-----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, ScHM6UtNB+YGlwOej+YGrO6AP3xmGomIv+OxeNowe/IZH1uaYEScSOTHUKg46sw+ LehkOgKcc+WUEFt82H3gTg== 0000891092-02-001242.txt : 20021104 0000891092-02-001242.hdr.sgml : 20021104 20021101192748 ACCESSION NUMBER: 0000891092-02-001242 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021104 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: 0717 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-00973 FILM NUMBER: 02807299 BUSINESS ADDRESS: STREET 1: CORPORATE ACCOUNTING SERVICES STREET 2: 80 PARK PLAZA, 9TH FLOOR CITY: NEWARK STATE: NJ ZIP: 07102-4194 BUSINESS PHONE: 973-430-7000 MAIL ADDRESS: STREET 1: CORPORATE ACCOUTNING SERVICES STREET 2: 80 PARK PLAZA, 9TH FLOOR CITY: NEWARK STATE: NJ ZIP: 07102-4194 10-Q 1 e13917_10q.txt FORM 10-Q ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 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, 2002 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. - -------------------------------------------------------------------------------- 001-00973 PUBLIC SERVICE ELECTRIC AND GAS COMPANY 22-1212800 (A New Jersey Corporation) 80 Park Plaza P.O. Box 570 Newark, New Jersey 07101-0570 973-430-7000 http://www.pseg.com 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 __ As of September 30, 2002, 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 ............................................... 1 Item 2. Management's Discussion and Analysis of Financial Condition and .... 12 Results of Operations Item 3. Qualitative and Quantitative Disclosures About Market Risk ......... 20 Item 4. Controls and Procedures ............................................ 20 PART II. OTHER INFORMATION Item 1. Legal Proceedings .................................................. 20 Item 5. Other Information .................................................. 20 Item 6. Exhibits and Reports on Form 8-K ................................... 23 Signature .................................................................. 24 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS PUBLIC SERVICE ELECTRIC AND GAS COMPANY CONSOLIDATED STATEMENTS OF INCOME (Millions) (Unaudited)
For the For the Three Months Ended Nine Months Ended --------------------- --------------------- September 30, September 30, 2002 2001 2002 2001 ------- ------- ------- ------- OPERATING REVENUES Electric Transmission and Distribution .................................. $ 1,164 $ 1,123 $ 2,932 $ 2,952 Gas Distribution ........................................................ 241 272 1,362 1,706 ------- ------- ------- ------- Total Operating Revenues ............................................ 1,405 1,395 4,294 4,658 ------- ------- ------- ------- OPERATING EXPENSES Electric Energy Costs ................................................... 696 677 1,797 1,788 Gas Costs ............................................................... 141 177 857 1,207 Operation and Maintenance ............................................... 230 245 721 742 Depreciation and Amortization ........................................... 123 114 316 272 Taxes Other than Income Taxes ........................................... 31 23 97 92 ------- ------- ------- ------- Total Operating Expenses ............................................ 1,221 1,236 3,788 4,101 ------- ------- ------- ------- OPERATING INCOME ........................................................... 184 159 506 557 Other Income ............................................................... 4 11 15 104 Other Deductions ........................................................... -- (1) (1) (3) Interest Expense ........................................................... (97) (111) (306) (344) Preferred Securities Dividend Requirements of Subsidiaries ................. (3) (4) (10) (22) ------- ------- ------- ------- INCOME BEFORE INCOME TAXES ................................................. 88 54 204 292 Income Taxes ............................................................... (32) 11 (73) (84) ------- ------- ------- ------- NET INCOME ................................................................. 56 65 131 208 Preferred Securities Dividend Requirements and Premium On Redemption ........................................................... (1) -- (3) (4) ------- ------- ------- ------- EARNINGS AVAILABLE TO PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED ........................................... $ 55 $ 65 $ 128 $ 204 ======= ======= ======= =======
See Notes to Consolidated Financial Statements. 1 PUBLIC SERVICE ELECTRIC AND GAS COMPANY CONSOLIDATED BALANCE SHEETS ASSETS (Millions) (Unaudited) September 30, December 31, 2002 2001 ------------- ------------ CURRENT ASSETS Cash and Cash Equivalents ...................... $ 58 $ 102 Accounts Receivable: Customer Accounts Receivable ................. 515 556 Other Accounts Receivable .................... 73 67 Allowance for Doubtful Accounts .............. (31) (38) Unbilled Revenues .............................. 160 291 Natural Gas .................................... -- 415 Materials and Supplies ......................... 53 50 Prepayments .................................... 122 40 Energy Contracts ............................... -- 32 Restricted Cash ................................ 14 12 Other .......................................... 23 22 -------- -------- Total Current Assets ......................... 987 1,549 -------- -------- PROPERTY, PLANT AND EQUIPMENT Electric ....................................... 5,674 5,501 Gas ............................................ 3,401 3,284 Other .......................................... 403 385 -------- -------- Total ........................................ 9,478 9,170 Accumulated Depreciation and Amortization ...... (3,547) (3,329) -------- -------- Net Property, Plant and Equipment ............ 5,931 5,841 -------- -------- NONCURRENT ASSETS Regulatory Assets .............................. 5,049 5,247 Long-Term Investments .......................... 121 112 Other Special Funds ............................ 239 130 Other .......................................... 78 84 -------- -------- Total Noncurrent Assets ...................... 5,487 5,573 -------- -------- TOTAL ASSETS ...................................... $ 12,405 $ 12,963 ======== ======== See Notes to Consolidated Financial Statements. 2 PUBLIC SERVICE ELECTRIC AND GAS COMPANY CONSOLIDATED BALANCE SHEETS LIABILITIES AND CAPITALIZATION (Millions) (Unaudited) September 30, December 31, 2002 2001 ------------- ------------ CURRENT LIABILITIES Long-Term Debt Due Within One Year .............. $ 428 $ 668 Commercial Paper and Loans ...................... 131 -- Accounts Payable ................................ 495 642 Energy Contracts ................................ -- 169 Accrued Taxes ................................... 4 30 Other ........................................... 284 277 -------- -------- Total Current Liabilities ..................... 1,342 1,786 -------- -------- NONCURRENT LIABILITIES Deferred Income Taxes and Investment Tax Credit (ITC) .................................. 2,547 2,551 Regulatory Liabilities .......................... 363 373 Other Postemployment Benefit (OPEB) Costs ....... 480 466 Other ........................................... 206 205 -------- -------- Total Noncurrent Liabilities .................. 3,596 3,595 -------- -------- COMMITMENTS AND CONTINGENT LIABILITIES (see Note 4) CAPITALIZATION LONG-TERM DEBT Long-Term Debt ................................ 2,626 2,626 Securitization Debt ........................... 2,259 2,351 -------- -------- Total Long-Term Debt ........................ 4,885 4,977 PREFERRED SECURITIES Preferred Stock Without Mandatory Redemption .. 80 80 Subsidiaries' Preferred Securities: Guaranteed Preferred Beneficial Interest in Subordinated Debentures ..................... 155 155 -------- -------- Total Preferred Securities .................. 235 235 -------- -------- COMMON STOCKHOLDER'S EQUITY Common Stock; 150,000,000 shares authorized, 132,450,344 shares issued and outstanding ... 892 892 Basis Adjustment .............................. 986 986 Retained Earnings ............................. 471 493 Accumulated Other Comprehensive Loss .......... (2) (1) -------- -------- Total Common Stockholder's Equity ........... 2,347 2,370 -------- -------- Total Capitalization ...................... 7,467 7,582 -------- -------- TOTAL LIABILITIES AND CAPITALIZATION ............... $ 12,405 $ 12,963 ======== ======== See Notes to Consolidated Financial Statements. 3 PUBLIC SERVICE ELECTRIC AND GAS COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (Millions) (Unaudited) For the Nine Months Ended September 30, -------------------- 2002 2001 ------ ---------- CASH FLOWS FROM OPERATING ACTIVITIES Net income .......................................... $ 131 $ 208 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and Amortization ....................... 316 272 Provision for Deferred Income Taxes and ITC ......... (32) (79) Non-Cash Benefit Plan Costs ........................ 106 113 Non-Cash Interest Expense .......................... 19 6 Over Recovery of Electric Energy Costs and Market Transition Charge (MTC) .................... 64 47 Under Recovery of Gas Costs ......................... (66) (145) Net Changes in Certain Current Assets and Liabilities: Accounts Receivable and Unbilled Revenues ......... 159 259 Natural Gas ....................................... 415 (78) Materials and Supplies .......................... (3) (10) Prepayments ....................................... (82) (134) Restricted Cash ................................... (2) (6) Accrued Interest .................................. (19) -- Accrued Taxes ..................................... (26) -- Accounts Payable .................................. (147) (219) Other Current Assets and Liabilities .............. (21) (12) Benefit Plan Funding and Payments .................. (187) (109) Other ............................................... 9 8 ----- ------- Net Cash Provided By Operating Activities ......... 634 121 ----- ------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to Property, Plant and Equipment .......... (322) (268) ----- ------- Net Cash Used in Investing Activities ............. (322) (268) ----- ------- CASH FLOWS FROM FINANCING ACTIVITIES Net Change in Short-Term Debt ....................... 131 (1,543) Issuance of Long-Term Debt .......................... 300 2,525 Deferred Issuance Costs ............................. (2) (201) Redemption/Purchase of Long-Term Debt ............... (632) (326) Collection of Note Receivable - Affiliated Company .. -- 2,786 Redemption of Preferred Securities .................. -- (448) Return of Capital ................................... -- (2,265) Dividends Paid on Common Stock ...................... (150) (112) Dividends Paid on Preferred Stock ................... (3) (4) ----- ------- Net Cash (Used)/Provided By in Financing Activities ...................................... (356) 412 ----- ------- Net Change in Cash and Cash Equivalents ................ (44) 265 Cash and Cash Equivalents at Beginning of Period ....... 102 39 ----- ------- Cash and Cash Equivalents at End of Period ............. $ 58 $ 304 ===== ======= Income Taxes Paid ...................................... $ 124 $ 253 Interest Paid .......................................... $ 338 $ 330 See Notes to Consolidated Financial Statements. 4 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Note 1. Organization and Basis of Presentation Organization Unless the context otherwise indicates, all references to "PSE&G," "we," "us" or "our" herein means Public Service Electric and Gas Company, a New Jersey corporation with its principal executive offices at 80 Park Plaza, Newark, New Jersey 07102 and its consolidated subsidiaries. We are a wholly-owned subsidiary of Public Service Enterprise Group Incorporated (PSEG) and are an operating public utility providing electric transmission and electric and gas distribution service in certain areas within the State of New Jersey. Following the transfer of our generation-related assets to Power in August 2000 and our gas supply portfolio in May 2002, we continue to own and operate our transmission and distribution business. PSEG owns all of our common stock. We also have a wholly-owned subsidiary, PSE&G Transition Funding LLC that was organized for the sole purpose of purchasing and owning bondable transition property (BTP) of PSE&G and issuing securitization bonds. 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 Consolidated Financial Statements (Statements) and Notes to Consolidated Financial Statements (Notes) update and supplement matters discussed in our 2001 Annual Report on Form 10-K and Quarterly Reports on Form 10-Q for the three months ended March 31, 2002 and June 30, 2002 and should be read in conjunction with those reports. The unaudited financial information furnished reflects all adjustments which are, in the opinion of management, necessary to fairly state the results for the interim periods presented. The year-end Consolidated Balance Sheets were derived from the audited Consolidated Financial Statements included in our 2001 Annual Report on Form 10-K. Certain reclassifications of prior period data have been made to conform with the current presentation. Note 2. Recent Accounting Pronouncements Statement of Financial Accounting Standard (SFAS) No. 142, "Goodwill and Other Intangible Assets" (SFAS 142) On January 1, 2002, we adopted SFAS 142. Under SFAS 142, goodwill is considered a nonamortizable asset and is subject to an annual review for impairment and an interim review when indications of impairment arise. At the date of adoption, we did not have any goodwill or other intangible assets on our balance sheet. Therefore, there was no effect on our financial position or results of operations as a result of adopting this standard. SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS 144) On January 1, 2002, we adopted SFAS 144. Upon adoption, SFAS 144 did not have an effect on our financial position or results of operations. Under SFAS 144, long-lived assets to be disposed of are measured at the lower of carrying amount or fair value less costs to sell. Also under SFAS 144, discontinued operations are no longer measured at net realizable value and no longer include amounts for operating losses that have not yet occurred. 