-----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, PfKrlwwSwOu/DlwIQTTydK0gXANlDkA3SoIdDBes6y+oHL40iugk885eXzDoRmf+ JdLOR8x7ffaHAcGH9KUndA== 0000950112-96-001580.txt : 19960518 0000950112-96-001580.hdr.sgml : 19960518 ACCESSION NUMBER: 0000950112-96-001580 CONFORMED SUBMISSION TYPE: SC 13E4 PUBLIC DOCUMENT COUNT: 12 FILED AS OF DATE: 19960516 SROS: NYSE SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: PUBLIC SERVICE ELECTRIC & GAS CO CENTRAL INDEX KEY: 0000081033 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 221212800 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13E4 SEC ACT: 1934 Act SEC FILE NUMBER: 005-34088 FILM NUMBER: 96568861 BUSINESS ADDRESS: STREET 1: 80 PARK PLZ STREET 2: PO BOX 570 CITY: NEWARK STATE: NJ ZIP: 07101 BUSINESS PHONE: 2014307000 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: PUBLIC SERVICE ELECTRIC & GAS CO CENTRAL INDEX KEY: 0000081033 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 221212800 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13E4 BUSINESS ADDRESS: STREET 1: 80 PARK PLZ STREET 2: PO BOX 570 CITY: NEWARK STATE: NJ ZIP: 07101 BUSINESS PHONE: 2014307000 SC 13E4 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 SCHEDULE 13E-4 ISSUER TENDER OFFER STATEMENT (PURSUANT TO SECTION 13(E)(1) OF THE SECURITIES EXCHANGE ACT OF 1934) PUBLIC SERVICE ELECTRIC AND GAS COMPANY (NAME OF THE ISSUER AND PERSON(S) FILING STATEMENT) 4.08% Cumulative Preferred Stock 4.18% Cumulative Preferred Stock 4.30% Cumulative Preferred Stock 5.05% Cumulative Preferred Stock 5.28% Cumulative Preferred Stock 6.80% Cumulative Preferred Stock 6.92% Cumulative Preferred Stock (TITLE OF CLASS OF SECURITIES) 744567 306 (4.08% Cumulative Preferred Stock) 744567 405 (4.18% Cumulative Preferred Stock) 744567 504 (4.30% Cumulative Preferred Stock) 744567 603 (5.05% Cumulative Preferred Stock) 744567 702 (5.28% Cumulative Preferred Stock) 744567 801 (6.80% Cumulative Preferred Stock) 744567 710 (6.92% Cumulative Preferred Stock) (CUSIP NUMBER OF CLASS OF SECURITIES) Robert C. Murray Senior Vice President and Chief Financial Officer 80 Park Plaza, T4B P.O. Box 570 Newark, New Jersey 07101 (201) 430-5630 (NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS ON BEHALF OF THE PERSON(S) FILING STATEMENT) MAY 16, 1996 (DATE TENDER OFFER FIRST PUBLISHED, SENT OR GIVEN TO SECURITY HOLDERS) CALCULATION OF FILING FEE TRANSACTION VALUATION* AMOUNT OF FILING FEE --------------------- -------------------- $125,260,500 $ 25,052.10 * Pursuant to Section 13(e)(3) of the Securities Exchange Act of 1934, as amended, and Rule 0-11(b)(1) thereunder, the transaction value was calculated by multiplying 187,500 shares of 4.08% Preferred Stock, 187,500 shares of 4.18% Preferred Stock, 187,500 shares of 4.30% Preferred Stock, 187,500 shares of 5.05% Preferred Stock, 187,500 shares of 5.28% Preferred Stock, 187,500 shares of 6.80% Preferred Stock and 450,000 shares of 6.92% Preferred Stock by $59.30, $60.76, $62.50, $73.40, $76.74, $97.42 and $99.14, the respective per share purchase prices. [ ] CHECK BOX IF ANY PART OF THE FEE IS OFFSET AS PROVIDED BY RULE 0-11(A)(2) AND IDENTIFY THE FILING WITH WHICH THE OFFSETTING FEE WAS PREVIOUSLY PAID. IDENTIFY THE PREVIOUS FILING BY REGISTRATION STATEMENT NUMBER, OR THE FORM OR SCHEDULE, AND THE DATE OF ITS FILING. Amount Previously Paid: N/A Filing Parties: N/A Form or Registration Nos.: N/A Date Filed N/A Page 1 of 5 Pages EXPLANATORY NOTE Copies of the Offer to Purchase and each Letter of Transmittal, among other documents, have been filed by Public Service Electric and Gas Company, a New Jersey corporation (the "Company") as Exhibits to this Issuer Tender Offer Statement on Schedule 13E-4 (the "Statement"). Unless otherwise indicated, all material incorporated by reference in this Statement in response to items or sub-items of this Statement is incorporated by reference to the corresponding caption in the Offer to Purchase, including the information stated under such captions as being incorporated in response thereto. ITEM 1. Security and Issuer. (a) The name of the issuer is Public Service Electric and Gas Company, a New Jersey corporation, which has its principal executive offices at 80 Park Plaza, Newark, New Jersey 07101 (telephone number 201-430- 7000). (b) The information set forth in the front cover page, "Introduction," Section 1-"Purpose of the Offer; Certain Effects of the Offer; Plans of the Company After the Offer" and Section 12 - "Transactions and Agreements Concerning the Shares" of the Offer to Purchase is incorporated herein by reference. (c) The information set forth in Section 9 - "Price Ranges of Shares; Dividends" of the Offer to Purchase is incorporated herein by reference. (d) Not applicable. ITEM 2. Source and Amount of Funds. (a) The information set forth in Section 11 - "Source and Amount of Funds" in the Offer to Purchase is incorporated herein by reference. (b) Not applicable. ITEM 3. Purpose of the Tender Offer and Plans or Proposals of the Issuer or Affiliate. The information set forth in Section 1 - "Purpose of the Offer; Certain Effects of the Offer; Plans of the Company After the Offer" in the Offer to Purchase is incorporated herein by reference. ITEM 4. Interest in Securities of the Issuer. The information set forth in Section 12 - "Transactions and Agreements Concerning the Shares" in the Offer to Purchase is incorporated herein by reference. Page 2 of 5 Pages ITEM 5. Contracts, Arrangements, Understandings or Relationships with Respect to the Issuer's Securities. Not applicable. ITEM 6. Persons Retained, Employed or to be Compensated. The information set forth in Section 14 - "Fees and Expenses" in the Offer to Purchase is incorporated herein by reference. ITEM 7. Financial Information. (a)-(b) The information set forth in Section 10 - "Certain Information Concerning the Company" in the Offer to Purchase and Exhibit (g)(1) and (g)(2) hereto is incorporated herein by reference. ITEM 8. Additional Information. (a) Not applicable. (b) There are no applicable regulatory requirements which must be complied with or approvals which must be obtained in connection with the Offer other than compliance with the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder including, without limitation, Rule 13e-3 and Rule 13e-4, the rules and regulations promulgated by the New Jersey Board of Public Utilities and the requirements of the state securities or "Blue Sky" laws. (c) Not applicable. (d) Not applicable. (e) Not applicable. Item 9. Material to be Filed as Exhibits. Exhibit No. Description - ----------- ----------- (a)(1) Offer to Purchase dated May 16, 1996. (a)(2) Form of Letter of Transmittal. (a)(3) Form of Notice of Guaranteed Delivery. (a)(4) Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees dated May 16, 1996. Page 3 of 5 Pages (a)(5) Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. (a)(6) Letter to Holders of Shares dated May 16, 1996. (a)(7) Press Release dated May 16, 1996. (a)(8) Summary Advertisement dated May 17, 1996. (a)(9) Guidelines of the Internal Revenue Service for Certification of Taxpayer Identification Number on Substitute Form W-9. (b) Not applicable. (c) Not applicable. (d) Not applicable. (e) Not applicable. (f) Not applicable. (g)(1) Annual Report on Form 10-K for the year ended December 31, 1995. (g)(2) Quarterly Report on Form 10-Q for the quarter ended March 31, 1996. Page 4 of 5 Pages SIGNATURE After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. Dated: May 16, 1996 PUBLIC SERVICE ELECTRIC AND GAS COMPANY By: /s/ Francis J. Riepl ----------------------------------------- Name: Francis J. Riepl Title: Vice President and Treasurer Page 5 of 5 Pages EXHIBIT INDEX -------------- Exhibit No. Description - ----------- ----------- (a)(1) Offer to Purchase dated May 16, 1996. (a)(2) Form of Letter of Transmittal. (a)(3) Form of Notice of Guaranteed Delivery. (a)(4) Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees dated May 16, 1996. (a)(5) Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. (a)(6) Letter to Holders of Shares dated May 16, 1996. (a)(7) Press Release dated May 16, 1996. (a)(8) Summary Advertisement dated May 17, 1996. (a)(9) Guidelines of the Internal Revenue Service for Certification of Taxpayer Identification Number on Substitute Form W-9. (b) Not applicable. (c) Not applicable. (d) Not applicable. (e) Not applicable. (f) Not applicable. (g)(1) Annual Report on Form 10-K for the year ended December 31, 1995. (g)(2) Quarterly Report on Form 10-Q for the quarter ended March 31, 1996. EX-99.(A)(1) 2 EXHIBIT 99.(a)(1) OFFER TO PURCHASE FOR CASH BY PUBLIC SERVICE ELECTRIC AND GAS COMPANY 187,500 SHARES OF ITS 4.08% CUMULATIVE PREFERRED STOCK ($100 PAR VALUE) (CUSIP NO. 744567 306) AT A PURCHASE PRICE OF $59.30 PER SHARE 187,500 SHARES OF ITS 4.18% CUMULATIVE PREFERRED STOCK ($100 PAR VALUE) (CUSIP NO. 744567 405) AT A PURCHASE PRICE OF $60.76 PER SHARE 187,500 SHARES OF ITS 4.30% CUMULATIVE PREFERRED STOCK ($100 PAR VALUE) (CUSIP NO. 744567 504) AT A PURCHASE PRICE OF $62.50 PER SHARE 187,500 SHARES OF ITS 5.05% CUMULATIVE PREFERRED STOCK ($100 PAR VALUE) (CUSIP NO. 744567 603) AT A PURCHASE PRICE OF $73.40 PER SHARE 187,500 SHARES OF ITS 5.28% CUMULATIVE PREFERRED STOCK ($100 PAR VALUE) (CUSIP NO. 744567 702) AT A PURCHASE PRICE OF $76.74 PER SHARE 187,500 SHARES OF ITS 6.80% CUMULATIVE PREFERRED STOCK ($100 PAR VALUE) (CUSIP NO. 744567 801) AT A PURCHASE PRICE OF $97.42 PER SHARE 450,000 SHARES OF ITS 6.92% CUMULATIVE PREFERRED STOCK ($100 PAR VALUE) (CUSIP NO. 744567 710) AT A PURCHASE PRICE OF $99.14 PER SHARE THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON THURSDAY, JUNE 13, 1996 UNLESS THE OFFER IS EXTENDED. Public Service Electric and Gas Company, a New Jersey corporation (the "Company"), invites (i) the holders of its 4.08% Cumulative Preferred Stock ($100 par value) (the "4.08% Preferred") to tender their shares of such stock (the "4.08% Shares") at a price of $59.30 per 4.08% Share, (ii) the holders of its 4.18% Cumulative Preferred Stock ($100 par value) (the "4.18% Preferred") to tender their shares of such stock (the "4.18% Shares") at a price of $60.76 per 4.18% Share, (iii) the holders of its 4.30% Cumulative Preferred Stock ($100 par value) (the "4.30% Preferred") to tender their shares of such stock (the "4.30% Shares") at a price of $62.50 per 4.30% Share, (iv) the holders of its 5.05% Cumulative Preferred Stock ($100 par value) (the "5.05% Preferred") to tender their shares of such stock (the "5.05% Shares") at a price of $73.40 per 5.05% Share, (v) the holders of its 5.28% Cumulative Preferred Stock ($100 par value) (the "5.28% Preferred") to tender their shares of such stock (the "5.28% Shares") at a price of $76.74 per 5.28% Share, (vi) the holders of its 6.80% Cumulative Preferred Stock ($100 par value) (the "6.80% Preferred") to tender their shares of such stock (the "6.80% Shares") at a price of $97.42 per 6.80% Share and (vii) the holders of its 6.92% Cumulative Preferred Stock ($100 par value) (the "6.92% Preferred") to tender their shares of such stock (the "6.92% Shares") at a price of $99.14 per 6.92% Share, net to the seller in cash, upon the terms and subject to the conditions set forth in this Offer to Purchase (the "Offer to Purchase") and in each applicable Letter of Transmittal (which, together with the Offer to Purchase, constitutes the "Offer" with respect to the applicable Series of Preferred Stock). The 4.08% Shares, the 4.18% Shares, the 4.30% Shares, the 5.05% Shares, the 5.28% Shares, the 6.80% Shares and the 6.92% Shares collectively constitute the "Shares." The Company will purchase all Shares validly tendered and not withdrawn up to the 187,500 shares sought of the 4.08% Preferred, 187,500 shares sought of the 4.18% Preferred, 187,500 shares sought of the 4.30% Preferred, 187,500 shares sought of the 5.05% Preferred, 187,500 shares sought of the 5.28% Preferred, 187,500 shares sought of the 6.80% Preferred and 450,000 shares sought of the 6.92% Preferred (each, the "Amount Sought"), upon the terms and subject to the conditions of the Offer, including the provisions relating to proration described herein. Shares not purchased because of proration will be returned. Each Offer has its own Letter of Transmittal and Notice of Guaranteed Delivery. ------------------- THE OFFER FOR ONE SERIES OF PREFERRED STOCK IS INDEPENDENT OF THE OFFER FOR ANY OTHER SERIES OF PREFERRED STOCK. THE OFFER IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF SHARES OF THE APPLICABLE SERIES OF PREFERRED STOCK BEING TENDERED. THE OFFER IS, HOWEVER, SUBJECT TO CERTAIN OTHER CONDITIONS. SEE SECTION 8--"CERTAIN CONDITIONS OF THE OFFER." SUBJECT TO THE RECEIPT OF A PROPERLY COMPLETED AND DULY EXECUTED NOTICE OF SOLICITED TENDERS AS DESCRIBED HEREIN, THE COMPANY WILL PAY TO A SOLICITING DEALER (AS DEFINED HEREIN) A SOLICITATION FEE OF $1.25 PER SHARE FOR ANY SHARES TENDERED, ACCEPTED FOR PAYMENT AND PAID FOR PURSUANT TO THE OFFER. ------------------- The Shares, except the 6.92% Shares, are listed and traded on the New York Stock Exchange, Inc. (the "New York Stock Exchange"). The 6.92% Shares are traded in the over-the-counter market and are not listed on any national securities exchange or quoted on the automated quotation system of a registered securities association. For information concerning the Shares, quarterly sales prices and bids, see Section 9--"Price Ranges of Shares; Dividends." STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR THE SHARES. ------------------- THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. ------------------- THE COMPANY, ITS BOARD OF DIRECTORS AND ITS EXECUTIVE OFFICERS MAKE NO RECOMMENDATION TO ANY STOCKHOLDER AS TO WHETHER TO TENDER ANY OR ALL SHARES OF ANY SERIES OF PREFERRED STOCK PURSUANT TO THE OFFER. STOCKHOLDERS MUST MAKE THEIR OWN DECISION AS TO WHETHER TO TENDER SHARES OF ANY SERIES OF PREFERRED STOCK PURSUANT TO THE OFFER AND, IF SO, HOW MANY SHARES TO TENDER. ------------------- The Dealer Managers for the Offer are: GOLDMAN, SACHS & CO. MERRILL LYNCH & CO. ------------------- The date of this Offer to Purchase is May 16, 1996. IMPORTANT Any stockholder desiring to tender any or all of such stockholder's Shares should either (1) complete and sign the applicable Letter of Transmittal, in accordance with the instructions in such Letter of Transmittal, mail it or deliver it by hand or facsimile transmission, and any other required documents to First Chicago Trust Company of New York, as Depositary, and either deliver the certificates for such Shares to the Depositary or deliver such Shares pursuant to the procedure for book-entry transfer set forth in Section 5-"Procedure for Tendering Shares" or (2) request such stockholder's broker, dealer, commercial bank, trust company or nominee to effect the transaction for such stockholder. Stockholders whose Shares are registered in the name of a broker, dealer, commercial bank, trust company or nominee must contact such broker, dealer, commercial bank, trust company or nominee if they desire to tender such Shares. Stockholders who desire to tender Shares and whose certificates for such Shares are not immediately available, or who cannot comply in a timely manner with the procedure for book-entry transfer, should tender such Shares by following the procedures for guaranteed delivery set forth in Section 5-"Procedure for Tendering Shares." Questions or requests for assistance or for additional copies of this Offer to Purchase, the applicable Letter of Transmittal, the applicable Notice of Guaranteed Delivery or other tender offer materials may be directed to Georgeson & Company Inc., as Information Agent, or the Dealer Managers at their respective addresses and telephone numbers set forth on the back cover of this Offer to Purchase. NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY RECOMMENDATION ON BEHALF OF THE COMPANY AS TO WHETHER STOCKHOLDERS SHOULD TENDER OR REFRAIN FROM TENDERING SHARES OF ANY SERIES OF PREFERRED STOCK PURSUANT TO THE OFFER. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER OTHER THAN THOSE CONTAINED HEREIN OR IN THE APPLICABLE LETTER OF TRANSMITTAL. IF GIVEN OR MADE, SUCH RECOMMENDATION, INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. TABLE OF CONTENTS
PAGE ---- SUMMARY................................................................................ iii INTRODUCTION........................................................................... 1 SPECIAL FACTORS........................................................................ 2 Section 1. Purpose of the Offer; Certain Effects of the Offer; Plans of the Company After the Offer.......................................................... 2 Section 2. Certain Federal Income Tax Consequences.................................. 5 Section 3. Certain Legal Matters; Regulatory and Foreign Approvals; No Appraisal Rights................................................................... 8 THE OFFER.............................................................................. 9 Section 4. Number of Shares; Purchase Price; Expiration Date; Receipt of Dividend; Extension of the Offer; Proration........................................ 9 Section 5. Procedure for Tendering Shares........................................... 10 Section 6. Withdrawal Rights........................................................ 12 Section 7. Acceptance for Payment of Shares and Payment of Purchase Price........... 12 Section 8. Certain Conditions of the Offer.......................................... 14 Section 9. Price Ranges of Shares; Dividends........................................ 16 Section 10. Certain Information Concerning the Company............................... 19 Section 11. Source and Amount of Funds............................................... 21 Section 12. Transactions and Agreements Concerning the Shares........................ 21 Section 13. Extension of Tender Period; Termination; Amendments...................... 21 Section 14. Fees and Expenses........................................................ 22 Section 15. Miscellaneous............................................................ 24
ii SUMMARY This general summary is provided solely for the convenience of holders of Shares and is qualified in its entirety by reference to the full text and more specific details contained in this Offer to Purchase and the applicable Letter of Transmittal and any amendments hereto and thereto. Each of the capitalized terms used in this Summary and not defined herein has the meaning set forth elsewhere in this Offer to Purchase.
The Company..................... Public Service Electric and Gas Company The Shares...................... Shares of 4.08% Cumulative Preferred Stock ($100 par value) Shares of 4.18% Cumulative Preferred Stock ($100 par value) Shares of 4.30% Cumulative Preferred Stock ($100 par value) Shares of 5.05% Cumulative Preferred Stock ($100 par value) Shares of 5.28% Cumulative Preferred Stock ($100 par value) Shares of 6.80% Cumulative Preferred Stock ($100 par value) Shares of 6.92% Cumulative Preferred Stock ($100 par value) Number of Shares Sought......... 187,500 of the 250,000 4.08% Shares outstanding; 187,500 of the 249,942 4.18% Shares outstanding; 187,500 of the 250,000 4.30% Shares outstanding; 187,500 of the 250,000 5.05% Shares outstanding; 187,500 of the 250,000 5.28% Shares outstanding; 187,500 of the 250,000 6.80% Shares outstanding; and 450,000 of the 600,000 6.92% Shares outstanding. Purchase Price.................. $59.30 per 4.08% Share, $60.76 per 4.18% Share, $62.50 per 4.30% Share, $73.40 per 5.05% Share, $76.74 per 5.28% Share, $97.42 per 6.80% Share and $99.14 per 6.92% Share, in each case net to the seller in cash. See Section 9--"Price Ranges of Shares; Dividends." Independent Offer............... The Offer for one Series of Preferred is independent of the Offer for any other Series of Preferred. The Offer is not conditioned upon any minimum number of Shares of the applicable Series of Preferred being tendered. The Offer is, however, subject to certain other conditions. Expiration Date of the Offer.... The Offer expires on Thursday, June 13, 1996 at 12:00 Midnight, New York City time, unless extended. How to Tender Shares............ See Section 5--"Procedure for Tendering Shares." For further information, call the Information Agent or the Dealer Managers or consult your broker for assistance. Withdrawal Rights............... Tendered Shares of any Series of Preferred may be withdrawn at any time until the expiration of the Offer with respect to such Series of Preferred and, unless theretofore accepted for payment, may also be withdrawn after Friday, July 12, 1996. See Section 6--"Withdrawal Rights." Purpose of the Offer............ The Company is making the Offer because it believes that the purchase of Shares is economically attractive to the Company. In addition, the Offer gives stockholders the opportunity to sell their Shares at a premium over market price and without the usual transaction costs associated with a market sale. See Section 1--"Purpose of the Offer; Certain Effects of the Offer; Plans of the Company After the Offer."
iii Dividends....................... The Board of Directors of the Company will consider the declaration of dividends on the Company's capital stock at its meeting on May 21, 1996. The Regular Quarterly Dividend for each Series of Preferred, if, when and as declared, will be paid on June 28, 1996 to holders of record as of the close of business on June 7, 1996. A holder of record of Shares on June 7, 1996 who tenders Shares will be entitled to the Regular Quarterly Dividend, regardless of when such tender is made. Holders of Shares purchased pursuant to the Offer will not be entitled to any dividends in respect of any later dividend periods. See Section 9--"Price Ranges of Shares; Dividends." Brokerage Commissions........... Not payable by stockholders. Solicitation Fee................ The Company will pay to a Soliciting Dealer a solicitation fee of $1.25 per Share for any Shares tendered, accepted for payment and paid for pursuant to the Offer. Stock Transfer Tax.............. None, except as provided in Instruction 6 of the Letters of Transmittal. See Section 7--"Acceptance for Payment of Shares and Payment of Purchase Price." Payment Date.................... Promptly after the applicable Expiration Date of the Offer. Further Information............. Additional copies of this Offer to Purchase and the applicable Letter of Transmittal may be obtained by contacting Georgeson & Company Inc., Wall Street Plaza, New York, New York 10005, telephone (800) 223-2064 (toll-free) and (212) 440-9800 (brokers and dealers). Questions about the Offer should be directed to Goldman, Sachs & Co. at (800) 828-3182 or Merrill Lynch & Co. at (212) 449-4914 (call collect).
iv INTRODUCTION To the Holders of 4.08% Cumulative Preferred Stock, 4.18% Cumulative Preferred Stock, 4.30% Cumulative Preferred Stock, 5.05% Cumulative Preferred Stock, 5.28% Cumulative Preferred Stock, 6.80% Cumulative Preferred Stock, and 6.92% Cumulative Preferred Stock: Public Service Electric and Gas Company, a New Jersey corporation (the "Company"), invites (i) the holders of its 4.08% Cumulative Preferred Stock ($100 par value) (the "4.08% Preferred") to tender their shares of such stock (the "4.08% Shares") at a price of $59.30 per 4.08% Share, (ii) the holders of its 4.18% Cumulative Preferred Stock ($100 par value) (the "4.18% Preferred") to tender their shares of such stock (the "4.18% Shares") at a price of $60.76 per 4.18% Share, (iii) the holders of its 4.30% Cumulative Preferred Stock ($100 par value) (the "4.30% Preferred") to tender their shares of such stock (the "4.30% Shares") at a price of $62.50 per 4.30% Share, (iv) the holders of its 5.05% Cumulative Preferred Stock ($100 par value) (the "5.05% Preferred") to tender their shares of such stock (the "5.05% Shares") at a price of $73.40 per 5.05% Share, (v) the holders of its 5.28% Cumulative Preferred Stock ($100 par value) (the "5.28% Preferred") to tender their shares of such stock (the "5.28% Shares") at a price of $76.74 per 5.28% Share, (vi) the holders of its 6.80% Cumulative Preferred Stock ($100 par value) (the "6.80% Preferred") to tender their shares of such stock (the "6.80% Shares") at a price of $97.42 per 6.80% Share and (vii) the holders of its 6.92% Cumulative Preferred Stock ($100 par value) (the "6.92% Preferred") to tender their shares of such stock (the "6.92% Shares") at a price of $99.14 per 6.92% Share, net to the seller in cash, upon the terms and subject to the conditions set forth in this Offer to Purchase (the "Offer to Purchase") and in the applicable Letter of Transmittal (which, together with the Offer to Purchase, constitutes the "Offer" with respect to the applicable Series of Preferred). Each series of the Company's Cumulative Preferred Stock which is subject to the Offer is referred to herein as a "Series of Preferred" and the shares of all Series of Preferred subject to the Offer are collectively referred to as the "Shares." The Company will purchase all Shares validly tendered and not withdrawn up to 187,500 shares sought of the 4.08% Preferred, 187,500 shares sought of the 4.18% Preferred, 187,500 shares sought of the 4.30% Preferred, 187,500 shares sought of the 5.05% Preferred, 187,500 shares sought of the 5.28% Preferred, 187,500 shares sought of the 6.80% Preferred and 450,000 shares sought of the 6.92% Preferred (each, the "Amount Sought"), upon the terms and subject to the conditions of the Offer, including the provisions relating to proration described herein. Shares not purchased because of proration will be returned. THE COMPANY, ITS BOARD OF DIRECTORS AND ITS EXECUTIVE OFFICERS MAKE NO RECOMMENDATION TO ANY STOCKHOLDER AS TO WHETHER TO TENDER ANY OR ALL SHARES OF ANY SERIES OF PREFERRED PURSUANT TO THE OFFER. STOCKHOLDERS MUST MAKE THEIR OWN DECISION AS TO WHETHER TO TENDER SHARES OF ANY SERIES OF PREFERRED PURSUANT TO THE OFFER AND, IF SO, HOW MANY SHARES TO TENDER. The Board of Directors of the Company (the "Board") will consider the declaration of dividends on the Company's capital stock at its May 21, 1996 meeting. The regular quarterly dividend on each Series of Preferred (the "Regular Quarterly Dividend"), if, when and as declared, will be paid on June 28, 1996 to holders of record as of the close of business on June 7, 1996. A holder of record of Shares on June 7, 1996 who tenders Shares will be entitled to the Regular Quarterly Dividend, regardless of when 1 such tender is made. Holders of Shares purchased pursuant to the Offer will not be entitled to any dividends in respect of any later dividend periods. THE OFFER FOR ONE SERIES OF PREFERRED IS INDEPENDENT OF THE OFFER FOR ANY OTHER SERIES OF PREFERRED. THE OFFER IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF SHARES BEING TENDERED. THE OFFER IS, HOWEVER, SUBJECT TO CERTAIN OTHER CONDITIONS. SEE SECTION 8-"CERTAIN CONDITIONS OF THE OFFER." Tendering stockholders will not be obligated to pay brokerage commissions, solicitation fees or, subject to the Instructions to the applicable Letter of Transmittal, stock transfer taxes on the purchase of Shares by the Company. The Company will pay all charges and expenses of the Depositary, Information Agent and the Dealer Managers incurred in connection with the Offer. As of May 15, 1996, there were issued and outstanding 250,000 Shares of each of the 4.08% Preferred, the 4.30% Preferred, the 5.05% Preferred, the 5.28% Preferred and the 6.80% Preferred, 249,942 Shares of the 4.18% Preferred and 600,000 Shares of the 6.92% Preferred. The Company is offering to purchase up to 187,500 Shares of each of the 4.08% Preferred, the 4.18% Preferred, the 4.30% Preferred, the 5.05% Preferred, the 5.28% Preferred and the 6.80% Preferred and 450,000 Shares of the 6.92% Preferred. Each Series of Preferred, other than the 6.92% Preferred, is listed and traded on the New York Stock Exchange, Inc. ("New York Stock Exchange") under the respective symbol listed below: 4.08% Preferred under "PEG-A"; 4.18% Preferred under "PEG-B"; 4.30% Preferred under "PEG-C"; 5.05% Preferred under "PEG-D"; 5.28% Preferred under "PEG-E"; and 6.80% Preferred under "PEG-G". The 6.92% Shares are traded in the over-the-counter market and are not listed on any national securities exchange or quoted on the automated quotation system of a registered securities association. Stockholders are urged to obtain current market quotations for the Shares. The information concerning recent quarterly trading history of the Shares of each Series of Preferred is set forth in Section 9-"Price Ranges of Shares; Dividends." SPECIAL FACTORS SECTION 1. PURPOSE OF THE OFFER; CERTAIN EFFECTS OF THE OFFER; PLANS OF THE COMPANY AFTER THE OFFER. The Company is making the Offer because it believes that, given the current market prices of the Shares and the opportunity for the Company to replace the Shares with other securities that in the aggregate have a lower after-tax cost, the purchase of the Shares pursuant to the Offer is economically attractive to the Company. See Section 10-"Certain Information Concerning the Company." The Board, including all non-employee directors of the Company, has authorized the Offer by a unanimous vote. The Company believes the Offer is fair to unaffiliated holders of Shares. In making this determination, the Company considered that (a) the Offer gives holders of Shares the opportunity to sell their Shares at a premium over market price and (b) the Offer provides stockholders who are considering a sale of all or a portion of the Shares the opportunity to sell those Shares for cash without the usual transaction costs associated with open-market sales. See Section 9-"Price Ranges of Shares; Dividends." The Company did not find it practicable to, and did not, quantify or otherwise assign relative weights to these factors. 2 Neither the Company nor the Board received any report, opinion or appraisal from an outside party which is materially related to the Offer, including, but not limited to, any report, opinion or appraisal relating to the consideration or the fairness of the consideration to be offered to the holders of the Shares or the fairness of such Offer to the Company or the unaffiliated holders of Shares. Neither the Board nor any director has retained an unaffiliated representative to act solely on behalf of unaffiliated holders of Shares for the purposes of negotiating the terms of the Offer or preparing a report concerning the fairness of the Offer. Except as set forth in Section 10-"Certain Information Concerning the Company," following the consummation of the Offer, the business and operations of the Company will be continued by the Company substantially as they are currently being conducted. Neither the Company nor Public Service Enterprise Group Incorporated, the holder of all issued and outstanding common stock of the Company ("Parent"), has any plans or proposals which relate to or would result in: (a) the acquisition by any Person of additional securities of the Company or Parent or the disposition of securities of the Company or Parent, other than in the ordinary course of business; (b) an extraordinary corporate transaction, such as a merger, reorganization or liquidation involving the Company or any of its material subsidiaries or Parent; (c) a sale or transfer of a material amount of assets of the Company or any of its material subsidiaries; (d) any change in the present Board or management of the Company or Parent; (e) any material change in the present dividend rate or policy or indebtedness or capitalization of the Company; (f) any other material change in the Company's corporate structure or business; (g) a change in the Company's Restated Certificate of Incorporation or Bylaws; (h) except as otherwise described in this Offer to Purchase, a class of equity securities of the Company becoming eligible for termination of registration pursuant to Section 12(g)(4) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"); or (i) except as otherwise described in this Offer to Purchase, the suspension of the Company's obligation to file reports pursuant to Section 15(d) of the Exchange Act. Following the expiration of the Offer, the Company may, in its sole discretion, determine to redeem Shares then subject to redemption at the applicable redemption prices, or to purchase any outstanding Shares through privately negotiated transactions, open market purchases, another tender offer or otherwise, on such terms and at such prices as the Company may determine from time to time. The terms of subsequent purchases or offers could differ from those of the Offer, and may be at a higher price than the related price per Share offered hereby, except that the Company will not make any such purchases of Shares until the expiration of ten business days after the termination of the Offer. Any possible future purchases of Shares by the Company will depend on many factors, including the market prices of the Shares, the Company's business and financial position, alternative investment opportunities available to the Company, the results of the Offer and general economic and market conditions. As of May 15, 1996, the ratings of the Company's preferred stock, including each Series of Preferred, by Standard & Poor's Ratings Group ("S&P"), Moody's Investors Service, Inc. ("Moody's") and Duff & Phelps, Inc. ("D&P") were BBB+, Baa1 and A-, respectively. The Company has been informed by D&P that the rating for the Company's preferred stock is under review with possible negative implications. The purchase of Shares of a Series of Preferred pursuant to the Offer will reduce the number of holders of Shares of that Series of Preferred and the number of such Shares that might otherwise trade publicly, and, depending upon the number of Shares so purchased, such reduction could adversely affect the liquidity and market value of the remaining Shares of that Series of Preferred held by the public. In addition, depending upon the number of Shares of a Series of Preferred, other than the 6.92% Preferred, purchased pursuant to the Offer, the Shares of that Series of Preferred may no longer meet the requirements of the New York Stock Exchange for continued listing. As of May 15, 1996, there were issued and outstanding 250,000 Shares of each of the 4.08% Preferred, 4.30% Preferred, 5.05% Preferred, 5.28% Preferred and 6.80% Preferred and 249,942 Shares of the 4.18% Preferred. According 3 to the New York Stock Exchange's published guidelines, the New York Stock Exchange would consider delisting a Series of Preferred if, among other things, the number of publicly held Shares for such Series of Preferred should fall below 100,000 or the aggregate market value of such Series of Preferred should fall below $2,000,000. If, as a result of the purchase of Shares pursuant to the Offer or otherwise, any of the six Series of Preferred currently listed on the New York Stock Exchange no longer meets the requirements of the New York Stock Exchange for continued listing and the listing of such Series of Preferred is discontinued, the market for such Series of Preferred would be adversely affected. In the event of the delisting of any of the six Series of Preferred by the New York Stock Exchange, it is possible that such Series of Preferred would continue to trade on another securities exchange or in the over-the-counter market and that price quotations would be reported by such exchange, by the National Association of Securities Dealers, Inc. ("NASD") through the National Association of Securities Dealers Automated Quotation System ("NASDAQ") or by other sources. The extent of the public market for such Series of Preferred and the availability of such quotations would, however, depend upon such factors as the number of stockholders remaining at such time, the interest in maintaining a market in such Series of Preferred on the part of securities firms, the possible termination of registration under the Exchange Act as described below, and other factors. The six Series of Preferred currently listed on the New York Stock Exchange are presently "margin securities" under the regulations of the Board of Governors of the Federal Reserve System, which has the effect, among other things, of allowing brokers to extend credit on the collateral of such securities. If a Series of Preferred remains listed on the New York Stock Exchange, the Shares of such Series of Preferred will continue to be "margin securities." If a Series of Preferred currently listed on the New York Stock Exchange were delisted, depending upon factors similar to those described above, such Series of Preferred may no longer constitute "margin securities" for purposes of the margin regulations of the Board of Governors of the Federal Reserve System, in which case, Shares of such Series of Preferred could no longer be used as collateral for loans made by brokers. There are currently issued and outstanding 600,000 Shares of the 6.92% Preferred that are traded only in the over-the-counter market. Each Series of Preferred is currently registered under the Exchange Act. Registration of any such series under the Exchange Act may be terminated upon application of the Company to the Securities and Exchange Commission (the "Commission") pursuant to Section 12(g)(4) of the Exchange Act if such Series of Preferred is neither held by 300 or more holders of record nor listed on a national securities exchange. Termination of registration of any Series of Preferred under the Exchange Act would substantially reduce the information required to be furnished by the Company to holders of Shares corresponding to such Series of Preferred (although the Company would, among other things, remain subject to the reporting obligations under the Exchange Act as a result of other of its outstanding securities) and would make certain provisions of the Exchange Act, such as the requirement of Rule 13e-3 thereunder with respect to "going private" transactions, no longer applicable in respect of such Series of Preferred. If registration of any Series of Preferred under the Exchange Act were terminated, Shares of such Series of Preferred would no longer be "margin securities" or be eligible for NASDAQ reporting. There are currently 364 holders of record of the 4.08% Preferred, 262 holders of record of the 4.18% Preferred, 316 holders of record of the 4.30% Preferred, 515 holders of record of the 5.05% Preferred, 427 holders of record of the 5.28% Preferred, 253 holders of record of the 6.80% Preferred and 3 holders of record of the 6.92% Preferred. All Shares purchased by the Company pursuant to the Offer will be retired, cancelled and thereafter returned to the status of authorized but unissued shares of the Company's preferred stock. All Shares, except the 6.92% Shares, remaining outstanding after the Offer will continue to be redeemable at the option of the Company at the redemption price plus accumulated and unpaid 4 dividends to the date of redemption which price is greater than the applicable price per Share offered hereby. The 6.92% Shares will not be redeemable by the Company until February 1, 2004. Upon liquidation or dissolution of the Company, holders of each Series of Preferred are entitled to receive a liquidation preference of $100 per Share, plus all accumulated and unpaid dividends thereon to the date of payment, prior to the payment of any amounts to holders of the Company's common stock. THE COMPANY, ITS BOARD AND ITS EXECUTIVE OFFICERS MAKE NO RECOMMENDATION TO ANY STOCKHOLDER AS TO WHETHER TO TENDER ANY OR ALL SHARES OF ANY SERIES OF PREFERRED PURSUANT TO THE OFFER. STOCKHOLDERS MUST MAKE THEIR OWN DECISION AS TO WHETHER TO TENDER SHARES OF ANY SERIES OF PREFERRED PURSUANT TO THE OFFER AND, IF SO, HOW MANY SHARES TO TENDER. SECTION 2. CERTAIN FEDERAL INCOME TAX CONSEQUENCES EACH HOLDER OF SHARES IS URGED TO CONSULT AND RELY ON SUCH HOLDER'S OWN TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES TO THE HOLDER OF TENDERING SHARES PURSUANT TO THE OFFER. IN GENERAL. The following summary describes certain Federal income tax consequences relating to the Offer. The summary deals only with Shares held as capital assets within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the "Code"), and does not address tax consequences that may be relevant to investors in special tax situations, such as certain financial institutions, tax-exempt organizations, life insurance companies, dealers in securities or currencies, or stockholders holding the Shares as part of a conversion transaction, as part of a hedge or hedging transaction, or as a position in a straddle for tax purposes. Each stockholder should consult its own tax advisor with regard to the Offer and the application of Federal income tax laws, as well as the laws of any state, local or foreign taxing jurisdiction, to its particular situation. CHARACTERIZATION OF THE SALE. A sale of Shares by a stockholder of the Company pursuant to the Offer will be a taxable transaction for Federal income tax purposes. Under Section 302 of the Code, a sale of Shares by a stockholder to the Company pursuant to the Offer will be treated as a "sale or exchange" of such Shares for Federal income tax purposes (rather than as a distribution by the Company with respect to the Shares held by the tendering stockholder) if the receipt of cash upon such sale (a) results in a "complete redemption" (i.e. a complete termination of the stockholder's interest) of the Shares and any other stock in the Company owned by the stockholder, or (b) is "not essentially equivalent to a dividend" with respect to the stockholder (each as described below). If either of the above tests is satisfied, and the sale of the Shares is therefore treated as a "sale or exchange" of such Shares for Federal income tax purposes, the tendering stockholder will recognize gain or loss equal to the difference between the amount of cash received by the stockholder pursuant to the Offer and the stockholder's tax basis in the Shares sold pursuant to the Offer. Any such gain or loss will be capital gain or loss, and will be long-term capital gain or loss if the Shares have been held for more than one year. If a tendering stockholder does not own, either directly or indirectly under the attribution rules described below, any common stock of Parent, a sale of Shares by such stockholder to the Company pursuant to the Offer will be treated as a sale or exchange of such Shares for Federal income tax purposes, provided that the Shares constitute a capital asset in such stockholder's hands. See "-Section 302 Tests" and "-Constructive Ownership" below. If neither of the above tests is satisfied, the tendering stockholder would be treated as having received a dividend to the extent of the stockholder's allocable portion of the Company's earnings and profits for Federal income tax purposes. The cash amount of such dividend would be included in gross 5 income as an ordinary item in its entirety (without reduction for the tax basis of the Shares sold pursuant to the Offer), no loss would be recognized, and the tendering stockholder's basis in the Shares sold pursuant to the Offer would be added to such stockholder's basis in its remaining Shares or other stock that it owns in the Company, if any. If neither of the above tests is satisfied, to the extent the amount of cash received by the stockholder pursuant to the Offer exceeds such stockholder's allocable portion of the Company's earnings and profits, such stockholder's basis will be reduced by the amount of such excess. If the amount of cash received by such stockholder exceeds its basis in the Shares, the stockholder would be required to treat the excess as gain from the sale or exchange of property. SECTION 302 TESTS. The receipt of cash by a stockholder will be a "complete redemption" of all the Shares owned by the stockholder if either (a) all of the Shares and any other stock of the Company actually and constructively owned by the stockholder are sold pursuant to the Offer, or (b) all of the Shares and any other stock of the Company actually owned by the stockholder are sold pursuant to the Offer and, with respect to Shares and other stock of the Company constructively owned by the stockholder which are not sold pursuant to the Offer, the stockholder waives constructive ownership of all such Shares under procedures described in Section 302(c) of the Code. However, Section 302(c) only permits the waiver of the constructive ownership rules in limited circumstances. Accordingly, stockholders expecting to waive constructive ownership should consult their own tax advisors regarding eligibility and procedural rules applicable to their particular situations. The receipt of cash by a stockholder will be "not essentially equivalent to a dividend" if the stockholder's sale of Shares pursuant to the Offer results in a "meaningful reduction" in the stockholder's interest in the Company. The sale of Shares to the Company by a tendering stockholder that does not own, either directly or indirectly under the attribution rules, any common stock of Parent may also qualify as "not essentially equivalent to a dividend" regardless of proration in the Offer. Also, a stockholder who owns only a small amount of common stock of Parent should probably satisfy the "not essentially equivalent to a dividend" test. However, because what constitutes a "meaningful reduction" depends upon a variety of factors, stockholders expecting to rely upon the "not essentially equivalent to a dividend" test should consult their own tax advisors as to its application in their particular situations. CONSTRUCTIVE OWNERSHIP. In determining whether any of the tests under Section 302 of the Code are satisfied, stockholders must take into account not only the Shares which are actually owned by the stockholder, but also Shares which are constructively owned by the stockholder under Section 318 of the Code. Under Section 318 of the Code, a stockholder may constructively own Shares actually owned, and in some cases constructively owned, by certain related individuals or entities and Shares which the stockholder has the right to acquire by exercise of an option or by conversion. Contemporaneous dispositions or acquisitions of Shares by a stockholder or related individuals or entities may be deemed to be part of a single integrated transaction which will be taken into account in determining whether any of the tests under Section 302 of the Code have been satisfied. EACH STOCKHOLDER SHOULD BE AWARE THAT BECAUSE PRORATION MAY OCCUR IN THE OFFER, EVEN IF ALL THE SHARES ACTUALLY AND CONSTRUCTIVELY OWNED BY A STOCKHOLDER ARE TENDERED PURSUANT TO THE OFFER, FEWER THAN ALL OF SUCH SHARES MAY BE PURCHASED BY THE COMPANY. THUS, PRORATION MAY AFFECT WHETHER A SALE BY A STOCKHOLDER PURSUANT TO THE OFFER WILL MEET ANY OF THE TESTS UNDER SECTION 302 OF THE CODE. CORPORATE STOCKHOLDER DIVIDEND TREATMENT. If a sale of Shares by a corporate stockholder is treated as a dividend, the corporate stockholder may be entitled to claim a deduction equal to 70% of the dividend under Section 243 of the Code, subject to applicable limitations. Corporate stockholders should, however, consider the effect of Section 246(c) of the Code which disallows the 70% dividends received deduction with respect to stock that is held for 45 days or less or where the corporate stockholder is under an obligation to make related payments with respect to substantially similar or related property. For this purpose, the length of time a taxpayer is deemed to have held stock may be 6 reduced by periods during which the taxpayer's risk of loss with respect to the stock is diminished by reason of the existence of certain options or other transactions. Moreover, under Section 246A of the Code, if a corporate stockholder has incurred indebtedness directly attributable to an investment in Shares, the 70% dividends-received deduction may be reduced by a percentage generally computed based on the amount of such indebtedness and the total adjusted tax basis in the Shares. Any amount received by a corporate stockholder pursuant to the Offer that is treated as a dividend would likely constitute an "extraordinary dividend" under Section 1059 of the Code. For this purpose, all dividends received by a stockholder within, and having their ex-dividend date within, an 85-day period (expanded to a 365-day period in the case of dividends received in such period that in the aggregate exceed 20% of the stockholder's adjusted tax basis in the Shares) are aggregated and also treated as extraordinary dividends. Accordingly, a corporate stockholder would be required under Section 1059(a) of the Code to reduce its basis (but not below zero) in its Shares by the non-taxed portion of the aggregate dividend (i.e., the portion of the dividend for which a deduction is allowed). If such portion exceeds the stockholder's tax basis for its Shares (and its tax basis in any other stock of the Company that it owns), the stockholder would be required to treat the excess as gain from the sale of its remaining Shares or other stock that it owns in the Company. Corporate stockholders should consult their own tax advisors as to the application of Section 1059 of the Code to the Offer. FOREIGN STOCKHOLDERS. The Company will withhold Federal income tax at a rate of 30% from gross proceeds paid pursuant to the Offer to a foreign stockholder or his agent, unless the Company determines that a reduced rate of withholding is applicable pursuant to a tax treaty or that an exemption from withholding is applicable because such gross proceeds are effectively connected with the conduct of a trade or business by the foreign stockholder within the United States. For this purpose, a foreign stockholder is any stockholder that is not (a) a citizen or resident of the United States, (b) a corporation, partnership or other entity created or organized in or under the laws of the United States, or (c) any estate or trust the income of which is subject to Federal income taxation regardless of its source. Without definite knowledge to the contrary, the Company will determine whether a stockholder is a foreign stockholder by reference to the stockholder's address. A foreign stockholder may be eligible to file for a refund of such tax or a portion of such tax if such stockholder (a) meets the "complete redemption," or "not essentially equivalent to a dividend" tests described above, (b) is entitled to a reduced rate of withholding pursuant to a treaty and the Company withheld at a higher rate, or (c) is otherwise able to establish that no tax or a reduced amount of tax was due. In order to claim an exemption from withholding on the ground that gross proceeds paid pursuant to the Offer are effectively connected with the conduct of a trade or business by a foreign stockholder within the United States or that the foreign stockholder is entitled to the benefits of a tax treaty, the foreign stockholder must deliver to the Depositary (or other person who is otherwise required to withhold Federal income tax) a properly executed statement claiming such exemption or benefits on Treasury Form 4224 (Exemption from Withholding on Tax on Income Effectively Connected with the conduct of a Trade or Business in the United States) or Treasury Form 1001 (Ownership, Exemption, or Reduced Rate Certificate), respectively. Such statements may be obtained from the Depositary. Foreign stockholders are urged to consult their own tax advisors regarding the application of Federal income tax withholding, including eligibility for a withholding tax reduction or exemption and the refund procedures. BACKUP WITHHOLDING. ANY TENDERING STOCKHOLDER OR OTHER PAYEE WHO FAILS TO COMPLETE AND SIGN THE SUBSTITUTE FORM W-9 THAT IS INCLUDED IN THE APPLICABLE LETTER OF TRANSMITTAL (OR, IN THE CASE OF A FOREIGN STOCKHOLDER, FORM W-8 OBTAINABLE FROM THE DEPOSITARY) MAY BE SUBJECT TO A REQUIRED FEDERAL INCOME TAX BACKUP WITHHOLDING OF 31% OF THE GROSS PROCEEDS PAYABLE TO SUCH STOCKHOLDER OR OTHER PAYEE PURSUANT TO THE OFFER. See Section 7-"Acceptance for Payment of Shares and Payment of Purchase Price" with respect to the application of the Federal income tax backup withholding. 7 THE TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY. THE TAX CONSEQUENCES OF A SALE PURSUANT TO THE OFFER MAY VARY DEPENDING UPON, AMONG OTHER THINGS, THE PARTICULAR CIRCUMSTANCES OF THE TENDERING STOCKHOLDER. NO INFORMATION IS PROVIDED HEREIN AS TO THE STATE, LOCAL OR FOREIGN TAX CONSEQUENCES OF THE TRANSACTION CONTEMPLATED BY THE OFFER. STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE PARTICULAR FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF SALES MADE BY THEM PURSUANT TO THE OFFER AND THE EFFECT OF THE STOCK OWNERSHIP ATTRIBUTION RULES MENTIONED ABOVE. SECTION 3. CERTAIN LEGAL MATTERS; REGULATORY AND FOREIGN APPROVALS; NO APPRAISAL RIGHTS. The Company is not aware of any license or regulatory permit that appears to be material to its business that might be adversely affected by its acquisition of Shares as contemplated in the Offer or of any approval or other action by any government or governmental, administrative or regulatory authority or agency, domestic or foreign, that would be required for the Company's acquisition or ownership of Shares pursuant to the Offer, except for approval by the New Jersey Board of Public Utilities, which has previously been obtained, or as described under Section 10-"Certain Information Concerning the Company." Should any other approval or other action be required, the Company currently contemplates that it will seek such approval or other action. The Company cannot predict whether it may determine that it is required to delay the acceptance for payment of, or payment for, Shares tendered pursuant to the Offer pending the outcome of any such matter. There can be no assurance that any such approval or other action, if needed, would be obtained or would be obtained without substantial conditions or that the failure to obtain any such approval or other action might not result in adverse consequences to the Company's business. The Company intends to make all required filings under the Exchange Act. The Company's obligation under the Offer to accept for payment, or make payment for, Shares is subject to certain conditions. See Section 8-"Certain Conditions of the Offer." No approval of the holders of any Shares or the holders of any of the Company's other securities is required in connection with the Offer. No appraisal rights are available to holders of Shares in connection with the Offer. 8 THE OFFER SECTION 4. NUMBER OF SHARES; PURCHASE PRICE; EXPIRATION DATE; RECEIPT OF DIVIDEND; EXTENSION OF THE OFFER; PRORATION. NUMBER OF SHARES; PURCHASE PRICE; EXPIRATION DATE. Upon the terms and subject to the conditions described in this Offer to Purchase and in the applicable Letter of Transmittal, the Company will purchase up to the Amount Sought of any Shares of a Series of Preferred validly tendered on or prior to the Expiration Date with respect to that Series of Preferred (and not withdrawn) at a price of $59.30 per 4.08% Share, $60.76 per 4.18% Share, $62.50 per 4.30% Share, $73.40 per 5.05% Share, $76.74 per 5.28% Share, $97.42 per 6.80% Share and $99.14 per 6.92% Share. The later of 12:00 midnight, New York City time, on June 13, 1996, or the latest time and date to which the Offer with respect to a Series of Preferred is extended, is referred to herein as the "Expiration Date" with respect to that Series of Preferred. If the Offer is oversubscribed with respect to a Series of Preferred, only Shares tendered on or prior to the Expiration Date with respect to that Series of Preferred shall be eligible for proration. The Offer for one Series of Preferred is independent of the Offer for any other Series of Preferred. The Offer is not conditioned on any minimum number of Shares of the applicable Series of Preferred being tendered. The Offer is, however, subject to certain other conditions. Section 8-"Certain Conditions of the Offer." RECEIPT OF DIVIDEND. The Board will consider the declaration of dividends on the Company's capital stock on May 21, 1996. The Regular Quarterly Dividend for a Series of Preferred, if, as and when declared, will be paid to holders of record as of the close of business on June 7, 1996. A holder of record of Shares on June 7, 1996 who tenders Shares will be entitled to such Regular Quarterly Dividend, regardless of when such tender is made. Holders of Shares purchased pursuant to the Offer will not be entitled to any dividends in respect of any later dividend periods. EXTENSION OF THE OFFER. The Company expressly reserves the right, in its sole discretion, at any time or from time to time, to extend the period of time during which the Offer is open with respect to a Series of Preferred by giving oral or written notice of such extension to the Depositary and making a public announcement thereof. If the Company extends the Offer with respect to one Series of Preferred, the Company is under no obligation to extend the Offer with respect to any other Series of Preferred. See Section 13-"Extension of Tender Period; Termination; Amendments." There can be no assurance, however, that the Company will exercise its right to extend any Offer or, if one Offer is extended, that any other Offer will also be extended. If (a) the Company (i) increases or decreases the price to be paid for the Shares of a Series of Preferred hereunder, (ii) increases or decreases the Amount Sought with respect to a particular Series of Preferred or (iii) increases or decreases the Soliciting Dealers' fees, and (b) the applicable Offer is scheduled to expire at any time earlier than the tenth business day from and including the date that notice of such increase or decrease is first published, sent or given in the manner specified in Section 13-"Extension of the Tender Period; Termination; Amendments," the Offer for such Shares of that Series of Preferred will be extended until the expiration of such ten business day period. For purposes of the Offer, "business day" means any day other than a Saturday, Sunday or Federal holiday and consists of the time period from 12:01 a.m. through 12:00 midnight, New York City time. PRORATION. Upon the terms and subject to the conditions of the Offer, if the Amount Sought of a Series of Preferred or fewer Shares of that Series of Preferred have been validly tendered and not withdrawn on or prior to the Expiration Date with respect to that Series of Preferred, the Company will purchase all such Shares. Upon the terms and subject to the conditions of the Offer, if more Shares than the Amount Sought of a Series of Preferred (or, if decreased as described herein, such lesser number as the Company may elect to purchase pursuant to the Offer) have been validly tendered and not withdrawn on or prior to the Expiration Date with respect to that Series of Preferred, the Company will 9 purchase Shares of that Series of Preferred from each tendering holder on a pro rata basis, subject to adjustment to avoid the purchase of fractional Shares. If proration of tendered Shares of a Series of Preferred is required, because of the difficulty in determining the number of Shares of that Series of Preferred validly tendered (including Shares tendered by the guaranteed delivery procedure described in Section 5-"Procedure for Tendering Shares"), the Company does not expect that it would be able to announce the final proration factor or to commence payment for any Shares of such Series of Preferred purchased pursuant to the Offer until approximately five business days after the applicable Expiration Date. Preliminary results of proration will be announced by press release promptly after such Expiration Date. Holders of Shares may obtain such preliminary information from the Dealer Managers or the Information Agent and may also be able to obtain such information from their brokers. All tendered Shares not purchased pursuant to the Offer, including Shares not purchased because of proration, will be returned to the tendering stockholders at the Company's expense promptly following the applicable Expiration Date. SECTION 5. PROCEDURE FOR TENDERING SHARES. TENDER OF SHARES. To tender Shares validly pursuant to the Offer, each tendering holder of Shares must either: (a) send to the Depositary (at one of its addresses set forth on the back cover of this Offer to Purchase) a properly completed and duly executed Letter of Transmittal for the applicable Shares being tendered, or facsimile thereof, together with any required signature guarantees and any other documents required by such Letter of Transmittal, and either (i) cause certificates for the applicable Shares to be tendered to be received by the Depositary at one of such addresses or (ii) cause such Shares to be delivered pursuant to the procedures for book-entry transfer described below (and a confirmation of such delivery received by the Depositary), in each case on or prior to the applicable Expiration Date; or (b) comply with the guaranteed delivery procedure described under "Guaranteed Delivery Procedure" below. A tender of Shares made pursuant to any method of delivery set forth herein or in the applicable Letter of Transmittal will constitute a binding agreement between the tendering holder and the Company upon the terms and subject to the conditions of the Offer. No alternative, conditional or contingent tenders of Shares will be accepted. It is a violation of Rule 14e-4 promulgated under the Exchange Act for persons to tender Shares for their own account unless the persons so tendering (a) have a net long position equal to or greater than the amount of Shares tendered or other securities immediately convertible into, or exercisable or exchangeable for, the amount of Shares tendered, and will acquire such Shares for tender by conversion, exercise or exchange of such other securities and (b) will cause such Shares to be delivered in accordance with the terms of the Offer. Rule 14e-4 provides a similar restriction applicable to the tender or guarantee of a tender on behalf of another person. The tender of Shares pursuant to any one of the procedures described herein will constitute the tendering stockholder's representation and warranty that (a) such stockholder has a net long position in the Shares being tendered within the meaning of Rule 14e-4, and (b) the tender of such Shares complies with Rule 14e-4. The Company's acceptance for payment of Shares tendered pursuant to the Offer will constitute a binding agreement between the tendering stockholder and the Company upon the terms and subject to the conditions of the Offer. 10 BOOK-ENTRY DELIVERY. The Depositary will establish an account with respect to the Shares at The Depository Trust Company and The Philadelphia Depository Trust Company (together referred to as the "Book-Entry Transfer Facilities") for purposes of the Offer within two business days after the date of this Offer to Purchase. Any financial institution that is a participant in the system of any Book-Entry Transfer Facility may make delivery of Shares by causing such Book-Entry Transfer Facility to transfer such Shares into the Depositary's account in accordance with the procedures of such Book-Entry Transfer Facility. Although delivery of Shares may be effected through book-entry transfer, a properly completed and duly executed Letter of Transmittal for the Series of Preferred being tendered, or facsimile thereof, together with any required signature guarantees and any other required documents, must be received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase on or prior to the applicable Expiration Date, or the tendering holder of Shares must comply with the guaranteed delivery procedure described below. DELIVERY OF SUCH LETTER OF TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY OR THE COMPANY DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY. SIGNATURE GUARANTEES AND METHOD OF DELIVERY. Except as otherwise provided below, all signatures on a Letter of Transmittal must be guaranteed by a financial institution (including most banks, savings and loan associations and brokerage houses) that is a participant in the Security Transfer Agents Medallion Program or the Stock Exchange Medallion Program (each of the foregoing being referred to as an "Eligible Institution"). Signatures on a Letter of Transmittal need not be guaranteed if (a) such Letter of Transmittal is signed by the registered holder of the Shares tendered therewith and such holder has not completed the box entitled "Special Payment Instructions" or the box entitled "Special Delivery Instructions" on the applicable Letter of Transmittal or (b) such Shares are tendered for the account of an Eligible Institution. If Shares are registered in the name of a person other than the signatory on the applicable Letter of Transmittal, or if unpurchased Shares (including Shares not purchased because of proration) are to be issued to a person other than the registered holder(s), the certificates must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name or names of the registered holder(s) appear on the Shares with the signature(s) on the Shares or stock powers guaranteed as aforesaid. See Instructions 4, 6 and 7 to the applicable Letter of Transmittal. THE METHOD OF DELIVERY OF SHARES AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING STOCKHOLDER. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. GUARANTEED DELIVERY PROCEDURE. If a stockholder desires to tender Shares pursuant to the Offer and cannot deliver certificates for such Shares and all other required documents to the Depositary on or prior to the applicable Expiration Date, or the procedure for book-entry transfer cannot be complied with in a timely manner, such Shares may nevertheless be tendered if all of the following conditions are met: (a) such tender is made by or through an Eligible Institution; (b) a properly completed and duly executed Notice of Guaranteed Delivery in the form provided by the Company is received by the Depositary as provided below on or prior to the applicable Expiration Date; and (c) the certificates for such Shares (or a confirmation of a book-entry transfer of such Shares into the Depositary's account at one of the Book-Entry Transfer Facilities), together with a properly completed and duly executed Letter of Transmittal for the Series of Preferred being tendered, or facsimile thereof, and any other documents required by such Letter of Transmittal, 11 are received by the Depositary no later than 5:00 p.m., New York City time, on the third New York Stock Exchange trading day after the Expiration Date. The Notice of Guaranteed Delivery may be delivered by hand or transmitted by facsimile transmittal or mail to the Depositary and must include a guarantee by an Eligible Institution in the form set forth in such Notice. DETERMINATION OF VALIDITY; REJECTION OF SHARES; WAIVER OF DEFECTS; NO OBLIGATION TO GIVE NOTICE OF DEFECTS. All questions as to the form of documents and the validity, eligibility (including time of receipt) and acceptance for payment of any tender of Shares will be determined by the Company, in its sole discretion, and its determination shall be final and binding. The Company reserves the absolute right to reject any or all tenders of Shares that it determines are not in proper form or the acceptance for payment of or payment for which may, in the opinion of the Company's counsel, be unlawful. The Company also reserves the absolute right to waive any defect or irregularity in any tender of Shares. No tender of Shares will be deemed to be properly made until all defects or irregularities have been cured or waived. None of the Company, the Dealer Managers, the Depositary, the Information Agent or any other person will be under any duty to give notice of any defect or irregularity in tenders, nor shall any of them incur any liability for failure to give any such notice. SECTION 6. WITHDRAWAL RIGHTS. Tenders of Shares of a Series of Preferred made pursuant to the Offer may be withdrawn at any time on or prior to the Expiration Date with respect to such Series of Preferred. Thereafter, such tenders are irrevocable, except that they may be withdrawn after 12:00 midnight, Friday, July 12, 1996 unless theretofore accepted for payment as provided in this Offer to Purchase. To be effective, a written or facsimile transmission notice of withdrawal must be timely received by the Depositary at one of its addresses or facsimile numbers set forth on the back cover of this Offer to Purchase and must specify the name of the person who tendered the Shares of the applicable Series of Preferred to be withdrawn and the number of Shares to be withdrawn. If the Shares of the applicable Series of Preferred to be withdrawn have been delivered to the Depositary, a signed notice of withdrawal with signatures guaranteed by an Eligible Institution (except in the case of Shares tendered by an Eligible Institution) must be submitted prior to the release of such Shares. In addition, such notice must specify, in the case of Shares tendered by delivery of certificates, the name of the registered holder (if different from that of the tendering stockholder) and the serial numbers shown on the particular certificates evidencing the Shares to be withdrawn or, in the case of Shares tendered by book-entry transfer, the name and number of the account at one of the Book-Entry Transfer Facilities to be credited with the withdrawn Shares and the name of the registered holder (if different from the name on such account). Withdrawals may not be rescinded, and Shares withdrawn will thereafter be deemed not validly tendered for purposes of the Offer. However, withdrawn Shares may be re-tendered by following one of the procedures described in Section 5-"Procedure for Tendering Shares" at any time on or prior to the applicable Expiration Date. All questions as to the form and validity (including time of receipt) of any notice of withdrawal will be determined by the Company in its sole discretion, and its determination shall be final and binding. None of the Company, the Dealer Managers, the Depositary, the Information Agent or any other person will be under any duty to give notification of any defect or irregularity in any notice of withdrawal or incur any liability for failure to give any such notification. SECTION 7. ACCEPTANCE FOR PAYMENT OF SHARES AND PAYMENT OF PURCHASE PRICE. Upon the terms and subject to the conditions of the Offer (including the proration provisions) and promptly after the Expiration Date with respect to a Series of Preferred, the Company will accept for payment and pay for Shares of that Series of Preferred validly tendered up to the Amount Sought. See Section 4-"Number of Shares; Purchase Price; Expiration Date; Receipt of Dividend; Extension of the 12 Offer; Proration" and Section 8-"Certain Conditions of the Offer." Thereafter, payment for all Shares of that Series of Preferred validly tendered on or prior to the applicable Expiration Date and accepted for payment pursuant to the Offer will be made by the Depositary by check promptly after the Expiration Date. In all cases, payment for Shares accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of certificates for Shares (or of a confirmation of a book-entry transfer of such Shares into the Depositary's account at one of the Book-Entry Transfer Facilities), a properly completed and duly executed Letter of Transmittal for the Series of Preferred so tendered, or facsimile thereof, and any other required documents. For purposes of the Offer, the Company will be deemed to have accepted for payment (and thereby purchased) Shares that are validly tendered and not withdrawn if and when it gives oral or written notice to the Depositary of its acceptance for payment of such Shares. The Company will pay for Shares that it has purchased pursuant to the Offer by depositing the purchase price therefor with the Depositary. The Depositary will act as agent for tendering stockholders for the purpose of receiving payment from the Company and transmitting payment to tendering stockholders. Under no circumstances will interest be paid on amounts to be paid to tendering stockholders, regardless of any delay in making such payment. Certificates for all Shares not purchased will be returned (or, in the case of Shares tendered by book-entry transfer, such Shares will be credited to an account maintained with a Book-Entry Transfer Facility) promptly, without expense to the tendering stockholder. Payment for Shares may be delayed in the event of difficulty in determining the number of Shares properly tendered or if proration is required. In addition, if certain events occur, the Company may not be obligated to purchase Shares pursuant to the Offer. See Section 8-"Certain Conditions of the Offer." The Company will pay or cause to be paid any stock transfer taxes with respect to the sale and transfer of any Shares to the Company or its order pursuant to the Offer. However, if payment of the purchase price is to be made to, or Shares not tendered or not purchased are to be registered in the name of, any person other than the registered holder, or if tendered Shares are registered in the name of any person other than the person signing the applicable Letter of Transmittal, the amount of any stock transfer taxes (whether imposed on the registered holder, such other person or otherwise) payable on account of the transfer to such person will be deducted from the purchase price, unless satisfactory evidence of the payment of such taxes, or exemption therefrom, is submitted. See Instruction 6 to the applicable Letter of Transmittal. BACKUP WITHHOLDING. To prevent backup Federal income tax withholding with respect to the purchase price of Shares purchased pursuant to the Offer, a holder of Shares (except as set forth herein) must provide the Depositary with the holder's correct taxpayer identification number and certify whether the holder is subject to backup withholding of Federal income tax by completing the Substitute Form W-9 included in the applicable Letter of Transmittal. Certain holders of Shares (including, among others, all corporations and certain foreign stockholders) are not subject to these backup withholding and reporting requirements (although foreign stockholders are subject to other withholding requirements. See Section 2-"Certain Federal Income Tax Consequences"). In order for a foreign stockholder to qualify as an exempt recipient, the holder must submit a Form W-8, Certificate of Foreign Status, signed under penalties of perjury, attesting to that stockholder's exempt status. Unless an exemption applies under the applicable law and regulations concerning "backup withholding" of Federal income tax, the Depositary will be required to withhold, and will withhold, 31% of the gross proceeds otherwise payable to a holder of Shares or other payee unless the holder of such Shares or other payee certifies that such person is not otherwise subject to backup withholding, provides such person's tax identification number (social security number or employer identification number) and certifies that such number in correct. Each tendering holder of Shares should complete and sign the main signature form and, other than foreign stockholders, the Substitute Form W-9 included as part of the applicable Letter of Transmittal, so as to provide the information and certification necessary to 13 avoid backup withholding, unless an applicable exemption exists and is proved in a manner satisfactory to the Company and the Depositary. Foreign stockholders should generally complete and sign a Form W-8, a copy of which may be obtained from the Depositary, in order to avoid backup withholding. ANY TENDERING STOCKHOLDER OR OTHER PAYEE WHO FAILS TO COMPLETE AND SIGN THE SUBSTITUTE FORM W-9 INCLUDED IN THE APPLICABLE LETTER OF TRANSMITTAL (OR, IN THE CASE OF A FOREIGN STOCKHOLDER, FORM W-8 OBTAINABLE FROM THE DEPOSITARY) MAY BE SUBJECT TO REQUIRED FEDERAL INCOME TAX WITHHOLDING OF 31% OF THE GROSS PROCEEDS PAYABLE TO SUCH STOCKHOLDER OR OTHER PAYEE PURSUANT TO THE OFFER. SECTION 8. CERTAIN CONDITIONS OF THE OFFER. Notwithstanding any other provisions of the Offer, or any extension of the Offer, the Company will not be required to accept for payment and pay for Shares of a Series of Preferred in respect of any validly tendered Shares and may terminate the Offer with respect to such Series of Preferred (by oral or written notice to the Depositary and timely public announcement) or may modify or otherwise amend any such Offer with respect to such Shares if any of the following conditions are not waived or satisfied on or prior to the Expiration Date: (a) there shall have been threatened, instituted or pending any action or proceeding by any government or governmental, regulatory or administrative agency, authority or tribunal or any other person, domestic or foreign, or before any court, authority, agency or tribunal that (i) challenges the acquisition of Shares of that Series of Preferred pursuant to the Offer or otherwise in any manner, directly or indirectly, relates to or affects the Offer or (ii) in the reasonable judgment of the Company, would or might materially and adversely affect the business, condition (financial or other), income, operations or prospects of the Company and its subsidiaries taken as a whole, or otherwise materially impair in any way the contemplated future conduct of the business of the Company or any of its subsidiaries or materially impair the Offer's contemplated benefits to the Company; (b) there shall have been any action threatened, pending or taken, or approval withheld, or any statute, rule, regulation, judgment, order or injunction threatened, proposed, sought, promulgated, enacted, entered, amended, enforced or deemed to be applicable to the Offer or the Company or any of its subsidiaries, by any legislative body, court, authority, agency or tribunal which, in the Company's reasonable judgment, would or might directly or indirectly (i) make the acceptance for payment of, or payment for, some or all of the Shares of that Series of Preferred illegal or otherwise restricts or prohibits consummation of the Offer, (ii) delay or restrict the ability of the Company, or render the Company unable, to accept for payment or pay for some or all of the Shares of that Series of Preferred, (iii) materially impair the contemplated benefits of the Offer to the Company or (iv) materially affect the business, condition (financial or other), income, operations or prospects of the Company and its subsidiaries taken as a whole, or otherwise materially impair in any way the contemplated future conduct of the business of the Company or any of its subsidiaries; (c) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or in the over-the-counter market, (ii) any significant decline in the market price of the Shares of that Series of Preferred, (iii) any change in the general political, market, economic or financial condition in the United States or abroad that, in the reasonable judgment of the Company, would or might have a material adverse effect on the Company's business, operations, prospects or ability to obtain financing generally or the trading in the Shares of that Series of Preferred or other equity securities of the Company, (iv) the declaration of a banking moratorium or any suspension of payments in respect of banks in the United States or any limitation on, or any event which, in the Company's reasonable judgment, 14 might affect the extension of credit by lending institutions in the United States, (v) the commencement of a war, armed hostilities or other international or national calamity directly or indirectly involving the United States; (vi) in the case of any of the foregoing existing at the time of the commencement of the Offer, in the Company's reasonable judgment, a material acceleration or worsening thereof; or (vii) there shall have been any decrease in the ratings accorded any of the Company's securities by S&P or Moody's or that S&P or Moody's has announced that it has placed any such rating under surveillance or review with possible negative implications; (d) a tender or exchange offer with respect to some or all of the Shares of that Series of Preferred or other equity securities of the Company or Parent, or a merger, acquisition or other business combination for the Company or Parent, shall have been proposed, announced or made by another person; (e) there shall have occurred any event or events that have resulted, or may in the reasonable judgment of the Company result, in an actual or threatened change in the business, condition (financial or other), income, operations, stock ownership or prospects of the Company and its subsidiaries; (f) there shall have occurred any decline in the S&P's Composite 500 Stock Index (665.42 at the close of business on May 15, 1996) by an amount in excess of 15% measured from the close of business on May 15, 1996; or (g) the Company elects not to proceed with the offering of the Cumulative Quarterly Income Preferred Securities ("QUIPS") by PSE&G Capital Trust I, a special purpose business trust controlled by the Company, or the offering of the QUIPS, if commenced, is terminated on or prior to the Expiration Date; and, in the reasonable judgment of the Company, such event or events make it undesirable or inadvisable to proceed with the Offer with respect to such Series of Preferred or with such payment or acceptance for payment. The consummation of the Offer for any Series of Preferred is not conditioned on the consummation of the Offer for any other Series of Preferred. The foregoing conditions are for the sole benefit of the Company and may be asserted by the Company regardless of the circumstances (including any action or inaction by the Company) giving rise to any such condition with respect to any or all Series of Preferred, and any such condition may be waived by the Company with respect to any or all Series of Preferred at any time and from time to time in its sole discretion. The Company's decision to terminate or otherwise amend the Offer, following the occurrence of any of the foregoing, with respect to one Series of Preferred will not create an obligation on behalf of the Company to similarly terminate or otherwise amend the Offer with respect to any other Series of Preferred. The failure by the Company at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right and each such right shall be deemed an ongoing right which may be asserted at any time and from time to time. Any determination by the Company concerning the events described above will be final and binding on all parties. 15 SECTION 9. PRICE RANGES OF SHARES; DIVIDENDS. Stockholders should be aware that the Shares of each Series of Preferred only trade sporadically, therefore, the Company believes that the last reported sale prices may not reflect the market value of the Shares. The high and low sale prices of the Shares in the following tables are taken from the Bloomberg Exchange inter-day quotations. 4.08% SHARES The 4.08% Shares are listed and traded on the New York Stock Exchange. The following table sets forth the high and low sales prices of the 4.08% Shares on the New York Stock Exchange and the cash dividends per 4.08% Share for the fiscal quarters indicated.
