DSM) to meet such projected growth, including the need to construct new electric generating capacity. The IRP takes into account assumptions concerning future demands of customers, effectiveness of conservation and load management activities, the long-term condition of PSE&G's plants, capacity available from electric utilities and other suppliers and the amounts of co-generation and other non-utility capacity projected to be available. Based on PSE&G's construction program, construction expenditures are expected to aggregate approximately $2.8 billion during the years 1996 through 2000, which includes $428 million for nuclear fuel, $84 million of Allowance for Funds used During Construction (AFDC) and the replacement steam generators at Salem Unit 1. The estimate of construction requirements is based on expected project completion dates and includes anticipated escalation due to inflation of approximately 3% annually. Therefore, construction delays or higher inflation levels could cause significant increases in these amounts. PSE&G expects to internally generate the funds necessary to satisfy its construction expenditures over this period, assuming adequate and timely recovery of costs, as to which no assurances can be given. In addition, PSE&G does not presently anticipate any difficulties in obtaining sufficient sources of fuel for electric generation or adequate gas supplies during the years 1996 through 2000. Hazardous Waste Certain Federal and State laws authorize the United States Environmental Protection Agency (EPA) and the New Jersey Department of Environmental Protection (NJDEP), among other agencies, to issue orders and bring enforcement actions to compel responsible parties to take investigative and remedial actions at any site that is determined to present an imminent and substantial danger to the public or the environment because of an actual or threatened release of one or more hazardous substances. Because of the nature of PSE&G's business, including the production of electricity, the distribution of gas and, formerly, the manufacture of gas, various by-products and substances are or were produced or handled which contain constituents classified as hazardous. PSE&G generally provides for the disposal or processing of such substances through licensed independent contractors. However, these statutory provisions impose joint and several responsibility without regard to fault on all responsible parties, including the generators of the hazardous substances, for certain investigative and remediation costs at sites where these substances were disposed of or processed. PSE&G has been notified with respect to a number of such sites and the remediation of these potentially hazardous sites is receiving greater attention from the government agencies involved. Generally, actions directed at funding such site investigations and remediation include all suspected or known responsible parties. PSE&G does not expect its expenditures for any such site to have a material adverse effect on its financial position, results of operations or net cash flows. PSE&G Manufactured Gas Plant Remediation Program In 1988, NJDEP notified PSE&G that it had identified the need for PSE&G, pursuant to a formal arrangement, to systematically investigate and, if necessary, resolve environmental concerns at PSE&G's former manufactured gas plant sites. To date, NJDEP and PSE&G have identified 38 former gas plant sites. PSE&G is currently working with NJDEP under its Remediation Program to assess, investigate and, if necessary, remediate environmental conditions at these sites. The Remediation Program is periodically reviewed and revised by PSE&G based on regulatory requirements, experience with the Remediation Program and available technologies. The overall cost of the Remediation Program cannot be reasonably estimated, but experience to date indicates that costs of at least $20 million per year could be incurred over a period of more than 30 years and that the overall cost could be material to PSE&G's financial position, results of operations or net cash flows (see Note 3, Rate Matters). Note 5. Financial Instruments and Risk Management Natural Gas Hedging Through September 30, 1996 and 1995, U.S. Energy Partners (USEP), an indirect gas marketing subsidiary of Enterprise, entered into futures contracts and swaps to buy 8,360,000 mmbtu and 5,700,000 mmbtu of natural gas at average prices of $2.09 per mmbtu and $1.81 per mmbtu, respectively, related to fixed-price sales commitments. Such contracts, together with physical purchase contracts, hedged approximately 86% and 91% of its fixed-price sales commitments at September 30, 1996 and 1995, respectively. USEP had deferred unrealized hedge gains of $337 thousand and $39 thousand at those respective dates. Note 6. Federal Income Taxes In August 1996, Enterprise reached an agreement with the Internal Revenue Service (IRS) covering most of the disputed issues raised by the IRS in its audit of PSE&G's tax return for 1985 and Enterprise's tax returns for 1986 and 1987. The partial agreement included resolution of all disputed issues related to Hope Creek and did not have a material impact on the financial position, results of operations and net cash flows of PSE&G or Enterprise. While no assurances can be given regarding the outcome of the remaining unresolved issues, an unfavorable resolution would not have a material adverse impact on the financial position, results of operations and net cash flows of PSE&G or Enterprise. Public Service Electric and Gas Company Notes To Consolidated Financial Statements Except as modified below, the Notes to Consolidated Financial Statements of Enterprise are incorporated herein by reference insofar as they relate to PSE&G and its subsidiaries: Note 1. Basis of Presentation Note 3. Rate Matters Note 4. Commitments and Contingent Liabilities Note 6. Federal Income Taxes PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Following are the significant changes in or additions to information reported in the Public Service Enterprise Group Incorporated (Enterprise) Quarterly Report on Form 10-Q for the quarters ending March 31, 1996 and June 30, 1996 and 1995 Annual Report on Form 10-K affecting the consolidated financial condition and the results of operations of Enterprise and its subsidiaries. This discussion refers to the Consolidated Financial Statements (Statements) and related Notes of Enterprise and should be read in conjunction with such Statements and Notes. Recent Developments On July 1, 1996, Enterprise Diversified Holdings Incorporated (EDHI), a subsidiary of Enterprise, entered into a contract with Samedan Oil Corporation (Samedan), a subsidiary of Noble Affiliates, Inc., for the sale of Energy Development Corporation (EDC), a subsidiary of EDHI, to Samedan for an aggregate purchase price of $779 million subject to various purchase price adjustments. The sale was completed on July 31, 1996. Enterprise recorded an after-tax gain of approximately $13.5 million, or 6 cents per share, in the third quarter. The proceeds from the sale are being used to repay approximately $350 million of EDHI debt related to EDC and to fund an open market repurchase program of up to $350 million of Enterprise common stock. As of October 31, 1996, 6.3 million shares of common stock had been repurchased for an aggregate cost of $169 million. On October 23, 1996, PSE&G, the staff of the New Jersey Board of