5 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued (UNAUDITED) SFAS No. 143, "Accounting for Asset Retirement Obligations" (SFAS 143) In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS 143. Under SFAS 143, the fair value of a liability for an asset retirement obligation (ARO) is required to be recorded in the period in which it is incurred with an offsetting amount recorded as an asset. Upon settlement of the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss upon settlement. SFAS 143 is effective for fiscal years beginning after June 15, 2002. We are currently evaluating the effect of this guidance and any potential impact on our financial position, results of operations and cash flow. The impact may be material to the classification of items on our balance sheet. We currently do not expect any income statement effect due to the adoption of this statement. In August 2002, we filed a petition requesting clarification from the New Jersey Board of Public Utilities (BPU) regarding the future cost responsibility for nuclear decommissioning and whether, as a matter of law and policy; (a) our customers will continue to pay for such costs through the Societal Benefits Clause (SBC) or (b) such customer responsibility will terminate at the end of the four-year transition period on July 31, 2003. We cannot predict the outcome of this matter. SFAS No. 145, "Rescission of FASB Statements Nos. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections" (SFAS 145) During the third quarter of 2002, we adopted SFAS 145. This Statement rescinds SFAS No. 4, "Reporting Gains and Losses from Extinguishments of Debt," (SFAS 4) and an amendment of that Statement, SFAS No. 64, "Extinguishments of Debt Made to Satisfy Sinking Fund Requirements" (SFAS 64). SFAS 4 required that gains and losses from extinguishments of debt that were included in the determination of net income be aggregated, and if material, classified as an extraordinary item. Since the issuance of SFAS 4, the use of debt extinguishments has become part of the risk management strategy of many companies, representing a type of debt extinguishment that does not meet the criteria for classification as an extraordinary item. Based on this trend, the FASB issued this rescission of SFAS 4 and SFAS 64. Accordingly, under SFAS 145, we will record any gains and losses from extinguishments of debt in Other Income or Other Deductions. We adopted SFAS 145 retroactive to January 1, 2002, with no impact to our financial position, results of operations, or net cash flows. SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" (SFAS 146) In June 2002, the FASB issued SFAS 146, which addresses the financial accounting and reporting for costs associated with exit or disposal activities. SFAS 146 states that a liability for a cost associated with an exit or disposal activity shall be recognized and measured initially at its fair value in the period when the liability is incurred. A liability is established only when present obligations to others are determined. SFAS 146 does not apply to costs associated with the retirement of long-lived assets covered in SFAS 143. It applies to costs associated with an exit activity that does not involve an entity newly acquired in a business combination or with a disposal activity covered by SFAS 144. We will apply SFAS 146 for exit or disposal activities initiated after December 31, 2002, in accordance with the effective date of the standard. 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued (UNAUDITED) Note 3. Regulatory Assets and Liabilities At September 30, 2002 and December 31, 2001, respectively, we had deferred the following regulatory assets and liabilities on the Consolidated Balance Sheets: --------------------------- September 30, December 31, 2002 2001 ------------- ------------ (Millions) Regulatory Assets - ----------------- Stranded Costs To Be Recovered ....................... $3,936 $4,105 SFAS 109 Income Taxes ................................ 318 302 Other Postretirement Benefit Plan (OPEB) Costs ....... 198 212 Societal Benefits Charges (SBC) ...................... -- 4 Manufactured Gas Plant Remediation Costs ............. 87 87 Unamortized Loss on Reacquired Debt and Debt Expense . 88 92 Under Recovered Gas Costs ............................ 182 120 Unrealized Losses on Gas Contracts ................... -- 137 Unrealized Losses on Interest Rate Swap .............. 65 18 Repair Allowance Taxes ............................... 93 84 Decontamination and Decommissioning Costs ............ 25 25 Plant and Regulatory Study Costs ..................... 27 31 Regulatory Restructuring Costs ....................... 27 27 Other ................................................ 3 3 ------ ------ Total Regulatory Assets ........................ $5,049 $5,247 ====== ====== Regulatory Liabilities - ---------------------- Excess Depreciation Reserve .......................... $ 208 $ 319 Over Recovered Electric Energy Costs (BGS and NTC) ... 96 48 SBC .................................................. 47 -- Other ................................................ 12 6 ------ ------ Total Regulatory Liabilities ................... $ 363 $ 373 ====== ====== Note 4. Commitments and Contingent Liabilities Hazardous Waste The New Jersey Department of Environmental Protection (NJDEP) regulations concerning site investigation and remediation require an ecological evaluation of potential injuries to natural resources in connection with a remedial investigation of contaminated sites. The NJDEP is presently working with the industry to develop procedures for implementing these regulations. These regulations may substantially increase the costs of remedial investigations and remediations, where necessary, particularly at sites situated on surface water bodies. We and our predecessor companies own or owned and/or operate or operated certain facilities situated on surface water bodies, certain of which are currently the subject of remedial activities. The financial impact of these regulations on these projects is not currently estimable. We do not anticipate that compliance with these regulations will have a material adverse effect on our financial position, results of operations or net cash flows. 7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued (UNAUDITED) Manufactured Gas Plant Remediation Program We are currently working with the NJDEP under a program (Remediation Program) to assess, investigate and, if necessary, remediate environmental conditions at our former manufactured gas plant sites (MGPs). To date, 38 sites have been identified. The Remediation Program is periodically reviewed and revised by us based on regulatory requirements, experience with the Remediation Program and available remediation technologies. The long-term costs of the Remediation Program cannot be reasonably estimated, but experience to date indicates that at least $20 million per year could be incurred over a period of about 30 years since inception of the program in 1988 and that the overall cost could be material. The costs for this remediation effort are recovered through the SBC. At September 30, 2002 and December 31, 2001, our estimated liability for remediation costs through 2004 aggregated $87 million. Expenditures beyond 2004 cannot be reasonably estimated. Passaic River Site The United States Environmental Protection Agency (EPA) has determined that a stretch of the Passaic River in the area of Newark, New Jersey is a "facility" within the meaning of that term under the Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 and that, to date, at least thirteen entities, including us, may be potentially liable for performing required remedial actions to address potential environmental pollution in the Passaic River facility. We and certain of our predecessors conducted industrial operations at properties within the Passaic River "facility". The operations include one operating electric generating station, one former generating station and four former MGPs. Our costs to clean up former MGPs are recoverable from utility customers under the SBC. We have contracted to sell the site of the former generating station, contingent upon approval by state regulatory agencies, to a third party under a contract, that would release and indemnify us for claims arising out of the site. We cannot predict what action, if any, the EPA or any third party may take against us with respect to this matter, or in such event, what costs we may incur to address any such claims. However, such costs may be material. Note 5. Financial Instruments Fair Value of Financial Instruments The estimated fair values were determined using the market quotations or values of instruments with similar terms, credit ratings, remaining maturities and redemptions at September 30, 2002 and December 31, 2001, respectively.
September 30, 2002 December 31, 2001 ------------------------ ----------------------- Carrying Fair Carrying Fair Amount Value Amount Value -------- ------ -------- ------ (Millions) Long-Term Debt: PSE&G ......................................................... $2,926 $3,242 $3,173 $3,290 Transition Funding ............................................ 2,387 2,579 2,472 2,575 Preferred Securities Subject to Mandatory Redemption: Monthly Guaranteed Preferred Beneficial Interest in PSE&G's Subordinated Debentures ............................ 60 61 60 60 Quarterly Guaranteed Preferred Beneficial Interest in PSE&G's Subordinated Debentures ............................ 95 97 95 96
8 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued (UNAUDITED) Commodity-Related Instruments - Interest Rates We are subject to the risk of fluctuating interest rates in the normal course of business. Our policy is to manage interest rate risk through the use of fixed rate debt, floating rate debt and interest rate swaps. Transition Funding has entered into an interest rate swap on its sole class of floating rate transition bonds. The notional amount of the interest rate swap was approximately $497 million. The interest rate swap is indexed to the three-month LIBOR rate. The fair value of the interest rate swap was approximately $(65) million as of September 30, 2002 and $(18) million as of December 31, 2001 and was recorded as a derivative liability, with an offsetting amount recorded as a regulatory asset on the Consolidated Balance Sheets. This amount will vary over time as a result of changes in market conditions. Note 6. Income Taxes A tax (benefit) expense has been recorded for the results of continuing operations. An analysis of that (benefit) expense is as follows:
Three Months Ended Nine Months Ended September 30, September 30, ----------------------- -------------------- 2002 2001 2002 2001 ----------------------------------------------------- (Millions) Pre-Tax Income ..................................................... $88 $54 $204 $292 Tax Computed at the Federal Statutory Rate at 35% .................. 30 19 71 102 Increases (decreases) from Federal statutory rate attributable to: State Income Taxes after Federal Benefit ....................... 7 4 17 22 Plant Related Items ............................................ (3) (31) (10) (41) Other .......................................................... (2) (3) (5) 1 ----------------------------------------------------- Total Income Tax (Benefit) Expense ................................. 32 $(11) $ 73 $ 84 ----------------------------------------------------- Effective Income Tax Rate .................................... 36.3% (20.4)% 35.8% 28.8%
The increase in the effective tax rate for the three and nine months ended September 30, 2002, as compared to the same periods for 2001, is due primarily to the conclusion of the 1994-1996 Internal Revenue Service (IRS) audit and upon filing our actual tax return for the year 2000. Note 7. Financial Information by Business Segments Following the transfer of our generation-related assets to PSEG Power LLC (Power) in August 2000, we continue to own and operate our transmission and distribution (T&D) business as our only reportable segment. 9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued (UNAUDITED) Note 8. Comprehensive Income For the three months ended September 30, 2002 and 2001, our comprehensive income was $56 million and $65 million, respectively. For the nine months ended September 30, 2002 and 2001, our other comprehensive income (loss) (OCI) was $(1) million and $2 million, respectively, relating to our minimum pension liability. For the nine months ended September 30, 2002 and 2001, our comprehensive income was $130 million and $210 million, respectively. Note 9. Other Income
Three Months Ended Nine Months Ended September 30, September 30, --------------------- ------------------- 2002 2001 2002 2001 ---------------------------------------------------- (Millions) Other Income Interest Income ........................................ $ 4 $ 9 $ 13 $ 99 Gain on Disposition of Property ........................ -- 1 1 4 Other .................................................. -- 1 1 1 ---- ---- ---- ---- Total Other Income ......................................... $ 4 $ 11 $ 15 $104 ==== ==== ==== ====