CASH DIVIDENDS HIGH LOW PER SHARE ------ ------ --------- 1994: 1st Quarter................................................ $60.00 $56.00 $1.02 2nd Quarter................................................. 54.50 50.50 1.02 3rd Quarter................................................. 51.00 48.00 1.02 4th Quarter................................................. 50.50 46.50 1.02 1995: 1st Quarter................................................ 50.50 46.00 1.02 2nd Quarter................................................. 54.00 49.00 1.02 3rd Quarter................................................. 56.00 52.00 1.02 4th Quarter................................................. 60.00 56.50 1.02 1996: 1st Quarter................................................ 60.00 54.00 1.02 2nd Quarter (through May 15, 1996).......................... 56.00 52.25 --
The last reported sale of 4.08% Shares on the New York Stock Exchange prior to the commencement of the Offer occurred on May 8, 1996 at a price of $56.00 per 4.08% Share. 4.18% SHARES The 4.18% Shares are listed and traded on the New York Stock Exchange. The following table sets forth the high and low sales prices of the 4.18% Shares on the New York Stock Exchange and the cash dividends per 4.18% Share for the fiscal quarters indicated.
CASH DIVIDENDS HIGH LOW PER SHARE ------ ------ --------- 1994: 1st Quarter................................................ $60.88 $22.00 $ 1.045 2nd Quarter................................................. 56.00 52.75 1.045 3rd Quarter................................................. 51.50 49.50 1.045 4th Quarter................................................. 49.00 45.75 1.045 1995: 1st Quarter................................................ 53.00 47.00 1.045 2nd Quarter................................................. 56.00 49.50 1.045 3rd Quarter................................................. 58.69 53.00 1.045 4th Quarter................................................. 60.00 55.50 1.045 1996: 1st Quarter................................................ 61.50 57.00 1.045 2nd Quarter (through May 15, 1996).......................... 59.00 55.00 --
The last reported sale of 4.18% Shares on the New York Stock Exchange prior to the commencement of the Offer occurred on May 8, 1996 at a price of $59.00 per 4.18% Share. 16 4.30% SHARES The 4.30% Shares are listed and traded on the New York Stock Exchange. The following table sets forth the high and low sales prices of the 4.30% Shares on the New York Stock Exchange and the cash dividends per 4.30% Share for the fiscal quarters indicated.
CASH DIVIDENDS HIGH LOW PER SHARE ------ ------ --------- 1994: 1st Quarter................................................ $63.50 $57.50 $ 1.075 2nd Quarter................................................. 57.00 52.00 1.075 3rd Quarter................................................. 53.75 50.50 1.075 4th Quarter................................................. 52.50 48.00 1.075 1995: 1st Quarter................................................ 52.00 48.63 1.075 2nd Quarter................................................. 58.50 51.00 1.075 3rd Quarter................................................. 58.50 52.50 1.075 4th Quarter................................................. 66.00 55.50 1.075 1996: 1st Quarter................................................ 61.00 57.00 1.075 2nd Quarter (through May 15, 1996).......................... 58.00 57.00 --
The last reported sale of 4.30% Shares on the New York Stock Exchange prior to the commencement of the Offer occurred on May 1, 1996 at a price of $57.00 per 4.30% Share. 5.05% SHARES The 5.05% Shares are listed and traded on the New York Stock Exchange. The following table sets forth the high and low sales prices of the 5.05% Shares on the New York Stock Exchange and the cash dividends per 5.05% Share for the fiscal quarters indicated.
CASH DIVIDENDS HIGH LOW PER SHARE ------ ------ --------- 1994: 1st Quarter................................................ $74.00 $71.63 $1.2625 2nd Quarter................................................. 72.00 61.00 1.2625 3rd Quarter................................................. 63.00 51.00 1.2625 4th Quarter................................................. 61.75 59.00 1.2625 1995: 1st Quarter................................................ 62.50 60.00 1.2625 2nd Quarter................................................. 68.13 61.50 1.2625 3rd Quarter................................................. 67.00 62.25 1.2625 4th Quarter................................................. 73.00 66.00 1.2625 1996: 1st Quarter................................................ 71.00 67.00 1.2625 2nd Quarter (through May 15, 1996).......................... 69.00 69.00 --
The last reported sale of 5.05% Shares on the New York Stock Exchange prior to the commencement of the Offer occurred on May 2, 1996 at a price of $69.00 per 5.05% Share. 17 5.28% SHARES The 5.28% Shares are listed and traded on the New York Stock Exchange. The following table sets forth the high and low sales prices of the 5.28% Shares on the New York Stock Exchange and the cash dividends per 5.28% Share for the fiscal quarters indicated.
CASH DIVIDENDS HIGH LOW PER SHARE ------ ------ --------- 1994: 1st Quarter................................................ $77.75 $73.00 $1.32 2nd Quarter................................................. 72.50 64.00 1.32 3rd Quarter................................................. 66.00 62.00 1.32 4th Quarter................................................. 63.09 58.50 1.32 1995: 1st Quarter................................................ 64.00 60.75 1.32 2nd Quarter................................................. 70.50 63.00 1.32 3rd Quarter................................................. 74.13 68.50 1.32 4th Quarter................................................. 73.00 70.00 1.32 1996: 1st Quarter................................................ 74.50 67.50 1.32 2nd Quarter (through May 15, 1996).......................... 69.25 67.50 --
The last reported sale of 5.28% Shares on the New York Stock Exchange prior to the commencement of the Offer occurred on May 13, 1996 at a price of $69.25 per 5.28% Share. 6.80% SHARES The 6.80% Shares are listed and traded on the New York Stock Exchange. The following table sets forth the high and low sales prices of the 6.80% Shares on the New York Stock Exchange and the cash dividends per 6.80% Share for the fiscal quarters indicated.
CASH DIVIDENDS HIGH LOW PER SHARE ------ ------ --------- 1994: 1st Quarter................................................ $96.50 $92.50 $1.70 2nd Quarter................................................. 92.50 86.00 1.70 3rd Quarter................................................. 87.00 81.00 1.70 4th Quarter................................................. 81.50 75.50 1.70 1995: 1st Quarter................................................ 83.00 79.50 1.70 2nd Quarter................................................. 92.00 81.00 1.70 3rd Quarter................................................. 94.13 89.58 1.70 4th Quarter................................................. 101.00 91.00 1.70 1996: 1st Quarter................................................ 98.50 96.00 1.70 2nd Quarter (through May 15, 1996).......................... 96.50 93.00 --
The last reported sale of 6.80% Shares on the New York Stock Exchange prior to the commencement of the Offer occurred on May 15, 1996 at a price of $95.50 per 6.80% Share. 18 6.92% SHARES The 6.92% Preferred trade in the over-the-counter market to the extent trading occurs. Trading of the 6.92% Preferred has been limited and sporadic, and information concerning trading prices and volumes is difficult to obtain. Depending on the amount of 6.92% Preferred outstanding after the Offer, the liquidity of the 6.92% Preferred may be adversely affected. STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR THE SHARES. DIVIDENDS. The holders of each Series of Preferred are entitled to receive, when and as declared by the Board, cash dividends at the annual rate specified for that Series of Preferred, and no more, cumulative and payable quarterly with respect to each calendar quarterly period, on or before the last day of each March, June, September and December. No dividends may be paid on the Company's capital stock except out of its earned surplus. Under an indenture relating to the loan by the Company of the proceeds of the Cumulative Monthly Income Preferred Securities of Public Service Electric and Gas Capital, L.P., dividends may not be paid on the Company's capital stock as long as any payments on the Company's Deferrable Interest Subordinated Debentures issued under such indenture have been deferred or the Company is in default under such indenture or its guarantee relating to the Cumulative Monthly Income Preferred Securities. To date, the Company has timely made all quarterly dividend payments on each Series of Preferred. The record date for the Regular Quarterly Dividend is June 7, 1996. Holders of record of Shares on June 7, 1996 who tender Shares will be entitled to the Regular Quarterly Dividend, regardless of when such tender is made. Holders of Shares purchased pursuant to the Offer will not be entitled to any dividends in respect of any later periods. SECTION 10. CERTAIN INFORMATION CONCERNING THE COMPANY. The Company is an operating public utility company engaged principally in the generation, transmission, distribution and sale of electric energy service and in the transmission, distribution and sale of gas service in New Jersey. The Company supplies electric and gas service in areas of New Jersey in which approximately 5,500,000 persons, approximately 70% of the State's population, reside. The Company is the principal subsidiary of Public Service Enterprise Group Incorporated, which owns all of the Company's common stock. The Company's service area is a corridor of approximately 2,600 square miles running diagonally across the State of New Jersey from Bergen County in the northeast to an area below the City of Camden in the southwest. This heavily populated, commercialized and industrialized territory encompasses most of New Jersey's largest municipalities, including its six largest cities, in addition to approximately 300 suburban and rural communities. REGISTRATION STATEMENT. The Company and three special purpose business trusts controlled by the Company have filed a registration statement (the "Registration Statement") with the Commission with respect to the proposed offering from time to time of up to $350,000,000 aggregate liquidation amount of QUIPS, guaranteed by the Company to the extent set forth in the Registration Statement. Following the commencement of the Offer, and subject to market and other conditions, the Company intends that PSE&G Capital Trust I will effect a public offering of QUIPS. As set forth in Section 11-"Source and Amount of Funds," the Company intends to finance the Offer with the proceeds from the sale of the QUIPS, which will be loaned by PSE&G Capital Trust I to the Company. If the sale of QUIPS has not been consummated on or prior to the Expiration Date of the Offer, the Company intends to issue commercial paper to finance the Offer. SELECTED FINANCIAL DATA OF THE COMPANY. Set forth below is certain financial data for the Company. The historical financial information as of and for the years ended December 31, 1995, 19 December 31, 1994 and December 31, 1993 has been summarized from the Company's audited consolidated financial statements contained in the Company's Annual Report on Form 10-K for the year ended December 31, 1995. The following selected historical financial data should be read in conjunction with, and is qualified in its entirety by reference to, such audited consolidated financial statements and the notes thereto and Management's Discussion and Analysis therein. SELECTED FINANCIAL DATA (IN THOUSANDS, EXCEPT RATIOS)
TWELVE MONTHS ENDED YEARS ENDED DECEMBER 31, MARCH 31, -------------------------------------- 1996 1993 1994 1995 (UNAUDITED) ---------- ---------- ---------- ------------- Operating Revenues.......................... $5,290,455 $5,518,241 $5,707,245 $5,882,978 Net Income.................................. 614,868 659,406 616,964 593,718 Ratios of Earnings to Fixed Charges plus Preferred Securities Dividend Requirements................................ 2.89 2.92 2.77 2.70
PRO-FORMA AS OF MARCH 31, 1996 AS OF MARCH 31, 1996 (UNAUDITED)(1) (UNAUDITED) ------------------------ ------------------------- AMOUNT PERCENTAGE AMOUNT PERCENTAGE ---------- ---------- ---------- ---------- Total Common Stock Equity.................. $4,576,051 47% $4,576,051 47% Preferred Stock without mandatory redemption................................. 324,994 3% 67,494(1) 1% Preferred Stock with mandatory redemption................................. 150,000 2% 150,000 1% Monthly Income Preferred Securities of Subsidiary................................. 210,000 2% 210,000 2% Quarterly Income Preferred Securities of Subsidiary................................. -- -- 257,500 3% Long-Term Debt............................. 4,523,614 46% 4,523,614 46% Total Capitalization....................... 9,784,659 100% 9,784,659 100%
- ------------ (1) Assumes the purchase by the Company of the Amount Sought for each Series of Preferred, the redemption of the Company's 7.52% and 7.40% Cumulative Preferred Stock ($100 par value) and the issuance of $257,500,000 aggregate liquidation amount of QUIPS. ADDITIONAL INFORMATION. The Company is subject to the informational requirements of the Exchange Act, and, in accordance therewith, files reports and other information with the Commission. The Company has also filed a Rule 13E-3 Transaction Statement on Schedule 13E-3 and an Issuer Tender Offer Statement on Schedule 13E-4 with the Commission which includes certain additional information relating to the Offer. Such reports and other information can be inspected and copied at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. and at its regional offices at 500 West Madison Street, Chicago, Illinois and 7 World Trade Center, New York, New York. Copies of such reports and other information may also be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549-1004 at prescribed rates. Such reports and other information can also be inspected at the New York Stock Exchange, where certain of the Company's securities are listed. The Company's Schedules 13E-3 and 13E-4 will not be available at the Commission's Regional Offices. The Company undertakes to provide without charge to each person, including any beneficial owner, to whom this Offer to Purchase is delivered, upon written or oral request of such person, a copy of the Company's Annual Report on Form 10-K for the year ended December 31, 1995 and Quarterly Report on Form 10-Q for the quarter ended March 31, 1996, other than exhibits to such documents. Such requests should be directed to the Director--Investor Relations, Public Service Electric and Gas Company, 80 Park Plaza, T6B, P.O. Box 570, Newark, New Jersey 07101, telephone (201) 430-6503. 20 SECTION 11. SOURCE AND AMOUNT OF FUNDS. Assuming that the Company purchases the Amount Sought of each Series of Preferred, the total amount required by the Company to purchase all Shares subject to the Offer will be $125,260,500, exclusive of fees and other expenses. As described under Section 10-"Certain Information Concerning the Company," a Registration Statement has been filed with the Commission with respect to the offering of QUIPS by PSE&G Capital Trust I, the proceeds of which will be invested in the Deferrable Interest Subordinated Debentures issued by the Company. The Company intends to finance the Offer with the proceeds from the sale of the QUIPS, which will be loaned by PSE&G Capital Trust I to the Company. If the sale of the QUIPS has not been consummated on or prior to the Expiration Date of the Offer, the Company intends to issue commercial paper to finance the Offer. . SECTION 12. TRANSACTIONS AND AGREEMENTS CONCERNING THE SHARES. The 6.92% Shares were issued by the Company in an underwritten public offering for cash which was registered under the Securities Act of 1933, as amended. Such offering, which was consummated on February 3, 1994, was for 600,000 Shares of 6.92% Preferred at a price to the public of $100 per 6.92% Share, and the Company received aggregate proceeds of $60,000,000 before deducting expenses payable by the Company. Based upon the Company's records and upon information provided to the Company by its directors and executive officers and those of Parent, neither the Company nor, to the Company's knowledge, Parent or any director or executive officer of the Company or Parent, or associate of the foregoing, or any subsidiary or affiliate of the Company or Parent has engaged in any transactions involving Shares during the 60 days preceding the date hereof. Neither the Company nor, to the best of the Company's knowledge, Parent or any director or executive officer of Company or Parent, or associate of the foregoing, or, any subsidiary or affiliate of the Company or Parent is a party to any contract, arrangement, understanding or relationship relating directly or indirectly to the Offer with any other person with respect to any securities of the Company. As of May 15, 1996, none of the Company or, to the best of the Company's knowledge, Parent or any director or executive officer of Company or Parent, or associate of the foregoing, or any subsidiary or affiliate of the Company or Parent, or any pension, profit sharing or similar plan of the Company or its affiliates, owns any Shares, and therefore such persons do not intend to tender or sell any Shares pursuant to the Offer. Except as set forth in this Offer to Purchase, neither the Company nor, to the best of the Company's knowledge, Parent or any director or executive officer of the Company or Parent, or any associate of the foregoing, or any subsidiary or affiliate of the Company or Parent, is a party to any contract, understanding or relationship with any other person relating, directly or indirectly, to, or in connection with, the Offer with respect to any securities of the Company (including, but not limited to, any contract, arrangement, understanding or relationship concerning the transfer or the voting of any of such securities, joint ventures, loan or option arrangements, puts or calls, guarantees of loans, guarantees against loss or the giving or withholding of proxies, consents or authorizations). SECTION 13. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENTS. The Company expressly reserves the right, in its sole discretion and at any time or from time to time, to extend the period of time during which the Offer is open with respect to any Series of Preferred by giving oral or written notice of such extension to the Depositary. There can be no assurance, however, that the Company will exercise such right to extend the Offer. The Company may, in its sole discretion, at any time or from time to time amend the Offer with respect to a Series of Preferred in any respect. If the Company makes a material change in the terms of the Offer with respect to a Series of Preferred (including an increase or decrease in the consideration offered, change in the solicitation fee or change 21 in the Amount Sought in the Offer), the Company will extend the Offer with respect to such Series of Preferred. The minimum period for which the Offer will be extended following a material change or waiver, other than an increase or decrease in the consideration offered, change in the solicitation fee or change in the Amount Sought, will depend upon the facts and circumstances, including the relative materiality of the change or waiver. With respect to an increase or decrease in the consideration offered, change in the solicitation fee or change in the Amount Sought, the Offer may be extended such that the Offer remains open for a minimum of ten business days following the public announcement of such change. During any such extension, all Shares of that Series of Preferred previously tendered will remain subject to the Offer, except to the extent that such Shares may be withdrawn as set forth in Section 6-"Withdrawal Rights." If, with respect to a Series of Preferred, the Company extends the period of time during which the Offer is open, is delayed in accepting for payment or paying for Shares of that Series of Preferred or is unable to accept for payment or pay for Shares pursuant to the Offer for any reason, then, without prejudice to the Company's rights under the Offer, the Depositary may, on behalf of the Company, retain all Shares of that Series of Preferred tendered, and such Shares may not be withdrawn except as otherwise provided in this Section 13, subject to Rule 13e-4(f)(5) under the Exchange Act, which provides that an issuer making a tender offer shall either pay the consideration offered or return the tendered securities promptly after the termination or withdrawal of the tender offer. THE OFFER FOR ONE SERIES OF PREFERRED IS INDEPENDENT OF THE OFFER FOR ANY OTHER SERIES OF PREFERRED. IF THE COMPANY EXTENDS OR AMENDS THE OFFER WITH RESPECT TO ONE SERIES OF PREFERRED FOR ANY REASON, THE COMPANY WILL HAVE NO OBLIGATION TO EXTEND THE OFFER FOR ANY OTHER SERIES OF PREFERRED. The Company also expressly reserves the right, with respect to any Series of Preferred, in its sole discretion, to, among other things, terminate the Offer and not accept for payment or pay for any Shares tendered or, subject to Rule 13e-4(f)(5) under the Exchange Act, which requires the Company either to pay the consideration offered or to return the Shares tendered promptly after the termination or withdrawal of the Offer, to postpone acceptance for payment of or payment for Shares upon the occurrence of any of the conditions specified in Section 8-"Certain Conditions of the Offer" by, in the case of any termination, giving oral or written notice of such termination to the Depositary and making a public announcement thereof. Extensions and termination of and amendments to the Offer may be effected by public announcement. Without limiting the manner in which the Company may choose to make public announcement of any extension, termination or amendment, the Company shall have no obligation (except as otherwise required by applicable law) to publish, advertise or otherwise communicate any such public announcement, other than by making a release to the Dow Jones News Service, except in the case of an announcement of an extension of the Offer with respect to any Series of Preferred, in which case the Company shall have no obligation to publish, advertise or otherwise communicate such announcement other than by issuing a notice of such extension by press release or other public announcement, which notice shall be issued no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date with respect to that Series of Preferred. Material changes to information previously provided to holders of the Shares in this Offer to Purchase or in documents furnished subsequent thereto will be disseminated to holders of Shares in compliance with Rule 13e-4(e)(2) promulgated by the Commission under the Exchange Act. SECTION 14. FEES AND EXPENSES. The Company has retained First Chicago Trust Company of New York, as Depositary, Georgeson & Company Inc., as Information Agent, and Goldman, Sachs & Co. and Merrill Lynch & Co., as Dealer Managers, in connection with the Offer. The Information Agent and Dealer Managers will assist 22 stockholders who request assistance in connection with the Offer and may request brokers, dealers and other nominee stockholders to forward materials relating to the Offer to beneficial owners. The Company has agreed to pay the Dealer Managers, upon acceptance for payment of Shares pursuant to the Offer, a fee of $0.50 per Share so paid for in the Offer. The Dealer Managers will also be reimbursed by the Company for their reasonable out-of-pocket expenses, including attorneys' fees. The Dealer Managers have rendered, are currently rendering and are expected to continue to render various investment banking and other advisory services to the Company. They have received, and will continue to receive, customary compensation from the Company for such services. The Depositary and the Information Agent will receive reasonable and customary compensation for their services in connection with the Offer and will also be reimbursed for reasonable out-of-pocket expenses, including attorneys' fees. The Company has agreed to indemnify the Depositary, the Information Agent and the Dealer Managers against certain liabilities in connection with the Offer, including certain liabilities under the Federal securities laws. Neither the Depositary nor the Information Agent has been retained to make solicitations, and none of the Depositary, the Information Agent or the Dealer Managers have been retained to make recommendations with respect to the Offer, in their respective roles as Depositary, Information Agent and Dealer Managers. The Company will pay to a Soliciting Dealer a solicitation fee of $1.25 per Share for Shares tendered, accepted for payment and paid for pursuant to the Offer. For purposes of this Section 14, "Soliciting Dealer" includes (a) any broker or dealer in securities, including the Dealer Managers in their capacity as a broker or dealer, which is a member of any national securities exchange or of the NASD, (b) any foreign broker or dealer not eligible for membership in the NASD which agrees to conform to the NASD's Rules of Fair Practice in soliciting tenders outside the United States to the same extent as if it were an NASD member, or (c) any bank or trust company. No such fee shall be payable to a Soliciting Dealer in respect of Shares registered in the name of such Soliciting Dealer unless such Shares are held by such Soliciting Dealer as nominee and such Shares are being tendered for the benefit of one or more beneficial owners identified in the applicable Letter of Transmittal or in the applicable Notice of Solicited Tenders (included in the materials provided to brokers and dealers). No such fee shall be payable to a Soliciting Dealer with respect to the tender of Shares by a holder unless the applicable Letter of Transmittal accompanying such tender designates such Soliciting Dealer. No such fee shall be payable to the Soliciting Dealer unless the Soliciting Dealer returns a Notice of Solicited Tenders to the Depositary within three business days after the applicable Expiration Date. No such fee shall be payable to a Soliciting Dealer to the extent such Soliciting Dealer is required for any reason to transfer the amount of such fee to any person (other than itself). No broker, dealer, bank, trust company or fiduciary shall be deemed to be the agent of the Company, the Depositary, the Information Agent or the Dealer Managers for purposes of the Offer. The Company will pay (or cause to be paid) any stock transfer taxes on its purchase of Shares, except as otherwise provided in Instruction 6 of the applicable Letter of Transmittal. Assuming the Amount Sought for each Series of Preferred pursuant to the Offer is tendered and purchased by the Company, it is estimated that the expenses incurred by the Company in connection with the Offer will be approximately as set forth below. The Company will be responsible for paying all such expenses. 23
Dealer Managers' fees.......................................... $ 787,500 Solicitation fees.............................................. 1,968,750 Printing and mailing fees...................................... 50,000 Filing fees.................................................... 25,052 Legal, accounting and miscellaneous............................ 68,698 ---------- Total.................................................... $2,900,000
SECTION 15. MISCELLANEOUS. The Offer is not being made to, nor will the Company accept tenders from, owners of Shares in any jurisdiction in which the Offer or its acceptance would not be in compliance with the laws of such jurisdiction. The Company is not aware of any jurisdiction where the making of the Offer or the tender of Shares would not be in compliance with applicable law. If the Company becomes aware of any jurisdiction where the making of the Offer or the tender of Shares is not in compliance with any applicable law, the Company will make a good faith effort to comply with such law. If, after such good faith effort, the Company cannot comply with such law, the Offer will not be made to (nor will tenders be accepted from or on behalf of) the holders of Shares residing in such jurisdiction. In any jurisdiction in which the securities, blue sky or other laws require the Offer to be made by a licensed broker or dealer, the Offer will be deemed to be made on the Company's behalf by one or more registered brokers or dealers licensed under the laws of such jurisdiction. 24 THE DEPOSITARY FOR THE OFFER IS: FIRST CHICAGO TRUST COMPANY OF NEW YORK
Facsimile By Mail: Transmission: By Hand or By Overnight Courier: Tenders & Exchanges (201) 222-4720 Tenders & Exchange P.O. Box 2559--Suite 4660--PSE&G or 14 Wall Street Jersey City, New Jersey (201) 222-4721 Suite 4680--8th Floor--PSE&G 07303-2559 New York, New York 10005 Confirm by Telephone: (201) 222-4707
Any questions or requests for assistance may be directed to the Information Agent or the Dealer Managers at the respective telephone numbers and addresses listed below. Requests for additional copies of this Offer to Purchase, any Letter of Transmittal or other tender offer materials may be directed to the Information Agent or the Dealer Managers, and such copies will be furnished promptly at the Company's expense. Stockholders may also contact their local broker, dealer, commercial bank or trust company for assistance concerning the Offer. THE INFORMATION AGENT FOR THE OFFER IS: GEORGESON & COMPANY INC. Wall Street Plaza New York, New York 10005 Banks and Brokers Call Collect: (212) 440-9800 All Others Call Toll-Free: (800)223-2064 THE DEALER MANAGERS FOR THE OFFER ARE: GOLDMAN, SACHS & CO. MERRILL LYNCH & CO. 85 Broad Street World Financial Center New York, New York 10004 250 Vesey Street (800) 828-3182 New York, New York 10281 (212) 449-4914 (call collect)
25 EX-99.(A)(2) 3 EXHIBIT 99.(a)(2) LETTER OF TRANSMITTAL TO ACCOMPANY SHARES OF 4.08% CUMULATIVE PREFERRED STOCK ($100 PAR VALUE) CUSIP NO. 744567 306 OF PUBLIC SERVICE ELECTRIC AND GAS COMPANY TENDERED PURSUANT TO THE OFFER TO PURCHASE DATED MAY 16, 1996 THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON THURSDAY, JUNE 13, 1996, UNLESS THE OFFER IS EXTENDED. To: FIRST CHICAGO TRUST COMPANY OF NEW YORK, DEPOSITARY By Mail: Facsimile Transmission: By Hand or By Overnight Courier: Tenders & Exchanges (201) 222-4720 Tenders & Exchanges P.O. Box 2559-Suite 4660-PSE&G or 14 Wall Street-Suite 4680 Jersey City, New Jersey 07303-2559 (201) 222-4721 8th Floor-PSE&G Confirm by Telephone: New York, New York 10005 (201) 222-4707
DESCRIPTION OF SHARES OF 4.08% CUMULATIVE PREFERRED STOCK TENDERED NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) (IF BLANK, PLEASE FILL IN EXACTLY AS NAME(S) SHARES TENDERED APPEAR(S) ON CERTIFICATE(S)) (ATTACH ADDITIONAL LIST IF NECESSARY) TOTAL NUMBER OF SHARES NUMBER OF CERTIFICATE REPRESENTED BY SHARES NUMBER(S)* CERTIFICATE(S)* TENDERED** TOTAL * NEED NOT BE COMPLETED BY STOCKHOLDERS TENDERING BY BOOK-ENTRY TRANSFER. ** UNLESS OTHERWISE INDICATED, THE HOLDER WILL BE DEEMED TO HAVE TENDERED THE FULL NUMBER OF SHARES REPRESENTED BY THE TENDERED CERTIFICATE(S). SEE INSTRUCTION 4.
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN ONE LISTED ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. DO NOT SEND ANY CERTIFICATES TO THE DEALER MANAGERS, THE INFORMATION AGENT OR PUBLIC SERVICE ELECTRIC AND GAS COMPANY. The instructions accompanying this Letter of Transmittal should be read carefully before the Letter of Transmittal is completed. Questions and requests for assistance or for additional copies of the Offer to Purchase or this Letter of Transmittal may be directed to Georgeson & Company Inc., the Information Agent, at Wall Street Plaza, New York, NY 10005 or telephone (800) 223-2064 (toll free). This Letter of Transmittal is to be used if certificates are to be forwarded herewith or if delivery of Shares (as defined below) is to be made by book-entry transfer to the Depositary's account at The Depository Trust Company ("DTC") or The Philadelphia Depository Trust Company ("PDTC") (hereinafter together referred to as the "Book-Entry Transfer Facilities") pursuant to the procedures set forth under Section 5--"Procedure for Tendering Shares" in the Offer to Purchase (as defined below). Stockholders who cannot deliver their Shares and all other documents required hereby to the Depositary by the Expiration Date (as defined in the Offer to Purchase) must tender their Shares pursuant to the guaranteed delivery procedure set forth under Section 5--"Procedure for Tendering Shares" in the Offer to Purchase. See Instruction 2. Delivery of documents to the Company or to a Book-Entry Transfer Facility does not constitute a valid delivery. / / CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER TO THE DEPOSITARY'S ACCOUNT AT ONE OF THE BOOK-ENTRY TRANSFER FACILITIES AND COMPLETE THE FOLLOWING: Name of tendering institution ____________________________________________________________________ Check applicable box: / / DTC / / PDTC Account No. ____________________________________________________________________________ Transaction Code No. ___________________________________________________________________________ / / CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE FOLLOWING: Name(s) of tendering stockholder(s) ______________________________________________________________ Date of execution of Notice of Guaranteed Delivery ________________________________________________ Name of institution that guaranteed delivery _______________________________________________________ If delivery is by book-entry transfer: Name of tendering institution ____________________________________________________________________ Check applicable box: / / DTC / / PDTC Account No. ____________________________________________________________________________ Transaction Code No. ___________________________________________________________________________ NOTE: SIGNATURES MUST BE PROVIDED BELOW. PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY. Ladies and Gentlemen: The undersigned hereby tenders to Public Service Electric and Gas Company, a New Jersey corporation (the "Company"), the above-described shares (together, the "Shares") pursuant to the Company's offer to purchase up to 187,500 shares (the "Shares") of the 4.08% Cumulative Preferred Stock ($100 par value) (the "4.08% Preferred") at a price of $59.30 per Share, net to the seller in cash, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated May 16, 1996 (the "Offer to Purchase"), receipt of which is hereby acknowledged, and in this Letter of Transmittal (which together constitute the "Offer"). Subject to, and effective upon, acceptance for payment of and payment for the Shares tendered herewith in accordance with the terms and subject to the conditions of the Offer (including, if the Offer is extended or amended with respect to the 4.08% Preferred, the terms and conditions of any such extension or amendment), the undersigned hereby sells, assigns and transfers to, or upon the order of, the Company all right, title and interest in and to all the Shares that are being tendered hereby and constitutes and appoints First Chicago Trust Company of New York, as "Depositary," the true and lawful agent and attorney-in-fact of the undersigned with respect to such Shares, with full power of substitution (such power of attorney, being deemed to be an irrevocable power coupled with an interest), to (a) deliver certificates for such Shares and to accept such Shares or assign or transfer ownership of such Shares on the account books maintained by the Book-Entry Transfer Facility that holds such Shares together, in any such case, with all accompanying evidences of transfer and authenticity, for deposit with the Depositary, (b) present such Shares for transfer on the books of the Company, (c) issue payment for such Shares and/or certificates for unpurchased Shares or deliver unpurchased Shares to the account of the undersigned, and (d) receive all benefits and otherwise exercise all rights of beneficial ownership of such Shares, all in accordance with the terms of the Offer. The Depositary will act as agent for tendering stockholders for the purpose of receiving payment from the Company and transmitting payment to tendering stockholders. The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, sell, assign and transfer the Shares tendered hereby and that, when and to the extent the same are accepted for payment by the Company, the Company will acquire good and unencumbered title thereto, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claim. The undersigned will, upon request, execute and deliver any additional documents deemed by the Depositary or the Company to be necessary or desirable to complete the sale, assignment and transfer of the Shares tendered hereby or transfer ownership of such Shares. All authority herein conferred or agreed to be conferred shall survive the death, bankruptcy or incapacity of the undersigned, and every obligation of the undersigned hereunder shall be binding upon the heirs, legal representatives, successors, assigns, executors and administrators of the undersigned. Except as stated in the Offer, this tender is irrevocable. The undersigned understands that tenders of Shares pursuant to any one of the procedures described under Section 5--"Procedure for Tendering Shares" in the Offer to Purchase and in the instructions hereto will constitute the undersigned's acceptance of the terms and conditions of the Offer. Unless otherwise indicated under "Special Payment Instructions," the check for the purchase price of any Shares purchased, and/or the return of any Shares not tendered or not purchased, will be issued in the name(s) of the undersigned (and, in the case of Shares tendered by book-entry transfer, by credit to the account at the Book-Entry Transfer Facility designated above). Similarly, unless otherwise indicated under "Special Delivery Instructions," the check for the purchase price of any Shares purchased and/or the return of any certificates for Shares not tendered or not purchased (and accompanying documents, as appropriate) will be mailed to the undersigned at the address shown below the undersigned signature(s). In the event that both "Special Payment Instructions" and "Special Delivery Instructions" are completed, the check for the purchase price of any Shares purchased and/or the return of any Shares not tendered or not purchased will be issued in the name(s) of, and such check and/or any certificates will be mailed to, the person(s) so indicated. The undersigned recognizes that the Company has no obligation, pursuant to the "Special Payment Instructions," to transfer any Shares from the name of the registered holder(s) thereof if the Company does not accept for payment any of the Shares so tendered. SPECIAL PAYMENT INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS (See Instructions 4, 6 and 7) (See Instructions 4, 6 and 7) To be completed ONLY if the check for the To be completed ONLY if the check for the purchase price of Shares purchased and/or purchase price of Shares purchased and/or certificates for Shares not tendered or not purcertificates for Shares not tendered or not pur chased are to be mailed to someone other than chased are to be issued in the name of some the undersigned or to the undersigned at an one other than the undersigned. address other than that shown below the Issue / / check and/or / / certificate(s) to: undersigned's signature(s). Name __________________________________ Mail / / check and/or / / certificate(s) to: (Please Print) Name __________________________________ Address ________________________________ (Please Print) ________________________________________ Address ________________________________ (Include Zip Code) ________________________________________ ________________________________________ (include Zip Code) (Taxpayer Identification or Social Security No.) SOLICITED TENDERS (SEE INSTRUCTION 10) The Company will pay to any Soliciting Dealer, as defined in Instruction 10, a solicitation fee of $1.25 per Share for each Share tendered, accepted for payment and purchased pursuant to the Offer. The undersigned represents that the Soliciting Dealer which solicited and obtained this tender is: Name of Firm: __________________________________________________________________________ (Please Print) Name of Individual Broker or Financial Consultant: ____________________________________________________ Identification Number (if known): ____________________________________________________________________ Address: ___________________________________________________________________ (Include Zip Code) The following to be completed ONLY if customer's Shares held in nominee name are tendered. Name of Beneficial Owner Number of Shares Tendered (Attach additional list if necessary)
The acceptance of compensation by such Soliciting Dealer will constitute a representation by it that: (a) it has complied with the applicable requirements of the Securities Exchange Act of 1934, as amended, and the applicable rules and regulations thereunder, in connection with such solicitation; (b) it is entitled to such compensation for such solicitation under the terms and conditions of the Offer to Purchase; (c) in soliciting tenders of Shares, it has used no solicitation materials other than those furnished by the Company; and (d) if it is a foreign broker or dealer not eligible for membership in the National Association of Securities Dealers, Inc. (the "NASD"), it has agreed to conform to the NASD's Rules of Fair Practice in making solicitations. The payment of compensation to any Soliciting Dealer is dependent on such Soliciting Dealer returning a Notice of Solicited Tenders to the Depositary. SIGN HERE (Please complete Substitute Form W-9 below) _______________________________________________________________________________ _____________________________________________________________________________ Signature(s) of Owner(s) Dated __________________________________________________________________, 1996 Name(s) ______________________________________________________________________________ ______________________________________________________________________________ (Please Print) Capacity (full title) ______________________________________________________________________ Address ______________________________________________________________________ Area Code and Telephone No. _______________________________________________________________ (Must be signed by the registered holder(s) exactly as name(s) appear(s) on the stock certificate(s) or on a security position listing or by person(s) authorized to become registered holder(s) by certificates and documents transmitted herewith. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, please set forth full title and see Instruction 5.) GUARANTEE OF SIGNATURE(S) (See Instructions 1 and 5) Name of Firm ___________________________________________________________________________ Authorized Signature ______________________________________________________________________ Name ___________________________________________________________________________ Title __________________________________________________________________________ Address ________________________________________________________________________ ________________________________________________________________________________ Area Code and Telephone No. _______________________________________________________________ Dated __________________________________________________________________________ THE LETTER OF TRANSMITTAL IS TO BE USED FOR THE TENDER OF SHARES OF 4.08% PREFERRED ONLY. ANY PERSON DESIRING TO TENDER SHARES OF ANY OTHER SERIES OF CUMULATIVE PREFERRED STOCK FOR WHICH THE COMPANY IS MAKING A TENDER OFFER MUST SUBMIT THE LETTER OF TRANSMITTAL RELATING TO THAT SPECIFIC SERIES. INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER 1. GUARANTEE OF SIGNATURES. Except as otherwise provided below, all signatures on this Letter of Transmittal must be guaranteed by a financial institution (including most banks, savings and loan associations and brokerage houses) that is a participant in the Security Transfer Agents Medallion Program or the Stock Exchange Medallion Program (any of the foregoing, an "Eligible Institution"). Signatures on this Letter of Transmittal need not be guaranteed (a) if this Letter of Transmittal is signed by the registered holder(s) of the Shares (which term, for purposes of this document, shall include any participant in one of the Book-Entry Transfer Facilities whose name appears on a security position listing as the owner of Shares) tendered herewith and such holder(s) has not completed the box entitled "Special Payment Instructions" or the box entitled "Special Delivery Instructions" on this Letter of Transmittal or (b) if such Shares are tendered for the account of an Eligible Institution. See Instruction 5. 2. DELIVERY OF LETTER OF TRANSMITTAL AND SHARES. This Letter of Transmittal is to be used either if certificates are to be forwarded herewith or if delivery of Shares is to be made by book-entry transfer pursuant to the procedures set forth under Section 5--"Procedure for Tendering Shares" in the Offer to Purchase. Certificates for all physically delivered Shares, or a confirmation of a book-entry transfer into the Depositary's account at one of the Book-Entry Transfer Facilities of all Shares delivered electronically, as well as a properly completed and duly executed Letter of Transmittal (or facsimile thereof) and any other documents required by this Letter of Transmittal, must be received by the Depositary at one of its addresses set forth on the front page of this Letter of Transmittal on or prior to the Expiration Date (as defined in the Offer to Purchase) with respect to the 4.08% Preferred. Stockholders who cannot deliver their Shares and all other required documents to the Depositary on or prior to the applicable Expiration Date must tender their Shares pursuant to the guaranteed delivery procedure set forth under Section 5--"Procedure for Tendering Shares" in the Offer to Purchase. Pursuant to such procedure: (a) such tender is made by or through an Eligible Institution, (b) a properly completed and duly executed Notice of Guaranteed Delivery in the form provided by the Company is received by the Depositary on or prior to the applicable Expiration Date and (c) the certificates for such Shares (or a confirmation of a book-entry transfer of such Shares into the Depositary's account at one of the Book-Entry Transfer Facilities), together with a properly completed and duly executed Letter of Transmittal for the 4.08% Preferred, or facsimile thereof, and any other documents required by such Letter of Transmittal, are received by the Depositary no later than 5:00 p.m. New York City time on the third New York Stock Exchange trading day after the Expiration Date, all as provided under Section 5--"Procedure for Tendering Shares" in the Offer to Purchase. THE METHOD OF DELIVERY OF SHARES AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING STOCKHOLDER. IF CERTIFICATES FOR SHARES ARE SENT BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. No alternative, conditional or contingent tenders will be accepted. See Section 4--"Number of Shares; Purchase Price; Expiration Date; Receipt of Dividend; Extension of the Offer; Proration" in the Offer to Purchase. By executing this Letter of Transmittal (or facsimile thereof), the tendering stockholder waives any right to receive any notice of the acceptance for payment of the Shares. 3. INADEQUATE SPACE. If the space provided herein is inadequate, the certificate numbers and/or the number of Shares should be listed on a separate schedule attached hereto. 4. PARTIAL TENDERS (NOT APPLICABLE TO STOCKHOLDERS WHO TENDER BY BOOK-ENTRY TRANSFER). If fewer than all the Shares represented by any certificate delivered to the Depositary are to be tendered, fill in the number of Shares that are to be tendered in the box entitled "Number of Shares Tendered." In such case, a new certificate for the remainder of the Shares represented by the old certificate will be sent in the name of and to the person(s) signing this Letter of Transmittal, unless otherwise provided in the "Special Payment Instructions" or "Special Delivery Instructions" boxes on this Letter of Transmittal, as promptly as practicable following the expiration or termination of the Offer. All Shares represented by certificates delivered to the Depositary will be deemed to have been tendered unless otherwise indicated. 5. SIGNATURES ON LETTER OF TRANSMITTAL; STOCK POWERS AND ENDORSEMENTS. If this Letter of Transmittal is signed by the registered holder(s) of the Shares tendered hereby, the signature(s) must correspond with the name(s) as written on the face of the certificates without alteration, enlargement or any change whatsoever. If any of the Shares tendered hereby are held of record by two or more persons, all such persons must sign this Letter of Transmittal. If any of the Shares tendered hereby are registered in different names on different certificates, it will be necessary to complete, sign and submit as many separate Letters of Transmittal as there are different registrations of certificates. If this Letter of Transmittal is signed by the registered holder(s) of the Shares tendered hereby, no endorsements of certificates or separate stock powers are required unless payment of the purchase price is to be made to, or Shares not tendered or not purchased are to be registered in the name of, any person other than the registered holder(s). Signatures on any such certificates or stock powers must be guaranteed by an Eligible Institution. See Instruction 1. If this Letter of Transmittal is signed by a person other than the registered holder(s) of the Shares tendered hereby, certificates must be endorsed or accompanied by appropriate stock powers, in either case, signed exactly as the name(s) of the registered holder(s) appear(s) on the certificates for such Shares. Signature(s) on any such certificates or stock powers must be guaranteed by an Eligible Institution. See Instruction 1. If this Letter of Transmittal or any certificate or stock power is signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, such person should so indicate when signing, and proper evidence satisfactory to the Company of the authority of such person so to act must be submitted. 6. STOCK TRANSFER TAXES. The Company will pay or cause to be paid any stock transfer taxes with respect to the sale and transfer of any Shares to it or its order pursuant to the Offer. If, however, payment of the purchase price is to be made to, or Shares not tendered or not purchased are to be registered in the name of, any person other than the registered holder(s), or if tendered Shares are registered in the name of any person other than the person(s) signing this Letter of Transmittal, the amount of any stock transfer taxes (whether imposed on the registered holder(s), such other person or otherwise) payable on account of the transfer to such person will be deducted from the purchase price unless satisfactory evidence of the payment of such taxes, or exemption therefrom, is submitted. See Section 7--"Acceptance for Payment of Shares and Payment of Purchase Price" in the Offer to Purchase. EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY TO AFFIX TRANSFER TAX STAMPS TO THE CERTIFICATES REPRESENTING SHARES TENDERED HEREBY. 7. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If the check for the purchase price of any Shares purchased is to be issued in the name of, and/or any Shares not tendered or not purchased are to be returned to, a person other than the person(s) signing this Letter of Transmittal or if the check and/or any certificate for Shares not tendered or not purchased are to be mailed to someone other than the person(s) signing this Letter of Transmittal or to an address other than that shown above in the box captioned "Description of Shares Tendered," then the boxes captioned "Special Payment Instructions" and/or "Special Delivery Instructions" on this Letter of Transmittal should be completed. Stockholders tendering Shares by book-entry transfer will have any Shares not accepted for payment returned by crediting the account maintained by such stockholder at the Book-Entry Transfer Facility from which such transfer was made. 8. SUBSTITUTE FORM W-9 AND FORM W-8. The tendering stockholder is required to provide the Depositary with either a correct Taxpayer Identification Number ("TIN") on Substitute Form W-9, which is provided under "Important Tax Information" below, or a properly completed Form W-8. Failure to provide the information on either Substitute Form W-9 or Form W-8 may subject the tendering stockholder to 31% Federal income tax backup withholding on the payment of the purchase price. The box in Part 2 of Substitute Form W-9 may be checked if the tendering stockholder has not been issued a TIN and has applied for a number or intends to apply for a number in the near future. If the box in Part 2 is checked and the Depositary is not provided with a TIN by the time of payment, the Depositary will withhold 31% on all payments of the purchase price thereafter until a TIN is provided to the Depositary. 9. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Any questions or requests for assistance may be directed to Georgeson & Company Inc., as "Information Agent," or Goldman, Sachs & Co. and Merrill Lynch & Co., as "Dealer Managers," at their respective telephone numbers and addresses listed below. Requests for additional copies of the Offer to Purchase, this Letter of Transmittal or other tender offer materials may be directed to the Information Agent or the Dealer Managers and such copies will be furnished promptly at the Company's expense. Stockholders may also contact their local broker, dealer, commercial bank or trust company for assistance concerning the Offer. 10. SOLICITED TENDERS. The Company will pay a solicitation fee of $1.25 per Share for any Shares tendered, accepted for payment and paid for pursuant to the Offer, covered by the Letter of Transmittal which designates, in the box captioned "Solicited Tenders," as having solicited and obtained the tender, the name of (a) any broker or dealer in securities, including a Dealer Manager in its capacity as a dealer or broker, which is a member of any national securities exchange or of the National Association of Securities Dealers, Inc. ("NASD"), (b) any foreign broker or dealer not eligible for membership in the NASD which agrees to conform to the NASD's Rules of Fair Practice in soliciting tenders outside the United States to the same extent as though it were an NASD member, or (c) any bank or trust company (each of which is referred to herein as a "Soliciting Dealer"). No such fee shall be payable to a Soliciting Dealer with respect to the tender of Shares by a holder unless the Letter of Transmittal accompanying such tender designates such Soliciting Dealer. No such fee shall be payable to a Soliciting Dealer in respect of Shares registered in the name of such Soliciting Dealer unless such Shares are held by such Soliciting Dealer as nominee and such Shares are being tendered for the benefit of one or more beneficial owners identified on the Letter of Transmittal or on the Notice of Solicited Tenders (included in the materials provided to brokers and dealers). No such fee shall be payable to a Soliciting Dealer with respect to the tender of Shares by the holder of record, for the benefit of the beneficial owner, unless the beneficial owner has designated such Soliciting Dealer. If tendered Shares are being delivered by book-entry transfer, the Soliciting Dealer must return a Notice of Solicited Tenders to the Depositary within three New York Stock Exchange trading days after expiration of the Offer to receive a solicitation fee. No such fee shall be payable to a Soliciting Dealer if such Soliciting Dealer is required for any reason to transfer the amount of such fee to a depositing holder (other than itself). No broker, dealer, bank, trust company or fiduciary shall be deemed to be the agent of the Company, the Depositary, the Information Agent or the Dealer Managers for purposes of the Offer. 11. IRREGULARITIES. All questions as to the form of documents and the validity, eligibility (including time of receipt) and acceptance of any tender of Shares will be determined by the Company, in its sole discretion, and its determination shall be final and binding. The Company reserves the absolute right to reject any and all tenders of Shares that it determines are not in proper form or the acceptance for payment of or payment for Shares that may, in the opinion of the Company's counsel, be unlawful. The Company also reserves the absolute right to waive any of the conditions to the Offer or any defect or irregularity in any tender of Shares and the Company's interpretation of the terms and conditions of the Offer (including these instructions) shall be final and binding. Unless waived, any defects or irregularities in connection with tenders must be cured within such time as the Company shall determine. None of the Company, the Dealer Managers, the Depositary, the Information Agent or any other person shall be under any duty to give notice of any defect or irregularity in tenders, nor shall any of them incur any liability for failure to give any such notice. Tenders will not be deemed to have been made until all defects and irregularities have been cured or waived. IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A FACSIMILE COPY THEREOF), DULY EXECUTED, TOGETHER WITH CERTIFICATES OR CONFIRMATION OF BOOK-ENTRY TRANSFER AND ALL OTHER REQUIRED DOCUMENTS MUST BE RECEIVED BY THE DEPOSITARY, OR THE NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE DEPOSITARY, ON OR PRIOR TO THE APPLICABLE EXPIRATION DATE (AS DEFINED IN THE OFFER TO PURCHASE). IMPORTANT TAX INFORMATION Under Federal income tax law, a stockholder whose tendered Shares are accepted for payment is required to provide the Depositary (as payer) with either such stockholder's correct TIN on Substitute Form W-9 below or a properly completed Form W-8. If such stockholder is an individual, the TIN is his or her social security number. For businesses and other entities, the TIN is the employer identification number. If the Depositary is not provided with the correct TIN or properly completed Form W-8, the stockholder may be subject to a $50 penalty imposed by the Internal Revenue Service. In addition, payments that are made to such stockholder with respect to Shares purchased pursuant to the Offer may be subject to backup withholding. The Form W-8 can be obtained from the Depositary. See the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 for additional instructions. If Federal income tax backup withholding applies, the Depositary is required to withhold 31% of any payments made to the stockholder. Backup withholding is not an additional tax. Rather, the Federal income tax liability of persons subject to backup withholding will be reduced by the amount of the tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained. PURPOSE OF SUBSTITUTE FORM W-9 AND FORM W-8 To avoid backup withholding on payments that are made to a stockholder with respect to Shares purchased pursuant to the Offer, the stockholder is required to notify the Depositary of his or her correct TIN by completing the Substitute Form W-9 attached hereto certifying that the TIN provided on Substitute Form W-9 is correct and that (a) the stockholder has not been notified by the Internal Revenue Service that he or she is subject to Federal income tax backup withholding as a result of failure to report all interest or dividends or (b) the Internal Revenue Service has notified the stockholder that he or she is no longer subject to Federal income tax backup withholding. Foreign stockholders must submit a properly completed Form W-8 in order to avoid the applicable backup withholding; provided, however, that backup withholding will not apply to foreign stockholders subject to 30% (or lower treaty rate) withholding on gross payments received pursuant to the Offer. WHAT NUMBER TO GIVE THE DEPOSITARY The stockholder is required to give the Depositary the social security number or employer identification number of the registered owner of the Shares. If the Shares are in more than one name or are not in the name of the actual owner, consult the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 for additional guidance on which number to report. PAYER'S NAME: FIRST CHICAGO TRUST COMPANY OF NEW YORK PART 1--PLEASE PROVIDE YOUR TIN IN SUBSTITUTE Social security number OR THE BOX AT RIGHT AND CERTIFY BY SIGNING AND DATING BELOW: Employee Identification Number TIN ________________________ FORM W-9 Name (Please Print) ________________________________ PART 2 Address ________________________________________________________________________ Awaiting TIN / / City _________________ State _______ Zip Code _______ PART 3--CERTIFICATION--UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT: Department of the Treasury (1) The number shown on this form is my correct taxpayer identification number (or a TIN has Internal Revenue Service not been issued to me but I have mailed or delivered an application to receive a TIN or intend to do so in the near future). PAYER'S REQUEST FOR (2) I am not subject to backup withholding either because I have not been notified by the Internal TAXPAYER IDENTIFICATION Revenue Service (the "IRS") that I am subject to backup withholding as a result of a failure to report all interest or dividends or the IRS has notified me that I am no longer subject to NUMBER (TIN) backup withholding. AND CERTIFICATION (3) All other information provided on this form is true, correct and complete. SIGNATURE: ____________________________________ DATE: ______________ You must cross out item (2) above if you have been notified by the IRS that you are currently subject to backup withholding because of underreporting interest or dividends on your tax return. NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 2 OF THE SUBSTITUTE FORM W-9. CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that a taxpayer identification number has not been issued to me and either (1) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social Security Administration Office or (2) I intend to mail or deliver an application in the near future. I understand that if I do not provide a taxpayer identification number by the time of payment, 31% of all payments of the purchase price made to me will be withheld until I provide a number. THE INFORMATION AGENT FOR THE OFFER IS: GEORGESON & COMPANY INC. Wall Street Plaza New York, New York 10005 Banks and Brokers Call Collect: (212) 440-9800 All Others Call Toll-Free: (800) 223-2064 THE DEALER MANAGERS FOR THE OFFER ARE: GOLDMAN, SACHS & CO. MERRILL LYNCH & CO. 85 Broad Street World Financial Center New York, New York 10004 250 Vesey Street (800) 828-3182 New York, New York 10281 (212) 449-4914 (call collect)
EX-99.(A)(3) 4 EXHIBIT 99.(a)(3) PUBLIC SERVICE ELECTRIC AND GAS COMPANY Notice of Guaranteed Delivery of Shares of 4.08% Cumulative Preferred Stock ($100 par value) This form, or a form substantially equivalent to this form, must be used to accept the Offer (as defined below) if certificates for the shares of 4.08% Cumulative Preferred Stock ($100 par value) (the "Shares") are not immediately available, if the procedure for book-entry transfer cannot be completed on a timely basis, or if time will not permit all other documents required by the applicable Letter of Transmittal to be delivered to First Chicago Trust Company of New York, as Depositary on or prior to the expiration of the Offer. Such form may be delivered by hand or transmitted by mail, or by facsimile transmission, to the Depositary. See Section 5--"Procedure for Tendering Shares" in the Offer to Purchase. THE ELIGIBLE INSTITUTION (AS DEFINED HEREIN) WHICH COMPLETES THIS FORM MUST COMMUNICATE THE GUARANTEE TO THE DEPOSITARY AND MUST DELIVER THE APPLICABLE LETTER OF TRANSMITTAL AND CERTIFICATES FOR SHARES TO THE DEPOSITARY WITHIN THREE NEW YORK STOCK EXCHANGE TRADING DAYS AFTER THE EXPIRATION DATE. Failure to do so could result in a financial loss to such Eligible Institution. To: FIRST CHICAGO TRUST COMPANY OF NEW YORK, DEPOSITARY
By Mail: Facsimile Transmission: By Hand or By Overnight Courier: Tenders & Exchanges (201) 222-4720 Tenders & Exchange P.O. Box 2559--Suite 4660--PSE&G or 14 Wall Street Jersey City, New Jersey (201) 222-4721 Suite 4680--8th Floor--PSE&G 07303-2559 New York, New York 10005 Confirm by Telephone: (201) 222-4707
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN ONE LISTED ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. This form is not to be used to guarantee signatures. If a signature on a Letter of Transmittal is required to be guaranteed by an Eligible Institution under the instructions thereto, such signature guarantee must appear in the applicable space provided in the signature box on the Letter of Transmittal. Ladies and Gentlemen: The undersigned hereby tenders to Public Service Electric and Gas Company, a New Jersey corporation (the "Company"), upon the terms and subject to the conditions set forth in the Offer to Purchase dated May 16, 1996 (the "Offer to Purchase"), and the applicable Letter of Transmittal (which, together with the Offer to Purchase, constitutes the "Offer"), receipt of which is hereby acknowledged, the number of Shares of the 4.08% Cumulative Preferred Stock of the Company listed below, pursuant to the guaranteed delivery procedure set forth in Section 5--"Procedure for Tendering Shares" in the Offer to Purchase. Number of 4.08% Shares: Signature Certificate Nos. (if available): Name(s) of Record Holder(s) (Please Print) If 4.08% Shares will be tendered by Address book-entry transfer: Name of Tendering Institution: Account No. at (check one) Area Code and Telephone Number / / The Depository Trust Company / / The Philadelphia Depository Trust Company
GUARANTEE (NOT TO BE USED FOR SIGNATURE GUARANTEE) The undersigned financial institution (including most banks, savings and loan associations and brokerage houses) that is a participant in the Security Transfer Agents Medallion Program or the Stock Exchange Medallion Program (each, an "Eligible Institution") guarantees (a) that the above-named person(s) has a net long position in the Shares being tendered within the meaning of Rule 14e-4 promulgated under the Securities Exchange Act of 1934, as amended, (b) that such tender of Shares complies with Rule 14e-4 and (c) to deliver to the Depositary at one of its addresses set forth above certificate(s) for the Shares tendered hereby, in proper form for transfer, or a confirmation of the book-entry transfer of the Shares tendered hereby into the Depositary's account at The Depository Trust Company or The Philadelphia Depository Trust Company, in each case together with a properly completed and duly executed Letter(s) of Transmittal (or facsimile(s) thereof), with any required signature guarantee(s) and any other required documents, all within three New York Stock Exchange trading days after the Expiration Date. NAME OF FIRM AUTHORIZED SIGNATURE ADDRESS NAME CITY, STATE, ZIP CODE TITLE AREA CODE AND TELEPHONE NUMBER Dated: , 1996
DO NOT SEND CERTIFICATES WITH THIS FORM. YOUR CERTIFICATES MUST BE SENT WITH THE APPLICABLE LETTER OF TRANSMITTAL. 2 EX-99.(A)(4) 5 EXHIBIT 99.(a)(4) GOLDMAN, SACHS & CO. MERRILL LYNCH & CO. 85 Broad Street World Financial Center New York, New York 10004 250 Vesey Street New York, New York 10281
PUBLIC SERVICE ELECTRIC AND GAS COMPANY OFFER TO PURCHASE FOR CASH UP TO 187,500 SHARES OF 4.08% CUMULATIVE PREFERRED STOCK ($100 PAR VALUE) CUSIP NO. 744567 306 187,500 SHARES OF 4.18% CUMULATIVE PREFERRED STOCK ($100 PAR VALUE) CUSIP NO. 744567 405 187,500 SHARES OF 4.30% CUMULATIVE PREFERRED STOCK ($100 PAR VALUE) CUSIP NO. 744567 504 187,500 SHARES OF 5.05% CUMULATIVE PREFERRED STOCK ($100 PAR VALUE) CUSIP NO. 744567 603 187,500 SHARES OF 5.28% CUMULATIVE PREFERRED STOCK ($100 PAR VALUE) CUSIP NO. 744567 702 187,500 SHARES OF 6.80% CUMULATIVE PREFERRED STOCK ($100 PAR VALUE) CUSIP NO. 744567 801 450,000 SHARES OF 6.92% CUMULATIVE PREFERRED STOCK ($100 PAR VALUE) CUSIP NO. 744567 710 THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON THURSDAY, JUNE 13, 1996 UNLESS THE OFFER IS EXTENDED. May 16, 1996 To Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees: We have been appointed by Public Service Electric and Gas Company, a New Jersey corporation (the "Company"), to act as Dealer Managers in connection with the offer to purchase up to 187,500 shares of its 4.08% Cumulative Preferred Stock ($100 par value) (the "4.08% Shares") at a price of $59.30 per 4.08% Share, up to 187,500 shares of its 4.18% Cumulative Preferred Stock ($100 par value) (the "4.18% Shares") at a price of $60.76 per 4.18% Share, up to 187,500 shares of its 4.30% Cumulative Preferred Stock ($100 par value) (the "4.30% Shares") at a price of $62.50 per 4.30% Share, up to 187,500 shares of its 5.05% Cumulative Preferred Stock ($100 par value) (the "5.05% Shares") at a price of $73.40 per 5.05% Share, up to 187,500 shares of its 5.28% Cumulative Preferred Stock ($100 par value) (the "5.28% Shares") at a price of $76.74 per 5.28% Share, up to 187,500 shares of its 6.80% Cumulative Preferred Stock ($100 par value) (the 6.80% Shares") at a price of $97.42 per 6.80% Share and up to 450,000 shares of its 6.92% Cumulative Preferred Stock ($100 par value) (the "6.92% Shares") at a price of $99.14 per 6.92% Share (together, the "Shares" and each, a "Series of Preferred"), net to the seller in cash, upon the terms and subject to the conditions set forth in the Offer to Purchase dated May 16, 1996 (the "Offer to Purchase"), and in the applicable Letter of Transmittal (which, together with the Offer to Purchase, constitutes the "Offer"). The Company will purchase all Shares validly tendered and not withdrawn, upon the terms and subject to the conditions of the Offer, including the provisions thereof relating to proration (as described in the Offer to Purchase). Shares not purchased because of proration or otherwise will be returned (or, in the case of Shares tendered by book-entry transfer, such Shares will be credited to an account maintained with a Book-Entry Transfer Facility (as defined in the Offer to Purchase)) promptly without expense to the tendering stockholder. THE OFFER FOR ONE SERIES OF PREFERRED IS INDEPENDENT OF THE OFFER FOR THE OTHER SERIES OF PREFERRED. THE OFFER IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF SHARES BEING TENDERED. The Offer is, however, subject to certain other conditions. See Section 8--"Certain Conditions of the Offer" in the Offer to Purchase. We are asking you to contact your clients for whom you hold Shares registered in your name (or in the name of your nominee) or who hold Shares registered in their own names. Please bring the Offer to their attention as promptly as possible. The Company will pay to a Soliciting Dealer (as defined in the Offer to Purchase) a solicitation fee of $1.25 per Share for any Shares tendered, accepted for payment and paid for pursuant to the Offer. For purposes of this letter, Soliciting Dealer includes (i) any broker or dealer in securities, including Goldman, Sachs & Co. and Merrill Lynch & Co., as "Dealer Managers," in their capacity as a broker or dealer, which is a member of any national securities exchange or of the National Association of Securities Dealers, Inc. (the "NASD"), (ii) any foreign broker or dealer not eligible for membership in the NASD which agrees to conform to the NASD's Rules of Fair Practice in soliciting tenders outside the United States to the same extent as if it were an NASD member, or (iii) any bank or trust company. No such fee shall be payable to a Soliciting Dealer in respect of Shares registered in the name of such Soliciting Dealer unless such Shares are held by such Soliciting Dealer as nominee and such Shares are being tendered for the benefit of one or more beneficial owners identified in the applicable Letter of Transmittal or in the applicable Notice of Solicited Tenders (included in the materials provided to brokers and dealers). No such fee shall be payable to a Soliciting Dealer with respect to the tender of Shares by a holder unless the applicable Letter of Transmittal accompanying such tender designates such Soliciting Dealer. No such fee shall be payable to the Soliciting Dealer unless the Soliciting Dealer returns a Notice of Solicited Tenders to the Depositary within three New York Stock Exchange trading days after the applicable Expiration Date. No such fee shall be payable to a Soliciting Dealer to the extent such Soliciting Dealer is required for any reason to transfer the amount of such fee to any person (other than itself). No broker, dealer, bank, trust company or fiduciary shall be deemed to be the agent of the Company, First Chicago Trust Company of New York, as "Depositary," the Dealer Managers or Georgeson & Company Inc., as "Information Agent," for purposes of the Offer. The Company will also, upon request, reimburse Soliciting Dealers for reasonable and customary handling and mailing expenses incurred by them in forwarding materials relating to the Offer to their customers. The Company will pay all stock transfer taxes applicable to its purchase of Shares pursuant to the Offer, subject to Instruction 6 of each Letter of Transmittal. In order for a Soliciting Dealer to receive a solicitation fee, the Depositary must receive from such Soliciting Dealer a properly completed and duly executed Notice of Solicited Tenders in the form attached hereto (or facsimile thereof) within three New York Stock Exchange trading days after the expiration of the Offer. For your information and for forwarding to your clients, we are enclosing the following documents: 1. The Offer to Purchase; 2. A Letter of Transmittal for each Series of Preferred for your use and for the information of your clients; 3. A letter to holders of the Shares from the Senior Vice President and Chief Financial Officer of the Company; 4. A Notice of Guaranteed Delivery for each Series of Preferred to be used to accept the Offer if the Shares or any other required documents cannot be delivered to the Depositary by the expiration of the Offer; 2 5. A letter which may be sent to your clients for whose accounts you hold Shares registered in your name or in the name of your nominee, with space for obtaining such clients' instructions with regard to the Offer; 6. Guidelines of the Internal Revenue Service for Certification of Taxpayer Identification Number on Substitute Form W-9, providing information relating to backup Federal income tax withholding; and 7. A return envelope addressed to First Chicago Trust Company of New York, as Depositary. We urge you to contact your clients as promptly as possible. Please note that the Offer, proration period and withdrawal rights expire at 12:00 midnight, New York City time, on Thursday, June 13, 1996, unless the Offer is extended. As described in the Offer to Purchase, if more than 187,500 4.08% Shares, 187,500 4.18% Shares, 187,500 4.30% Shares, 187,500 5.05% Shares, 187,500 5.28% Shares, 187,500 6.80% Shares or 450,000 6.92% Shares (or, if such amount for each Series of Preferred is decreased, such lesser amount) have been validly tendered and not withdrawn on or prior to the expiration of the Offer, the Company will purchase Shares of that Series of Preferred from all tendering holders on a pro rata basis. THE COMPANY, ITS BOARD OF DIRECTORS AND ITS EXECUTIVE OFFICERS MAKE NO RECOMMENDATION TO ANY STOCKHOLDER AS TO WHETHER TO TENDER ANY OR ALL SHARES OF ANY SERIES OF PREFERRED PURSUANT TO THE OFFER. STOCKHOLDERS MUST MAKE THEIR OWN DECISION AS TO WHETHER TO TENDER SHARES OF ANY SERIES OF PREFERRED PURSUANT TO ANY OFFER AND, IF SO, HOW MANY SHARES TO TENDER. Any questions or requests for assistance or additional copies of the enclosed materials may be directed to the Information Agent, or to us, as Dealer Managers, at the respective addresses and telephone numbers set forth on the back cover of the enclosed Offer to Purchase. Very truly yours, Goldman, Sachs & Co. Merrill Lynch & Co. NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU THE AGENT OF THE COMPANY, THE DEALER MANAGERS, THE INFORMATION AGENT OR THE DEPOSITARY, OR AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENT ON BEHALF OF ANY OF THEM IN CONNECTION WITH THE OFFER OTHER THAN THE DOCUMENTS ENCLOSED HEREWITH AND THE STATEMENTS CONTAINED THEREIN. 3 NOTICE OF SOLICITED TENDERS List below the number of Shares tendered by each beneficial owner whose tender you have solicited. All Shares beneficially owned by a beneficial owner, whether in one account or several, and in however many capacities, must be aggregated for purposes of completing the table below. Any questions as to what constitutes beneficial ownership should be directed to the Depositary. If the space below is inadequate, list the Shares in a separate signed schedule and affix the list to this Notice of Solicited Tenders. Please do not complete the sections of the table headed "TO BE COMPLETED ONLY BY DEPOSITARY." ALL NOTICES OF SOLICITED TENDERS SHOULD BE RETURNED TO, AND ALL QUESTIONS CONCERNING THE NOTICES OF SOLICITED TENDERS SHOULD BE DIRECTED TO, THE DEPOSITARY. ALL NOTICES OF SOLICITED TENDERS MUST BE RECEIVED BY THE DEPOSITARY WITHIN THREE NEW YORK STOCK EXCHANGE TRADING DAYS AFTER THE EXPIRATION OF THE OFFER. SOLICITED TENDERS OF 4.08% SHARES NOT BENEFICIALLY OWNED BY SOLICITING DEALER
TO BE COMPLETED TO BE COMPLETED BY THE ONLY BY TO BE COMPLETED SOLICITING DEALER DEPOSITARY ONLY BY ------------------------------------ ---------------------- DEPOSITARY NUMBER OF SERIES OF NUMBER OF SERIES OF ----------------- SHARES PREFERRED VOI TICKET SHARES PREFERRED FEE BENEFICIAL OWNER TENDERED TENDERED NUMBER* ACCEPTED ACCEPTED ($1.25 PER SHARE) - ----------------- --------- --------- ---------- --------- --------- ----------------- Beneficial Owner No. 1 Beneficial Owner No. 2 Beneficial Owner No. 3 Beneficial Owner No. 4 Beneficial Owner No. 5 Beneficial Owner No. 6 Beneficial Owner No. 7 Beneficial Owner No. 8 Total
- ------------ * Complete if Shares delivered by book-entry transfer. All questions as to the validity, form and eligibility (including time of receipt) of Notices of Solicited Tenders will be determined by the Company, in its sole discretion, which determination will be final and binding. Neither the Company nor any other person will be under any duty to give notification of any defects or irregularities in any Notice of Solicited Tenders or incur any liability for failure to give such notification. 4 NOTICE OF SOLICITED TENDERS List below the number of Shares tendered by each beneficial owner whose tender you have solicited. All Shares beneficially owned by a beneficial owner, whether in one account or several, and in however many capacities, must be aggregated for purposes of completing the table below. Any questions as to what constitutes beneficial ownership should be directed to the Depositary. If the space below is inadequate, list the Shares in a separate signed schedule and affix the list to this Notice of Solicited Tenders. Please do not complete the sections of the table headed "TO BE COMPLETED ONLY BY DEPOSITARY." ALL NOTICES OF SOLICITED TENDERS SHOULD BE RETURNED TO, AND ALL QUESTIONS CONCERNING THE NOTICES OF SOLICITED TENDERS SHOULD BE DIRECTED TO, THE DEPOSITARY. ALL NOTICES OF SOLICITED TENDERS MUST BE RECEIVED BY THE DEPOSITARY WITHIN THREE NEW YORK STOCK EXCHANGE TRADING DAYS AFTER THE EXPIRATION OF THE OFFER. SOLICITED TENDERS OF 4.18% SHARES NOT BENEFICIALLY OWNED BY SOLICITING DEALER
TO BE COMPLETED ONLY TO BE COMPLETED BY THE BY TO BE COMPLETED SOLICITING DEALER DEPOSITARY ONLY BY ------------------------------------ ---------------------- DEPOSITARY NUMBER OF SERIES OF NUMBER OF SERIES OF ----------------- SHARES PREFERRED VOI TICKET SHARES PREFERRED FEE BENEFICIAL OWNER TENDERED TENDERED NUMBER* ACCEPTED ACCEPTED ($1.25 PER SHARE) - ----------------- --------- --------- ---------- --------- --------- ----------------- Beneficial Owner No. 1 Beneficial Owner No. 2 Beneficial Owner No. 3 Beneficial Owner No. 4 Beneficial Owner No. 5 Beneficial Owner No. 6 Beneficial Owner No. 7 Beneficial Owner No. 8 Total
- ------------ * Complete if Shares delivered by book-entry transfer. All questions as to the validity, form and eligibility (including time of receipt) of Notices of Solicited Tenders will be determined by the Company, in its sole discretion, which determination will be final and binding. Neither the Company nor any other person will be under any duty to give notification of any defects or irregularities in any Notice of Solicited Tenders or incur any liability for failure to give such notification. 5 NOTICE OF SOLICITED TENDERS List below the number of Shares tendered by each beneficial owner whose tender you have solicited. All Shares beneficially owned by a beneficial owner, whether in one account or several, and in however many capacities, must be aggregated for purposes of completing the table below. Any questions as to what constitutes beneficial ownership should be directed to the Depositary. If the space below is inadequate, list the Shares in a separate signed schedule and affix the list to this Notice of Solicited Tenders. Please do not complete the sections of the table headed "TO BE COMPLETED ONLY BY DEPOSITARY." ALL NOTICES OF SOLICITED TENDERS SHOULD BE RETURNED TO, AND ALL QUESTIONS CONCERNING THE NOTICES OF SOLICITED TENDERS SHOULD BE DIRECTED TO, THE DEPOSITARY. ALL NOTICES OF SOLICITED TENDERS MUST BE RECEIVED BY THE DEPOSITARY WITHIN THREE NEW YORK STOCK EXCHANGE TRADING DAYS AFTER THE EXPIRATION OF THE OFFER. SOLICITED TENDERS OF 4.30% SHARES NOT BENEFICIALLY OWNED BY SOLICITING DEALER
TO BE COMPLETED ONLY TO BE COMPLETED BY THE BY TO BE COMPLETED SOLICITING DEALER DEPOSITARY ONLY BY ------------------------------------ ---------------------- DEPOSITARY NUMBER OF SERIES OF NUMBER OF SERIES OF ----------------- SHARES PREFERRED VOI TICKET SHARES PREFERRED FEE BENEFICIAL OWNER TENDERED TENDERED NUMBER* ACCEPTED ACCEPTED ($1.25 PER SHARE) - ----------------- --------- --------- ---------- --------- --------- ----------------- Beneficial Owner No. 1 Beneficial Owner No. 2 Beneficial Owner No. 3 Beneficial Owner No. 4 Beneficial Owner No. 5 Beneficial Owner No. 6 Beneficial Owner No. 7 Beneficial Owner No. 8 Total
- ------------ * Complete if Shares delivered by book-entry transfer. All questions as to the validity, form and eligibility (including time of receipt) of Notices of Solicited Tenders will be determined by the Company, in its sole discretion, which determination will be final and binding. Neither the Company nor any other person will be under any duty to give notification of any defects or irregularities in any Notice of Solicited Tenders or incur any liability for failure to give such notification. 6 NOTICE OF SOLICITED TENDERS List below the number of Shares tendered by each beneficial owner whose tender you have solicited. All Shares beneficially owned by a beneficial owner, whether in one account or several, and in however many capacities, must be aggregated for purposes of completing the table below. Any questions as to what constitutes beneficial ownership should be directed to the Depositary. If the space below is inadequate, list the Shares in a separate signed schedule and affix the list to this Notice of Solicited Tenders. Please do not complete the sections of the table headed "TO BE COMPLETED ONLY BY DEPOSITARY." ALL NOTICES OF SOLICITED TENDERS SHOULD BE RETURNED TO, AND ALL QUESTIONS CONCERNING THE NOTICES OF SOLICITED TENDERS SHOULD BE DIRECTED TO, THE DEPOSITARY. ALL NOTICES OF SOLICITED TENDERS MUST BE RECEIVED BY THE DEPOSITARY WITHIN THREE NEW YORK STOCK EXCHANGE TRADING DAYS AFTER THE EXPIRATION OF THE OFFER. SOLICITED TENDERS OF 5.05% SHARES NOT BENEFICIALLY OWNED BY SOLICITING DEALER
TO BE COMPLETED ONLY TO BE COMPLETED BY THE BY TO BE COMPLETED SOLICITING DEALER DEPOSITARY ONLY BY ------------------------------------ ---------------------- DEPOSITARY NUMBER OF SERIES OF NUMBER OF SERIES OF ----------------- SHARES PREFERRED VOI TICKET SHARES PREFERRED FEE BENEFICIAL OWNER TENDERED TENDERED NUMBER* ACCEPTED ACCEPTED ($1.25 PER SHARE) - ---------------- --------- --------- ---------- --------- --------- ----------------- Beneficial Owner No. 1 Beneficial Owner No. 2 Beneficial Owner No. 3 Beneficial Owner No. 4 Beneficial Owner No. 5 Beneficial Owner No. 6 Beneficial Owner No. 7 Beneficial Owner No. 8 Total
- ------------ * Complete if Shares delivered by book-entry transfer. All questions as to the validity, form and eligibility (including time of receipt) of Notices of Solicited Tenders will be determined by the Company, in its sole discretion, which determination will be final and binding. Neither the Company nor any other person will be under any duty to give notification of any defects or irregularities in any Notice of Solicited Tenders or incur any liability for failure to give such notification. 7 NOTICE OF SOLICITED TENDERS List below the number of Shares tendered by each beneficial owner whose tender you have solicited. All Shares beneficially owned by a beneficial owner, whether in one account or several, and in however many capacities, must be aggregated for purposes of completing the table below. Any questions as to what constitutes beneficial ownership should be directed to the Depositary. If the space below is inadequate, list the Shares in a separate signed schedule and affix the list to this Notice of Solicited Tenders. Please do not complete the sections of the table headed "TO BE COMPLETED ONLY BY DEPOSITARY." ALL NOTICES OF SOLICITED TENDERS SHOULD BE RETURNED TO, AND ALL QUESTIONS CONCERNING THE NOTICES OF SOLICITED TENDERS SHOULD BE DIRECTED TO, THE DEPOSITARY. ALL NOTICES OF SOLICITED TENDERS MUST BE RECEIVED BY THE DEPOSITARY WITHIN THREE NEW YORK STOCK EXCHANGE TRADING DAYS AFTER THE EXPIRATION OF THE OFFER. SOLICITED TENDERS OF 5.28% SHARES NOT BENEFICIALLY OWNED BY SOLICITING DEALER