Public Utilities (BPU), and the New Jersey Division of Ratepayer Advocate (Ratepayer Advocate) agreed upon the resolution of three regulatory issues, including the "used and usefulness" of Salem Nuclear Units 1 and 2. Under the proposed Settlement Agreements (Agreements), which require the approval of the BPU, PSE&G would provide electric customers with bill credits totaling $83.9 million in January and February 1997 and would forego recovery of another $12 million in energy costs that have been deferred. The total benefit to PSE&G's customers would amount to $95.9 million. The Agreements resulted in an earnings loss of $62.3 million or 26 cents per share of Enterprise common stock. Of the total, $3.3 million or 1 cent per share had been previously recorded, and the remaining $59.0 million or 25 cents per share was recorded in the third quarter of 1996 (see Note 3, Rate Matters, of Notes). Competition The BPU is conducting a Phase II proceeding of the New Jersey Energy Master Plan (Master Plan) to address wholesale and retail competition in New Jersey. On May 23, 1996, the BPU voted to release the Phase II Proceeding Staff Status Report: Restructuring the Electric Power Industry in New Jersey (Status Report). The BPU also voted to adopt the recommended procedures cited in the Status Report to reach a resolution and render its final decisions concerning electric power industry restructuring by approximately year-end 1996. The BPU also agreed to follow a concurrent, two pronged process to address the outstanding issues and render final decisions. As a result, the BPU conducted formal public and legislative-type hearings and received testimony on the outstanding issues. The BPU also accepted advance written comments in order to develop a formal record in this matter and established a negotiating group comprised of representatives of the various interest groups in this proceeding. The negotiating group discussions concluded on October 29, 1996 without reaching consensus. In accordance with the BPU's established procedures in this matter, since the negotiating group did not reach a consensus on issues, the BPU Staff will advise the BPU on the proposed findings anticipated to be issued before year end. Once the BPU issues its findings, it will conduct public hearings and provide an opportunity for written comments prior to issuing a final decision in 1997. The recoverability of stranded costs, electric rate unbundling and other issues related to restructuring will be largely dependent on the Master Plan Phase II findings. Stranded costs that could result as the industry moves to a more competitive environment may include investments in generating facilities, regulatory assets, purchased power agreements where the price being paid under such an agreement exceeds the market price for electricity and other costs. At this time, management cannot predict the level of stranded costs for PSE&G, if any, or the extent to which the BPU will allow recovery of such costs. A joint task force of the BPU and the New Jersey Treasury Department has proposed replacing the current New Jersey Gross Receipts and Franchise Tax (NJGRT) with a combination of existing corporate business tax, existing state sales and use tax and a transitional tax which would be phased out over an expected five or six year time frame. After the phase-out is completed, the proposal is expected to improve the competitive position of New Jersey electric and gas utilities vis-a-vis non-utility energy providers in New Jersey and energy providers in other states. PSE&G cannot predict when or if this proposal will be adopted. On August 23, 1996, in accordance with the BPU's 1994 order approving PSE&G's gas unbundling program, PSE&G filed its Gas Unbundling Status Report. The filing also contained PSE&G's proposal for a residential gas unbundling pilot program to be known as SelectGas. If approved, this pilot program will allow certain residential natural gas customers to participate in a competitive marketplace. The SelectGas pilot program would involve four municipalities representing approximately 65,000 residential customers. The review of the pilot program, including formal discovery, has been initiated. The review is expected to be completed by year-end 1996. PSE&G cannot predict when or if this proposal will be adopted. Nuclear Operations Both of PSE&G's Salem Nuclear Generating Units are currently out of service and their return dates are subject to completion of the requirements of their respective restart plans to the satisfaction of PSE&G and the NRC, which encompasses a substantial review and improvement of personnel, process and equipment issues. On May 23, 1996, PSE&G and the co-owners of Salem signed an agreement to purchase the steam generators from the owner of the unfinished Seabrook Nuclear Unit 2 for installation in Salem Unit 1. Transport of the steam generators to Salem was completed on October 14, 1996. By using these replacement steam generators, PSE&G expects to return Salem 1 to service in mid-1997. The cost of replacement, including installation, will be approximately $150 to $170 million (PSE&G's share would be $64 to $72 million). In addition, the cost of disposal of the four old steam generators could be as much as $20 million (PSE&G's share would be $9 million). PSE&G has entered into a contract with the facility operator to dispose of the four old steam generators at the low level waste facility in Barnwell, South Carolina. On July 22, 1996, PSE&G announced that although substantial progress has been made in upgrading Salem Unit 2's major systems, some of the originally scheduled work, along with additional work that had since been identified, remained to be completed. Salem Unit 2 is currently expected to return to service early in the first quarter of 1997 and is not expected to impact the restart of Salem Unit 1. A meeting with the NRC to discuss restart of Salem Unit 2 is scheduled for November 18, 1996. The inability to successfully return these units to continuous, safe operation could have a material adverse effect on the financial position, results of operations and net cash flows of Enterprise and PSE&G. Restart of the units requires NRC approval, which cannot be assured (see Note 3, Rate Matters, of Notes). Given the additional scope of work associated with the Salem Unit 2 restart effort, Unit 1 restart activities (excluding the steam generator replacement) and various cost saving initiatives in progress, it is expected that PSE&G's share of Salem operation and maintenance expenditures will increase approximately $18 million from original plans developed in late 1995, to a total of $136 million for 1996. Results of Operations Earnings per share of Enterprise common stock were $0.64 for the three-month period ended September 30, 1996, a decrease of $0.12 per share of common stock from the comparable 1995 period. Earnings per share of Enterprise common stock were $1.98 for the nine-month period ended September 30, 1996, a decrease of $0.10 per share of common stock from the comparable 1995 period. Earnings per share of Enterprise common stock were $2.61 for the twelve-month period ended September 30, 1996, a decrease of $0.01 per share of common stock from the comparable 1995 period. Earnings per share for the three, nine and twelve-month periods ended September 30, 1996 decreased primarily due to the Agreements regarding the resolution of three regulatory issues before the BPU, increased operation and maintenance expenses related to the outages at Salem and Hope Creek, a decrease in the Allowance for Funds Used During Construction (AFDC) that resulted from a lower AFDC rate, increased depreciation expense due to more plant in service and weak electric sales in the summer due to cooler than normal weather. The earnings per share decrease was partially offset by higher electric and gas sales by PSE&G in early 1996 due to favorable weather conditions, the gain on the repurchase of certain of PSE&G's outstanding cumulative preferred stock at discounts to par, increased investment income from Public Service Resources Corporation (PSRC), relatively strong performance by Community Energy Alternatives Incorporated (CEA) in the third quarter, increased income from Discontinued Operations - EDC and a one-time gain on the July 31, 1996 sale of EDC. PSE&G Earnings Available to Enterprise