Note 10. Related-Party Transactions PSEG AND POWER In August 2000, we transferred our electric generation assets and liabilities to Power in exchange for a $2.8 billion Promissory Note. Interest on the Promissory Note was payable at an annual rate of 14.23%, which represented our weighted average cost of capital. For the period from January 1, 2001 to January 31, 2001, we recorded interest income of approximately $34 million relating to the Promissory Note. Power repaid the Promissory Note on January 31, 2001. In addition, on January 31, 2001, we loaned $1.1 billion to PSEG at 14.23% per annum and recorded interest income of approximately $33 million relating to the loan for the nine month period ended September 30, 2001. PSEG repaid the loan on April 16, 2001. We also returned $2.3 billion of capital to PSEG on January 31, 2001 utilizing proceeds from the $2.5 billion securitization transaction and the generation asset transfer, as required by the Final Order from the BPU, as part of our recapitalization. 10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- Concluded Effective with the transfer of the electric generation business, Power charges us for the Market Transition Charge (MTC) and charged us for the energy and capacity provided to meet our Basic Generation Service (BGS) requirements through July 31, 2002. The MTC was authorized by the BPU as an opportunity to recover up to $540 million (net of tax) of our unsecuritized generation-related stranded costs on a net present value basis. The amounts we recover from customers through the MTC are paid to Power, thus this does not impact our earnings. For the quarters ended September 30, 2002 and 2001, respectively, we were charged by Power approximately $216 million and $568 million for the MTC and BGS. For the nine months ended September 30, 2002 and 2001, respectively, we were charged by Power approximately $1.2 billion and $1.5 billion for the MTC and BGS. As of December 31, 2001, our payable to Power relating to these costs was approximately $159 million. With commencement of the new BGS contract period on August 1, 2002, Power charges us only for the MTC. As of September 30, 2002 our payable to Power relating to these costs was approximately $1 million. For the quarters ended September 30, 2002 and 2001, respectively, we sold energy and capacity to Power at market prices totaling approximately $48 million and $55 million, which we purchased under various non-utility generation (NUG) contracts at costs above market prices. For the nine months ended September 30, 2002 and 2001, these sales totaled $110 million and $135 million, respectively. As of September 30, 2002 and December 31, 2001, our receivable related to these purchases was approximately $13 million and $7 million, respectively. With commencement of the new BGS contract period on August 1, 2002, we can sell the energy purchased under the NUG contracts in a PJM administered market. We have established an NTC to recover the above market costs related to these NUG contracts. The difference between our costs and recovery of costs through the NTC and sales to Power and third parties, which are priced at the locational marginal price (LMP) set by Pennsylvania-New Jersey-Maryland Power Pool (PJM) for energy and at wholesale market prices for capacity, is deferred as a regulatory asset or liability. Effective May 1, 2002, we transferred our gas supply contracts and gas inventory requirements to Power for approximately $183 million. On the same date, we entered into a requirements contract with Power under which Power will provide the delivered gas supply services needed to meet our Basic Gas Supply Service (BGSS) requirements. The contract term ends March 31, 2004, after which we have a three-year renewal option. As part of the agreement, we are providing Power the use of our peak shaving facilities at cost. The net billings under this contract for the three and nine months ended September 30, 2002 were approximately $111 million and $208 million, respectively. As of September 30, 2002, our net payable to Power relating to these costs was approximately $38 million. PSEG SERVICES CORPORATION PSEG Services Corporation provides administrative services to us and bills us for them on a monthly basis. Our costs related to such services amounted to approximately $46 million and $55 million for the quarters ended September 30, 2002 and 2001, respectively. These costs totaled $149 million and $171 million for the nine months ended September 30, 2002 and 2001, respectively. As of September 30, 2002 and December 31, 2001, our payable related to these costs was approximately $15 million and $25 million, respectively. 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Unless the context otherwise indicates, all references to "PSE&G," "we," "us" or "our" herein means Public Service Electric and Gas Company (PSE&G), a New Jersey corporation with its principal executive offices at 80 Park Plaza, Newark, New Jersey 07102. This discussion makes reference to our Consolidated Financial Statements (Statements) and related Notes to the Consolidated Financial Statements (Notes) and should be read in conjunction with such Statements and Notes. Following are the significant changes in or additions to information reported in our 2001 Annual Report on Form 10-K and Quarterly Reports on Form 10-Q for the quarters ended March 31, 2002 and June 30, 2002 affecting the consolidated financial condition and the results of operations of our subsidiaries and us. This discussion refers to our Consolidated Financial Statements (Statements) and related Notes to Consolidated Financial Statements (Notes) and should be read in conjunction with such Statements and Notes. OVERVIEW For the quarter ended September 30, 2002, net income decreased $9 million or 14% as compared to the quarter ended September 30, 2001 primarily due to higher income tax expense. Offsetting the tax expense increase was an increase in our electric and gas margins (approximately 5%), primarily due to increased electric volumes, and lower (approximately 6%) operations and maintenance expense. The tax expense increase was due to adjustments recorded in 2001 as a result of the completion of the 1994-1996 Internal Revenue Service (IRS) audit and the actual filing of the 2000 tax return. For further discussion, see Results of Operations. For the nine months ended September 30, 2002, net income decreased $77 million or 37% as compared to the nine months ended September 30, 2001 primarily due to a decrease in our operating margin on our electric and gas business and a decrease in other income. While our electric margin decreased (approximately 2%), primarily due to lower Demand Side Management (DSM) and fiber optic sales, our gas margins increased (approximately 1%) due to an increase in gas base rates offset by lower sales volumes due to weather. The decrease in other income was due to intercompany notes with PSEG and Power, which were repaid in early 2001. For further discussion, see Results of Operations. Our cash position decreased $44 million from December 31, 2001 to September 30, 2002 primarily due to $322 million and $356 million of cash outflows for investing and financing activities, respectively, offset by $634 million of operating cash inflows. The operating cash inflows were primarily comprised of the gas contract transfer to PSEG Power LLC (Power), the restructuring of our non-utility generation (NUG) contract with El Paso Merchant Energy, and cash earnings during the period offset by benefit plan payments and prepayments of taxes. Our investing cash outflows related primarily to construction expenditures. Our financing cash outflows related primarily to the redemption of the Class A-1 series of Transition Funding LLC (Transition Funding)'s transition bonds, the maturity of long-term debt, and cash dividends paid on common and preferred stock offset by the issuance of long and short-term debt. Our future cash activities will be impacted by various factors, including the recent Basic Generation Service (BGS) auction, which went into effect August 1, 2002. We have contracted for our energy needs for our expected peak load of 9,600 MW for the period August 1, 2002 through July 31, 2003. The difference between the current auction contract prices and the amount we are recovering from customers will result in a underrecovery of BGS costs of approximately $240 million annually, which will be deferred and collected from our customers with interest as provided in the New Jersey Board of Public Utilities (BPU) Order approving the auction process. In addition, recent downturns in the stock markets could affect the value of our pension plans that may result in a charge to our 12 stockholders' equity at year-end. If required, this would result in an increase to our debt to capitalization ratio. See Accounting Matters for further information. Under the Basic Gas Supply Service (BGSS) requirements, our gas costs in excess of (or below) the amount included in current commodity rates, are probable of being recovered from (returned to) customers through future commodity rates. Under SFAS 71, "Accounting for the Effects of Certain Types of Regulation" (SFAS 71), we defer (record) costs in excess of (or below) the amount included in current commodity rates. Therefore any increase or decrease in our gas commodity revenue is offset by a corresponding increase or decrease in gas costs on the income statement. Underrecovered gas costs do not accrue interest, unless specifically approved by the BPU, while overrecovered gas costs do accrue interest. The BGSS rate is normally adjusted on an annual basis. In September 2002, we filed to increase our Residential Basic Gas Supply Service (BGSS) Commodity Charge to recover approximately $89 million in additional revenues, which includes $83 million for underrecovered costs accumulated since October 31, 2001. On January 9, 2002 the BPU approved the recovery of our underrecovered BGSS (formerly LGAC) balance at October 31, 2001 of $130 million plus interest through a Gas Cost Underrecovery Adjustment (GCUA). This balance is being recovered, with interest over a three-year period ending September 2004. The underrecovered balance at September 30, 2002 is $115 million. Our success will be dependent, in part, on our ability to obtain a reasonable outcome, which cannot be assured, to our recently filed electric rate case as well as our ability to continue to recover the regulatory assets we have deferred and the investments we plan to make in our electric and gas transmission and distribution systems. Mitigating this rate increase to customers are overrecoveries of the SBC and NTC and the potential securitization of the expected BGS underrecovery. As part of the deregulation process, as of September 30, 2002, we have implemented BPU-mandated rate reductions totaling 13.9% since August 1, 1999, including a 4.9% rate reduction effective August 1, 2002, which will be in effect until July 31, 2003. This rate reduction reduces the MTC revenues and is offset by a corresponding decrease in energy costs as it reduces the rate that Power charges us and therefore has no impact on our operating margins. RESULTS OF OPERATIONS Operating Revenues Electric Transmission and Distribution Electric Transmission and Distribution revenues increased $41 million or 4% for the quarter ended September 30, 2002 as compared to the quarter ended September 30, 2001, primarily due to higher BGS revenues (approximately $43 million) due to increased residential volumes from favorable weather conditions. Partially offsetting this increase was the implementation of a 4.9% electric retail rate reduction in August of 2002 and a 2% rate reduction in August 2001 (approximately $42 million). These rate reductions are recorded as Market Transition Charge (MTC) revenues. Changes in the BGS/MTC revenues are offset by a corresponding amount in energy costs, discussed below, and have no impact on net income. Other revenue changes included higher distribution sales volumes primarily due to favorable weather conditions (approximately $39 million), and higher transmission revenues (approximately $3 million) due to higher payments from PJM for the use of our transmission system. These increases were offset by a decrease in fiber optic revenue (approximately $2 million), due to unfavorable market conditions. Electric Transmission and Distribution revenues decreased $20 million or 1% for the nine months ended September 30, 2002 as compared to the nine months ended September 30, 2001 primarily due to the implementation of a 4.9% electric retail rate reduction in August 2002 and two additional retail rate reductions in February and August 2001 totaling 4% (approximately $85 million) and reduced NUG sales due to lower market rates (approximately $13 million). Partially offsetting these decreases were higher BGS or commodity sales volumes (approximately $90 million), primarily due to favorable weather conditions. Rate reductions are recorded as MTC revenues. Changes in 13 the BGS, MTC and NUG revenues are offset by a corresponding amount in energy costs, discussed below, and have no impact on net income. Other revenue changes included higher distribution sales volumes primarily due to favorable weather conditions (approximately $4 million), higher transmission revenues (approximately $18 million), due to higher payments from PJM for the use of our transmission system, lower replacement capacity charges (approximately $7 million), lower DSM sales due to revenue adjustments in 2001 (approximately $19 million) and a decrease in fiber optic revenue (approximately $5 million), due to unfavorable market conditions. Gas Distribution Gas distribution revenues decreased $31 million or 11% for the quarter ended September 30, 2002 as compared to the quarter ended September 30, 2001 primarily due to decreased commodity revenues from lower commodity rates (approximately $16 million), lower sales to interruptible customers due to lower sales volumes at lower rates (approximately $12 million), lower sales volumes primarily due to weather (approximately $8 million) and lower off-system sales revenues (approximately $6 million). The lower sales volumes to interruptible customers resulted from less usage by cogenerators for operations at the customers' facilities. These decreases were offset by increased gas base rates (approximately $7 million), which became effective January 9, 2002 and increased other operating revenues (approximately $3 million). Changes in commodity revenues and revenues from sales to interruptible customers are offset by corresponding changes in gas costs, discussed below. Gas distribution revenues decreased $344 million or 20% for the nine months ended September 30, 2002 as compared to the nine months ended September 30, 2001 primarily due to decreased commodity rates (approximately $176 million), lower sales to interruptible customers (approximately $111 million), lower sales volumes primarily from the warmer winter in 2002 (approximately $90 million), lower off-system sales revenues (approximately $14 million) partially offset by increased gas base rates (approximately $43 million) and higher other operating revenues (approximately $7 million). Changes in commodity revenues and revenues from sales to interruptible customers are offset by corresponding changes in gas costs, discussed below. Operating Expenses Electric Energy Costs Electric Energy costs increased $19 million or 3% for the quarter ended September 30, 2002 as compared to the quarter ended September 30, 2001 primarily due to higher commodity sales volumes under the BGS contract (approximately $43 million), increases in the amortization of the excess electric distribution depreciation reserve (approximately $6 million) discussed below in Depreciation and Amortization, increases in MTC charges from Power, other than rate reductions, (approximately $6 million) and increases in Non-Utility Generation Transition Charge (NTC) costs due to higher sales volumes (approximately $3 million). Partially offsetting the increases is the impact of the rate reductions (approximately $42 million) discussed above in Electric Transmission and Distribution Revenues. Electric Energy costs increased $9 million or 1% for the nine months ended September 30, 2002 as compared to the nine months ended September 30, 2001 primarily due to higher commodity sales volumes under the BGS contract (approximately $90 million) and higher amounts paid to Power relating to the amortization of the excess electric distribution depreciation reserve (approximately $22 million). Partially offsetting the increases is the impact of the rate reductions (approximately $85 million) discussed above in Electric Transmission and Distribution Revenues and lower NUG energy sales (approximately $13 million) due to lower market rates and lower MTC charges from Power, other than rate reductions, (approximately $4 million). 