TO BE COMPLETED ONLY TO BE COMPLETED BY THE BY TO BE COMPLETED SOLICITING DEALER DEPOSITARY ONLY BY ------------------------------------ ---------------------- DEPOSITARY NUMBER OF SERIES OF NUMBER OF SERIES OF ----------------- SHARES PREFERRED VOI TICKET SHARES PREFERRED FEE BENEFICIAL OWNER TENDERED TENDERED NUMBER* ACCEPTED ACCEPTED ($1.25 PER SHARE) - ----------------- --------- --------- ---------- --------- --------- ----------------- Beneficial Owner No. 1 Beneficial Owner No. 2 Beneficial Owner No. 3 Beneficial Owner No. 4 Beneficial Owner No. 5 Beneficial Owner No. 6 Beneficial Owner No. 7 Beneficial Owner No. 8 Total
- ------------ * Complete if Shares delivered by book-entry transfer. All questions as to the validity, form and eligibility (including time of receipt) of Notices of Solicited Tenders will be determined by the Company, in its sole discretion, which determination will be final and binding. Neither the Company nor any other person will be under any duty to give notification of any defects or irregularities in any Notice of Solicited Tenders or incur any liability for failure to give such notification. 8 NOTICE OF SOLICITED TENDERS List below the number of Shares tendered by each beneficial owner whose tender you have solicited. All Shares beneficially owned by a beneficial owner, whether in one account or several, and in however many capacities, must be aggregated for purposes of completing the table below. Any questions as to what constitutes beneficial ownership should be directed to the Depositary. If the space below is inadequate, list the Shares in a separate signed schedule and affix the list to this Notice of Solicited Tenders. Please do not complete the sections of the table headed "TO BE COMPLETED ONLY BY DEPOSITARY." ALL NOTICES OF SOLICITED TENDERS SHOULD BE RETURNED TO, AND ALL QUESTIONS CONCERNING THE NOTICES OF SOLICITED TENDERS SHOULD BE DIRECTED TO, THE DEPOSITARY. ALL NOTICES OF SOLICITED TENDERS MUST BE RECEIVED BY THE DEPOSITARY WITHIN THREE NEW YORK STOCK EXCHANGE TRADING DAYS AFTER THE EXPIRATION OF THE OFFER. SOLICITED TENDERS OF 6.80% SHARES NOT BENEFICIALLY OWNED BY SOLICITING DEALER
TO BE COMPLETED ONLY TO BE COMPLETED BY THE BY TO BE COMPLETED SOLICITING DEALER DEPOSITARY ONLY BY ------------------------------------ ---------------------- DEPOSITARY NUMBER OF SERIES OF NUMBER OF SERIES OF ----------------- SHARES PREFERRED VOI TICKET SHARES PREFERRED FEE BENEFICIAL OWNER TENDERED TENDERED NUMBER* ACCEPTED ACCEPTED ($1.25 PER SHARE) - ----------------- --------- --------- ---------- --------- --------- ----------------- Beneficial Owner No. 1 Beneficial Owner No. 2 Beneficial Owner No. 3 Beneficial Owner No. 4 Beneficial Owner No. 5 Beneficial Owner No. 6 Beneficial Owner No. 7 Beneficial Owner No. 8 Total
- ------------ * Complete if Shares delivered by book-entry transfer. All questions as to the validity, form and eligibility (including time of receipt) of Notices of Solicited Tenders will be determined by the Company, in its sole discretion, which determination will be final and binding. Neither the Company nor any other person will be under any duty to give notification of any defects or irregularities in any Notice of Solicited Tenders or incur any liability for failure to give such notification. 9 NOTICE OF SOLICITED TENDERS List below the number of Shares tendered by each beneficial owner whose tender you have solicited. All Shares beneficially owned by a beneficial owner, whether in one account or several, and in however many capacities, must be aggregated for purposes of completing the table below. Any questions as to what constitutes beneficial ownership should be directed to the Depositary. If the space below is inadequate, list the Shares in a separate signed schedule and affix the list to this Notice of Solicited Tenders. Please do not complete the sections of the table headed "TO BE COMPLETED ONLY BY DEPOSITARY." ALL NOTICES OF SOLICITED TENDERS SHOULD BE RETURNED TO, AND ALL QUESTIONS CONCERNING THE NOTICES OF SOLICITED TENDERS SHOULD BE DIRECTED TO, THE DEPOSITARY. ALL NOTICES OF SOLICITED TENDERS MUST BE RECEIVED BY THE DEPOSITARY WITHIN THREE NEW YORK STOCK EXCHANGE TRADING DAYS AFTER THE EXPIRATION OF THE OFFER. SOLICITED TENDERS OF 6.92% SHARES NOT BENEFICIALLY OWNED BY SOLICITING DEALER
TO BE COMPLETED ONLY TO BE COMPLETED BY THE BY TO BE COMPLETED SOLICITING DEALER DEPOSITARY ONLY BY ------------------------------------ ---------------------- DEPOSITARY NUMBER OF SERIES OF NUMBER OF SERIES OF ----------------- SHARES PREFERRED VOI TICKET SHARES PREFERRED FEE BENEFICIAL OWNER TENDERED TENDERED NUMBER* ACCEPTED ACCEPTED ($1.25 PER SHARE) - ----------------- --------- --------- ---------- --------- --------- ----------------- Beneficial Owner No. 1 Beneficial Owner No. 2 Beneficial Owner No. 3 Beneficial Owner No. 4 Beneficial Owner No. 5 Beneficial Owner No. 6 Beneficial Owner No. 7 Beneficial Owner No. 8 Total
- ------------ * Complete if Shares delivered by book-entry transfer. All questions as to the validity, form and eligibility (including time of receipt) of Notices of Solicited Tenders will be determined by the Company, in its sole discretion, which determination will be final and binding. Neither the Company nor any other person will be under any duty to give notification of any defects or irregularities in any Notice of Solicited Tenders or incur any liability for failure to give such notification. 10 The undersigned hereby confirms that: (i) it has complied with the applicable requirements of the Securities Exchange Act of 1934, as amended, and the applicable rules and regulations thereunder, in connection with such solicitation; (ii) it is entitled to such compensation for such solicitation under the terms and conditions of the Offer to Purchase; (iii) in soliciting tenders of Shares, it has used no soliciting materials other than those furnished by the Company; and (iv) if it is a foreign broker or dealer not eligible for membership in the NASD, it has agreed to conform to the NASD's Rules of Fair Practice in making solicitations. Printed Firm Name Street Authorized Signature City, State, Zip Code Name and Title Area Code and Telephone Number
11 EX-99.(A)(5) 6 EXHIBIT 99.(a)(5) PUBLIC SERVICE ELECTRIC AND GAS COMPANY OFFER TO PURCHASE FOR CASH Shares of its 4.08% Cumulative Preferred Stock ($100 par value), Shares of its 4.18% Cumulative Preferred Stock ($100 par value), Shares of its 4.30% Cumulative Preferred Stock ($100 par value), Shares of its 5.05% Cumulative Preferred Stock ($100 par value), Shares of its 5.28% Cumulative Preferred Stock ($100 par value), Shares of its 6.80% Cumulative Preferred Stock ($100 par value) and Shares of its 6.92% Cumulative Preferred Stock ($100 par value) THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON THURSDAY, JUNE 13, 1996 UNLESS THE OFFER IS EXTENDED. To Our Clients: Enclosed for your consideration are the Offer to Purchase dated May 16, 1996 (the "Offer to Purchase"), and applicable Letters of Transmittal (which together constitute the "Offer") setting forth an offer by Public Service Electric and Gas Company, a New Jersey corporation (the "Company"), to purchase up to 187,500 shares of its 4.08% Cumulative Preferred Stock ($100 par value) (the "4.08% Shares") at a price of $59.30 per 4.08% Share, 187,500 shares of its 4.18% Cumulative Preferred Stock ($100 par value) (the "4.18% Shares") at a price of $60.76 per 4.18% Share, 187,500 shares of its 4.30% Cumulative Preferred Stock ($100 par value) (the "4.30% Shares") at a price of $62.50 per 4.30% Share, 187,500 shares of its 5.05% Cumulative Preferred Stock ($100 par value) (the "5.05% Shares") at a price of $73.40 per 5.05% Share, 187,500 shares of its 5.28% Cumulative Preferred Stock ($100 par value) (the "5.28% Shares") at a price of $76.74 per 5.28% Share, 187,500 shares of its 6.80% Cumulative Preferred Stock ($100 par value) (the "6.80% Shares") at a price of $97.42 per 6.80% Share and 450,000 shares of its 6.92% Cumulative Preferred Stock ($100 par value) (the "6.92% Shares") at a price of $99.14 per 6.92% Share (collectively, the "Shares" and, each a "Series of Preferred"), net to the seller in cash, upon the terms and subject to the conditions of the Offer. The Company will purchase all Shares of each Series of Preferred validly tendered and not withdrawn, up to the amount of Shares of such Series of Preferred sought, upon the terms and subject to the conditions of the Offer, including the provisions thereof relating to proration (as described in the Offer to Purchase). We are the holder of record of Shares held for your account. A tender of such Shares can be made only by us as the holder of record and pursuant to your instructions. The applicable Letter of Transmittal is furnished to you for your information only and cannot be used by you to tender Shares held by us for your account. We request instructions as to whether you wish us to tender any or all of the Shares held by us for your account, upon the terms and subject to the conditions set forth in the Offer to Purchase and applicable Letter of Transmittal. Your attention is invited to the following: (1) The Offer is for up to 187,500 4.08% Shares, 187,500 4.18% Shares, 187,500 4.30% Shares, 187,500 5.05% Shares, 187,500 5.28% Shares, 187,500 6.80% Shares and 450,000 6.92% Shares. The Offer is not conditioned upon any minimum number of Shares of any Series of Preferred being tendered. The Offer for Shares of one Series of Preferred is not conditioned on the Offer for Shares of any other Series of Preferred, but the Offer is subject to certain other conditions. (2) The Offer, proration period and withdrawal rights will expire at 12:00 midnight, New York City time, on Thursday, June 13, 1996, unless the Offer is extended with respect to a Series of Preferred. Your instructions to us should be forwarded to us in ample time to permit us to submit a tender on your behalf. If you would like to withdraw your Shares that we have tendered, you can withdraw them so long as the Offer remains open or at any time after the expiration of 40 business days from the commencement of the Offer if such Shares have not been accepted for payment. (3) As described in the Offer to Purchase, if more than 187,500 4.08% Shares, more than 187,500 4.18% Shares, more than 187,500 4.30% Shares, more than 187,500 5.05% Shares, more than 187,500 5.28% Shares, more than 187,500 6.80% Shares or more than 450,000 6.92% Shares (or, if decreased as provided in the Offer, such lesser amount as the Company may elect to purchase) have been validly tendered and not withdrawn on or prior to the expiration of the Offer for any Series of Preferred, the Company will purchase 4.08% Shares, 4.18% Shares, 4.30% Shares, 5.05% Shares, 5.28% Shares, 6.80% Shares or 6.92% Shares, as applicable, from all tendering holders on a pro rata basis, subject to adjustment to avoid the purchase of fractional Shares. (4) Any stock transfer taxes applicable to the sale of Shares to the Company pursuant to the Offer will be paid by the Company, except as otherwise provided in Instruction 6 of each Letter of Transmittal. THE COMPANY, ITS BOARD OF DIRECTORS AND ITS EXECUTIVE OFFICERS MAKE NO RECOMMENDATION TO ANY STOCKHOLDER AS TO WHETHER TO TENDER ANY OR ALL SHARES OF ANY SERIES OF PREFERRED PURSUANT TO THE OFFER. STOCKHOLDERS MUST MAKE THEIR OWN DECISION AS TO WHETHER TO TENDER SHARES OF ANY SERIES OF PREFERRED PURSUANT TO THE OFFER AND, IF SO, HOW MANY SHARES TO TENDER. If you wish to have us tender any or all of your Shares held by us for your account upon the terms and subject to the conditions set forth in the Offer, please so instruct us by completing, executing, detaching and returning to us the instruction form on the detachable part hereof. If you hold Shares of more than one Series of Preferred, you must specify the number of Shares tendered for each Series of Preferred. An envelope to return your instructions to us is enclosed. If you authorize tender of your Shares, all such Shares will be tendered unless otherwise specified on the detachable part hereof. Your instructions should be forwarded to us in ample time to permit us to submit a tender on your behalf by the expiration of the Offer. The Offer is being made to all holders of Shares.The Company is not aware of any state where the making of the Offer is prohibited by administrative or judicial action pursuant to a valid state statute. If the Company becomes aware of any valid state statute prohibiting the making of the Offer, the Company will make a good faith effort to comply with such statute. If, after such good faith effort, the Company cannot comply with such statute, the Offer will not be made to, nor will tenders be accepted from or on behalf of, holders of Shares in such state. In those jurisdictions who securities, blue sky or other laws require the Offer to be made by a licensed broker or dealer, the Offer shall be deemed to be made on behalf of the Company by Goldman, Sachs & Co. and Merrill Lynch & Co., as Dealer Managers, or one or more registered brokers or dealers licensed under the laws of such jurisdictions. 2 INSTRUCTIONS WITH RESPECT TO OFFER TO PURCHASE FOR CASH UP TO 187,500 SHARES OF 4.08% CUMULATIVE PREFERRED STOCK ($100 PAR VALUE) 187,500 SHARES OF 4.18% CUMULATIVE PREFERRED STOCK ($100 PAR VALUE) 187,500 SHARES OF 4.30% CUMULATIVE PREFERRED STOCK ($100 PAR VALUE) 187,500 SHARES OF 5.05% CUMULATIVE PREFERRED STOCK ($100 PAR VALUE) 187,500 SHARES OF 5.28% CUMULATIVE PREFERRED STOCK ($100 PAR VALUE) 187,500 SHARES OF 6.80% CUMULATIVE PREFERRED STOCK ($100 PAR VALUE) 450,000 SHARES OF 6.92% CUMULATIVE PREFERRED STOCK ($100 PER VALUE) OF PUBLIC SERVICE ELECTRIC AND GAS COMPANY The undersigned acknowledge(s) receipt of your letter and the enclosed Offer to Purchase, dated May 16, 1996, and the applicable Letter of Transmittal (which together constitute the "Offer") in connection with the Offer by Public Service Electric and Gas Company (the "Company") to purchase up to 187,500 shares of 4.08% Cumulative Preferred Stock ($100 par value) (the "4.08% Shares") at a price of $59.30 per 4.08% Share, 187,500 shares of 4.18% Cumulative Preferred Stock ($100 par value) (the "4.18% Shares") at a price of $60.76 per 4.18% Share, 187,500 shares of 4.30% Cumulative Preferred Stock ($100 par value) (the "4.30% Shares") at a price of $62.50 per 4.30% Share, 187,500 shares of 5.05% Cumulative Preferred Stock ($100 par value) (the "5.05% Shares") at a price of $73.40 per 5.05% Share, 187,500 shares of 5.28% Cumulative Preferred Stock ($100 par value) (the "5.28% Shares") at a price of $76.74 per 5.28% Share, 187,500 shares of 6.80% Cumulative Preferred Stock ($100 par value) (the "6.80% Shares") at a price of $97.42 per 6.80% Share and 450,000 shares of 6.92% Cumulative Preferred Stock ($100 par value) (the "6.92% Shares") at a price of $99.14 per 6.92% Share (together, the "Shares"), net to the undersigned in cash. This will instruct you to tender to the Company the number of shares of each Series of Preferred indicated below (or, if no number is indicated below, all shares of such Series of Preferred) which are held by you for the account of the undersigned, upon the terms and subject to the conditions of the Offer. (Check only one*) / / Number of 4.08% Shares to be Tendered: Shares** / / Number of 4.18% Shares to be Tendered: Shares** / / Number of 4.30% Shares to be Tendered: Shares** / / Number of 5.05% Shares to be Tendered: Shares** / / Number of 5.28% Shares to be Tendered: Shares** / / Number of 6.80% Shares to be Tendered: Shares** / / Number of 6.92% Shares to be Tendered: Shares** Dated: , 1996 SIGN HERE Signature(s): Name(s): Address: Social Security or Taxpayer ID No.:
- ------------ * A separate instruction must be completed for each Series of Preferred tendered. ** Unless otherwise indicated, it will be assumed that all Shares of such Series of Preferred held by us for your account are to be tendered. 3 Please designate in the box below any Soliciting Dealer who solicited your tender. SOLICITED TENDERS The undersigned represents that the Soliciting Dealer who solicited and obtained this tender is: Name of Firm: __________________________________________________________________________ (Please Print) Name of Individual Broker or Financial Consultant: __________________________________________ Identification Number (if known): ___________________________________________________________ Address: __________________________________________________________ ___________________________________________________________________ (Include Zip Code) 4 EX-99.(A)(6) 7 EXHIBIT 99.(a)(6) May 16, 1996 Dear Stockholder: Public Service Electric and Gas Company (the "Company") is offering to purchase (the "Offer") up to 187,500 shares of each of its 4.08% Cumulative Preferred Stock ($100 par value) (the "4.08% Shares") at a price of $59.30 per 4.08% Share, its 4.18% Cumulative Preferred Stock ($100 par value) (the "4.18% Shares") at a price of $60.76 per 4.18% Share, its 4.30% Cumulative Preferred Stock ($100 par value) (the "4.30% Shares") at a price of $62.50 per 4.30% Share, its 5.05% Cumulative Preferred Stock ($100 par value) (the "5.05% Shares") at a price of $73.40 per 5.05% Share, its 5.28% Cumulative Preferred Stock ($100 par value) (the "5.28% Shares") at a price of $76.74 per 5.28% Share, and its 6.80% Cumulative Preferred Stock ($100 par value) (the "6.80% Shares") at a price of $97.42 per 6.80% Share and 450,000 shares of its 6.92% Cumulative Preferred Stock ($100 par value) (the "6.92% Shares") at a price of $99.14 per 6.92% Share (together, the "Shares" and each, a "Series of Preferred"). All of the Shares that are properly tendered (and not withdrawn) will, subject to the terms and conditions set forth in the enclosed Offer to Purchase and the applicable Letter of Transmittal (including the proration provisions therein) be purchased at the applicable price therefor, net to the selling stockholder in cash. All other Shares that have been tendered and not purchased will be returned to the stockholder. If you do not wish to participate in the Offer, you do not need to take any action. The Offer is explained in detail in the enclosed Offer to Purchase and applicable Letter of Transmittal. A separate Letter of Transmittal has been prepared for each Series of Preferred and only the applicable Letter of Transmittal may be used to tender Shares for that Series of Preferred. If you want to tender your Shares, the instructions on how to tender Shares are in the enclosed materials. I encourage you to read carefully these materials before making any decision with respect to the Offer. The Offer for one Series of Preferred is independent of the Offer for any other Series of Preferred. The Offer gives stockholders the opportunity to sell their Shares at a premium over the market price and without the usual transaction costs associated with a market sale. The Company, its Board of Directors and its executive officers make no recommendation to any stockholder as to whether to tender any or all Shares of any Series of Preferred pursuant to the Offer. Stockholders must make their own decision as to whether to tender Shares of any Series of Preferred pursuant to the Offer and, if so, how many Shares to tender. Sincerely, ROBERT C. MURRAY Senior Vice President and Chief Financial Officer EX-99.(A)(7) 8 EXHIBIT 99.(a)(7) May 16, 1996 PUBLIC SERVICE ELECTRIC AND GAS COMPANY ANNOUNCES THE REDEMPTION OF TWO SERIES AND THE TENDER FOR SEVEN SERIES OF CUMULATIVE PREFERRED STOCK Public Service Electric and Gas Company (PSE&G) announced today (May 16, 1996) that its Board of Directors has called for redemption all outstanding shares of two series of its cumulative preferred stock and authorized cash tender offers for up to 75% of the outstanding shares of seven series of its cumulative preferred stock. The cumulative preferred stock issues called for redemption by PSE&G are its 7.52% and 7.40% series ($100 par value). Both issues will be redeemed on June 28, 1996 at a redemption price of $101 per share, plus accrued dividends to the date of redemption. PSE&G is also offering to purchase up to 187,500 shares ($100 par value) of each of the 4.08%, 4.18%, 4.30%, 5.05%, 5.28%, and 6.80% series of its cumulative preferred stock at the respective per share purchase price of $59.30, $60.76, $62.50, $73.40, $76.74 and $97.42 and 450,000 shares ($100 par value) of the 6.92% series of its cumulative preferred stock at a per share purchase price of $99.14. Any accrued dividends, if, when and as declared, for the quarter ended June 30,1996 on each series of preferred stock for which a tender offer is being made will be paid on June 28, 1996 to holders of record on June 7, 1996. A holder of record on June 7, 1996 who tenders such preferred stock will be entitled to any such declared dividends. Each of the foregoing series of preferred stock is listed and traded on the New York Stock Exchange, except the 6.92% series, which is traded in the over- the-counter market and is not listed on any national securities exchange or quoted on the automated quotation system of a registered securities association. The offer, proration period and withdrawal rights will expire at 12:00 midnight, New York City time, on Thursday, June 13, 1996. The tender offer is not conditioned upon any minimum number of shares being tendered and the offer with respect to each series of preferred stock is not conditioned on the offer for any other series of preferred stock, but is subject to certain other conditions. (more...) The dealer managers for the offer are Goldman, Sachs & Co. and Merrill Lynch & Co. and the depositary for the tendered shares will be First Chicago Trust Company of New York. Questions or requests for assistance may be directed to Georgeson & Company Inc., the information agent, at Wall Street Plaza, New York, New York 10005 (telephone 1-800-223-2064) or Goldman, Sachs & Co. at 1-800-828-3182 or Merrill Lynch & Co. at 212-449-4914 (call collect). ###### EX-99.(A)(8) 9 Exhbit 99.(a)(8) This announcement is neither an offer to purchase nor a solicitation of an offer to sell Shares. The Offer is made solely by the Offer to Purchase dated May 16, 1996, and the applicable Letter of Transmittal. The Offer is being made to all holders of Shares; provided, that the Offer is not being made to, nor will tenders be accepted from or on behalf of, holders of Shares in any jurisdiction in which making or accepting the Offer would violate that jurisdiction's laws. In those jurisdictions whose securities, blue sky or other laws require the Offer to be made by a licensed broker or dealer, the Offer shall be deemed to be made on behalf of the Company by Goldman, Sachs & Co., Merrill Lynch & Co. or one or more registered brokers or dealers licensed under the laws of such jurisdictions. $157,500,000 Notice of Offer to Purchase for Cash by PUBLIC SERVICE ELECTRIC AND GAS COMPANY 187,500 Shares of its 4.08% Cumulative Preferred Stock ($100 Par Value) at a Purchase Price of $59.30 Per Share CUSIP No. 744567 306 187,500 Shares of its 4.18% Cumulative Preferred Stock ($100 Par Value) at a Purchase Price of $60.76 Per Share CUSIP No. 744567 405 187,500 Shares of its 4.30% Cumulative Preferred Stock ($100 Par Value) at a Purchase Price of $62.50 Per Share CUSIP No. 744567 504 187,500 Shares of its 5.05% Cumulative Preferred Stock ($100 Par Value) at a Purchase Price of $73.40 Per Share CUSIP No. 744567 603 187,500 Shares of its 5.28% Cumulative Preferred Stock ($100 Par Value) at a Purchase Price of $76.74 Per Share CUSIP No. 744567 702 187,500 Shares of its 6.80% Cumulative Preferred Stock ($100 Par Value) at a Purchase Price of $97.42 Per Share CUSIP No. 744567 801 450,000 Shares of its 6.92% Cumulative Preferred Stock ($100 Par Value) at a Purchase Price of $99.14 Per Share CUSIP No. 744567 710 Public Service Electric and Gas Company, a New Jersey corporation (the "Company"), invites the holders of the above-referenced Cumulative Preferred Stock (the "4.08% Preferred," the "4.18% Preferred," the "4.30% Preferred," the "5.05% Preferred," the "5.28% Preferred," the "6.80% Preferred," and the "6.92% Preferred", each such series a "Series of Preferred") to tender their shares of such stock (the "4.08% Shares," the "4.18% Shares," the "4.30% Shares," the "5.05% Shares," the "5.28% Shares," the "6.80% Shares," and the "6.92% Shares," and collectively the "Shares") at the respective prices set forth above, net to the seller in cash and upon the terms and subject to the conditions set forth in the Offer to Purchase dated May 16, 1996 (the "Offer to Purchase") and in the applicable Letter of Transmittal (which, together with the Offer to Purchase, constitutes the "Offer" with respect to the applicable Series of Preferred). The Company will purchase all Shares validly tendered and not withdrawn up to the 187,500 Shares sought of the 4.08% Preferred, 187,500 Shares sought of the 4.18% Preferred, 187,500 Shares sought of the 4.30% Preferred, 187,500 Shares sought of the 5.05% Preferred, 187,500 Shares sought of the 5.28% Preferred, 187,500 shares sought of the 6.80% Preferred and 450,000 Shares sought of the 6.92% Preferred (each, the "Amount Sought"), upon the terms and subject to the conditions of the Offer, including the provisions relating to proration described in the Offer to Purchase. Shares not purchased because of proration will be returned. On May 21, 1996, the Board of Directors of the Company will consider the declaration of dividends on the Company's capital stock. The Regular Quarterly Dividend (as defined in the Offer to Purchase) for each Series of Preferred, if, when and as declared, will be paid on June 28, 1996 to holders of record as of the close of business on June 7, 1996. A holder of record of Shares on June 7, 1996 who tenders shares will be entitled to the Regular Quarterly Dividend, regardless of when such tender is made. Holders of Shares purchased pursuant to the Offer will not be entitled to any dividends in respect of any later dividend periods. The Offer has separate Letters of Transmittal and separate Notices of Guaranteed Delivery for each Series of Preferred. THE OFFER FOR ONE SERIES OF PREFERRED IS INDEPENDENT OF THE OFFER FOR ANY OTHER SERIES OF PREFERRED. THE OFFER IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF SHARES OF THE APPLICABLE SERIES OF SHARES BEING TENDERED. THE OFFER IS, HOWEVER, SUBJECT TO CERTAIN OTHER CONDITIONS. SEE SECTION 8 -- "CERTAIN CONDITIONS OF THE OFFER" IN THE OFFER TO PURCHASE. THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON THURSDAY, JUNE 13, 1996, UNLESS THE OFFER IS EXTENDED. Upon the terms and subject to the conditions described in the Offer to Purchase and in the applicable Letter of Transmittal, the Company will purchase up to the Amount Sought of any Shares of a Series of Preferred validly tendered and not withdrawn on or prior to the Expiration Date (as defined in the Offer to Purchase) with respect to that Series of Preferred. Upon the terms and subject to the conditions of the Offer, if more Shares than the Amount Sought of a Series of Preferred have been validly tendered and not withdrawn on or prior to the Expiration Date with respect to that Series of Preferred, the Company will purchase Shares of that Series of Preferred from each tendering holder on a pro rata basis, subject to adjustment to avoid the purchase of fractional shares. The Company is making the Offer because it believes that the purchase of Shares is economically attractive to the Company. In addition, the Offer gives stockholders the opportunity to sell their Shares at a premium over market price and without the usual transaction costs associated with a market sale. The Company, its Board of Directors and its executive officers make no recommendation to any stockholder as to whether to tender any or all Shares of any Series of Preferred pursuant to the Offer. Stockholders must make their own decision as to whether to tender Shares of any Series of Preferred pursuant to the Offer and, if so, how many Shares to tender. The Company reserves the right, at any time or from time to time, to extend the period of time during which the Offer is open with respect to a Series of Preferred by giving oral or written notice of such extension to First Chicago Trust Company of New York, as "Depositary" and making a public announcement thereof. The Company will pay to a Soliciting Dealer (as defined in the Offer to Purchase) a solicitation fee of $1.25 per Share tendered, accepted for payment and paid for pursuant to the Offer, subject to certain conditions. See Section 14 --"Fees and Expenses" in the Offer to Purchase. Tenders of Shares of a Series of Preferred made pursuant to the Offer may be withdrawn at any time on or prior to the Expiration Date with respect to such Series of Preferred. Thereafter, such tenders are irrevocable, except that they may be withdrawn after 12:00 midnight, Friday, July 12, 1996 unless theretofore accepted for payment by the Company as provided in the Offer to Purchase. For a withdrawal to be effective, a written or facsimile transmission notice of withdrawal must be timely received by the Depositary at one of the addresses or facsimile numbers set forth on the back cover of the Offer to Purchase and must specify the name of the person who tendered the Shares of the applicable Series of Preferred to be withdrawn and the number of Shares to be withdrawn. If the Shares of the applicable Series of Preferred to be withdrawn have been delivered to the Depositary, a signed notice of withdrawal with signatures guaranteed by an Eligible Institution (as defined in the Offer to Purchase) (except in the case of Shares tendered by an Eligible Institution) must be submitted prior to the release of such Shares. In addition, such notice must specify, in the case of Shares tendered by delivery of certificates, the name of the registered holder (if different from that of the tendering stockholder) and the serial numbers shown on the particular certificates evidencing the Shares to be withdrawn or, in the case of Shares tendered by book-entry transfer, the name and number of the account at one of the Book-Entry Transfer Facilities (as defined in the Offer to Purchase) to be credited with the withdrawn Shares and the name of the registered holder (if different from the name of such account). Withdrawals may not be rescinded, and Shares withdrawn will thereafter be deemed not validly tendered for purposes of the Offer. However, withdrawn Shares may be re-tendered by again following one of the procedures described in Section 5 -- "Procedure for Tendering Shares" in the Offer to Purchase at any time on or prior to the applicable Expiration Date. The Company will be deemed to have purchased Shares validly tendered and not withdrawn if and when it gives oral or written notice to the Depositary of its acceptance for payment of Shares. The information required to be disclosed by Rule 13e-3(e)(1) and Rule 13e- 4(d)(1) of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended, is contained in the Offer to Purchase and is incorporated herein by reference. Copies of the Offer to Purchase and the applicable Letter of Transmittal are being mailed to registered holders of Shares and will be furnished to brokers, banks and similar persons whose names, or the names of whose nominees, appear on the Company's stockholder list or, if applicable, who are listed as participants in a Book-Entry Transfer Facility's security position listing for subsequent transmittal to beneficial owners of Shares. The Offer to Purchase and the applicable Letter of Transmittal contain important information that should be read carefully before any decision is made with respect to the Offer. Any questions or requests for assistance may be directed to the Information Agent or the Dealer Managers at their respective telephone numbers and addresses listed below. Requests for additional copies of the Offer to Purchase, the applicable Letter of Transmittal or other tender offer materials may be directed to the Information Agent or the Dealer Managers, and such copies will be furnished promptly at the Company's expense. Holders of Shares may also contact their local broker, dealer, commercial bank or trust company for assistance concerning the Offer. Information on the Offer is available from "MCM Corporate Watch Services" on Telerate page 41.998. The Information Agent for the Offer is: Georgeson & Company Inc. Wall Street Plaza New York, New York 10005 2 Banks and Brokers Call Collect: (212) 440-9800 All Others Call Toll Free: (800) 223-2064 The Dealer Managers for the Offer are: Goldman, Sachs & Co. Merrill Lynch & Co. Liability Management Group World Financial Center 85 Broad Street 250 Vesey Street New York, New York 10004 New York, New York 10281 (800) 828-3162 (212) 449-4914 (call collect) May 17, 1996 3 EX-99.(A)(9) 10 EXHIBIT 99.(a)(9) GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER OF SUBSTITUTE FORM W-9 SECTION REFERENCES ARE TO THE INTERNAL REVENUE CODE. PURPOSE OF FORM.--A person who is required to file an information return with the IRS must obtain your correct TIN to report income paid to you, real estate transactions, mortgage interest you paid, the acquisition or abandonment of secured property or contributions you made to an IRA. Use Form W-9 to furnish your correct TIN to the requester (the person asking you to furnish your TIN) and, when applicable, (1) to certify that the TIN you are furnishing is correct (or that you are waiting for a number to be issued), (2) to certify that you are not subject to backup withholding, and (3) to claim exemption from backup withholding if you are an exempt payee. Furnishing your correct TIN and making the appropriate certifications will prevent certain payments from being subject to backup withholding. Note: If a requester gives you a form other than a W-9 to request your TIN, you must use the requester's form. HOW TO OBTAIN A TIN.--If you do not have a TIN, apply for one immediately. To apply, get Form SS-5, Application for a Social Security Card (for individuals), from your local office of the Social Security Administration, or Form SS-4, Application for Employer Identification Number (for businesses and all other entities), from your local IRS office. To complete Form W-9 if you do not have a TIN, write "Applied for" in the space for the TIN in Part I (or check box 2 of Substitute Form W-9), sign and date the form, and give it to the requester. Generally, you must obtain a TIN and furnish it to the requester by the time of payment. If the requester does not receive your TIN by the time of payment, backup withholding, if applicable, will begin and continue until you furnish your TIN to the requester. Note: Writing "Applied for" (or checking box 2 of the Substitute Form W-9) on the form means that you have already applied for a TIN OR that you intend to apply for one in the near future. As soon as you receive your TIN, complete another Form W-9, include your TIN, sign and date the form, and give it to the requester. WHAT IS BACKUP WITHHOLDING?--Persons making certain payments to you after 1992 are required to withhold and pay to the IRS 31% of such payments under certain conditions. This is called "backup withholding". Payments that could be subject to backup withholding include interest, dividends, broker and barter exchange transactions, rents, royalties, nonemployee compensation and certain payments from fishing boat operators, but do not include real estate transactions. If you give the requester your correct TIN, make the appropriate certifications, and report all your taxable interest and dividends on your tax return, your payments will not be subject to backup withholding. Payments you receive will be subject to backup withholding if: 1. You do not furnish your TIN to the requester, or 2. The IRS notifies the requester that you furnished an incorrect TIN, or 3. You are notified by the IRS that you are subject to backup withholding because you failed to report all your interest and dividends on your tax return (for reportable interest and dividends only), or 4. You do not certify to the requester that you are not subject to backup withholding under 3 above (for reportable interest and dividend accounts opened after 1983 only), or 5. You do not certify your TIN. This applies only to reportable interest, dividend, broker or barter exchange accounts opened after 1983, or broker accounts considered inactive in 1983. Except as explained in 5 above, other reportable payments are subject to backup withholding only if 1 or 2 above applies. Certain payees and payments are exempt from backup withholding and information reporting. See Payees and Payments Exempt From Backup Withholding, below, and Example Payees and Payments under Specific Instructions, below, if you are an exempt payee. PAYEES AND PAYMENTS EXEMPT FROM BACKUP WITHHOLDING.--The following is a list of payees exempt from backup withholding and for which no information reporting is required. For interest and dividends, all listed payees are exempt except item (9). For broker transactions, payees listed in (1) through (13) and a person registered under the Investment Advisers Act of 1940 who regularly acts as a broker are exempt. Payments subject to reporting under sections 6041 and 6041A are generally exempt from backup withholding only if made to payees described in items (1) through (7), except a corporation that provides medical and health care services or bills and collects payments for such services is not exempt from backup withholding or information reporting. Only payees described in items (2) through (6) are exempt from backup withholding for barter exchange transactions, patronage dividends and payments by certain fishing boat operations. (1) A corporation. (2) An organization exempt from tax under section 501(a), or an IRA, or a custodial account under section 403(b)(7). (3) The United States or any of its agencies or instrumentalities. (4) A state, the District of Columbia, a possession of the United States or any of their political subdivisions or instrumentalities. (5) A foreign government or any of its political subdivisions, agencies, or instrumentalities. (6) An international organization or any of its agencies or instrumentalities. (7) A foreign central bank of issue. (8) A dealer in securities or commodities required to register in the United States or a possession of the United States. (9) A futures commission merchant registered with the Commodity Futures Trading Commission. (10) A real estate investment trust. (11) An entity registered at all times during the tax year under the Investment Company Act of 1940. (12) A common trust fund operated by a bank under section 584(a). (13) A financial institution. (14) A middleman known in the investment community as a nominee or listed in the most recent publication of the American Society of Corporate Secretaries, Inc., Nominee List. (15) A trust exempt from tax under section 664 or described in section 4947. Payments of dividend and patronage dividends generally not subject to backup withholding include the following: . Payments to nonresident aliens subject to withholding under section 1441. . Payments to partnerships not engaged in a trade or business in the United States and that have at least one nonresident partner. . Payments of patronage dividends not paid in money. . Payments made by certain foreign organizations. Payments of interest generally not subject to backup withholding include the following: . Payments of interest on obligations issued by individuals. Note: You may be subject to backup withholding if this interest is $600 or more and is paid in the course of the payer's trade or business and you have not provided your correct TIN to the payer. . Payments of tax-exempt interest (including exempt-interest dividends under section 852). . Payments described in section 6049(b)(5) to nonresident aliens. . Payment on tax-free covenant bonds under section 1451. . Payments made by certain foreign organizations. . Mortgage interest paid by you. Payments that are not subject to information reporting are also not subject to backup withholding. For details, see sections 6041, 6041A(a), 6042, 6044, 6045, 6049, 6050A and 6050N, and their regulations. PENALTIES FAILURE TO FURNISH TIN.--If you fail to furnish your correct TIN to a requester, you will be subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect. CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you make a false statement with no reasonable basis that results in no backup withholding, you are subject to a $500 penalty. CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Willfully falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment. MISUSE OF TINS.--If the requester discloses or uses TINs in violation of Federal law, the requester may be subject to civil and criminal penalties. SPECIAL INSTRUCTIONS NAME.--If you are an individual, you must generally provide the name shown on your Social Security card. However, if you have changed your last name, for instance, due to marriage, without informing the Social Security Administration of the name change, please enter your first name, the last name shown on your Social Security card, and your new last name. If you are a sole proprietor, you must furnish your individual name and either the SSN or EIN. You may also enter your business name or "doing business as" name on the business name line. Enter your name(s) as shown on your Social Security card and/or as it was used to apply for your EIN on Form SS-4. SIGNING THE CERTIFICATION. 1. INTEREST, DIVIDEND, BROKER AND BARTER EXCHANGE ACCOUNTS OPENED BEFORE 1984 AND BROKER ACCOUNTS CONSIDERED ACTIVE DURING 1983. You are required to furnish your correct TIN, but you are not required to sign the certification. 2. INTEREST, DIVIDEND, BROKER AND BARTER EXCHANGE ACCOUNTS OPENED AFTER 1983 AND BROKER ACCOUNTS CONSIDERED INACTIVE DURING 1983. You must sign the certification or backup withholding will apply. If you are subject to backup withholding and you are merely providing your correct TIN to the requester, you must cross out item 2 in the certification before signing the form. 3. REAL ESTATE TRANSACTIONS. You must sign the certification. You may cross out item 2 of the certification. 4. OTHER PAYMENTS. You are required to furnish your correct TIN, but you are not required to sign the certification unless you have been notified of an incorrect TIN. Other payments include payments made in the course of the requester's trade or business for rents, royalties, goods (other than bills for merchandise), medical and health care services, payments to a nonemployee for services (including attorney and accounting fees) and payments to certain fishing boat crew members. 5. MORTGAGE INTEREST PAID BY YOU, ACQUISITION OR ABANDONMENT OF SECURED PROPERTY OR IRA CONTRIBUTIONS. You are required to furnish your correct TIN, but you are not required to sign the certification. 6. EXEMPT PAYEES AND PAYMENTS. If you are exempt from backup withholding, you should complete this form to avoid possible erroneous backup withholding. Enter your correct TIN in Part 1, write "EXEMPT" in the block in Part II, and sign and date the form. If you are a nonresident alien or foreign entity not subject to backup withholding, give the requester a complete Form W-8, Certificate of Foreign Status. 7. TIN "APPLIED FOR." Follow the instructions under How To Obtain a TIN on page 1, and sign and date this form. SIGNATURE.--For a joint account, only the person whose TIN is shown in Part I should sign. PRIVACY ACT NOTICE.--Section 6109 requires you to furnish your correct TIN to persons who must file information returns with the IRS to report interest, dividends, certain other income paid to you, mortgage interest you paid, the acquisition or abandonment of secured property or contributions you made to an IRA. The IRS uses the numbers for identification purposes and to help verify the accuracy of your tax return. You must provide your TIN whether or not you are required to file a tax return. Payers must generally withhold 31% of taxable interest, dividend and certain other payments to a payee who does not furnish a TIN to a payer. Certain penalties may also apply. GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER OF SUBSTITUTE FORM W-9 WHAT NAME AND NUMBER TO GIVE THE REQUESTER
FOR THIS TYPE OF ACCOUNT: GIVE NAME AND SSN OF: FOR THIS TYPE OF ACCOUNT: GIVE NAME AND EIN OF:
1. Individual The individual 2. Two or more The actual owner of individuals (joint the account or, if account) combined funds, the first individual on the account (1) 3. Custodian account of a The minor(2) minor (Uniform Gift to Minors Act) 4. a. The usual revocable The grantor-trustee(1) savings trust (grantor is also trustee) b. So-called trust The actual owner(1) account that is not a legal or valid trust under state law 5. Sole proprietorship The owner(3) 6. Sole proprietorship The owner(3) 7. A valid trust, estate Legal entity(4) or pension trust 8. Corporate The corporation 9. Association, club, The organization religious, charitable, educational or other tax-exempt organization 10. Partnership The partnership 11. A broker or registered The broker or nominee nominee 12. Account with the The public entity Department of Agriculture in the name of a public entity (such as a state or local government, school district or prison) that receives agriculture program payments
- ------------------------------------------------ - ------------------------------------------------ (1) List first and circle the name of the person whose number you furnish. (2) Circle the minor's name and furnish the minor's SSN. (3) Show your individual name. You may also enter your business name. You may use your SSN or EIN. (4) List first and circle the name of the legal trust, estate or pension trust. (Do not furnish the TIN of the personal representative or trustee unless the legal entity itself is not designated in the account title). NOTE: If no name is circled when there is more than one name, the number will be considered to be that of the first name listed. 2 EX-99.(G)(1) 11 EXHIBIT 99.(g)(1) - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 COMMISSION FILE NUMBER 1-9120 PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED (Exact name of registrant as specified in its charter) NEW JERSEY 22-2625848 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 80 PARK PLAZA, P.O. BOX 1171 07101-1171 NEWARK, NEW JERSEY (Zip Code) (Address of principal executive offices) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 201 430-7000 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED - ---------------------------------------------- ---------------------------- Common Stock without par value New York Stock Exchange Philadelphia Stock Exchange COMMISSION FILE NUMBER 1-973 PUBLIC SERVICE ELECTRIC AND GAS COMPANY (Exact name of registrant as specified in its charter) NEW JERSEY 22-1212800 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 80 PARK PLAZA, P.O. BOX 570 07101-0570 NEWARK, NEW JERSEY (Zip Code) (Address of principal executive offices) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 201 430-7000 DOCUMENTS INCORPORATED BY REFERENCE PART OF FORM 10-K DOCUMENTS INCORPORATED BY REFERENCE - ----------------- ----------------------------------- III Portions of the definitive Proxy Statement for the Annual Meeting of Stockholders of Public Service Enterprise Group Incorporated to be held April 16, 1996, which definitive Proxy Statement is expected to be filed with the Securities and Exchange Commission on or about March 1, 1996, as specified herein. - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE ON TITLE OF EACH CLASS TITLE OF EACH CLASS WHICH REGISTERED ------------------- -------------------- ------------------------ Cumulative Preferred Stock First and Refunding $100 par value Series: Mortgage Bonds Series Due: 4.08% 4.18% 8 3/4% Z 1999 4.30% 9 1/8% BB 2005 5.05% 9 1/4% CC 2021 5.28% 8 7/8% DD 2003 5.97% 8 3/4% EE 2021 6.80% 7 7/8% FF 2001 7.40% 7 1/8% GG 1997 7.44% 8 3/4% HH 2022 7.52% 7 5/8% II 2000 7.70% 6 7/8% KK 1997 New York Stock Exchange 8 1/2% LL 2022 6 7/8% MM 2003 6 % NN 1998 Cumulative Preferred Stock 7 1/2% OO 2023 $25 par value Series: 6 1/2% PP 2004 6 % QQ 2000 6.75% 6 1/8% RR 2002 7 % SS 2024 7 3/8% TT 2014 6 3/4% UU 2006 6 3/4% VV 2016 6 1/4% WW 2007 8 % 2037 5 % 2037 Monthly Income Preferred Securities $25 par Value Series 9.375% 8.00%
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: REGISTRANT TITLE OF CLASS ------------------------------------- ------------------------------------- Public Service Enterprise Group None Incorporated Public Service Electric and Gas 6.92% Cumulative Preferred Stock $100 Company par value Medium-Term Notes, Series A Indicate by check mark whether the registrants (1) have 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 registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes X No . ------ ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X ----- The aggregate market value of the Common Stock of Public Service Enterprise Group Incorporated held by non-affiliates as of January 31, 1996 was $7,642,239,750 based upon the New York Stock Exchange Composite Transaction closing price. The number of shares outstanding of Enterprise's sole class of common stock, as of the latest practicable date, was as follows: CLASS OUTSTANDING AT JANUARY 31, 1996 ------------------------------- ------------------------------- Common Stock, without par value 244,697,930 As of January 31, 1996, Public Service Electric and Gas Company had issued and outstanding 132,450,344 shares of Common Stock, without nominal or par value, all of which were privately held, beneficially and of record by Public Service Enterprise Group Incorporated (Enterprise).
TABLE OF CONTENTS
PAGE ---- Table of Contents........................................... i Glossary of Terms........................................... v PART I Item 1. Business..................................... 1 General...................................... 1 Enterprise................................. 1 PSE&G...................................... 2 Industry Issues.............................. 3 Competition.................................. 3 Overview................................... 3 Electric................................... 5 Gas........................................ 7 Construction and Capital Requirements........ 7 Financing Activities......................... 7 Federal Income Taxes......................... 8 Credit Ratings............................... 8 PSE&G........................................ 9 Rate Matters............................... 9 Nuclear Performance Standard............... 9 Customers.................................. 10 Integrated Resource Plan................... 12 Pennsylvania -- New Jersey -- Maryland Interconnection........................ 12 Power Purchases.......................... 14 Demand Side Management................... 15 Electric Generating Capacity............... 16 Nuclear Operations....................... 17 Salem.................................... 18 Hope Creek............................... 22 Peach Bottom............................. 24 Other Nuclear Matters.................... 25 Nuclear Decommissioning.................. 26 Electric Fuel Supply and Disposal.......... 27 Nuclear Fuel............................. 28 Coal..................................... 29 Natural Gas.............................. 30 Oil...................................... 30 Nuclear Fuel Disposal.................... 30
i
PAGE ---- Low Level Radioactive Waste (LLRW)......... 32 Gas Operations and Supply.................. 33 Employee Relations........................... 35 Regulation................................... 35 Environmental Controls....................... 39 Air Pollution Control...................... 41 Water Pollution Control.................... 44 Control of Hazardous Substances............ 46 PSE&G Manufactured Gas Plant Remediation Program................................. 46 Other Sites................................ 46 Hazardous Substances....................... 47 Other Potential Liability.................. 53 Consolidated Financial Statistics of Enterprise............................... 54 Operating Statistics of PSE&G................ 55 EDHI......................................... 56 EDC........................................ 56 CEA........................................ 57 PSRC....................................... 57 EGDC....................................... 58 Capital.................................... 58 Funding.................................... 59 Item 2. Properties................................... 60 PSE&G...................................... 60 Electric Properties...................... 61 Gas Properties........................... 62 Office Buildings and Facilities............ 63 Item 3. Legal Proceedings............................ 64 Item 4. Submission of Matters to a Vote of Security Holders.................................... 66 Item 10. Executive Officers of the Registrants........ 67 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters................ 68 Item 6. Selected Financial Data...................... 70 Enterprise................................. 70 PSE&G...................................... 70 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations............................... 71 Enterprise................................... 71 Overview................................... 71 Competition................................ 72 Accounting for the Effects of Regulation... 76 PSE&G Energy and Fuel Adjustment Clauses... 77
ii
PAGE ---- Accounting for Stock Compensation......... 77 Corporate Policy for the Use of Derivatives 78 Nuclear Operations........................ 78 Results of Operations..................... 79 PSE&G - Earnings Available to Enterprise.. 79 PSE&G - Revenues.......................... 80 Electric................................ 80 Gas..................................... 80 PSE&G - Expenses.......................... 81 Fuel Expenses.......................... 81 Other Operation Expenses............... 81 Maintenance Expenses................... 82 Depreciation and Amortization Expenses. 82 Federal Income Taxes................... 82 Interest Charges....................... 82 Allowance for Funds Used During Construction........................ 82 Preferred Securities................... 83 EDHI - Net Income...................... 83 Dividends.............................. 84 Liquidity and Capital Resources........... 84 PSE&G.................................. 85 EDHI................................... 85 Long-Term Investments and Real Estate.. 86 Construction, Investments and Other Capital Requirements Forecast....... 87 Internal Generation of Cash from Operations........................... 88 External Financings........................ 88 PSE&G................................... 88 EDHI.................................... 89 PSE&G........................................ 90 Item 8. Financial Statements and Supplementary Data.. 91 Financial Statement Responsibility (Enterprise)............................. 91 Financial Statement Responsibility (PSE&G). 93 Independent Auditors' Report (Enterprise).. 95 Independent Auditors' Report (PSE&G)....... 96 Consolidated Statements of Income (Enterprise)............................. 97 Consolidated Balance Sheets (Enterprise)... 98 Consolidated Statements of Cash Flows (Enterprise)............................. 100 Consolidated Statements of Retained Earnings (Enterprise)............................ 101 Consolidated Statements of Income (PSE&G).. 102 Consolidated Balance Sheets (PSE&G)........ 103 Consolidated Statements of Cash Flows (PSE&G).................................. 105 Consolidated Statements of Retained Earnings (PSE&G).................................. 106 Notes to Consolidated Financial Statements (Enterprise)............................. 107 Notes to Consolidated Financial Statements (PSE&G).................................. 152
iii
PAGE ---- PART III Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...... 156 Item 10. Directors and Executive Officers of the Registrants............................... 156 Directors of the Registrants................ 156 Enterprise................................ 156 PSE&G..................................... 156 Executive Officers of the Registrants......... 157 Item 11. Executive Compensation........................ 159 Enterprise.................................. 159 PSE&G....................................... 159 Summary Compensation Table................ 159 Option Grants in Last Fiscal Year (1995).. 161 Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values (12/31/95)................ 161 Employment Contracts and Arrangements..... 161 Compensation Committee Interlocks and Insider Participation................... 162 Compensation of Directors and Certain Business Relationships.................. 162 Compensation Pursuant to Pension Plans.... 162 Item 12. Security Ownership of Certain Beneficial Owners and Management........................... 162 Enterprise.................................. 162 PSE&G....................................... 163 Item 13. Certain Relationships and Related Transactions.163 Enterprise.................................. 163 PSE&G....................................... 163 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K..................... 164 Schedule II -- Valuation and Qualifying Accounts (Enterprise)............................. 166 Schedule II -- Valuation and Qualifying Accounts (PSE&G)... 167 Signatures -- Public Service Enterprise Group Incorporated............................ 168 Signatures -- Public Service Electric and Gas Company... 169 Exhibit Index.............................................. 170 Enterprise................................................. 170 PSE&G...................................................... 177
iv GLOSSARY OF TERMS The following is a glossary of frequently used abbreviations or acronyms that are found in this report:
TERM MEANING ----------------------- ----------------------------------------- ACO.................... Administrative Consent Order AFDC................... Allowance for Funds used During Construction Alternative Rate Plan.. New Jersey Partners in Power Plan AMT.................... Alternative Minimum Tax BCFE................... Billion Cubic Feet Equivalent Bonds.................. First and Refunding Mortgage Bonds BPU.................... New Jersey Board of Public Utilities BTA.................... Best Technology Available BWR.................... Boiling Water Reactor CAA.................... Federal Clean Air Act Capital................ PSEG Capital Corporation CEA.................... Community Energy Alternatives Incorporated CEA USA................ CEA USA, Inc. CEA New Jersey......... CEA New Jersey, Inc. CERCLA................. Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 Certificate of Need.... Certificate of Need under the NJNAA CORP................... New Jersey Commission on Radiation Protection DGW.................... Discharge to Ground Water DOE.................... United States Department of Energy DRBC................... Delaware River Basin Commission DRIP................... Enterprise's Dividend Reinvestment and Stock Purchase Plan DSM.................... Demand Side Management DSW.................... Discharge to Surface Water Eagle Point............ CEA Eagle Point, Inc. EBIT................... Earnings before interest and taxes ECRA................... New Jersey Environmental Cleanup Responsibility Act EDC.................... Energy Development Corporation EDHI................... Enterprise Diversified Holdings Incorporated EGDC................... Enterprise Group Development Corporation EITF................... FASB's Emerging Issues Task Force EMF.................... Electric and Magnetic Fields Enterprise............. Public Service Enterprise Group Incorporated EPA.................... United States Environmental Protection Agency
v
TERM MEANING ---------------------- --------------------------------------------- EPAct.................. National Energy Policy Act of 1992 EPC.................... Eagle Point Cogeneration Faclility EWGs................... Exempt Wholesale Generators FASB................... Financial Accounting Standards Board Fault Act.............. New Jersey Public Utility Accident Fault Determination Act FERC................... Federal Energy Regulatory Commission Fuelco................. PSE&G Fuel Corporation Funding................ Enterprise Capital Funding Corporation FWPCA.................. Federal Water Pollution Control Act GE..................... General Electric GEMS................... Gloucester Environmental Management Services, Inc. Hope Creek............. Hope Creek Nuclear Generating Station IPP.................... Independent Power Producers IRP.................... Integrated Resource Plan IRS.................... Internal Revenue Service ISO.................... Independent System Operator KWH.................... Kilowatthours LEAC................... Electric Levelized Energy Adjustment Clause LGAC................... Levelized Gas Adjustment Charge LLRW................... Low Level Radioactive Waste LNG.................... Liquefied Natural Gas LPG.................... Liquid Petroleum Air Gas LTIP................... Long-Term Incentive Plan MAAC................... Mid-Atlantic Area Reliability Council MD&A................... Management's Discussion and Analysis of Financial Condition and Results of Operations MICP................... Management Incentive Compensation Plan mmbtu.................. Millions of British Thermal Units MOA.................... Memorandum of Agreement Mortgage............... First and Refunding Mortgage of PSE&G MTNs................... Medium-Term Notes MW..................... Megawatts MWH.................... Megawatthours NAAQS.................. National Ambient Air Quality Standards NEIL................... Nuclear Electric Insurance Limited NJAPCC................. New Jersey Air Pollution Control Code NJDEP.................. New Jersey Department of Environmental Protection NJGRT.................. New Jersey Gross Receipts and Franchise Tax NJNAA.................. New Jersey Need Assessment Act
vi
TERM MEANING ----------------------- --------------------------------------------- NJPDES................. New Jersey Pollution Discharge Elimination System NJWPCA................. New Jersey Water Pollution Control Act NML.................... Nuclear Mutual Limited NOC.................... Nuclear Oversight Committee NOPR................... Notice of Proposed Rulemaking NOV.................... Notice of Violation NOx.................... Nitrogen Oxides NPDES.................. National Pollutant Discharge Elimination System NPS.................... The BPU's nuclear performance standard established for nuclear generating stations owned by New Jersey electric utilities NRC.................... Nuclear Regulatory Commission NUGs................... Nonutility Generators NWPA................... Nuclear Waste Policy Act of 1982, as amended OAL.................... Office of Administrative Law of the State of New Jersey OPEB................... Other Postretirement Benefits OTAG................... Ozone Transport Assessment Group Partnership............ Public Service Electric and Gas Capital, L.P. Peach Bottom........... Peach Bottom Atomic Power Station, Units 2 and 3 PECO................... PECO Energy Inc. PJM.................... Pennsylvania -- New Jersey -- Maryland Interconnection PJP.................... PJP Landfill in Jersey City, New Jersey POTW................... Publicly Owned Treatment Works PPUC................... Pennsylvania Public Utility Commission Price Anderson......... Price-Anderson liability provisions of the Atomic Energy Act of 1954, as amended PRAP................... Proposed Remedial Action Plan PRPs................... Potentially Responsible Parties PSE&G.................. Public Service Electric and Gas Company PSCRC.................. Public Service Conservation Resources Corporation PSRC................... Public Service Resources Corporation PUHCA.................. Public Utility Holding Company Act of 1935 PURPA.................. Public Utility Regulatory Policies Act of 1978 PWR.................... Pressurized Water Reactor QFs.................... Qualifying Facilities RAC.................... Remediation Adjustment Charge RACT................... Reasonable Available Control Technologies RAR.................... Revenue Agent's Report RCRA................... Federal Resource Conservation and Recovery Act of 1976
vii
TERM MEANING ----------------------- --------------------------------------------- Remediation Program.... PSE&G Gas Plant Remediation Program RI..................... Remedial Investigation RI/FS.................. Remedial Investigation and Feasibility Study RIPW................... Remedial Investigation Work Plan ROD.................... Record of Decision Salem.................. Salem Nuclear Generating Station, Units 1 and 2 SALP................... Systematic Assessment of Licensee Performance SEC.................... Securities and Exchange Commission SFAS 71................ Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation" SFAS 106............... Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other than Pensions" SFAS 107............... Statement of Financial Accounting Standards No. 107, "Disclosures About Fair Value of Financial Instruments" SFAS 109............... Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" SFAS 121............... Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets" SFAS 123............... Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation" SIU.................... Significant Industrial Users SNG Plant.............. Synthetic Natural Gas Plant Spill Act.............. New Jersey Spill Compensation and Control Act SPPP................... Stormwater Pollution Prevention Plans USDOT.................. United States Department of Transportation USEC................... United States Enrichment Corporation USEP................... U.S. Energy Partners Ventures............... Enterprise Ventures & Services VOC.................... Volatile Organic Compound
viii PART I ITEM 1. BUSINESS General Enterprise Public Service Enterprise Group Incorporated (Enterprise), incorporated under the laws of the State of New Jersey with its principal executive offices located at 80 Park Plaza, Newark, New Jersey 07101, is a public utility holding company that neither owns nor operates any physical properties. Enterprise has two direct wholly-owned subsidiaries, Public Service Electric and Gas Company (PSE&G) and Enterprise Diversified Holdings Incorporated (EDHI). Enterprise's principal subsidiary, PSE&G, is an operating public utility providing electric and gas service in certain areas in the State of New Jersey. Enterprise has claimed an exemption from regulation by the Securities and Exchange Commission (SEC) as a registered holding company under the Public Utility Holding Company Act of 1935 (PUHCA), except for Section 9(a)(2) thereof which relates to the acquisition of voting securities of an electric or gas utility company. PSE&G is subject to direct regulation by the New Jersey Board of Public Utilities (BPU) and the Federal Energy Regulatory Commission (FERC). EDHI is the parent of Enterprise's nonutility businesses: Energy Development Corporation (EDC), an oil and gas exploration and production and marketing company; Community Energy Alternatives Incorporated (CEA), an investor in and developer and operator of cogeneration and independent power production facilities; Public Service Resources Corporation (PSRC), which makes primarily passive investments; Enterprise Group Development Corporation (EGDC), a diversified nonresidential real estate development and investment business; PSEG Capital Corporation (Capital), which provides debt financing on the basis of a minimum net worth maintenance agreement from Enterprise; and Enterprise Capital Funding Corporation (Funding), which provides privately placed debt financing on the basis of the consolidated financial position of EDHI without direct support from Enterprise. As of December 31, 1995 and 1994, PSE&G comprised 85% of Enterprise's assets. PSE&G's 1995, 1994 and 1993 revenues were 93% of Enterprise's revenues and PSE&G's earnings available to Enterprise for such years were 88%, 91% and 96%, respectively, of Enterprise's net income. Production of electricity and electric and gas distribution will continue as the principal business of Enterprise for the foreseeable future. Enterprise has announced that it intends to divest EDC in 1996. See EDHI - EDC and Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A). Financial information with respect to business segments of PSE&G and Enterprise is set forth in Note 15 -- Financial Information by Business Segments of Notes to Consolidated Financial Statements (Notes). PSE&G PSE&G, a New Jersey corporation with its principal executive offices at 80 Park Plaza, Newark, New Jersey 07101, is an operating public utility company engaged principally in the generation, transmission, distribution and sale of electric energy service and in the transmission, distribution and sale of gas service in New Jersey. PSE&G supplies electric and gas service in areas of New Jersey in which approximately 5,500,000 persons, about 70% of the State's population, reside. (See General -- Enterprise.) PSE&G's electric and gas service area is a corridor of approximately 2,600 square miles running diagonally across New Jersey from Bergen County in the northeast to an area below the City of Camden in the southwest. The greater portion of this area is served with both electricity and gas, but some parts are served with electricity only and other parts with gas only. This heavily populated, commercialized and industrialized territory encompasses most of New Jersey's largest municipalities, including its six largest cities -- Newark, Jersey City, Paterson, Elizabeth, Trenton and Camden -- in addition to approximately 300 suburban and rural communities. It contains a diversified mix of commerce and industry, including major facilities of many corporations of national prominence. Under the general laws of New Jersey, PSE&G has the right to use the public highways, streets and alleys in New Jersey for erecting, laying and maintaining poles, conduits and wires necessary for its electric operations. PSE&G must, however, first obtain the consent in writing of the owners of the soil for the purpose of erecting poles. In incorporated cities and towns, PSE&G must obtain from the municipality a designation of the streets in which the poles are to be placed and the manner of placing them. PSE&G's rights are also subject to regulation by municipal authorities with respect to street openings and the use of streets for erecting poles in incorporated cities and towns. PSE&G, by virtue of a special charter granted by the State of New Jersey to one of its predecessors, has the right to use the roads, streets, highways and public grounds in New Jersey for pipes and conduits for distributing gas. PSE&G believes that it has all the franchises (including consents) necessary for its electric and gas operations in the territory it serves. Such franchises are non-exclusive. For discussion of the significant changes which PSE&G's electric and gas utility businesses have been and are undergoing, see Competition and Regulation. Industry Issues Enterprise and PSE&G are affected by many issues that are common to the electric and gas industries, such as: deregulation and the unbundling of energy supplies and services; an increasingly competitive energy marketplace, sales retention and growth potential in a mature service territory and a need to contain costs (see Competition, Regulation and MD&A - Competition); ability to operate nuclear plants in a cost effective way (see PSE&G - Nuclear Operations); ability to obtain adequate and timely rate relief, cost recovery, including the potential impact of stranded assets, and other necessary regulatory approvals (see PSE&G -- Rate Matters; Regulation and Item 7. MD&A - Competition); costs of construction (see Construction and Capital Requirements); operating restrictions, increased costs and construction delays attributable to environmental regulations (see Environmental Controls); controversies regarding electric and magnetic fields (EMF) (see Environmental Controls); nuclear decommissioning and the availability of reprocessing and storage facilities for spent nuclear fuel (see Electric Fuel Supply and Disposal); and credit market concerns with these issues. Competition Overview The energy utility industry is in transition. Changes in Federal and state law and regulation are encouraging new entrants to the traditional markets of electric and gas utilities. New technologies are creating opportunities for new energy services. Customers, more aware and sophisticated about their choices and dissatisfied with prices and the often limited range of options available from the local utility, are increasingly turning elsewhere for energy supplies and services. As a consequence of competition, the traditional utility structure -- consisting of a vertically integrated system and functioning as a natural monopoly -- is being dramatically altered. Further, PSE&G's ability to meet competition and change prices to meet customer's needs is impacted by state regulation, including the historic utility mandate to serve all customers. (See MD&A -- Competition.) For a discussion of PSE&G's alternative plan of rate regulation, "New Jersey Partners in Power" (Alternative Rate Plan) as a response to these demands, see MD&A and Note 2 -- Rate Matters of Notes. Non health and safety related Federal energy laws and regulations are designed to make more efficient use of all energy, introduce price competition, encourage the use of nonconventional energy sources and limit oil imports by increasing production of domestic energy resources. Among other things, these actions (1) encourage development of alternative energy generation, (2) require wheeling of power for wholesale transactions, (3) require state regulatory authorities to consider certain standards on rate design and certain other utility practices, (4) encourage conservation of energy through certain financial incentives, including incentives by individual utilities to customers to help them to conserve energy and (5) deregulate prices on natural gas. Also, Federal and State laws designed to reduce air and water pollution and control hazardous substances have had the effect of increasing the costs of operation and replacement of existing utility plants and other facilities. (See Environmental Controls.) Competition from nonutility generators (NUGs), such as cogenerators, independent power producers (IPP) and exempt wholesale generators (EWGs), as permitted by the Public Utility Regulatory Policies Act of 1978 (PURPA) and the National Energy Policy Act of 1992 (EPAct), continues to impact PSE&G. As a result of changes brought about by EPAct, along with proposals in some states to authorize retail wheeling, discussed below, electric customers and suppliers, including PSE&G and its customers, have increased opportunities for purchase and sale of electricity from and to sellers and buyers outside of traditional franchised territories. Retention of existing customers and potential sales growth will depend upon the ability of PSE&G to contain costs, meet customer expectations and respond to changing economic conditions and energy regulation. As a result of such competitive forces, Enterprise Ventures & Services Corporation (Ventures) has been established as a subsidiary of PSE&G to develop and market new energy-related products and services beyond traditional geographic and/or industry boundaries. Competition may also adversely impact upon the economics of certain regulatory-created incentives, such as Demand Side Management (DSM) and conservation. For additional information, including a discussion of the potential effects of competition upon rates, cost recovery and assets, see MD&A -- Competition. For information relating to the Alternative Rate Plan see MD&A and Note 1--Organization and Summary of Significant Accounting Policies, Note 2--Rate Matters and Note 5--Deferred Items of Notes. Electric In the electric utility industry, competitive pressures began with the enactment of PURPA. This law, together with subsequent changes in Federal regulation, has increasingly opened the electric utility industry to competition. PURPA created a class of generating facilities exempt from Federal and State public utility regulation -- cogeneration and small power producers known as "qualifying facilities" (QFs) -- and created an instant market for them by requiring regulated utilities to purchase their excess power production. EPAct, by facilitating the development of the wholesale power market, has led to even stronger competition. The increasing competitiveness of the electric wholesale markets, along with consideration of retail wheeling or "direct retail access" within utility franchise areas in several states, has brought to the forefront the issue of potential stranded costs within the electric utility industry (see MD&A - Competition). EPAct provides FERC with increased authority to order "wheeling" of wholesale, but not retail, electric power on the transmission systems of electric utilities, provided that certain requirements are met. In order to facilitate the transition to increased competition in wholesale power markets made possible by EPAct, in March 1995, FERC issued a Notice of Proposed Rulemaking (NOPR) which, if adopted, would require electric utilities, including PSE&G, to provide open access to the interstate transmission network pursuant to non-discriminatory tariffs available to all wholesale sellers and buyers of electric energy. Utilities would be required to offer transmission to eligible customers comparable to the service they provide themselves and to take service under the tariffs for their own wholesale sales and purchases. Further, transmission and ancillary service components would be unbundled and, when buying or selling power, utilities would have to rely on the same network for transmission system information as their customers. The NOPR states FERC's general principle that utilities should be entitled to full recovery of legitimate and verifiable stranded costs at the Federal and State levels and reiterates its prior proposal that such costs be directly assigned to departing customers. The NOPR further provides that stranded costs due to retail wheeling are a state matter, while stranded costs due to wholesale wheeling, municipalization or a change from retail to wholesale customer class are within FERC's jurisdiction. PSE&G cannot predict the impact of any regulations that may be adopted. See MD&A -- Competition. For discussion of the Pennsylvania, New Jersey and Maryland Interconnection (PJM) proposal in response to the FERC NOPR, see Pennsylvania--New Jersey--Maryland Interconnection. For a discussion of PSE&G's actions and comments related to the potential environmental impact of the NOPR, see Environmental Controls - Air Pollution Control. EPAct also amended PUHCA to create a new category of generation owners known as EWGs, which are not subject to PUHCA regulation. EPAct permits both independent companies and utility affiliates to participate in the development of EWG projects regardless of the location and ownership of other generating resources. The transmission access provisions apply to wholesale, but not retail, "wheeling" of power, subject to FERC review. See PSE&G -- Integrated Resource Plan, Construction and Capital Requirements, Financing Activities and PSE&G - -- Customers. For information concerning the activities of CEA, which is an owner-developer of QFs and EWGs, see EDHI -- CEA. Another key factor in determining how competition will affect PSE&G's electric business is the extent to which New Jersey public utility regulation may be modified to be reflective of these new competitive realities. The BPU presented the first phase of the New Jersey Energy Master Plan to Governor Whitman on March 8, 1995. This Phase I Plan acknowledged the need for regulatory flexibility as competition unfolds and called for legislation that would allow New Jersey utilities to propose, subject to BPU approval, alternatives to existing rate base/rate of return pricing, allow for pricing flexibility under certain standards for customers with competitive options and equalize the impact of tax policies, such as New Jersey Gross Receipts and Franchise Tax (NJGRT) which is currently assessed only on utility retail energy sales. On July 20, 1995, Governor Whitman signed into law legislation which provides utilities the flexibility to propose alternative regulatory pricing and to offer negotiated off-tariff agreements (See PSE&G - Customers). On January 16, 1996, PSE&G filed a petition with the BPU for its Alternative Rate Plan designed to fulfill the objectives of this new regulatory reform legislation. This Alternative Rate Plan represents a regulatory transition designed to provide PSE&G with the mechanisms and incentives to compete more effectively on several fronts, including the ability to develop revenue from non-regulated products and services, accelerate or modify depreciation schedules to help mitigate any potential stranded asset issue and more aggressively manage costs. For more information regarding the Alternative Rate Plan see MD&A and Note 1 -- Organization and Summary of Significant Accounting Policies, Note 2 -- Rate Matters and Note 5 -- Deferred Items of Notes. On June 1, 1995, the BPU issued its Order initiating a formal Phase II proceeding to the New Jersey Energy Master Plan. This proceeding is intended to investigate and consider the future long term structure of the electric power industry in New Jersey. The proceeding will address wholesale and retail competition, ownership of generation, transmission and distribution facilities, operation of the transmission system and stranded investments. A Phase II report proposing policy restructuring is expected by March 1996. PSE&G cannot predict what impact, if any, the Phase II report will have. Gas Over the last decade the natural gas industry has experienced a dramatic transformation as several FERC initiatives have subjected the industry to competitive market forces. On the interstate level, the pipeline suppliers that serve PSE&G have unbundled gas supply and service and now offer transportation services that move gas purchased from numerous natural gas producers and marketers to PSE&G's service territory. This unbundling effort has moved to the local level and, in late 1994, the BPU approved unbundled transport tariffs for PSE&G. These tariffs allow any non-residential customer, regardless of size, to purchase its own gas, transport it to PSE&G and require PSE&G to deliver such gas to the customer's facility. To date, over 5,000 commercial and industrial customers out of a potential of 180,000 customers have decided to utilize this service. It is expected that this number will continue to grow as marketers become more active in New Jersey and encourage customers to convert from sales service. The transportation rate schedules produce the same non-fuel revenue per therm as existing sales service rate schedules. Thus, PSE&G's earnings are unaffected whether the customers remain on sales service or convert to transportation service. See Gas Operations and Supply. In meeting the challenges and opportunities presented by this unbundling of gas supply and service, Enterprise initiated a gas marketing company, U.S. Energy Partners (USEP). For more information see EDHI - PSRC. Construction and Capital Requirements For information concerning investments, construction and capital requirements see MD&A, Note 6 -- Schedule of Consolidated Debt, Note 7 -- Long-Term Investments and Note 12 -- Commitments and Contingent Liabilities -- Construction and Fuel Supplies of Notes. Financing Activities For a discussion of issuance, book value and market value of Enterprise's Common Stock and external financing activities of Enterprise, PSE&G and EDHI for the year 1995, see MD&A -- Liquidity and Capital Resources and Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. For a discussion of Capital and Funding, see EDHI -- Capital and EDHI - Funding. For further discussion of long-term debt and short-term debt, see Note 6 -- Schedule of Consolidated Debt of Notes. Federal Income Taxes For information regarding Federal income taxes, see Note 1 -- Organization and Summary of Significant Accounting Policies, Note 2 -- Rate Matters and Note 10 -- Federal Income Taxes of Notes. Credit Ratings The current ratings of securities of Enterprise's subsidiaries set forth below reflect the respective views of the rating agency furnishing the same, from whom an explanation of the significance of such ratings may be obtained. There is no assurance that such ratings will continue for any given period of time or that they will not be revised downward or withdrawn entirely by such rating agencies, if, in their respective judgments, circumstances so warrant. Any such downward revision or withdrawal of any of such ratings may have an adverse effect on the market price of Enterprise's Common Stock and PSE&G's securities and serve to increase the cost of capital of PSE&G and EDHI.