Increase or (Decrease) ----------------------------------------------------------------------------- Three Months Ended Nine Months Ended Twelve Months Ended September 30, September 30, September 30, 1996 vs. 1995 1996 vs. 1995 1996 vs. 1995 ----------------------- ----------------------- ----------------------- Per Per Per Amount Share Amount Share Amount Share ---------- --------- ---------- --------- ---------- --------- (Millions, except Per Share Data) PSE&G Revenues (net of fuel costs and gross receipt taxes) ............... $ (119) $ (.49) $ (43) $ (.18) $ (9) $ (.04) Operation and maintenance expenses ........................... 24 .10 (61) (.25) (46) (.19) Depreciation and amortization expenses ........................... (4) (.02) (14) (.06) (27) (.11) Federal income taxes ................. 48 .20 60 .25 23 .10 Interest charges ..................... 5 .02 6 .02 10 .04 Allowance for Funds used During Construction ....................... (5) (.02) (19) (.08) (31) (.13) Preferred securities dividend requirements ....................... (1) -- (1) -- (2) -- Other income and expenses ............ (6) (.03) 9 .04 15 .06 ========== ========= ========== ========= ========== ========= Earnings Available to Enterprise .. $ (58) $ (.24) $ (63) $ (.26) $ (67) $ (.27) ========== ========= ========== ========= ========== =========
Revenues Electric Revenues decreased $125 million or 11%, $90 million or 3% and $31 million or 1% for the three, nine and twelve-month periods ended September 30, 1996 from the comparable periods of 1995. Kilowatt-hour sales decreased primarily due to the Agreements regarding the resolution of three regulatory issues before the BPU, decreased industrial sales attributable to the general declining trend in this sector, new cogeneration operations at the site of a large customer, equipment outages experienced at the site of two other large customers and strike related activity in the automotive sector. Decreased industrial sales were slightly offset by higher residential and commercial sales for the first six months of 1996 that resulted from favorable weather conditions and continued moderate growth in the economy. The significant components of these changes follow:
Increase or (Decrease) ----------------------- -- ---------------------- -- ------------------------ Three Months Ended Nine Months Ended Twelve Months Ended September 30, September 30, September 30, 1996 vs. 1995 1996 vs. 1995 1996 vs. 1995 ----------------------- ---------------------- ------------------------ Amount Amount Amount ----------------------- ---------------------- ------------------------ (Millions) Kilowatt-hour sales ................. $ (114) $ (107) $ (97) Recovery of energy costs ............ (9) 7 36 NJGRT ............................... (6) (2) 3 Other operating revenues ............ -- 4 16 PSCRC ............................... 4 8 11 ----------------------- ---------------------- ------------------------ Total Electric Revenues ............. $ (125) $ (90) $ (31) ======================= ====================== ========================
Gas Revenues increased $13 million or 7%, $204 million or 18% and $296 million or 19% for the three, nine and twelve-month periods ended September 30, 1996 over the comparable periods of 1995 primarily due to a higher recovery of fuel costs and increased residential sales due to colder weather during the most recent heating season. Other operating revenues reflect increases in off-system sales, which are sales of excess gas to brokers and other utilities who are not part of PSE&G's firm customer base. The effects of those gains on total revenues for the nine and twelve-month periods were depressed by approximately $13 million due to a favorable special rate adjustment in 1995. The significant components of these changes follow:
Increase or (Decrease) ------------------------------------------------------------------------------ Three Months Ended Nine Months Ended Twelve Months Ended September 30, September 30, September 30, 1996 vs. 1995 1996 vs. 1995 1996 vs. 1995 ----------------------- ----------------------- ------------------------ Amount Amount Amount ----------------------- ----------------------- ------------------------ (Millions) Therm sales ......................... $ (8) $ 32 $ 37 Recovery of fuel costs .............. 25 166 225 NJGRT ............................... -- -- 22 Other operating revenues ............ (4) 6 12 ----------------------- ----------------------- ------------------------ Total Gas Revenues .................. $ 13 $ 204 $ 296 ======================= ======================= ========================
Expense Fuel Expenses Variances in fuel expenses do not directly affect earnings because of fuel adjustment clauses which are part of PSE&G's rates. However, if the Agreement regarding the resolution of three regulatory issues is approved by the BPU as filed, future changes in electric fuel and replacement power costs could impact earnings (see Note 3, Rate Matters, of Notes). Operation and Maintenance Expenses Operation and maintenance expenses decreased $24 million or 8% for the three-month period ended September 30, 1996 from the comparable 1995 period. There was an increase of $61 million or 7% and $46 million or 4% for the nine and twelve-month periods ended September 30, 1996 when compared to the same 1995 periods. The decrease during the three-month period was primarily due to lower outside contractor usage for restart activities at Salem. The nine and twelve-month increases were primarily due to overall higher refueling outage and restart activity expenses at Salem and Hope Creek. Depreciation and Amortization Expenses Depreciation and amortization expenses increased $4 million or 3%, $14 million or 3% and $27 million or 5% for the three, nine and twelve-month periods ended September 30, 1996 over the comparable 1995 periods. The increases were due primarily to the completion of the repowering of the Bergen Generating Station in September 1995. Federal Income Taxes Federal income taxes decreased $48 million or 44%, $60 million or 23% and $23 million or 8% for the three, nine and twelve-month periods ended September 30, 1996 from the comparable 1995 periods. The decreases were primarily due to the decrease in 1996 pre-tax income. The twelve-month decrease was not as significant as the other two periods due to the offset caused by the receipt of a non-taxable insurance benefit in 1994. Allowance for Funds Used During Construction AFDC decreased $5 million or 55%, $19 million or 62% and $31 million or 65% during the three, nine and twelve-month periods ended September 30, 1996 from the comparable 1995 periods. The decreases were primarily the result of a lower AFDC rate and the completion of the repowering of the Bergen Generating Station in September 1995. Other Income Other income decreased $6 million or 38% for the three-month period ended September 30, 1996 from the comparable 1995 period. There was an increase of $9 million or 18% and $15 million or 22% for the nine and twelve-month period ended September 30, 1996 when compared to the same 1995 periods. The primary reason for the nine and twelve-month period increases is the $18 million net gain on the repurchase of certain of PSE&G's outstanding cumulative preferred stock at discounts to par that occurred in the second quarter of 1996. EDHI Net Income