14 Gas Costs Under the BGSS, our gas costs in excess of (or below) the amount included in current commodity rates, are probable of being recovered from (returned to) customers through future commodity rates. Under SFAS 71, we defer (record) costs in excess of (or below) the amount included in current commodity rates. Therefore any increase or decrease in our gas commodity revenue is offset by a corresponding increase or decrease in gas costs on the income statement. Gas Costs decreased $36 million or 20% for the quarter ended September 30, 2002 as compared to the quarter ended September 30, 2001 primarily due to lower commodity rates (approximately $16 million), which became effective January 9, 2002, lower revenues from interruptible customers (approximately $12 million) due to lower volumes at lower rates and lower off-system sales revenues (approximately $5 million) due to lower volumes. Gas costs decreased $350 million or 29% for the nine months ended September 30, 2002 as compared to the nine months ended September 30, 2001 primarily due to lower commodity costs (approximately $176 million), lower revenues from interruptible customers (approximately $111 million) due to lower volumes at lower rates and lower sales volumes as a result of the warmer weather in 2002 (approximately $52 million) and lower off-system sales revenues (approximately $9 million). Operation and Maintenance Operation and Maintenance decreased $15 million or 6% for the quarter ended September 30, 2002 as compared to the quarter ended September 30, 2001 primarily due to a management initiative to lower operation and maintenance. As a result, maintenance expenses were lower (approximately $5 million), membership fees decreased (approximately $1 million), and equipment rental expenses were lower (approximately $2 million). Other items contributing to the reduction were lower medical insurance expenses (approximately $2 million) due to a change in the medical claim experience, lower Other Postretirement Benefit Plan (OPEB) charges (approximately $2 million) due to a change in the plan, and a decrease in the limited term supplemental death benefit premiums (approximately $1 million). Operation and Maintenance decreased $21 million or 3% for the nine months ended September 30, 2002 as compared to the nine months ended September 30, 2001 primarily due to a management initiative to lower operation and maintenance. As a result, maintenance expenses were lower (approximately $11 million), membership fees decreased (approximately $2 million), and equipment rental expenses were lower (approximately $6 million). Other items contributing to the reduction were lower medical insurance expenses (approximately $2 million) due to a change in the medical claim experience, and lower OPEB charges (approximately $4 million) due to a change in the plan. Depreciation and Amortization Depreciation and Amortization increased $9 million or 8% for the quarter ended September 30, 2002 as compared to the quarter ended September 30, 2001 primarily due to an increase in depreciable fixed assets (approximately $4 million), higher depreciation expense recorded in accordance with our increased gas base rates (approximately $2 million) and amortization related to securitization (approximately $9 million). The increases were partially offset by higher amortization of the excess electric distribution depreciation reserve (approximately $6 million), which is equal to a component of the amount we pay to Power (but we do not collect this component of the rate from customers). Accordingly, this had no impact on our earnings, but reduced our gross margin and operating cash flows. For additional information, see Note 3. Regulatory Assets and Liabilities. Depreciation and Amortization increased $44 million or 16% for the nine months ended September 30, 2002 as compared to the nine months ended September 30, 2001 primarily due to a full period's recognition of amortization of the regulatory asset recorded for our stranded costs (approximately $33 million), whose amortization began in February 2001. Also contributing was an increase in depreciable fixed assets (approximately $15 million) and higher depreciation expense recorded in accordance with our increased gas base rates (approximately $5 million). 15 In addition, miscellaneous amortization increased, primarily relating to regulatory assets and liabilities (approximately $8 million). These were partially offset by a decrease relating to higher amortization of the excess electric distribution depreciation reserve (approximately $17 million). For additional information, see Note 3. Regulatory Assets and Liabilities. Other Income Other Income decreased $7 million or 64% for the quarter ended September 30, 2002 as compared to the quarter ended September 30, 2001 primarily due to a decrease in interest income (approximately $3 million) due to lower amounts of funds being invested in money markets in 2002 as compared to the prior period. Also, contributing was the decrease in gains relating to the disposal of assets (approximately $3 million). Other Income decreased $89 million or 86% for the nine months ended September 30, 2002 as compared to the nine months ended September 30, 2001 primarily due to decreases in interest income from related party notes to PSEG and Power, which were repaid through April 16, 2001 (approximately $67 million), lower amounts of funds being invested in money markets in 2002 as compared to the prior period (approximately $15 million) and a decrease in gains relating to the disposal of assets (approximately $3 million). Interest Expense Interest Expense decreased $14 million or 13% for the quarter ended September 30, 2002 as compared to the quarter ended September 30, 2001, primarily due to carrying charges on deferred repair allowances (approximately $5 million) and the maturity of certain debt (approximately $5 million). Lower interest expense as a result of the repayment of a portion of Transition Funding's securitization bonds (approximately $2 million) and the redemption of Pollution Control Bonds (approximately $1 million) also contributed to the decrease. Interest Expense decreased $38 million or 11% for the nine months ended September 30, 2002 as compared to the nine months ended September 30, 2001, due to the redemption of short-term debt in the third quarter of 2001 and lower interest rates in 2002 (approximately $24 million), the redemption of a floating rate note in 2001 (approximately $6 million), the maturity of long-term debt (approximately $9 million), the repurchase of Pollution Control Bonds (approximately $2 million), the carrying costs on the deferred repair allowance (approximately $4 million) and state accrued tax interest adjustments (approximately $2 million). These decreases were partially offset by higher securitization bond interest expense (approximately $9 million) related to Transition Funding's securitization bonds. Preferred Securities Dividend Requirements of Subsidiaries Preferred Securities Dividend Requirements of Subsidiaries decreased $1 million or 25% for the quarter ended September 30, 2002 as compared to the quarter ended September 30, 2001 and $12 million or 55% for the nine months ended September 30, 2002 as compared to the nine months ended September 30, 2001 primarily due to redemptions in 2001. Income Taxes Income taxes increased $43 million for the quarter ended September 30, 2002 as compared to the quarter ended September 30, 2001 due partially to higher income in the current quarter. Prior period tax adjustments recorded in 2001 reflecting the conclusion of the 1994-96 IRS audit settlement and the actual filing of the 2000 tax return also contributed to the increase. 16 Income taxes decreased $11 million or 13% for the nine months ended September 30, 2002 as compared to the nine months ended September 30, 2001 primarily due to lower income in the current year, offset by the prior period adjustments discussed above. LIQUIDITY AND CAPITAL RESOURCES Financing Methodology Our capital requirements are met through liquidity provided by internally generated cash flow and external financings. External funding to meet our needs is comprised of corporate finance transactions. The debt incurred is our direct obligation. As discussed below, external financing may consist of public and private capital market debt, bank revolving credit and term loan facilities and/or commercial paper. The availability and cost of external capital could be affected by our performance as well as by the performance of our affiliates. Additionally, compliance with applicable financial covenants will depend upon future financial position and levels of earnings and net cash flows, as to which no assurances can be given. Over the next several years, we will be required to refinance maturing debt and expect to incur additional debt and fund investment activity. Also, from time to time, we may repurchase debt using funds from operations, commercial paper, debt issuances and other sources of funding. Any inability to obtain required additional external capital or to extend or replace maturing debt and/or existing agreements at current levels and reasonable interest rates may adversely affect our financial condition, results of operations and net cash flows. Debt Covenants, Cross Default Provisions, Material Adverse Clause Changes, and Ratings Triggers The PSEG credit agreements contain cross-default provisions under which a default by it or its major subsidiaries (PSE&G, Power, Energy Holdings) in an aggregate amount of $50 million would result in a default and the potential acceleration of payment under the agreements. Our First and Refunding Mortgage (Mortgage) and credit agreements have no cross-defaults. Our Medium Term Note Indenture has a cross-default to the PSE&G Mortgage. The credit agreements have cross-defaults under which a default by us in the aggregate of $50 million would result in a default and the potential acceleration of payment under the credit agreements. A failure to make principal and or interest payments, when due, would be a default under our credit agreements and indentures. Any inability to satisfy required covenants and/or borrowing conditions would have a similar impact. If a default were to occur, the respective lenders and debt holders, after giving effect to any applicable grace and/or cure periods, could determine that debt payment obligations may be accelerated. In the event of any likely default or failure to satisfy covenants or conditions, we, or the relevant subsidiary, would seek to renegotiate terms of the agreements with the lenders. No assurances can be given as to whether these efforts would be successful. A declaration of cross-default could severely limit our liquidity and restrict the ability to meet respective debt and, in extreme cases, operational cash requirements which could have a material adverse effect on our financial condition, results of operations and net cash flows, and those of our subsidiaries. The credit agreements generally contain provisions under which the lenders could refuse to advance loans in the event of a material adverse change in the borrower's business or financial condition. In that event, loan funds may not be advanced. 17 As explained in detail below, some of these credit agreements also contain maximum debt to equity ratios, minimum cash flow tests and other restrictive covenants and conditions to borrowing. Compliance with applicable financial covenants will depend upon our future financial position and the level of earnings and cash flow, as to which no assurances can be given. The debt indentures and credit agreements do not contain any material "ratings triggers" that would cause an acceleration of the required interest and principal payments in the event of a ratings downgrade. However, in the event of a downgrade, we may be subject to increased interest costs on certain bank debt. We have the following credit facilities for various funding purposes and to provide liquidity for our $400 million commercial paper program. These agreements are with a group of banks and provide for borrowings with maturities of up to one year. As of September 30, 2002, we had $94 million in commercial paper and $37 million in uncommitted loans outstanding. The following table summarizes our various facilities as of September 30, 2002: Expiration Total Primary Date Facility Purpose - ----------------------- ---------- -------- ---------- (Millions) 364-day Credit Facility June 2003 $200 CP Support 3-year Credit Facility June 2005 200 CP Support Uncommitted Bilateral Credit Agreement N/A * Funding * Availability varies based on market conditions. Financial covenants contained in our credit facilities include a ratio of Long-Term Debt (excluding Long-Term Debt Maturing within 1 Year) to Total Capitalization covenant. This covenant requires that at the end of any quarterly financial period, such ratio will not be more than 0.65 to 1. As of September 30, 2002, our ratio of Long-Term Debt to Total Capitalization was 0.508 to 1. Under our Mortgage, we may issue new First and Refunding Mortgage Bonds against previous additions and improvements, provided that our ratio of earnings to fixed charges calculated in accordance with our Mortgage is at least 2:1, and/or against retired Mortgage Bonds. At September 30, 2002, our Mortgage coverage ratio was 3:1. As of September 30, 2002, the Mortgage would permit up to approximately $1 billion aggregate principal amount of new Mortgage Bonds to be issued against previous additions and improvements. We are required to obtain BPU authorization to issue any financing necessary for our capital program, including refunding of maturing debt and opportunistic refinancing. We have authorization from the BPU to issue up to an aggregate of $1 billion of long-term debt through December 31, 2003 for the refunding of maturing debt and opportunistic refinancing of debt. We currently have authorization from the BPU to issue up to $2 billion in short-term debt through December 31, 2002. In October 2002, we filed a petition with the BPU requesting authority to issue up to $750 million of short-term debt through January 4, 2005. In addition, we expect to securitize approximately $250 million of deferred BGS costs, the proceeds of which will be used to reduce short-term debt. In August 2002, $257 million of 6.125% Series RR Mortgage Bonds matured. In September 2002 we issued $300 million of 5.125% Medium-Term Notes due 2012, the proceeds of which were used to repay $290 million of 7.19% Medium-Term Notes that matured. For the nine months ended September 30, 2002, we have repaid $85 million of Transition Funding's securitization bonds. 