STANDARD DUFF PSE&G MOODY'S & POOR'S & PHELPS FITCH - ----- ------- -------- -------- ----- Mortgage Bonds............ A3 A- A A- Debenture Bonds........... Baa1 BBB+ A- BBB+ Preferred Stock........... Baa1 BBB+ A- BBB+ Commercial Paper.......... P2 A2 Duff 1 Fuelco: Commercial Paper.. P2 A2 Duff 1 As a component of the ratings noted above, each rating agency issues its opinion of the credit trend or outlook for the entity being rated. For PSE&G, each of the four rating agencies currently evaluate that outlook as stable. EDHI - ---- Capital: Senior Debt......... Baa2 BBB BBB+ Funding: Commercial Paper(A). P1 A1+ Duff 1+
(A) Supported by commercial bank letter of credit (see MD&A -- Liquidity and Capital Resources and Note 6-- Schedule of Consolidated Debt -- Short-Term of Notes.) PSE&G Rate Matters For information concerning PSE&G's Alternative Rate Plan, rate matters, and environmental remediation and fuel adjustment clauses see Note 1 -- Organization and Summary of Significant Accounting Policies and Note 2 -- Rate Matters of Notes. For information concerning PSE&G's Under (Over) recovered Electric Energy and Gas Fuel Costs, see Note 5 -- Deferred Items of Notes. Nuclear Performance Standard The BPU has established a nuclear performance standard (NPS) for nuclear generating stations owned by New Jersey electric utilities, including the five nuclear units in which PSE&G has an ownership interest: Salem Nuclear Generating Station, Units 1 and 2 (Salem 1 and 2) -- 42.59%; Hope Creek Nuclear Generating Station (Hope Creek) -- 95%; and Peach Bottom Atomic Power Station, Units 2 and 3 (Peach Bottom 2 and 3) -- 42.49%. PSE&G operates Salem and Hope Creek, while Peach Bottom is operated by PECO Energy, Inc. (PECO). The following table sets forth the capacity factor in accordance with the NPS of each of PSE&G's nuclear units for the years indicated:
NUCLEAR UNITS 1995 1994 1993 - -------------- ---- ---- ---- Capacity Factors: Salem 1..................................... 26% 59% 60% Salem 2..................................... 21 58 57 Hope Creek.................................. 76 77 95 Peach Bottom 2.............................. 96 80 84 Peach Bottom 3.............................. 78 98 70 Aggregate capacity factor of nuclear units.. 62 74 77
For information concerning the NPS, see Nuclear Operations and Note 12 -- Commitments and Contingent Liabilities of Notes. Customers As of December 31, 1995, PSE&G provided service to approximately 1,900,000 electric customers and 1,500,000 gas customers. PSE&G is not dependent on a single customer or a few customers for its electric or gas sales. For the year ended December 31, 1995, PSE&G's operating revenues aggregated $5.7 billion, of which 70% was from its electric operations and 30% from its gas operations. PSE&G's business is seasonal in that sales of electricity are higher during the summer months because of air conditioning requirements and sales of gas are greater in the winter months due to the use of gas for space-heating purposes. These revenues were derived as follows:
Revenues ------------------ Electric Gas --------- ------ (Millions of Dollars) Residential................................ $1,275 $ 823 Commercial................................. 1,854 501 Industrial................................. 705 275 Transportation Service - Gas............... -- 54 Other...................................... 187 33 ------ ------ Total................................... $4,021 $1,686 ====== ======
Customers of PSE&G, as well as those of other New Jersey electric and gas utilities, pay the NJGRT which, in effect, adds approximately 13% to their bills. The NJGRT is a unit tax based on electric kilowatthour and gas therm sales. This tax differential provides an incentive to large-volume electric and gas customers to seek to obtain their energy supplies from nonutility sources not subject to NJGRT. To the extent PSE&G experiences a loss of customers seeking to avoid this cost, it could result in a significant decrease in PSE&G's revenues and earnings. On November 17, 1995, the BPU issued an order approving a Stipulation regarding PSE&G's proposed Experimental Hourly Energy Pricing Tariff and the first service agreement thereunder with its second largest customer. Under the agreement, the tariff will result in a bill reduction for the customer of approximately $7 million or about 27%. This reduction in revenues will be partially offset by a decrease of $1.25 million in PSE&G's NJGRT liability. Under the agreement between the customer and PSE&G, the customer will forego an opportunity to relocate to another state and remain a PSE&G customer for ten years. On January 2, 1996, an appeal seeking to overturn the BPU's November 17, 1995 Decision and Order was filed by a third party in the Appellate Division of the Superior Court of New Jersey. PSE&G cannot predict the outcome of this matter. PSE&G has signed each of its three existing wholesale electric customers, aggregating 40 mw of load, to 5-year full service agreements with mid-term extension options. In addition, under the terms of a previously negotiated 10-year wholesale power transaction, PSE&G receives $12.5 million in annual revenues from an out of state electric cooperative. For further information on the impact of competition on PSE&G's customer and revenue base - See Competition and MD&A - Competition. Integrated Resource Plan PSE&G's construction program focuses on upgrading electric and gas transmission and distribution systems and constructing new transmission and distribution facilities to serve new load. Pursuant to its Integrated Resource Plan (IRP), PSE&G periodically reevaluates its forecasted customer load and peak growth and the sources of electric generating capacity and DSM to meet such projected growth (see Demand Side Management below). The IRP takes into account assumptions concerning future customer demand, future cost trends, especially fuel and purchased power expenses, the effectiveness of conservation and load management activities, the long-term condition of and projected additions to PSE&G's plants and capacity available from other electric utilities and nonutility suppliers. PSE&G's IRP consists principally of plant additions, power purchases through PJM and from NUGs and DSM. Pennsylvania -- New Jersey -- Maryland Interconnection PSE&G is a member of the PJM which integrates the bulk power generation and transmission supply operations of 11 utilities in Pennsylvania, New Jersey, Delaware, Maryland, Virginia and the District of Columbia, and, in turn, is interconnected with other major electric utility companies in the northeastern part of the United States. The PJM is operated as one system and provides for the purchase and sale of power among members on the basis of reliability of service and operating economy. As a result, the most economical mix of generating capability available is used to meet PJM daily load requirements. PSE&G's output, as shown under Electric Fuel Supply and Disposal, reflects significant amounts of purchased power because at times it is more economical for PSE&G to purchase power from PJM and others than to produce it. As of December 31, 1995, the aggregate installed generating capacity of the PJM companies was 56,098 megawatts (MW). The all time record peak one-hour demand experienced by the PJM power pool was 48,524 MW which occurred on August 2, 1995. The 1995 peak was 2,532 MW higher than the record-setting 1994 summer peak of 45,992 MW which occurred on July 8, 1994. PSE&G's capacity obligations to the PJM system vary from year to year due to changes in system characteristics. PSE&G expects to have sufficient installed capacity to meet its obligations during the 1996-2000 period. PJM has developed a comprehensive proposal intended to meet or exceed the goals expressed by FERC in its open access NOPR, including a number of innovations that were designed to harmonize the requirements of the NOPR with the benefits of power pooling. In this proposal, PJM intends to satisfy the NOPR's goals by building upon the foundation of PJM's power pooling operations. The member companies of PJM intend to file this proposal with FERC by May 1996 and implement a restructured pool by year-end 1996. Under this proposal, the current members of PJM and other load- serving entities in the PJM control area will purchase regional "network" transmission rights that are intended to enable them to reliably and economically integrate generation and load. For deliveries to retail customers, this service will remain part of the bundled rates for retail electric service, subject to state jurisdiction, but with terms and conditions comparable to the service provided for wholesale users. Because this service will cover all deliveries to loads located in the pool, generators selling power to serve pool load will not have to purchase transmission service independently. This is intended to create a regional wholesale power market in which all sellers and buyers operate on a level playing field. Under the proposal, transmission service will be provided under a regional point-to-point transmission service tariff. This tariff will apply a uniform ratemaking methodology to all wholesale transactions involving deliveries outside the pool, including off- system sales by the current members of PJM and other load-serving entities in the pool. Accordingly, all transmission service associated with sales outside the pool will be provided on a comparable basis. In order to meet the requirements to functionally unbundle transmission, PJM has proposed to reorganize into an independent System Operator (ISO) with responsibility for operating the bulk power system, administering the regional transmission service tariffs and managing the pool's competitive energy market. The ISO will be governed by a Board of Directors that is not controlled by the transmission-owning members of PJM or their affiliates, and its responsibilities will be set forth in contracts filed with the FERC. The ISO will contract with the various pool participants to supply control area services, administer the transmission service tariffs and be responsible for maintaining the reliable operation of the system throughout each day. One of the key elements of PJM's restructuring proposal is the creation of an expanded regional market for energy transactions. PJM will replace the existing system of cost-based centralized dispatch with an expanded, hourly bid/price pool in which all sellers will be able to bid their energy into the pool and all load-serving entities will be able to buy energy from the pool. The energy market will "clear" in each hour at the highest bid price for energy that must be dispatched to serve load. Further, under the proposal, PJM will retain most of the existing pool procedures for ensuring reliable electric service, but will create new contractual mechanisms to ensure participation by all entities responsible for serving load in decisions affecting reliability. Each load-serving entity that chooses to operate in the PJM control area will be required to execute an agreement to maintain adequate generation reserves and to share those reserves on a reciprocal basis. PJM will establish an enhanced regional planning process, under the supervision of the ISO, to meet Mid-Atlantic Area Reliability Council (MAAC) reliability requirements applicable to both generation and transmission. In short, all load-serving entities in the pool will be subject to the same reliability standards and will participate in decisions relating to the establishment of regional reliability requirements. Power Purchases A component of PSE&G's IRP consists of expected capacity additions from NUGs. These additions are projected to aggregate 46 MW and are scheduled for service by 1998. NUG projects are expected to comprise approximately 6.5% of energy resources by 2004. This availability of NUG generation will reduce the need for PSE&G to build or acquire additional generation. PSE&G is also a party to the MAAC which provides for review and evaluation of plans for generation and transmission facilities and other matters relevant to reliability of the bulk electric supply systems in the Mid-Atlantic area. PSE&G expects to be able to continue to meet the demand for electricity on its system through operation of available equipment and by power purchases. However, if periods of unusual demand should coincide with outages of equipment, PSE&G could find it necessary at times to reduce voltage or curtail load in order to safeguard the continued operation of its system. Demand Side Management Integrated resource planning brings together demand-side and supply-side strategies. In order to encourage DSM, the BPU adopted rules in 1991 providing special incentives to encourage utilities to offer these load management conservation services. The rules are designed to place DSM on an equal regulatory footing with supply side or energy production investments. Both EPAct and Phase I of the Energy Master Plan call for conservation to play a significant role in meeting New Jersey's energy needs over the coming decade. PSE&G's DSM Plan has been approved by the BPU. The IRP calls for PSE&G to utilize conservation and DSM to meet most of the incremental resource needs for the next decade (see Competition). PSE&G's DSM Plan is designed to encourage investment in energy-saving DSM activities in New Jersey. These activities involve new techniques and technologies, such as high-efficiency lighting and motors, that help reduce customer demand for energy. The DSM Plan consists of two major program areas for both electric and gas: (1) a core program which includes many specialized programs such as energy audits, seal-ups and rebates for high efficiency heating and cooling equipment; and (2) a standard offer program which is performance based and provides payment for measurable energy savings resulting from the installation of qualified measures that improve the energy efficiency of end-uses. PSE&G's most recent IRP includes a demand forecast average compound annual rate of growth through the year 2004 of electric system peak demand of 1.3%. PSE&G's IRP projects 597 MW of passive DSM and 815 MW of active DSM by the year 2004. PSE&G has established a wholly owned subsidiary, Public Service Conservation Resources Corporation (PSCRC), to offer DSM services. PSCRC has its principal office at 9 Campus Drive, Parsippany, N.J. 07054. PSCRC finances, markets and develops energy conservation projects, mostly within the PSE&G service territory. At December 31, 1995, its assets totaled $110 million, of which $88.2 million were project assets and work in progress. Electric Generating Capacity The following table sets forth certain information as to PSE&G's installed generating capacity as of December 31, 1995:
INSTALLED SOURCE CAPACITY(MW) PERCENTAGE - --------------- ------------ ---------- Conventional Steam Electric Oil-fired(a)............................. 1,723 17 Coal-fired New Jersey(b)................. 1,242 12 Coal-fired Pennsylvania (mine mouth)(c).. 770 7 Combustion Turbine(d)...................... 2,724 26 Combined Cycle............................. 890 9 Diesel(c).................................. 5 -- Nuclear(c) New Jersey............................... 1,921 18 Pennsylvania............................. 930 9 Pumped Storage(c)(d)....................... 195 2 ------ ---- Total(e)......................... 10,400 100 ====== ==== (a) Units with aggregate capacity of 836 MW can also burn gas. (b) Can also burn gas. (c) PSE&G share of jointly owned facilities. (d) Primarily used for peaking purposes. (e) Excludes 664 MW of nonutility generation and temporary capacity sales of 200 MW to General Public Utilities Corporation.
For additional information, see Item 2. Properties -- PSE&G -- Electric Properties. The capacity available at any time may be less than the installed capacity because of temporary outages for inspection, maintenance, repairs, legal and regulatory requirements or unforeseen circumstances. The maximum one-hour demand (peak load) which PSE&G experienced in 1995 was 9,467 MW, an all time record which occurred on August 2, 1995, when the day's output was 182,404 Megawatthours (MWH) of electricity. (For information concerning sales, output and capacity factors, see Operating Statistics.) The peak load in 1994 was 9,001 MW which occurred on June 15, 1994, when the day's output was 172,362 MWH of electricity. Nuclear Operations Operation of nuclear generating units involves continuous close regulation by the Nuclear Regulatory Commission (NRC). Such regulation involves testing, evaluation and modification of all aspects of plant operation in light of NRC safety and environmental requirements and continuous demonstrations to the NRC that plant operations meet applicable requirements. The NRC has the ultimate authority to determine whether any nuclear generating unit may operate. For information concerning the performance of the nuclear units, see Nuclear Performance Standard and Note 12 -- Commitments and Contingent Liabilities of Notes. The scheduled 1996, 1997, and 1998 refueling outages, each estimated at eight to ten weeks duration, for PSE&G's five licensed nuclear units are expected to commence in the following months:
REFUELING OUTAGES -------------------------------------------- 1996 1997 1998 ------------- ------------- ------------- Salem 1.......... -- -- -- Salem 2.......... -- -- February Hope Creek....... -- April October Peach Bottom 2... September -- September Peach Bottom 3... -- September --
Salem Salem Generating Station consists of two 1100 MW pressurized water nuclear reactors (PWR) located in southern New Jersey on the Delaware River. PSE&G owns 42.59% of the Salem units and operates them on behalf of itself and three other owners: PECO - 42.59%: Atlantic Electric Company - 7.41%; and Delmarva Power and Light Company - 7.41%. As of January 31, 1996, PSE&G's net book value for Salem nuclear production units is approximately $285 million for Salem 1, $250 million for Salem 2 and $93 million in common plant between the two units. Each Salem unit represents approximately 4% of PSE&G's installed electric generating capacity and approximately 2% of its total assets. Salem 1 and 2 have been out of service since May 16, 1995 and June 7, 1995, respectively. Since that time, PSE&G has been engaged in a thorough assessment of each unit to identify and complete the work necessary to achieve safe, sustained, reliable and economic operation. PSE&G has stated that it will keep each unit off line until it is satisfied that the unit is ready to return to service and to operate reliably over the long term and the NRC has agreed that the unit is sufficiently prepared to restart. On June 9, 1995, the NRC issued a Confirmatory Action Letter documenting these commitments of PSE&G. On December 11, 1995, PSE&G presented its restart plan for both units to the NRC at a public meeting. On February 13, 1996, the NRC staff issued a letter to PSE&G indicating that it had concluded that PSE&G's overall restart plan, if implemented effectively, should adequately address the numerous Salem issues to support a safe plant restart, and describing further actions the NRC will undertake to confirm that PSE&G's actions have resulted in the necessary performance improvements to support safe plant restart. As a part of PSE&G's comprehensive review, an extensive examination is being performed on the steam generators, which are large heat exchangers used to produce steam to drive the turbines. Within the industry, certain PWRs other than Salem have experienced cracking in a sufficient number of the steam generator tubes to require various modifications to these tubes and replacement of the steam generators in some cases. Until the current outage, regular periodic inspections of the steam generators for each Salem unit have resulted in repairs of a small number of tubes well within NRC limits. As a result of the experience of other utilities with cracking in steam generator tubes, in April 1995 the NRC issued a generic letter to all utilities with pressurized water reactors. This generic letter requested utilities with pressurized water reactors to conduct steam generator examinations with more sensitive inspection devices capable of detecting evidence of degradation. Subsequently, PSE&G conducted steam generator inspections of the Salem units using the latest technology available, including a new, more sensitive, eddy current testing device. With respect to Salem 1, the most recent inspection of the steam generators is not complete, but partial results from eddy current inspections in February 1996 using this new technology show indications of degradation in a significant number of tubes. The inspections are continuing and PSE&G has decided to remove several tubes for laboratory examination to confirm the results of the inspections. Removal of the tubes should be completed in March and preliminary results of the state of the Salem 1 tubes from the subsequent laboratory examinations should be known in April. However, based on the results of inspections to date, PSE&G has concluded that the Salem 1 outage, which was expected to be completed in the second quarter of 1996, will be required to be extended for a substantial additional period to evaluate the state of the steam generators and to subsequently determine an appropriate course of action. Degradation of steam generators in PWRs has become of increasing concern for the nuclear industry. Nationally and internationally, utilities have undertaken actions to repair or replace steam generators. In the extreme, degradation of steam generators has contributed to the retirement of several American nuclear power reactors. After the Salem 1 tubes are fully examined, PSE&G will be able to evaluate its course of action in light of NRC and other industry requirements. The examination of the Salem 2 steam generators was completed in January 1996 using the same testing device used in Salem 1. The results of the Salem 2 inspection are being reviewed again to confirm their results in light of the experience with Salem 1. Although this review has not yet been completed, results to date appear to confirm that the condition of the Salem 2 steam generators is well within current repair limits at the present time. PSE&G will also remove tubes from the Salem 2 steam generators for laboratory analysis to further confirm the results of this testing. PSE&G had planned to return Salem 1 to service in the second quarter of 1996 and Salem 2 in the third quarter of 1996. As a result of the extent of the recently discovered degradation in the Salem 1 steam generators, PSE&G is focusing its efforts on the return of Salem 2 to service in the third quarter. The conduct of the additional steam generator inspections and testing on Salem 2 is not expected to adversely affect the timing of its restart. However, the timing of the restart is subject to completion of the requirements of the restart plan to the satisfaction of PSE&G and the NRC as well as to the normal uncertainties associated with such a substantial review and improvement of the systems of a large nuclear unit, so that no assurance can be given that the projected return date will be met. PSE&G's share of additional operating and maintenance expenses associated with Salem restart activities in 1995 was $16 million, and capital was $1.9 million. PSE&G's share of total operating and maintenance expenses for both Salem units for the year was $111 million and capital costs were $50.8 million. For 1996, PSE&G does not presently expect its share of operating and maintenance expenses or capital costs for Salem station to exceed 1995 amounts; however this could change as a result of the steam generator inspection results referred to above. The outage of a Salem unit causes PSE&G to incur replacement power costs of approximately $4 to $6 million per month. Such amounts vary, however, depending on the availability of other generation, the cost of purchased energy and other factors, including modifications to maintenance schedules of other units. PSE&G's 1995 aggregate capacity factor for its five nuclear units was 62%, below the 65% minimum annual standard established by the BPU (see Nuclear Performance Standard), resulting in a penalty of approximately $3.5 million. Based upon current projections and assumptions regarding PSE&G's five nuclear units during 1996, including the return of Hope Creek to service in early March, the return of Salem 2 in the third quarter, and the continued outage of Salem 1 for the remainder of the year, the 1996 aggregate capacity factor would be approximately 57%, which would result in a penalty ranging from $11 to $12 million. For a discussion of the proposed elimination of the NPS under the proposed Alternate Rate Plan, see Note 2 -- Rate Matters of Notes. An NRC enforcement conference was held on July 28, 1995 related to certain violations of NRC requirements at Salem. The violations included valves that were incorrectly positioned following a plant modification in May 1993, non-conservatisms in setpoints for a pressurizer overpressure protection system and several examples of inadequate root cause determination of events, leading to insufficient corrective actions. On October 16, 1995, the NRC imposed cumulative civil penalties of $600,000 related to these violations. PSE&G did not contest the penalties. On January 3, 1995, the NRC provided PSE&G with its latest Systematic Assessment of Licensee Performance (SALP) report on Salem for the period between June 20, 1993 and November 5, 1994. SALP is a process pursuant to which the NRC periodically reviews the performance of nuclear power plant operations. SALP reports rate licensee performance in four assessment areas: Operations, Maintenance, Engineering and Plant Support (the Plant Support area includes security, emergency preparedness, radiological controls, fire protection, chemistry and housekeeping). Ratings range from a high of "1" to a low of "3" for each assessment area. Salem received a rating of "3" in the Operations and Maintenance areas, a rating of "2" in Engineering, and a rating of "1" in the Plant Support area. The NRC noted an overall decline in performance and evidenced particular concern with plant and operator challenges caused by repetitive equipment problems and personnel errors. The NRC also noted that although PSE&G has initiated several comprehensive actions within the past year to improve plant performance, and some recent incremental gains have been made, these efforts have yet to noticeably change overall performance at Salem. On March 21, 1995, representatives of the NRC Staff met with the Boards of Directors of Enterprise and PSE&G to reiterate the previously expressed concerns with regard to Salem's operations. The NRC staff acknowledged that PSE&G had made efforts to improve Salem's operations, including making senior management changes, but indicated that demonstrated sustained results have not yet been achieved. PSE&G's own assessments, as well as those by the NRC and the Institute of Nuclear Power Operations, indicate that additional efforts are required to further improve operating performance, as reflected in the restart plans referred to above. PSE&G is committed to taking the necessary actions to address Salem's performance needs. It is anticipated that the NRC will continue to maintain a close watch on Salem's restart activities and subsequent operational performance. No assurance can be given as to what, if any, further or additional actions may be taken or required by the NRC to improve Salem's performance. For certain litigation and potential claims relating to Salem, see Item 3. Legal Proceedings and Note 12 -- Commitments and Contingent Liabilities of Notes. Hope Creek An outage at Hope Creek causes PSE&G to incur replacement energy costs of approximately $10 to $16 million per month. Such amounts vary, however, depending upon the availability of other generation, the cost of purchased energy and other factors including modifications to maintenance schedules of other units. Hope Creek is currently undergoing a refueling and maintenance outage which commenced November 11, 1995. Replacement power costs incurred during the outage are expected to be approximately $10 million per month. Hope Creek is presently scheduled to return to service in early March 1996. As a result of an internal allegation report, PSE&G submitted a Licensee Event Report to the NRC on October 14, 1994 which stated that in 1992, the Hope Creek control room was understaffed for approximately three minutes and a decision was made by those involved that the incident did not warrant initiation of NRC reporting documentation. A meeting with Region I NRC personnel was held on October 18, 1994 in which the NRC expressed a high degree of concern over the issue. Both the NRC and PSE&G investigated the validity of the allegation and, on September 19, 1995, the NRC issued two Level IV violations with no civil penalty for this incident. A small amount of low-level radioactive material was released to the atmosphere at Hope Creek on April 5, 1995. The release did not exceed federal limits nor pose any danger to the public or plant employees; however, a trailer driven offsite had exceeded the limit for releasing materials and was later cleaned. PSE&G and the NRC have investigated the event, and on June 16, 1995 an enforcement conference was held. On July 20, 1995, the NRC issued a Notice Of Violation for the Hope Creek unplanned release which noted four violations. No fine was issued, partly because of the comprehensive corrective actions taken following the event and the plant's history of limited enforcement action. On June 29, 1995, the NRC provided PSE&G with the latest periodic SALP report for Hope Creek for the period between June 20, 1993 and April 22, 1995. The Operations, Maintenance and Engineering areas each received a rating of "2", while the Plant Support area received a rating of "1". However, the NRC noted an overall decline in performance in the Operations, Maintenance and Engineering areas compared to the previous SALP period and cited weak root cause analysis as a dominant factor. On July 8, 1995, during a manual shutdown of Hope Creek in order to repair control room ventilation equipment, operators partially opened a valve for a period of time and inadvertently reduced the effectiveness of the shutdown cooling system. Although the impact of the event to plant safety was minimal, the positioning of the valve and the resulting temperature change violated plant procedures and technical specifications. On July 31, 1995, NRC staff met with plant management concerning this issue and subsequently determined to assign a special inspection team to independently evaluate this event as well as PSE&G s response to it, including PSE&G s procedures and training for operator handling of abnormal conditions. An NRC enforcement conference was held on November 6, 1995. On December 12, 1995, the NRC issued a Level III violation for this event, with a civil penalty of $100,000. PSE&G did not challenge the fine. By letter dated January 29, 1996, the NRC requested a meeting with PSE&G senior management to discuss its concerns regarding declining trends in performance at Hope Creek. The meeting has not yet been scheduled but is expected to occur after the restart of Hope Creek from its current refueling and maintenance outage. Peach Bottom The outage of a Peach Bottom unit causes PSE&G to incur additional replacement energy costs of approximately $4 to $6 million per month per unit. Such amounts vary, however, depending upon the availability of other generation, the cost of purchased energy and other factors including modifications to maintenance schedules of other units. PSE&G has been advised by PECO that on January 19, 1996, the NRC issued its periodic SALP Report for Peach Bottom for the period May 1, 1994 to October 14, 1995. Peach Bottom received a rating of "1" in the areas of Plant Operations, Maintenance, and Plant Support. Engineering received a rating of "2". The NRC found continued improvement in performance during the period. Operator performance continued to be a strength as well as operations management oversight. Effective engineering management actions to improve the overall self assessment and system performance evaluation programs were noted, as well as good management oversight activities. Response to emerging issues, equipment problems and event related issues were noted as particularly strong. However, lapses in the quality of technical work and in modification implementation indicated inconsistent performance, and resulted in a repeat rating of "2" for the Engineering area. PECO has advised PSE&G that it will be taking actions to address weaknesses discussed in the SALP Report. PSE&G has been advised by PECO that, by letter dated October 18, 1994, the NRC has approved PECO's request to re-rate the authorized maximum reactor core power levels of both Peach Bottom units by 5% to 3,458 MW from the current limits of 3,293 MW. The amendment of the Peach Bottom 2 facility operating license was effective upon the date of the NRC approval letter and the hardware changes were completed during the Fall 1994 refueling outage. The amendment of the Peach Bottom 3 facility operating license became effective when the hardware changes for Unit 3 were completed during its Fall 1995 refueling outage. PSE&G has been advised by PECO that on August 2, 1995, the NRC held an enforcement conference regarding three alleged violations identified by the NRC at Peach Bottom. The NRC s findings included alleged violations in control and design activities and technical specification requirements regarding operability of the emergency diesel generators. As a result, on August 17, 1995, the NRC issued PECO a Level III violation with no civil penalty. Other Nuclear Matters In 1990, General Electric (GE) reported that crack indications were discovered near the seam welds of the core shroud assembly in a GE Boiling Water Reactor (BWR) located outside the United States. As a result, GE issued a letter requesting that the owners of GE BWR plants take interim corrective actions, including a review of fabrication records and visual examinations of accessible areas of the core shroud seam welds. PSE&G (Hope Creek) and PECO (Peach Bottom) participated in a GE BWR Owners' Group to evaluate this issue and develop long-term corrective actions. During the Spring 1994 refueling outage, PSE&G inspected the shroud of Hope Creek in accordance with GE's recommendations and found no cracks. In June 1994, an industry group was formed and subsequently established generic inspection guidelines which were approved by the NRC. Due to the age and materials of the Hope Creek shroud and the historical maintenance of low conductivity water chemistry, Hope Creek has been placed in the lowest susceptibility category under these guidelines. Hope Creek must do another shroud inspection during its next refueling outage in 1997, or install a preemptive repair that would maintain the structural integrity of the shroud under all normal and design basis accident conditions for the remaining life of the plant. PECO has advised PSE&G that Peach Bottom 3 was last examined during its Fall 1995 refueling outage and the extent of cracking identified was determined to be within industry-established guidelines. In a letter to the NRC dated November 3, 1995, PECO concluded that there is a substantial margin for each core shroud weld to allow for continued operation of Unit 3. PECO has also advised that Peach Bottom 2 was examined in October 1994 during its refueling outage. Although some crack indications were identified, PECO advised that they were considered to be much less severe than those found on Unit 3, and no repairs were required to operate Unit 2 for another two-year cycle. As a separate matter, as a result of several BWR's experiencing clogging of some emergency core cooling system suction strainers, which supply water from the suppression pool for emergency cooling of the core and related structures, the NRC is drafting rules which tentatively require compliance by December 1997. Alternative resolution options will be subject to NRC approval. PSE&G cannot predict what other actions, if any, the NRC may take on this matter. Nuclear Decommissioning In accordance with Nuclear Waste Policy Act of 1992, as amended (NWPA), utilities owning an interest in nuclear generating facilities are required to determine the costs and funding methods necessary to decommission such facilities upon termination of operation. As a general practice, each nuclear utility places funds in independent external trust accounts it maintains to provide for decommissioning. PSE&G currently recovers from its customers the amounts paid into the trust fund over a period of years and would continue to do so under its proposed Alternative Rate Plan (see Note 2 -- Rate Matters of Notes). For information concerning enrichment of nuclear fuel and nuclear decommissioning costs, see Note 3 -- PSE&G Nuclear Decommissioning and Amortization of Nuclear Fuel of Notes. Electric Fuel Supply and Disposal The following table indicates PSE&G's KWH output by source of energy:
ACTUAL ESTIMATED SOURCE 1995 1996 ------ ------ --------- Nuclear New Jersey facilities.......................... 21% 23% Pennsylvania facilities........................ 16 15 Fossil Coal New Jersey facilities........................... 7 9 Pennsylvania facilities......................... 12 13 Natural Gas..................................... 8 10 Residual Oil.................................... 1 0 Net PJM Interchange and Utility Purchases and NUGs........................................ 35 30 ---- ---- Total................................................. 100% 100% ==== ====
PSE&G's cost of fuel used to generate electricity in the periods shown below was as follows: NATURAL NUCLEAR COAL GAS OIL --------- ------------------------------------- -------- ------- NEW JERSEY PENNSYLVANIA FACILITIES FACILITIES --------------- ------------------- CENTS/ CENTS/ CENTS/ CENTS/ CENTS/ MILLION MILLION MILLION MILLION $/ MILLION YEAR BTU $/TON BTU $/TON BTU BTU BARREL BTU - ---- ------ ------- ------- ------- ------- ------- ------ ------- 1993 59.3 55.45 203.8 33.73 136.6 221.7 23.44 384.5 1994 62.3 56.31 213.8 34.78 140.7 197.8 22.19 361.02 1995 60.8 58.29 214.0 33.30 134.4 176.6 20.17 324.50 Substantially all of PSE&G's electric sales are made under rates which are currently designed to permit the recovery of increases in energy costs over base costs on a current annual basis. The Alternative Rate Plan filed by PSE&G proposes discontinuing the Levelized Energy Adjustment Clause (LEAC) and NPS and would substantially shift the risks and opportunities involved in managing changes in fuel and replacement power costs from customers to PSE&G. (see Note 2 -- Rate Matters of Notes)
Nuclear Fuel The supply of fuel for nuclear generating units involves the mining and milling of uranium ore to uranium concentrate, conversion of the uranium concentrate to uranium hexafluoride, enrichment of the uranium hexafluoride gas, conversion of the enriched gas to fuel pellets and fabrication of fuel assemblies. PSE&G has several long-term contracts with ore operators to process uranium ore to uranium concentrate to meet the currently projected requirements for the Salem and Hope Creek units fully through the year 2000 and, thereafter, 60% of their requirements through the year 2002. Present contracts for conversion, enrichment and fabrication services to meet the fuel cycle requirements for Salem and Hope Creek units through the years shown in the following table:
NUCLEAR UNIT CONVERSION ENRICHMENT FABRICATION - ------------ ---------- ---------- ----------- Salem 1..................... 2000 (1) 2004 Salem 2..................... 2000 (1) 2005 Hope Creek.................. 2000 (1) 2000
(1) 100% coverage through 1998; approximately 50% through 2002; and approximately 30% through 2004. PSE&G does not anticipate any difficulties in obtaining necessary enrichment service for its Salem and Hope Creek units. PSE&G has been advised by PECO that it has contracts for the purchase of uranium which will satisfy the fuel requirements of Peach Bottom 2 and 3 through 2002. PSE&G has also been advised by PECO that it has contracts for the conversion of uranium concentrates which will be allocated to Peach Bottom 2 and 3 and two other nuclear generating units in which PSE&G does not have an interest, on an as-needed basis. PECO has also advised PSE&G that it has contracted for the following segments of the nuclear fuel supply cycle for Peach Bottom 2 and 3 through the following years:
NUCLEAR UNIT CONVERSION ENRICHMENT FABRICATION - ------------ ---------- ---------- ----------- Peach Bottom 2.............. 1997 2008 1999 Peach Bottom 3.............. 1997 2008 1998
For information regarding the decontamination and decommissioning funds, see Note 3 -- PSE&G Nuclear Decommissioning and Amortization of Nuclear Fuel of Notes. Coal Approximately 40% of PSE&G's coal supply for its New Jersey facilities is obtained under a contract which expires in 1999. The balance of the supply is contracted annually from various suppliers, many of whom PSE&G has dealt with on a continuing basis for a number of years, and is supplemented by spot market purchases. The New Jersey Air Pollution Control Code (NJAPCC) permits the burning of coal with a sulfur content of up to 1% at existing coal-fired generating stations including PSE&G's three coal-fired New Jersey units, Hudson 2 and Mercer 1 and 2. The weighted monthly average sulfur content of the coal received at Hudson Station and at Mercer Station must not exceed 1.0% (dry weight basis). PSE&G has been able to obtain sufficient quantities of 1% (or less) sulfur coal and does not presently anticipate any difficulties in obtaining adequate coal supplies to replace expiring contracts. (See Environmental Controls -- Air Pollution Control). PSE&G has approximately a 23% interest in the Keystone and Conemaugh coal-fired generating stations located in Western Pennsylvania and operated by Pennsylvania Electric Company. At least 71% of the fuel required by the Keystone station is supplied by one coal company under a contract which expires December 31, 2004. At least 30% of the fuel required by Conemaugh station is supplied by another coal company under a contract which expires on December 31, 1997. In addition, approximately 18% of Conemaugh's coal requirements is supplied by a short-term contract which expires on November 30, 1996. The balance of the fuel requirements for each station is supplied through spot purchases obtained from local suppliers. The Keystone Conemaugh Projects Office, which runs project administration at these plants on a day to day basis, has advised PSE&G that it does not expect any difficulties in obtaining adequate coal supplies. (See Environmental Controls). Natural Gas PSE&G utilizes natural gas available from various spot, short-term and long-term gas contracts, to replace other fuels for electric generation. Presently, there are no effective legal restrictions on the use of natural gas for electric generation in existing plants. However, approval by FERC is required for the interstate transportation of natural gas, either by virtue of existing blanket authority or through individual proceedings. PSE&G does not expect any difficulties in obtaining natural gas supplies. Oil PSE&G uses residual oil in its conventional fossil-fired, steam-electric units. The supply of residual oil is furnished by contract suppliers, supplemented by occasional spot market purchases. PSE&G uses distillate fuel in its combustion turbines which is acquired by spot market purchases. PSE&G does not presently anticipate any difficulties in obtaining oil supplies. Nuclear Fuel Disposal After spent fuel is removed from a nuclear reactor, it is placed in temporary storage for cooling in a spent fuel pool at the nuclear station site. Under NWPA, the Federal government has entered into contracts for transportation and ultimate disposal of the spent fuel. The Federal government's present policy is that spent nuclear fuel will be accepted for long-term storage at government-owned and operated repositories. However, at present, no such repositories are in service or under construction. In December 1989, the U.S. Department of Energy (DOE) announced that it would not be able to open a permanent, high- level nuclear waste storage facility until 2010, at the earliest. However, the DOE has also indicated that progress on the repository will be delayed beyond 2010 if sufficient funds are not appropriated by the Congress for this program. In conformity with the NWPA, PSE&G entered into contracts with the DOE for the disposal of spent nuclear fuel from Salem and Hope Creek. Similarly, PECO contracted with the DOE in connection with Peach Bottom 2 and 3. Under these contracts, the DOE is required to take title to the spent fuel at the site, then transport it and provide for its permanent disposal at a cost of one mil per KWH of nuclear generation, subject to such escalation as may be required to assure full cost recovery by the Federal government. In addition, a one-time payment was made to the DOE for permanently discharged spent fuels irradiated prior to 1983. On April 28, 1995, the DOE published its final interpretation on the nuclear waste acceptance issues in which it stated that it had no legal obligation to begin waste acceptance in 1998, in the absence of a repository or other storage facility. PSE&G s contracts with DOE call for DOE to begin accepting spent fuel from PSE&G in 1998. As a result, on September 7, 1995, PSE&G, along with 24 other utilities and a combination of 48 States, state regulatory agencies and municipal power agencies, filed a lawsuit in the US District Court of Appeals for the District of Columbia Circuit against the DOE to protect its contractual rights. Pursuant to NRC rules, spent nuclear fuel generated in any reactor can be stored safely and without significant environmental impact in reactor facility storage pools or in independent spent fuel storage installations located at reactor or away-from-reactor sites for at least 30 years beyond the licensed life for reactor operation (which may include the term of a revised or renewed license). As a result of reracking the two spent fuel pools at Salem, the availability of adequate spent fuel storage capacity is conservatively estimated through 2008 for Salem 1 and 2012 for Salem 2, prior to losing an operational full core discharge reserve. The Hope Creek pool is also fully racked and it is conservatively expected to provide storage capacity until 2006, again prior to losing an operational full core discharge reserve. The units can be safely operated for many years beyond these dates, as pool storage capacity will continue to be available. These dates simply assist in planning the need for additional storage capacity that may be needed to operate the units until the expiration of their operating license. In addition, PECO has advised PSE&G that spent fuel racks at Peach Bottom have storage capacity until 2000 for Unit 2 and 2001 for Unit 3, prior to losing full core reserve capability, and that expansion of storage capacity beyond such dates is being investigated. Low Level Radioactive Waste (LLRW) As a by-product of their operations, nuclear generating units, including those in which PSE&G owns an interest, produce LLRW. Such wastes include paper, plastics, protective clothing, water purification materials and other materials. Such materials are accumulated on site and disposed of at a federally licensed permanent disposal facility in Barnwell, South Carolina. In 1991, New Jersey enacted legislation providing for funding of the estimated $90 million cost of establishing a LLRW disposal facility. The State would recover the costs through fees paid by LLRW generators. PSE&G's overall share is expected to be about 40% of the total cost and has provided about $4.8 million to date. New Jersey has introduced a volunteer siting process to establish a LLRW disposal facility by the year 2000. Public meetings have been held across the state in an effort to provide information to and obtain feedback from the public. To date, there have been no volunteers identified. Because of the uncertainties in disposal, PSE&G built an on-site facility completed in September 1994. This facility provides five years storage for LLRW from Hope Creek and Salem. The facility was used from July 1994 through June 1995, while the Barnwell facility was temporarily unavailable, and emptied when Barnwell re-opened in 1995. It will be used for interim storage of radioactive materials and waste, and if it proves necessary in the future, to temporarily store waste until New Jersey provides a permanent disposal facility. PECO has advised PSE&G that it has an on-site LLRW storage facility for Peach Bottom, which will provide at least 5 years of temporary storage. PECO has also advised PSE&G that Pennsylvania is pursuing its own LLRW site development via state-selected candidate sites, along with a volunteer plan option. PSE&G has paid $2.5 million as its share of siting costs due to its ownership in the Peach Bottom units. Gas Operations and Supply PSE&G supplies its gas customers principally with natural gas. PSE&G supplements natural gas with purchased refinery gas and liquefied petroleum gas produced from propane. The adequacy of supply of all types of gas is affected by the nationwide availability of all sources for energy production. As of December 31, 1995, the daily gas capacity of PSE&G was as follows:
Type of Gas Therms Per Day ------------------------------------ -------------- Natural gas......................... 23,191,270 Liquefied petroleum gas............. 2,200,000 Refinery gas........................ 400,000 ----------- Total........................... 25,791,270 ===========
About 40% of the daily gas capacity is high load factor natural gas and is available every day of the year. The remainder comes from field storage, liquefied natural gas, seasonal sales, contract peaking supply, propane and refinery gas. PSE&G's total gas sold to and transported for its various customer classes in 1995 was 3.9 billion therms which consisted of approximately 96% natural gas. Included in this amount is 1.6 billion therms of gas delivered to customers under PSE&G's transportation tariffs and individual cogeneration contracts. (See Operating Statistics of PSE&G). During 1995, PSE&G purchased approximately 3.3 billion therms of gas for its combined gas and electric operations directly from natural gas producers and marketers and the balance from interstate pipeline suppliers. These supplies were transported to New Jersey by PSE&G's four interstate pipeline suppliers. This diversification of supply sources provides PSE&G with reliability of supply, purchasing flexibility and lower overall costs. PSE&G's gas supply contracts expire at various times over the next two to ten years. PSE&G does not presently anticipate any difficulty in negotiating replacement contracts. Since the quantities of gas available to PSE&G under its supply contracts are more than adequate in warm months, PSE&G nominates part of such quantities for storage, to be withdrawn during the winter season, under storage contracts with its principal suppliers. Underground storage capacity currently is approximately 770 million therms. PSE&G does not presently anticipate any difficulty in obtaining adequate supplies of natural gas. PSE&G's annual average cost of natural gas sendout is shown below:
Cents Per Year Million BTU(A) ---------------------------------- -------------- 1995.............................. 308.00 1994.............................. 318.09 1993.............................. 327.00
(A) Excludes contribution by PSE&G's electric operating units for a gas reservation charge and natural gas refunds from suppliers. Substantially all of PSE&G's gas sales are made under rates which are currently designed to permit the recovery of projected increases in the cost of natural gas and gas from supplemental sources, when compared to levels included in base rates, on a current annual basis. (See Note 2 -- Rate Matters of Notes.) The demand for gas by PSE&G's customers is affected by customer conservation, economic conditions, weather, the price relationship between gas and alternative fuels and other factors not within PSE&G's control. Presently, the majority of gas sold in interstate commerce has become deregulated. The ability of gas prices to respond to market conditions has improved in recent years because of actions taken by the FERC. Pipeline companies are able to adjust their gas rates up or down through their purchased gas adjustment mechanism more often than the semi-annual filings of prior years. As discussed above in Competition, FERC actions provided pipeline customers, such as PSE&G, with the opportunity to convert a portion of their pipeline sales contracts to transportation agreements and purchase natural gas supplies directly from a producer or other seller of natural gas. This has increased competition in the gas market by encouraging pipeline companies to act as non-discriminatory transporters of natural gas. PSE&G has taken advantage of these actions to lower its overall gas costs through the displacement of higher cost contract supplies with lower cost spot gas purchases and long-term producer contract supplies. (See Competition.) PSE&G was able to meet all of the demands of its firm customers during the 1994-95 winter season and expects to continue to meet such energy-related demands of its firm customers during the 1995-96 winter season. However, the sufficiency of supply could be affected by several factors not within PSE&G's control, including curtailments of natural gas by its suppliers, the severity of the winter, the extent of energy conservation by its customers and the availability of feedstocks for the production of supplements to its natural gas supply. During the 1995-96 heating season through February 14, 1996, it was necessary for PSE&G to interrupt service to 'interruptible' customers for 25 days as permitted by the applicable tariff. During the 1994-95 heating season, service to such customers was interrupted for eight days. Employee Relations Enterprise has no employees. As of December 31, 1995, PSE&G and its subsidiaries employed 11,452 persons. Four-year bargaining agreements between PSE&G and its unions, representing 6,746 employees, will expire April 30, 1996. Also at December 31, 1995, EDHI and its subsidiaries employed 523 persons, of which 38 were represented by unions. PSE&G, EDHI and their subsidiaries believe that they maintain satisfactory relationships with their employees. For information concerning the employee pension plan and other postretirement benefits, see Note 1 -- Organization and Summary of Significant Accounting Policies, Note 13 -- Postretirement Benefits Other Than Pensions and Note 14 -- Pension Plan of Notes. Regulation Enterprise has claimed an exemption from regulation by the SEC as a registered holding company under PUHCA, except for Section 9(a)(2) thereof, which relates to the acquisition of 5% or more of the voting securities of an electric or gas utility company. Enterprise is not subject to direct regulation by the BPU, except potentially with respect to certain transfers of control and reporting requirements, and is not subject to regulation by the FERC. The BPU may also impose certain requirements with respect to affiliate transactions between and among PSE&G, Enterprise and Enterprise's nonutility subsidiaries. (See EDHI.) As a New Jersey public utility, PSE&G is subject to comprehensive regulation by the BPU including, among other matters, regulation of intrastate rates and service and the issuance and sale of securities. As a participant in the ownership and operation of certain generation and transmission facilities in Pennsylvania, PSE&G is subject to regulation by the Pennsylvania Public Utility Commission (PPUC) in limited respects in regard to such facilities. PSE&G is subject to regulation by FERC and by the Economic Regulatory Administration, both within DOE, with respect to certain matters, including regulation by FERC with respect to interstate sales and exchanges of electric transmission, capacity and energy, including cogeneration and small power production projects being constructed pursuant to PURPA, and accounts, records and reports. PSE&G is also subject to regulation by the United States Department of Transportation (USDOT) with respect to safety standards for pipeline facilities and the transportation of gas under the Natural Gas Pipeline Safety Act of 1968. In addition, the New Jersey Need Assessment Act (NJNAA) provides that no public utility shall commence construction of any electric facility (as defined in the NJNAA) without having first obtained a Certificate of Need (Certificate of Need) from the Division of Energy Planning and Conservation within the New Jersey Department of Environmental Protection (NJDEP). A Certificate of Need, if granted, is valid for three years, renewable subject to review by the Commissioner of the NJDEP. Under the NJNAA, no state or local agency may issue any license or permit required for any such construction or substantial expansion prior to the issuance of the Certificate of Need. An electric facility is defined under the NJNAA as any electric power generating unit or combination of units at a single site with a capacity of 100 MW or more or any such units added to an existing electric generating facility which will increase its installed capacity by 25% or by more than 100 MW, whichever is smaller. Under NJNAA, a Certificate of Need will be issued only if the NJDEP Commissioner determines that the proposed facility is necessary to meet the projected need for electricity in the area to be served and that no more efficient, economical or environmentally sound alternative is available. For information concerning nuclear insurance coverages, the BPU's NPS and assessments and the Price-Anderson Amendments Act of 1988, as amended, (Price Anderson) see Note 12 -- Commitments and Contingent Liabilities of Notes. The New Jersey Public Utility Accident Fault Determination Act (Fault Act) requires the BPU to make a determination of fault with regard to any accident at any electric generating or transmission facility prior to granting a request by any utility for a rate increase to cover accident-related costs in excess of $10 million. Fault, as defined in the Fault Act, means any negligent action or omission of any party which either contributed substantially to causing the accident or failed to mitigate its severity. However, the Fault Act allows the affected utility to file for non-accident related rate increases during such fault determination hearings and to recover contributions to federally mandated or voluntary cost-sharing plans and allows the BPU to authorize the recovery of certain fault-related repair, clean-up, power replacement and damage costs if substantiated by the evidence presented and if authorized in writing by the BPU. The Fault Act could have a material adverse effect on PSE&G's financial position if such an accident were to occur at a PSE&G facility, it was ultimately determined that the accident was due to the fault of PSE&G and the BPU were to deny recovery of all or a portion of the costs related thereto. The Alternative Rate Plan filed by PSE&G proposes discontinuing LEAC and NPS and would substantially shift the risks and opportunities involved in managing changes in fuel and replacement power costs from customers to PSE&G. See Note 2 - Rate Matters -- Alternative Rate Plan and LEAC of Notes. Under New Jersey law, the BPU is required to audit all or a portion of the operating procedures and other internal workings of every gas or electric utility subject to its jurisdiction, including PSE&G, at least once every six years. Under the law, the audit may be performed either by the BPU Staff or under the supervision of designated members of such Staff by an independent management consulting firm, chosen by the utility from a list provided by the BPU. The BPU may, upon completion of the audit and after notice and hearing, order the utility to adopt such new practices and procedures that it shall find reasonable and necessary to promote efficient and adequate service to meet public convenience and necessity. The last such management audit of PSE&G was completed in 1991. In 1992, as a follow-up to its 1991 management audit, the BPU conducted a focused audit of Enterprise's nonutility businesses to ascertain whether nonutility activities had harmed PSE&G. Enterprise has consistently maintained a clear and distinct separation of its utility and nonutility operations and believes that its nonutility activities have not in any way adversely affected the utility. The results of the focused audit confirmed that there has been no harm to PSE&G as a result of Enterprise's nonutility activities. However, as a result of recommendations made by the BPU's auditors regarding operations and intercompany relationships between PSE&G and EDHI's nonutility businesses, the BPU approved a plan which, among other things, provides: (1) that Enterprise will not permit EDHI's nonutility investments to exceed 20% of Enterprise's consolidated assets without prior notice to the BPU (such assets at December 31, 1995 were approximately 15%); (2) for a restructuring of the PSE&G Board to include nonemployee Enterprise directors with an annual certification by such Board that the business and financing plans of EDHI will not adversely affect PSE&G; (3) for an Enterprise agreement to (a) limit debt supported by the minimum net worth maintenance agreement between Enterprise and Capital to $750 million, and (b) make a good-faith effort to eliminate such support over a six to ten year period from April 1993; and (4) the payment by EDHI to PSE&G of an affiliation fee of up to $2 million a year which will be applied by PSE&G through its LGAC and LEAC to reduce utility rates. Effective January 31, 1995, the debt supported by the minimum net worth maintenance agreement will be limited to $650 million and such affiliation fee will be proportionately reduced as such supported debt is reduced. In addition, Enterprise and EDHI and its subsidiaries continue to reimburse PSE&G for all costs of services provided by employees of PSE&G. The issue of Enterprise sharing the benefits of consolidated tax savings with PSE&G or its ratepayers was not resolved by the plan approved as a result of the focused audit and remains open. Enterprise believes that PSE&G's taxes should be treated on a stand-alone basis for rate-making purposes, based on the separate nature of the utility and nonutility businesses. However, neither Enterprise nor PSE&G is able to predict what action, if any, the BPU may take concerning consolidation of tax benefits in future proceedings. On July 28, 1995, the BPU reported to PSE&G that it had fully evaluated all available information regarding the 18 recommendations of the Focused Audit conducted by the BPU's consultant and determined that 17 have been implemented pursuant to the BPU's Order Approving Audit Implementation Plans. The remaining issue regarding Enterprise sharing the benefits of consolidated taxes with PSE&G or its ratepayers may be considered in the context of a future base rate case, or in a filing that considers an alternative form of regulation. PSE&G cannot predict what actions, if any, the BPU may take regarding the consolidated tax issue. (See Note 2 -- Rate Matters - Consolidated Tax Benefits of Notes.) Construction and operation of nuclear generating facilities are regulated by the NRC. For additional information relating to regulation by the NRC, see Nuclear Operations. In addition, the Federal Emergency Management Agency is responsible for the review in conjunction with the NRC of certain aspects of emergency planning relating to the operation of nuclear plants. CEA invests in and participates in the development and operation of domestic and foreign cogeneration and power production facilities, which include QFs and EWGs. For additional information, see EDHI -- CEA. The BPU has authority to regulate power sales agreements within the BPU's pricing guidelines to utilities in the State of New Jersey and ascertain that the terms and conditions of agreements with New Jersey utilities are fair and reasonable. For additional information, see EDHI. Environmental Controls PSE&G, like most industrial enterprises, is subject to regulation with respect to the environmental impacts of its operations, including air and water quality control, limitations on land use, disposal of wastes, aesthetics and other matters, by various federal, regional, state and local authorities, including the United States Environmental Protection Agency (EPA), the United States Department of Transportation (USDOT), NJDEP, the New Jersey Department of Health, the BPU, the Interstate Sanitation Commission, the Hackensack Meadowlands Development Commission, the Pinelands Commission, the Delaware River Basin Commission, the United States Coast Guard and the United States Army Corps of Engineers. EDC, CEA and EGDC are also subject to similar regulation with respect to operation of their facilities. (See EDHI) Environmental laws generally require air emissions and water discharges to meet specified limits. They also impose potential joint and several liability, without regard to fault, on the generators of various hazardous substances to manage these materials properly and to clean up property affected by the production and discharge of such substances. Compliance with environmental requirements has caused PSE&G to modify the day-to-day operation of its facilities, to participate in the cleanup of various properties that have been contaminated and to modify, supplement and replace existing equipment and facilities. During 1995, PSE&G expended approximately $148 million for capital related expenditures to improve the environment and comply with changing regulations. It is estimated that PSE&G will expend approximately $81 million, $43 million, $35 million, $30 million and $13 million in the years 1996 through 2000, respectively, for such purposes. Such amounts are included in PSE&G's estimates of construction expenditures. (See MD&A -- Liquidity and Capital Resources.) Preconstruction analyses and projections of the environmental impacts of contemplated activities, discharges and emissions are frequently required by the permitting agency. Before licensing approvals and permits are granted, the agency usually requests a modeling analysis of the effects of a specific action, and of its effect in combination with other existing and permitted activities, and may request the applicant to address emerging environmental issues. Such environmental reviews have caused delays in the proceedings for licensing facilities and similar delays can be expected in the future. An industry issue with respect to the construction and operation of electric transmission and distribution lines is the alleged adverse health effects of EMF exposure. In 1990, the New Jersey Commission on Radiation Protection (CORP) decided against setting a limit on magnetic fields produced by high-voltage power lines citing the lack of convincing evidence required to determine dangerous levels. Proposed power regulations are currently under study by CORP to cover new power lines and allow existing power lines to continue to function regardless of new rule changes. If revised, the rules would authorize the NJDEP to screen all new power line projects of 100 kilovolts or more using a principle of "as low as reasonably achievable" to demonstrate that all steps within reason, including modest cost, were taken to reduce EMFs. The outcome of EMF study and/or regulations and the public concerns will affect PSE&G's design and location of future electric power lines and facilities and the cost thereof. Such amounts as may be necessary to comply with these new EMF rules and address public concerns cannot be determined at this time, but such amounts could be material. The New Jersey Environmental Rights Act provides that any person may maintain a court action against any other person to enforce, or to restrain the violation of any statute, regulation or ordinance which is designed to prevent or minimize pollution, impairment or destruction of the environment, or where no such violation exists, to protect the environment from pollution, impairment or destruction. Certain Federal legislation confers similar rights on individuals. The principal laws and regulations relating to the protection of the environment which affect PSE&G's operations are described below. Air Pollution Control The Federal Clean Air Act ("CAA") imposes emission control requirements across the United States, including requirements related to the emissions of