Increase or (Decrease) -------------------------------------------------------------------------------- Three Months Ended Nine Months Ended Twelve Months Ended September 30, September 30, September 30, 1996 vs. 1995 1996 vs. 1995 1996 vs. 1995 ----------------------- ----------------------- --------------------------- Per Per Per Amount Share Amount Share Amount Share --------- --------- ---------- --------- ---------- ------------ (Millions, except Per Share Data) PSRC ................................. $ 5 $ .02 $ 13 $ .05 $ 8 $ .03 CEA .................................. 3 .01 (1) -- (5) (.02) EGDC ................................. 1 .01 -- -- -- -- --------- --------- ---------- --------- ---------- ------------ Continuing Operations ............... 9 .04 12 .05 3 .01 Discontinued Operations - EDC ....... 19 .07 26 .11 59 .24 ========= ========= ========== ========= ========== ============ Total ............................... $ 28 $ .11 $ 38 $ .16 $ 62 $ .25 ========= ========= ========== ========= ========== ============
Continuing Operations EDHI's income from continuing operations was $22 million for the quarter ended September 30, 1996, a $9 million increase over the same period ended September 30, 1995. EDHI's income from continuing operations was $47 million for the nine months ended September 30, 1996, a $12 million increase over the same period ended September 30, 1995. EDHI's income from continuing operations was $56 million for the twelve months ended September 30, 1996, a $3 million increase over the same period ended September 30, 1995. Income from continuing operations for the three, nine and twelve-month periods increased primarily due to PSRC's increased income from its Kohlberg, Kravis, Roberts, and Co. LBO fund, decreased interest expense and CEA's increased operating income from partnership investments for the three-month period. The increase for the twelve month period was partially offset by CEA's decreased income caused by start-up costs related to the commencement of two projects as well as higher administrative and general expenses. Discontinued Operations EDHI's income from discontinued operations was $16 million, $24 million and $61 million for the three, nine and twelve-month periods ended September 30, 1996, respectively. The income from discontinued operations includes a $13.5 million gain on the sale of EDC recorded in July 1996. EDC's income from operations was $3 million, $11 million and $48 million for the aforementioned periods which increased by $5 million, $13 million and $45 million over the same periods ended September 30, 1995. Such increases were caused by higher gas prices as well as higher oil prices and volumes in addition to the realization of a settlement related to a take-or-pay sales contract in November 1995. Liquidity and Capital Resources Enterprise's liquidity is affected by maturing debt, investment and acquisition activities, the capital requirements of PSE&G's and EDHI's construction and investment programs, permitted and timely regulatory recovery of PSE&G expenses and collection of revenues. Capital resources available to meet such requirements depend upon general and regional economic conditions, PSE&G's customer retention and growth, the ability of PSE&G and EDHI to meet competitive pressures and to contain costs, the adequacy and timeliness of rate relief, cost recovery and necessary regulatory approvals, the ability to continue to operate and maintain its nuclear plants in accordance with NRC and BPU requirements, the impact of environmental regulations, continued access to the capital markets and continued favorable regulatory treatment of consolidated tax benefits. For additional information, see the discussion of Competition above and Note 4, Commitments and Contingent Liabilities, of Notes. PSE&G For the nine-month period ended September 30, 1996, PSE&G had utility plant additions, including AFDC, of $440 million, a decrease of $66 million from the corresponding 1995 period. For the twelve-month period ended September 30, 1996, PSE&G had utility plant additions, including AFDC, of $620 million, a decrease of $201 million from the corresponding 1995 period. The nine and twelve-month decreases were primarily due to the completion of the Bergen Generating Station repowering project in September 1995. PSE&G expects that it will be able to internally generate all of its capital requirements, including construction expenditures, over the next five years and reduce its debt outstanding by approximately $1 billion, assuming adequate and timely recovery of costs, as to which no assurances can be given (see Note 3, Rate Matters, and Note 4, Commitments and Contingent Liabilities, of Notes). EDHI During the next five years, a majority of EDHI's capital requirements are expected to be provided from additional debt financing and operational cash flows. CEA is expected to be the primary vehicle for EDHI's business growth. A significant portion of CEA's growth is expected to occur in the international arena due to the current and anticipated growth in electric capacity required in certain regions of the world. EDHI may pursue various other business growth opportunities, including a domestic energy services corporation. PSRC will continue to limit new investments to those related to energy businesses, while Enterprise Group Development Corporation (EGDC) will continue to exit the real estate business in a prudent manner. Over the next several years, EDHI and its subsidiaries will be required to refinance a portion of their maturing debt in order to meet their capital requirements. Any inability to extend or replace maturing debt and/or existing agreements at current levels and interest rates may affect future earnings. At September 30, 1996, EDHI had approximately $170 million of cash and cash equivalents on hand. PSRC is a limited partner in various limited partnerships and is committed to make investments from time to time, upon the request of the respective general partners. At September 30, 1996, $33 million remained as PSRC's unfunded commitment related to these investments subject to call. EDHI and each of its subsidiaries are subject to restrictive business and financial covenants contained in existing debt agreements. EDHI is required to maintain a debt to equity ratio of no more than 2.00:1 and a twelve-month earnings before interest and taxes (EBIT) coverage ratio of at least 1.50:1. As of September 30, 1996, EDHI had a consolidated debt to equity ratio of 1.13:1. For the twelve months ended September 30, 1996, excluding the discontinued operations