18 Since 1986, we have made regular cash payments to PSEG in the form of dividends on outstanding shares of our common stock. We paid common stock dividends of $150 million and $112 million to PSEG for the nine months ended September 30, 2002 and 2001, respectively. ACCOUNTING MATTERS For additional information on our accounting policies and the implementation of recently issued accounting standards, see Note 1. Organization and Basis of Presentation and Note 2. Recent Accounting Pronouncements, respectively. SFAS No. 87 - "Employers' Accounting for Pensions" (SFAS 87) SFAS 87 requires a pension plan sponsor to recognize an additional minimum pension liability to the extent that its accumulated benefit obligation under any of its pension plans exceeds the fair market value of its plan assets as of its annual measurement date. This additional minimum pension liability represents the amount by which the unfunded accumulated benefit obligation exceeds the fair market value of the plan's assets, and is partially offset by an intangible asset no larger than the unrecognized net transition obligation and prior service cost, with no impact to earnings. At this time, we are monitoring the fair market value of our investments and our accumulated benefit obligation and are evaluating options available to us with respect to this issue. Since our measurement date is December 31, 2002 we are unable to predict what the impact could be, however the impact could be material to our financial position and, more specifically, could result in a decrease in equity. FORWARD LOOKING STATEMENTS Except for the historical information contained herein, certain of the matters discussed in this report constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ materially from those anticipated. Such statements are based on management's beliefs as well as assumptions made by and information currently available to management. When used herein, the words "will", "anticipate", "intend", "estimate", "believe", "expect", "plan", "hypothetical", "potential", "projected", "forecast" or variations of such words and similar expressions are intended to identify forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The following review of factors should not be construed as exhaustive or as any admission regarding the adequacy of our disclosures prior to the effective date of the Private Securities Litigation Reform Act of 1995. In addition to any assumptions and other factors referred to specifically in connection with such forward-looking statements, factors that could cause actual results to differ materially from those contemplated in any forward-looking statements include, among others, the following: o failure to obtain adequate and timely rate relief may have an adverse impact; o deregulation and the unbundling of energy supplies and services and the establishment of a competitive energy marketplace; o inability to raise capital on favorable terms to refinance existing indebtedness or to fund capital commitments; o changes in the economic and electricity and gas consumption growth rates; o environmental regulation may limit our operations; o insurance coverage may not be sufficient; and o recession, acts of war or terrorism could have an adverse impact. 19 Consequently, all of the forward-looking statements made in this report are qualified by these cautionary statements and we cannot assure you that the results or developments anticipated by us will be realized, or even if realized, will have the expected consequences to or effects on us or our business prospects, financial condition or results of operations. You should not place undue reliance on these forward-looking statements in making any investment decision. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to these forward-looking statements to reflect events or circumstances that occur or arise or are anticipated to occur or arise after the date hereof. In making any investment decision regarding our securities, we are not making, and you should not infer, any representation about the likely existence of any particular future set of facts or circumstances. The forward-looking statements contained in this report are intended to qualify for the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK There were no material changes from the disclosures in our Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2001. ITEM 4. CONTROLS AND PROCEDURES We have established and maintain disclosure controls and procedures which are designed to provide reasonable assurance that material information relating to us, including our consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared. We have established a Disclosure Committee which is made up of several key management employees and reports directly to the Chief Financial Officer and Chief Executive Officer, to monitor and evaluate these disclosure controls and procedures. The Chief Financial Officer and Chief Executive Officer have evaluated the effectiveness of our disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"). Based on this evaluation, we have concluded that our disclosure controls and procedures were effective in providing reasonable assurance during the period covered in this quarterly report. There were no significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Certain information reported under Item 3 of Part I of our 2001 Annual Report on Form 10-K and the Quarterly Reports on Form 10-Q for the quarters ended March 31, 2002 and June 30, 2002 are updated below. In addition see the following at the pages hereof indicated: (1) Form 10-K, Pages 7 and 8. See Pages 13 and 21 regarding our Gas Contract Transfer, Docket Nos. GR01050328 and GR01050297. (2) Form 10-K, Pages 10 and 49. See Page 8 regarding our MGP remediation program. (3) Form 10-K, Page 49. See Page 8. Investigation and additional investigation by the EPA regarding the Passaic River site. Docket No. EX93060255. (4) June 30, 2002 Form 10-Q, Page 15. See page 21. The filing of our electric retail rate case. ITEM 5. OTHER INFORMATION Con Edison Complaint March 31, 2002 Form 10-Q/A, Page 44 and June 30, 2002 Form 10-Q, Page 55. On November 15, 2001, Consolidated Edison, Inc. (Con Edison) filed a complaint against us at FERC pursuant to Section 206 of the Federal Power Act asserting that we had breached agreements covering 1,000 MW of transmission by curtailing service and failing to maintain sufficient system capacity to satisfy all of our service obligations. We denied the allegations set forth in the complaint. While finding that Con Edison's presentation of evidence failed to demonstrate several of the allegations in April 2002, FERC found sufficient reason to set the complaint for hearing. An initial decision issued by an administrative law judge in April 2002 upheld our claim that the contracts do not require the provision of "firm" transmission service to Con Edison but also accepted Con Edison's contentions that we were obligated to 20 provide service to Con Edison utilizing all the facilities comprising our electrical system including generation facilities and that we were financially responsible for above-market generation costs needed to effectuate the desired power flows. Under FERC procedures, an administrative law judge initial decision is not binding unless and until its findings have been approved by FERC. We filed a brief taking exception to the adverse findings of the April 25, 2002 order. A FERC decision concerning the findings of the April 25, 2002 order was expected on July 31, 2002. Settlement discussions between the companies with respect to this matter have been on-going and, on July 17, 2002, representatives of the companies met for settlement discussions mediated by a FERC administrative law judge. Based on progress made at these and subsequent discussions, Con Edison has twice sought to extend the date for the issuance of the FERC decision addressing the April 25, 2002 initial decision and to extend the date for the commencement of a hearing with respect to issues in the case not addressed by the April 25, 2002 initial decision. At present, in the event the dispute is not settled, the FERC decision is expected in mid-November, 2002 and the hearing before the administrative law judge will commence in early December 2002. The findings in the April 25, 2002 initial decision notwithstanding, we believe we have complied with the terms of the Agreements and will vigorously defend our position. The nature and cost of any remedy, which is expected to be prospective only, cannot be predicted. Further, even in the event settlement is reached with Con Edison, we could still be required to bear substantial levels of additional costs. Docket No. EL02-23-000. FERC Order and PJM Restructuring June 30, 2002 Form 10-Q, Page 24. On July 12, 2002, the United States Court of Appeals, D.C. Circuit, issued an opinion in favor of us and the other utility petitioners, reversing an order of the FERC relating to the restructuring of PJM into an Independent System Operator. The Court agreed with our position and ruled that FERC lacks authority to require the utility owners to give up their statutory rights under Section 205 of the Federal Power Act. Hence, FERC was wrong to require a modification to the PJM ISO Agreement eliminating their rights to file changes to rate design. The court further noted that FERC lacks authority under Section 203 of the Federal Power Act to require the utility owners to obtain approval of their withdrawal from the PJM ISO. Hence, FERC had no right under Section 203 to eliminate the withdrawal rights to which the utilities had agreed. Further, in ruling on a specific argument raised by us, the Court held that FERC had not justified its decision to generically abrogate wholesale power requirements contracts; FERC was required to make a particularized finding with respect to the public interest, which was not done here. This matter is now pending on remand before the FERC. Gas Contract Transfer June 30, 2002 Form 10-Q, Pages 7 and 8. On January 9, 2002, through approval of a stipulated settlement, the BPU authorized the transfer of our interstate capacity, storage and gas supply contracts to an unregulated affiliate to provide the gas supply BGSS customers. The Ratepayer Advocate's motion for reconsideration of this approval has been denied by the BPU. Electric Retail Rate Case June 30, 2002 Form 10-Q, Page 15. On May 24, 2002, we filed an electric rate case with the BPU. In this filing, we requested an annual $250 million rate increase for our electric distribution business. The proposed rate increase includes $187 million of increased revenues relating to a $1.7 billion increase in our rate base, which is primarily due to the investment that we have made in our electric distribution facilities since the last rate case in 1992; $18 million in higher depreciation rates and $45 million to recover various other expenses, such as wages, fringe benefits, and the need to enhance the security and reliability of the electric distribution system. The requested increase proposes a return on equity of 11.75% for our electric distribution business. Assuming current cost levels and a normal business environment, the proposed rate increase would significantly impact our earnings and operating cash flows. The non-depreciation portion of the rate increase ($232 million) would have a positive effect on our earnings and operating cash flows. The depreciation portion of the rate increase 21 ($18 million) would have no impact on our earnings, as the increased operating cash flows would be offset by higher depreciation charges. In accordance with BPU's Final Order, which implemented parts of New Jersey's Electric Discount and Competition Act, we were required to reduce electric rates in four steps totaling 13.9% during the four year transition period. The last step, a 4.9% decrease, took effect August 1, 2002. If approved, the proposed rate increase would be effective August 1, 2003, the end of the transition period. While the proposed rate increase would increase electric distribution rates by 12.8% from the July 31, 2003 level, rates would remain 2.6% lower than the levels in April 1999, when the BPU issued its Final Order. We cannot predict the outcome of these rate proceedings at the current time. As directed by the BPU in its July 22, 2002 Order, on August 28, 2002, we filed supplemental testimony to address the use of securitization proceeds and proceeds from the sale of generation assets. The issue of electronic meters must also be addressed in a separate filing in an expedited timeframe. We are also working to resolve the open Service Company filing and our Street Lighting Tariff. If not resolved, these issues may be consolidated into the rate case. The electric base rate case is scheduled to be transferred from the Office of Administrative Law back to the BPU by May 1, 2003. The Ratepayer Advocate and other parties filed testimony in this case in October 2002 and the case is on schedule. Deferral Proceeding New Matter. In August 2002, we filed a Petition proposing changes to the SBC and NTC. The proposed result, if adopted, would result in a reduction of revenues of about $122 million or approximately a 3.4% reduction in amounts paid by customers, effective on August 1, 2003. The case has been transferred to the Office of Administrative Law. Deferral Audit New Matter. In September 2002, the BPU retained the services of two audit firms to conduct a review of the State's electric utilities deferred costs for compliance with BPU orders. We have estimated our overrecovery balance will be approximately $30 million by the end of July 2003. BGSS Filing New Matter. In September 2002, we filed to increase our Residential BGSS Commodity Charge by November 1, 2002 to recover approximately $89 million in additional revenues ($83 million of which is associated with an underrecovered balance) or a 7.4% rate increase for the typical residential gas heating customer. Nuclear Decommissioning New Matter. In August 2002, we filed a Petition requesting clarification from the BPU regarding the future cost responsibility for nuclear decommissioning and whether, as a matter of law and policy, (a) Our customers will continue to pay for such costs through the SBC or (b) such customer responsibility will terminate at the end of the four-year transition period on July 31, 2003. We cannot predict the outcome of this matter. 