sulfur dioxide and Nitrogen Oxides ("NOx") and requires attainment of National Ambient Air Quality Standards ("NAAQS"). PSE&G's two wholly-owned and operated coal-fired generating stations in New Jersey are presently expected to be able to meet CAA sulfur dioxide requirements with only modest expenditures. PSE&G also has approximately a 23% interest in Conemaugh and Keystone, coal-fired generating stations located in western Pennsylvania. With respect to Conemaugh, in order to comply with the CAA Sulfur Dioxide Requirements, the station's co-owners, including PSE&G, approved the installation of scrubbers (flue gas desulfurization systems). PSE&G's share of the remaining Conemaugh scrubber cost is less than $1.0 million and is included in PSE&G's estimate of construction expenditures. Scrubber construction at Conemaugh Unit 2 was completed in November 1995. Keystone is presently expected to comply with the Sulfur Dioxide Requirements by utilizing excess emission allowances from the over-scrubbing of the Conemaugh units. The CAA established a national emission trading system for Sulfur Dioxide allowances. Yearly allowances have been allocated according to a formula specified by the CAA and applicable to owner/operators of large boilers and power generating equipment. New Jersey and other Northeastern states have imposed Reasonably Available Control Technology ("RACT") requirements on each major source of NOx. Additionally, these states have committed to additional overall NOx emission reductions on power plants and large industrial boilers of .2 pounds per million BTUs by 1999 with potential additional reductions of .15 pounds per million BTUs by 2003. All of PSE&G's Fossil Generating units are currently in compliance with RACT requirements. The NJDEP, in concert with other states in the Northeast, is implementing a regional CAA NOx allowance emission trading system for power plants and large industrial boilers. This includes the allocation of emission allowances to these sources in 1996. The NOx allowance trading system is scheduled to be operational by the beginning of 1999 and could result in additional changes to equipment, methods of operation or fuel. EPA has promulgated six NAAQS. PSE&G's Fossil Generating Stations are all located in areas of non-attainment for ozone. Each state has the responsibility under the CAA to adopt a plan, and regulations, to attain and maintain compliance to these standards. In New Jersey, NJDEP is using the New Jersey Air Pollution Control Code ("NJAPCC") to achieve compliance with, and maintenance of, the NAAQS. The NJAPCC provides stringent requirements restricting the sulfur content in coal and oil fuels. (See PSE&G -- Electric Fuel Supply and Disposal -- Coal.) The increased cost of purchasing low- sulfur fuel is offset by rates which are designed to permit the recovery of fuel costs on a current annual basis. In accordance with the proposed Alternative Rate Plan, separate mechanisms would be established to ensure continued recovery of costs associated with activities mandated or approved by state or federal agencies or otherwise out of PSE&G's control. (See PSE&G -- Electric Fuel Supply and Disposal and Note 2 -- Rate Matters of Notes.) The CAA also requires that each major facility apply for and receive a facility-wide operating permit. The facility-wide operating permit terms and conditions are enforceable by both the EPA and NJDEP. PSE&G filed permit applications for its major facilities in New Jersey in 1995. The operating permit program will require some PSE&G facilities to assess emissions, which could require the installation of emission monitoring equipment and changes to facility operations or technology. To the extent estimates of the costs of complying with these requirements through the year 2000 are quantifiable, they are included in PSE&G's construction expenditures. In accordance with the filed Alternative Rate Plan, PSE&G has requested to have separate mechanisms to ensure continued recovery of costs associated with activities mandated or approved by State or Federal agencies, although no assurances can be given as to what action may be taken by the BPU. In addition, the revised CAA requirements will increase the cost of producing electricity for the Pennsylvania and Ohio Valley Region Generating units supplying electricity to the PJM and New Jersey. All of PSE&G's current purchased power costs are included in PSE&G's LEAC. (See Note 2 -- Rate Matters of Notes.) In non-attainment areas, one of the effects of the CAA is to allow construction or expansion of a facility only upon a showing that any additional emissions from the source will be more than offset by reductions in similar emissions from existing sources. In prevention of significant deterioration areas, construction or expansion of a facility would be permitted only if emissions from the source, together with emissions from other expected new sources, would not violate air quality increments for particulates and sulfur dioxide that are more stringent than NAAQS. All of these requirements may affect PSE&G's ability to locate, construct or expand generating facilities in the future. PSE&G has been working collaboratively with environmentalists, a select number of other electric utilities in the Northeast, NJDEP and other Northeast environmental regulators, EPA, and a number of large manufacturing companies to achieve significant emission reductions from power plants in the Midwest. PSE&G has also been working with these respective groups to establish a flexible NOx and Volatile Organic Compound ("VOC") emissions trading system as a compliance alternative to CAA compliance requirements for industrial facilities, highway and off-highway emission sources, state transportation CAA conformity and automobile inspection and maintenance. Significant emission reductions from Midwest are expected to improve New Jersey's and the Northeast's air quality thereby lessening the need for additional New Jersey emission controls over and beyond those already regulatorily adopted. These collaborative efforts, coupled with growing environmental regulator and industry concerns for cost-effective compliance with CAA requirements, have resulted in the creation of a thirty-seven state environment forum called Ozone Transport Assessment Group ("OTAG"). This includes Midwest, Northeast and Southern states east of the Mississippi River. OTAG's charter is to produce consensus recommendations concerning the need for additional emission controls and to identify the level and sources to which those controls should be applied. OTAG is expected to conclude its work by the fall of 1996. If the OTAG process fails to produce consensus that leads to an agreement by individual states to undertake timely necessary control actions, affected downwind states such as those in the Northeast are required as part of their EPA approved 1994 CAA State Implementation Plans to submit petitions to EPA seeking EPA's imposition of controls on upwind states. It is difficult to determine at this time the likely outcome of this process. Recently, the issue of transported air pollution from the Midwest power plants and their negative impact on air quality in the Northeast has become the subject of concern before the FERC. The FERC has performed a draft environmental impact statement to assess the environmental impact of developing a generic rule by which electric utilities will be required to provide full non-discriminatory transmission access to all wholesale power providers. PSE&G and a number of other utilities, environmental groups and regulators have submitted comments seeking FERC's mitigation of expected additional power plant emissions resulting from the implementation of FERC's open access policies. It is too soon to determine to what extent FERC will act on the concerns raised. Water Pollution Control The Federal Water Pollution Control Act (FWPCA) authorizes the imposition of technology and water-quality based effluent limitations to regulate the discharge of pollutants into the surface waters of the United States through the issuance of National Pollutant Discharge Elimination System (NPDES) permits. The New Jersey Water Pollution Control Act (NJWPCA) authorizes the NJDEP to regulate discharges to surface waters and ground waters of the State through the New Jersey Pollutant Discharge Elimination System (NJPDES) permits. NJDEP also administers the NPDES/NJPDES permit program. Certain PSE&G facilities are directly regulated by NJPDES permits issued pursuant to FWPCA and the NJWPCA. In addition, the FWPCA also imposes additional requirements with respect to the control of toxic discharges to degraded waterbodies under Section 304(1). Although five PSE&G electric generating stations (Bergen, Hudson, Kearny, Linden and Sewaren) were originally subject to requirements imposed pursuant to Section 304(l), the NJDEP and EPA have proposed delisting these stations from the 304(l) program for the present time. The FWPCA also authorizes the imposition of less stringent thermal limits pursuant to a variance procedure set forth in Section 316(a) and the regulation of cooling water intake structures pursuant to Section 316(b). PSE&G has filed information with the NJDEP in support of Section 316(a) variance requests and Section 316(b) best technology available determinations for several of its electric generating stations which are pending before the NJDEP presently and may be required to submit information for other stations as a result of the permit renewal process. With respect to Section 316(b) requirements, the EPA initiated a rulemaking procedure in 1994 to develop regulations implementing this provision. Pursuant to a Consent Decree entered by a Federal District Court resolving an action to compel the rulemaking brought by a number of environmental groups including certain of those who opposed the 1994 Salem NJPDES permit, EPA must propose draft regulations on or before July 2, 1999 and promulgate final regulations by August 2001. While the content and scope of these regulations can not be predicted at this time, they may have a considerable effect on agency review of section 316(b) determinations pending in 1999 or after. (see discussions on Hudson, Mercer, and Salem NJPDES permits below.) The FWPCA and the NJWPCA also authorize the discharge of stormwater from certain facilities including steam electric generating stations. In many instances, this is accomplished through the development of Stormwater Pollution Prevention Plans (SPPP). Similarly, both laws authorize Publicly Owned Treatment Works (POTW) to issue permits for significant industrial users (SIU) of the treatment facility. Certain of PSE&G's facilities have permits under the SPPP and SIU programs. A brief discussion on pending permit proceedings which have the potential to impose new or more stringent terms or conditions which could require changes to operations or significant expenditures follows: Hudson Station's NJPDES permit is in the process of being renewed by the NJDEP. As part of that renewal, the NJDEP has requested updated information in connection with PSE&G's 316(a) and 316(b) demonstrations, in part, to address issues identified by a consultant hired by NJDEP. The consultant recommended that Hudson be retrofit to operate with closed cycle cooling to address alleged adverse impacts associated with the thermal discharge and intake structure. PSE&G is in the process of collecting additional data which will be used in the updated demonstrations. PSE&G anticipates submitting these documents to NJDEP in the first quarter of 1998. It is impossible to predict the NJDEP's determinations on these demonstrations; however, PSE&G presently estimates that the cost of retrofitting Hudson to operate with closed cycle cooling could be in excess of $59 million in 1998 dollars. NJDEP has advised PSE&G that it is preparing a renewal permit for Mercer Station and, in connection with that renewal, will also be reexamining Mercer's compliance with Section 316(a) & 316(b). This may result in PSE&G's being required to submit updated 316(a) and 316(b) demonstrations for NJDEP review. It is impossible to predict at this time the outcome of such review. PSE&G is implementing the 1994 NJPDES permit issued for Salem Station which requires, among other things, water intake screen modifications and wetlands restoration. In addition, PSE&G is seeking permits and approvals from various agencies needed to fully implement the special conditions of the permit. No assurances can be given as to receipt of any such additional permits or approvals. The estimated capital cost of compliance with the final permit is approximately $100 million, of which PSE&G's share is 42.59% and is included in PSE&G's 1996-2000 construction program. In accordance with the filed Alternative Rate Plan PSE&G has requested to have separate mechanisms to ensure continued recovery of costs associated with activities mandated or approved by State or Federal agencies, although no assurances can be given as to what action may be taken by the BPU. PSE&G must apply to renew the Salem permit in March 1999 which renewal application must provide updated Section 316(a) and 316(b) demonstrations for the NJDEP's review. (See the discussion above regarding EPA's Section 316(b) rulemaking.) (See MD&A -- Liquidity and Capital Resources -- Construction, Investments and Other Capital Requirements Forecast.) In June, 1995, PSE&G filed an application with the Delaware River Basin Commission (DRBC) seeking a modification to the heat dissipation area previously established based upon the NJDEP's grant of a Section 316(a) variance for Salem Station. DRBC issued a modified Docket in September 1995 granting PSE&G's request. PSE&G must reapply to the DRBC in 1999 for a continuation of this heat dissipation area. PSE&G anticipates that NJDEP will issue a draft renewal permit for Hope Creek Station in 1996 which will not propose effluent limitations or other requirements significantly more stringent than those in the existing permit. CEA Eagle Point, Inc. (Eagle Point), an indirect subsidiary of CEA, is a partner in a partnership which owns the Eagle Point Cogeneration Facility (EPC), located in West Deptford, New Jersey. EPC is operated by an affiliate of Eagle Point's partner and provides electricity and steam for an adjacent petroleum refinery (owned and operated by another affiliate of Eagle Point's partner) and sells excess electricity to PSE&G. On January 15, 1995, Eagle Point received a Notice of Violation (NOV) from Region II of EPA alleging violations of certain CAA requirements and limitations related to the air permit at EPC and the adjacent refinery and demanding that such violations be corrected. Eagle Point, its partner and the operator of the refinery are contesting the EPA conclusion that violations have occurred and have met with staff of EPA and NJDEP to discuss issues related to the NOV. Eagle Point cannot predict whether EPA will take action with respect to the NOV and, if so, what action it may take. Applicable regulations provide EPA with the power to seek to collect criminal and civil penalties for continued violation of the provisions of air permits. Control of Hazardous Substances PSE&G Manufactured Gas Plant Remediation Program For information regarding PSE&G's Manufactured Gas Plant Remediation Program, see Note 12 -- Commitments and Contingent Liabilities of Notes. Other Sites A preliminary review of possible mercury contamination at the Kearny Station concluded that an additional study and investigations are required. In 1995, PSE&G entered into a Memorandum of Agreement (MOA) with NJDEP for the Kearny Generating Station pursuant to which PSE&G will conduct a Remedial Investigation (RI) of the site. A Remedial Investigation Work Plan (RIWP) has been filed and is currently under review by the NJDEP. Field work activities associated with the RI will begin after NJDEP approval of the RIWP. Hazardous Substances The Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA), as amended by the Superfund Amendments and Reauthorization Act of 1986 and the Federal Resource Conservation and Recovery Act of 1976 (RCRA), authorize EPA to issue orders and/or to bring an enforcement action to compel responsible parties to take investigative and/or cleanup actions at any site that is determined to present an imminent and substantial danger to the public or to the environment because of an actual or threatened release of one or more hazardous substances. The New Jersey Spill Compensation and Control Act (Spill Act) provides similar authority to NJDEP. Because of the nature of PSE&G's business, including the production of electricity, the distribution of gas and, formerly, the manufacture of gas, various by-products and substances are or were produced or handled which contain constituents classified as hazardous under one or more of the above laws. PSE&G generally provides for the disposal or processing of such substances through licensed independent contractors. However, these statutory provisions impose joint and several liability without regard to fault on all allegedly responsible parties, including the generators of the hazardous substances for certain investigative and cleanup costs at sites where these substances were disposed or processed. These statutes also authorize private rights of action for recovery of these costs. PSE&G has been notified with respect to a number of such sites and the cleanup of these potentially hazardous sites is receiving greater attention from the government agencies involved. Generally,actions directed at funding such site investigations and cleanups include suspected or known allegedly responsible parties. PSE&G's past operations suggest that some remedial action may be required. PSE&G does not expect its expenditures for any such site to have a material effect on its financial position, results of operations or net cash flows. EPA has determined that a portion of the Passaic River from a point at its confluence with Hackensack River to a point six miles up- river (the Site) is a "facility" within the meaning of that term as defined under CERCLA. EPA has also determined that five corporations are persons within the meaning of CERCLA for purposes of liability under CERCLA with respect to remedial actions at the Site. EPA has publicly indicated that it is continuing an assessment of available information with respect to the identification of other responsible parties. One of these corporations has entered into a consent order with EPA pursuant to which it is obligated to conduct a remedial investigation, human and ecological risk assessment and feasibility study relating to the Site. Field work activities associated with these actions were initiated in the spring of 1995. A report presenting the results of the remedial investigation and risk assessment is scheduled to be filed in the fall of 1997. PSE&G and certain of its predecessors conducted operations at properties along the Passaic River both within and outside the Site. EPA has not named PSE&G as a responsible party. PSE&G cannot predict what, if any, action EPA or others may take against PSE&G with respect to the Site or, in such event, what contributions PSE&G may be required to make to the costs of these initiatives. Presently, significant CERCLA/Spill Act actions involving PSE&G include the following: (1) Claim made in 1985 by U. S. Department of the Interior under CERCLA with respect to the Pennsylvania Avenue and Fountain Avenue municipal landfills in Brooklyn, New York for damages to natural resources. The U.S. Government alleges damages of approximately $200 million. To PSE&G's knowledge, there has been no action on this matter since 1988. (2) Claim by EPA, Region III, under CERCLA with respect to a site operated by Sealand Ltd. in Mount Pleasant Township, New Castle County, Delaware. PSE&G and other companies have entered into an Administrative Consent Order (ACO) obligating the signatories thereto to fund a Remedial Investigation and Feasibility Study (RI/FS). PSE&G's share of the costs of actions taken at this site have approximated 25% of such costs. In 1991, EPA entered a Record of Decision (ROD) which determined that no further action was required at the site. The State of Delaware filed comments objecting to this ROD and hired a consultant which has recommended that additional actions be taken at the site based on its review of EPA's files. The State of Delaware required the potentially responsible parties (PRPs) to conduct additional groundwater analyses during 1994. Based on its review of the monitoring data, in 1995, the State of Delaware proposed to require the PRPs to conduct additional groundwater monitoring for a five year period and to reimburse it for its past and future oversight costs associated with this site. Delaware has not yet provided an estimate on its oversight costs. (3) At the Duane Marine Salvage Corporation Superfund Site in Perth Amboy, Middlesex County, New Jersey, PRPs including PSE&G, had completed an EPA-approved surface removal action during 1986 and EPA had required no further response actions. However, NJDEP ordered that an RI/FS be performed to address or disprove an alleged subsurface contamination and, following negotiations with the PRPs, including PSE&G, an ACO was executed. The PRPs have submitted an RI/FS and a second revised Draft Feasibility Study. In 1994, NJDEP selected a remedy for the site, the total cost of which is estimated to be $1,500,000. Based upon the claims made and activities taken to date, PSE&G anticipates that its obligations with respect to this site will be de minimis. (4) Spill Act Directive issued by NJDEP in 1987 to PRPs, including PSE&G, with respect to a site formerly owned and operated by Borne Chemical Company in Elizabeth, Union County, New Jersey, ordering certain interim actions directed at both site security and the off-site removal of certain hazardous substances. Certain PRPs, including PSE&G, signed an ACO with NJDEP to secure the site, which has been completed. After further negotiations, certain other PRPs, including PSE&G, signed a further ACO requiring them to perform a removal action at the site, which was completed in 1992. In 1994, NJDEP issued a third Directive requiring the performance of an RI/FS. Following negotiations with certain PRPs including PSE&G, an MOA regarding the conduct of the RI/FS was executed in 1995. Based upon the claims made and activities taken to date, PSE&G anticipates that its obligations with respect to this site will be de minimis. (5) A second Directive pursuant to the Spill Act was issued by NJDEP in 1989 to PRPs, including PSE&G, with respect to the PJP Landfill in Jersey City, Hudson County, New Jersey (PJP), ordering payment of operating and maintenance costs of approximately $150,000 and reasserting claims made in an initial Directive for all past and future costs associated with investigations and remediation of the alleged contamination. Additionally, in 1990, also pursuant to the Spill Act, NJDEP issued a Multi-Site Directive concerning four sites, including PJP. With respect to the PJP site, NJDEP reasserted demands for payment made in earlier Directives. The NJDEP alleges that it has spent approximately $23 million in interim remedial measures at the PJP site. The NJDEP also alleges that it will incur approximately $2 million in costs to complete a remedial investigation of the PJP site. PSE&G has made a good-faith payment of approximately $21,000 to NJDEP pursuant to the Multi-Site Directive in accordance with actions taken by certain other PRPs named in these Directives. The NJDEP has filed a cost recovery action in Superior Court against certain of the other PRPs named in the Directives. Based upon the claims made and activities taken to date, PSE&G anticipates that its obligations with respect to this site will be de minimis. (6) Claim by EPA, Region III, under CERCLA with respect to a Superfund Site in Philadelphia, Pennsylvania, owned and formerly operated by Metal Bank, Inc., as a non-ferrous scrap reclamation facility. PSE&G, together with several other utilities, is alleged to be liable either to conduct an RI/FS and undertake the necessary cleanup, if any, or to reimburse EPA for the cost of performing these functions. In 1991 these utilities, including PSE&G, entered into an ACO with the EPA to perform an RI/FS, Docket No. III-91-34-DC. The RI/FS was completed and the RI/FS Report was submitted to EPA in October 1994. The RI/FS Report proposes various remedial alternatives for consideration by EPA in its selection of a remedy for the site. In July 1995, the EPA issued its Proposed Remedial Action Plan (PRAP) for the site. The PRAP details the EPA's intention to select a remedy that will cost between $17 and $30 million. It is anticipated that EPA will assert a claim against PSE&G and the other utility companies, and perhaps others as well, for the performance or funding of the selected remedy. PSE&G's share of the costs of the proposed remedy is between $4 and $8 million or approximately 26% of the total. (7) The Klockner Road site is located in Hamilton Township, Mercer County, New Jersey and occupies approximately two acres on the Trenton Switching Station property. In May 1995, the NJDEP formally notified PSE&G that the Klockner Road site is an open case and that absent voluntary action by PSE&G, the NJDEP would prioritize the site and thereafter take appropriate enforcement action. As a result of this notice, PSE&G is in the process of filing an application for a MOA. Preliminary investigations indicate the potential presence of soil and groundwater contamination at the site. PSE&G's preliminary estimate is that an environmental characterization of the site will cost approximately $800,000. The cost of any remediation of potential site contamination is not presently estimable. (8) In U.S. v. CDMG Realty Co., et al., Civil Action No. 89-4246 (NHP) (RJH), pending in the United States District Court for the District of New Jersey, PSE&G and over 60 other entities were joined in January 1995 as additional third-party defendants. Third-party plaintiffs, an association of 44 entities, are essentially seeking contribution and/or indemnification for the expenses they have incurred and will incur as a result of having settled the direct claims of the NJDEP and EPA related to the investigation and remediation of Sharkey's Landfill, located in Parsippany-Troy Hills, Morris County, New Jersey. The claims are all alleged to be brought pursuant to CERCLA and PSE&G is alleged to have arranged for the disposal of industrial wastes at Sharkey's Landfill. The claims with respect to this matter are presently the subject of an alternative dispute resolution proceeding. Based upon the claims made and activities to date, PSE&G estimates that its obligations for this site will be de minimis. (9) In 1991, the NJDEP issued Directive and Notice to Insurers Number Two (Directive Two) to 24 Insurers and 52 Respondents, including PSE&G in connection with an investigation and remediation of the Global Landfill Site in Old Bridge Township, Middlesex County New Jersey (Global Site). Directive Two seeks recovery of past and anticipated future NJDEP response costs ($37.4 million). PSE&G's alleged liability is based on assertions that it generated asbestos-containing materials which were disposed of at the Global Site. In 1991, PSE&G entered into an agreement with the NJDEP and 29 other Directive Two Respondents effecting a partial settlement of the foregoing costs subject to a subsequent reallocation based upon the parties' further development of information concerning their respective proportionate waste contributions to the Global Site. Negotiations are ongoing regarding resolution of the balance of the response costs sought pursuant to Directive Two. In 1993, the NJDEP and various participating PRPs, including PSE&G, executed a Consent Decree whereby the participating PRPs agreed to perform the remedial design and remedial action for the operable unit one remedy as specified in a 1991 ROD (approximate total cost $30 million). The Consent Decree was executed and entered by the United States District Court for the District of New Jersey in 1993. Subject to a subsequent reallocation, the various parties to the Consent Decree have agreed that PSE&G's contribution under the Consent Decree settlement will be $300,000 (approximately 1% of the total cost). (10) In 1991, the New Jersey Department of Law and Public Safety, Division of Law, issued Directive and Notice To Insurers Number One (Directive One) to 50 Insurers and 20 Respondents, including PSE&G, seeking from the Respondents payment of $5.5 million of NJDEP's anticipated costs of remedial action and of administrative oversight at the Combe Fill South Sanitary Landfill in Washington and Chester Townships, Morris County, New Jersey (Combe Site). The $5.5 million represents the NJDEP's 10% share of such anticipated costs pursuant to a cooperative agreement with the United States regarding the selected remedial action. Therefore, total site remediation costs approximate $50 million. Further, the Directive One Respondents are directed to perform the operation and maintenance of the remedial action including all remedial facilities on the Combe Site. PSE&G's alleged liability is based on the assertion that PSE&G-generated waste oil and water, containing hazardous substances, was transported to the Combe Site and applied to Combe Site roads for dust control. Based upon the claims made and PSE&G's investigation and response to same, PSE&G anticipates that its obligations, if any, with respect to this site will be de minimis. (11) In United States of America v. Superior Tube Company, et al., Docket No. 89-7421 in the U.S. District Court for the Eastern District of Pennsylvania, PSE&G was served in 1990 with a Third-Party Complaint. Pursuant to CERCLA, the United States filed suit against Superior Tube Company (Superior) and others seeking recovery of past and future costs incurred or to be incurred in the cleanup of the Moyer Landfill located in Collegeville, Pennsylvania. Superior filed a Third-Party Complaint naming approximately 150 third-party defendants, including PSE&G. Superior alleges that PSE&G generated, transported, arranged for the disposal of and/or caused to be deposited certain hazardous substances at the Moyer Landfill. On the basis of those allegations, Superior seeks contribution and/or indemnification from the third-party defendants, including PSE&G, on the United States' action against it. PSE&G has participated in negotiations concerning resolution of the United States' and Superior Tube's claims. Pursuant to settlement negotiations amongst certain direct defendants, certain third party defendants and the plaintiffs, the defending parties participating in said negotiations are currently pursuing the possibility of resolving all potential liability concerning the above referenced matter (excluding any potential liability associated with a future claim, if any, for natural resource damages) on behalf of certain de minimis defending parties, including PSE&G. Based upon the claims made and the above referenced negotiations, PSE&G anticipates that its obligations with respect to this site will be de minimis. (12) Spill Act Multi-Site Directive (Directive) issued by the NJDEP to PRPs, including PSE&G, listing four separate sites, including the former bulking and transfer facility called the Marvin Jonas Transfer Station (Sewell Site) in Deptford Township, Gloucester County, New Jersey. With regard to the Sewell Site, this Directive ordered approximately 350 PRPs, including PSE&G, to enter into an ACO with NJDEP, requiring them to remediate the Sewell Site. Certain PRPs, including PSE&G, have completed the interim actions directed at both site security and off-site disposal of containers, trailers and contaminated surface soils. PRPs, including PSE&G, are currently fulfilling the terms of a MOA entered into with NJDEP in 1993 to conduct an RI/FS and, if necessary, take remedial action. Based upon the claims made and activities taken to date, PSE&G anticipates that its obligations with respect to this site will be de minimis. (13) In Transtech Industries, Inc. et al v. A&Z Septic Clean et al., Docket No. 2-90-2578(HAA), filed on October 5, 1992, in the U.S. District Court for the District of New Jersey, PSE&G has been named a defendant in a Complaint which has been filed pursuant to CERCLA, against several hundred parties seeking recovery of past and future response costs incurred or to be incurred in the investigation and/or remediation of the Kin-Buc Landfill, located in Edison Township, Middlesex County, New Jersey. Plaintiffs allege that all named defendants, including PSE&G, are PRPs as generators and/or transporters of various hazardous substances ultimately deposited at the Kin-Buc Landfill. Based upon the claims made and activities taken to date, PSE&G anticipates that its obligations with respect to this site will be de minimis. (14) In 1993, PSE&G acknowledged service of Plaintiff's Summons and Complaint in a matter entitled The Fishbein Family Partnership v. PPG Industries, Inc. and Public Service Electric and Gas Company. Pursuant to CERCLA, the Spill Act and various common law theories of liability, the Plaintiff filed an action seeking declaratory relief regarding responsibility for and recovery of damages and response costs incurred and/or to be incurred as a result of the release or threatened release of hazardous substances at property located in Jersey City, Hudson County, New Jersey. Plaintiff named PPG Industries, Inc. (PPG) and PSE&G as defendants in the above-referenced action. The Plaintiff alleges that defendants are liable for the damages and relief sought based on their past conduct of industrial operations at the site. The industrial operations referenced in Plaintiff's Complaint include chromium ore processing operations (PPG and its predecessors) and coal gasification operations (PSE&G and its predecessors). PSE&G filed its response to the Plaintiff's Complaint including cross-claims for indemnity and contribution against co-defendant PPG. PSE&G also filed a Third Party Complaint against UGI Utilities, Inc. (UGI) seeking indemnification and contribution as to any liability imposed upon PSE&G attributable to UGI's past conduct of industrial operations on a portion of the site. In March 1995, PSE&G filed an Amended Third Party Complaint extending the time period of PSE&G's allegations concerning UGI's past conduct of industrial operations at the site. In May 1995, an Administrative Stay of this matter was entered pending either an agreement between the NJDEP and PPG as to a cleanup plan for the site or a determination of certain cross-motions for summary judgement filed by Plaintiff and PPG. Based upon the claims made and activities taken to date, PSE&G's potential liability in this matter, if any, is not currently estimable. Other Potential Liability In addition to the sites individually listed above, PSE&G has received 14 claims and/or inquiries concerning prospective enforcement actions by the EPA and/or NJDEP. Such claims/inquiries relate to alleged properties/sites where it has been alleged that an imminent and substantial danger to the public or to the environment exists as a result of an actual or threatened release of one or more hazardous substances. PSE&G's investigation and initial response concerning each such claim and/or inquiry suggests that PSE&G's potential liability, if any, is de minimis. Enterprise ---------- Consolidated Financial Statistics (A)
1995 1994 1993 1992 1991 ---------- ----------- ----------- ---------- --------- (Thousands of Dollars where applicable) Selected Income Information Operating Revenues Electric........................... $ 4,020,842 $ 3,739,713 $ 3,696,114 $ 3,407,830 $ 3,519,806 Gas................................ 1,686,403 1,778,528 1,594,341 1,586,181 1,307,849 Nonutility Activities.............. 456,908 404,202 418,135 362,781 283,766 ------------ ----------- ----------- ----------- ----------- Total Operating Revenues........... $ 6,164,153 $ 5,922,443 $ 5,708,590 $ 5,356,792 $ 5,111,421 ------------ ----------- ----------- ----------- ------------ Net Income......................... $ 662,323 $ 679,033 $ 600,933 $ 504,117 $ 543,035 ------------ ----------- ----------- ----------- ------------ Earnings per average share of Common Stock..................... $ 2.71 $ 2.78 $ 2.50 $ 2.17 $ 2.43 Dividends Paid per Share........... $ 2.16 $ 2.16 $ 2.16 $ 2.16 $ 2.13 Payout Ratio....................... 80% 78% 86% 100% 88% Rate of Return on Average Common Equity (B)...................... 12.31% 12.94% 11.91% 10.69% 12.24% Ratio of Earnings to Fixed Charges. 2.77 2.76 2.59 2.30 2.54 Book Value per Common Share (C).... $ 22.25 $ 21.70 $ 21.07 $ 20.32 $ 20.04 Gross Utility Plant................ $16,925,280 $16,566,058 $15,861,484 $15,081,907 $14,426,560 Accumulated Depreciation and Amortization of Utility Plant.... $ 5,737,849 $ 5,467,813 $ 5,057,104 $ 4,610,595 $ 4,243,979 Total Assets....................... $17,171,439 $16,717,440 $16,329,656 $14,777,732 $14,804,354 ------------- ------------ ----------- ------------ ------------ Consolidated Capitalization Common Stock....................... $ 3,801,157 $ 3,801,157 $ 3,772,662 $ 3,499,183 $ 3,262,138 Retained Earnings.................. 1,643,785 1,510,010 1,361,018 1,282,931 1,282,029 ------------- ------------ ----------- ------------ ------------ Common Equity...................... 5,444,942 5,311,167 5,133,680 4,782,114 4,544,167 Long-Term Debt..................... 5,189,791 5,180,657 5,256,321 4,977,579 5,128,373 Preferred Stock without Mandatory Redemption....................... 324,994 384,994 429,994 429,994 429,994 Preferred Stock with Mandatory Redemption....................... 150,000 150,000 150,000 75,000 -- Monthly Income Preferred Securities. 210,000 150,000 -- -- -- ------------- ------------ ----------- ------------ ------------ Total Capitalization................$11,319,727 $11,176,818 $10,969,995 $10,264,687 $10,102,534 ============= ============ =========== ============ ============ (A) See Management's Discussion and Analysis of Financial Condition and Results of Operations and Notes to Consolidated Financial Statements. (B) Net Income for a twelve-month period divided by the thirteen-month average of Common Equity. (C) Total Common Equity divided by end-of-period Common Shares outstanding.
Operating Statistics PSE&G - -----
1995 1994 1993 1992 1991 ---------- ----------- ------------ ----------- ------------ (Thousands of Dollars where applicable) Electric Revenues from Sales of Electricity: Residential...................... $ 1,274,712 $ 1,187,099 $ 1,175,875 $ 1,037,099 $ 1,116,699 Commercial....................... 1,853,855 1,734,894 1,678,011 1,554,956 1,575,547 Industrial....................... 704,861 686,065 710,206 683,750 728,411 Public Street Lighting........... 54,730 52,353 51,019 47,729 46,400 ----------- ----------- ----------- ----------- ----------- Total Revenues from Sales to Customers........................ 3,888,158 3,660,411 3,615,111 3,323,534 3,467,057 Interdepartmental.................. 1,862 1,710 1,737 1,544 1,599 Non-Required Energy and Capacity Revenues.(a)............ 37,179 35,223 48,625 51,313 19,763 Wholesale Energy and Capacity Revenues.(b)..................... 19,446 7,481 -- -- -- ----------- ----------- ----------- ----------- ----------- Total Revenues from Sales of Electricity...................... 3,946,645 3,704,825 3,665,473 3,376,391 3,488,419 Other Electric Revenues............ 74,197 34,888 30,641 31,439 31,387 ----------- ----------- ----------- ----------- ----------- Total Operating Revenues...... $ 4,020,842 $ 3,739,713 $ 3,696,114 $ 3,407,830 $ 3,519,806 =========== =========== =========== =========== =========== Sales of Electricity - megawatthours: Residential...................... 10,885,479 10,594,134 10,631,402 9,816,046 10,505,547 Commercial....................... 18,761,863 18,466,863 18,096,312 17,454,352 17,596,569 Industrial....................... 9,026,838 9,109,998 9,203,839 9,298,741 9,406,109 Public Street Lighting........... 339,164 334,726 329,828 325,545 320,900 ----------- ----------- ----------- ----------- ----------- Total Sales to Customers........... 39,013,344 38,505,721 38,261,381 36,894,684 37,829,125 Interdepartmental.................. 20,095 17,755 18,514 19,012 19,719 Non-Required Energy Sales.(a)...... 1,047,996 1,320,170 2,245,884 2,116,049 1,858,590 Wholesale Energy Sales.(b)......... 201,610 139,235 -- -- -- ----------- ----------- ----------- ----------- ----------- Total Sales of Electricity.... 40,283,045 39,982,881 40,525,779 39,029,745 39,707,434 =========== =========== =========== =========== =========== Gas Revenues from Sales of Gas: Residential...................... $ 823,302 $ 889,541 $ 780,195 $ 809,559 $ 699,696 Commercial....................... 501,102 510,829 460,340 481,960 426,110 Industrial....................... 274,937 312,405 299,762 243,527 138,394 Street Lighting.................. 468 491 467 468 468 ----------- ----------- ----------- ----------- ----------- Total Revenues from Sales to Customers........................ 1,599,809 1,713,266 1,540,764 1,535,514 1,264,668 Interdepartmental.................. 2,636 3,976 3,078 2,572 2,689 ----------- ----------- ----------- ----------- ----------- Total Revenues from Sales of Gas... 1,602,445 1,717,242 1,543,842 1,538,086 1,267,357 Transportation Service Revenues.... 54,427 35,057 37,081 34,739 27,036 Other Gas Revenues................. 29,531 26,229 13,418 13,356 13,456 ----------- ----------- ----------- ----------- ----------- Total Operating Revenues...... $ 1,686,403 $ 1,778,528 $ 1,594,341 $ 1,586,181 $ 1,307,849 =========== =========== =========== =========== =========== Sales of Gas - kilotherms: Residential...................... 1,258,181 1,337,267 1,280,128 1,265,270 1,140,887 Commercial....................... 971,243 945,950 943,054 939,021 893,069 Industrial....................... 942,846 912,689 876,421 739,508 399,385 Street Lighting.................. 670 668 666 668 666 ----------- ----------- ----------- ----------- ----------- Total Sales to Customers........... 3,172,940 3,196,574 3,100,269 2,944,467 2,434,007 Interdepartmental.................. 6,139 9,316 7,509 5,967 6,174 ----------- ----------- ----------- ----------- ----------- Total Sales of Gas................. 3,179,079 3,205,890 3,107,778 2,950,434 2,440,181 Transportation Service............. 682,693 544,539 557,403 543,097 381,497 ----------- ----------- ----------- ----------- ----------- Total Gas Sold and Transported.. 3,861,772 3,750,429 3,665,181 3,493,531 2,821,678 =========== =========== =========== =========== =========== (a) Non-Required - The sale of excess generation both energy and capacity to other power producers. (b) Wholesale - Consists of sales for resale to municipalities and to an out of state electric cooperative under negotiated contracts. Prior to 1994, these sales for resale were treated as industrial sales.
EDHI EDHI, a wholly owned, direct subsidiary of Enterprise, is incorporated under the laws of New Jersey and is the parent company of EDC, CEA, PSRC, EGDC, Capital and Funding. EDHI's principal executive offices are located at One Riverfront Plaza, Newark, New Jersey 07102. EDHI's focus is on investment in the independent energy market. For a discussion of the impact on EDHI of Enterprise's agreement with the BPU regarding utility/nonutility activities, see Regulation. EDC On December 6, 1995, Enterprise announced that EDHI is pursuing the divestiture of EDC. Enterprise anticipates that, subject to satisfying certain conditions, EDHI will divest EDC during 1996, but no formal plan of divestiture has been approved. The decision stems from Enterprise's belief that EDC is not fully recognized in the value of Enterprise's Common Stock and that, with the advent of the energy futures market, it is not necessary for Enterprise to own large volumes of oil and gas. EDC, a New Jersey corporation, has its principal executive offices at 1000 Louisiana Street, Suite 2900, Houston, Texas 77002. EDC is an oil and gas exploration and production and marketing company with principal operations both onshore and offshore in the southern United States and a growing international production base. EDC will continue to pursue a program to grow its reserve base through a combination of strategic acquisitions, high potential exploration activities and exploitation of its acquired properties and new discoveries. EDC's worldwide 1995 production totaled 99 BCFE. Year-end 1995 proved reserves were 630 billion cubic feet of gas and 48 million barrels of oil, an increase of 6% and a decrease of 1%, respectively, compared to 1994. As of December 31, 1995 and 1994, EDC's consolidated assets aggregated $756 million and $729 million, respectively. EDC has operations encompassing about 5.6 million net acres in 13 states, offshore in the Gulf of Mexico and both onshore and offshore in the United Kingdom, Argentina, Senegal, Ireland, Tunisia and China. EDC is exempt from direct regulation by the BPU and FERC except that certain FERC approval is required to transport its gas interstate from its discovery fields. (See Note 1 -- Summary of Significant Accounting Policies of Notes.) CEA CEA, a New Jersey corporation, has its principal executive offices at 1200 East Ridgewood Avenue, Ridgewood, New Jersey 07450. CEA invests and participates in the development and operation of cogeneration, thermal and power production facilities, which include domestic QFs, two foreign EWGs and one foreign utility company. CEA is expected to be the primary vehicle for EDHI's business growth for the foreseeable future, with emphasis on international projects. CEA's two direct subsidiaries, CEA New Jersey, Inc. (CEA New Jersey) and CEA USA, Inc. (CEA USA), hold certain of its investments. CEA New Jersey's subsidiaries invest in projects in New Jersey selling power to PSE&G. CEA USA's subsidiaries invest in projects selling power to other domestic and foreign entities. CEA and/or its subsidiaries and affiliates have investments in 22 commercially operating cogeneration or independent power projects, one anthracite coal mine and one project under construction. CEA continuously evaluates the status of project development and construction in light of the realities of timely completion and the costs incurred. CEA's investments in QF projects have been undertaken with other participants because CEA, together with any other utility affiliate, may not own more than 50% of a QF under applicable law subsequent to the in-service date. Projects involving EWGs are not restricted to a 50% investment limitation. CEA's projects are diversified internationally and technologically and are generally financed through non-recourse debt. CEA is an investor in these projects and the electricity produced by the facilities is not part of PSE&G's installed capacity. However, some of such power is being purchased by PSE&G pursuant to long-term contracts with the applicable projects. As of December 31, 1995 and 1994, CEA's consolidated assets aggregated $271 million and $232 million, respectively. (See Note 7 -- Long-Term Investments of Notes.) PSRC PSRC, a New Jersey corporation, has its principal executive offices at One Riverfront Plaza, Newark, New Jersey 07102. PSRC makes primarily passive investments in assets that can provide funds for future growth as well as provide incremental earnings for Enterprise. Investments have been made in leveraged and direct financing leases, project financings, venture capital funds, leveraged buyout funds, real estate limited partnerships and securities. The maturities of the portfolio's investments are also fairly diverse, with some having terms exceeding 30 years. PSRC's leveraged lease investments include a wide range of asset sectors. Some of the transactions in which PSRC and its subsidiaries participate involve other equity investors. PSRC plans to limit new investments to existing commitments and investments related to the energy business. PSRC has a gas marketing subsidiary which markets natural gas and associated services on an unregulated basis to commercial and industrial gas consumers nationwide. PSRC is a limited partner in various partnerships and is committed to make investments from time to time, upon the request of the respective general partners. On December 31, 1995, $58 million remained as PSRC's unfunded commitment subject to call. As of year-end 1995 and 1994, PSRC's long-term investments aggregated $1.4 and $1.3 billion, respectively. EGDC EGDC, a New Jersey corporation having its principal executive offices at One Riverfront Plaza, Newark, New Jersey 07102, is a nonresidential real estate development and investment business. EGDC has investments in ten commercial real estate properties (two of which are developed) in several states. EGDC's strategy is to preserve and build the value of its assets to allow for the controlled disposition of its properties as the real estate market improves. As of December 31, 1995 and 1994, EGDC's consolidated assets aggregated $116 million and $189 million, respectively. Capital Capital, a New Jersey corporation, has its principal executive offices at 80 Park Plaza, Newark, New Jersey 07101. Capital serves as a financing vehicle for EDHI's businesses, borrowing on their behalf on the basis of a minimum net worth maintenance agreement with Enterprise. That agreement provides, among other things, that Enterprise (i) maintain its ownership, directly or indirectly, of all outstanding common stock of Capital, (ii) cause Capital to have at all times a positive tangible net worth of at least $100,000 and (iii) make sufficient contributions of liquid assets to Capital in order to permit it to pay its debt obligations. In 1993, Enterprise agreed with the BPU to make a good-faith effort to eliminate such Enterprise support within six to ten years. Intercompany borrowing rates are established based upon Capital's cost of funds. Effective January 31, 1995, Capital will not have more than $650 million of debt outstanding at any time. Capital's assets consist principally of demand notes of EDC, CEA and PSRC. As of December 31, 1995 and 1994, Capital had outstanding $477.5 million and $632 million, respectively, of its long-term debt. For additional information, see Construction and Capital Requirements -- Financing Activities and MD&A -- Liquidity and Capital Resources -- EDHI. Funding Funding, a New Jersey corporation, has its principal executive offices at 80 Park Plaza, Newark, New Jersey 07101. Funding serves as a financing vehicle for EDHI's businesses (excluding EGDC), borrowing on their behalf, as well as investing their short-term funds. Short-term investments are made only if the funds cannot be employed in intercompany loans. Intercompany borrowing rates are established based upon Funding's cost of funds. Funding is providing both long and short-term capital for the nonutility businesses other than EGDC on the basis of an unconditional guaranty from EDHI, but without direct support from Enterprise. As of December 31, 1995 and 1994, Funding's assets consisted principally of demand notes of EDC, CEA and PSRC, all of which are pledged to Funding's lenders and which aggregated $492 million and $334 million, respectively. For additional information, see MD&A -- Liquidity and Capital Resources -- EDHI. ITEM 2. PROPERTIES PSE&G The statements under this Item as to ownership of properties are made without regard to leases, tax and assessment liens, judgments, easements, rights of way, contracts, reservations, exceptions, conditions, immaterial liens and encumbrances and other outstanding rights affecting such properties, none of which is considered to be significant in the operations of PSE&G, except that PSE&G's First and Refunding Mortgage (Mortgage), securing the bonds issued thereunder, constitutes a direct first mortgage lien on substantially all of such property. PSE&G maintains insurance coverage against loss or damage to its principal plants and properties, subject to certain exceptions, to the extent such property is usually insured and insurance is available at a reasonable cost. For a discussion of nuclear insurance, see Note 12 - -- Commitments and Contingent Liabilities of Notes to Consolidated Financial Statements. The electric lines and gas mains of PSE&G are located over or under public highways, streets, alleys or lands, except where they are located over or under property owned by PSE&G or occupied by it under easements or other rights. These easements and rights are deemed by PSE&G to be adequate for the purposes for which they are being used. Generally, where payments are minor in amount, no examinations of underlying titles as to the rights of way for transmission or distribution lines or mains have been made. Electric Properties As of December 31, 1995, PSE&G's share of installed generating capacity was 10,400 MW, as shown in the following table:
INSTALLED NET MEGAWATT PRINCIPAL HEAT GENERATION CAPACITY NAME AND LOCATION CAPACITY FUEL USED RATE (000 MWH) FACTOR(a) - -------------------------------------------- --------- --------- ------ --------- --------- Fossil Burlington, Burlington, NJ ................. 180 Oil 17,742 30 1.9 Conemaugh, New Florence, PA - 22.50%(b)(c).. 382 Coal 9,380 2,650 79.2 Hudson, Jersey City, NJ .................... 983 Coal 11,351 1,861 21.6 Kearny, Kearny, NJ ......................... 292 Oil 16,221 46 1.8 Keystone, Shelocta, PA - 22.84%(b)(c)....... 388 Coal 9,635 2,643 77.8 Linden, Linden, NJ ......................... 415 Oil 18,007 117 3.2 Mercer, Hamilton, NJ ....................... 642 Coal 10,279 2,087 37.1 Sewaren, Woodbridge Twp., NJ ............... 453 Gas 13,808 360 9.1 ------- ------ --------- --------- Total Fossil........................... 3,735 10,343 9,794 29.9 ------- ------ --------- --------- Nuclear (Capacity factor calculated in accordance with industries maximum dependable capability standards) Hope Creek, Lower Alloways Creek, NJ 95%(b)(c)................................. 979 Nuclear 10,801 6,694 78.9 Peach Bottom, Peach Bottom, PA - 42.49%(b).. 930 Nuclear 10,809 6,976 93.3 Salem, Lower Alloways Creek, NJ 42.59%(b)................................. 942 Nuclear 11,088 1,923 23.4 ------- ------ --------- --------- Total Nuclear(b)(c).................... 2,851 10,843 15,593 62.9 ------- ------ --------- --------- Combined Cycle Bergen, Ridgefield, NJ..................... 650 Gas 8,034 1,533 26.9 Burlington, Burlington, NJ................. 240 Gas 9,255 513 23.5 ------- ------ --------- --------- Total Combined Cycle.................. 890 8,340 2,046 26.5 ------- ------ --------- --------- Combustion Turbine Bayonne, Bayonne, NJ........................ 42 Oil 35,297 0.4 0.1 Bergen, Ridgefield, NJ ..................... 21 Oil 111,665 0.8 0.1 Burlington, Burlington, NJ.................. 389 Gas 18,937 7.1 0.2 Edison, Edison Township, NJ ................ 504 Gas 16,532 8.5 0.2 Essex, Newark, NJ .......................... 617 Gas 13,270 279.1 5.2 Hudson, Jersey City, NJ .................... 129 Oil 68,666 0.6 - Kearny, Kearny, NJ ......................... 504 Oil 18,352 1.7 0.4 Linden, Linden, NJ ......................... 223 Oil 12,635 135.0 3.7 Mercer, Hamilton, NJ ....................... 129 Oil 72,912 0.4 - National Park, National Park, NJ ........... 21 Oil 0 0.0 - Salem, Lower Alloways Creek, NJ 42.59%(b)................................. 16 Oil 25,189 0.3 0.1 Sewaren, Woodbridge Township, NJ ........... 129 Oil 45,613 0.8 - ------- ------ --------- --------- Total Combustion Turbine............... 2,724 13,761 434.7 10.4 ------- ------ --------- --------- Diesel Conemaugh, New Florence, PA - 22.50%(b)..... 3 Oil 10,101 2.1 0.1 Keystone, Shelocta, PA - 22.84%(b).......... 2 Oil 10,448 5.5 3.1 ------- ------ --------- --------- Total Diesel........................... 5 10,354 7.6 1.7 ------- ------ --------- --------- Pumped Storage Yards Creek, Blairstown, NJ - 50%(b)(c)..... 195 - 227 13.3 ------- ------ --------- --------- Total PSE&G............................ 10,400(d) 10,531 28,102(e) 30.8 ======= ====== ========= ========= (a) Net generation divided by the product of weighted average generating capacity times total hours. (b) PSE&G's share of jointly owned facility. (c) Excludes energy for pumping and synchronous condensers. (d) Excludes 664 MW of nonutility generation and 200 MW of capacity sales to General Public Utilities Corporation. (e) Excludes 5,136 MW of nonutility generation. /TABLE For information regarding construction see MD&A -- Construction and Capital Expenditures. In addition to the generating facilities in New Jersey and Pennsylvania as indicated in the table above, as of December 31, 1995, PSE&G owned 41 switching stations with an aggregate installed capacity of 31,591,000 kilovolt-amperes, and 222 substations with an aggregate installed capacity of 7,313,000 kilovolt-amperes. In addition, 6 substations having an aggregate installed capacity of 139,250 kilovolt-amperes were operated on leased property. All of these facilities are located in New Jersey. As of December 31, 1995, PSE&G's transmission and distribution system included 151,449 circuit miles, of which 36,007 miles were underground, and 789,106 poles, of which 534,106 poles were jointly owned. Approximately 99% of this property is located in New Jersey. In addition, as of December 31, 1995, PSE&G owned 4 electric distribution headquarters and five subheadquarters in four operating divisions all located in New Jersey. Gas Properties As of December 31, 1995, the daily gas capacity of PSE&G's 100%-owned peaking facilities (the maximum daily gas delivery available during the three peak winter months) consisted of liquid petroleum air gas (LPG) and liquefied natural gas (LNG) and aggregated 2,973,000 therms (approximately 297,300 Mcf. on an equivalent basis of 1,000 Btu/cubic foot) as shown in the following table:
Daily Capacity Plant Location (Therms) - -------------------------------- ------------------ -------------- Burlington LNG.................. Burlington, N.J. 773,000 Camden LPG...................... Camden, N.J. 280,000 Central LPG..................... Edison Twp., N.J. 960,000 Harrison LPG.................... Harrison, N.J. 960,000 --------- Total........................... 2,973,000 =========
As of December 31, 1995, PSE&G owned and operated approximately 15,467 miles of gas mains, owned 12 gas distribution headquarters and one subheadquarters and leased one other subheadquarters all in two operating regions located in New Jersey and owned one meter shop in New Jersey serving all such areas. In addition, PSE&G operated 61 natural gas metering or regulating stations, all located in New Jersey, of which 28 were located on land owned by customers or natural gas pipeline companies supplying PSE&G with natural gas and were operated under lease, easement or other similar arrangement. In some instances, portions of the metering and regulating facilities were owned by the pipeline companies. Office Buildings and Facilities PSE&G leases substantially all of a 26-story office tower for its corporate headquarters at 80 Park Plaza, Newark, New Jersey, together with an adjoining three-story building. PSE&G also leases other office space at various locations throughout New Jersey for district offices and offices for various corporate groups and services. PSE&G also owns various other sites for training, testing, parking, records storage, research, repair and maintenance, warehouse facilities and for other purposes related to its business. EDHI owns no real property. EDHI leases its corporate headquarters at One Riverfront Plaza, Newark, New Jersey 07102. For a brief general description of the properties of the subsidiaries of EDHI, see Item 1. Business -- EDHI. ITEM 3. LEGAL PROCEEDINGS In October 1995, Enterprise received a letter from a representative of a purported shareholder demanding that it commence legal action against certain of its officers and directors with regard to nuclear operations and the current shutdown of the Salem generating station. In January, 1996, Enterprise and each of its directors except Forrest J. Remick were served with a civil complaint in a shareholder derivative action by such purported shareholder on behalf of Enterprise shareholders (Public Service Enterprise Group Incorporated by G.E. Stricklin, derivatively vs. E. James Ferland, et al., Docket No. L1068395, Superior Court of New Jersey, Law Division, Camden County filed December 27, 1995). The complaint seeks removal of certain executive officers of PSE&G and Enterprise, certain changes in the composition of Enterprise's Board of Directors, recovery of damages and certain other relief for alleged losses purportedly arising out of PSE&G's operation of the Salem and Hope Creek generating stations. The Board of Directors has commenced an investigation of the matters raised in the October demand letter, and that investigation has not yet been completed. Following conclusion of the investigation, the Board will meet to determine what action, if any, should be taken with respect to the complaint filed in the shareholder derivative action. In addition, see the following, at the pages indicated: (1) Page 5. Proceedings before FERC relating to competition and electric wholesale power markets. (Inquiry Concerning the Pricing Policy for Transmission Services Provided by Utilities Under the Federal Power Act, Docket No. RM93-19.) (2) Page 11. Proceedings before the BPU relating to PSE&G's Second Largest Customer, filed January 6, 1995, in Docket No. ER95010005. (3) Page 44. Requests filed in 1974 and later supplemented, to EPA and NJDEP to establish thermal discharges and intake structures for PSE&G's electric generating stations (Sewaren Generating Station, NJ 0000680; Hudson Generating Station, NJ 0000647; Kearny Generating Station, NJ 0000655; Salem Generating Station, NJ 0005622; Linden Generating Station, NJ 0000663). (4) Page 46. Notice of Violation issued by EPA against Eagle Point Cogeneration Partnership regarding alleged violations of air permit. (5) Pages 48 through 53. Various administrative actions, claims, litigation and requests for information by federal and/or state agencies, and/or private parties, under CERCLA, RCRA, and state environmental laws to compel PRPs, which may include PSE&G, to provide information with respect to transportation and disposal of hazardous substances and wastes, and/or to undertake or contribute to the costs of investigative and/or cleanup actions at various locations because of actual or threatened releases of one or more potentially hazardous substances and/or wastes. (6) Page 74. Proceedings before The BPU relating to New Jersey Partners in Power Plan filed January 16, 1996, in Docket No. E096010028. (7) Page 115. Proceedings before the BPU relating to PSE&G's LGAC, filed October 2, 1995, in Docket No. GR9510456. (8) Page 116. Proceedings before the BPU relating to recovery of replacement power costs in connection with the Salem 1 shutdown, May 5, 1995, Docket No. ER94070293. (9) Page 116. Proceedings before the BPU relating to PSE&G's LEAC Remediation Program Costs (RAC), filed July 21, 1995, in Docket No. GR95070344. (10) Page 117. Generic proceeding before the BPU relating to recovery of capacity costs associated with power purchases from cogenerators, September 16, 1994, in Docket No. EX93060255. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Enterprise and PSE&G, inapplicable. ITEM 10. EXECUTIVE OFFICERS OF THE REGISTRANTS Enterprise and PSE&G. Information regarding executive officers required by this Item is set forth in Part III, Item 10 hereof. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Enterprise's Common Stock is listed on the New York Stock Exchange, Inc. and the Philadelphia Stock Exchange, Inc. All of PSE&G's common stock is owned by Enterprise, its corporate parent. As of December 31, 1995, there were 175,831 holders of record of Enterprise Common Stock. The following table indicates the high and low sale prices for Enterprise's Common Stock, as reported in The Wall Street Journal as Composite Transactions and dividends paid for the periods indicated:
Dividend High Low Per Share ------ ------- --------- Common Stock: 1995 First Quarter................ 29 7/8 26 .54 Second Quarter............... 30 1/4 26 3/4 .54 Third Quarter................ 29 3/4 26 3/4 .54 Fourth Quarter............... 30 5/8 28 3/4 .54 1994 First Quarter................ 32 27 1/4 .54 Second Quarter............... 29 1/4 25 .54 Third Quarter................ 28 5/8 23 7/8 .54 Fourth Quarter............... 27 1/8 25 .54
Since 1986, PSE&G has made regular cash payments to Enterprise in the form of dividends on outstanding shares of PSE&G's Common Stock. PSE&G has paid quarterly dividends on its common stock in each year commencing in 1948, the year of the distribution of PSE&G's common stock by Public Service Corporation of New Jersey, the former parent of PSE&G. Since 1992, EDHI has made regular cash payments to Enterprise in the form of dividends on outstanding shares of EDHI's common stock. Enterprise has paid quarterly dividends in each year commencing with the corporate restructuring of PSE&G when Enterprise became the owner of all the outstanding common stock of PSE&G. While the Board of Directors of Enterprise intends to continue the practice of paying dividends quarterly, amounts and dates of such dividends as may be declared will necessarily be dependent upon Enterprise's future earnings, financial requirements and other factors. See MD&A -- Dividends. The ability of Enterprise to declare and to pay dividends is contingent upon its receipt of dividend payments from its subsidiaries. PSE&G has restrictions on the payments of dividends which are contained in its Restated Certificate of Incorporation, as amended, certain of the indentures supplemental to its Mortgage and certain debenture bond indentures. Under these restrictions, dividends on PSE&G's common stock may be paid only out of PSE&G's earned surplus and may not reduce PSE&G's earned surplus to less than $10 million. PSE&G dividends on common stock would be limited to 75% of Earnings Available for Public Service Enterprise Group Incorporated if payment thereof would reduce PSE&G's Stock Equity to less than 33 1/3% of PSE&G's Total Capitalization and would be limited to 50% of Earnings Available for Public Service Enterprise Group Incorporated if payment thereof would reduce Stock Equity to less than 25% of PSE&G's Total Capitalization, as each of said terms is defined in said PSE&G's debenture bond indentures. Further, under an indenture relating to the loan to PSE&G of the proceeds of the Monthly Income Preferred Securities of Public Service Electric and Gas Capital, L.P. (see Note 4. -- Schedule of Consolidated Capital Stock and Other Securities of Notes), dividends may not be paid on PSE&G's capital stock as long as any payments on PSE&G's deferrable interest subordinated debentures issued under said indenture have been deferred or there is a default under said indenture or PSE&G's guarantee relating to the Monthly Income Preferred Securities. None of these restrictions presently limits the payment of dividends out of current earnings. The amount of Enterprise's and PSE&G's consolidated retained earnings not subject to these restrictions at December 31, 1995 was $1.6 billion and $1.4 billion, respectively. ITEM 6. SELECTED FINANCIAL DATA Enterprise The information presented below should be read in conjunction with Enterprise Consolidated Financial Statements and Notes thereto.
YEARS ENDED DECEMBER 31, ----------------------------------------------------------------------- 1995 1994 1993 1992 1991 ----------- ----------- ----------- ----------- ----------- (THOUSANDS OF DOLLARS, WHERE APPLICABLE) Total Operating Revenues.... $ 6,164,153 $ 5,922,443 $ 5,708,590 $ 5,356,792 $ 5,111,421 Net Income.................. $ 662,323 $ 679,033 $ 600,933 $ 504,117 $ 543,035 Earnings per average share of Common Stock........... $ 2.71 $ 2.78 $ 2.50 $ 2.17 $ 2.43 Dividends paid per share of Common Stock.............. $ 2.16 $ 2.16 $ 2.16 $ 2.16 $ 2.13 As of December 31: Total Assets.............. $ 17,170,068 $16,717,440 $16,329,656 $14,777,732 $14,804,354 Long-Term Liabilities: Long-Term Debt....... $ 5,189,791 $ 5,180,657 $ 5,256,321 $ 4,977,579 $ 5,128,373 Other Long-Term Liabilities........ $ 199,832 $ 215,603 $ 220,159 $ 146,785 $ 162,064 Preferred Stock with mandatory redemption...... $ 150,000 $ 150,000 $ 150,000 $ 75,000 $ -- Monthly Income Preferred Securities................ $ 210,000 $ 150,000 $ -- $ -- $ -- Ratio of Earnings to Fixed Charges plus Preferred Securities Dividend Requirements (A).......... 2.77 2.76 2.59 2.30 2.54 (A) Fixed charges include the preferred securities dividend requirements of PSE&G.
PSE&G The information presented below should be read in conjunction with PSE&G Consolidated Financial Statements and Notes thereto.