of EDC, the EBIT coverage ratio, as defined to exclude the effects of EGDC, was 2.73:1. Compliance with applicable financial covenants will depend upon future financial position and levels of earnings, as to which no assurance can be given. Internal Generation of Cash From Continuing Operations Enterprise Enterprise's cash provided by operations for the nine months ended September 30, 1996 decreased $38 million to $994 million from the corresponding 1995 period. Enterprise's cash provided by operations for the twelve months ended September 30, 1996 decreased $36 million to $1,429 million from the corresponding 1995 period. External Financings Enterprise Enterprise has a $25 million bank line of credit. At September 30, 1996, Enterprise had no borrowings under this line of credit. PSE&G PSE&G has BPU authority to issue approximately $4.852 billion aggregate amount of additional Bonds/MTNs/Preferred Stock/Preferred Securities through 2000 for refunding purposes. Under its Mortgage, PSE&G may issue new First and Refunding Mortgage Bonds (Bonds) against previous additions and improvements and/or retired Bonds provided that its ratio of earnings to fixed charges is at least 2:1. As of September 30, 1996, the Mortgage would permit up to $2.92 billion aggregate principal amount of new bonds to be issued against previous additions and improvements. At September 30, 1996, this Mortgage ratio was 3.26:1. In January 1996, PSE&G issued $350 million of its Bonds. The net proceeds from the sale were deposited in an escrow account for the purpose of refunding the 8 3/4% Series EE due 2021 ("Series EE Bonds") and the 8 3/4% Series HH due 2022 ("Series HH Bonds") Bonds at their respective first optional redemption dates (November 1, 1996 for the Series EE Bonds and February 1, 1997 for the Series HH Bonds). On November 1, 1996, the Series EE Bonds were redeemed. The BPU has authorized PSE&G to issue and have outstanding at any one time through January 1, 1997 not more than $1 billion of short-term obligations, consisting of commercial paper and other borrowings from banks and other lenders. PSE&G filed a petition with the BPU on October 24, 1996 that, if approved, would increase this authorization amount to $1.3 billion and extend the authorization period to January 2, 1999. On September 30, 1996, PSE&G had $524 million of short-term debt outstanding. To provide liquidity for its commercial paper program, PSE&G has a $500 million one-year revolving credit agreement expiring in August 1997 and a $500 million five-year revolving credit agreement expiring in August 2000 with a group of commercial banks, which provide for borrowings of up to one year. On September 30, 1996, there were no borrowings outstanding under either of these credit agreements. Public Service Conservation Resources Corporation (PSCRC) has a $30 million revolving credit facility supported by a PSE&G subscription agreement in an aggregate amount of $30 million which terminates on March 6, 1997. As of September 30, 1996, PSCRC had $30 million outstanding under this facility. In March 1996, PSCRC entered into a $40 million secured term loan facility for loans maturing in three to five years. The agreement terminates in March 1998. As of September 30, 1996, there was $20 million outstanding under this facility. PSE&G Fuel Corporation (Fuelco) has a $125 million commercial paper program to finance PSE&G's 42.49% share of Peach Bottom nuclear fuel, supported by a $125 million revolving credit facility with a group of banks. The credit facility expires in 2001. PSE&G has guaranteed repayment of Fuelco's respective obligations. As of September 30, 1996, Fuelco had commercial paper of $90 million outstanding under the program and the facility. EDHI Through July 31, 1996, Enterprise Capital Funding Corporation (Funding) had a commercial paper program, supported by a commercial bank letter of credit and credit facility, in the amount of $225 million. Additionally, Funding had a $225 million revolving credit facility. Both facilities were scheduled to expire in March 1998. On July 31, 1996, Funding amended and restated its commercial paper program and revolving credit facility in conjunction with the sale of EDC, reducing the total amount from $450 million to $300 million and extending the maturity from March 1998 to July 1999. The $225 million commercial paper program was eliminated and the $225 million revolving credit facility was increased to $300 million. As of September 30, 1996, Funding had no borrowings outstanding under the amended and restated facility. PSE&G Capital Corporation's (Capital) MTN program provides for an aggregate principal amount of up to $650 million of MTNs so that its total debt outstanding at any time, including MTNs, would not exceed such amount. At September 30, 1996, Capital had total debt outstanding of $461 million, which consisted primarily of MTNs. Public Service Electric and Gas Company The information required by this item is incorporated herein by reference to the following portions of Enterprise's Management's Discussion and Analysis of Financial Condition and Results of Operations, insofar as they relate to PSE&G and its subsidiaries: Recent Developments; Competition; Nuclear Operations; Results of Operations; Liquidity and Capital Resources; Internal Generation of Cash from Operations; and External Financings. Information Regarding Forward Looking Statements The Private Securities Litigation Reform Act of 1995 (the Act) provides a new "safe harbor" for forward-looking statements to encourage such disclosures without the threat of litigation providing those statements are identified as forward-looking and are accompanied by meaningful, cautionary statements identifying important factors that could cause the actual results to differ materially from those projected in the statement. Forward-looking statements have been and will be made in written documents and oral presentations of Enterprise and PSE&G. Such statements are based on management's beliefs as well as assumptions made by and information currently available to management. When used in Enterprise and PSE&G's documents or oral presentations, the words "anticipate", "estimate", "expect", "objective" and similar expressions are intended to identify forward-looking statements. 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; an increasingly competitive energy marketplace; sales retention and growth potential in a mature service territory and a need to contain costs; ability to obtain adequate and timely rate relief, cost recovery, including the potential impact of stranded costs, and other necessary regulatory approvals; federal and state regulatory actions; costs of construction; operating restrictions, increased cost and construction delays attributable to environmental regulations; controversies regarding electric and magnetic fields; nuclear decommissioning and the availability of reprocessing and storage facilities for spent nuclear fuel; and credit market concerns with these issues. Enterprise and PSE&G undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The foregoing review of factors pursuant to the Act should not be construed as exhaustive or as any admission regarding the adequacy of disclosures made by Enterprise and PSE&G prior to the effective date of the Act. PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED PART II. OTHER INFORMATION Item 1. Legal Proceedings Morton International, Inc. and