22 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (A) A listing of exhibits being filed with this document is as follows: Exhibit Number Document -------------- -------- 4 Supplemental Indenture to First and Refunding Mortgage between PSE&G and Wachovia Bank, National Association, as Trustee. 12 Computation of Ratios of Earnings to Fixed Charges 12(A) Computation of Ratios of Earnings to Fixed Charges Plus Preferred Securities 99 Certification by E. James Ferland, Chairman of the Board and Chief Executive Officer of Public Service Electric and Gas Company Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code 99.1 Certification by Robert E. Busch, Senior Vice President - Finance and Chief Financial Officer of Public Service Electric and Gas Company Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code (B) Reports on Form 8-K: Date Form Items ---- ---- ----- October 11, 2002 8-K 5 & 7 July 29, 2002 8-K/A 5 & 7 July 18, 2002 8-K 5 & 7 23 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PUBLIC SERVICE ELECTRIC AND GAS COMPANY (Registrant) By: /s/ Patricia A. Rado ------------------------------------ Patricia A. Rado Vice President and Controller (Principal Accounting Officer) Date: November 1, 2002 24 Certification Pursuant to Rules 13a-14 and 15d-14 of the 1934 Securities Exchange Act I certify that: 1. I have reviewed this quarterly report on Form 10-Q of Public Service Electric and Gas Company (the registrant); 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of Public Service Enterprise Group's board of directors: a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 1, 2002 /s/ E. James Ferland ---------------- --------------------------------- E. James Ferland Chief Executive Officer 25 Certification Pursuant to Rules 13a-14 and 15d-14 of the 1934 Securities Exchange Act I certify that: 1. I have reviewed this quarterly report on Form 10-Q of Public Service Electric and Gas Company (the registrant); 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of Public Service Enterprise Group's board of directors: a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 1, 2002 /s/ Robert E. Busch ---------------- -------------------------------- Robert E. Busch Chief Financial Officer 26 EX-4 3 e13917ex4.txt SUPPLEMENTAL MORTGAGE Exhibit 4 SUPPLEMENTAL MORTGAGE - -------------------------------------------------------------------------------- Supplemental Indenture Dated September 1, 2002 ---------- SUPPLEMENTAL TO FIRST AND REFUNDING MORTGAGE, DATED AUGUST 1, 1924 ---------- PUBLIC SERVICE ELECTRIC AND GAS COMPANY TO WACHOVIA BANK, NATIONAL ASSOCIATION, TRUSTEE 21 South Street Morristown, New Jersey 07960 - -------------------------------------------------------------------------------- PROVIDING FOR THE ISSUE OF $600,000,000 FIRST AND REFUNDING MORTGAGE BONDS, MEDIUM-TERM NOTES SERIES B ---------- RECORD IN MORTGAGE BOOK AND RETURN TO: JAMES T. FORAN, ESQ. 80 PARK PLAZA, T5B P.O. Box 570 NEWARK, N.J. 07101 Prepared by (JAMES T. FORAN, Esq.) TABLE OF CONTENTS ----------------- Page ---- RECITALS.................................................................... 1 FORM OF BOND................................................................ 4 FORM OF CERTIFICATE OF AUTHENTICATION....................................... 8 GRANTING CLAUSES............................................................ 9 ARTICLE I. BONDS OF THE MEDIUM-TERM NOTES SERIES B. Description of Series ...................................................... 10 ARTICLE II. REDEMPTION OF BONDS OF MEDIUM-TERM NOTES SERIES B. SECTION 2.01. Redemption--Redemption Price............................ 11 SECTION 2.02. Redemptions Pursuant to Section 4C of Article Eight of the Indenture.......................... 12 SECTION 2.03. Interest on Called Bonds to Cease....................... 12 SECTION 2.04. Bonds Called in Part.................................... 13 SECTION 2.05. Provisions of Indenture Not Applicable.................. 13 ARTICLE III. CREDITS WITH RESPECT TO BONDS OF THE MEDIUM-TERM NOTES SERIES B. SECTION 3.01. Credits................................................. 13 SECTION 3.02. Certificate of the Company.............................. 13 ARTICLE IV. MISCELLANEOUS. SECTION 4.01. Authentication of Bonds of Medium-Term Notes Series B.......................................... 14 SECTION 4.02. Additional Restrictions on Authentication of Additional Bonds Under Indenture........................ 14 SECTION 4.03. Restriction on Dividends................................ 14 SECTION 4.04. Use of Facsimile Seal and Signatures.................... 15 SECTION 4.05. Time for Making of Payment.............................. 15 SECTION 4.06. Effective Period of Supplemental Indenture.............. 15 SECTION 4.07. Effect of Approval of Board of Public Utilities of the State of New Jersey.............................. 15 SECTION 4.08. Execution in Counterparts............................... 15 Acknowledgements............................................................ 17 Certificate of Residence.................................................... 18 SUPPLEMENTAL INDENTURE, dated the 1st day of September 2002, for convenience of reference and effective from the time of execution and delivery hereof, between PUBLIC SERVICE ELECTRIC AND GAS COMPANY, a corporation organized under the laws of the State of New Jersey, hereinafter called the "Company", party of the first part, and WACHOVIA BANK, NATIONAL ASSOCIATION, a national banking association organized under the laws of the United States of America, as Trustee under the indenture dated August 1, 1924, below mentioned, hereinafter called the "Trustee", party of the second part. WHEREAS, on July 25, 1924, the Company executed and delivered to FIDELITY UNION TRUST COMPANY (now known as WACHOVIA BANK, NATIONAL ASSOCIATION), a certain indenture dated August 1, 1924 (hereinafter called the "Indenture") to secure and to provide for the issue of First and Refunding Mortgage Gold Bonds of the Company; and WHEREAS, the Indenture has been recorded in the following counties of the State of New Jersey, in the offices, and therein in the books and at the pages, as follows:
Page County Office Book Number Number - ------ ------ ------------ ------- Atlantic Clerk's 1955 of Mortgages 160 Bergen Clerk's 94 of Chattel Mortgages 123 etc. 693 of Mortgages 88 etc. Burlington Clerk's 52 of Chattel Mortgages Folio 8, etc Folio 354, 177 of Mortgages etc. Camden Register's 45 of Chattel Mortgages 184 etc. 239 of Mortgages 1 etc. Cumberland Clerk's 786 of Mortgages 638 & c. Essex Register's 437 of Chattel Mortgages 1-48 T-51 of Mortgages 341-392 Gloucester Clerk's 34 of Chattel Mortgages 123 etc. 142 of Mortgages 7, etc. Hudson Register's 453 of Chattel Mortgages 9, etc. 1245 of Mortgages 484, etc. Hunterdon Clerk's 151 of Mortgages 344 Mercer Clerk's 67 of Chattel Mortgages 1 etc. 384 of Mortgages 1 etc. Middlesex Clerk's 113 of Chattel Mortgages 3 etc. 437 of Mortgages 294, etc. Monmouth Clerk's 951 of Mortgages 291, etc.
Page County Office Book Number Number - ------ ------ ------------ ------- Morris Clerk's N-3 of Chattel Mortgages 446 etc. F-10 of Mortgages 269 etc. Ocean Clerk's 1809 of Mortgages 40 Passaic Register's M-6 of Chattel Mortgages 178, etc. R-13 of Mortgages 268 etc. Salem Clerk's 267 of Mortgages 249 & c. Somerset Clerk's 46 of Chattel Mortgages 207 etc. N-10 of Mortgages 1 etc. Sussex Clerk's 123 of Mortgages 10 & c. Union Register's 128 of Chattel Mortgages 28 & c. 664 of Mortgages 259 etc. Warren Clerk's 124 of Mortgages 141 etc.
and WHEREAS, the Indenture has also been recorded in the following counties of the Commonwealth of Pennsylvania, in the offices, and therein in the books and at the pages, as follows:
Page County Office Book Number Number - ------ ------ ------------ ------- Adams Recorder's 22 of Mortgages 105 Bedford Recorder's 90 of Mortgages 917 Blair Recorder's 671 of Mortgages 430 Cambria Recorder's 407 of Mortgages 352 Cumberland Recorder's 500 of Mortgages 136 Franklin Recorder's 285 of Mortgages 373 Huntingdon Recorder's 128 of Mortgages 47 Indiana Recorder's 197 of Mortgages 281 Montgomery Recorder's 5033 of Mortgages 1,221 Westmoreland Recorder's 1281 of Mortgages 198 York Recorder's 31-V of Mortgages 446
and WHEREAS, the Indenture granted, bargained, sold, aliened, remised, released, conveyed, confirmed, assigned, transferred and set over unto the Trustee certain property of the Company, more fully set forth and described in the Indenture, then owned or which might thereafter be acquired by the Company; and WHEREAS, the Company, by various supplemental indentures, supplemental to the Indenture, the last of which was dated May 1, 1998, has granted, bargained, sold, aliened, remised, released, conveyed, confirmed, assigned, transferred and set over unto the Trustee certain property of the Company acquired by it after the execution and delivery of the Indenture; and WHEREAS, since the execution and delivery of said supplemental indenture dated May 1, 1998, the Company has acquired property which, in accordance with the provisions of the Indenture, is subject to the lien thereof and the Company desires to confirm such lien; and WHEREAS, the Indenture has been amended or supplemented from time to time; and WHEREAS, it is provided in the Indenture that no bonds other than those of the 51/2% Series due 1959 therein authorized may be issued thereunder unless a supplemental indenture providing for the issue of such additional bonds shall have been executed and delivered by the Company to the Trustee; and WHEREAS, the Company is making provisions for the issuance and sale of its Secured Medium-Term Notes, Series B (the "Series B Notes"), to be issued under an Indenture of Trust (the "Note Indenture") to be dated as of July 1, 1993 between the Company and JPMorgan Chase Bank (formerly known as The Chase Manhattan Bank (National Association)), as Trustee (the "Note Trustee"); and WHEREAS, such Note Indenture provides, among other things, for the pledge and delivery by the Company of a series of First and Refunding Mortgage Bonds of the Company to evidence the Company's obligation to pay the principal and interest with respect to outstanding Series B Notes; and for such purpose and in order to service and secure payment of the principal and interest in respect of the Series B Notes, the Company desires to provide for the issue of $600,000,000 aggregate principal amount of bonds under the Indenture of a series to be designated as "First and Refunding Mortgage Bonds, Medium-Term Notes Series B" (hereinafter sometimes called "Bonds of the Medium-Term Notes Series B"); and WHEREAS, the text of the Bonds of the Medium-Term Notes Series B and of the certificate of authentication to be borne by the Bonds of the Medium-Term Notes Series B shall be substantially of the following tenor: (FORM OF BOND) This Bond is not transferable except as provided in the Indenture and in the Indenture of Trust dated as of July 1, 1993 between the Company and JPMorgan Chase Bank (formerly known as The Chase Manhattan Bank (National Association)), as Trustee. REGISTERED REGISTERED NUMBER AMOUNT R $600,000,000 PUBLIC SERVICE ELECTRIC AND GAS COMPANY FIRST AND REFUNDING MORTGAGE BOND, MEDIUM-TERM NOTES SERIES B Public Service Electric and Gas Company (hereinafter called the "Company"), a corporation of the State of New Jersey, for value received, hereby promises to pay to JPMorgan Chase Bank (formerly known as The Chase Manhattan Bank (National Association)), as trustee under the Indenture of Trust dated as of July 1, 1993 between the Company and such trustee, or registered assigns, on the surrender hereof, the principal sum of Six Hundred Million Dollars, on September 1, 2037, and to pay interest thereon from the date hereof, at the rate of 10% per annum, and until payment of said principal sum, such interest to be payable March 1 and September 1 in each year; provided, however, that the Company shall receive certain credits against such obligations as set forth in the Supplemental Indenture dated September 1, 2002 referred to below. Both the principal hereof and interest hereon shall be paid at the principal corporate trust office of Wachovia Bank, National Association, in the City of Morristown, State of New Jersey, or (at the option of the registered owner) at the corporate trust office of any paying agent appointed by the Company, in such coin or currency of the United States of America as at the time of payment shall constitute legal tender for the payment of public and private debts; provided, however, that any such payments of principal and interest shall be subject to receipt of certain credits against such payment obligations as set forth in the Supplemental Indenture dated September 1, 2002 referred to below. This Bond is one of the First and Refunding Mortgage Bonds of the Company issued and to be issued under and pursuant to, and all equally secured by, an indenture of mortgage or deed of trust dated August 1, 1924, as supplemented and amended by supplemental indentures thereto, including the Supplemental Indenture dated September 1, 2002, each duly executed by the Company and Wachovia Bank, National Association (formerly known as Fidelity Union Trust Company) as Trustee. This Bond is one of the Bonds of the Medium-Term Notes Series B, which series is limited to the aggregate principal amount of $600,000,000 and is issued pursuant to said Supplemental Indenture dated September 1, 2002. Reference is hereby made to said indenture and all supplements thereto for a specification of the principal amount of Bonds from time to time issuable thereunder, and for a description of the properties mortgaged and conveyed or assigned to said Trustee or its successors, the nature and extent of the security, and the rights of the holders of said Bonds and any coupons appurtenant thereto, and of the Trustee in respect of such security. In and by said indenture, as amended and supplemented, it is provided that with the written approval of the Company and the Trustee, any of the provisions of said indenture may