YEARS ENDED DECEMBER 31, ----------------------------------------------------------------------- 1995 1994 1993 1992 1991 ----------- ----------- ----------- ----------- ----------- (THOUSANDS OF DOLLARS, WHERE APPLICABLE) Total Operating Revenues.... $ 5,707,245 $ 5,518,241 $ 5,290,455 $ 4,994,011 $ 4,827,655 Net Income.................. $ 616,964 $ 659,406 $ 614,868 $ 475,936 $ 545,479 As of December 31: Total Assets.............. $14,555,577 $14,264,398 $13,984,298 $12,273,857 $12,027,970 Long-Term Liabilities: Long-Term Debt....... $ 4,586,268 $ 4,486,787 $ 4,364,437 $ 3,978,138 $ 3,933,389 Other Long-Term Liabilities........ $ 199,832 $ 215,603 $ 220,159 $ 146,785 $ 162,064 Preferred Stock with mandatory redemption...... $ 150,000 $ 150,000 $ 150,000 $ 75,000 $ -- Monthly Income Preferred Securities................ $ 210,000 $ 150,000 $ -- $ -- $ -- Ratio of Earnings to Fixed Charges................... 3.25 3.35 3.30 2.70 3.20 Ratio of Earnings to Fixed Charges plus Preferred Securities Dividend Requirements.............. 2.77 2.92 2.89 2.43 2.86
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ENTERPRISE Significant factors affecting the consolidated financial condition and the results of operations of Public Service Enterprise Group Incorporated (Enterprise) and its subsidiaries are described below. This discussion refers to the Consolidated Financial Statements and related Notes of Enterprise and should be read in conjunction with such statements and notes. Overview Enterprise has two direct wholly owned subsidiaries, Public Service Electric and Gas Company (PSE&G) and Enterprise Diversified Holdings Incorporated (EDHI). Enterprise's principal subsidiary, PSE&G, is an operating public utility providing electric and gas service in certain areas in the State of New Jersey. EDHI is the parent of Enterprise's nonutility businesses: Energy Development Corporation (EDC), an oil and gas exploration and production and marketing company; Community Energy Alternatives Incorporated (CEA), an investor in and developer and operator of cogeneration and independent power production (IPP) facilities and exempt wholesale generators (EWGs); Public Service Resources Corporation (PSRC), which has made primarily passive investments; and Enterprise Group Development Corporation (EGDC), a diversified nonresidential real estate development and investment business. EDHI also has two finance subsidiaries: PSEG Capital Corporation (Capital), which provides privately placed debt financing on the basis of a minimum net worth maintenance agreement from Enterprise and Enterprise Capital Funding Corporation (Funding), which provides privately placed debt financing guaranteed by EDHI but without direct support from Enterprise. Enterprise has been conducting a controlled exit from the real estate business since 1993 and, in December 1995, announced that it intends to divest EDC. As of December 31, 1995 and December 31, 1994, PSE&G comprised 85% of Enterprise assets. For each of the years 1995, 1994 and 1993, PSE&G revenues were 93% of Enterprise's revenues and PSE&G's earnings available to Enterprise for such years were 88%, 91% and 96%, respectively, of Enterprise's net income. The major factors which will affect Enterprise's future results include general and regional economic conditions, PSE&G's customer retention and growth, the ability of PSE&G and EDHI to meet competitive pressures and to contain costs, the ability to respond to and take advantage of opportunities arising from increasing competition in the utility business, the adequacy and timeliness of rate relief, cost recovery and necessary regulatory approvals, the ability to continue to operate and maintain nuclear programs in accordance with Nuclear Regulatory Commission (NRC) and New Jersey Board of Public Utilities (BPU) requirements, the impact of environmental regulations, continued access to the capital markets and continued favorable regulatory treatment of consolidated tax benefits. (See Note 2 -- Rate Matters, Note 10 -- Federal Income Taxes and Note 12 -- Commitments and Contingent Liabilities of Notes to Consolidated Financial Statements ("Notes").) Competition The regulatory structure which has historically embraced the electric and gas industry is in the process of transition. Legislative and regulatory initiatives, at both the federal and state levels, are designed to promote competition and will continue to impose additional pressures on PSE&G's ability to retain customers. In addition, new technology and interest in self generation and cogeneration have provided customers with alternative sources of energy. Over the last several years, the gas industry has been transformed. Today, commercial and industrial customers can negotiate their own gas purchases directly with producers or brokers, while PSE&G is required to provide intrastate transportation of such purchased gas to the customers' facilities. Although PSE&G is not providing gas sales service to certain commercial and industrial customers, to date there has been no negative impact on earnings since sales service and transportation service tariffs result in the same non-fuel revenue per therm. Additionally, as a result of this restructuring, PSE&G has been able to negotiate lower cost gas supplies for those customers who continue to be part of its bundled rate schedules. A potential significant competitive challenge could emerge if interstate pipeline companies are permitted to expand their facilities into PSE&G territory and provide intrastate transportation to customers. However, this type of expansion would require federal and state regulatory approvals not currently in existence. The restructuring of the electric industry is more complex and evolving at a slower pace than that of the gas industry. Federal legislation, such as the National Energy Policy Act (EPAct) has eased restrictions on independent power producers (IPP) in an effort to increase competition in the wholesale electric generation market. As the barriers to entry in the power production business have been lowered, the construction of cogeneration facilities and independent power production facilities has been growing, with the result of creating lower cost alternatives for large commercial and industrial customers. Presently, PSE&G is in the process of assessing the potential for individual arrangements with commercial and industrial customers which have such competitive alternatives, but PSE&G believes that it does not currently have a material exposure with respect to such customers. Further, EPAct authorized the Federal Energy Regulatory Commission (FERC) to mandate utilities to transport and deliver or "wheel" energy for the supply of bulk power to wholesale customers. In March 1995, FERC issued a Notice of Proposed Rulemaking (NOPR) that would require utilities to (1) establish open access to all wholesale sellers and buyers, (2) offer transmission service comparable to service they provide themselves and (3) take transmission service under the same tariffs offered to other buyers and sellers. FERC's stated position is that it will ensure that utilities have a fair opportunity to recover prudently incurred investments that could become stranded costs as a result of the NOPR. In the wholesale electric market, other competitive pressures, such as municipalization, may also have an impact on utilities in the evolving electric power industry. Municipalization involves the acquisition and operation of existing investor-owned facilities by a municipal utility (MUNI) through condemnation, purchase or lease or the construction and operation of duplicate, parallel facilities within a municipal boundary. As a result, utilities, such as PSE&G, could lose customers (residential, commercial and industrial) in the municipality that is served by the MUNI, as well as lose the municipal entity itself as a customer. EPAct granted the states sole authority to mandate retail wheeling. New Jersey regulators have been reviewing existing regulations in an effort to develop a revised regulatory structure that would afford public utilities, such as PSE&G, increased flexibility to meet the competitive challenges of the future. Phase I of the New Jersey Energy Master Plan (Phase I), a two-phase plan to better manage the future energy needs of the State, has been completed. Phase I called for legislation that would allow New Jersey utilities to propose, subject to BPU approval, alternatives to rate base/rate of return pricing, allow for pricing flexibility under certain standards for customers with competitive options and equalize the impact of tax policies, such as the New Jersey Gross Receipts and Franchise Tax (NJGRT) currently assessed on retail energy utility sales, upon all energy producers. On July 20, 1995, Governor Whitman signed into law legislation which provides utilities the flexibility to propose, subject to BPU approval, alternatives to existing rate base/rate of return pricing and offer negotiated off-tariff agreements to customers with competitive options. On June 1, 1995, the BPU issued its order initiating a formal Phase II proceeding of the Master Plan. The proceeding will address wholesale and retail competition in New Jersey. Recoverability of stranded costs is largely dependent on the transition rules established by regulators, including FERC and the BPU. Stranded costs that could result as the industry moves to a more competitive environment include investments in generating facilities, transmission assets, purchase power agreements where the price being paid under such an agreement exceeds the market price for electricity and regulatory assets for which recovery is based solely on continued cost based regulation. At this time, management cannot predict the level of stranded costs, if any, or the extent to which regulators will allow recovery of such costs. Increased competition and the shift of risks and opportunities between rate payers and PSE&G resulting from PSE&G's filing of its proposed Alternative Rate Plan (discussed below) will increase the emphasis upon electric operational reliability, efficiency and cost. While the incremental cost of nuclear production is less expensive than PSE&G's other sources of generation, comparatively high embedded costs for nuclear plants increase the need for PSE&G to optimize the utilization of its nuclear generating capacity in order to make its actual generation output cost competitive. In order to succeed in this increasingly competitive environment, Enterprise and its subsidiaries have taken the following steps designed to retain customers, reduce costs, improve operations and strategically position itself for future operation: 1) On January 16, 1996, PSE&G filed its proposed alternative rate plan, the "New Jersey Partners in Power" Plan (Alternative Rate Plan). This seven-year proposed Alternative Rate Plan allows for a transition to a competitive energy marketplace while substantially shifting the business and financial risks and opportunities involved in such transition away from customers to PSE&G. Some of the key features of the proposal are: (a) an indexed or price-capped approach to replace the rate base/rate of return form of regulation including the discontinuance of the electric Levelized Energy Adjustment Clause (LEAC) and the BPU's Nuclear Performance Standard (NPS), (b) a productivity gains sharing mechanism with electric and gas customers, (c) continued recovery of costs associated with activities mandated by state or federal agencies and (d) a program of rewards and penalties based on the performance of certain key overall service indicators, such as the duration of customer power outages compared to a five year average. For a full discussion of the Alternative Rate Plan, see Note 2 -- Rate Matters of Notes. 2) PSE&G reorganized its senior nuclear leadership team to address operation and performance issues at PSE&G operated nuclear facilities and completed a thorough work scope assessment of Salem 1 and Salem 2 in order to return these units to safe, reliable operation over the long-term. 3) PSE&G reorganized to reflect the evolution toward stand-alone energy and energy services businesses designed to compete successfully in the future. The reorganization "unbundled" the services previously provided by the electric and gas businesses. The focus is now on areas of business: Generation, Transmission and Distribution and Customer Services. 4) Also as part of the corporate reorganization, a new business was created, Enterprise Ventures & Services Corporation, to pursue products and services which can be marketed beyond traditional geographic and industry boundaries. Among these are: natural gas marketing in the wake of deregulation of that industry, conservation and energy management services and a product development venture with AT&T Corp. to pilot and eventually market two-way customer communications systems and services. 5) PSE&G developed initiatives, including the announced closure of five older, less efficient generating units, to reduce annual fossil generation operating and maintenance expenses, as well as to reduce annual fossil capital expenditures. 6) PSE&G has established a deleveraging plan to retire more than $1 billion of outstanding debt over the next five years and to fund its current five-year construction program entirely through internally generated cash. 7) PSE&G became the first utility in the Northeast to implement a service guarantee program. It covers nine key service areas and provides direct bill credits to customers should PSE&G fail to live up to its promises. 8) The Strategic Account Marketing Organization was created within PSE&G to provide more individualized service to its 200 largest customers. 9) PSE&G received BPU approval for its proposed Experimental Hourly Energy Pricing Tariff and the first service agreement thereunder with its second largest customer. This type of agreement serves as an incentive to retain customers with other energy alternatives in PSE&G's customer base, as well as in New Jersey. 10) Also in 1995, PSE&G completed the Bergen Repowering Project which improved the efficiency and environmental effectiveness of the facility. Fuel costs for the facility will be reduced by approximately $30 million annually. 11) CEA pursued business opportunities in certain international markets. During 1995, CEA closed on three projects and a strategic alliance in China and South America. 12) Enterprise announced that EDHI will pursue the divestiture of EDC. The decision to divest EDC stems from Enterprise's conclusion that ownership of large oil and natural gas reserves is no longer necessary to provide efficient energy solutions to customers and that the true market value of EDC is not reflected in the price of Enterprise Common Stock. Enterprise and its subsidiaries remain committed to the pursuit of initiatives to contain costs and retain customers. Accounting for the Effects of Regulation Currently, PSE&G accounts for the effects of regulation in accordance with Statement of Financial Accounting Standards No. 71 "Accounting for the Effects of Certain Types of Regulation" (SFAS 71). In accordance with the provisions of SFAS 71, PSE&G defers certain expenses (regulatory assets) on the basis that they will be recovered from customers as part of the ratemaking process. PSE&G believes that if its proposed Alternative Rate Plan is approved essentially as proposed, it would continue to meet the criteria to account for certain utility revenues and expenses in accordance with SFAS 71. However, if future events or regulatory changes limit PSE&G's ability to establish prices to recover its costs, PSE&G might conclude that it no longer meets the application criteria to defer certain expenses in accordance with SFAS 71. If PSE&G were to discontinue the application of SFAS 71, the accounting impact would be an extraordinary, non-cash charge to operations that could be material to the financial position and results of operations of Enterprise and PSE&G. PSE&G has certain regulatory assets resulting from the use of a level of depreciation expense in the rate making process that is less than the amount that would be recorded under Generally Accepted Accounting Principles (GAAP) for non-regulated companies. PSE&G cannot presently quantify what the financial statement impact may be if depreciation expense were required to be determined absent regulation, but the impact on the financial position and results of operations of PSE&G and Enterprise could be material. Statement of Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets" (SFAS 121) effective for 1996, establishes accounting standards for the impairment of long-lived assets. SFAS 121 also requires that regulatory assets which are no longer probable of recovery through future revenues be charged to earnings. The adoption of SFAS 121 is not expected to have a material impact on the financial position or results of operations of PSE&G and Enterprise. PSE&G Energy and Fuel Adjustment Clauses Under the existing regulatory framework, PSE&G has fuel and energy tariff rate adjustment clauses, the Levelized Gas Adjustment Charge (LGAC) and the LEAC, which are designed to permit adjustments for changes in electric energy and gas supply costs and certain other costs as approved by the BPU, when compared to cost recovery included in base rates. Presently, charges under the clauses are primarily based on energy and gas supply costs which are normally projected over twelve-month periods except for large gas commercial and industrial customers for which commencing January 1, 1996, gas supply costs are projected monthly. The changes in the clauses do not directly affect earnings because such costs are adjusted monthly to match amounts recovered through revenues except for the financing costs of carrying underrecovered balances and required interest payments on net overrecovered balances. Under the clauses, if actual costs differ from the costs recovered, the amount of the underrecovery or overrecovery is deferred. Actual costs otherwise includable in the LEAC are subject to adjustment by the BPU in accordance with the NPS. (See Note 2 -- Rate Matters and Note 12 -- Commitments and Contingent Liabilities of Notes.) The Alternative Rate Plan proposes discontinuing LEAC and NPS and would substantially shift the risks and opportunities involved in managing changes in fuel and replacement power costs from customers to PSE&G. Accounting for Stock Compensation Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation" (SFAS 123) is effective for fiscal years that begin after December 15, 1995. SFAS 123 establishes financial accounting and reporting standards for stock based compensation plans and includes all arrangements by which employees receive shares of stock or other equity instruments of the employer or by which the employer incurs liabilities to employees in amounts based on the price of the employer's stock. The adoption of SFAS 123 is not expected to have a material impact on the financial position or results of operations of PSE&G and Enterprise. Corporate Policy for the Use of Derivatives Enterprise and its subsidiaries have established a policy to use derivatives only for the purpose of managing financial risk and not for speculative purposes. EDHI currently uses derivatives to manage financial risk for EDC and PSRC, including its subsidiary United States Energy Partners (USEP). The derivatives are used to mitigate the impact on earnings of volatile gas prices for EDC and USEP and volatile security prices for PSRC's investing activities. For details, see Note 8 -- Financial Instruments and Risk Management of Notes. Although PSE&G does not currently use derivatives, if the Alternative Rate Plan is approved as proposed, PSE&G could find derivatives to be a useful and appropriate tool in managing the volatility of fuel prices, among other things. Nuclear Operations Operation of the Salem units has continued to present challenges to PSE&G. The units have experienced equipment failures which, combined with personnel errors, have precipitated or contributed to plant events or trips which have led to a number of outages over the lifetime of the units. Both of the Salem units are currently out of service and their return dates are subject to completion of testing, analysis, repair activity and NRC concurrence that they are prepared to restart. Restart of Salem 1, which had originally been scheduled for the second quarter of 1996, will be delayed for a substantial period as a result of the ongoing steam generator inspection and analysis. Salem 2, which is also undergoing steam generator inspection and analysis is still scheduled to return to service in the third quarter of 1996. The inability to successfully return these units to continuous, safe operation could have a material effect on the financial position, results of operation and net cash flows of Enterprise and PSE&G. Results of Operations Earnings per share of Enterprise Common Stock were $2.71 in 1995, $2.78 in 1994 and $2.50 in 1993. In 1995, Enterprise earnings decreased principally due to increased operating expenses and lower gas sales from PSE&G. These decreases in earnings were partially offset by improved electric sales, EDC revenues resulting from the settlement of litigation related to a take or pay sales contract and from gains realized on sales of properties by EDC. In 1994, the increase in Enterprise earnings was driven primarily by increased weather related electric and gas sales. Enterprise earnings also benefited from higher investment income from PSRC. PSE&G - Earnings Available to Enterprise
1995 vs. 1994 1994 vs. 1993 ---------------- --------------- Per Per Amount Share Amount Share ------ ------ ------ ------ (Millions, except Per Share Data) PSE&G Revenues (net of fuel costs and gross receipts taxes).............................. $ 38 $ .16 $ 147 $ .60 Other operation expenses....................... 10 .04 (77) (.32) Maintenance expenses........................... (4) (.02) (4) (.02) Depreciation and amortization expenses......... (39) (.16) (41) (.17) Federal income taxes........................... (27) (.11) 14 .06 Interest charges............................... (11) (.05) (6) (.02) Allowance for Funds used During Construction (AFDC)......................................... (2) (.01) 11 .05 Preferred Securities Dividend Requirements..... (8) (.03) (4) (.02) Other income and expenses...................... 7 .03 2 .01 ----- ----- ----- ---- Earnings Available to Enterprise............... (36) (.15) 42 .17 PSE&G - Revenues Electric Revenues increased $281 million, or 7.5%, in 1995 from 1994; 1994 revenues increased $44 million, or 1.2%, compared to 1993. The significant components of these changes follow:
Increase or (Decrease) ------------------------------ 1995 vs. 1994 1994 vs. 1993 ------------- ------------- (Millions) Kilowatthour sales............................... $ 38 $ 69 Recovery of energy costs......................... 189 (26) NJGRT............................................ 12 (4) Other operating revenues......................... 42 5 ----- ----- Total Electric Revenues.......................... $ 281 $ 44 ===== ===== Gas During 1995, revenues decreased $92 million, or 5.2%, from 1994; 1994 revenues increased $184 million, or 11.6%, over 1993. The significant components of these changes follow:
Increase or (Decrease) ------------------------------ 1995 vs. 1994 1994 vs. 1993 ------------- ------------- (Millions) Therm sales................................... $ (35) $ 61 Recovery of fuel costs........................ (78) 121 NJGRT......................................... 19 (12) Other operating revenues...................... 2 14 ----- ----- Total Gas Revenues................ $ (92) $ 184 ===== =====
During 1995, electric revenues were impacted by higher residential and commercial sales resulting from a recovering economy, warm summer weather and a modest increase in customer base. In addition, other electric revenues increased principally due to higher miscellaneous revenues from increased capacity sales to unaffiliated utilities and to wholesale customers, service reconnections, temporary services and revenues from Public Service Conservation Resources Corporation (PSCRC), PSE&G's energy services subsidiary. Capacity sales are sales for the reservation of a specified quantity of PSE&G system generating capacity and must be paid even when the energy is not taken. In 1995, gas revenues decreased due to the mild winter weather, partially offset by revenues resulting from the rapidly growing off system sales and higher gas service contract revenues. Off system sales are sales of excess gas to brokers and other utilities which are not part of PSE&G's firm customer base. Earnings on these sales are shared between the firm customer and PSE&G on an 80/20 split, respectively. In 1994, electric and gas revenues benefited from weather related sales which primarily impacted electric commercial sales and all firm gas rate schedules. Other electric revenues increased principally due to increased capacity sales to unaffiliated utilities and increased miscellaneous revenues, partially offset by lower energy sales to the unaffiliated utilities. Other gas revenues were significantly impacted by a one time $10 million legal settlement of a gas contract. PSE&G - Expenses Fuel Expenses As discussed in the PSE&G Energy and Fuel Adjustment Clauses section, variances in fuel expenses do not directly affect earnings because of the adjustment clause mechanism. However, if the proposed Alternative Rate Plan is adopted as filed, future changes in electric fuel and replacement power costs could impact earnings. Other Operation Expenses During 1995, other operation expenses decreased $10 million from 1994 levels. PSE&G had lower nuclear and miscellaneous production expenses. Nuclear production expenses decreased during 1995 due in part to the extended outage of Salem Units 1 and 2. PSE&G also secured savings in miscellaneous expenditures, such as clerical and office supplies in its steam production area. These savings were partially offset by increased marketing expenditures for customer related programs initiated in 1995. During 1994, other operation expenses increased $77 million when compared to 1993 principally due to increased nuclear production expenses which were higher than 1993 levels when Salem had a refueling outage, increased transmission and distribution expenses incurred during the bitter 1994 winter and increased administrative and general expenses primarily due to a rise in personal and property damage claim expenses. The increase in personal and property damage claims was directly related to storm damage and other weather related occurrences. Maintenance Expenses Maintenance expense increased $4 million in 1995 in comparison to 1994 due to the extended outage at Salem Units 1 and 2, partially offset by decreased expenses for electric and gas distribution facilities. Maintenance expense for 1994 was $4 million higher than in 1993 primarily due to the 1994 Hope Creek refueling outage and increased expenses for gas distribution facilities which resulted from the extremely cold weather during January and February 1994. Depreciation and Amortization Expenses Depreciation and Amortization expenses increased $39 million in 1995 when compared to 1994 and $41 million in 1994 when compared to 1993. The increases in 1995 and 1994 are attributable to increased depreciation expenses directly related to increases in plant in service. Federal Income Taxes In 1995, Federal Income Taxes increased $27 million from 1994 and 1994 Federal Income Taxes decreased $14 million from 1993. The 1995 taxes were higher than 1994 principally due to the receipt of a non- taxable insurance benefit in 1994 and to higher pre-tax operating income. Federal Income Taxes decreased in 1994 due to the receipt of a non-taxable insurance benefit, partially offset by higher pre-tax operating income. Interest Charges In 1995, interest charges were $11 million higher than in 1994 and, in 1994, interest charges were $6 million higher than in 1993. The primary reason for the 1995 increase was higher interest charges on miscellaneous liabilities, while the driving force behind the 1994 increase was a higher average daily balance of short-term debt outstanding at higher interest rates. Allowance for Funds Used During Construction In 1995, there was a $2 million decrease in AFDC income principally due to a decrease in construction expenditures. In 1994, AFDC income was $11 million higher than the 1993 level due to increased construction resulting from the repowering of the Bergen Generating Station. Preferred Securities Dividend requirements on preferred securities increased $8 million in 1995 compared to 1994 and $4 million in 1994 compared to 1993. The increases are the result of the issuance of higher rate Monthly Income Preferred Securities used to redeem certain issues of PSE&G Preferred Stock. EDHI - Net Income
1995 vs. 1994 1994 vs. 1993 ---------------- ---------------- Per Per Amount Share Amount Share ------ ------ ------ ------ (Millions, except Per Share Data) PSRC..................... -- -- 14 .06 CEA...................... (4) (.02) 2 .01 EDC...................... 23 .10 (34) (.14) EGDC..................... 1 -- 54 .22 ----- ----- ----- ----- Total............ 20 .08 36 .15 ===== ===== ===== =====
The net income of EDHI was $80 million in 1995, a $20 million increase over 1994. EDC's income increased $23 million primarily due to the realization of a settlement related to a take-or-pay sales contract. EDC's gains from property sales, higher oil prices and volumes and reduced depreciation, depletion and amortization (DD&A) expenses also contributed to higher earnings but were substantially offset by lower gas prices and volumes. CEA's earnings decreased $4 million compared to 1994 due to higher interest and development expenses. The net income of EDHI was $60 million in 1994. Excluding the impact of an impairment of assets of $51 million, after tax, by EGDC in 1993, EDHI's earnings in 1994 decreased $15 million in comparison to 1993. Increased income from PSRC (higher investment income, lower income taxes compared to 1993 which included the effects of a Federal income tax increase and lower interest charges) and CEA (higher income from operating plants) was offset by lower EDC earnings (lower gas volumes and prices and higher exploration and development expenditures due to increased drilling activities). Dividends The ability of Enterprise to declare and pay dividends is contingent upon its receipt of dividend payments from its subsidiaries. PSE&G has made regular payments to Enterprise in the form of dividends on outstanding shares of its common stock since Enterprise was formed in 1986. In addition, commencing in 1992, EDHI has also made payments to Enterprise in the form of dividends on its outstanding common stock. Since 1992, Enterprise has maintained a constant rate of common stock dividends. Management believes that gradually reducing the common stock dividend payout ratio is a prudent policy. Dividends paid to holders of Enterprise Common Stock increased $.5 million during 1995 compared to 1994 and increased $6 million during 1994 compared to 1993. Such increases were due to the issuance of additional shares of Enterprise Common Stock. Dividends paid to holders of PSE&G's Preferred Stock decreased $6.7 million during 1995 compared to 1994 and increased $2 million during 1994 compared to 1993. The 1995 decrease in such dividends was due to the redemption of certain series of Preferred Stock. The increase in 1994 was due to the issuance of additional shares of Preferred Stock. (See Liquidity and Capital Resources.) Dividends paid to holders of Monthly Income Preferred Securities of Public Service Electric and Gas Capital, L.P. (Partnership), a limited partnership of which PSE&G is the general partner, increased $14 million during 1995 compared to 1994. The Partnership's Monthly Income Preferred Securities were first issued in 1994 and were not outstanding for the entire year. The increase in 1995 was due to the issuance of additional securities coupled with the fact that Monthly Income Preferred Securities were outstanding for the entire year. (See Note 4 -- Schedule of Consolidated Capital Stock and Other Securities of Notes.) Liquidity and Capital Resources Enterprise's liquidity is affected by maturing debt, investment and acquisition activities, the capital requirements of PSE&G's and EDHI's construction and investment programs, permitted regulatory recovery of expenses and collection of revenues. Capital resources available to meet such requirements depend upon general and regional economic conditions, PSE&G's customer retention and growth, the ability of PSE&G and EDHI to meet competitive pressures and to contain costs, the adequacy and timeliness of rate relief, cost recovery and necessary regulatory approvals, the ability to continue to operate and maintain nuclear programs in accordance with NRC and BPU requirements, the impact of environmental regulations, continued access to the capital markets and continued favorable regulatory treatment of consolidated tax benefits. (For additional information see the discussion of Competition above and Note 12, Commitments and Contingencies of the Notes.) PSE&G PSE&G had utility plant additions of $686 million, $887 million and $890 million, for 1995, 1994 and 1993, respectively, including AFDC of $36 million, $38 million and $27 million, respectively. Construction expenditures were related to improvements in PSE&G's existing power plants, transmission and distribution system, gas system and common facilities. PSE&G also expended $30 million, $34 million and $48 million for the cost of plant removal (net of salvage) in 1995, 1994 and 1993, respectively. Construction expenditures from 1996 through 2000 are expected to aggregate $2.8 billion, including AFDC. Forecasted construction expenditures are related to improvements in PSE&G's existing power plants (including nuclear fuel), transmission and distribution system, gas system and common facilities. (See Construction, Investments and Other Capital Requirements Forecast below.) PSE&G expects that it will be able to internally generate all of its capital requirements, including construction expenditures, over the next five years and reduce its debt outstanding by approximately $1 billion, assuming adequate and timely recovery of costs, as to which no assurances can be given. (See Note 2 -- Rate Matters and Note 12 -- Commitments and Contingent Liabilities of Notes.) EDHI During the next five years, a majority of EDHI's capital requirements are expected to be provided from operational cash flows. (See Construction, Investments and Other Capital Requirements Forecast below.) CEA is expected to be the primary vehicle for EDHI's business growth. A significant portion of CEA's growth is expected to occur in the international arena due to the current and anticipated growth in electric capacity required in certain regions of the world. EDC will continue to pursue a program to grow its reserve base through a combination of strategic acquisitions, high potential exploration activities and exploitation of its acquired properties and new discoveries. EDC's worldwide 1995 production totaled 99 BCFE and, at year end, EDC had proved reserves of 920 BCFE. EDC expended approximately $153 million, $188 million and $109 million in 1995, 1994 and 1993, respectively, to acquire, discover or develop domestic and international reserves. Of these expenditures, $132 million, $160 million and $92 million in 1995, 1994 and 1993, respectively, were capitalized. These amounts included capitalized interest of $4 million, $4 million and $3 million, respectively. For discussion regarding the potential divestiture of EDC, see Competition. PSRC will continue to limit new investments to those related to the energy businesses, while EGDC will exit the real estate business in a prudent manner. Over the next several years, EDHI and its subsidiaries will also be required to refinance a portion of their maturing debt in order to meet their capital requirements. In addition, any divestiture of EDC will require the renegotiation of existing loan agreements of Funding. Any inability to extend or replace maturing debt and or existing agreements at current levels and interest rates may affect future earnings and result in an increase in EDHI's cost of capital. PSRC is a limited partner in various limited partnerships and is committed to make investments from time to time, upon the request of the respective general partners. At December 31, 1995, $58 million remained as PSRC's unfunded commitment subject to call. EDHI and each of its subsidiaries are subject to restrictive business and financial covenants contained in existing debt agreements and are required to not exceed various debt to equity ratios which vary from 3:1 to 1.75:1. EDHI is also required to maintain a twelve-months earnings before interest and taxes to interest (EBIT) coverage ratio of at least 1.35:1. As of December 31, 1995 and 1994, EDHI had a consolidated debt to equity ratio of 1.15:1 and, for the years ended December 31, 1995, 1994 and 1993, EBIT coverage ratios, as defined to exclude the effects of EGDC, of 2.47:1, 1.94:1 and 2.13:1, respectively. Compliance with applicable financial covenants will depend upon future financial position and levels of earnings, as to which no assurance can be given. (See Note 6 -- Schedule of Consolidated Debt and Note 16 -- Property Impairment of Enterprise Group Development Corporation of Notes.) Long-Term Investments and Real Estate Long-term investments and real estate increased $82 million in 1995 and decreased $58 million and $67 million in 1994 and 1993, respectively. The increase in 1995 was primarily due to an increase in PSCRC's long-term investments of $49 million, PSRC's increase in investments in partnerships and leases of $52 million and CEA's increase in partnership investments of $27 million, partially offset by EGDC's property sales of $53 million. The decrease in 1994 was primarily due to a $73 million net decrease in PSE&G's investment in an insurance contract, partially offset by an increase in long-term investments of $23 million. The decrease in 1993 was due primarily to EDHI's decrease in long-term investments of $63 million. (For more details, see Note 7 -- long-term investments and Note 11 -- Leasing Activities - As Lessor of Notes.) Construction, Investments and Other Capital Requirements Forecast
1996 1997 1998 1999 2000 TOTAL ------ ------ ------ ------ ----- ------ (MILLIONS OF DOLLARS) PSE&G (including AFDC) Electric (including Nuclear).......... 464 408 383 356 342 1,953 Gas................................... 128 117 110 106 102 563 Miscellaneous Corporate............... 70 56 50 41 35 252 ------ ------ ------ ------ ------ ----- Total PSE&G Construction Requirements... 662 581 543 503 479 2,768 ------ ------ ------ ------ ------ ------ EDHI.................................... 272 148 229 206 225 1,080 ------ ------ ------ ----- ------ ------ Mandatory Retirement of Securities: PSE&G................................. 345 400 118 100 400 1,363 EDHI.................................. 91 125 195 200 78 689 ------- ------ ------ ------ ------ ------ 436 525 313 300 478 2,052 ------- ------ ------ ------ ------ ------ Working Capital and Other - net........ 16 (26) 70 (21) 59 98 ------- ------ ------ ------ ------ ------ Total Capital Requirements... $1,386 $1,228 $1,155 $ 988 $1,241 $5,998 ======= ====== ====== ====== ====== ======
While the above forecast includes capital costs to comply with revised Federal Clean Air Act (CAA) requirements through 2000, it does not include additional requirements being developed under the CAA by Federal and State agencies. Such additional costs cannot be reasonably estimated at this time. PSE&G believes that such CAA costs would be recoverable from electric customers. In accordance with the proposed Alternative Rate Plan, separate mechanisms would be established to ensure continued recovery of costs associated with activities mandated or approved by state or federal agencies or otherwise out of PSE&G's control. Internal Generation of Cash from Operations Enterprise's cash from operations is generated primarily from the operating activities of PSE&G. Enterprise's cash provided by operations for 1995 increased $261 million to $1.493 billion from 1994. This increase was primarily due to the increase in PSE&G s revenues (partially offset by an increase in accounts receivable and unbilled revenues), an increase in the recovery of electric energy and gas costs through PSE&G's LEAC and LGAC and a decrease in PSE&G s gross receipts taxes. For additional information see Results of Operations. Enterprise's cash provided by operations for 1994 increased $200 million to $1.232 billion from 1993. This increase was primarily due to the increase in PSE&G's revenues (plus a decrease in accounts receivable and unbilled revenues) and an increase in the recovery of electric energy and gas costs through PSE&G's LEAC and LGAC. For additional information see Results of Operations. External Financings - PSE&G In 1995, PSE&G issued $156 million of its First and Refunding Mortgage Bonds (Bonds)/Medium-Term Notes (MTNs) for the purpose of redeeming $56 million of its higher cost Bonds and to pay a portion of its maturing bonds. In 1995, Partnership issued $60 million of Monthly Income Preferred Securities, the proceeds of which were used to redeem $60 million of PSE&G's Preferred Stock. The BPU has authorized PSE&G to issue approximately $4.375 billion aggregate amount of additional Bonds/MTNs/Preferred Stock/Monthly Income Preferred Securities through 1997 for refunding purposes. Under its Mortgage, PSE&G may issue new Bonds against retired Bonds and as of December 31, 1995, up to $2.840 billion aggregate amount of new Bonds against previous additions and improvements to utility plant, provided that the ratio of earnings to fixed charges is at least 2:1. At December 31, 1995 the ratio was 2.77:1. In January 1996, PSE&G issued $350 million of Bonds. In February 1996, the net proceeds from the sale were deposited in an escrow account for the purpose of refunding certain higher cost bonds at their respective first optional redemption dates in November 1996 and February 1997. The BPU has authorized PSE&G to issue and have outstanding at any one time not more than $1 billion of its short-term obligations, consisting of commercial paper and other unsecured borrowings from banks and other lenders through January 1, 1997. On December 31, 1995, PSE&G had $449 million of short-term debt outstanding. To provide liquidity for its commercial paper program, PSE&G has a $500 million one year revolving credit agreement expiring in August 1996 and a $500 million five year revolving credit agreement expiring in August 2000 with a group of commercial banks, which provides for borrowing up to one year. On December 31, 1995, there were no borrowings outstanding under these credit agreements. PSE&G expects to be able to renew the credit agreement expiring in 1996. PSCRC has a $30 million revolving credit facility supported by a PSE&G subscription agreement in an aggregate amount of $30 million which terminates on March 7, 1996. PSCRC is presently in the process of negotiating a one year extension for this facility. As of December 31, 1995, PSCRC had $30 million outstanding under this facility. PSE&G Fuel Corporation (Fuelco) has a $150 million commercial paper program to finance a 42.49% share of Peach Bottom nuclear fuel, supported by a $150 million revolving credit facility with a group of banks, which expires on June 28, 1996. PSE&G has guaranteed repayment of Fuelco's respective obligations. As of December 31, 1995, Fuelco had commercial paper of $88 million outstanding under such program. External Financings - EDHI Funding has a commercial paper program, supported by a commercial bank letter of credit and credit facility, in the amount of $225 million expiring in March 1998. As of December 31, 1995, Funding had $182 million of borrowings outstanding under this commercial paper program. Additionally, Funding has a $225 million revolving credit facility expiring in March 1998. As of December 31, 1995, Funding had $100 million of borrowings outstanding under this facility. Capital's MTN program has previously provided for an aggregate principal amount of up to $750 million of MTNs so that its total debt outstanding at any time, including MTNs, would not exceed such amount. Effective January 31, 1995, Capital will not have more than $650 million of debt outstanding at any time. In 1995, Capital repaid $112 million of its MTNs. At December 31, 1995, Capital had total debt outstanding of $478 million, including $355 million of MTNs. PSE&G The information required by this item is incorporated herein by reference to the following portions of Enterprise's Management's Discussion and Analysis of Financial Condition and Results of Operations, insofar as they relate to PSE&G and its subsidiaries: Overview; Competition; PSE&G Energy and Fuel Adjustment Clauses; Accounting for Stock Compensation; Corporate Policy for the Use of Derivatives; Nuclear Operations; Results of Operations; Dividends; Liquidity and Capital Resources; Long-Term Investments and Real Estate; Construction; Investments and Other Capital Requirements Forecast; and External Financings. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA FINANCIAL STATEMENT RESPONSIBILITY - ENTERPRISE Management of Enterprise is responsible for the preparation, integrity and objectivity of the consolidated financial statements and related notes of Enterprise. The consolidated financial statements and related notes are prepared in accordance with generally accepted accounting principles. The financial statements reflect estimates based upon the judgment of management where appropriate. Management believes that the consolidated financial statements and related notes present fairly Enterprise's financial position and results of operations. Information in other parts of this Annual Report is also the responsibility of management and is consistent with these consolidated financial statements and related notes. The firm of Deloitte & Touche LLP, independent auditors, is engaged to audit Enterprise's consolidated financial statements and related notes and issue a report thereon. Deloitte & Touche's audit is conducted in accordance with generally accepted auditing standards. Management has made available to Deloitte & Touche, all the corporation's financial records and related data, as well as the minutes of directors' meetings. Furthermore, management believes that all representations made to Deloitte & Touche, during its audit were valid and appropriate. Management has established and maintains a system of internal accounting controls to provide reasonable assurance that assets are safeguarded, and that transactions are executed in accordance with management's authorization and recorded properly for the prevention and detection of fraudulent financial reporting, so as to maintain the integrity and reliability of the financial statements. The system is designed to permit preparation of consolidated financial statements and related notes in accordance with generally accepted accounting principles. The concept of reasonable assurance recognizes that the costs of a system of internal accounting controls should not exceed the related benefits. Management believes the effectiveness of this system is enhanced by an ongoing program of continuous and selective training of employees. In addition, management has communicated to all employees its policies on business conduct, safeguarding assets and internal controls. The Internal Auditing Department of PSE&G conducts audits and appraisals of accounting and other operations of Enterprise and its subsidiaries and evaluates the effectiveness of cost and other controls and recommends to management, where appropriate, improvements thereto. Management has considered the internal auditors' and Deloitte & Touche's recommendations concerning the corporation's system of internal accounting controls and has taken actions that, in its opinion, are cost-effective in the circumstances to respond appropriately to these recommendations. Management believes that, as of December 31, 1995, the corporation's system of internal accounting controls is adequate to accomplish the objectives discussed herein. The Board of Directors of Enterprise carries out its responsibility of financial overview through its Audit Committee, which presently consists of six directors who are not employees of Enterprise or any of its affiliates. The Audit Committee meets periodically with management as well as with representatives of the internal auditors and Deloitte & Touche. The Audit Committee reviews the work of each to ensure that its respective responsibilities are being carried out and discusses related matters. Both the internal auditors and Deloitte & Touche periodically meet alone with the Audit Committee and have free access to the Audit Committee, and its individual members, at any time. E. James Ferland Robert C. Murray Chairman of the Board, Vice President and President and Chief Chief Financial Officer Executive Officer Patricia A. Rado Vice President and Controller Principal Accounting Officer February 14, 1996
FINANCIAL STATEMENT RESPONSIBILITY - PSE&G Management of PSE&G is responsible for the preparation, integrity and objectivity of the consolidated financial statements and related notes of PSE&G. The consolidated financial statements and related notes are prepared in accordance with generally accepted accounting principles. The financial statements reflect estimates based upon the judgment of management where appropriate. Management believes that the consolidated financial statements and related notes present fairly PSE&G's financial position and results of operations. Information in other parts of this Annual Report is also the responsibility of management and is consistent with these consolidated financial statements and related notes. The firm of Deloitte & Touche LLP, independent auditors, is engaged to audit PSE&G's consolidated financial statements and related notes and issue a report thereon. Deloitte & Touche's audit is conducted in accordance with generally accepted auditing standards. Management has made available to Deloitte & Touche, all the corporation's financial records and related data, as well as the minutes of directors' meetings. Furthermore, management believes that all representations made to Deloitte & Touche, during its audit were valid and appropriate. Management has established and maintains a system of internal accounting controls to provide reasonable assurance that assets are safeguarded, and that transactions are executed in accordance with management's authorization and recorded properly for the prevention and detection of fraudulent financial reporting, so as to maintain the integrity and reliability of the financial statements. The system is designed to permit preparation of consolidated financial statements and related notes in accordance with generally accepted accounting principles. The concept of reasonable assurance recognizes that the costs of a system of internal accounting controls should not exceed the related benefits. Management believes the effectiveness of this system is enhanced by an ongoing program of continuous and selective training of employees. In addition, management has communicated to all employees its policies on business conduct, safeguarding assets and internal controls. The Internal Auditing Department conducts audits and appraisals of accounting and other operations and evaluates the effectiveness of cost and other controls and recommends to management, where appropriate, improvements thereto. Management has considered the internal auditors' and Deloitte & Touche's recommendations concerning the corporation's system of internal accounting controls and has taken actions that are cost-effective in the circumstances to respond appropriately to these recommendations. Management believes that, as of December 31, 1995, the corporation's system of internal accounting controls is adequate to accomplish the objectives discussed herein. The Board of Directors carries out its responsibility of financial overview through the Audit Committee of Enterprise, which presently consists of six directors who are not employees of Enterprise or any of its affiliates. The Enterprise Audit Committee meets periodically with management as well as with representatives of the internal auditors and Deloitte & Touche. The Audit Committee reviews the work of each to ensure that their respective responsibilities are being carried out and discusses related matters. Both the internal auditors and Deloitte & Touche, periodically meet alone with the Audit Committee and have free access to the Audit Committee, and its individual members, at any time. E. James Ferland Robert C. Murray Chairman of the Board Senior Vice President and and Chief Executive Officer Chief Financial Officer Patricia A. Rado Vice President and Controller Principal Accounting Officer February 14, 1996
INDEPENDENT AUDITORS' REPORT To the Stockholders and Board of Directors of Public Service Enterprise Group Incorporated: We have audited the consolidated balance sheets of Public Service Enterprise Group Incorporated and its subsidiaries (the "Company") as of December 31, 1995 and 1994, and the related consolidated statements of income, retained earnings, and cash flows for each of the three years in the period ended December 31, 1995. Our audits also included the consolidated financial statement schedules listed in the Index in Item 14(b)(1). These consolidated financial statements and the consolidated financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and consolidated financial statement schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Public Service Enterprise Group Incorporated and its subsidiaries at December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. Also, in our opinion, such consolidated financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. We have also previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheets as of December 31, 1993, 1992, and 1991, and the related consolidated statements of income, retained earnings and cash flows for the years ended December 31, 1992 and 1991 (none of which are presented herein) and we expressed unqualified opinions on those consolidated financial statements. In our opinion, the information set forth in the Selected Financial Data for each of the five years in the period ended December 31, 1995 for the Company, presented in Item 6, is fairly stated in all material respects, in relation to the consolidated financial statements from which it has been derived. DELOITTE & TOUCHE LLP February 14, 1996 Parsippany, New Jersey INDEPENDENT AUDITORS' REPORT To the Board of Directors of Public Service Electric and Gas Company: We have audited the consolidated balance sheets of Public Service Electric & Gas Company and its subsidiaries (the "Company") as of December 31, 1995 and 1994, and the related consolidated statements of income, retained earnings, and cash flows for each of the three years in the period ended December 31, 1995. Our audits also included the consolidated financial statement schedules listed in the Index in Item 14(b)(2). These consolidated financial statements and the consolidated financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and consolidated financial statement schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Public Service Electric & Gas Company and its subsidiaries at December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. Also, in our opinion, such consolidated financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. We have also previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheets as of December 31, 1993, 1992, and 1991, and the related consolidated statements of income, retained earnings and cash flows for the years ended December 31, 1992 and 1991 (none of which are presented herein) and we expressed unqualified opinions on those consolidated financial statements. In our opinion, the information set forth in the Selected Financial Data for each of the five years in the period ended December 31, 1995 for the Company, presented in Item 6, is fairly stated in all material respects, in relation to the consolidated financial statements from which it has been derived. DELOITTE & TOUCHE LLP February 14, 1996 Parsippany, New Jersey PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, -------------------------------------------- 1995 1994 1993 ------------ ------------ ------------ (THOUSANDS OF DOLLARS) OPERATING REVENUES Electric............................................... $ 4,020,842 $ 3,739,713 $ 3,696,114 Gas.................................................... 1,686,403 1,778,528 1,594,341 Nonutility Activities.................................. 456,908 404,202 418,135 ------------ ------------ ------------ Total Operating Revenues........................ 6,164,153 5,922,443 5,708,590 ------------ ------------ ------------ OPERATING EXPENSES Operation Fuel for Electric Generation and Interchanged Power............................................. 891,782 695,763 717,136 Gas Purchased and Materials for Gas Produced......... 961,539 1,023,956 897,885 Other................................................ 1,118,758 1,118,523 1,014,455 Maintenance............................................ 312,610 308,080 304,403 Depreciation and Amortization.......................... 674,231 634,028 601,597 Property Impairment (note 16).......................... -- -- 77,637 Taxes Federal Income Taxes (note 10)....................... 353,997 312,551 313,680 New Jersey Gross Receipts Taxes...................... 612,961 583,167 597,898 Other................................................ 80,565 82,282 77,052 ------------ ------------ ----------- Total Operating Expenses........................ 5,006,443 4,758,350 4,601,743 ------------ ------------ ----------- OPERATING INCOME......................................... 1,157,710 1,164,093 1,106,847 ------------ ------------ ----------- OTHER INCOME Allowance for Funds Used During Construction -- Equity............................... 5,324 12,789 12,265 Miscellaneous -- net................................... 8,041 6,430 (3,778) ------------ ------------ ----------- Total Other Income.............................. 13,365 19,219 8,487 ------------ ------------ ----------- INCOME BEFORE INTEREST CHARGES AND DIVIDENDS ON PREFERRED SECURITIES................................... 1,171,075 1,183,312 1,115,334 ------------ ------------ ----------- INTEREST CHARGES (note 6) Long-Term Debt......................................... 434,066 459,158 469,120 Short-Term Debt........................................ 32,822 23,962 13,860 Other.................................................. 29,172 12,805 19,554 ------------ ------------ ----------- Total Interest Charges.......................... 496,060 495,925 502,534 Allowance for Funds Used During Construction -- Debt and Capitalized Interest................................... (37,208) (33,793) (20,833) ------------ ------------ ----------- Net Interest Charges..................................... 458,852 462,132 481,701 ------------ ------------ ----------- Preferred Securities Dividend Requirements (note 4)...... 49,426 42,147 38,114 Preferred Stock Redemption Premium....................... 474 -- -- ------------ ------------ ----------- Income before cumulative effect of accounting change..... 662,323 679,033 595,519 Cumulative effect of change in accounting for income taxes (note 10).............................................. -- -- 5,414 ------------ ------------ ----------- Net Income............................................... $ 662,323 $ 679,033 $ 600,933 ============ ============ =========== SHARES OF COMMON STOCK OUTSTANDING End of Year............................................ 244,697,930 244,697,930 243,688,256 Average for Year....................................... 244,697,930 244,470,794 240,663,599 EARNINGS PER AVERAGE SHARE OF COMMON STOCK Before cumulative effect of accounting change........... $ 2.71 $ 2.78 $ 2.48 Cumulative effect of change in accounting for income taxes................................................ -- -- .02 ------------ ------------ ----------- TOTAL EARNINGS PER AVERAGE SHARE OF COMMON STOCK......... $ 2.71 $ 2.78 $ 2.50 ============ ============ =========== DIVIDENDS PAID PER SHARE OF COMMON STOCK................. $ 2.16 $ 2.16 $ 2.16 ============ ============ ===========
See Notes to Consolidated Financial Statements. PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED CONSOLIDATED BALANCE SHEETS ASSETS
DECEMBER 31, --------------------------- 1995 1994 ----------- ----------- (THOUSANDS OF DOLLARS) UTILITY PLANT-ORIGINAL COST (note 15) Electric................................................................ $13,095,103 $12,345,919 Gas..................................................................... 2,442,572 2,318,233 Common.................................................................. 517,104 545,131 ----------- ----------- Total............................................................ 16,054,779 15,209,283 Less: accumulated depreciation and amortization........................... 5,440,414 5,147,105 ----------- ----------- Net....................................................................... 10,614,365 10,062,178 Nuclear Fuel in Service, net of accumulated amortization -- 1995, $297,435; 1994, $302,906........................................ 180,018 205,273 ----------- ----------- Net Utility Plant in Service..................................... 10,794,383 10,267,451 Construction Work in Progress, including Nuclear Fuel in Process -- 1995, $104,743; 1994, $65,429........................................... 369,082 806,934 Plant Held for Future Use................................................. 23,966 23,860 ----------- ----------- Net Utility Plant................................................ 11,187,431 11,098,245 ----------- ----------- INVESTMENTS AND OTHER NONCURRENT ASSETS (notes 3,7,8,11,12 and 16) Long-Term Investments, net of amortization -- 1995, $7,213; 1994, $2,365, and net of valuation allowances -- 1995, $21,302; 1994, $17,104, respectively............................ 1,822,160 1,625,952 Oil and Gas Property, Plant and Equipment, net of accumulated depreciation and amortization -- 1995, $786,736; 1994, $748,245.................... 608,015 577,913 Real Estate, Property and Equipment, net of accumulated depreciation -- 1995, $5,063; 1994, $14,242, and net of valuation allowances -- 1995, $8,228; 1994, $23,264, respectively............................. 75,558 115,210 Other Plant, net of accumulated depreciation and amortization -- 1995, $6,531; 1994, $4,653............................................ 27,997 36,063 Nuclear Decommissioning and Other Special Funds......................... 276,348 233,022 Other Assets - net...................................................... 55,974 85,478 ----------- ----------- Total Investments and Other Noncurrent Assets.................... 2,866,052 2,673,638 ----------- ----------- CURRENT ASSETS Cash and Cash Equivalents (note 9)...................................... 76,233 67,866 Accounts Receivable: Customer Accounts Receivable.......................................... 525,404 434,207 Other Accounts Receivable............................................. 260,713 211,779 Less: allowance for doubtful accounts................................ 37,641 40,915 Unbilled Revenues....................................................... 246,876 204,056 Fuel, at average cost................................................... 253,360 268,927 Materials and Supplies, net of inventory valuation reserves -- 1995, $20,100; 1994, $18,200, respectively............................ 144,970 148,285 Deferred Income Taxes (note 10)......................................... 27,571 25,311 Miscellaneous Current Assets............................................ 62,631 37,356 ----------- ----------- Total Current Assets............................................. 1,560,117 1,356,872 ----------- ----------- DEFERRED DEBITS (note 5) Property Abandonments -- net............................................ 70,120 88,269 Oil and Gas Property Write-Down......................................... 36,078 41,232 Unamortized Debt Expense................................................ 123,833 134,599 Deferred OPEB Costs (notes 1 and 13).................................... 167,189 116,476 Underrecovered Electric Energy and Gas Costs -- net..................... 170,565 172,563 Unrecovered Environmental Costs (notes 2 and 12)........................ 130,070 138,435 Unrecovered Plant and Regulatory Study Costs............................ 35,150 37,128 Unrecovered SFAS 109 Deferred Income Taxes (note 10).................... 769,136 791,393 Deferred Decontamination and Decommissioning Costs (note 3)............. 49,872 53,016 Other................................................................... 5,826 15,574 ----------- ----------- Total Deferred Debits............................................ 1,557,839 1,588,685 ----------- ----------- Total.......................................................... $17,171,439 $16,717,440 =========== ===========
See Notes to Consolidated Financial Statements. PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED CONSOLIDATED BALANCE SHEETS CAPITALIZATION AND LIABILITIES
DECEMBER 31, --------------------------- 1995 1994 ----------- ----------- (THOUSANDS OF DOLLARS) CAPITALIZATION (notes 4 and 6) Common Equity Common Stock.................................. $ 3,801,157 $ 3,801,157 Retained Earnings............................. 1,643,785 1,510,010 ----------- ----------- Total Common Equity...................... 5,444,942 5,311,167 Subsidiaries' Securities and Obligations Preferred Securities Preferred Stock Without Mandatory Redemption.. 324,994 384,994 Preferred Stock With Mandatory Redemption..... 150,000 150,000 Monthly Income Preferred Securities........... 210,000 150,000 Long-Term Debt................................... 5,189,791 5,180,657 ----------- ----------- Total Capitalization..................... 11,319,727 11,176,818 ----------- ----------- OTHER LONG-TERM LIABILITIES Decontamination, Decommissioning and Low Level Radwaste Costs (note 3)........................ 50,449 56,149 Environmental Costs (notes 2 and 12).............. 96,272 105,684 Capital Lease Obligations......................... 53,111 53,770 ----------- ----------- Total Other Long-Term Liabilities......... 199,832 215,603 ----------- ----------- CURRENT LIABILITIES Long-Term Debt due within one year................ 90,630 499,738 Commercial Paper and Loans (note 6)............... 849,567 491,586 Book Overdrafts................................... 70,014 86,576 Accounts Payable.................................. 567,787 433,471 Other Taxes Accrued............................... 34,678 44,149 Interest Accrued.................................. 108,245 107,962 Estimated Liability for Vacation Pay.............. 17,089 27,080 Customer Deposits................................. 32,785 33,698 Liability for Injuries and Damages................ 38,141 29,814 Miscellaneous Environmental Liabilities........... 16,954 15,365 Other............................................. 95,907 87,480 ----------- ---------- Total Current Liabilities................. 1,921,797 1,856,919 ----------- ---------- DEFERRED CREDITS Accumulated Deferred Income Taxes (note 10)....... 3,094,620 2,905,390 Accumulated Deferred Investment Tax Credits ...... 392,324 412,466 Deferred OPEB Costs (notes 1 and 13).............. 167,189 116,476 Other............................................. 75,950 33,768 ----------- ---------- Total Deferred Credits.................... 3,730,083 3,468,100 ----------- ---------- COMMITMENTS AND CONTINGENT LIABILITIES (note 12) Total..................................... $17,171,439 $16,717,440 =========== ===========
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, --------------------------------------- 1995 1994 1993 ---------- ---------- --------- (THOUSANDS OF DOLLARS) CASH FLOWS FROM OPERATING ACTIVITIES: Net Income......................................... $ 662,323 $ 679,033 $ 600,933 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and Amortization................... 674,231 634,028 601,597 Amortization of Nuclear Fuel.................... 75,028 95,173 102,718 Recovery (Deferral) of Electric Energy and Gas Costs -- net.......................... 1,998 (110,529) (184,770) Loss from Property Impairments.................. -- -- 77,637 Cumulative Effect of Change in Accounting for Income Taxes.................................. -- -- (5,414) Unrealized Gains on Investments -- net.......... (46,668) (26,329) (8,694) Provision for Deferred Income Taxes -- net...... 145,092 138,919 168,406 Investment Tax Credits -- net................... (20,142) (20,247) (11,655) Allowance for Funds Used During Construction -- Debt and Equity and Capitalized Interest...... (42,532) (46,582) (33,098) Proceeds from Leasing Activities -- net......... 37,652 27,682 14,780 Changes in certain current assets and liabilities Net (increase) decrease in Accounts Receivable and Unbilled Revenues...................... (186,225) 84,440 (68,382) Net decrease in Inventory -- Fuel and Materials and Supplies............................... 18,882 41,169 16,438 Net increase (decrease) in Accounts Payable... 134,316 (85,790) 95,331 Net decrease in Accrued Taxes................. (17,279) (258,818) (293,919) Net change in Other Current Assets and Liabilities................................ (12,005) 36,748 (19,505) Other........................................... 68,244 42,893 (20,732) ---------- ---------- ---------- Net cash provided by operating activities............................... 1,492,915 1,231,790 1,031,671 ---------- ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to Utility Plant, excluding AFDC......... (649,883) (849,174) (863,294) Additions to Oil and Gas Property, Plant and Equipment, excluding Capitalized Interest....... (127,729) (156,302) (88,864) Net (increase) decrease in Long-Term Investments and Real Estate................................. (81,264) 58,416 66,659 Increase in Decommissioning and Other Special Funds, excluding interest....................... (29,617) (35,394) (45,508) Cost of Plant Removal -- net....................... (29,674) (33,962) (47,791) Other.............................................. 29,899 13,933 (14,042) ---------- ---------- ---------- Net cash used in investing activities...... (888,268) (1,002,483) (992,840) ---------- ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase (decrease) in Short-Term Debt......... 357,981 (86,050) 185,654 (Decrease) increase in Book Overdrafts............. (16,562) 23,584 (10,078) Issuance of Long-Term Debt......................... 156,320 849,800 2,137,700 Redemption of Long-Term Debt....................... (556,294) (593,790) (2,083,453) Long-Term Debt Issuance and Redemption Costs....... (9,177) (29,811) (72,114) Issuance of Preferred Stock........................ -- 75,000 75,000 Redemption of Preferred Stock...................... (60,000) (120,000) -- Issuance of Monthly Income Preferred Securities.... 60,000 150,000 -- Issuance of Common Stock........................... -- 28,495 273,479 Cash Dividends Paid on Common Stock................ (528,548) (528,071) (521,572) Other.............................................. -- (1,970) (6,772) ---------- ---------- ---------- Net cash used in financing activities...... (596,280) (232,813) (22,156) ---------- ---------- ---------- Net increase (decrease) in Cash and Cash Equivalents........................................ 8,367 (3,506) 16,675 Cash and Cash Equivalents at Beginning of Year....... 67,866 71,372 54,697 ---------- ---------- ---------- Cash and Cash Equivalents at End of Year............. $ 76,233 $ 67,866 $ 71,372 ========== ========== ========== Income Taxes Paid.................................... $ 185,376 $ 155,104 $ 140,172 Interest Paid........................................ $ 481,264 $ 432,873 $ 458,956
See Notes to Consolidated Financial Statements. PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, ---------------------------------------- 1995 1994 1993 ---------- ---------- ---------- (THOUSANDS OF DOLLARS) BALANCE JANUARY 1...................................... $1,510,010 $1,361,018 $1,282,931 ADD NET INCOME......................................... 662,323 679,033 600,933 ---------- ---------- ---------- Total........................................ 2,172,333 2,040,051 1,883,864 ---------- ---------- ---------- DEDUCT Dividends on Common Stock(A)......................... 528,548 528,071 521,572 Capital Stock Expenses............................... -- 1,970 1,274 ---------- ---------- ---------- Total Deductions............................. 528,548 530,041 522,846 ---------- ---------- ---------- BALANCE DECEMBER 31.................................... $1,643,785 $1,510,010 $1,361,018 ========== ========== ========== (A) The ability of Enterprise to declare and pay dividends is contingent upon its receipt of dividend payments from its subsidiaries. PSE&G, Enterprise's principal subsidiary, has restrictions on the payment of dividends which are contained in its Restated Certificate of Incorporation, as amended, certain of the indentures supplemental to its Mortgage and certain other indentures. However, none of these restrictions presently limits the payment of dividends out of current earnings. The amount of PSE&G's restricted retained earnings at December 31, 1995, 1994 and 1993 was $10 million.
See Notes to Consolidated Financial Statements. PUBLIC SERVICE ELECTRIC AND GAS COMPANY CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, ---------------------------------------- 1995 1994 1993 ---------- ---------- ---------- (THOUSANDS OF DOLLARS) OPERATING REVENUES Electric............................................. $4,020,842 $3,739,713 $3,696,114 Gas.................................................. 1,686,403 1,778,528 1,594,341 ---------- ---------- ---------- Total Operating Revenues..................... 5,707,245 5,518,241 5,290,455 ---------- ---------- ---------- OPERATING EXPENSES Operation Fuel for Electric Generation and Interchanged Power........................................... 891,782 695,763 717,136 Gas Purchased and Materials for Gas Produced...... 961,539 1,036,701 919,870 Other............................................. 949,400 959,859 882,641 Maintenance.......................................... 312,610 308,080 304,403 Depreciation and Amortization........................ 591,114 551,372 510,539 Taxes Federal Income Taxes (note 10).................... 321,433 294,529 308,790 New Jersey Gross Receipts Taxes................... 612,961 583,167 597,898 Other............................................. 70,904 76,100 67,593 ---------- ---------- ---------- Total Operating Expenses..................... 4,711,743 4,505,571 4,308,870 ---------- ---------- ---------- OPERATING INCOME....................................... 995,502 1,012,670 981,585 ---------- ---------- ---------- OTHER INCOME Allowance for Funds Used During Construction -- Equity............................ 5,324 12,789 12,265 Miscellaneous -- net................................. 7,728 6,233 (3,841) ---------- ---------- ---------- Total Other Income........................... 13,052 19,022 8,424 ---------- ---------- ---------- INCOME BEFORE INTEREST CHARGES AND DIVIDENDS ON PREFERRED SECURITIES................................. 1,008,554 1,031,692 990,009 ---------- ---------- ---------- INTEREST CHARGES (note 6) Long-Term Debt....................................... 357,584 366,894 364,252 Short-Term Debt...................................... 20,740 18,175 6,414 Other................................................ 28,545 10,856 19,290 ---------- ---------- ---------- Total Interest Charges....................... 406,869 395,925 389,956 Allowance for Funds Used During Construction -- Debt... (30,943) (25,319) (14,815) ---------- ---------- ---------- Net Interest Charges................................... 375,926 370,606 375,141 ---------- ---------- ---------- Monthly Income Preferred Securities Dividend Requirements (note 4)....................... 15,664 1,680 -- ---------- ---------- ---------- Net Income............................................. 616,964 659,406 614,868 ---------- ---------- ---------- Preferred Stock Dividend Requirements (note 4)......... 33,762 40,467 38,114 Preferred Stock Redemption Premium (note 4)............ 474 -- -- ---------- ---------- ---------- EARNINGS AVAILABLE TO PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED......................................... $ 582,728 $ 618,939 $ 576,754 ========== ========== ==========
See Notes to Consolidated Financial Statements. PUBLIC SERVICE ELECTRIC AND GAS COMPANY CONSOLIDATED BALANCE SHEETS ASSETS
DECEMBER 31, --------------------------- 1995 1994 ----------- ----------- (THOUSANDS OF DOLLARS) UTILITY PLANT-ORIGINAL COST (note 15) Electric........................................................ $13,095,103 $12,345,919 Gas............................................................. 2,442,572 2,318,233 Common.......................................................... 517,104 545,131 ----------- ----------- Total................................................... 16,054,779 15,209,283 Less accumulated depreciation and amortization.................... 5,440,414 5,147,105 ----------- ----------- Net............................................................... 10,614,365 10,062,178 Nuclear Fuel in Service, net of accumulated amortization -- 1995, $297,435; 1994, $302,906............................... 180,018 205,273 ----------- ----------- Net Utility Plant in Service............................ 10,794,383 10,267,451 Construction Work in Progress, including Nuclear Fuel in Process -- 1995, $104,743; 1994, $65,429........................ 369,082 806,934 Plant Held for Future Use......................................... 23,966 23,860 ----------- ----------- Net Utility Plant....................................... 11,187,431 11,098,245 ----------- ----------- INVESTMENTS AND OTHER NONCURRENT ASSETS Long-Term Investments, net of amortization -- 1995, $6,009; 1994, $2,365, respectively.................... 119,474 65,886 Nuclear Decommissioning and Other Special Funds (note 3)........ 276,348 233,022 Other Plant, net of accumulated depreciation and amortization -- 1995, $1,905; 1994, $1,127.................................. 24,976 32,879 ----------- ----------- Total Investments and Other Noncurrent Assets........... 420,798 331,787 ----------- ----------- CURRENT ASSETS Cash and Cash Equivalents (note 9).............................. 32,373 27,498 Accounts Receivable: Customer Accounts Receivable................................. 525,404 434,207 Other Accounts Receivable.................................... 163,976 151,684 Less: allowance for doubtful accounts........................ 37,641 40,915 Unbilled Revenues............................................... 246,876 204,056 Fuel, at average cost........................................... 253,360 268,927 Materials and Supplies, net of inventory valuation reserves -- 1995, $20,100; 1994, $18,200, respectively.................... 143,741 146,763 Deferred Income Taxes (note 10)................................. 27,571 25,311 Miscellaneous Current Assets.................................... 37,130 30,407 ----------- ----------- Total Current Assets.................................... 1,392,790 1,247,938 ----------- ----------- DEFERRED DEBITS (note 5) Property Abandonments -- net.................................... 70,120 88,269 Oil and Gas Property Write-Down................................. 36,078 41,232 Unamortized Debt Expense........................................ 122,049 132,342 Deferred OPEB Costs (notes 1 and 13)............................ 167,189 116,476 Underrecovered Electric Energy and Gas Costs -- net............. 170,565 172,563 Unrecovered Environmental Costs (notes 2 and 12)................ 130,070 138,435 Unrecovered Plant and Regulatory Study Costs.................... 35,150 37,128 Deferred Decontamination and Decommissioning Costs (note 3)..... 49,872 53,016 Unrecovered SFAS 109 Deferred Income Taxes (note 10)............ 769,136 791,393 Other........................................................... 5,700 15,574 ----------- ----------- Total Deferred Debits................................... 1,555,929 1,586,428 ----------- ----------- Total................................................. $14,556,948 $14,264,398 =========== ===========
See Notes to Consolidated Financial Statements. PUBLIC SERVICE ELECTRIC AND GAS COMPANY CONSOLIDATED BALANCE SHEETS CAPITALIZATION AND LIABILITIES
DECEMBER 31, ------------------------- 1995 1994 ----------- ----------- (THOUSANDS OF DOLLARS) CAPITALIZATION (notes 4 and 6) Common Equity Common Stock................................... $ 2,563,003 $ 2,563,003 Contributed Capital from Enterprise........... 594,395 534,395 Retained Earnings............................. 1,372,729 1,292,201 ----------- ----------- Total Common Equity...................... 4,530,127 4,389,599 Preferred Stock without mandatory redemption....... 324,994 384,994 Preferred Stock with mandatory redemption.......... 150,000 150,000 Monthly Income Preferred Securities of Subsidiary.. 210,000 150,000 Long-Term Debt..................................... 4,586,268 4,486,787 ----------- ----------- Total Capitalization..................... 9,801,389 9,561,380 ----------- ----------- OTHER LONG-TERM LIABILITIES Decontamination, Decommissioning and Low Level Radwaste Costs (note 3)...................... 50,449 56,149 Environmental Costs (notes 2 and 12)............. 96,272 105,684 Capital Lease Obligations (note 11).............. 53,111 53,770 ----------- ----------- Total Other Long-Term Liabilities......... 199,832 215,603 ----------- ----------- CURRENT LIABILITIES Long-Term Debt due within one year................ -- 310,200 Commercial Paper and Loans (note 6)............... 567,316 401,759 Book Overdrafts................................... 70,014 86,576 Accounts Payable.................................. 481,632 370,005 Accounts Payable - Associated Companies (note 19). 8,011 16,677 Other Taxes Accrued............................... 32,767 36,030 Interest Accrued.................................. 95,811 95,721 Estimated Liability for Vacation Pay.............. 17,089 27,080 Customer Deposits................................. 32,785 33,698 Liability for Injuries and Damages................ 38,141 29,814 Miscellaneous Environmental Liabilities........... 16,954 15,365 Other............................................. 50,751 50,778 ----------- ----------- Total Current Liabilities................. 1,411,271 1,473,703 ----------- ----------- DEFERRED CREDITS Accumulated Deferred Income Taxes (note 10)....... 2,535,603 2,478,539 Accumulated Deferred Investment Tax Credits ...... 370,610 389,721 Deferred OPEB Costs (notes 1 and 13).............. 167,189 116,476 Other............................................. 71,054 28,976 ----------- ----------- Total Deferred Credits.................... 3,144,456 3,013,712 ----------- ----------- COMMITMENTS AND CONTINGENT LIABILITIES (note 12) Total..................................... $14,556,948 $14,264,398 =========== ===========
PUBLIC SERVICE ELECTRIC AND GAS COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, --------------------------------------- 1995 1994 1993 ----------- ----------- ----------- (THOUSANDS OF DOLLARS) CASH FLOWS FROM OPERATING ACTIVITIES: Net Income................................................. $ 616,964 $ 659,406 $ 614,868 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and Amortization........................... 591,114 551,372 510,539 Amortization of Nuclear Fuel............................ 75,028 95,173 102,718 Recovery (Deferral) of Electric Energy and Gas Costs -- net........................................ 1,998 (110,529) (184,770) Provision for Deferred Income Taxes -- net.............. 79,321 108,163 175,868 Investment Tax Credits -- net........................... (19,111) (19,208) (18,408) Allowance for Funds Used During Construction -- Debt and Equity................................................ (36,267) (38,108) (27,080) Changes in certain current assets and liabilities Net (increase) decrease in Accounts Receivable and Unbilled Revenues.............................. (149,583) 74,891 (78,953) Net decrease in Inventory -- Fuel and Materials and Supplies....................................... 18,589 41,163 16,920 Net increase (decrease) in Accounts Payable........... 102,961 (99,788) 83,421 Net decrease in Accrued Taxes......................... (11,071) (261,037) (286,119) Net change in Other Current Assets and Liabilities.... (2,100) 36,245 (27,790) Other................................................... 57,158 22,763 (49,006) ----------- ----------- ----------- Net cash provided by operating activities............. 1,325,001 1,060,506 832,208 ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to Utility Plant, excluding AFDC................. (649,883) (849,174) (863,294) Net (increase) decrease in Long-Term Investments........... (65,189) 50,668 (26,980) Net increase in Decommissioning Funds and Other Special Funds, excluding interest............................... (29,617) (35,394) (45,508) Cost of Plant Removal -- net............................... (29,674) (33,962) (47,791) Other...................................................... 859 1,692 (13,607) ----------- ----------- ----------- Net cash used in investing activities................. (773,504) (866,170) (997,180) ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase (decrease) in Short-Term Debt................. 165,557 (130,969) 275,192 (Decrease) increase in Book Overdrafts..................... (16,562) 23,584 (10,078) Issuance of Long-Term Debt................................. 156,320 849,800 1,972,700 Redemption of Long-Term Debt............................... (367,039) (478,950) (1,716,401) Long-Term Debt Issuance and Redemption Costs............... (8,462) (29,731) (68,227) Issuance of Preferred Stock................................ -- 75,000 75,000 Redemption of Preferred Stock.............................. (60,000) (120,000) -- Issuance of Monthly Income Preferred Securities............ 60,000 150,000 -- Contributed Capital by Enterprise.......................... 60,000 -- 174,670 Cash Dividends Paid........................................ (535,962) (545,767) (531,314) Other...................................................... (474) (1,970) (754) ----------- ----------- ----------- Net cash (used in) provided by financing activities... (546,622) (209,003) 170,788 ----------- ----------- ----------- Net increase (decrease) in Cash and Cash Equivalents......... 4,875 (14,667) 5,816 Cash and Cash Equivalents at Beginning of Year............... 27,498 42,165 36,349 ----------- ----------- ----------- Cash and Cash Equivalents at End of Year..................... $ 32,373 $ 27,498 $ 42,165 =========== =========== =========== Income Taxes Paid............................................ $ 279,873 $ 209,196 $ 172,869 Interest Paid................................................ $ 399,509 $ 345,867 $ 356,620
See Notes to Consolidated Financial Statements. PUBLIC SERVICE ELECTRIC AND GAS COMPANY CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, ---------------------------------------- 1995 1994 1993 ---------- ---------- ---------- (THOUSANDS OF DOLLARS) BALANCE JANUARY 1...................................... $1,292,201 $1,180,532 $1,097,734 ADD NET INCOME......................................... 616,964 659,406 614,868 ---------- ---------- ---------- Total........................................ 1,909,165 1,839,938 1,712,602 ---------- ---------- ---------- DEDUCT CASH DIVIDENDS(A) Preferred Stock, at required rates................... 33,762 40,467 38,114 Common Stock......................................... 502,200 505,300 493,200 ADJUSTMENT TO RETAINED EARNINGS........................ 474 1,970 756 ---------- ---------- ---------- Total Deductions............................. 536,436 547,737 532,070 ---------- ---------- ---------- BALANCE DECEMBER 31.................................... $1,372,729 $1,292,201 $1,180,532 ========== ========== ========== (A) The Company has restrictions on the payment of dividends which are contained in its Restated Certificate of Incorporation, as amended, and certain of the indentures supplemental to its Mortgage and certain other indentures. However, none of these restrictions presently limits the payment of dividends out of current earnings. The amount of the Company's restricted retained earnings at December 31, 1995, 1994 and 1993 was $10 million.