the Velsicol Chemical Corporation ("Plaintiffs") have instituted separate suits (Morton International, Inc. v. A.E. Staley Manufacturing Co., et al. Civil Action No. 96-3609 (NHP) and Velsicol Chemical Corporation, et al. v. A.E. Staley Manufacturing Co., et al. Civil Action No. 96-3610 (NHP)) in the United States District Court in Newark, New Jersey against one hundred and seven (107) defendants, including PSE&G. The suits are contribution actions pursuant to the Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended, and the New Jersey Spill and Compensation Act seeking contribution for an equitable share of all liability response costs and damages Plaintiffs anticipate they will incur in connection with the investigation and remediation of a forty (40) acre parcel of land in WoodRidge, New Jersey and adjoining water body known as Berry's Creek. Plaintiffs have not initiated any remedial actions to date either at the site or the adjacent Creek. While Plaintiffs anticipate that the investigation of the site will cost approximately $4 million, they have no current estimate of the costs for remediation of the site and/or the investigation and remediation of the Creek. PSE&G's alleged nexus to the site is based on shipments of quantities of mercury from its Kearny Generating Station and other unnamed facilities. Since Plaintiffs have only provided PSE&G with representative nexus information, PSE&G is not able at the current time to determine the precise nature and significance of any nexus to the site. As previously reported, PSE&G and the three other co-owners of Salem filed suit in February 1996 in the United States District Court for the District of New Jersey against Westinghouse Electric Corporation (Westinghouse) seeking damages to recover the cost of replacing the steam generators at Salem Units 1 and 2. The suit alleges fraud and breach of contract by Westinghouse in the sale, installation and maintenance of the generators. In April 1996, Westinghouse filed an answer and $2.5 million counterclaim for unpaid work related to services at Salem. PSE&G cannot predict the outcome of these proceedings. Also previously reported, the co-owners of Salem have filed lawsuits against Enterprise and PSE&G in the United States District Court for the Eastern District of Pennsylvania and in the New Jersey Superior Court alleging mismanagement by PSE&G in its operation of Salem and are seeking unspecified compensatory and punitive damages. PSE&G's answers in these matters have been filed and discovery is proceeding. While PSE&G cannot predict the outcome of these proceedings, PSE&G believes it has operated Salem in accordance with the requirements of the owners agreement and applicable law and that it has substantial and valid defenses to these claims. On July 30, 1996, the Court issued an Order scheduling discovery and setting a trial for May 1997. Certain information reported under Item 3 of Part I of Enterprise's and PSE&G's Annual Report to the SEC on Form 10-K for 1995 (the "Form 10-K") is updated herein at the respective pages indicated. References are to the related pages and paragraph(s) of this report. As previously reported in the Form 10-K at page 39 and in a prior Form 8-K, four shareholder derivative action civil complaints have been filed against Enterprise and certain of its directors and officers seeking to recover unspecified damages for alleged losses purportedly arising out of PSE&G's operations of Salem and Hope Creek. These actions have been consolidated and a case management order to deal with discovery and motions has been issued. The defendants have filed motions to dismiss these proceedings, which motions are presently pending. In addition, see the following at the pages indicated: (1) Page 12. Proceedings before the BPU relating to PSE&G's proposed Alternative Rate Plan, Docket No. E096010028. Form 10-K, Page 73; First Quarter Form 10-Q, Page 11; Second Quarter Form 10-Q, Page 12. (2) Page 13. Proceedings before the BPU relating to PSE&G's LGAC filed October 2, 1995, Docket No. GR9510456. Form 10-K, Page 75. First Quarter Form 10-Q, Page 13; Second Quarter Form 10-Q, Page 15. (3) Page 13. Proceedings before the BPU relating to recovery of replacement power costs in connection with the April 1994 Salem 1 shutdown, Docket No. ER94070293. Form 10-K, Page 75; First Quarter Form 10-Q, Page 13, Second Quarter Form 10-Q, Page 15. (4) Page 12. Generic proceeding before the BPU relating to recovery of capacity costs associated with power purchases from cogenerators, Docket No. EX93060255. Form 10-K, Page 76; First Quarter Form 10-Q, Page 13; Second Quarter Form 10-Q, Page 17. (5) Page 14. Generic proceedings before the BPU relating to standards for "off tariff" negotiated rate agreement programs, Docket No. EX95070320. Form 10-K, Page 76. First Quarter Form 10-Q, Page 13; Second Quarter Form 10-Q, Page 16. (6) Page 13. Proceedings before the BPU relating to PSE&G's LGAC filed July 30, 1996, Docket No. GR96070554. Second Quarter Form 10-Q, Page 15. (7) Page 13. Proceedings before the BPU relating to PSE&G's RAC filed July 30, 1996, Docket No. GR96070555. Second Quarter Form 10-Q, Page 15. (8) Page 14. Generic proceeding before the BPU relating to the matter of an inquiry into methods of implementation of SFAS-106, Docket No. AX96070530. Second Quarter Form 10-Q, Page 17; Second Quarter Form 10-Q, Page 17. (9) Page 14. Proceedings before the BPU relating to PSE&G's proposed CTC filed September 19, 1996, Docket No. ET96090669. (10) Page 14. Proceedings before the BPU relating to PSE&G's first Off Tariff Rate Agreement (OTRA), Docket No. OTRA-96-1. Item 5. Other Information Certain information reported under Enterprise's and PSE&G's 1995 Annual and 1996 Quarterly Reports to the Securities and Exchange Commissions is updated below. References are to the related pages of the Form 10-K and the first and second quarter 10-Q's as printed and distributed. Nuclear Operations Second Quarter 10-Q, Page 44 On October 23, 1996, PSE&G received a $150,000 civil penalty from the NRC for five violations identified during inspection activities earlier this year and discussed at an enforcement conference on June 11, 1996. The first two violations involved a failure to plan and perform appropriate surveillance testing, and were assigned an aggregate severity level III violation. The second two violations concerned failure to provide timely identification and correction of problems involving safety related equipment, also assigned severity level III. An additional severity level III violation was noted for incorrect service water throttle valve settings. No civil penalty was assigned for this violation, since the condition was self-identified and appropriate corrective actions were taken. PSE&G will not dispute these violations. Second Quarter 10-Q, Page 45 On July 5, 1996, the NRC notified PSE&G of the need for a predecisional enforcement conference for apparent violations involving alleged discrimination against two employees for their engagement in protected activities in accordance with federal regulations. The enforcement conference was held on September 11, 1996. PSE&G cannot predict what actions the NRC may take in this matter. First Quarter 10-Q, Page 44 In a separate matter, as a result of several Boiling Water Reactors (BWR) experiencing clogging of some emergency core cooling system suction strainers, which supply water from the suppression