from time to time be eliminated or modified and other provisions may be added thereto provided the change does nor alter the annual interest rate, redemption price or date, date of maturity or amount payable on maturity of any then outstanding Bond or conflict with the Trust Indenture Act of 1939 as then in effect, and provided the holders of 85% in principal amount of the Bonds secured by said indenture and then outstanding (including, if such change affect the Bonds of one or more series but less than all series then outstanding, a like percentage of the then outstanding Bonds of each series affected by such change, and excluding Bonds owned or controlled by the Company or by the parties owning at least 10% of the outstanding voting stock of the Company, as more fully specified in said indenture) consent in writing thereto, all as more fully set forth in said indenture, as amended and supplemented. First and Refunding Mortgage Bonds issuable under said indenture are issuable in series, and the Bonds of any series may be for varying principal amounts and in the form of coupon bonds and of registered bonds without coupons, and the Bonds of any one series may differ from the Bonds of any other series as to date, maturity, interest rate and otherwise, all as in said indenture provided and set forth. The Bonds of the Medium-Term Notes Series B, in which this Bond is included, are designated "First and Refunding Mortgage Bonds, Medium-Term Notes Series B". In case of the happening of an event of default as specified in said indenture and said supplemental indenture dated March 1, 1942, the principal sum of the Bonds of this series may be declared or may become due and payable forthwith, in the manner and with the effect in said indenture provided. The Bonds of this series are subject to redemption as provided in the Supplemental Indenture dated September 1, 2002. This Bond is transferable, but only as provided in said indenture and the Indenture of Trust dated as of July 1, 1993 between the Company and JPMorgan Chase Bank (formerly known as The Chase Manhattan Bank (National Association)), as trustee, upon surrender hereof, by the registered owner in person or by attorney duly authorized in writing, at either of said offices where the principal hereof and interest hereon are payable; upon any such transfer a new fully registered Bond similar hereto will be issued to the transferee. This Bond may in like manner be exchanged for one or more new fully registered Bonds of the same series of other authorized denominations but of the same aggregate principal amount. No service charge shall he made for any such transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto. The Company and the Trustee hereunder and any paying agent may deem and treat the person in whose name this Bond is registered as the absolute owner hereof for the purpose of receiving payment of or on account of the principal hereof and the interest hereon and for all other purposes; and neither the Company nor the Trustee hereunder nor any paying agent shall be affected by any notice to the contrary. The Bonds of this series are issuable only in fully registered form, in any denomination authorized by the Company. No recourse under or upon any obligation, covenant or agreement contained in said indenture or in any indenture supplemental thereto, or in any Bond issued thereunder, or because of any indebtedness arising thereunder, shall be had against any incorporator, or against any past, present or future stockholder, officer, or director, as such, of the Company or of any successor corporation, either directly or through the Company or any successor corporation, under any rule of law, statute or constitutional provision or by the enforcement of any assessment or by any legal or equitable proceeding or otherwise, it being expressly agreed and understood that said indenture, any indenture supplemental thereto and the obligations issued thereunder, are solely corporate obligations, and that no personal liability whatever shall attach to, or be incurred by, such incorporators, stockholders, officers or directors, as such, of the Company, or of any successor corporation, or any of them, because of the incurring of the indebtedness thereby authorized, or under or by reason of any of the obligations, covenants or agreements contained in the indenture or in any indenture supplemental thereto or in any of the Bonds issued thereunder, or implied therefrom. This Bond shall not be entitled to any security or benefit under said indenture, as amended and supplemented, and shall not become valid or obligatory for any purpose, until the certificate of authentication, hereon endorsed, shall have been signed by Wachovia Bank, National Association as Trustee, or by its successor in trust under said indenture. IN WITNESS WHEREOF, the Company has caused this Bond to be duly executed by its proper officers under its corporate seal. Dated PUBLIC SERVICE ELECTRIC AND GAS COMPANY By ______________________________ (Vice) President (Seal) Attest: ___________________________________ (Assistant) Secretary (FORM OF CERTIFICATE OF AUTHENTICATION) CERTIFICATE OF AUTHENTICATION This Bond is one of the Bonds of the series designated therein which is described in the within-mentioned indenture and supplemental indenture dated September 1, 2002, as secured thereby. WACHOVIA BANK, NATIONAL ASSOCIATION, TRUSTEE By ______________________________ Authorized Officer WHEREAS, the execution and delivery of this supplemental indenture have been duly authorized by the Board of Directors of the Company; and WHEREAS, the Company represents that all things necessary to make the bond of the series hereinafter described, when duly authenticated by the Trustee and issued by the Company, a valid, binding and legal obligation of the Company, and to make this supplemental indenture a valid and binding agreement supplemental to the Indenture, have been done and performed: NOW, THEREFORE, THIS SUPPLEMENTAL INDENTURE WITNESSETH that the Company, in consideration of the premises and the execution and delivery by the Trustee of this supplemental indenture, and in pursuance of the covenants and agreements contained in the Indenture and for other good and valuable consideration, the receipt of which is hereby acknowledged, has granted, bargained, sold, aliened, remised, released, conveyed, confirmed, assigned, transferred and set over, and by these presents does grant, bargain, sell, alien, remise, release, convey, confirm, assign, transfer and set over unto the Trustee, its successors and assigns, forever, all the right, title and interest of the Company in and to all property of every kind and description (except cash, accounts and bills receivable and all merchandise bought, sold or manufactured for sale in the ordinary course of the Company's business, stocks, bonds or other corporate obligations or securities, other than such as are described in Part V of the Granting Clauses of the Indenture, not acquired with the proceeds of bonds secured by the Indenture, and except as in the Indenture and herein otherwise expressly excluded) acquired by the Company since the execution and delivery of the supplemental indenture dated May 1, 1998, subsequent to the Indenture (except any such property duly released from, or disposed of, free from the lien of the Indenture, in accordance with the provisions thereof) and all such property which at any time hereafter may be acquired by the Company; All of which property it is intended shall be included in and granted by this supplemental indenture and covered by the lien of the Indenture as heretofore and hereby amended and supplemented; UNDER AND SUBJECT to any encumbrances or mortgages existing on property acquired by the Company at the time of such acquisition and not heretofore discharged of record; and SUBJECT also, to the exceptions, reservations and provisions in the Indenture and in this supplemental indenture recited, and to the liens, reservations, exceptions, limitations, conditions and restrictions imposed by or contained in the several deeds, grants, franchises and contracts or other instruments through which the Company acquired or claims title to the aforesaid property; and Subject, also, to the existing leases, to liens on easements or rights of way, to liens for taxes, assessments and governmental charges not in default or the payment of which is deferred, pending appeal or other contest by legal proceedings, pursuant to Section 4 of Article Five of the indenture, or the payment of which is deferred pending billing, transfer of title or final determination of amount, to easements for alleys, streets, highways, rights of way and railroads that may run across or encroach upon the said property, to joint pole and similar agreements, to undetermined liens and charges, if any, incidental to construction, and other encumbrances permitted by the indenture as heretofore and hereby amended and supplemented; TO HAVE AND TO HOLD the property hereby conveyed or assigned, or intended to be conveyed or assigned, unto the Trustee, its successor or successors and assigns, forever; IN TRUST, NEVERTHELESS, upon the terms, conditions and trusts set forth in the Indenture as heretofore and hereby amended and supplemented, to the end that the said property shall be subject to the lien of the Indenture as heretofore and hereby amended and supplemented, with the same force and effect as though said property had been included in the Granting Clauses of the Indenture at the time of the execution and delivery thereof; AND THIS SUPPLEMENTAL INDENTURE FURTHER WITNESSETH that for the considerations aforesaid, it is hereby covenanted between the Company and the Trustee as follows: ARTICLE I. BONDS OF THE MEDIUM-TERM NOTES SERIES B. The series of bonds authorized by this supplemental indenture to be issued under and secured by the Indenture shall be designated "First and Refunding Mortgage Bonds, Medium-Term Notes Series B"; shall be limited to the aggregate principal amount of $600,000,000; shall be issued initially to the Note Trustee and shall mature and bear interest as set forth in the form of bond set forth herein; provided, however, that the Company shall receive certain credits against principal and interest as set forth in Section 3.01 hereof. The date of each Bond of the Medium-Term Notes Series B shall be the interest payment date next preceding the date of authentication, unless such date of authentication be an interest payment date, in which case the date shall be the date of authentication, or unless such date of authentication be prior to the first semi-annual interest payment date, in which case the date shall be September 1, 2002. Bonds of the Medium-Term Notes Series B shall be issuable only in the form of fully registered bonds in any denomination authorized by the Company. Interest on the Bonds of the Medium-Term Notes Series B shall be payable semi-annually in arrears on March 1 and September 1 of each year, payable initially on March 1, 2003, subject to receipt of certain credits against principal and interest as set forth in Section 3.01 hereof and shall be payable as to both principal and interest in such coin or currency of the United States of America as at the time of payment shall constitute legal tender for the payment of public and private debts, at the principal corporate trust office of the Trustee, or at the corporate trust office of any paying agent appointed. Bonds of the Medium-Term Notes Series B shall be transferable and exchangeable, but only as provided in the Indenture and the Note Indenture, upon surrender thereof for cancellation by the registered owner in person or by attorney duly authorized in writing at either of said offices. The Company hereby waives any right to make a charge for any transfer or exchange of Bonds of the Medium-Term Notes Series B, but the Company may require payment of a sum sufficient to cover any tax or any other governmental charge that may be imposed in relation thereto. ARTICLE II. REDEMPTION OF BONDS OF MEDIUM-TERM NOTES SERIES B. SECTION 2.01. Redemption--Redemption Price. Bonds of the Medium-Term Notes Series B shall be subject to redemption prior to maturity under the conditions, and upon payment of the amounts as may be specified in the following conditions: (a) at any time in whole or in part at the option of the Company upon receipt by the Trustee of written certification of the Company and of the Note Trustee that the principal amount of the Series B Notes then outstanding under the Note Indenture is not in excess of such principal amount of the Bonds of the Medium-Term Notes Series B as shall remain pledged to the Note Trustee after giving effect to such redemption; or (b) at any time by the application of any proceeds of released property or other money held by the Trustee and which, pursuant to Section 4C of Article Eight of the Indenture, as amended and supplemented, are applied to the redemption of Bonds of the Medium-Term Notes Series B, upon payment of 100% of the principal amount thereof, together with interest accrued to the redemption date, provided that any such payment shall be subject to receipt by the Company of certain credits against such obligations as set forth in Section 3.01 hereof. SECTION 2.02. Redemptions Pursuant to Section 4C of Article Eight of the Indenture. If, pursuant to Section 4C of Article Eight of the Indenture, as amended and supplemented, any proceeds of released property or other money then held by the Trustee shall be applied to the redemption of the Bonds of the Medium-Term Notes Series B, the Trustee shall give at least 45 days prior written notice of such redemption to the Note Trustee whereupon on the date fixed for redemption such principal amount thereof as is equal to such proceeds shall be redeemed; provided that no such redemption shall be made unless the Trustee shall be in receipt of a written certification of the Company and the Note Trustee that a like principal amount of Series B Notes shall have been theretofore redeemed in accordance with the provisions of the Note Indenture. For purposes of determining which of the Company's First and Refunding Mortgage Bonds are subject to such mandatory redemption, the Mortgage Trustee shall consider the 10% stated annual interest rate of the Bonds of the Medium-Term Notes Series B, not the weighted average interest rate of outstanding Series B Notes. Bonds of said series so redeemed shall be cancelled. SECTION 2.03. Interest on Called Bonds to Cease. Each Bond of the Medium-Term Notes Series B or portion thereof called for redemption under Section 2.02 hereof shall