See Notes to Consolidated Financial Statements. PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization Public Service Enterprise Group (Enterprise) has two direct wholly owned subsidiaries, Public Service Electric and Gas Company (PSE&G) and Enterprise Diversified Holdings Incorporated (EDHI). Enterprise's principal subsidiary, PSE&G, is an operating public utility providing electric and gas service to customers in certain areas in the State of New Jersey. As of December 31, 1995, PSE&G comprised 85% of Enterprise's assets and for the year ending on that date, 93% of its revenues. Of the 150,000,000 authorized shares of PSE&G common stock at December 31, 1995, there were 132,450,344 shares outstanding, with an aggregate book value of $2.6 billion. PSE&G has a finance subsidiary, PSE&G Fuel Corporation (Fuelco), providing financing, unconditionally guaranteed by PSE&G, of up to $150 million aggregate principal amount at any one time of a 42.49% interest in the nuclear fuel acquired for Peach Bottom Atomic Power Station Units 2 and 3 (Peach Bottom). PSE&G also has a subsidiary, Public Service Conservation Resources Corporation (PSCRC) which offers demand side management (DSM) services to utility customers. In 1994, Public Service Electric and Gas Capital, L.P. (Partnership), a limited partnership in which PSE&G is the general partner, was formed for the purpose of issuing Monthly Income Preferred Securities. (See Note 4 -- Schedule of Consolidated Capital Stock and Other Securities.) In 1995, PSE&G created a new subsidiary, Enterprise Ventures and Services, to pursue products and services beyond traditional geographic and industry boundaries. EDHI is the parent of Enterprise's nonutility businesses: Energy Development Corporation (EDC), an oil and gas exploration and production and marketing company; Community Energy Alternatives Incorporated (CEA), an investor in and developer and operator of cogeneration and independent power production facilities; Public Service Resources Corporation (PSRC), which makes primarily passive investments; and Enterprise Group Development Corporation (EGDC), a nonresidential real estate development and investment business. EDHI also has two finance subsidiaries: PSEG Capital Corporation (Capital) and Enterprise Capital Funding Corporation (Funding). NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Consolidation Policy The consolidated financial statements include the accounts of Enterprise and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain reclassifications of prior years' data have been made to conform with the current presentation. Regulation -- PSE&G The accounting and rates of PSE&G are subject, in certain respects, to the requirements of the New Jersey Board of Public Utilities (BPU) and the Federal Energy Regulatory Commission (FERC). As a result, PSE&G maintains its accounts in accordance with their prescribed Uniform Systems of Accounts, which are the same. The applications of Generally Accepted Accounting Principles (GAAP) by PSE&G differ in certain respects from applications by non-regulated businesses. PSE&G prepares its financial statements in accordance with the provisions of Statement of Financial Accounting Standards No. 71 -- "Accounting for the Effects of Certain Types of Regulation" (SFAS 71). In general, SFAS 71 recognizes that accounting for rate-regulated enterprises should reflect the relationship of costs and revenues. As a result, a regulated utility may defer recognition of cost (a regulatory asset) or recognize an obligation (a regulatory liability) if it is probable that, through the rate-making process, there will be a corresponding increase or decrease in revenues. Accordingly, PSE&G has deferred certain costs, which will be amortized over various periods. To the extent that collection of such costs or payment of liabilities is no longer probable as a result of changes in regulation and/or PSE&G's competitive position, the associated regulatory asset or liability will be reversed with a charge or credit to income. (See Note 5 -- Deferred Items.) If PSE&G were to discontinue the application of SFAS 71, the accounting impact would be an extraordinary, non-cash charge to operations that could be material to the financial position and results of operations of Enterprise and PSE&G. Amounts charged to operations for depreciation expense reflect estimated useful lives and methods, which include estimates of cost of removal and salvage, prescribed and approved by regulators rather than those that might otherwise apply to non-regulated enterprises. PSE&G cannot presently quantify what the financial statement impact may be if depreciation expense were to be determined absent regulation. Utility Plant and Related Depreciation -- PSE&G Additions to utility plant and replacements of units of property are capitalized at original cost. The cost of maintenance, repairs and replacements of minor items of property is charged to appropriate expense accounts. At the time units of depreciable property are retired or otherwise disposed of, the original cost less net salvage value is charged to accumulated depreciation. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Depreciation is computed under the straight-line method. Depreciation is based on estimated average remaining lives of the several classes of depreciable property. These estimates are reviewed on a periodic basis and necessary adjustments are made as approved by the BPU. Depreciation provisions stated in percentages of original cost of depreciable property were 3.52% in 1995, 3.51% in 1994 and 3.46% in 1993. Use of Estimates The process of preparing financial statements in conformity with GAAP requires the use of estimates and assumptions regarding certain types of assets, liabilities, revenues and expenses. Such estimates primarily relate to unsettled transactions and events as of the date of the financial statements. Accordingly, upon settlement, actual results may differ from estimated amounts. Decontamination and Decommissioning -- PSE&G In 1993, FERC issued Order No. 557 on the accounting and rate- making treatment of special assessments levied under the National Energy Policy Act of 1992 (EPAct). Order No. 557 provides that special assessments are a necessary and reasonable current cost of fuel and shall be fully recoverable in rates in the same manner as other fuel costs. In accordance with its filed Alternative Rate Plan, PSE&G has requested to have separate mechanisms to ensure continued recovery of costs associated with activities mandated or approved by state or federal agencies, but no assurances can be given that the BPU will authorize such recovery from customers. (See Note 2 -- Rate Matters and Note 3 -- PSE&G Nuclear Decommissioning and Amortization of Nuclear Fuel - Uranium, Decontamination and Decommissioning Fund.) Amortization of Nuclear Fuel -- PSE&G Nuclear energy burnup costs are charged to fuel expense on a units-of-production basis over the estimated life of the fuel. Rates for the recovery of fuel used at all nuclear units include a provision of one mill per kilowatthour (KWH) of nuclear generation for spent fuel disposal costs. (See Note 3 -- PSE&G Nuclear Decommissioning and Amortization of Nuclear Fuel.) Revenues and Fuel Costs -- PSE&G Revenues are recorded based on services rendered to customers during each accounting period. PSE&G records unbilled revenues representing the estimated amount customers will be billed for services rendered from the time meters were last read to the end of the respective accounting period. Rates include projected fuel costs for electric generation, purchased and interchanged power, gas purchased and materials used for gas production. Any under or overrecoveries, together with interest (in the case of net overrecoveries), are deferred and included in operations in the period in which they are reflected in rates. Long-Term Investments PSRC has invested in securities and limited partnerships investing in securities, which are recorded at fair value, and various leases and other limited partnerships. EGDC is a participant in the nonresidential real estate markets. CEA is an investor in and developer and operator of cogeneration and power production facilities. (See Note 7 -- Long-Term Investments.) Derivatives Gains and losses on hedges of existing assets or liabilities are included in the carrying amounts of those assets and liabilities and are ultimately recognized in income as part of those carrying amounts. Gains and losses related to qualifying hedges of firm commitments or anticipated transactions also are deferred and recognized in income or as adjustments of carrying amounts when the hedged transaction occurs. (See Note 8 -- Financial Instruments and Risk Management.) Oil and Gas Accounting -- EDC EDC uses the successful efforts method of accounting under which proved leasehold costs are capitalized and amortized over the proved developed and undeveloped reserves on a unit-of-production basis. Drilling and equipping costs, except exploratory dry holes, are capitalized and depreciated over the proved developed reserves on a unit-of-production basis. Estimated future abandonment costs of offshore proved properties are depreciated on a unit-of-production basis over the proved developed reserves. Estimated future abandonment costs of onshore properties are estimated to be offset by the salvage value of the tangible equipment. Unproved leasehold costs are capitalized and not amortized, pending an evaluation of the exploration results. Unproved leasehold and producing properties costs are assessed periodically to determine if an impairment of the cost of significant individual properties has occurred. The cost of an impairment is charged to expense. Costs incurred for exploratory dry holes, exploratory geological and geophysical work and delay rentals are charged to expense as incurred. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Income Taxes Enterprise and its subsidiaries file a consolidated Federal income tax return and income taxes are allocated to Enterprise's subsidiaries based on taxable income or loss of each. Investment tax credits are deferred and amortized over the useful lives of the related property, including nuclear fuel. Effective January 1, 1993, Enterprise and its subsidiaries adopted Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes" (SFAS 109). Under SFAS 109, deferred income taxes are provided for all temporary differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities irrespective of the treatment for rate-making purposes. For periods prior to January 1, 1993, PSE&G provided deferred income taxes to the extent permitted for rate-making purposes. (See Note 10 -- Federal Income Taxes.) Allowance for Funds Used During Construction (AFDC) and Capitalized Interest PSE&G -- AFDC represents the cost of debt and equity funds used to finance the construction of new utility facilities. The amount of AFDC capitalized is reported in the Consolidated Statements of Income as a reduction of interest charges for the borrowed funds component and as other income for the equity funds component. The rates used for calculating AFDC in 1995, 1994 and 1993 were 6.98%, 6.48% and 6.96%, respectively. These rates were within the limits set by FERC. EDHI -- The operating subsidiaries of EDHI capitalize interest costs allocable to construction expenditures at the average cost of borrowed funds. Pension Plan and Other Postretirement Benefits The employees of PSE&G, other than non represented employees commencing service after January 1, 1996, as well as those of participating affiliates, are covered by a noncontributory trusteed pension plan (Pension Plan) from the date of hire. New represented employees of PSE&G who commence service after January 1, 1996 are covered by a Cash Balance Pension Plan. The policy is to fund pension costs accrued. PSE&G also provides certain health care and life insurance benefits to active and retired employees. The portion of such costs pertaining to retirees amounted to $33 million, $29 million, and $28 million in 1995, 1994 and 1993, respectively. The current cost of these benefits is charged to expense when paid and is currently being recovered from ratepayers. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) On January 1, 1993, Enterprise and PSE&G adopted Statement of Financial Accounting Standards No. 106, "Employers Accounting for Postretirement Benefits Other Than Pensions" (SFAS 106), which requires that the expected cost of employees' postretirement health care benefits be charged to expense during the years in which employees render service. Prior to 1993, Enterprise and PSE&G recognized postretirement health care costs in the year in which the benefits were paid. PSE&G elected to amortize over 20 years its unfunded obligation at January 1, 1993. (See Note 13 -- Postretirement Benefits Other Than Pensions and Note 14 -- Pension Plan.) NOTE 2. RATE MATTERS Alternative Rate Plan On January 16, 1996, PSE&G proposed to the BPU major changes in utility regulation that include an immediate $50 million rate reduction for its electric customers, various types of rate freezes, assurances that future price increases related to controllable costs will be lower than the rate of inflation and funding of up to an aggregate of $55 million in two economic development initiatives. The seven-year "New Jersey Partners in Power" Plan (Plan), if approved, would give PSE&G the mechanisms and incentives to compete more effectively on several fronts, including the ability to develop revenue from non-regulated products and services, accelerate or modify depreciation schedules to help mitigate any potential stranded asset issue and more aggressively manage the control of costs. In addition, the Plan would provide the foundation for ongoing price flexibility without the need for prolonged, adversarial regulatory proceedings. The Plan begins the process for a transition to a more competitive energy marketplace while substantially shifting the business and financial risks and opportunities involved in this transition away from customers to PSE&G and enhancing PSE&G's ability to make the necessary human, intellectual and financial investments required to stimulate innovation and productivity. Key energy pricing features of the proposed Plan are as follows: Upon the BPU's approval of the Plan, PSE&G will reduce electric rates across the board by $50 million annually as an upfront guaranteed share of the productivity improvements that it expects to achieve over the life of the Plan. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) New rates for all PSE&G electric customers reflecting the reduction would be established through a merger of existing base tariffs and the electric Levelized Energy Adjustment Clause (LEAC) and would be frozen at these levels through December 31, 1996. In addition, the Plan proposes the elimination of the BPU's existing Nuclear Performance Standard (NPS). This discontinuance of the LEAC and NPS would result in substantially shifting the risks and opportunities involved in managing changes in fuel and replacement power costs from customers to PSE&G. Gas fuel costs will continue to be recovered on a dollar for dollar basis from customers under the existing Levelized Gas Adjustment Charge (LGAC). In order to create incentives to lower costs and improve efficiency and productivity, the Plan would rely on a comprehensive external price cap index based upon changes in the Gross Domestic Product Price Index (GDPPI) and a separate fuel price index mechanism, reduced by a fixed productivity offset of 0.30% to establish optional annual price changes each January 1st for electricity. In addition, the Plan would rely on an index for non-fuel gas prices calculated on the basis of changes in the GDPPI, reduced by a fixed productivity offset of 0.35%, to establish optional annual price changes each January 1st. The price cap mechanisms would become effective on January 1, 1997 and would assure that any rate increase related to controllable costs would be below the rate of inflation, guaranteeing that these costs would decline in real terms. Under the Plan, PSE&G would establish an initial service block equal to the first 150 kilowatthours (KWH) of usage for residential electric customers who would be protected from price cap index increases through December 31, 2002, the proposed expiration date of the Plan. Similarly, an initial service block equal to 40 therms would be set for residential gas customers and protected from index increases over the same period of time. In addition, public street lighting prices would not be subject to index increases for the life of the Plan. The Plan includes a productivity gains sharing mechanism. This mechanism has been designed to provide incentives to maximize efficiency and productivity improvements and ensure that electric and gas customers receive an increasing share of productivity gains using returns on equity as a proxy for these gains. The gains, which would be awarded through bill credits, would be based on a threshold earnings level defined as PSE&G's established return on equity of 12% plus a 100 basis points neutral zone above that level. Customers would receive a 10% share of the gains from the first 50 basis points above the threshold level. Their share would increase by an additional 10% for each subsequent increase of 50 basis points up to a maximum of 50%. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Separate mechanisms also would be established to ensure continued recovery of costs associated with activities mandated or approved by state or federal agencies or otherwise out of PSE&G's control. These costs include demand side management programs, environmental remediation, costs associated with non-utility electric generators, nuclear decommissioning funding and nuclear fuel assessment costs. These mechanisms would assure that PSE&G recovers only actual costs related to these activities. The Plan would allow for electric and non-fuel gas prices to be changed to reflect exogenous events beyond the control of PSE&G and would be subject to modification for industry restructuring. The Plan calls for an increase of $50 million in annual depreciation expenses for PSE&G's Hope Creek nuclear generating station -- $25 million effective January 1, 1997, and an additional $25 million effective January 1, 1998. In addition, the Plan proposes a transfer of depreciation reserves totaling $253 million from transmission and distribution to fossil steam electric generating accounts. The Plan would permit depreciation to be changed annually following BPU review and approval. In addition to the pricing features, the Plan guarantees enhanced quality of customer services through PSE&G's recently established service guarantee program for electric and gas customers and specific incentive and penalty mechanisms based on various service indicators. The Plan would establish a program of rewards and penalties in key overall service indicators such as duration of customer power outages compared to a historic five-year average. In addition to these service quality incentives, the Plan would establish rewards and penalties based on the movement of PSE&G's average electric residential rate measured against the national average of residential electric rates. Rewards or penalties of up to $5 million would be implemented if comparisons indicate that PSE&G's residential rates decreased or increased by more than one-half of one percent relative to the national average. A major component of the Plan is a proposed economic and market development and retention assurance program. This would allow flexible pricing and promote special economic development activities designed to enhance the economic vitality of the State of New Jersey. One aspect of the program would give PSE&G the ability to quickly establish new optional electric or gas rates or individual customer contracts to serve new markets and retain or attract individual customers. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Also under the Plan, PSE&G would fund two economic development initiatives. The first is a private sector leadership investment of $5 million in the New Jersey Fund for Community Economic Development. The second new initiative is the establishment of the PSE&G Economic Development Fund in which PSE&G would commit to investing up to $50 million for financing significant economic development projects within PSE&G's service territory over the seven years of the Plan. In addition, the Plan calls for establishment of a State Emissions Trading Bank (Bank) for economic development and environmental improvement. PSE&G would donate 1,000 tons of nitrogen oxide emissions credits to the Bank for use in economic development. This is intended as a key step to linking economic development with sound environmental policy and building on New Jersey's leadership role in seeking a regional solution to air pollution problems. Under the Plan, price levels associated with the recovery of Gross Receipts and Franchise Tax (GRFT) or successor taxes will be directly adjusted in such a manner as to insure their full and timely recovery from ratepayers. PSE&G cannot predict what action, if any, may be taken by the BPU with respect to the Plan. Levelized Gas Adjustment Charge On October 2, 1995, PSE&G petitioned the BPU for modifications to its LGAC, requesting that: (a) The LGAC be renamed to the Levelized Gas Incentive Clause (LGIC); (b) A benchmark be established for certain gas delivered from the Gulf Coast, and any difference between PSE&G's actual gas purchase costs and the benchmark price, either positive or negative, be shared 50/50 between customers and PSE&G; (c) The current annual LGAC rate be converted to a monthly rate for firm commercial and industrial customers; and (d) A fixed annual margin would be credited to LGAC for certain interruptible rate schedules, while actual margins from such sales will be retained by PSE&G. Any differences, positive or negative, will be absorbed by PSE&G. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) On December 20, 1995, the BPU approved an interim Stipulation to include the implementation of monthly pricing on the commodity portion of the LGAC rate for firm commercial and industrial customers effective January 1, 1996. The incentive proposal relating to interruptible sales (request (d)) above was withdrawn. The remaining aspects of PSE&G's October 2, 1995 petition remain the subject of continued investigation and litigation. Electric Levelized Energy Adjustment Clause By Order dated May 5, 1995, the BPU approved PSE&G's LEAC. Such Order also required that a hearing be convened regarding the April 1994 Salem 1 shutdown, to determine whether PSE&G should be allowed to recover replacement power costs of approximately $8 million which have been deferred. On October 18, 1995, this matter was ordered to be transmitted to the Office of Administrative Law (OAL) for hearing. PSE&G cannot predict the outcome of this proceeding. Remediation Adjustment Charge On July 21, 1995, PSE&G petitioned the BPU to recover Remediation Program costs incurred during the period August 1, 1994 through July 31, 1995. In accordance with a BPU Order dated November 4, 1994, the petition proposes to recover, effective October 1, 1995, $2.5 million from gas customers and $1.6 million from electric customers. Consolidated Tax Benefits In a case affecting another utility in which neither Enterprise nor PSE&G were parties, the BPU considered the extent to which tax savings generated by nonutility affiliates included in the consolidated tax return of that utility's holding company should be considered in setting that utility's rates. In September, 1992, the BPU approved an order in such case treating certain consolidated tax savings generated after June 30, 1990 by that utility's nonutility affiliates as a reduction of its rate base. In December, 1992, the BPU issued an order approving a stipulation in PSE&G's 1992 base rate proceeding which resolved the case without separate quantification of the consolidated tax issue. The stipulation did not provide final resolution of the consolidated tax issue for any subsequent base rate filing. While Enterprise continues to account for its two wholly-owned subsidiaries on a stand-alone basis, resulting in a realization of the tax benefits by the entity generating the benefit, an ultimate unfavorable resolution of the consolidated tax issue could reduce PSE&G's and Enterprise's future revenue and net income. In addition, an unfavorable resolution NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) may adversely impact Enterprise's nonutility investment strategy. Enterprise believes that PSE&G's taxes should be treated on a stand-alone basis for rate-making purposes, based on the separate nature of the utility and nonutility businesses. However, neither Enterprise nor PSE&G is able to predict what action, if any, the BPU may take concerning consolidation of tax benefits in future rate proceedings. (See Note 10 -- Federal Income Taxes.) Other Rate Matters On July 21, 1995, the BPU initiated a generic proceeding to expeditiously adopt specific standards to guide utility "off-tariff" negotiated rate agreement programs, which proceeding would consider minimum prices, confidentiality, maximum contract duration, filing requirements and such other standards as necessary for compliance with the law. A Written Summary Decision and Order was issued on October 27, 1995, which ordered each New Jersey electric utility, including PSE&G, to file initial minimum tariffs, consistent with the terms of such Order, and further, indicated that such Order will be supplemented by a Final Decision and Order to fully discuss and explain the rationale for the BPU's overall decision. On November 13, 1995 PSE&G filed its compliance filing. PSE&G cannot predict what impact, if any, the generic tariff may have on its electric revenues and earnings. In September 1994, the BPU initiated a generic proceeding regarding recovery of capacity costs associated with electric utility power purchases from cogeneration and small power procedures. The initial phase of the proceeding, which has been transmitted to the Office of Administrative Law, seeks to determine whether there was any such overrecovery and, if so, the amount overrecovered. The New Jersey Division of Ratepayer Advocate has intervened in the proceeding and alleges, among other things, that PSE&G has overrecovered such costs ranging from $250 to $300 million during the period from August 1991 to December 1994. PSE&G denies such overrecovery because its capacity cost recovery mechanisms were approved by the BPU as to each of its cogeneration contracts and as to its base rates. Additionally, PSE&G contends that a review of any individual cost item is inappropriate and that the BPU has previously found that, during the period under review, PSE&G did not overearn compared to its established return. Moreover, PSE&G contends that the Ratepayer Advocate's assertion is proscribed as retroactive ratemaking. While PSE&G cannot predict the outcome of this proceeding, the final resolution of this issue may impact the financial position, results from operations or net cash flows of Enterprise and PSE&G on a prospective basis. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 3. PSE&G NUCLEAR DECOMMISSIONING AND AMORTIZATION OF NUCLEAR FUEL The BPU decision in PSE&G's 1992 base rate case utilized studies based on the prompt removal/dismantlement method of decommissioning for all of PSE&G's nuclear generating stations. This method consists of removing all fuel, source material and all other radioactive materials with activity levels above accepted release limits from the nuclear sites. PSE&G has an ownership interest in five nuclear units: Salem 1 and Salem 2 -- 42.59% each, Hope Creek -- 95% and Peach Bottom 2 and 3 -- 42.49% each. In accordance with rate orders received from the BPU, PSE&G has established an external master nuclear decommissioning trust for all of its nuclear units. The Internal Revenue Service (IRS) has ruled that payments to the trust are tax deductible. PSE&G's total estimated cost of decommissioning its share of these 5 nuclear units is estimated at $681 million in year-end 1990 dollars (the year that the site specific estimate was prepared), excluding contingencies. The 1992 base rate decision provided that $15.6 million of such costs are to be collected through base rates and an additional annual amount of $7.0 million in 1993 and $14 million each year thereafter are to be recovered through PSE&G's LEAC. In accordance with the filed Alternative Rate Plan, PSE&G has requested to have separate mechanisms to ensure continued recovery of costs associated with activities mandated or approved by state or federal agencies, but no assurances can be given that the BPU will authorize such recovery from customers (see Note 2 -- Rate Matters). At December 31, 1995 and 1994, the accumulated provision for depreciation and amortization included reserves for nuclear decommissioning for PSE&G's units of $292 million and $249 million, respectively. As of December 31, 1995 and 1994, PSE&G had contributed $220 million and $190 million, respectively, into independent external qualified and nonqualified nuclear decommissioning trust funds. On January 3, 1996, PSE&G filed with the BPU its 1995 nuclear plant decommissioning cost update. The filing includes decommissioning cost updates for PSE&G's respective ownership share of Salem, Hope Creek and Peach Bottom. PSE&G's filing was based on the existing Nuclear Regulatory Commission (NRC) generic formula(s). PSE&G does not believe that the NRC generic estimates provide an accurate estimate of the cost of decommissioning because the NRC formula does not factor into its cost estimates the cost of removal of nonradiological structures and equipment and interim spent fuel storage installations. PSE&G is currently completing site specific studies in order to update its filing with the BPU during 1996. The Staff of the Securities and Exchange Commission (SEC) has questioned certain of the current accounting practices of the electric utility industry, including PSE&G, regarding the recognition, measurement and classification of decommissioning costs for nuclear generating stations in the financial statements of electric utilities. In response to these questions, the Financial Accounting Standards Board (FASB) has agreed to review the accounting for removal costs, NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) including decommissioning. If current electric utility industry accounting practices for such decommissioning are changed: (1) annual provisions for decommissioning could increase, (2) the estimated cost for decommissioning could be recorded as a liability rather than as accumulated depreciation and (3) trust fund income from the external decommissioning trusts could be reported as investment income rather than as a reduction to decommissioning expense. Uranium Enrichment Decontamination and Decommissioning Fund In accordance with EPAct, domestic utilities that own nuclear generating stations are required to pay a cumulative total of $150 million each year (adjusted for inflation) into a decontamination and decommissioning fund, based on their past purchases of enrichment services from the United States Department of Energy (DOE) Uranium Enrichment Enterprise (now a federal government corporation known as the United States Enrichment Corporation (USEC)). These amounts are being collected over a period of 15 years or until $2.25 billion (adjusted for inflation) has been collected. Under this legislation, PSE&G's obligation for the nuclear generating stations in which it has an interest is $67 million (adjusted for inflation). Since 1993, PSE&G has paid $17 million, resulting in a balance due of $50 million. PSE&G has deferred the expenditures incurred to date as part of deferred underrecovered electric energy costs and expects to recover its costs in the next LEAC. In accordance with the filed Alternative Rate Plan, PSE&G has requested to have separate mechanisms to ensure continued recovery of costs associated with activities mandated or approved by state or federal agencies, but no assurances can be given that the BPU will authorize such recovery from customers (see Note 2 -- Rate Matters). Spent Nuclear Fuel Disposal Costs In accordance with the Nuclear Waste Policy Act (NWPA), PSE&G has entered into contracts with the DOE for the disposal of spent nuclear fuel. Payments made to the DOE for disposal costs are based on nuclear generation and are included in Fuel for Electric Generation and Interchanged Power in the Statements of Income. These costs are recovered through the LEAC. In accordance with the filed Alternative Rate Plan, PSE&G has requested to have separate mechanisms to ensure continued recovery of costs associated with activities mandated or approved by state or federal agencies, but no assurances can be given that the BPU will authorize such recovery from customers (see Note 2 -- Rate Matters). NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 4. SCHEDULE OF CONSOLIDATED CAPITAL STOCK AND OTHER SECURITIES
CURRENT REDEMPTION OUTSTANDING PRICE DECEMBER 31, DECEMBER 31, SHARES PER SHARE 1995 1994 ----------- ---------- ------------ ------------ (THOUSANDS OF DOLLARS) ENTERPRISE COMMON STOCK (no par) - note (A) -- authorized 500,000,000 shares; issued and outstanding at December 31, 1995, and December 31, 1994, 244,697,930 shares, and at December 31, 1993, 243,688,256 shares. $3,801,157 $3,801,157 ENTERPRISE PREFERRED SECURITIES (note B) PSE&G CUMULATIVE PREFERRED SECURITIES (note C) Without Mandatory Redemption (notes D and E) $100 par value series 4.08%................................ 250,000 103.00 $ 25,000 $ 25,000 4.18%................................ 249,942 103.00 24,994 24,994 4.30%................................ 250,000 102.75 25,000 25,000 5.05%................................ 250,000 103.00 25,000 25,000 5.28%................................ 250,000 103.00 25,000 25,000 6.80%................................ 250,000 102.00 25,000 25,000 6.92%................................ 600,000 -- 60,000 60,000 7.40%................................ 500,000 101.00 50,000 50,000 7.52%................................ 500,000 101.00 50,000 50,000 7.70% (note E)....................... -- -- -- 60,000 $25 par value series 6.75%................................ 600,000 -- $ 15,000 $ 15,000 ---------- ---------- Total Preferred Stock without Mandatory Redemption............... $ 324,994 $ 384,994 ========== ========== With Mandatory Redemption (notes D and F) $100 par value series 7.44%................................ 750,000 -- $ 75,000 $ 75,000 5.97%................................ 750,000 -- 75,000 75,000 ---------- ---------- Total Preferred Stock With Mandatory Redemption (note G)...... $ 150,000 $ 150,000 ========== ========== Monthly Income Preferred Securities (notes D, F, G and H) 9.375%............................... 6,000,000 -- $ 150,000 $ 150,000 8.00%................................ 2,400,000 -- $ 60,000 ---------- ---------- Total Monthly Income Preferred Securities $ 210,000 $ 150,000 ========== ========== (A) Total authorized and unissued shares include 7,302,488 shares of Enterprise Common Stock reserved for issuance through Enterprise's Dividend Reinvestment and Stock Purchase Plan and various employee benefit plans. In 1995, no shares of Enterprise Common Stock were issued or sold and in 1994, 1,009,674 shares were issued and sold for $28,495,122. (B) Enterprise has authorized a class of 50,000,000 shares of Preferred Stock without par value, none of which is outstanding. (C) As of December 31, 1995, there were 2,900,058 shares of $100 par value and 9,400,000 shares of $25 par value Cumulative Preferred Stock which were authorized and unissued, and which upon issuance may or may not provide for mandatory sinking fund redemption. If dividends upon any shares of Preferred Stock are in arrears in an amount equal to the annual dividend thereon, voting rights for the election of a majority of PSE&G's Board of Directors become operative and continue until all accumulated and unpaid dividends thereon have been paid, whereupon all such voting rights cease, subject to being again revived from time to time. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (D) At December 31, 1995, the annual dividend requirement and embedded dividend for Preferred Stock without mandatory redemption were $20,046,765 and 6.14%, respectively, and for Preferred Stock with mandatory redemption were $10,057,500 and 6.75%, respectively. At December 31, 1994, the annual dividend requirement and embedded dividend for Preferred Stock without mandatory redemption were $24,666,763 and 6.39%, respectively and for Preferred Stock with mandatory redemption were $10,057,500 and 6.75%, respectively. At December 31, 1995, the annualized monthly income requirement of the Monthly Income Preferred Securities and their embedded cost were $18,862,500 and 6.04%, respectively. At December 31, 1994, the annualized monthly income requirement of the Monthly Income Preferred Securities and their embedded cost were $14,062,500 and 6.31%, respectively. (E) On October 16, 1995, PSE&G redeemed all of the 600,000 shares of its outstanding 7.70% Cumulative Preferred Stock ($100 par), at a redemption price of $100.79. (F) For information concerning fair value of financial instruments, see Note 8 -- Financial Instruments and Risk Management. (G) On September 12, 1995, Partnership issued 2,400,000 shares of its 8% Monthly Income Preferred Securities, Series A, with a stated liquidation preference of $25 each. (H) Public Service Electric and Gas Capital, L.P. (Partnership) was formed for the purpose of issuing Monthly Income Preferred Securities. The proceeds of Monthly Income Preferred Securities sales are lent to PSE&G and evidenced by PSE&G's Deferrable Interest Subordinated Debentures. If and for as long as payments on PSE&G's Deferred Interest Subordinated Debentures have been deferred, or PSE&G has defaulted on the indenture related thereto or its guarantee thereof, PSE&G may not pay any dividends on its Capital Stock.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 5. DEFERRED ITEMS Property Abandonments The BPU has authorized PSE&G to recover after-tax property abandonment costs from its customers. The following table reflects the application of Statement of Financial Accounting Standards No. 90, "Regulated Enterprises -- Accounting for Abandonments and Disallowances of Plant Costs," as amended (SFAS 90), on property abandonments, and related tax effects, for which no return is earned. The net-of-tax discount rate used was between 4.443% and 7.801%. (See Note 2 -- Rate Matters.) The following table reflects property abandonments:
DECEMBER 31, 1995 DECEMBER 31, 1994 ------------------ ------------------ DISCOUNTED DISCOUNTED PROPERTY ABANDONMENTS COST TAXES COST TAXES - ------------------------------------------------ ---------- ------- ---------- ------- (THOUSANDS OF DOLLARS) Atlantic Project................................ $ 58,221 $ 24,440 $ 70,130 $29,453 LNG Project..................................... 2,992 957 7,287 2,635 Uranium Projects................................ 8,907 3,871 10,852 4,677 -------- ------- -------- ------- $ 70,120 $ 29,268 $ 88,269 $36,765 ======== ======= ======== =======
Under (Over) Recovered Electric Energy and Gas Costs -- net Recoveries of electric energy and gas costs are determined by the BPU under the LEAC and LGAC. PSE&G's deferred fuel balances as of December 31, 1995 and December 31, 1994, reflect underrecovered costs as follows:
DECEMBER 31, ------------------- 1995 1994 ------ ------ (Millions) Underrecovered Electric Energy Costs......... $162.4 $172.0 Underrecovered Gas Fuel Costs................ 8.2 .6 ------ ------ Total................................... $170.6 $172.6 ====== ======
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Unrecovered Plant and Regulatory Study Costs Amounts shown in the consolidated balance sheets consist of costs associated with developing, consolidating and documenting the specific design basis of PSE&G's jointly owned nuclear generating stations, as well as PSE&G's share of costs associated with the cancellation of the Hydrogen Water Chemistry System Project (HWCS Project) at Peach Bottom. PSE&G has received both BPU and FERC approval to defer and amortize, over the remaining life of the Salem and Hope Creek nuclear units, costs associated with configuration baseline documentation and the canceled HWCS Project. PSE&G has received FERC approval to defer and amortize over the remaining life of the applicable Peach Bottom units, costs associated with the configuration baseline documentation and the canceled HWCS Project. In accordance with the filed Alternative Rate Plan, PSE&G has requested to have separate mechanisms to ensure continued recovery of costs associated with activities mandated or approved by state or federal agencies or otherwise out of PSE&G's control (see Note 2 -- Rate Matters). Unamortized Debt Expense Gains and losses and the costs of issuing and redeeming long-term debt for PSE&G are deferred and amortized over the life of the applicable debt. Oil and Gas Property Write-Down On December 31, 1992, the BPU approved the recovery of PSE&G's deferral of an EDC write-down through PSE&G's LGAC over a ten-year period beginning January 1, 1993. At December 31, 1995 and 1994, the remaining balance to be amortized was $36.1 million and $41.2, respectively. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 6. SCHEDULE OF CONSOLIDATED DEBT LONG-TERM
DECEMBER 31, -------------------------- INTEREST RATES DUE 1995 1994 - ----------------- --------- ---------- ---------- (THOUSANDS OF DOLLARS) PSE&G FIRST AND REFUNDING MORTGAGE BONDS (note A) 4 3/4% - 6% 1995........... $ -- $ 310,000 6 7/8% - 7 1/8% 1997........... 300,000 300,000 6% 1998........... 100,000 100,000 8 3/4% 1999........... 100,000 100,000 6% - 7 5/8% 2000........... 400,000 400,000 6 1/8% - 9 1/8% 2001-2005........... 1,125,000 1,125,000 6.30% - 6.90% 2006-2010........... 177,990 234,310 6.80% - 7 3/8% 2011-2015........... 198,500 198,500 Variable 2011-2015........... 42,620 -- 6.45% - 8.10% 2016-2020........... 29,600 29,600 Variable 2016-2020........... 13,700 -- 5.20% - 9 1/4% 2021-2025........... 1,263,500 1,267,500 5.70% - 6.55% 2026-2030........... 244,835 244,835 5.45% - 6.40% 2031-2035........... 399,565 399,565 5% - 8% 2037................ 15,001 15,001 MEDIUM-TERM NOTES 7.10% - 7.13% 1997................. 100,000 -- 7.15% - 7.18% 2023................. 40,500 40,500 8.10% - 8.16% 2009................. 60,000 60,000 ---------- ---------- Total First and Refunding Mortgage Bonds............................... $4,610,811 $4,824,811 ========== ==========
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, -------------------------- INTEREST RATES DUE 1995 1994 - ----------------- ---- ---------- ---------- (THOUSANDS OF DOLLARS) DEBENTURE BONDS UNSECURED 6% 1998.......................................... $ 18,195 $ 18,195 ---------- ---------- Total Debenture Bonds............................................... 18,195 18,195 ---------- ---------- Principal Amount Outstanding (note F)............................... 4,629,006 4,843,006 Amounts Due Within One Year (note B)................................ (310,200) Net Unamortized Discount............................................ (42,738) (46,019) ---------- ---------- Total Long-Term Debt of PSE&G (note G)......................... 4,586,268 4,486,787 ---------- ---------- EDHI CAPITAL (note C) Senior notes 9.875% - 10.05% 1998.......................................... 122,500 165,000 Medium-Term Notes 5.65% - 9.55% 1995.......................................... 112,000 9.00% 1996.......................................... 20,000 20,000 5.79% - 5.92% 1997.......................................... 27,000 27,000 9.00% 1998.......................................... 75,000 75,000 8.95% - 9.93% 1999.......................................... 155,000 155,000 6.54% 2000.......................................... 78,000 78,000 ---------- ---------- Principal Amount Outstanding (note F)............................... 477,500 632,000 Amounts Due Within One Year (note B)................................ (62,482) (154,405) Net Unamortized Discount............................................ (901) (1,278) ---------- ---------- Total Long-Term Debt of Capital................................ 414,117 476,317 ---------- ---------- FUNDING (note D) 9.54% 1995.......................................... 35,000 9.55% 1996.......................................... 28,000 28,000 6.85% - 9.59% 1997.......................................... 55,000 55,000 9.95% 1998.......................................... 83,000 83,000 7.58% 1999.......................................... 45,000 45,000 ---------- ---------- Principal Amount Outstanding (note F)............................... 211,000 246,000 Amounts Due Within One Year (note B)................................ (28,000) (35,000) ---------- ---------- Total Long-Term Debt of Funding................................ 183,000 211,000 ---------- ---------- EGDC MORTGAGE NOTES 10.625% - 12.75% 2012 (note F)................................. 6,554 6,686 ---------- ---------- Amounts Due Within One Year (note B)................................ (148) (133) ---------- ---------- Total Long-Term Debt of EGDC................................... 6,406 6,553 ---------- ---------- Total Long-Term Debt of EDHI................................... 603,523 693,870 ---------- ---------- Consolidated Long-Term Debt (note E)......................... $5,189,791 $5,180,657 ========== ==========
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTES: (A) PSE&G's Mortgage, securing the Bonds, constitutes a direct first mortgage lien on substantially all PSE&G'S property and franchises. (B) The aggregate principal amounts of mandatory requirements for sinking funds and maturities for each of the five years following December 31, 1995 are as follows:
SINKING FUNDS MATURITIES ---------- ---------------------------------------------- YEAR CAPITAL PSE&G CAPITAL EGDC FUNDING TOTAL (THOUSANDS OF DOLLARS) 1996.......... $ 42,500 $ -- $ 20,000 $ 148 $ 28,000 $ 90,648 1997........... 42,500 400,000 27,000 166 55,000 524,666 1998........... 37,500 118,195 75,000 184 83,000 313,879 1999........... -- 100,000 155,000 205 45,000 300,205 2000........... -- 400,000 78,000 228 -- 478,228 -------- -------- -------- ----- -------- --------- $122,500 $1,018,195 $355,000 $ 931 $211,000 $1,707,626 ======== ======== ======== ===== ======== ========== In January 1996 principal amounts of $3.5 million of the above series and $16.942 million of the 8 3/4% Series HH First and Refunding Mortgage Bonds were reacquired. On February 1, 1996 a sinking fund in the principal amount of $1.5 million of the 8 3/4% Series HH First and Refunding Mortgage Bonds was met. In addition, the remaining principal amounts of $192.5 million of the 8 3/4% Series EE and $130.058 million of the 8 3/4% Series HH were defeased. (C) Capital has provided up to $750 million debt financing for EDHI's businesses on the basis of a net worth maintenance agreement with Enterprise. Since January 31, 1995, Capital has agreed to limit its borrowings to no more than $650 million. (D) Funding provides debt financing for EDHI's businesses other than EGDC on the basis of unconditional guarantees from EDHI. (E) At December 31, 1995 and 1994, the annual interest requirement on long-term debt was $399.8 million and $422.7 million, of which $315.6 million and $335.6 million was the requirement for Bonds. The embedded interest cost on long-term debt on such date was 7.71% and 7.79%, respectively. (F) For information concerning fair value of financial instruments, see Note 8 -- Financial Instruments and Risk Management. (G) At December 31, 1995 and 1994, PSE&G's annual interest requirement on long-term debt was $330.5 million and $343.3 million, of which $315.6 million and $335.6 million, respectively, was the requirement for Bonds. The embedded interest cost on long-term debt was 7.54% and 7.59%, respectively. PSE&G has authorization from the BPU to issue approximately $4.375 billion aggregate amount of additional bonds/MTNs/Preferred Stock/Monthly Income Preferred Securities through 1997 for refunding purposes.
SHORT-TERM (Commercial Paper and Loans) Commercial paper represents unsecured bearer promissory notes sold through dealers at a discount with a term of nine months or less. Bank loans represent PSE&G's unsecured promissory notes issued under informal credit arrangements with various banks and have a term of eleven months or less.
PSE&G - ----- 1995 1994 1993 ------ ------ ------ (Millions of Dollars) Principal amount outstanding at end of year, primarily commercial paper...................... $ 567 $ 402 $ 533 Weighted average interest rate for Short-Term Debt at year-end................................ 5.93% 6.07% 3.34% PSE&G has authorization from the BPU to issue and have outstanding not more than $1 billion of its short-term obligations at any one time, consisting of commercial paper and other unsecured borrowings from banks and other lenders. This authorization expires January 1, 1997. PSE&G has a $500 million one year revolving credit agreement expiring in August 1996 and a $500 million five year revolving credit agreement expiring in August 2000 with a group of commercial banks each of which provides for borrowing up to one year. As of December 31, 1995, there was no short-term debt outstanding under this agreement. PSE&G has a $50 million uncommitted Line of Credit facility extended by a bank to primarily support short-term borrowings all of which was outstanding under this facility on December 31, 1995 and is included in the table above. PSE&G had various Lines of Credit facility extended by a bank to primarily support the issuance of Letters of Credit. As of December 31, 1995, Letters of Credit were issued in the amount of $20.6 million. Fuelco has a $150 million commercial paper program to finance a 42.49% share of Peach Bottom nuclear fuel, supported by a $150 million revolving credit facility with a group of banks, which expires in June 1996. PSE&G has guaranteed repayment of Fuelco's respective obligations. As of December 31, 1995, 1994 and 1993, Fuelco had commercial paper of $87.7 million, $93.7 million and $108.7 million, respectively, outstanding under such program, which amounts are included in the table above. PSCRC has a $30 million revolving credit facility supported by a PSE&G subscription agreement in an aggregate amount of $30 million which terminates on March 7, 1996. PSCRC is presently in the process of negotiating a one year extension for this facility. As of December 31, 1995, PSCRC had $30 million outstanding under this facility, which amount is included in the table above. PSE&G has entered into standby financing arrangements with a bank totaling $61 million. These facilities support tax-exempt multi-mode financings done through the New Jersey Economic Development Authority and the York County (Pennsylvania) Industrial Development Authority. As of December 31, 1995, no amounts were outstanding under such arrangements.
EDHI - ---- 1995 1994 1993 ------ ------ ------ (Millions of Dollars) Principal amount outstanding at end of year....... $ 182 $ 90 $ 45 Weighted average interest rate for Short-Term Debt at year-end................................ 6.26% 5.97% 3.47% At December 31, 1995, Funding had a $225 million commercial paper program supported by a direct pay commercial bank letter of credit and revolving credit facility and a $225 million revolving credit facility, each of which expires in March 1998. At December 31, 1995, there was $100 million outstanding under this agreement. ENTERPRISE - ---------- At December 31, 1995, 1994 and 1993, Enterprise had a $25 million line of credit with a bank. At December 31, 1995, 1994 and 1993, Enterprise had no borrowings under this line. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 7. LONG-TERM INVESTMENTS Long-Term Investments are primarily those of EDHI. A summary of Long-Term Investments is as follows: 1995 1994 ------ ------ (MILLIONS OF DOLLARS) Lease Agreements (see Note 11 - Leasing Activities): Leveraged Leases...................... $ 845 $ 789 Direct-Financing Leases............... 35 76 Other Leases.......................... 6 6 ------ ------ Total............................ 886 871 ------ ------ Partnerships: General Partnerships.................. 177 168 Limited Partnerships.................. 522 437 ------ ------ Total............................ 699 605 ------ ------ Corporate Joint Ventures.................. 49 26 Securities................................ 76 75 Valuation Allowances...................... (21) (17) Other Investments......................... 133 66 ------ ------ Total Long-Term Investments...... $1,822 $1,626 ====== ====== PSRC's leveraged leases are reported net of principal and interest on nonrecourse loans, unearned income and deferred tax credits. Income and deferred tax credits are recognized at a level rate of return from each lease during the periods in which the net investment is positive. Partnership investments are those of PSRC, EGDC and CEA and are undertaken with other investors. PSRC is a limited partner in various partnerships and is committed to make investments from time to time upon the request of the respective general partners. As of December 31, 1995, $58 million remained as PSRC's unfunded commitment subject to call. PSRC has invested in securities and limited partnerships investing in securities, which are recorded at fair value. Realized investment gains and losses on the sale of investment securities are determined utilizing the specific cost identification method. (See Note 8 -- Financial Instruments and Risk Management.) As of December 31, 1995 and 1994, EDHI's long-term investments aggregated $1.7 billion and $1.6 billion, respectively, and its property, plant and equipment (net of accumulated depreciation and amortization and valuation allowances) aggregated $.7 billion. As of December 31, 1995 and December 31, 1994, EDHI comprised 15% of Enterprise's assets. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 8. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT Enterprise's operations give rise to exposure to market risks from changes in crude oil and natural gas prices, interest rates, foreign exchange rates and security prices of investments. Enterprise's policy is to use derivatives for the purpose of managing market risk consistent with its business plans and prudent practices. Enterprise does not hold or issue financial instruments for trading purposes. The notional amounts of derivatives summarized below do not represent amounts exchanged by the parties and, thus, are not a measure of the exposure of Enterprise through its use of derivatives. The amounts exchanged, under the terms of the derivatives, are calculated on the basis of the notional amounts. Enterprise limits its exposure to credit-related losses in the event of nonperformance by counterparties by limiting its counterparties to those with high credit ratings. Natural Gas and Crude Oil Hedging EDC sold natural gas futures contracts outstanding at December 31, 1995 and 1994 which hedged 21,250,000 mmbtu and 10,650,000 mmbtu, respectively. Such amounts represented approximately 26% and 13% of EDC's anticipated domestic natural gas production in 1996 and 1995, respectively, at average sales prices of $1.93 per mmbtu and $1.95 per mmbtu, respectively. At December 31, 1995, EDC sold crude oil futures contracts outstanding which hedged 1.5 million barrels of oil representing approximately 38% of EDC's anticipated domestic oil production in 1996 at an average price of $17.74 per barrel. The deferred unrealized gains (losses) at December 31, 1995 and 1994 related to EDC's futures contracts were ($5.1) million and $2.6 million, respectively. Through December 31, 1995 and 1994, USEP entered into swaps for future contracts to buy 4,970,000 mmbtu and 2,850,000 mmbtu of natural gas related to fixed-price sales commitments. Such swaps hedged approximately 54% and 73% of sales commitments at December 31, 1995 and 1994 at average prices of $1.78 and $1.94 per mmbtu, respectively. USEP had deferred unrealized gains of $3.1 million at December 31, 1995 and unrealized losses of $.7 million at December 31, 1994. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Interest Rate Swap Capital entered into an interest rate swap in December, 1990 to allow EDHI to borrow at floating rates and effectively swap them into fixed rates. The interest differential to be received or paid under the interest rate swap agreement is accrued over the life of the agreement as an adjustment to the interest expense of the related borrowing. The swap expired on December 11, 1995. 1995 1994 --------- --------- (Thousands of Dollars) Pay-fixed swap Notional amount.................... $100,000 $100,000 Pay rate........................... 8.0% 8.0% Average receive rate............... 6.4% 4.1% Year-end receive rate.............. --% 6.8% Foreign Exchange During 1994, PSRC entered into a forward purchase contract for foreign currency to hedge an EDC firm purchase commitment denominated in pound sterling. The EDC commitment related to the acquisition of Industrial Scotland Energy Limited (ISE) for approximately 21 million pounds. The realized gain of approximately $800 thousand on the forward purchase contract for foreign currency was used to reduce the net acquisition cost allocated to ISE's assets upon completion of the acquisition in June 1994. Currently, substantially all of Enterprise's foreign revenues and expenses are denominated in U.S. dollars. Security Swap During 1994, PSRC entered into two agreements to swap portions of its ownership interest in certain equity securities, held in a partnership, to the S&P 500 return. The purpose of the swaps was to minimize PSRC's exposure to the potential price volatility of such equity securities. The agreements had respective notional amounts of $17.6 million and $12.9 million. The aggregate notional amounts swapped and the year end unrealized gain during 1994 for these two agreements were $30.5 million and $3.8 million, respectively. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In March 1995, the equity securities, in which PSRC had an ownership interest, were exchanged for equity securities of another entity. Consequently, PSRC terminated the security swap and realized a pre-tax gain of $3.5 million which was offset by the reversal of the $3.8 million unrealized gain at year end 1994. Fair Value of Financial Instruments The estimated fair value was determined using the market quotations or values of securities with similar terms, credit ratings, remaining maturities and redemptions at the end of 1995 and 1994, respectively.
1995 1994 ------------------------ ------------------------ CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE ---------- ---------- ---------- ---------- (Thousands of Dollars) Long-Term Debt: EDHI.................................... $ 603,523 730,000 $ 884,686 $ 930,000 PSE&G................................... 4,629,006 4,828,008 4,843,006 4,500,000 Preferred Securities Subject to Mandatory Redemption: PSE&G Cumulative Preferred Securities... 150,000 156,000 150,000 145,900 Monthly Income Preferred Securities..... 210,000 225,300 150,000 158,300
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 9. CASH AND CASH EQUIVALENTS The December 31, 1995 and 1994 balances consist primarily of working funds and highly liquid marketable securities (commercial paper) with a maturity of three months or less. NOTE 10. FEDERAL INCOME TAXES A reconciliation of reported Net Income with pretax income and of Federal income tax expense with the amount computed by multiplying pretax income by the statutory Federal income tax rate of 35% is as follows:
1995 1994 1993 ---------- -------- -------- (THOUSANDS OF DOLLARS) Net Income......................................... $ 662,323 $ 679,033 $600,933 Preferred securities dividend requirements......... 34,236 40,467 38,114 SFAS 109 Cumulative Effect......................... -- -- (5,414) ---------- -------- -------- Subtotal...................................... 696,559 719,500 633,633 ---------- -------- -------- Federal income taxes: Operating income: Current provision................................ 183,268 162,521 151,208 Provision for deferred income taxes -- net(A).... 192,648 173,327 186,256 Investment tax credits -- net.................... (21,919) (23,297) (23,784) ---------- -------- -------- Total included in operating income................. 353,997 312,551 313,680 Miscellaneous other income: Current provision................................ (9,897) (8,186) (14,340) Provision for deferred income taxes(A)........... 9,816 10,422 9,815 SFAS 90 deferred income taxes(A)................... 2,161 2,530 2,948 ---------- -------- -------- Total Federal income tax provisions........... 356,077 317,317 312,103 ---------- -------- -------- Pretax income...................................... $1,052,636 $1,036,817 $945,736 ========== ======== ========
Reconciliation between total Federal income tax provisions and tax computed at the statutory tax rate on pretax income: 1995 1994 1993 -------- -------- -------- (THOUSANDS OF DOLLARS) Tax computed at the statutory rate................. $ 368,423 $362,887 $331,008 -------- -------- -------- Increase (decrease) attributable to flow through of certain tax adjustments: Depreciation.................................. 16,257 (4,597) 3,347 Amortization of investment tax credits........... (21,919) (23,297) (23,784) Other............................................ (6,684) (17,676) 1,532 -------- -------- -------- Subtotal...................................... (12,346) (45,570) (18,905) -------- -------- -------- Total Federal income tax provisions........... $(356,077) $317,317 $312,103 ======== ======== ======== Effective Federal income tax rate.................. 33.8% 30.6% 33.0%
(A) The provision for deferred income taxes represents the tax effects of the following items:
1995 1994 1993 -------- -------- -------- (THOUSANDS OF DOLLARS) Deferred Credits: Additional tax depreciation and amortization..... $174,190 $109,106 $112,814 Leasing Activities............................... 64,567 60,129 34,958 Property Abandonments............................ (7,411) (6,606) (6,632) Oil and Gas Property Write-Down.................. (2,451) (2,451) (2,451) Deferred fuel costs -- net....................... (3,601) 39,361 63,330 Other............................................ (20,669) (13,260) (3,000) -------- -------- -------- Total......................................... $204,625 $186,279 $199,019 ======== ======== ========
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Between the years 1987 and 1994, Enterprise's Federal alternative minimum tax (AMT) liability exceeded its regular Federal income tax liability. This excess can be carried forward indefinitely to offset regular income tax liability in future years. Enterprise commenced using these AMT credits in 1995 and expects to continue using them in future years as regular tax liability exceeds AMT. As of December 31, 1995, 1994 and 1993, Enterprise had AMT credits of $203 million, $256 million and $247 million, respectively. Since 1986, Enterprise has filed a consolidated Federal income tax return on behalf of itself and its subsidiaries. Prior to 1986, PSE&G filed consolidated tax returns. In March, 1992, the Internal Revenue Service (IRS) issued a Revenue Agent's Report (RAR) following completion of examination of PSE&G's consolidated tax return for 1985 and Enterprise's consolidated tax returns for 1986 and 1987, proposing various adjustments for such years which would increase Enterprise's consolidated Federal income tax liability by approximately $121 million, exclusive of interest and penalties, of which approximately $118 million is attributable to PSE&G. Interest after taxes on these proposed adjustments is currently estimated to be approximately $119 million as of December 31, 1995 and will continue to accrue at the Federal rate for large corporate underpayments, currently 11% annually. The most significant of these proposed adjustments relates to the IRS contention that PSE&G's Hope Creek nuclear unit is a partnership with a short 1986 taxable year. In addition, the IRS contends that the tax in-service date of that unit is four months later than the date claimed by PSE&G. In June 1992, Enterprise and PSE&G filed a protest with the IRS disagreeing with certain of the proposed adjustments (including those related to Hope Creek) contained in the RAR for taxable years 1985 through 1987 and continue to contest these issues. Any tax adjustments resulting from the RAR would reduce Enterprise's and PSE&G's respective deferred credits for accumulated deferred income taxes. While PSE&G believes that assessments attributable to it are generally recoverable from its customers in rates, no assurances can be given as to what regulatory treatment may be afforded by the BPU. On January 1, 1993, Enterprise adopted SFAS 109 without restating prior years' financial statements which resulted in Enterprise recording a $5.4 million cumulative effect increase in its net income. Under SFAS 109, deferred taxes are provided at the enacted statutory tax rate for all temporary differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities irrespective of the treatment for rate-making purposes. Since management believes that it is probable that the effects of SFAS 109 on PSE&G, principally the accumulated tax benefits that previously have been treated as a flow-through item to customers, will be recovered from utility customers in the future, an offsetting regulatory asset was established. As of December 31, 1995, PSE&G had recorded a deferred tax liability and an offsetting regulatory asset of $769 million representing the future revenue expected to be recovered through rates based upon established regulatory practices which permit recovery of current taxes payable. This amount was determined using the 1995 Federal income tax rate of 35%. SFAS 109 The following is an analysis of accumulated deferred income taxes:
ACCUMULATED DEFERRED INCOME TAXES 1995 1994 ---------------------------------------- ---------- ---------- (THOUSANDS OF DOLLARS) Assets: Current (net)...................................... $ 27,571 $ 25,311 Non-Current: Unrecovered Investment Tax Credits............ 129,713 136,402 Nuclear Decommissioning....................... 25,241 25,082 Hope Creek Cost Disallowance.................. -- 10,127 Construction Period Interest and Taxes........ 17,199 15,913 Vacation Pay.................................. 6,681 6,822 AMT Credit.................................... 202,655 255,828 Real Estate Impairment........................ 5,213 20,932 Other......................................... 4,107 6,863 ---------- ---------- Total Non-Current........................ $ 390,809 $ 477,969 ---------- ---------- Total Assets............................. $ 418,380 $ 503,280 ========== ========== Liabilities: Non-Current: Plant Related Items........................... $2,370,830 $2,268,688 Leasing Activities............................ 616,914 580,415 Property Abandonments......................... 21,469 26,971 Oil and Gas Property Write-Down............... 13,061 14,925 Deferred Electric Energy & Gas Costs.......... 56,283 59,884 Unamortized Debt Expense...................... 36,945 37,599 Taxes Recoverable Through Future Rates (net).. 262,625 270,684 Other......................................... 107,302 124,193 ---------- ---------- Total Non-Current........................ $3,485,429 $3,383,359 ---------- ---------- Total Liabilities........................ $3,485,429 $3,383,359 ========== ========== Summary -- Accumulated Deferred Income Taxes Net Current Assets............................... $ 27,571 $ 25,311 Net Deferred Liability........................... $3,094,620 $2,905,390 ---------- ---------- Total.................................... $3,067,049 $2,880,079 ========== ==========
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 11. LEASING ACTIVITIES As Lessee The Consolidated Balance Sheets include assets and related obligations applicable to capital leases under which PSE&G is a lessee. The total amortization of the leased assets and interest on the lease obligations equals the net minimum lease payments included in rent expense for capital leases. Capital leases of PSE&G relate primarily to its corporate headquarters and other capital equipment. Certain of the leases contain renewal and purchase options and also contain escalation clauses. Enterprise and its other subsidiaries are not lessees in any capitalized leases. Utility plant includes the following amounts for capital leases at December 31:
1995 1994 ------- ------- (THOUSANDS OF DOLLARS) Common Plant............................................. $58,610 $58,610 Less: Accumulated Amortization........................... 5,499 4,840 ------- ------- Net Assets under Capital Leases.......................... $53,111 $53,770 ======= ======= Future minimum lease payments for noncancelable capital and operating leases at December 31, 1995 were:
CAPITAL OPERATING LEASES LEASES ------- --------- (THOUSANDS OF DOLLARS) 1996..................................................... 13,174 14,616 1997..................................................... 13,175 12,580 1998..................................................... 13,176 8,638 1999..................................................... 13,177 6,517 2000..................................................... 12,834 4,449 Later Years.............................................. 189,229 12,998 -------- -------- Minimum Lease Payments................................... 254,765 $ 59,798 ======== Less: Amount representing estimated executory costs, together with any profit thereon, included in minimum lease payments............................. 126,029 -------- Net minimum lease payments............................... 128,736 Less: Amount representing interest....................... 75,625 -------- Present value of net minimum lease payments(A)........... $ 53,111 ======== (A) Reflected in the Consolidated Balance Sheets for 1995 and 1994 were Capital Lease Obligations of $53.111 million and $53.770 million which includes Capital Lease Obligations due within one year of $739 thousand and $659 thousand, respectively.
The following schedule shows the composition of rent expense included in Operating Expenses:
FOR THE YEARS ENDED DECEMBER 31, -------------------------------- 1995 1994 1993 ------- ------- ------- (THOUSANDS OF DOLLARS) Interest on Capital Lease Obligations................. $ 6,084 $ 6,156 $ 6,074 Amortization of Utility Plant under Capital Leases.... 659 588 513 ------- ------- ------- Net minimum lease payments relating to Capital Leases.............................................. 6,743 6,744 6,587 Other Lease payments.................................. 27,219 28,447 22,132 ------- ------- ------- Total Rent Expense.................................... $33,962 $35,191 $28,719 ======= ======= =======
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) As Lessor PSRC's net investments in leveraged and direct financing leases are composed of the following elements:
DECEMBER 31, 1995 DECEMBER 31, 1994 ---------------------------------- ---------------------------------- (MILLIONS OF DOLLARS) DIRECT DIRECT LEVERAGED FINANCING LEVERAGED FINANCING LEASES LEASES TOTAL LEASES LEASES TOTAL --------- --------- ------- --------- --------- ------- Lease rents receivable..... $ 1,031 $ 39 $ 1,070 $ 990 $ 92 $ 1,082 Estimated residual value... 635 8 643 622 13 635 -------- ------- ------- -------- ------- ------- 1,666 47 1,713 1,612 105 1,717 Unearned and deferred income (821) (12) (833) (823) (29) (852) -------- ------- ------- -------- ------- ------- Total investments...... 845 35 880 789 76 865 Deferred taxes.............. (405) (11) (416) (333) (20) (353) -------- ------- ------- -------- ------- ------- Net investments........ $ 440 $ 24 $ 464 $ 456 $ 56 $ 512 ======== ======= ======= ======== ======= ======= PSRC's other capital leases are with various regional, state and city authorities for transportation equipment and aggregated $6 million as of December 31, 1995 and 1994. During 1995, PSRC converted two Airbus A-300 aircraft under direct-finance leases to operating leases. As of December 31, 1995, such aircraft had a net asset value of $11 million. On January 31, 1996, the aircraft were sold for an amount approximating their net asset value.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 12. COMMITMENTS AND CONTINGENT LIABILITIES Nuclear Performance Standard The BPU has established its NPS for nuclear generating stations owned by New Jersey electric utilities, including the five nuclear units in which PSE&G has an ownership interest: Salem Units 1 and 2 - -- 42.59%; Hope Creek -- 95%; and Peach Bottom Units 2 and 3 -- 42.49%. PSE&G operates Salem and Hope Creek, while Peach Bottom is operated by PECO Energy, Inc. (PECO). The penalty/reward under the NPS is a percentage of replacement power costs. (See table below.)
CAPACITY FACTOR RANGE REWARD PENALTY - -------------------------------------------------- ------ ------- Equal to or greater than 75%......................... 30% -- Equal to or greater than 65% and less than 75%....... None None Equal to or greater than 55% and less than 65%....... -- 30% Equal to or greater than 45% and less than 55%....... -- 40% Equal to or greater than 40% and less than 45%....... -- 50% Below 40%............................................ BPU Intervenes
Under the NPS, the capacity factor is calculated annually using maximum dependable capability of the five nuclear units in which PSE&G owns an interest. This method takes into account actual operating conditions of the units. While the NPS does not specifically have a gross negligence provision, the BPU has indicated that it would consider allegations of gross negligence brought upon a sufficient factual basis. A finding of gross negligence could result in penalties other than those prescribed under the NPS. During 1995, the five nuclear units in which PSE&G has an ownership interest aggregated a 62% combined capacity factor which resulted in a penalty for 1995 of approximately $3.5 million. On January 16, 1996, PSE&G filed its Alternative Rate Plan with the BPU which proposes the elimination of the NPS. See Note 2. Based upon current projections and assumptions regarding PSE&G's five nuclear units during 1996, including the return of Hope Creek to service in early March, the return of Salem 2 in the third quarter and the continued outage of Salem 1 for the remainder of the year, the 1996 aggregate capacity factor would be approximately 57%, which would result in a penalty ranging from $11 to $12 million. Both of the Salem units are currently out of service and their return dates are subject to completion of testing, analysis, repair activity and NRC concurrence that they are prepared to restart. Restart of Salem 1, which had originally been scheduled for the second quarter of 1996, will be delayed for a substantial period as a result of the ongoing steam generator inspection and analysis. Salem 2, which is also undergoing steam generator inspection and analysis is still scheduled to return to service in the third quarter of 1996. The inability to successfully return these units to continuous, safe operation could have a material effect on the financial position, results of operation and net cash flows of Enterprise and PSE&G. Certain of the owners of Salem have indicated that they may seek to hold PSE&G responsible for their share of costs of the current outage. PSE&G cannot predict what actions, if any, may be taken. Nuclear Insurance Coverages and Assessments PSE&G's insurance coverages and maximum retrospective assessments for its nuclear operations are as follows:
PSE&G MAXIMUM TOTAL ASSESSMENTS SITE FOR A SINGLE TYPE AND SOURCE OF COVERAGES COVERAGES INCIDENT - ------------------------------------- --------- ------------- (MILLIONS OF DOLLARS) Public Liability: American Nuclear Insurers........... $ 200.0 $ -- Indemnity(A)........................ 8,720.3 210.2 -------- -------- $8,920.3 (B) $ 210.2 -------- -------- Nuclear Worker Liability: American Nuclear Insurers(C)........ $ 200.0 $ 8.1 -------- -------- Property Damage: Nuclear Mutual Limited.............. $ 500.0 $ 9.2 Nuclear Electric Insurance Ltd. (NEIL II)..................... 1,400.0 8.3(D) Nuclear Electric Insurance Ltd. (NEIL III).................... 850.0 9.2 -------- -------- $2,750.0 $ 26.7 -------- -------- Replacement Power: Nuclear Electric Insurance Ltd (NEIL I)....................... $ 3.5 (E) $ 11.4
(A) Retrospective premium program under the Price-Anderson liability provisions of the Atomic Energy Act of 1954, as amended (Price- Anderson). Subject to retrospective assessment with respect to loss from an incident at any licensed nuclear reactor in the United States. Assessment adjusted for inflation effective August 20, 1993. (B) Limit of liability for each nuclear incident under Price- Anderson. (C) Industry aggregate limit representing the potential liability from workers claiming exposure to the hazard of nuclear radiation. This policy includes automatic reinstatements up to an aggregate of $200 million, thereby providing total coverage of $400 million. This policy does not increase PSE&G's obligation under Price- Anderson. (D) In the event of a second industry loss triggering NEIL II - coverage, the maximum retrospective premium assessment can increase to $18.5 million. (E) Represents limit of coverage available to co-owners of Salem and Hope Creek, for each plant. Each co-owner purchases its own policy. PSE&G is currently covered for its percent ownership interest of this limit for each plant. Price-Anderson sets the "limit of liability" for claims that could arise from an incident involving any licensed nuclear facility in the nation. The "limit of liability" is based on the number of licensed nuclear reactors and is adjusted at least every five years based on the Consumer Price Index. The current "limit of liability" is $8.9 billion. All utilities owning a nuclear reactor, including PSE&G, have provided for this exposure through a combination of private insurance and mandatory participation in a financial protection pool as established by Price-Anderson. Under Price- Anderson, each party with an ownership interest in a nuclear reactor can be assessed its share of $79.3 million per reactor per incident, payable at $10 million per reactor per incident per year. If the damages exceed the "limit of liability," the President is to submit to Congress a plan for providing additional compensation to the injured parties. Congress could impose further revenue raising measures on the nuclear industry to pay claims. PSE&G's maximum aggregate assessment per incident is $210.2 million (based on PSE&G's ownership interests in Hope Creek, Peach Bottom and Salem) and its maximum aggregate annual assessment per incident is $26.5 million. Further, a recent decision by the U.S. Court of Appeals for the Third Circuit, not involving PSE&G, held that the Price Anderson Act did not preclude awards based on state law claims for punitive damage. PSE&G is a member of two industry mutual insurance companies; Nuclear Mutual Limited (NML), and Nuclear Electric Insurance Limited (NEIL). NML provides the primary property insurance at Salem and Hope Creek. NEIL provides excess property insurance through its NEIL II and NEIL III policies and replacement power coverage through its NEIL I policy. Both companies may make retrospective premium assessments in case of adverse loss experience. PSE&G's maximum potential liabilities under these assessments are included in the table and notes above. Certain of the policies also provide that the insurer may suspend coverage with respect to all nuclear units on a site without notice if the NRC suspends or revokes the operating license for any unit on a site, issues a shutdown order with respect to such unit or issues a confirmatory order keeping such unit down. All coverages at Salem and Hope Creek remain fully in effect. Construction and Fuel Supplies PSE&G has substantial commitments as part of its ongoing construction program which include capital requirements for nuclear fuel. PSE&G's construction program is continuously reviewed and periodically revised as a result of changes in economic conditions, revised load forecasts, changes in the scheduled retirement dates of existing facilities, changes in business strategies, site changes, cost escalations under construction contracts, requirements of regulatory authorities and laws, the timing of and amount of electric and gas rate changes and the ability of PSE&G to raise necessary capital. Pursuant to an electric integrated resource plan (IRP), PSE&G periodically reevaluates its forecasts of future customers, load and peak growth, sources of electric generating capacity and demand side management (DSM) to meet such projected growth, including the need to construct new electric generating capacity. The IRP takes into account assumptions concerning future demands of customers, effectiveness of conservation and load management activities, the long-term condition of PSE&G's plants, capacity available from electric utilities and other suppliers and the amounts of co-generation and other non-utility capacity projected to be available. Based on PSE&G's construction program, construction expenditures are expected to aggregate approximately $2.8 billion, which includes $428 million for nuclear fuel and $84 million of Allowance for Funds used During Construction (AFDC) during the years 1996 through 2000. The estimate of construction requirements is based on expected project completion dates and includes anticipated escalation due to inflation of approximately 3%, annually. Therefore, construction delays or higher inflation levels could cause significant increases in these amounts. PSE&G expects to generate internally the funds necessary to satisfy its construction expenditures over the next five years, assuming adequate and timely recovery of costs, as to which no assurances can be given. In addition, PSE&G does not presently anticipate any difficulties in obtaining sufficient sources of fuel for electric generation or adequate gas supplies during the years 1996 through 2000. Hazardous Waste Certain Federal and State laws authorize the United States Environmental Protection Agency (EPA) and the New Jersey Department of Environmental Protection (NJDEP), among other agencies, to issue orders and bring enforcement actions to compel responsible parties to take investigative and remedial actions at any site that is determined to present an imminent and substantial danger to the public or the environment because of an actual or threatened release of one or more hazardous substances. Because of the nature of PSE&G's business, including the production of electricity, the distribution of gas and, formerly, the manufacture of gas, various by-products and substances are or were produced or handled which contain constituents classified as hazardous. PSE&G generally provides for the disposal or processing of such substances through licensed independent contractors. However, these statutory provisions impose joint and several responsibility without regard to fault on all responsible parties, including the generators of the hazardous substances, for certain investigative and remediation costs at sites where these substances were disposed of or processed. PSE&G has been notified with respect to a number of such sites and the remediation of these potentially hazardous sites is receiving greater attention from the government agencies involved. Generally, actions directed at funding such site investigations and remediation include all suspected or known responsible parties. PSE&G does not expect its expenditures for any such site to have a material effect on its financial position, results of operations or net cash flows. PSE&G Manufactured Gas Plant Remediation Program In 1988, NJDEP notified PSE&G that it had identified the need for PSE&G, pursuant to a formal arrangement, to systematically investigate and, if necessary, resolve environmental concerns extant at PSE&G's former manufactured gas plant sites. To date, NJDEP and PSE&G have identified 38 former gas plant sites. PSE&G is currently working with NJDEP under a program to assess, investigate and, if necessary, remediate environmental concerns at these sites (Remediation Program). The Remediation Program is periodically reviewed and revised by PSE&G based on regulatory requirements, experience with the Remediation Program and available technologies. The cost of the Remediation Program cannot be reasonably estimated, but experience to date indicates that costs of at least $20 million per year could be incurred over a period of more than 30 years and that the overall cost could be material to PSE&G's financial position, results of operations or net cash flows. Costs incurred through December 31, 1995 for the Remediation Program amounted to $64.6 million, net of certain insurance proceeds. In addition, at December 31, 1995, PSE&G's estimated liability for remediation costs through 1998 aggregated $96.3 million. In accordance with a Stipulation approved by the BPU in 1992, PSE&G is recovering through its LEAC over a six-year period $32 million of its actual remediation costs to reflect costs incurred through September 30, 1992. As of December 31, 1995, PSE&G has recovered $27.8 million of the $32 million of such costs. PSE&G is expected to recover the balance of $4.2 million in its currently filed LGAC period ending in 1996. NOTE 13. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS On January 1, 1993, Enterprise and PSE&G adopted SFAS 106 which requires that the expected cost of employees' postretirement health care and insurance benefits be charged to expense during the years in which employees render service. PSE&G elected to amortize, over 20 years, its unfunded obligation of $609.3 million at January 1, 1993. The following table discloses the significant components of the net periodic postretirement benefit obligation:
DECEMBER 31, --------------------------- NET PERIODIC POSTRETIREMENT BENEFIT OBLIGATION 1995 1994 1993 - ---------------------------------------------- ------- ------- ------- (MILLIONS) Service cost................................. $ 8.5 $ 11.1 $ 11.7 Interest on accumulated postretirement obligation................................. 48.2 45.4 44.4 Amortization of transition obligation........ 30.5 30.5 30.5 Amortization of Net (Gain)/Loss (a).......... (3.8) -- -- Deferral of current expense.................. (50.7) (57.8) (58.6) ------ ------ ------- Annual net expense...................... $ 32.7 $ 29.2 $ 28.0 ====== ====== =======
(a) Reflects change in Plan Assumptions. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The discount rate used in determining the PSE&G net periodic postretirement benefit cost was 8.50% and 7.25% for 1995 and 1994, respectively. A one-percentage-point increase in the assumed health care cost trend rate for each year would increase the aggregate of the service and interest cost components of net periodic postretirement health care cost by approximately $2.6 million, or 5.6%, and increase the accumulated postretirement benefit obligation as of December 31, 1995 by $34.8 million, or 5.9%. The assumed health care cost trend rates used in measuring the accumulated postretirement benefit obligation in 1995 were: medical costs for pre-age sixty-five retirees -- 13.0%, medical costs for post-age sixty-five retirees -- 9.0% and dental costs -- 7.0%; such rates are assumed to gradually decline to 5.0%, 5.0% and 5.0%, respectively, in 2011. The medical costs above include a provision for prescription drugs. In its 1992 base rate case, PSE&G requested full recovery of the costs associated with postretirement benefits other than pensions (OPEB) on an accrual basis, in accordance with SFAS 106. The BPU's December 31, 1992 base rate order provided that (1) PSE&G's pay-as-you-go basis OPEB costs will continue to be included in cost of service and will be recoverable in base rates on a pay-as-you-go basis; (2) prudently incurred OPEB costs, that are accounted for on an accrual basis in accordance with SFAS 106, will be recoverable in future rates; (3) PSE&G should account for the differences between its OPEB costs on an accrual basis and the pay-as-you-go basis being recovered in rates as a regulatory asset; and (4) the issue of cash versus accrual accounting will be revisited and in the event that FASB or the SEC requires the use of accrual accounting for OPEB costs for rate-making purposes, the regulatory asset will be recoverable, through rates, over an appropriate amortization period. Accordingly, PSE&G is accounting for the differences between its SFAS 106 accrual cost and the cash cost currently recovered through rates as a regulatory asset. OPEB costs charged to expenses during 1995 were $32.6 million and accrued OPEB costs deferred were $50.7 million. The amount of the unfunded liability, at December 31, 1995, as shown below, is $717.9 million and funding options are currently being explored. The primary effect of adopting SFAS 106 on Enterprise's and PSE&G's financial reporting is on the presentation of their financial positions with minimal effect on their results of operations. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) During January 1993 and subsequent to the receipt of the Order, the FASB's Emerging Issues Task Force (EITF) concluded that deferral of such costs is acceptable, provided regulators allow SFAS 106 costs in rates within approximately five years of the adoption of SFAS 106 for financial reporting purposes, with any cost deferrals recovered in approximately twenty years. In accordance with the Alternative Rate Plan filed, PSE&G expects full SFAS 106 recovery in accordance with the EITF's view of such standard and believes that it is probable that any deferred costs will be recovered from utility customers within such twenty-year time period. As of December 31, 1995, PSE&G has deferred $167.2 million of such costs. However, if recovery of SFAS 106 costs is not approved by the BPU , the impact on the financial position and results of operations would be material. In accordance with SFAS 106 disclosure requirements, a reconciliation of the funded status of the plan is as follows:
DECEMBER 31, ---------------------- 1995 1994 -------- -------- (MILLIONS) Accumulated postretirement benefit obligation: Retirees................................. $(444.6) $(379.2) Fully eligible active plan participants.. (52.9) (45.7) Other active plan participants........... (220.4) (161.0) ------- ------- Total................................ (717.9) (585.9) Plan assets at fair value................ -- -- ------- ------- Accumulated postretirement benefit obligation in excess of plan assets..... (717.9) (585.9) Unrecognized net (gain)/loss from past experience different from that assumed And from changes in assumptions......... 32.8 (78.8) Unrecognized prior service cost.......... -- -- Unrecognized transition obligation....... 517.9 548.3 ------- ------- Accrued postretirement obligation........ $(167.2) $(116.4) ======= ======= The discount rate used in determining the accumulated postretirement benefit obligation as of December 31, 1995 was 7.25% and 8.50% for 1995 and 1994, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 14. PENSION PLAN The discount rates, expected long-term rates of return on assets and average compensation growth rates used in determining the Pension Plan's funded status and net pension cost as of December 31, 1995 and 1994 were as follows:
1995 1994 ------ ------ Funded Status: - ------------- Discount Rate used to Determine Benefit Obligations................................. 7 1/4% 8-1/2% Average Compensation Growth to Determine Benefit Obligations...................... 4.5% 4.5% Net Pension Cost: - ---------------- Discount Rate............................... 8.5% 7-1/4% Expected Long-Term Return on Assets......... 8.5% 8% Average Compensation Growth................. 4.5% 5.5%
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table shows the Pension Plan's funded status:
DECEMBER 31, ------------------------- 1995 1994 ----------- ----------- (THOUSANDS OF DOLLARS) Actuarial present value of benefit obligations: Accumulated benefit obligations, including vested benefits of $1,403,313 in 1995 and $1,151,677 in 1994........... $(1,509,841) $(1,235,930) Effect of projected future compensation................... (321,545) (261,846) ----------- ----------- Projected benefit obligations............................... (1,831,386) (1,497,776) Plan assets at fair value, primarily listed equity and debt securities................................................ 1,533,446 1,270,116 ----------- ----------- Projected benefit obligations in excess of plan assets...... (297,940) (227,660) Unrecognized net gain (loss) from past experience and effects of changes in assumptions......................... 120,859 32,815 Prior service cost not yet recognized in net pension cost... 110,213 119,783 Unrecognized net obligations being recognized over 16.7 years................................................ 61,287 69,387 ----------- ----------- Accrued pension expense..................................... $ (5,581) $ (5,675) =========== ===========
The net pension cost for the years ending December 31, 1995, 1994 and 1993, include the following components:
1995 1994 1993 -------- -------- -------- (THOUSANDS OF DOLLARS) Service cost - benefits earned during year......... $ 37,033 $ 42,904 $ 42,948 Interest cost on projected benefit obligations..... 124,147 108,394 103,118 Return on assets................................... (312,190) 5,022 (166,916) Net amortization and deferral...................... 222,916 (90,752) 90,958 -------- -------- -------- Total......................................... $ 71,906 $ 65,568 $ 70,108 ======== ======== ======== See Note 1 -- Organization and Summary of Significant Accounting Policies.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 15. FINANCIAL INFORMATION BY BUSINESS SEGMENTS Information related to the segments of Enterprise's business is detailed below:
NONUTILITY ELECTRIC GAS EDC ACTIVITIES(A) TOTAL ----------- ---------- -------- -------------- -------- (THOUSANDS OF DOLLARS) FOR THE YEAR ENDED DECEMBER 31, 1995 Operating Revenues...................... $ 4,020,842 $1,686,403 $ 248,002 $ 208,906 $ 6,164,153 Eliminations (Intersegment Revenues).... -- -- -- -- -- ----------- ---------- ---------- --------- ----------- Total Operating Revenues................ 4,020,842 1,686,403 248,002 208,906 6,164,153 ----------- ---------- ---------- --------- ----------- Depreciation and Amortization........... 503,022 88,092 77,265 5,852 674,231 Operating Income Before Income Taxes.... 1,140,279 178,718 58,654 142,172 1,519,823 Capital Expenditures.................... 545,997 140,153 132,098 8,364 826,612 December 31, 1995 - ----------------- Net Utility Plant....................... 9,651,695 1,535,736 -- -- 11,187,431 Oil and Gas Property, Plant & Equipment............................. -- -- 608,015 -- 608,015 Other Corporate Assets.................. 2,778,691 589,455 147,822 1,858,654 5,374,622 ----------- ---------- ---------- --------- ----------- Total Assets............................ $12,430,386 $2,125,191 $ 755,837 $1,858,654 $17,170,068 =========== ========== ========== ========= =========== FOR THE YEAR ENDED DECEMBER 31, 1994 Operating Revenues...................... $ 3,739,713 $1,778,528 $ 229,880 $ 187,067 $ 5,935,188 Eliminations (Intersegment Revenues).... -- -- (11,179) (1,566) (12,745) ----------- ---------- ---------- --------- ----------- Total Operating Revenues................ 3,739,713 1,778,528 218,701 185,501 5,922,443 ----------- ---------- ---------- --------- ----------- Depreciation and Amortization........... 471,910 79,462 78,567 4,089 634,028 Operating Income Before Income Taxes.... 1,083,155 226,196 39,210 133,590 1,482,151 Capital Expenditures.................... 734,100 153,183 160,296 8,445 1,056,024 December 31, 1994 - ----------------- Net Utility Plant....................... 9,642,177 1,456,068 -- -- 11,098,245 Oil and Gas Property, Plant & Equipment............................. -- -- 577,913 -- 577,913 Other Corporate Assets.................. 2,589,348 576,806 150,973 1,724,155 5,041,282 ----------- ---------- ---------- --------- ----------- Total Assets............................ $12,231,525 $2,032,874 $ 728,886 $1,724,155 $16,717,440 =========== ========== ========== ========= =========== FOR THE YEAR ENDED DECEMBER 31, 1993 Operating Revenues...................... $ 3,696,114 $1,594,341 $ 278,470 $ 161,650 $ 5,730,575 Eliminations (Intersegment Revenues).... -- -- (20,158) (1,827) (21,985) ----------- ---------- ---------- --------- ----------- Total Operating Revenues................ 3,696,114 1,594,341 258,312 159,823 5,708,590 ----------- ---------- ---------- --------- ----------- Depreciation and Amortization........... 441,164 69,375 86,136 4,922 601,597 Operating Income Before Income Taxes.... 1,117,739 173,916 92,162 43,310 1,427,127 Capital Expenditures.................... 738,362 152,012 91,988 2,026 984,388 December 31, 1993 - ----------------- Net Utility Plant....................... 9,451,581 1,352,799 -- -- 10,804,380 Oil and Gas Property, Plant & Equipment............................. -- -- 506,047 -- 506,047 Other Corporate Assets.................. 2,313,394 866,524 173,390 1,665,921 5,019,229 ----------- ---------- ---------- --------- ----------- Total Assets............................ $11,764,975 $2,219,323 $ 679,437 $1,665,921 $16,329,656 =========== ========== ========== ========= =========== (A) The Nonutility Activities include amounts applicable to Enterprise, the parent corporation.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Information related to Property, Plant and Equipment of PSE&G is detailed below:
DECEMBER 31, --------------------------------------- 1995 1994 1993 ----------- ----------- ----------- (Thousands of Dollars) Utility Plant - Original Cost Electric Plant in Service Steam Production....................... $ 1,791,010 $ 1,810,674 $ 1,763,253 Nuclear Production..................... 5,992,341 5,931,049 5,873,274 Transmission........................... 1,127,031 1,078,928 1,034,150 Distribution........................... 3,044,830 2,877,862 2,724,202 Other.................................. 1,139,891 647,406 526,015 ----------- ----------- ------------ Total Electric Plant in Service.... 13,095,103 12,345,919 11,920,894 ----------- ----------- ----------- Gas Plant in Service Transmission........................... 65,109 62,213 63,395 Distribution........................... 2,250,705 2,131,816 1,993,044 Other.................................. 126,758 124,204 121,402 ----------- ----------- ----------- Total Gas Plant in Service......... 2,442,572 2,318,233 2,177,841 ----------- ----------- ----------- Common Plant in Service Capital Leases......................... 58,610 58,610 56,812 General................................ 458,494 486,521 463,473 ----------- ----------- ----------- Total Common Plant in Service...... 517,104 545,131 520,285 ----------- ----------- ----------- TOTAL......................... $16,054,779 $15,209,283 $14,619,020 =========== =========== ===========
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONCLUDED) NOTE 16. PROPERTY IMPAIRMENT OF ENTERPRISE GROUP DEVELOPMENT CORPORATION As a result of a management review of each property's current value and the potential for increasing such value through operating and other improvements, EGDC recorded an impairment in 1993 related to certain of its properties, including properties upon which EDHI's management revised its intent from a long-term investment strategy to a hold for sale status, reflecting such properties on its books at their net realizable value. This impairment reduced the estimated value of EGDC's properties by $77.6 million and 1993 net income by $50.5 million, after tax, or 21 cents per share of Enterprise Common Stock. NOTE 17. JOINTLY OWNED FACILITIES -- UTILITY PLANT PSE&G has ownership interests in and is responsible for providing its share of the necessary financing for the following jointly owned facilities. All amounts reflect the share of PSE&G's jointly owned projects and the corresponding direct expenses are included in Consolidated Statements of Income as operating expenses. (See Note 1 -- Organization and Summary of Significant Accounting Policies.)
OWNERSHIP PLANT IN ACCUMULATED PLANT UNDER PLANT -- DECEMBER 31, 1995 INTEREST SERVICE DEPRECIATION CONSTRUCTION - ------------------------------------------------ --------- --------- ------------ ------------ (THOUSANDS OF DOLLARS) Coal Generating Conemaugh..................................... 22.50% $ 198,724 $ 38,339 $ 2,401 Keystone...................................... 22.84 119,690 32,800 1,629 Nuclear Generating Peach Bottom.................................. 42.49 755,504 312,856 21,139 Salem......................................... 42.59 1,055,114 396,795 57,041 Hope Creek.................................... 95.00 4,122,715 1,063,403 13,592 Nuclear Support Facilities.................... Various 179,065 33,754 2,990 Pumped Storage Generating Yards Creek................................... 50.00 27,246 9,293 2,350 Transmission Facilities......................... Various 121,100 36,266 89 Merrill Creek Reservoir......................... 13.91 37,231 12,111 -- Linden Gas Plant................................ 90.00 15,855 19,388 --
NOTE 18. SELECTED QUARTERLY DATA (UNAUDITED) The information shown below, in the opinion of Enterprise, includes all adjustments, consisting only of normal recurring accruals, necessary to a fair presentation of such amounts. Due to the seasonal nature of the utility business, quarterly amounts vary significantly during the year.
CALENDAR MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, QUARTER ---------------------- --------------------- ---------------------- ---------------------- ENDED 1995 1994 1995 1994 1995 1994 1995 1994 - -------------------------- ---------- ---------- ---------- ---------- ---------- ----------- ---------- ---------- (THOUSANDS WHERE APPLICABLE) Operating Revenues........ $1,676,269 $1,795,457 $1,328,784 $1,279,588 $1,492,130 $1,376,199 $1,666,970 $1,471,199 Operating Income.......... $ 334,336 $ 348,948 $ 233,239 $ 252,725 $ 311,528 $ 311,920 $ 278,607 $ 250,500 Net Income................ $ 212,592 $ 230,127 $ 110,667 $ 129,885 $ 186,782 $ 187,178 $ 152,282 $ 131,843 Earnings Per Share of Common Stock............ $ 0.87 $ 0.94 $ 0.45 $ 0.53 $ 0.76 $ 0.76 $ .62 $ 0.54 Average Shares of Common Stock Outstanding....... 244,698 243,777 244,698 244,698 244,698 244,698 244,698 244,698
PUBLIC SERVICE ELECTRIC AND GAS COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS PSE&G Except as modified below, the Notes to Consolidated Financial Statements of Enterprise are incorporated herein by reference insofar as they relate to PSE&G and its subsidiaries: Note 1. - Organization and Summary of Significant Accounting Policies Note 2. - Rate Matters Note 3. - PSE&G Nuclear Decommissioning and Amortization of Nuclear Fuel Note 4.- Schedule of Consolidated Capital Stock and Other Securities Note 5. - Deferred Items Note 6. - Schedule of Consolidated Debt Note 7. - Long-Term Investments Note 8. - Financial Instruments and Risk Management Note 11.- Leasing Activities -- As Lessee Note 12.- Commitments and Contingent Liabilities Note 13.- Postretirement Benefits Other Than Pensions Note 14.- Pension Plan Note 15.- Financial Information by Business Segments Note 17.- Jointly Owned Facilities -- Utility Plant NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Consolidation Policy The consolidated financial statements include the accounts of PSE&G and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain reclassifications of prior years' data have been made to conform with the current presentation. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 9. CASH AND CASH EQUIVALENTS The December 31, 1995 and 1994 balances consist primarily of working funds. NOTE 10. FEDERAL INCOME TAXES A reconciliation of reported Net Income with pretax income and of Federal income tax expense with the amount computed by multiplying pretax income by the statutory Federal income tax rate of 35% is as follows:
1995 1994 1993 -------- -------- -------- (THOUSANDS OF DOLLARS) Net Income......................................... $616,964 $659,406 $614,868 -------- -------- -------- Federal income taxes: Operating income: Current provision............................. 275,460 230,709 177,314 Provision for deferred income taxes-net(A).... 65,084 83,028 149,884 Investment tax credits -- net................. (19,111) (19,208) (18,408) -------- -------- -------- Total included in operating income................. 321,433 294,529 308,790 Miscellaneous other income: Current provision................................ (9,897) (8,186) (15,419) Provision for deferred income taxes(A)........... 9,816 10,422 9,815 SFAS 90 deferred income taxes(A)................... 2,161 2,530 2,948 -------- -------- -------- Total Federal income tax provisions........... 323,513 299,295 306,134 -------- -------- -------- Pretax income...................................... $940,477 $958,701 $921,002 ======== ======== ========
Reconciliation between total Federal income tax provisions and tax computed at the statutory tax rate on pretax income:
1995 1994 1993 -------- -------- -------- (THOUSANDS OF DOLLARS) Tax expense at the statutory rate.................. $329,167 $335,546 $322,351 -------- -------- -------- Increase (decrease) attributable to flow-through of certain tax adjustments: Depreciation.................................. 16,257 (4,597) 3,347 Amortization of investment tax credits........ (19,111) (19,208) (18,408) Other......................................... (2,800) (12,446) (1,156) -------- -------- -------- Subtotal...................................... (5,654) (36,251) (16,217) -------- -------- -------- Total Federal income tax provisions........... $323,513 $299,295 $306,134 ======== ======== ======== Effective Federal income tax rate.................. 34.4% 31.2% 33.2% (A) The provision for deferred income taxes represents the tax effects of the following items:
1995 1994 1993 -------- -------- -------- (THOUSANDS OF DOLLARS) Deferred Credits: Additional tax depreciation and amortization......... $111,193 $ 85,335 $ 92,693 Property Abandonments................................ (7,411) (6,606) (6,632) Oil and Gas Property Write-Down...................... (2,451) (2,451) (2,451) Deferred fuel costs-net.............................. (3,601) 39,361 63,330 Other................................................ (20,669) (19,659) 15,707 -------- -------- -------- Total........................................ $ 77,061 $ 95,980 $162,647 ======== ======== ========
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SFAS 109 The following is an analysis of accumulated deferred income taxes:
ACCUMULATED DEFERRED INCOME TAXES 1995 1994 ---------- ---------- (THOUSANDS OF DOLLARS) Assets: Current (net)....................................................... $ 27,571 $ 25,311 Non-Current: Unrecovered Investment Tax Credits............................... 129,713 136,402 Nuclear Decommissioning.......................................... 25,241 25,082 Hope Creek Cost Disallowance..................................... -- 10,127 Construction Period Interest and Taxes........................... 17,199 15,913 Vacation Pay..................................................... 6,681 6,822 Other............................................................ 5,057 6,863 ---------- ---------- Total Non-Current........................................... $ 183,891 $ 201,209 ---------- ---------- Total Assets................................................ $ 211,462 $ 226,520 ========== ========== Liabilities: Non-Current: Plant Related Items.............................................. $2,237,386 $2,157,206 Property Abandonments............................................ 21,469 26,971 Oil and Gas Property Write-Down.................................. 13,061 14,925 Deferred Electric Energy & Gas Costs............................. 56,283 59,884 Unamortized Debt Expense......................................... 36,945 37,599 Taxes Recoverable Through Future Rates (Net)..................... 262,625 270,684 Other............................................................ 91,725 112,479 ---------- ---------- Total Non-Current........................................... $2,719,494 $2,679,748 ---------- ---------- Total Liabilities........................................... $2,719,494 $2,679,748 ========== ========== Summary -- Accumulated Deferred Income Taxes Net Current Assets.................................................. $ 27,571 $ 25,311 Net Deferred Liability.............................................. $2,535,603 $2,478,539 ---------- ---------- Total....................................................... $2,508,032 $2,453,228 ========== ========== The balance of Federal income tax payable by PSE&G to Enterprise was $5.3 million and $15.6 million, as of December 31, 1995 and December 31, 1994, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONCLUDED) NOTE 18. SELECTED QUARTERLY DATA (UNAUDITED) The information shown below, in the opinion of PSE&G, includes all adjustments, consisting only of normal recurring accruals, necessary to a fair presentation of such amounts. Due to the seasonal nature of the utility business, quarterly amounts vary significantly during the year.