pool for emergency cooling of the core and related structures, the NRC issued a Bulletin dated May 6, 1996 to operators of BWRs requesting measures be taken to minimize the potential for clogging. The NRC has proposed three resolution options, with a request that actions be completed by the end of the unit's first refueling outage after January 1997. Alternative resolution options will be subject to NRC approval. PSE&G has responded to the NRC, indicating its intention to comply with the Bulletin, and expects to submit its planned actions and schedules within 90 days after the NRC approves a utility resolution guidance document. PSE&G cannot predict what other actions, if any, the NRC may take in this matter. Form 10-K, Page 7 and Second Quarter 10-Q, Page 42 In July, the member companies of Pennsylvania-New Jersey-Maryland Interconnection (PJM), except PECO, filed a proposal to reorganize PJM into an independent system operator (ISO) in response to FERC's open access proposed rulemaking. PECO filed a separate proposal with FERC. On November 13, 1996, FERC, at its public meeting, announced that it was rejecting the restructuring proposals of both PECO and the other PJM companies due to concerns regarding the independence of the proposed ISO, among other things. The text of FERC's order has not been received as of the date of this filing. PSE&G cannot yet assess the impact of FERC's order on the restructuring proposals. Form 10-K, Page 14 PECO has advised PSE&G that Peach Bottom 3 was examined during its Fall 1995 refueling outage and the extent of cracking identified was determined to be within industry-established guidelines. In a letter to the NRC dated November 3, 1995, PECO concluded that there is a substantial margin for each core shroud weld to allow for continued operations of Unit 3. PECO has also advised that Peach Bottom 2 was reinspected during its Fall 1996 refueling outage, and while additional minor flaw indications were discovered, PECO concluded and the NRC concurred that neither repair nor modification to the core shroud was necessary prior to restarting the reactor. New Matters In August 1996, the NRC conducted an inspection of the Physical Security Program for Salem and Hope Creek. Based on the results of that inspection, six apparent violations have been identified and are being considered for escalated enforcement. These apparent violations include the failure to: 1) control photo badge key cards; 2) properly search an individual prior to entrance to the protected area; 3) notify the nuclear shift supervisor of a potential threat event; 4) deactivate photo badges for individuals who no longer require site access; 5) complete training for security supervisors prior to assignment of duties; and 6) test an intrusion detection system in accordance with procedures. On September 3, 1996, PSE&G met with the NRC to discuss these issues and provide specific corrective actions. An enforcement conference will be held on November 14, 1996 to address these apparent violations. PSE&G cannot predict what other actions the NRC may take on this matter. In October 1996, PSE&G, along with other nuclear plant owners, received a request for information regarding the adequacy and availability of each plant's design bases data. The NRC is requiring that information be submitted under oath and affirmation to provide it added confidence and assurance that all nuclear units are operated and maintained within the design bases of the facilities and that any deviations are reconciled in a timely manner. Although PSE&G has yet to formulate a response to the NRC's request, it is anticipated that design bases reviews, similar to the extensive efforts already performed for Salem Unit 2, will be undertaken for Salem Unit 1 and Hope Creek. Since the information to be submitted will be used by the NRC to determine follow-up inspection activity or potential enforcement actions, PSE&G cannot predict at this time what impact the NRC's request will have. Item 6. Exhibits and Reports on Form 8-K (a) A listing of exhibits being filed with this document is as follows: Exhibit Number Document 12 Computation of Ratios of Earnings to Fixed Charges plus Preferred Securities Dividend Requirements (Enterprise). 12(A) Computation of Ratios of Earnings to Fixed Charges (PSE&G). 12(B) Computation of Ratios of Earnings to Fixed Charges plus Preferred Securities Dividend Requirements (PSE&G). 27(A) Financial Data Schedule (Enterprise) 27(B) Financial Data Schedule (PSE&G) (b) Reports on Form 8-K. Registrant Date of Report Item Reported Enterprise 7-2-96 Item 5, Item 7 Enterprise and PSE&G 7-22-96 Item 5, Item 7 Enterprise 10-23-96 Item 5, Item 7 PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused these reports to be signed on their respective behalf by the undersigned thereunto duly authorized. PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED PUBLIC SERVICE ELECTRIC AND GAS COMPANY (Registrants) By: PATRICIA A. RADO Patricia A. Rado Vice President and Controller (Principal Accounting Officer) Date: November 14, 1996
EXHIBIT 12 PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES PLUS PREFERRED SECURITIES DIVIDEND REQUIREMENTS 12 Months Ended YEARS ENDED DECEMBER 31, September 30, ------------ ------------ ------------ ------------- ------------- 1991 (A) 1992 (A) 1993 (A) 1994 1995 1996 ------------ ------------ ------------ ------------- ------------- ----------------- (THOUSANDS) Earnings as Defined in Regulation S-K: Net Income 543,035 504,117 595,519 679,033 662,323 636,757 Federal Income Taxes (B) 274,146 253,276 316,010 322,824 364,355 294,035 Fixed Charges 530,308 580,364 570,505 568,611 580,432 529,854 ------------ ------------ ------------ ------------- ------------- ----------------- Earnings 1,347,489 1,337,757 1,482,034 1,570,468 1,607,110 1,460,646 ============ ============ ============ ============= ============= ================= Fixed Charges as Defined in Regulation S-K (C): Total Interest Expense (D) 478,321 524,025 502,534 495,925 496,060 453,503 Interest Factor in Rentals 9,311 9,591 11,090 12,120 11,956 11,164 Subsidiaries' Preferred Stock Dividend Requirements 29,012 31,907 38,114 42,163 49,426 50,448 Adjustment to preferred and preference stock dividends to state on a pre-income tax basis 13,664 14,841 18,767 18,403 22,990 14,739 ------------ ------------ ------------ ------------ ------------- ----------------- Total Fixed Charges 530,308 580,364 570,505 568,611 580,432 529,854 ============ ============ ============ ============= ============= ================= Ratio of Earnings to Fixed Charges 2.54 2.30 2.59 2.76 2.77 2.76 ============ ============ ============ ============= ============= =================
(A) Excludes cumulative effect of $5.4 million credit to income reflecting a change in income taxes. (B) Includes state income taxes and federal income taxes for other incomes (C) Fixed Charges represent (a) interest, whether expensed or capitalized, (b) amortization of debt discount, premium and expense, (c) an estimate of interest implicit in rentals, and (d) Preferred Securities Dividend Requirements of subsidiaries, increased to reflect the pre-tax earnings requirement for Public Service Enterprise Group Incorporated. (D) Excludes 1991 and 1992 interest expense on decommissioning costs of $6,956 and $5,208, respectively. Effective January 1, 1992, accounting was changed to follow Federal Energy Regulatory Commission guidelines.