be due and payable at the office of the Note Trustee, as paying agent hereunder, at its redemption price and on the specified redemption date, anything herein or in such Bond to the contrary notwithstanding. From and after the date when each Bond of the Medium-Term Notes Series B or portion thereof shall be due and payable as aforesaid (unless upon said date the full amount due thereon shall not be held by the Note Trustee, as paying agent hereunder, and be immediately available for payment), all further interest shall cease to accrue on such bond or on such portion thereof, as the case may be. SECTION 2.04. Bonds Called in Part. If only a portion of any Bond of the Medium-Term Notes Series B shall be called for redemption pursuant to Section 2.02 hereof, upon payment of the portion so called for redemption, the Note Trustee shall make an appropriate notation upon the Bond of the principal amount so redeemed. SECTION 2.05. Provisions of Indenture Not Applicable. The provisions of Article Four of the Indenture, as amended and supplemented, shall not apply to the procedure for the exercise of any right of redemption reserved by the Company, or to any mandatory redemption provided, in this Article in respect of the Bonds of the Medium-Term Notes Series B. There shall be no sinking fund for the Bonds of the Medium-Term Notes Series B. ARTICLE III. CREDITS WITH RESPECT TO BONDS OF THE MEDIUM-TERM NOTES SERIES B. SECTION 3.01. Credits. In addition to any other credit, payment or satisfaction to which the Company is entitled with respect to the Bonds of the Medium-Term Notes Series B, the Company shall be entitled to credits against amounts otherwise payable in respect of the Bonds of the Medium-Term Notes Series B in an amount corresponding to (i) the principal amount of any of the Company's Series B Notes issued under the Note Indenture surrendered to the Note Trustee by the Company, or purchased by the Note Trustee, for cancellation, (ii) the amount of money held by the Note Trustee and available and designated for the payment of principal or redemption price (exclusive of any premium) of, and/or interest on, the Series B Notes, regardless of the source of payment to the Note Trustee of such moneys and (iii) the amount by which principal of and interest due on the Bonds of the Medium-Term Notes Series B exceeds principal of and interest due on the Series B Notes. The Note Trustee shall make notation on such Bonds authorized hereby of any such credit. SECTION 3.02. Certificate of the Company. A certificate of the Company signed by the President or any Vice President, and attested to by the Secretary or any Assistant Secretary, and consented to by the Note Trustee, stating that the Company is entitled to a credit under Section 3.01 hereof or that Bonds of the Medium-Term Notes Series B have been cancelled, and setting forth the basis therefor in reasonable detail, shall be conclusive evidence of such entitlement, and the Trustee shall accept such certificate as such evidence without further investigation or verification of the matters stated therein. ARTICLE IV. MISCELLANEOUS. SECTION 4.01. Authentication of Bonds of Medium-Term Notes Series B. None of the Bonds of the Medium-Term Notes Series B, the issue of which is provided for by this supplemental indenture, shall be authenticated by or on behalf of the Trustee except in accordance with the provisions of the Indenture, as amended and supplemented, and this supplemental indenture, and upon compliance with the conditions in that behalf therein contained. SECTION 4.02. Additional Restrictions on Authentication of Additional Bonds Under Indenture. The Company covenants that from and after the date of execution of this supplemental indenture no additional bonds (as defined in Section 1 of Article Two of the Indenture) shall be authenticated and delivered by the Trustee under Subdivision A of Section 4 of said Article Two on account of additions or improvements to the mortgaged property; (1) unless the net earnings of the Company for the period required by Subdivision C of Section 6 of said Article Two shall have been at least twice the fixed charges (in lieu of 13/4 times such fixed charges, as required by said Subdivision C); and for the purpose of this condition (a) such fixed charges shall in each case include interest on the bonds applied for, notwithstanding the parenthetical provision contained in clause (4) of said Subdivision C, and (b) in computing such net earnings there shall be included in expenses of operation (under paragraph (c) of said Subdivision C) all charges against earnings for depreciation, renewals or replacements, and all certificates with respect to net earnings delivered to the Trustee in connection with any authentication of additional bonds under said Article Two shall so state; and (2) except to the extent of 60% (in lieu of 75% as permitted by Subdivision A of Section 7 of said Article Two) of the cost or fair value to the Company of the additions or improvements forming the basis for such authentication of additional bonds. SECTION 4.03. Restriction on Dividends. The Company will not declare or pay any dividend on any shares of its common stock (other than dividends payable in shares of its common stock) or make any other distribution on any such shares, or purchase or otherwise acquire any such shares (except shares acquired without cost to the Company) whenever such action would reduce the earned surplus of the Company to an amount less than $10,000,000 or such lesser amount as may remain after deducting from said $10,000,000 all amounts appearing in the books of account of the Company on December 31, 1948, which shall thereafter, pursuant to any order or rule of any regulatory body entered after said date, be required to be removed, in whole or in part, from the books of account of the Company by charges to earned surplus. SECTION 4.04. Use of Facsimile Seal and Signatures. The seal of the Company and any or all signatures of the officers of the Company upon any of the Bonds of the Medium-Term Notes Series B may be facsimiles. SECTION 4.05. Time for Making of Payment. All payments of principal or redemption price of, and interest on, the Bonds of the Medium-Term Notes Series B shall be made either prior to the due date thereof or on the due date thereof in immediately available funds. In any case where the date of any such payment shall be a Saturday or Sunday or a legal holiday or a day on which banking institutions in the city of payment are authorized by law to close, then such payment need not be made on such date but may be made on the next succeeding business day with the same force and effect as if made on the due date, and no interest on such payment shall accrue for the period after such date. SECTION 4.06. Effective Period of Supplemental Indenture. The preceding provisions of Articles I, II and III of this supplemental indenture shall remain in effect only so long as any of the Bonds of the Medium-Term Notes Series B shall remain outstanding. SECTION 4.07. Effect of Approval of Board of Regulatory Commissioners of the State of New Jersey. The approval of the Board of Public Utilities of the State of New Jersey of the execution and delivery of these presents and of the issue of any Bond of the Medium-Term Notes Series B shall not be construed as approval of said Board of any other act, matter or thing which requires approval of said Board under the laws of the State of New Jersey. SECTION 4.08. Execution in Counterparts. For the purpose of facilitating the recording hereof, this supplemental indenture has been executed in several counterparts, each of which shall be and shall be taken to be an original, and all collectively but one instrument. IN WITNESS WHEREOF, Public Service Electric and Gas Company, party hereto of the first part, after due corporate and other proceedings, has caused this supplemental indenture to be signed and acknowledged or proved by its President or one of its Vice Presidents and its corporate seal hereunto to be affixed and to be attested by the signature of its Secretary or an Assistant Secretary; and Wachovia Bank, National Association, as Trustee, party hereto of the second part, has caused this supplemental indenture to be signed and acknowledged or proved by its President or one of its Vice Presidents, and its corporate seal to be hereunto affixed and to be attested by the signature of its Secretary, Assistant Secretary; Vice President, or an Assistant Vice President. Executed and delivered this 6th day of September, 2002. PUBLIC SERVICE ELECTRIC AND GAS COMPANY, By ______________________________ M.A. Plawner Vice President Attest: ___________________________________ E.J. Biggins, Jr. Secretary WACHOVIA BANK, NATIONAL ASSOCIATION By ______________________________ F. Gallagher Vice President Attest: ___________________________________ M. Matthews Vice President STATE OF NEW JERSEY COUNT OF ESSEX } SS: BE IT REMEMBERED, that on this 6th day of September 2002, before me, the subscriber, a Notary Public of the State of New Jersey, personally appeared M.A. Plawner, who, I am satisfied, is a Vice President of PUBLIC SERVICE ELECTRIC AND GAS COMPANY, one of the corporations named in and which executed the foregoing instrument, and is the person who signed the said instrument as such officer, for and on behalf of such corporation, and I having first made known to him the contents thereof, he did acknowledge that he signed the said instrument as such officer, that the said instrument was made by such corporation and sealed with its corporate seal, that the said instrument is the voluntary act and deed of such corporation, made by virtue of authority from its Board of Directors, and that said corporation the mortgagor, has received a true copy of said instrument. STATE OF NEW JERSEY COUNT OF ESSEX } SS: BE IT REMEMBERED, that on this 6th day of September 2002, before me, the subscriber, a Notary Public of the State of New Jersey, personally appeared F. Gallagher, who, I am satisfied, is a Vice President of WACHOVIA BANK, NATIONAL ASSOCIATION, one of the corporations named in and which executed the foregoing instrument, and is the person who signed the said instrument as such officer, for and on behalf of such corporation, and I having first made known to him the contents thereof, he did acknowledge that he signed the said instrument as such officer, that the said instrument was made by such corporation and sealed with its corporate seal, and that the said instrument is the voluntary act and deed of such corporation, made by virtue of authority from its Board of Directors. CERTIFICATE OF RESIDENCE Wachovia Bank, National Association, Mortgagee and Trustee within named, hereby certifies that its precise residence is 21 South Street, Morristown, New Jersey 07960. WACHOVIA BANK, NATIONAL ASSOCIATION, By ______________________________ F. Gallagher Vice President EX-12 4 e13917ex12.txt COMPUTATION OF RATIOS OF EARNINGS EXHIBIT 12 PUBLIC SERVICE ELECTRIC AND GAS COMPANY COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (Millions) ------------------- For the Nine Months Ended September 30, ------------------- 2002 2001 --------- -------- Earnings as Defined in Regulation S-K (A): Pre-tax Income from Continuing Operations $ 204 $ 292 Fixed Charges 317 370 Preferred Securities Dividend Requirements (10) (22) Capitalized Interest (1) (2) ------- ------- Earnings $ 510 $ 638 ======= ======= Fixed Charges as Defined in Regulation S-K (B): Interest Expense $ 307 $ 346 Interest Factor in Rentals 0 2 Preferred Securities Dividend Requirements 10 22 ======= ======= Total Fixed Charges $ 317 $ 370 ======= ======= Ratio of Earnings to Fixed Charges 1.61 1.72 ======= ======= (A) The term "earnings" shall be defined as pretax income from continuing operations. Add to pretax income the amount of fixed charges adjusted to exclude the amount of any interest capitalized during the period. (B) Fixed Charges represent (a) interest, whether expensed or capitalized, (b) amortization of debt discount, premium and expense and (c) an estimate of interest implicit in rentals. EX-12.A 5 e13917ex12a.txt COMPUTATION OF RATIOS OF EARNINGS EXHIBIT 12(A) PUBLIC SERVICE ELECTRIC AND GAS COMPANY COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES PLUS PREFERRED SECURITIES (Millions) ------------------------- For the Nine Months Ended September 30, ------------------------- 2002 2001 ----------- ----------- Earnings as Defined in Regulation S-K (A): Pre-tax Income from Continuing Operations $ 204 $ 292 Fixed Charges 322 377 Preferred Securities Dividend Requirements (10) (22) Preferred Stock Dividends - PreTax (5) (7) Capitalized Interest (1) (2) ------- ------- Earnings $ 510 $ 638 ======= ======= Fixed Charges as Defined in Regulation S-K (B): Interest Expense $ 307 $ 346 Interest Factor in Rentals 0 2 Preferred Securities Dividend Requirements 10 22 Preferred Stock Dividends - (Gross Up for Tax) 3 4 Adjustment to Preferred Stock Dividend Requirement 2 3 ------- ------- Total Fixed Charges $ 322 $ 377 ======= ======= Ratio of Earnings to Fixed Charges 1.58 1.69 ======= ======= (A) The term "earnings" shall be defined as pretax income from continuing operations. Add to pretax income the amount of fixed charges adjusted to exclude the amount of any interest capitalized during the period. (B) Fixed Charges represent (a) interest, whether expensed or capitalized, (b) amortization of debt discount, premium and expense and (c) an estimate of interest implicit in rentals. EX-99 6 e13917ex99.txt CERTIFICATION BY FERLAND EXHIBIT 99 Certification Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code I, E. James Ferland, Chief Executive Officer of Public Service Electric and Gas Company (the "Company"), to the best of my knowledge, certify that (i) the Quarterly Report of the Company on Form 10-Q for the Quarter ended September 30, 2002 (the "Periodic Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ E. James Ferland ------------------------------- E. James Ferland Chief Executive Officer November 1, 2002 EX-99.1 7 e13917ex99_1.txt CERTIFICATION BY BUSCH EXHIBIT 99.1 Certification Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code I, Robert E. Busch, Chief Financial Officer of Public Service Electric and Gas Company (the "Company"), to the best of my knowledge, certify that (i) the Quarterly Report of the Company on Form 10-Q for the Quarter ended September 30, 2002 (the "Periodic Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Robert E. Busch ----------------------------------- Robert E. Busch Chief Financial Officer November 1, 2002 -----END PRIVACY-ENHANCED MESSAGE-----