EXHIBIT 12 (A) PUBLIC SERVICE ELECTRIC AND GAS COMPANY COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES 12 Months Ended YEARS ENDED DECEMBER 31, September 30, ------------ ------------- ------------- ------------- ------------- 1991 1992 1993 1994 1995 1996 ------------ ------------- ------------- ------------- ------------- ---------------- (THOUSANDS) Earnings as Defined in Regulation S-K: Net Income 545,479 475,936 614,868 659,406 616,964 528,046 Federal Income Taxes (A) 261,912 223,782 307,414 301,447 325,737 264,591 Fixed Charges 367,828 411,493 401,046 408,045 418,825 436,028 ------------ ------------- ------------- ------------- ------------- ---------------- Earnings 1,175,219 1,111,211 1,323,328 1,368,898 1,361,526 1,228,665 ============ ============= ============= ============= ============= ================ Fixed Charges as Defined in Regulation S-K (B) Total Interest Expense (C) 358,517 401,902 389,956 395,925 406,869 401,208 Interest Factor in Rentals 9,311 9,591 11,090 12,120 11,956 11,164 Subsidiaries' Preferred Stock Dividend Requirements -- -- -- -- -- 23,656 ------------ ------------- ------------- ------------- ------------- ---------------- Total Fixed Charges 367,828 411,493 401,046 408,045 418,825 436,028 ============ ============= ============= ============= ============= ================ Ratio of Earnings to Fixed Charges 3.20 2.70 3.30 3.35 3.25 2.82 ============ ============= ============= ============= ============= ================
(A) Includes state income taxes and federal income taxes for other income (B) Fixed Charges represent (a) interest, whether expensed or capitalized, (b) amortization of debt discount, premium and expense, (c) an estimate of interest implicit in rentals, and (d) Preferred Securities Dividend Requirements of subsidiaries (C) Excludes 1991 and 1992 interest expense on decommissioning costs of $6,956 and $5,208, respectively. Effective January 1, 1992, accounting was changed to follow Federal Energy Regulatory Commission guidelines
EXHIBIT 12 (B) PUBLIC SERVICE ELECTRIC AND GAS COMPANY COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES PLUS PREFERRED SECURITIES DIVIDEND REQUIREMENTS 12 Months Ended YEARS ENDED DECEMBER 31, September 30, ------------ ------------- ------------- ------------- ------------- 1991 1992 1993 1994 1995 1996 ------------ ------------- ------------- ------------- ------------- ----------------- (THOUSANDS) Earnings as Defined in Regulation S-K: Net Income 545,479 475,936 614,868 659,406 616,964 528,046 Federal Income Taxes (A) 261,912 223,782 307,414 301,447 325,737 264,591 Fixed Charges 367,828 411,493 401,046 408,045 418,825 436,028 ------------ ------------- ------------- ------------- ------------- ----------------- Earnings 1,175,219 1,111,211 1,323,328 1,368,898 1,361,526 1,228,665 ============ ============= ============= ============= ============= ================= Fixed Charges as Defined in Regulation S-K (B): Total Interest Expense (C) 358,517 401,902 389,956 395,925 406,869 401,208 Interest Factor in Rentals 9,311 9,591 11,090 12,120 11,956 11,164 Subsidiaries' Preferred Stock Dividend Requirements -- -- -- -- -- 23,656 Preferred Stock Dividends 29,012 31,907 38,114 42,147 49,426 26,792 Adjustment to preferred and preference stock dividends to state on a pre-income tax basis 13,691 14,768 18,843 18,763 23,428 13,931 ------------ ------------- ------------- ------------- ------------- ----------------- Total Fixed Charges 410,531 458,168 458,003 468,955 491,679 476,751 ============ ============= ============= ============= ============= ================= Ratio of Earnings to Fixed Charges 2.86 2.43 2.89 2.92 2.77 2.58 ============ ============= ============= ============= ============= =================
(A) Includes state income taxes and federal income taxes for other income (B) Fixed Charges represent (a) interest, whether expensed or capitalized, (b) amortization of debt discount, premium and expense, (c) an estimate of interest implicit in rentals, and (d) preferred securities dividend requirements of Subsidiaries, increased to reflect the pre-tax earnings requirement for Public Service Electric and Gas Company (C) Excludes 1991 and 1992 interest expense on decommissioning costs of $6,956 and $5,208, respectively. Effective January 1, 1992, accounting was changed to follow Federal Energy Regulatory Commission guidelines. EX-27.A 2 FDS ENTERPRISE
UT This schedule contains summary financial information extracted from SEC Form 10-Q and is qualified in its entirety by reference to such financial statements. The referenced financial statements are unaudited but, in the opinion of Enterprise's management, reflect all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation. 0000788784 PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED 1000 9-MOS DEC-31-1995 JAN-01-1996 SEP-30-1996 PER-BOOK 11,167,943 2,345,649 1,848,651 1,676,117 0 17,038,360 3,741,152 0 1,674,690 5,415,842 568,000 113,392 4,796,539 0 0 643,691 389,475 0 52,564 0 5,058,857 17,038,360 4,467,094 230,238 3,432,657 3,661,655 805,439 570 806,009 339,415 484,475 37,649 484,475 394,944 288,180 993,559 1.98 1.98 State Income Taxes of $4,957 and Federal Income Taxes for Other Income of $1,240 were incorporated into this line item for FDS purposes. In the referenced financial statements, State Income Taxes are included in Taxes - Other and Federal Income Taxes for Other Income are included in Other Income - Miscellaneous.
EX-27.B 3 FDS PSE&G
UT This schedule contains summary financial information extracted from SEC form 10-Q and is qualified in its entirety by reference to such financial statements. The financial statements are unaudited but, in the opinion of PSE&G's management, reflect all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation. 0000081033 PUBLIC SERVICE ELECTRIC AND GAS COMPANY 1000 9-MOS DEC-31-1995 JAN-01-1996 SEP-30-1996 PER-BOOK 11,167,943 519,612 1,362,034 1,669,020 0 14,718,609 2,563,003 594,395 1,387,609 4,545,007 568,000 113,392 4,293,202 0 0 643,691 250,000 0 52,564 0 4,252,753 14,718,609 4,310,333 206,007 3,383,404 3,588,171 722,162 553 722,715 320,438 414,156 19,074 413,575 384,600 259,505 828,777 0 0 State Income Taxes of $1,227 and Federal Income Taxes for Other Income of $1,240 were incorporated into this line item for FDS purposes. In the referenced financial statements, State Income Taxes are included in Taxes - Other and Federal Income Taxes for Other Income are included in Other Income - Miscellaneous. Total interest expense includes Preferred Securities Dividend Requirements.
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