CALENDAR MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, QUARTER ---------------------- ---------------------- ---------------------- ---------------------- ENDED 1995 1994 1995 1994 1995 1994 1995 1994 - ---------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- (THOUSANDS OF DOLLARS) Operating Revenues.... $1,579,516 $1,690,999 $1,235,435 $1,182,880 $1,381,004 $1,284,175 $1,511,290 $1,360,187 Operating Income...... $ 298,432 $ 305,013 $ 204,606 $ 218,225 $ 280,525 $ 282,782 $ 211,939 $ 206,650 Net Income............ $ 206,896 $ 221,439 $ 111,300 $ 128,113 $ 184,878 $ 190,378 $ 113,890 $ 119,476 Earnings Available to Public Service Enterprise Group Incorporated........ $ 198,214 $ 211,159 $ 102,620 $ 117,969 $ 176,196 $ 180,234 $ 105,698 $ 109,577
NOTE 19. ACCOUNTS PAYABLE TO ASSOCIATED COMPANIES -- NET The balance at December 31, 1995 and 1994 consisted of the following:
1995 1994 ------- ------- (THOUSANDS OF DOLLARS) Public Service Enterprise Group Incorporated (A).......... $ 9,055 $17,678 Energy Development Corporation............................ (306) (336) Other..................................................... (738) (665) ------- ------- Total.............................................. $ 8,011 $16,677 ======= ======= (A) Principally Federal income taxes related to PSE&G's taxable income.
PART III ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Enterprise and PSE&G, none. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS DIRECTORS OF THE REGISTRANTS Enterprise The information required by Item 10 of Form 10-K with respect to present directors who are nominees for election as directors at Enterprise's Annual Meeting of Stockholders to be held on April 16, 1996, and directors whose terms will continue beyond the meeting, is set forth under the heading "Election of Directors" in Enterprise's definitive Proxy Statement for such Annual Meeting of Stockholders, which definitive Proxy Statement is expected to be filed with the Securities and Exchange Commission on or about March 1, 1996 and which information set forth under said heading is incorporated herein by this reference thereto. PSE&G There is shown as to each present director information as to the period of service as a director of PSE&G, age as of April 16, 1996, present committee memberships, business experience during the last five years and other present directorships. For discussion of certain litigation involving the directors of PSE&G, except Forrest J. Remick, see Part I - Business, Item 3 - Legal Proceedings. LAWRENCE R. CODEY has been a director since 1988. Age 51. Member of Executive Committee. Has been President and Chief Operating Officer of PSE&G since September 1991. Was Senior Vice President - Electric of PSE&G from January 1989 to September 1991. Director of Enterprise. Director of Sealed Air Corporation, The Trust Company of New Jersey, United Water Resources Inc. and Blue Cross & Blue Shield of New Jersey. E. JAMES FERLAND has been a director since 1986. Age 54. Chairman of Executive Committee. Chairman of the Board, President and Chief Executive Officer of Enterprise since July 1986, Chairman of the Board and Chief Executive Officer of PSE&G since September 1991 and Chairman of the Board and Chief Executive Officer of EDHI since June 1989. President of PSE&G from July 1986 to September 1991. Director of Enterprise and of EDHI and its principal subsidiaries. Director of Foster Wheeler Corporation and The Hartford Steam Boiler Inspection and Insurance Company. RAYMOND V. GILMARTIN has been a director since 1993. Age 55. Director of Enterprise. Has been Chairman of the Board, President and Chief Executive Officer of Merck & Co., Inc., Whitehouse Station, New Jersey (discovers, develops, produces and markets human and animal health products) since November 1994. Was President and Chief Executive Officer from June 1994 to November 1994. Was Chairman of the Board, President and Chief Executive Officer of Becton Dickinson and Company from November 1992 to June 1994 and President and Chief Executive Officer from February 1989 to November 1992. Director of Merck & Co., Inc. and Providian Corporation. IRWIN LERNER has been a director since 1993. Age 65. Was previously a director from 1981 to February 1988. Director of Enterprise. Was Chairman, Board of Directors and Executive Committee from January 1993 to September 1993 and President and Chief Executive Officer from 1980 to December 1992 of Hoffmann-La Roche Inc., Nutley, New Jersey (prescription pharmaceuticals, vitamins and fine chemicals, and diagnostic products and services). Director of Humana Inc., Sequana Therapeutics, Inc. and Medarex, Inc. JAMES C. PITNEY has been a director since 1993. Age 69. Was previously a director from 1979 to February 1988. Member of Executive Committee. Director of Enterprise. Has been a partner in the law firm of Pitney, Hardin, Kipp & Szuch, Morristown, New Jersey, since 1958. Director of Tri-Continental Corporation, sixteen funds of the Seligman family of funds and Seligman Quality, Inc. FORREST J. REMICK has been a director since May 1995. Age 65. Director of Enterprise. Has been an engineering consultant since July 1994. Was Commissioner, United States Nuclear Regulatory Commission, from December 1989 to June 1994. Was Associate Vice President - Research and Professor of Nuclear Engineering at Pennsylvania State University, from 1985 to 1989. Executive Officers of the Registrants The following table sets forth certain information concerning the executive officers of Enterprise and PSE&G, respectively.
AGE EFFECTIVE DATE DECEMBER 31, FIRST ELECTED NAME 1995 OFFICE TO PRESENT POSITION - ------------------------------------ ---------------------------------- ------------------------- E. James Ferland........ 53 Chairman of the Board, President July 1986 to present and Chief Executive Officer (Enterprise) Chairman of the Board and Chief July 1986 to present Executive Officer (PSE&G) President (PSE&G) June 1986 to September 1991 Chairman of the Board and Chief June 1989 to present Executive Officer (EDHI) Lawrence R. Codey....... 51 President and Chief Operating September 1991 to present Officer (PSE&G) Senior Vice President - Electric January 1989 to September 1991 (PSE&G) Robert C. Murray........ 50 Vice President and Chief Financial January 1992 to present Officer (Enterprise) Senior Vice President and January 1992 to present Chief Financial Officer (PSE&G) Managing Director of Morgan January 1987 to July 1991 Stanley & Co. Incorporated Patricia A. Rado........ 53 Vice President and Controller April 1993 to present (Enterprise) Vice President and Controller April 1993 to present (PSE&G) Controller of Yankee Energy July 1989 to April 1993 Systems Inc. Paul H. Way............. 58 President, Chief Operating February 1993 to present Officer and Director (EDHI) Senior Vice President (EDHI) June 1992 to February 1993 Senior Vice President - April 1988 to June 1992 Corporate Performance (PSE&G) R. Edwin Selover........ 50 Vice President and General April 1988 to present Counsel (Enterprise) Senior Vice President and General January 1988 to present Counsel (PSE&G) Robert J. Dougherty, Jr. 44 President - Enterprise Ventures and Services Corporation (PSE&G) February 1995 to present Senior Vice President - Electric September 1991 to February 1995 (PSE&G) Senior Vice President - Customer September 1989 to Operations (PSE&G) September 1991 Leon R. Eliason......... 56 Chief Nuclear Officer and October 1994 to present President - Nuclear Business Unit (PSE&G) President, Power Supply Business January 1993 to September 1994 Unit, Northern States Power Vice President, Nuclear Genera- July 1990 to January 1993 tion, Northern States Power Alfred C. Koeppe........ 49 Senior Vice President - External Affairs (PSE&G) October 1995 to present President and Chief Executive Officer of Bell Atlantic - New Jersey February 1993 to October 1995 Vice President - Public Affairs of Bell Atlantic - New Jersey February 1991 to February 1993
ITEM 11. EXECUTIVE COMPENSATION ENTERPRISE The information required by Item 11 of Form 10-K is set forth under the heading "Executive Compensation" in Enterprise's definitive Proxy Statement for the Annual Meeting of Stockholders to be held April 16, 1996, which definitive Proxy Statement is expected to be filed with the Securities and Exchange Commission on or about March 1, 1996 and such information set forth under such heading is incorporated herein by this reference thereto. PSE&G Information regarding the compensation of the Chief Executive Officer and the four most highly compensated executive officers of PSE&G as of December 31, 1995 is set forth below. Amounts shown were paid or awarded for all services rendered to Enterprise and its subsidiaries and affiliates including PSE&G. SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION --------------------- ANNUAL COMPENSATION AWARDS PAYOUTS ----------------------- --------- --------- BONUS/ANNUAL LTIP ALL OTHER SALARY INCENTIVE OPTIONS PAYOUTS COMPENSATION NAME AND PRINCIPAL POSITION YEAR $ AWARD($)(/1/) (#)(/2/) ($)(/3/) ($)(/4/) - --------------------------- ---- ------- ------------ ---------- ------- ------------ E. James Ferland....... Chairman of the Board, 1995 682,377 (/5/) 5,800 246,288 8,681 President and CEO of 1994 652,492 251,383 5,400 127,140 5,628 Enterprise 1993 622,606 265,316 5,800 28,072 7,678 Lawrence R. Codey...... President and Chief 1995 418,392 (5) 2,800 118,746 5,756 Operating Officer of 1994 398,468 129,276 2,500 48,900 5,351 PSE&G 1993 378,545 109,585 2,800 9,570 6,981 Leon R. Eliason........ President - Nuclear 1995 323,755 165,000(/5/)(/6/) 5,500 26,388 3,242 Business Unit of 1994 74,713 0 600 0 0 PSE&G and 1993 0 0 0 0 0 Chief Nuclear Officer (/7/) Robert J. Dougherty, Jr. .. 1995 322,759 (/5/) 2,500 70,368 4,269 Vice President of 1994 273,946 72,027 1,800 26,895 4,227 Enterprise and President of Enterprise Ventures and Services Corporation 1993 259,004 65,703 2,000 5,104 6,341 Robert C. Murray....... Vice President and 1995 318,775 25,000(/5/)(/8/) 2,000 70,368 5,169 Chief Financial 1994 303,832 152,621(/8/) 1,800 26,895 4,944 Officer of Enterprise 1993 288,889 154,032(/8/) 2,000 3,190 7,264 (1) Amount awarded in given year was earned under Management Incentive Compensation Plan (MICP) and determined in following year with respect to the given year based on individual performance and financial and operating performance of Enterprise and PSE&G, including comparison to other companies. Award is accounted for as market-priced phantom stock with dividend reinvestment at 95% of market price, with payment made over three years beginning in second year following grant. (2) Granted under Long-Term Incentive Plan (LTIP) in tandem with equal number of performance units and dividend equivalents which may provide cash payments, dependent upon future financial performance of Enterprise in comparison to other companies and dividend payments by Enterprise, to assist officers in exercising options granted. The grant is made at the beginning of a three-year performance period and cash payment of the value of such performance units and dividend equivalents is made following such period in proportion to the options, if any, exercised at such time. (3) Amount paid in proportion to options exercised, if any, based on value of previously granted performance units and dividend equivalents, each as measured during three-year period ending the year prior to the year in which payment is made. (4) Includes employer contribution to Thrift and Tax-Deferred Savings Plan and value of 5% discount on phantom stock dividend reinvestment under MICP:
FERLAND CODEY ELIASON DOUGHERTY MURRAY ------------- ---------- ----------- --------- ----------- THRIFT MICP THRIFT MICP THRIFT MICP THRIFT MICP THRIFT MICP ------ ----- ------ ------ ------ ------ ------ ----- ------ ------ ($) ($) ($) ($) ($) ($) ($) ($) ($) 1995.......... 3,752 2,383 4,502 1,254 1,795 0 3,754 515 4,502 667 1994.......... 3,751 1,877 4,197 1,154 0 0 3,752 475 4,504 440 1993.......... 5,900 1,778 5,896 1,085 0 0 5,907 434 7,078 186 In addition, for Mr. Ferland and Mr. Eliason, 1995 amounts include $2,546 and $1,447, respectively, representing interest on compensation deferred under PSE&G's Deferred Compensation Plan in excess of 120% of the applicable federal long-term rate as prescribed under Section 1274(d) of the Internal Revenue Code. Under PSE&G's Deferred Compensation Plan, interest is paid at prime rate plus 1/2%, adjusted quarterly. (5) The 1995 MICP award amount has not yet been determined. The target award is 40% of salary for Mr. Ferland, 30% for Messrs. Codey, Eliason and Dougherty and 25% for Mr. Murray. The target award is adjusted to reflect Enterprise's return on capital, PSE&G's comparative electric and gas costs and individual performance. (6) Amount paid pursuant to Mr. Eliason's employment agreement. (7) Mr. Eliason commenced employment September 26, 1994. (8) 1995 amount paid pursuant to Mr. Murray's employment agreement. 1994 and 1993 amounts include $50,000 and $75,000, respectively, paid pursuant to Mr. Murray's employment agreement.
OPTION GRANTS IN LAST FISCAL YEAR (1995)
INDIVIDUAL GRANTS ---------------------------------------------- POTENTIAL REALIZABLE NUMBER VALUE AT ASSUMED ANNUAL OF % OF TOTAL RATES OF STOCK PRICE SECURITIES OPTIONS APPRECIATION FOR OPTION UNDERLYING GRANTED TO EXERCISE OR TERM(2) OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION NAME GRANTED(1) FISCAL YEAR ($/SH) DATE 0% ($) 5% ($) 10%($) - ---------------------- --------------- ------------- -------------- ---------- --------- ------- -------- E. James Ferland.......... 5,800 16.6 26.625 1/04/05 0 97,117 246,114 Lawrence R. Codey......... 2,800 8.0 26.625 1/04/05 0 46,884 118,874 Leon R. Eliason........... 2,500 26.625 1/04/05 0 41,861 106,083 1,800 { 15.7 } 31.375 1/04/05 0 35,517 90,007 1,200 30.500 1/04/05 0 23,018 58,331 Robert J. Dougherty, Jr... 2,000 { 7.1 } 26.625 1/04/05 0 33,489 84,867 500 28.125 3/02/05 0 8,844 22,412 Robert C. Murray.......... 2,000 5.7 26.625 1/04/05 0 33,489 84,867 (1) Granted under LTIP in tandem with equal number of performance units and dividend equivalents which may provide cash payments, dependent on future financial performance of Enterprise in comparison to other companies and dividend payments by Enterprise, to assist individuals in exercising options, with exercisability commencing January 1, 1998, except with respect to Mr. Eliason, for whom exercisabilty commences January 1, 1996, 1997 and 1998, respectively, for each of his three grants. Cash payment is made, based on the value, if any, of performance units awarded and dividend equivalents accrued, if any, as measured during the three-year period ending the year prior to the year in which payment, if any, is made, only if the specified performance level is achieved, dividend equivalents have accrued and options are exercised. (2) All options reported have a ten-year term, as noted. Amounts shown represent hypothetical future values at such term based upon hypothetical price appreciation of Enterprise Common Stock and may not necessarily be realized. Actual values which may be realized, if any, upon any exercise of such options, will be based on the market price of Enterprise Common Stock at the time of any such exercise and thus are dependent upon future performance of Enterprise Common Stock.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR (1995) AND FISCAL YEAR-END OPTION VALUES (12/31/95)
VALUE OF UNEXERCISED NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS SHARES OPTIONS AT FY-END (#)(1) AT FY-END($)(3) ACQUIRED VALUE ----------- -------------- ------------ --------------- ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE NAME (#)(1) ($)(2) (#) (#) ($) ($) - ------------ ------------- --------- ------------- --------------- ------------ --------------- E. James Ferland....... 5,600 0 0 17,000 0 23,925 Lawrence R. Codey......... 2,700 0 700 8,100 4,463 11,550 Leon R. Eliason....... 600 72 0 5,500 0 10,150 Robert J Dougherty..... 1,600 0 0 6,300 0 9,500 Robert C. Murray........ 1,600 192 0 5,800 0 8,250 (1) Does not reflect any options granted and/or exercised after year-end (12/31/95). The net effect of any such grants and exercises is reflected in the table appearing under Security Ownership of Directors and Management. (2) Represents difference between exercise price and market price of Enterprise Common Stock on date of exercise. (3) Represents difference between market price of Enterprise Common Stock and the respective exercise prices of the options at fiscal year-end (12/31/95). Such amounts may not necessarily be realized. Actual values which may be realized, if any, upon any exercise of such options will be based on the market price of Enterprise Common Stock at the time of any such exercise and thus are dependent upon future performance of Enterprise Common Stock. EMPLOYMENT CONTRACTS AND ARRANGEMENTS Employment agreements were entered into with Messrs. Ferland, Eliason and Murray at the time of their employment. For Mr. Ferland, the remaining applicable provisions of the agreement provide for additional credited service for pension purposes in the amount of 22 years. . The principal remaining applicable terms of the agreement with Mr. Eliason provide for payment of severance in the amount of one year's salary, if discharged without cause during his first five years of employment which begin in September 1994, for lump sum cash payments of $100,000 in 1996, $65,000 in 1997 and $35,000 in 1998 to align Mr. Eliason with MICP payments for other executive officers, and additional years of credited service for pension purposes for allied work experience of 19 years after completion of three years of service, and up to 29 years after completion of ten years of service. The principal remaining applicable terms of the agreement with Mr. Murray provide for payment of severance in the amount of one year's salary, if discharged without cause during his first five years of employment, which began in January 1992, and additional years of credited service for pension purposes for allied work experience of five years after completion of five years of service, and up to fifteen years after completion of ten years of service Compensation Committee Interlocks and Insider Participation PSE&G does not have a compensation committee. Decisions regarding compensation of PSE&G's executive officers are made by the Organization and Compensation Committee of Enterprise. Hence, during 1995 the PSE&G Board of Directors did not have, and no officer, employee or former officer of PSE&G participated in any deliberations of such Board, concerning executive officer compensation. Compensation of Directors and Certain Business Relationships A director who is not an officer of Enterprise or its subsidiaries and affiliates, including PSE&G, is paid an annual retainer of $22,000 and a fee of $1,200 for attendance at any Board or committee meeting, inspection trip, conference or other similar activity relating to Enterprise, PSE&G or EDHI. Each of the directors of PSE&G is also a director of Enterprise. No additional retainer is paid for service as a director of PSE&G. Fifty percent of the annual retainer is paid in Enterprise Common Stock. Enterprise also maintains a Stock Plan for Outside Directors pursuant to which directors who are not employees of Enterprise or its subsidIaries receive 300 shares Of restri#ted stock for each material effect on its financial position, results of operations or net cash flows. PSE&G Manufactured Gas Plant Remediation Program In 1988, NJDEP notified PSE&G that it had identified the need for PSE&G, pursuant to a formal arrangement, to systematically investigate and, if necessary, resolve environmental concerns extant at PSE&G's former manufactured gas plant sites. To date, NJDEP and PSE&G have identified 38 former gas plant sites. PSE&G is currently working with NJDEP under a program to assess, investigate and, if necessary, remediate environmental concerns at these sites (Remediation Program). The Remediation Program is periodically reviewed and revised by PSE&G based on regulatory requirements, experience with the Remediation Program and available technologies. The cost of the Remediation Program cannot be reasonably estimated, but experience to date indicates that costs of at least $20 million per year could be incurred over a period of more than 30 years and that the overall cost could be material to PSE&G's financial position, results of operations or net cash flows. Costs incurred through December 31, 1995 for the Remediation Program amounted to $64.6 million, net of certain insurance proceeds. In addition, at December 31, 1995, PSE&G's estimated liability for remediation costs through 1998 aggregated $96.3 million. In accordance with a Stipulation approved by the BPU in 1992, PSE&G is recovering through its LEAC over a six-year period $32 million of its actual remediation costs to reflect costs incurred through September 30, 1992. As of December 31, 1995, PSE&G has recovered $27.8 million of the $32 million of such costs. PSE&G is expected to recover the balance of $4.2 million in its currently filed LGAC period ending in 1996. NOTE 13. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS On January 1, 1993, Enterprise and PSE&G adopted SFAS 106 which requires that the expected cost of employees' postretirement health care and insurance benefits be charged to expense during the years in which employees render service. PSE&G elected to amortize, over 20 years, its unfunded obligation of $609.3 million at January 1, 1993. The following table discloses the significant components of the net periodic postretirement benefit obligation:
DECEMBER 31, --------------------------- NET PERIODIC POSTRETIREMENT BENEFIT OBLIGATION 1995 1994 1993 - ---------------------------------------------- ------- ------- ------- (MILLIONS) Service cost................................. $ 8.5 $ 11.1 $ 11.7 Interest on accumulated postretirement obligation................................. 48.2 45.4 44.4 Amortization of transition obligation........ 30.5 30.5 30.5 Amortization of Net (Gain)/Loss (a).......... (3.8) -- -- Deferral of current expense.................. (50.7) (57.8) (58.6) ------ ------ ------- Annual net expense...................... $ 32.7 $ 29.2 $ 28.0 ====== ====== =======
(a) Reflects change in Plan Assumptions. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The discount rate used in determining the PSE&G net periodic postretirement benefit cost was 8.50% and 7.25% for 1995 and 1994, respectively. A one-percentage-point increase in the assumed health care cost trend rate for each year would increase the aggregate of the service and interest cost components of net periodic postretirement health care cost by approximately $2.6 million, or 5.6%, and increase the accumulated postretirement benefit obligation as of December 31, 1995 by $34.8 million, or 5.9%. The assumed health care cost trend rates used in measuring the accumulated postretirement benefit obligation in 1995 were: medical costs for pre-age sixty-five retirees -- 13.0%, medical costs for post-age sixty-five retirees -- 9.0% and dental costs -- 7.0%; such rates are assumed to gradually decline to 5.0%, 5.0% and 5.0%, respectively, in 2011. The medical costs above include a provision for prescription drugs. In its 1992 base rate case, PSE&G requested full recovery of the costs associated with postretirement benefits other than pensions (OPEB) on an accrual basis, in accordance with SFAS 106. The BPU's December 31, 1992 base rate order provided that (1) PSE&G's pay-as-you-go basis OPEB costs will continue to be included in cost of service and will be recoverable in base rates on a pay-as-you-go basis; (2) prudently incurred OPEB costs, that are accounted for on an accrual basis in accordance with SFAS 106, will be recoverable in future rates; (3) PSE&G should account for the differences between its OPEB costs on an accrual basis and the pay-as-you-go basis being recovered in rates as a regulatory asset; and (4) the issue of cash versus accrual accounting will be revisited and in the event that FASB or the SEC requires the use of accrual accounting for OPEB costs for rate-making purposes, the regulatory asset will be recoverable, through rates, over an appropriate amortization period. Accordingly, PSE&G is accounting for the differences between its SFAS 106 accrual cost and the cash cost currently recovered through rates as a regulatory asset. OPEB costs charged to expenses during 1995 were $32.6 million and accrued OPEB costs deferred were $50.7 million. The amount of the unfunded liability, at December 31, 1995, as shown below, is $717.9 million and funding options are currently being explored. The primary effect of adopting SFAS 106 on Enterprise's and PSE&G's financial reporting is on the presentation of their financial positions with minimal effect on their results of operations. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) During January 1993 and subsequent to the receipt of the Order, the FASB's Emerging Issues Task Force (EITF) concluded that deferral of such costs is acceptable, provided regulators allow SFAS 106 costs in rates within approximately five years of the adoption of SFAS 106 for financial reporting purposes, with any cost deferrals recovered in approximately twenty years. In accordance with the Alternative Rate Plan filed, PSE&G expects full SFAS 106 recovery in accordance with the EITF's view of such standard and believes that it is probable that any deferred costs will be recovered from utility customers within such twenty-year time period. As of December 31, 1995, PSE&G has deferred $167.2 million of such costs. However, if recovery of SFAS 106 costs is not approved by the BPU , the impact on the financial position and results of operations would be material. In accordance with SFAS 106 disclosure requirements, a reconciliation of the funded status of the plan is as follows:
DECEMBER 31, ---------------------- 1995 1994 -------- -------- (MILLIONS) Accumulated postretirement benefit obligation: Retirees................................. $(444.6) $(379.2) Fully eligible active plan participants.. (52.9) (45.7) Other active plan participants........... (220.4) (161.0) ------- ------- Total................................ (717.9) (585.9) Plan assets at fair value................ -- -- ------- ------- Accumulated postretirement benefit obligation in excess of plan assets..... (717.9) (585.9) Unrecognized net (gain)/loss from past experience different from that assumed And from changes in assumptions......... 32.8 (78.8) Unrecognized prior service cost.......... -- -- Unrecognized transition obligation....... 517.9 548.3 ------- ------- Accrued postretirement obligation........ $(167.2) $(116.4) ======= ======= The discount rate used in determining the accumulated postretirement benefit obligation as of December 31, 1995 was 7.25% and 8.50% for 1995 and 1994, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 14. PENSION PLAN The discount rates, expected long-term rates of return on assets and average compensation growth rates used in determining the Pension Plan's funded status and net pension cost as of December 31, 1995 and 1994 were as follows:
1995 1994 ------ ------ Funded Status: - ------------- Discount Rate used to Determine Benefit Obligations................................. 7 1/4% 8-1/2% Average Compensation Growth to Determine Benefit Obligations...................... 4.5% 4.5% Net Pension Cost: - ---------------- Discount Rate............................... 8.5% 7-1/4% Expected Long-Term Return on Assets......... 8.5% 8% Average Compensation Growth................. 4.5% 5.5%
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table shows the Pension Plan's funded status:
DECEMBER 31, ------------------------- 1995 1994 ----------- ----------- (THOUSANDS OF DOLLARS) Actuarial present value of benefit obligations: Accumulated benefit obligations, including vested benefits of $1,403,313 in 1995 and $1,151,677 in 1994........... $(1,509,841) $(1,235,930) Effect of projected future compensation................... (321,545) (261,846) ----------- ----------- Projected benefit obligations............................... (1,831,386) (1,497,776) Plan assets at fair value, primarily listed equity and debt securities................................................ 1,533,446 1,270,116 ----------- ----------- Projected benefit obligations in excess of plan assets...... (297,940) (227,660) Unrecognized net gain (loss) from past experience and effects of changes in assumptions......................... 120,859 32,815 Prior service cost not yet recognized in net pension cost... 110,213 119,783 Unrecognized net obligations being recognized over 16.7 years................................................ 61,287 69,387 ----------- ----------- Accrued pension expense..................................... $ (5,581) $ (5,675) =========== ===========
The net pension cost for the years ending December 31, 1995, 1994 and 1993, include the following components:
1995 1994 1993 -------- -------- -------- (THOUSANDS OF DOLLARS) Service cost - benefits earned during year......... $ 37,033 $ 42,904 $ 42,948 Interest cost on projected benefit obligations..... 124,147 108,394 103,118 Return on assets................................... (312,190) 5,022 (166,916) Net amortization and deferral...................... 222,916 (90,752) 90,958 -------- -------- -------- Total......................................... $ 71,906 $ 65,568 $ 70,108 ======== ======== ======== See Note 1 -- Organization and Summary of Significant Accounting Policies.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 15. FINANCIAL INFORMATION BY BUSINESS SEGMENTS Information related to the segments of Enterprise's business is detailed below:
NONUTILITY ELECTRIC GAS EDC ACTIVITIES(A) TOTAL ----------- ---------- -------- -------------- -------- (THOUSANDS OF DOLLARS) FOR THE YEAR ENDED DECEMBER 31, 1995 Operating Revenues...................... $ 4,020,842 $1,686,403 $ 248,002 $ 208,906 $ 6,164,153 Eliminations (Intersegment Revenues).... -- -- -- -- -- ----------- ---------- ---------- --------- ----------- Total Operating Revenues................ 4,020,842 1,686,403 248,002 208,906 6,164,153 ----------- ---------- ---------- --------- ----------- Depreciation and Amortization........... 503,022 88,092 77,265 5,852 674,231 Operating Income Before Income Taxes.... 1,140,279 178,718 58,654 142,172 1,519,823 Capital Expenditures.................... 545,997 140,153 132,098 8,364 826,612 December 31, 1995 - ----------------- Net Utility Plant....................... 9,651,695 1,535,736 -- -- 11,187,431 Oil and Gas Property, Plant & Equipment............................. -- -- 608,015 -- 608,015 Other Corporate Assets.................. 2,778,691 589,455 147,822 1,858,654 5,374,622 ----------- ---------- ---------- --------- ----------- Total Assets............................ $12,430,386 $2,125,191 $ 755,837 $1,858,654 $17,170,068 =========== ========== ========== ========= =========== FOR THE YEAR ENDED DECEMBER 31, 1994 Operating Revenues...................... $ 3,739,713 $1,778,528 $ 229,880 $ 187,067 $ 5,935,188 Eliminations (Intersegment Revenues).... -- -- (11,179) (1,566) (12,745) ----------- ---------- ---------- --------- ----------- Total Operating Revenues................ 3,739,713 1,778,528 218,701 185,501 5,922,443 ----------- ---------- ---------- --------- ----------- Depreciation and Amortization........... 471,910 79,462 78,567 4,089 634,028 Operating Income Before Income Taxes.... 1,083,155 226,196 39,210 133,590 1,482,151 Capital Expenditures.................... 734,100 153,183 160,296 8,445 1,056,024 December 31, 1994 - ----------------- Net Utility Plant....................... 9,642,177 1,456,068 -- -- 11,098,245 Oil and Gas Property, Plant & Equipment............................. -- -- 577,913 -- 577,913 Other Corporate Assets.................. 2,589,348 576,806 150,973 1,724,155 5,041,282 ----------- ---------- ---------- --------- ----------- Total Assets............................ $12,231,525 $2,032,874 $ 728,886 $1,724,155 $16,717,440 =========== ========== ========== ========= =========== FOR THE YEAR ENDED DECEMBER 31, 1993 Operating Revenues...................... $ 3,696,114 $1,594,341 $ 278,470 $ 161,650 $ 5,730,575 Eliminations (Intersegment Revenues).... -- -- (20,158) (1,827) (21,985) ----------- ---------- ---------- --------- ----------- Total Operating Revenues................ 3,696,114 1,594,341 258,312 159,823 5,708,590 ----------- ---------- ---------- --------- ----------- Depreciation and Amortization........... 441,164 69,375 86,136 4,922 601,597 Operating Income Before Income Taxes.... 1,117,739 173,916 92,162 43,310 1,427,127 Capital Expenditures.................... 738,362 152,012 91,988 2,026 984,388 December 31, 1993 - ----------------- Net Utility Plant....................... 9,451,581 1,352,799 -- -- 10,804,380 Oil and Gas Property, Plant & Equipment............................. -- -- 506,047 -- 506,047 Other Corporate Assets.................. 2,313,394 866,524 173,390 1,665,921 5,019,229 ----------- ---------- ---------- --------- ----------- Total Assets............................ $11,764,975 $2,219,323 $ 679,437 $1,665,921 $16,329,656 =========== ========== ========== ========= =========== (A) The Nonutility Activities include amounts applicable to Enterprise, the parent corporation.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Information related to Property, Plant and Equipment of PSE&G is detailed below:
DECEMBER 31, --------------------------------------- 1995 1994 1993 ----------- ----------- ----------- (Thousands of Dollars) Utility Plant - Original Cost Electric Plant in Service Steam Production....................... $ 1,791,010 $ 1,810,674 $ 1,763,253 Nuclear Production..................... 5,992,341 5,931,049 5,873,274 Transmission........................... 1,127,031 1,078,928 1,034,150 Distribution........................... 3,044,830 2,877,862 2,724,202 Other.................................. 1,139,891 647,406 526,015 ----------- ----------- ------------ Total Electric Plant in Service.... 13,095,103 12,345,919 11,920,894 ----------- ----------- ----------- Gas Plant in Service Transmission........................... 65,109 62,213 63,395 Distribution........................... 2,250,705 2,131,816 1,993,044 Other.................................. 126,758 124,204 121,402 ----------- ----------- ----------- Total Gas Plant in Service......... 2,442,572 2,318,233 2,177,841 ----------- ----------- ----------- Common Plant in Service Capital Leases......................... 58,610 58,610 56,812 General................................ 458,494 486,521 463,473 ----------- ----------- ----------- Total Common Plant in Service...... 517,104 545,131 520,285 ----------- ----------- ----------- TOTAL......................... $16,054,779 $15,209,283 $14,619,020 =========== =========== ===========
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONCLUDED) NOTE 16. PROPERTY IMPAIRMENT OF ENTERPRISE GROUP DEVELOPMENT CORPORATION As a result of a management review of each property's current value and the potential for increasing such value through operating and other improvements, EGDC recorded an impairment in 1993 related to certain of its properties, including properties upon which EDHI's management revised its intent from a long-term investment strategy to a hold for sale status, reflecting such properties on its books at their net realizable value. This impairment reduced the estimated value of EGDC's properties by $77.6 million and 1993 net income by $50.5 million, after tax, or 21 cents per share of Enterprise Common Stock. NOTE 17. JOINTLY OWNED FACILITIES -- UTILITY PLANT PSE&G has IRWIN LERNER - -------------------------------- Director February 22, 1996 Irwin Lerner MARILYN M. PFALTZ - -------------------------------- Director February 22, 1996 Marilyn M. Pfaltz JAMES C. PITNEY - -------------------------------- Director February 22, 1996 James C. Pitney FORREST J. REMICK - -------------------------------- Director February 22, 1996 Forrest J. Remick RICHARD J. SWIFT - -------------------------------- Director February 22, 1996 Richard J. Swift JOSH S. WESTON - -------------------------------- Director February 22, 1996 Josh S. Weston
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 By E. JAMES FERLAND ------------------------------- E. James Ferland Chairman of the Board and Chief Executive Officer Date: February 22, 1996 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- E. JAMES FERLAND - -------------------------------- Chairman of the Board and February 22, 1996 E. James Ferland Chief Executive Officer and Director (Principal Executive Officer) ROBERT C. MURRAY - -------------------------------- Senior Vice President and February 22, 1996 Robert C. Murray Chief Financial Officer (Principal Financial Officer) PATRICIA A. RADO - -------------------------------- Vice President and February 22, 1996 Patricia A. Rado Controller (Principal Accounting Officer) LAWRENCE R. CODEY - -------------------------------- Director February 22, 1996 Lawrence R. Codey RAYMOND V. GILMARTIN - -------------------------------- Director February 22, 1996 Raymond V. Gilmartin IRWIN LERNER - -------------------------------- Director February 22, 1996 Irwin Lerner JAMES C. PITNEY - -------------------------------- Director February 22, 1996 James C. Pitney FORREST J. REMICK - -------------------------------- Director February 22, 1996 Forrest J. Remick
EXHIBIT INDEX Certain Exhibits previously filed with the Commission and the appropriate securities exchanges are indicated as set forth below. Such Exhibits are not being refiled, but are included because inclusion is desirable for convenient reference. (a) Filed by PSE&G with Form 8-A under the Securities Exchange Act of 1934, on the respective dates indicated, File No. 1-973. (b) Filed by PSE&G with Form 8-K under the Securities Exchange Act of 1934, on the respective dates indicated, File No. 1-973. (c) Filed by PSE&G with Form 10-K under the Securities Exchange Act of 1934, on the respective dates indicated, File No. 1-973. (d) Filed by PSE&G with Form 10-Q under the Securities Exchange Act of 1934, on the respective dates indicated, File No. 1-973. (e) Filed by Enterprise with Form 10-K under the Securities Exchange Act of 1934, on the respective dates indicated, File No. 1-9120. (f) Filed with registration statement of PSE&G under the Securities Exchange Act of 1934, File No. 1-973, effective July 1, 1935, relating to the registration of various issues of securities. (g) Filed with registration statement of PSE&G under the Securities Act of 1933, No. 2-4995, effective May 20, 1942, relating to the issuance of $15,000,000 First and Refunding Mortgage Bonds, 3% Series due 1972. (h) Filed with registration statement of PSE&G under the Securities Act of 1933, No. 2-7568, effective July 1, 1948, relating to the proposed issuance of 200,000 shares of Cumulative Preferred Stock. (i) Filed with registration statement of PSE&G under the Securities Act of 1933, No. 2-8381, effective April 18, 1950, relating to the issuance of $26,000,000 First and Refunding Mortgage Bonds, 2 3/4% Series due 1980. (j) Filed with registration statement of PSE&G under the Securities Act of 1933, No. 2-12906, effective December 4, 1956, relating to the issuance of 1,000,000 shares of Common Stock. (k) Filed with registration statement of PSE&G under the Securities Act of 1933, No. 2-59675, effective September 1, 1977, relating to the issuance of $60,000,000 First and Refunding Mortgage Bonds, 8 1/8% Series I due 2007. (l) Filed with registration statement of PSE&G under the Securities Act of 1933, No. 2-60925, effective March 30, 1978, relating to the issuance of 750,000 shares of Common Stock through an Employee Stock Purchase Plan. (m) Filed with registration statement of PSE&G under the Securities Act of 1933, No. 2-65521, effective October 10, 1979, relating to the issuance of 3,000,000 shares of Common Stock. (n) Filed with registration statement of PSE&G under the Securities Act of 1933, No. 2-74018, filed on June 16, 1982, relating to the Thrift Plan of PSE&G. (o) Filed with registration statement of Public Service Enterprise Group Incorporated under the Securities Act of 1933, No. 33-2935 filed January 28, 1986, relating to PSE&G's plan to form a holding company as part of a corporate restructuring. (p) Filed with registration statement of PSE&G under the Securities Act of 1933, No. 33-13209 filed April 9, 1987, relating to the registration of $575,000,000 First and Refunding Mortgage Bonds pursuant to Rule 415. ENTERPRISE
EXHIBIT NUMBER - -------------------------------------------- PREVIOUS FILING THIS -------------------------------- FILING COMMISSION EXCHANGES - --------- -------------- -------------- 3a (o) 3a (o) 3a Certificate of Incorporation Public Service Enterprise Group Incorporated 3b (e) 3b (e) 3b Copy of By-Laws of Public Service Enterprise 4/11/88 Group Incorporated, as in effect May 1, 1987 3c (e) 3c (e) 3c Certificate of Amendment of Certificate of 4/11/88 Incorporation of Public Service Enterprise Group Incorporated, effective April 23, 1987 4a(1) (f) B-1 (c) 4b(1) Indenture between PSE&G and Fidelity Union Trust 2/18/81 Company, (now First Fidelity Bank, National Association), as Trustee, dated August 1, 1924, securing First and Refunding Mortgage Bonds Indentures between PSE&G and First Fidelity Bank, National Association, as Trustee, supplemental to Exhibit 4a(1), dated as follows: 4a(2) (i) 7(1a) (c) 4b(2) April 1, 1927 2/18/81 4a(3) (k) 2b(3) (c) 4b(3) June 1, 1937 2/18/81 4a(4) (k) 2b(4) (c) 4b(4) July 1, 1937 2/18/81 4a(5) (k) 2b(5) (c) 4b(5) December 19, 1939 2/18/81 4a(6) (g) B-10 (c) 4b(6) March 1, 1942 2/18/81 4a(7) (k) 2b(7) (c) 4b(7) June 1, 1949 2/18/81 4a(8) (k) 2b(8) (c) 4b(8) May 1, 1950 2/18/81 4a(9) (k) 2b(9) (c) 4b(9) October 1, 1953 2/18/81 4a(10) (k) 2b(10) (c) 4b(10) May 1, 1954 2/18/81 4a(11) (j) 4b(16) (c) 4b(11) November 1, 1956 2/18/81 4a(12) (k) 2b(12) (c) 4b(12) September 1, 1957 2/18/81 4a(13) (k) 2b(13) (c) 4b(13) August 1, 1958 2/18/81 4a(14) (k) 2b(14) (c) 4b(14) June 1, 1959 2/18/81 4a(15) (k) 2b(15) (c) 4b(15) September 1, 1960 2/18/81
EXHIBIT NUMBER - -------------------------------------------- PREVIOUS FILING THIS -------------------------------- FILING COMMISSION EXCHANGES - --------- -------------- -------------- 4a(16) (k) 2b(16) (c) 4b(16) August 1, 1962 2/18/81 4a(17) (k) 2b(17) (c) 4b(17) June 1, 1963 2/18/81 4a(18) (k) 2b(18) (c) 4b(18) September 1, 1964 2/18/81 4a(19) (k) 2b(19) (c) 4b(19) September 1, 1965 2/18/81 4a(20) (k) 2b(20) (c) 4b(20) June 1, 1967 2/18/81 4a(21) (k) 2b(21) (c) 4b(21) June 1, 1968 2/18/81 4a(22) (k) 2b(22) (c) 4b(22) April 1, 1969 2/18/91 4a(23) (k) 2b(23) (c) 4b(23) March 1, 1970 2/18/81 4a(24) (k) 2b(24) (c) 4b(24) May 15, 1971 2/18/81 4a(25) (k) 2b(25) (c) 4b(25) November 15, 1971 2/18/81 4a(26) (k) 2b(26) (c) 4b(26) April 1, 1972 2/18/81 4a(27) (a) 2 (c) 4b(27) March 1, 1974 3/29/74 2/18/81 4a(28) (a) 2 (c) 4b(28) October 1, 1974 10/11/74 2/18/81 4a(29) (a) 2 (c) 4b(29) April 1, 1976 4/6/76 2/18/81 4a(30) (a) 2 (c) 4b(30) September 1, 1976 9/16/76 2/18/81 4a(31) (k) 2b(31) (c) 4b(31) October 1, 1976 2/18/81 4a(32) (a) 2 (c) 4b(32) June 1, 1977 6/29/77 2/18/81 4a(33) (l) 2b(33) (c) 4b(33) September 1, 1977 2/18/81 4a(34) (a) 2 (c) 4b(34) November 1, 1978 11/21/78 2/18/81 4a(35) (a) 2 (c) 4b(35) July 1, 1979 7/25/79 2/18/81 4a(36) (m) 2d(36) (c) 4b(36) September 1, 1979 (No. 1) 2/18/81 4a(37) (m) 2d(37) (c) 4b(37) September 1, 1979 (No. 2) 2/18/81
EXHIBIT NUMBER - -------------------------------------------- PREVIOUS FILING THIS -------------------------------- FILING COMMISSION EXCHANGES - --------- -------------- -------------- 4a(38) (a) 2 (c) 4b(38) November 1, 1979 12/3/79 2/18/81 4a(39) (a) 2 (c) 4b(39) June 1, 1980 6/10/80 2/18/81 4a(40) (a) 2 (a) 2 August 1, 1981 8/19/81 8/19/81 4a(41) (b) 4e (b) 4e April 1, 1982 4/29/82 5/5/82 4a(42) (a) 2 (a) 2 September 1, 1982 9/17/82 9/20/82 4a(43) (a) 2 (a) 2 December 1, 1982 12/21/82 12/21/82 4a(44) (d) 4(ii) (d) 4(ii) June 1, 1983 7/26/83 7/27/83 4a(45) (a) 4 (a) 4 August 1, 1983 8/19/83 8/19/83 4a(46) (d) 4(ii) (d) 4(ii) July 1, 1984 8/14/84 8/17/84 4a(47) (d) 4(ii) (d) 4(ii) September 1, 1984 11/2/84 11/9/84 4a(48) (b) 4(ii) (b) 4(ii) November 1, 1984 (No. 1) 1/4/85 1/9/85 4a(49) (b) 4(ii) (b) 4(ii) November 1, 1984 (No. 2) 1/4/85 1/9/85 4a(50) (a) 2 (a) 2 July 1, 1985 8/2/85 8/2/85 4a(51) (c) 4a(51) (c) 4a(51) January 1, 1986 2/11/86 2/11/86 4a(52) (a) 2 (a) 2 March 1, 1986 3/28/86 3/28/86 4a(53) (a) 2(a) (a) 2(a) April 1, 1986 (No. 1) 5/1/86 5/1/86 4a(54) (a) 2(b) (a) 2(b) April 1, 1986 (No. 2) 5/1/86 5/1/86 4a(55) (p) 4a(55) (p) 4a(55) March 1, 1987 4/9/87 4/9/87 4a(56) (a) 4 (a) 4 July 1, 1987 (No. 1) 8/17/87 8/17/87 4a(57) (d) 4 (d) 4 July 1, 1987 (No. 2) 11/13/87 11/20/87 4a(58) (a) 4 (a) 4 May 1, 1988 5/17/88 5/18/88 4a(59) (a) 4 (a) 4 September 1, 1988 9/27/88 9/28/88
EXHIBIT NUMBER - -------------------------------------------- PREVIOUS FILING THIS -------------------------------- FILING COMMISSION EXCHANGES - --------- -------------- -------------- 4a(60) (a) 4 (a) 4 July 1, 1989 7/25/89 7/26/89 4a(61) (a) 4 (a) 4 July 1, 1990 (No. 1) 7/25/90 7/26/90 4a(62) (a) 4 (a) 4 July 1, 1990 (No. 2) 7/25/90 7/26/90 4a(63) (a) 4 (a) 4 June 1, 1991 (No. 1) 7/1/91 7/2/91 4a(64) (a) 4 (a) 4 June 1, 1991 (No. 2) 7/1/91 7/2/91 4a(65) (a) 4 (a) 4 November 1, 1991 (No. 1) 12/2/91 12/3/91 4a(66) (a) 4 (a) 4 November 1, 1991 (No. 2) 12/2/91 12/3/91 4a(67) (a) 4 (a) 4 November 1, 1991 (No. 3) 12/2/91 12/3/91 4a(68) (a) 4 (a) 4 February 1, 1992 (No. 1) 2/27/92 2/28/92 4a(69) (a) 4 (a) 4 February 1, 1992 (No. 2) 2/27/92 2/28/92 4a(70) (a) 4 (a) 4 June 1, 1992 (No. 1) 6/17/92 6/11/92 4a(71) (a) 4 (a) 4 June 1, 1992 (No. 2) 6/17/92 6/11/92 4a(72) (a) 4 (a) 4 June 1, 1992 (No. 3) 6/17/92 6/11/92 4a(73) (a) 4 (a) 4 January 1, 1993 (No.1) 2/2/93 2/2/93 4a(74) (a) 4 (a) 4 January 1, 1993 (No. 2) 2/2/93 2/2/93 4a(75) (a) 4 (a) 4 March 1, 1993 3/17/93 3/18/93 4a(76) (b) 4 (a) 4 May 1, 1993 5/27/93 5/28/93 4a(77) (a) 4 (a) 4 May 1, 1993 (No. 2) 5/25/93 5/25/93 4a(78) (a) 4 (a) 4 May 1, 1993 (No. 3) 5/25/93 5/25/93 4a(79) (b) 4 (b) 4 July 1, 1993 12/1/93 12/1/93 4a(80) (a) 4 (a) 4 August 1, 1993 8/3/93 8/3/93 4a(81) (b) 4 (b) 4 September 1, 1993 12/1/93 12/1/93
EXHIBIT NUMBER - -------------------------------------------- PREVIOUS FILING THIS -------------------------------- FILING COMMISSION EXCHANGES - --------- -------------- -------------- 4a(82) (b) 4 (b) 4 September 1, 1993 (No. 2) 12/1/93 12/1/93 4a(83) (b) 4 (b) 4 November 1, 1993 12/1/93 12/1/93 4a(84) (a) 4 (a) 4 February 1, 1994 2/3/94 2/14/94 4a(85) (a) 4 (a) 4 March 1, 1994 (No. 1) 3/15/94 3/16/94 4a(86) (a) 4 (a) 4 March 1, 1994 (No. 2) 3/15/94 3/16/94 4a(87) (d) 4 (d) 4 May 1, 1994 11/8/94 12/2/94 4a(88) (d) 4 (d) 4 June 1, 1994 11/8/94 12/2/94 4a(89) (d) 4 (d) 4 August 1, 1994 11/8/94 12/2/94 4a(90) (d) 4 (d) 4 October 1, 1994 (No. 1) 11/8/94 12/2/94 4a(91) (d) 4 (d) 4 October 1, 1994 (No. 2) 11/8/94 12/2/94 4a(92) (a) 4 (a) 4 January 1, 1996 (No.1) 1/26/96 1/26/96 4a(93) (a) 4 (a) 4 January 1, 1996 (No.2) 1/26/96 1/26/96 4b (h) 7(12) (c) 4c(1) Indenture between PSE&G and Federal Trust 2/18/81 Company, as Trustee (Midlantic National Bank, Successor Trustee) dated July 1, 1948, providing for 6% Debenture Bonds due 1998 4c (l) 2c(8) (c) 4c(8) Indenture between PSE&G and The Chase Manhattan 2/18/81 Bank (National Association), as Trustee, dated August 15, 1971, providing for 7 3/4% Debenture Bonds due 1996 4d (b) 4 (b) 4 Indenture of Trust between PSE&G and The Chase 12/1/93 12/1/93 Manhattan Bank (National Association), as Trustee, providing for Secured Medium-Term Notes dated July 1, 1993 4e(1) (c) (c) Indenture between PSE&G and First Fidelity Bank, 2/23/95 2/23/95 National Association, as Trustee, dated November 1, 1994, providing for Deferrable Interest Subordinated Debentures in Series 4e(2) (a) (a) Supplemental Indenture between PSE&G and First 9/11/95 9/11/95 Fidelity Bank, National Association, as Trustee, dated September 11, 1995 providing for Deferrable Interest Subordinated Debentures, Series B 9 Inapplicable 10a(1) (c) 10c(1) (c) 10c(1) Directors' Deferred Compensation Plan 3/17/82 3/19/82 10a(2) (c) 10c(2) (c) 10c(2) Officers' Deferred Compensation Plan 3/17/82 3/19/82 10a(3) (c) 10c(3) (c) 10c(3) Supplemental Death Benefits Plan for officers 3/17/82 3/19/82 10a(4) (c) 10c(4) (c) 10c(4) Description of additional retirement benefits 3/17/82 3/19/82 for certain officers 10a(5)(i) (c) 10b(5) (c) 10b(5) Limited Supplemental Death Benefits and 3/31/83 4/8/83 Retirement Plan 10a(5)(ii) (c) 10a(5)(ii) (c) 10a(5)(ii) Limited Supplemental Benefits Plan for Certain 2/25/94 3/1/94 Employees 10a(6)(i) (c) 10a(6) (c) 10a(6) Description of additional retirement benefits 3/10/87 4/16/87 for certain officers 10a(6)(ii) (c) 10a(6)(1) (c) 10a(6)(1) Description of additional retirement benefits 3/30/90 3/30/90 for certain officers. 10a(6)(iii) (c) 10a(6)(2) (c) 10a(6)(2) Description of additional retirement benefits 3/30/92 4/27/92 for a certain officer.
EXHIBIT NUMBER - -------------------------------------------- PREVIOUS FILING THIS -------------------------------- FILING COMMISSION EXCHANGES - --------- -------------- -------------- 10a(7) (o) 10g (o) 10g Management Incentive Compensation Plan 10a(8) (c) 10a(8) (c) 10a(8) Long-Term Incentive Plan 3/30/89 4/18/89 10a(9) (c) 10a(9) (c) 10a(9) Public Service Enterprise Group Incorporated 3/30/89 4/18/89 Pension Plan for Outside Directors 10a(10) (c) 10a(11) (c) 10a(11) Letter Agreement with E. James Ferland dated 2/10/93 2/11/93 April 16, 1986 10a(11) (c) 10a(12) (c) 10a(12) Letter Agreement with Paul H. Way dated March 2/10/93 2/11/93 28, 1988 10a(12) (c) 10a(13) (c) 10a(13) Letter Agreement with Thomas M. Crimmins, Jr. 2/10/93 2/11/93 dated April 5, 1989 10a(13) (c) 10a(15) (c) 10a(15) Letter Agreement with Robert C. Murray dated 2/10/93 2/11/93 December 17, 1991 10a(14) (c) 10a(14) (c) 10a(14) Letter agreement with Patricia A. Rado dated 2/26/94 3/9/94 March 24, 1993 10a(15) (c) 10a(15) (c) 10a(15) Letter Agreement, as amended, with Leon R. 2/23/95 2/23/95 Eliason dated September 14, 1994 10a(16) (d) 10a(15) (d) 10a(15) Letter Agreement with Louis F. Storz dated 8/14/95 8/14/95 July 7, 1995 10a(17) (d) 10a(16) (d) 10a(16) Letter Agreement with Elbert C. Simpson dated 8/14/95 8/14/95 May 31, 1995 10a(18) (d) 10a(17) (d) 10a(17) Letter Agreement with Alfred C. Koeppe dated 11/14/95 11/14/95 August 23, 1995 10a(19) Director Stock Plan 10a(20) Mid Career Hire Supplemental Retirement Plan 10a(21) Retirement Income Reinstatement Plan 11 Inapplicable 12 Computation of Ratios of Earnings to Fixed Charges 13 Inapplicable 16 Inapplicable 18 Inapplicable 21 Subsidiaries of the Registrant 22 Inapplicable 23 Independent Auditors' Consent 24 Inapplicable 27 Financial Data Schedule 28 Inapplicable 99 Inapplicable
PSE&G
EXHIBIT NUMBER - -------------------------------------------- PREVIOUS FILING THIS -------------------------------- FILING COMMISSION EXCHANGES - --------- -------------- -------------- 3a(1) (b) 3a (b) 3a Restated Certificate of Incorporation of PSE&G, 8/28/86 8/29/86 effective May 1, 1986 3a(2) (c) 3a(2) (c) 3a(2) Certificate of Amendment of Certificate of 4/10/87 Restated Certificate of Incorporation of PSE&G filed February 18, 1987 with the State of New Jersey adopting limitations of liability provisions in accordance with an amendment to New Jersey Business Corporation Act 3a(3) (a) 3(a)3 (a) 3(a)3 Certificate of Amendment of Restated Certificate 2/3/94 2/14/94 of Incorporation of PSE&G filed June 17, 1992 with the State of New Jersey, establishing the 7.44% Cumulative Preferred Stock ($100 Par) as a series of the Preferred Stock 3a(4) (a) 3(a)4 (a) 3(a)4 Certificate of Amendment of Restated Certificate 2/3/94 2/14/94 of Incorporation of PSE&G filed March 11, 1993 with the State of New Jersey, establishing the 5.97% Cumulative Preferred Stock ($100 Par) as a series of Preferred Stock 3a(5) (a) 3(a)5 (a) 3(a)5 Certificate of Amendment of Restated Certificate 2/3/94 2/14/94 of Incorporation of PSE&G filed January 27, 1994 with the State of New Jersey, establishing the 6.92% Cumulative Preferred Stock ($100 Par) and the 6.75% Cumulative Preferred Stock -- $25 Par as series of Preferred Stock 3b Copy of By-Laws of PSE&G, as in effect September 1, 1994 4a(1) (f) B-1 (c) 4b(1) Indenture between PSE&G and Fidelity Union Trust 2/18/81 Company, (now First Fidelity Bank, National Association), as Trustee, dated August 1, 1924, securing First and Refunding Mortgage Bonds Indentures between PSE&G and First Fidelity Bank, National Association, as Trustee, supplemental to Exhibit 4a(1), dated as follows: 4a(2) (i) 7(1a) (c) 4b(2) April 1, 1927 2/18/81 4a(3) (k) 2b(3) (c) 4b(3) June 1, 1937 2/18/81 4a(4) (k) 2b(4) (c) 4b(4) July 1, 1937 2/18/81 4a(5) (k) 2b(5) (c) 4b(5) December 19, 1939 2/18/81 4a(6) (g) B-10 (c) 4b(6) March 1, 1942 2/18/81 4a(7) (k) 2b(7) (c) 4b(7) June 1, 1949 2/18/81 4a(8) (k) 2b(8) (c) 4b(8) May 1, 1950 2/18/81
EXHIBIT NUMBER - -------------------------------------------- PREVIOUS FILING THIS -------------------------------- FILING COMMISSION EXCHANGES - --------- -------------- -------------- 4a(9) (k) 2b(9) (c) 4b(9) October 1, 1953 2/18/81 4a(10) (k) 2b(10) (c) 4b(10) May 1, 1954 2/18/81 4a(11) (j) 4b(16) (c) 4b(11) November 1, 1956 2/18/81 4a(12) (k) 2b(12) (c) 4b(12) September 1, 1957 2/18/81 4a(13) (k) 2b(13) (c) 4b(13) August 1, 1958 2/18/81 4a(14) (k) 2b(14) (c) 4b(14) June 1, 1959 2/18/81 4a(15) (k) 2b(15) (c) 4b(15) September 1, 1960 2/18/81 4a(16) (k) 2b(16) (c) 4b(16) August 1, 1962 2/18/81 4a(17) (k) 2b(17) (c) 4b(17) June 1, 1963 2/18/81 4a(18) (k) 2b(18) (c) 4b(18) September 1, 1964 2/18/81 4a(19) (k) 2b(19) (c) 4b(19) September 1, 1965 2/18/81 4a(20) (k) 2b(20) (c) 4b(20) June 1, 1967 2/18/81 4a(21) (k) 2b(21) (c) 4b(21) June 1, 1968 2/18/81 4a(22) (k) 2b(22) (c) 4b(22) April 1, 1969 2/18/81 4a(23) (k) 2b(23) (c) 4b(23) March 1, 1970 2/18/81 4a(24) (k) 2b(24) (c) 4b(24) May 15, 1971 2/18/81 4a(25) (k) 2b(25) (c) 4b(25) November 15, 1971 2/18/81 4a(26) (k) 2b(26) (c) 4b(26) April 1, 1972 2/18/81 4a(27) (a) 2 (c) 4b(27) March 1, 1974 3/29/74 2/18/81 4a(28) (a) 2 (c) 4b(28) October 1, 1974 10/11/74 2/18/81 4a(29) (a) 2 (c) 4b(29) April 1, 1976 4/6/76 2/18/81 4a(30) (a) 2 (c) 4b(30) September 1, 1976 9/16/76 2/18/81
EXHIBIT NUMBER - -------------------------------------------- PREVIOUS FILING THIS -------------------------------- FILING COMMISSION EXCHANGES - --------- -------------- -------------- 4a(31) (k) 2b(31) (c) 4b(31) October 1, 1976 2/18/81 4a(32) (a) 2 (c) 4b(32) June 1, 1977 6/29/77 2/18/81 4a(33) (l) 2b(33) (c) 4b(33) September 1, 1977 2/18/81 4a(34) (a) 2 (c) 4b(34) November 1, 1978 11/21/78 2/18/81 4a(35) (a) 2 (c) 4b(35) July 1, 1979 7/25/79 2/18/81 4a(36) (m) 2d(36) (c) 4b(36) September 1, 1979 (No. 1) 2/18/81 4a(37) (m) 2d(37) (c) 4b(37) September 1, 1979 (No. 2) 2/18/81 4a(38) (a) 2 (c) 4b(38) November 1, 1979 12/3/79 2/18/81 4a(39) (a) 2 (c) 4b(39) June 1, 1980 6/10/80 2/18/81 4a(40) (a) 2 (a) 2 August 1, 1981 8/19/81 8/19/81 4a(41) (b) 4e (b) 4e April 1, 1982 4/29/82 5/5/82 4a(42) (a) 2 (a) 2 September 1, 1982 9/17/82 9/20/82 4a(43) (a) 2 (a) 2 December 1, 1982 12/21/82 12/21/82 4a(44) (d) 4(ii) (d) 4(ii) June 1, 1983 7/26/83 7/27/83 4a(45) (a) 4 (a) 4 August 1, 1983 8/19/83 8/19/83 4a(46) (d) 4(ii) (d) 4(ii) July 1, 1984 8/14/84 8/17/84 4a(47) (d) 4(ii) (d) 4(ii) September 1, 1984 11/2/84 11/9/84 4a(48) (b) 4(ii) (b) 4(ii) November 1, 1984 (No. 1) 1/4/85 1/9/85 4a(49) (b) 4(ii) (b) 4(ii) November 1, 1984 (No. 2) 1/4/85 1/9/85 4a(50) (a) 2 (a) 2 July 1, 1985 8/2/85 8/2/85 4a(51) (c) 4a(51) (c) 4a(51) January 1, 1986 2/11/86 2/11/86 4a(52) (a) 2 (a) 2 March 1, 1986 3/28/86 3/28/86
EXHIBIT NUMBER - -------------------------------------------- PREVIOUS FILING THIS -------------------------------- FILING COMMISSION EXCHANGES - --------- -------------- -------------- 4a(53) (a) 2(a) (a) 2(a) April 1, 1986 (No. 1) 5/1/86 5/1/86 4a(54) (a) 2(b) (a) 2(b) April 1, 1986 (No. 2) 5/1/86 5/1/86 4a(55) (p) 4a(55) (p) 4a(55) March 1, 1987 4/9/87 4/9/87 4a(56) (a) 4 (a) 4 July 1, 1987 (No. 1) 8/17/87 8/17/87 4a(57) (d) 4 (d) 4 July 1, 1987 (No. 2) 11/13/87 11/20/87 4a(58) (a) 4 (a) 4 May 1, 1988 5/17/88 5/18/88 4a(59) (a) 4 (a) 4 September 1, 1988 9/27/88 9/28/88 4a(60) (a) 4 (a) 4 July 1, 1989 7/25/89 7/26/89 4a(61) (a) 4 (a) 4 July 1, 1990 (No. 1) 7/25/90 7/26/90 4a(62) (a) 4 (a) 4 July 1, 1990 (No. 2) 7/25/90 7/26/90 4a(63) (a) 4 (a) 4 June 1, 1991 (No. 1) 7/1/91 7/2/91 4a(64) (a) 4 (a) 4 June 1, 1991 (No. 2) 7/1/91 7/2/91 4a(65) (a) 4 (a) 4 November 1, 1991 (No. 1) 12/2/91 12/3/91 4a(66) (a) 4 (a) 4 November 1, 1991 (No. 2) 12/2/91 12/3/91 4a(67) (a) 4 (a) 4 November 1, 1991 (No. 3) 12/2/91 12/3/91 4a(68) (a) 4 (a) 4 February 1, 1992 (No. 1) 2/27/92 2/28/92 4a(69) (a) 4 (a) 4 February 1, 1992 (No. 2) 2/27/92 2/28/92 4a(70) (a) 4 (a) 4 June 1, 1992 (No. 1) 6/17/92 6/11/92 4a(71) (a) 4 (a) 4 June 1, 1992 (No. 2) 6/17/92 6/11/92 4a(72) (a) 4 (a) 4 June 1, 1992 (No. 3) 6/17/92 6/11/92 4a(73) (a) 4 (a) 4 January 1, 1993 (No.1) 2/2/93 2/2/93 4a(74) (a) 4 (a) 4 January 1, 1993 (No. 2) 2/2/93 2/2/93
EXHIBIT NUMBER - -------------------------------------------- PREVIOUS FILING THIS -------------------------------- FILING COMMISSION EXCHANGES - --------- -------------- -------------- 4a(75) (a) 4 (a) 4 March 1, 1993 3/17/93 3/18/93 4a(76) (b) 4 (a) 4 May 1, 1993 5/27/93 5/28/93 4a(77) (a) 4 (a) 4 May 1, 1993 (No. 2) 5/25/93 5/25/93 4a(78) (a) 4 (a) 4 May 1, 1993 (No. 3) 5/25/93 5/25/93 4a(79) (b) 4 (b) 4 July 1, 1993 12/1/93 12/1/93 4a(80) (a) 4 (a) 4 August 1, 1993 8/3/93 8/3/93 4a(81) (b) 4 (b) 4 September 1, 1993 12/1/93 12/1/93 4a(82) (a) 4 (a) 4 September 1, 1993 (No. 2) 12/1/93 12/1/93 4a(83) (b) 4 (b) 4 November 1, 1993 12/1/93 12/1/93 4a(84) (a) 4 (a) 4 February 1, 1994 2/3/94 2/14/94 4a(85) (a) 4 (a) 4 March 1, 1994 (No. 1) 3/15/94 3/16/94 4a(86) (a) 4 (a) 4 March 1, 1994 (No. 2) 3/15/94 3/16/94 4a(87) (d) 4 (d) 4 May 1, 1994 11/8/94 12/2/94 4a(88) (d) 4 (d) 4 June 1, 1994 11/8/94 12/2/94 4a(89) (d) 4 (d) 4 August 1, 1994 11/8/94 12/2/94 4a(90) (d) 4 (d) 4 October 1, 1994 (No. 1) 11/8/94 12/2/94 4a(91) (d) 4 (d) 4 October 1, 1994 (No. 2) 11/8/94 12/2/94 4a(92) (a) 4 (a) 4 January 1, 1996 (No.1) 1/26/96 1/26/96 4a(93) (a) 4 (a) 4 January 1, 1996 (No.2) 1/26/96 1/26/96 4b(1) (h) 7(12) (c) 4c(1) Indenture between PSE&G and Federal Trust 2/18/81 Company, as Trustee, (Midlantic National Bank, Successor Trustee) dated July 1, 1948, providing for 6% Debenture Bonds due 1998 4b(2) (l) 2c(8) (c) 4c(8) Indenture between PSE&G and the Chase Manhattan 2/18/81 Bank (National Association), as Trustee, dated August 15, 1971, providing for 7 3/4% Debenture Bonds due 1996 4b(3) (b) 4 (b) 4 Indenture of Trust between the Company and The 12/1/93 12/1/93 Chase Manhattan Bank (National Association), as Trustee, providing for Secured Medium-Term Notes dated July 1, 1993 4b(4) (b) (c) Indenture between PSE&G and First Fidelity Bank, 2/2395 2/23/95 National Association, as Trustee, dated November 1, 1994, providing for Deferrable Interest Subordinated Debentures in Series 4b(5) (a) 4b(5) (a) 4b(5) Supplemental Indenture between PSE&G and First Fidelity Bank, National Association, as Trustee, dated September 11, 1995 providing for Deferrable Interest Subordinated Debentures in Series B 9 Inapplicable 10a(1) (c) 10c(1) (c) 10c(1) Directors' Deferred Compensation Plan 3/17/82 3/19/82 10a(2) (c) 10c(2) (c) 10c(2) Officers' Deferred Compensation Plan 3/17/82 3/19/82 Supplemental Benefits Plan for Certain 2/25/94 3/1/94 Employees
EXHIBIT NUMBER - -------------------------------------------- PREVIOUS FILING THIS -------------------------------- FILING COMMISSION EXCHANGES - --------- -------------- -------------- 10a(3) (c) 10c(3) (c) 10c(3) Supplemental Death Benefits Plan for officers 3/17/82 3/19/82 10a(4) (c) 10c(4) (c) 10c(4) Description of additional retirement for certain 3/17/82 3/19/82 officers 10a(5)(i) (c) 10b(5) (c) 10b(5) Limited Supplemental Death Benefits and 3/31/83 4/8/83 Retirement Plan 10a(5)(ii) (c) 10a(5)(ii) (c) 10a(5)(ii) Limited S----- 10a(6)(i) (c) 10a(6) (c) 10a(6) Description of additional retirement benefits 3/10/87 4/16/87 for certain officers 10a(6)(ii) (c) 10a(6)(1) (c) 10a(6)(1) Description of additional retirement benefit for 3/30/90 3/30/90 certain officers. 10a(6)(iii) (c) 10a(6)(2) (c) 10a(6)(2) Description of additional retirement benefit for 3/30/92 4/27/92 a certain officer. 10a(7) (o) 10g (o) 10g Management Incentive Compensation Plan 10a(8) (c) 10a(8) (c) 10a(8) Long-Term Incentive Plan 3/30/89 4/18/89 10a(9) (c) 10a(9) (c) 10a(9) Public Service Enterprise Group Incorporated 3/30/89 4/18/89 Pension Plan for Outside Directors 10a(10) (c) 10a(9) (c) 10a(9) Letter Agreement with E. James Ferland dated 2/10/93 2/11/93 April 16, 1986 10a(11) (c) 10a(10) (c) 10a(10) Letter Agreement with Thomas M. Crimmins, Jr. 2/10/93 2/11/93 dated April 5, 1989 10a(12) (c) 10a(12) (c) 10a(12) Letter Agreement with Robert C. Murray dated 2/10/93 2/11/93 December 17, 1991 10a(13) (c) 10a(13) (c) 10a(13) Letter agreement with Patricia A. Rado dated 2/26/94 3/9/94 March 24, 1993. 10a(14) (c) 10a(14) (c) 10a(14) Letter Agreement, as amended, with Leon R. 2/23/95 2/23/95 Eliason dated September 14, 1994 10a(15) (d) 10a(15) (d) 10a(15) Letter Agreement with Louis F. Storz dated 8/14/95 8/14/95 July 7, 1995 10a(16) (d) 10a(16) (d) 10a(16) Letter Agreement with Elbert C. Simpson dated 8/14/95 8/14/95 May 31, 1995 10a(17) (d) 10a(17) (d) 10a(17) Letter Agreement with Alfred C. Koeppe dated 11/14/95 11/14/95 August 23, 1995 10a(18) Director Stock Plan 10a(19) Mid Career Hire Supplemental Retirement Plan 10a(20) Retirement Income Reinstatement Plan 11 Inapplicable 12(a) Computation of Ratios of Earnings to Fixed Charges 12(b) Computation of Ratios of Earnings to Fixed Charges Plus Preferred Stock Dividend Requirements 13 Inapplicable 16 Inapplicable 19 Inapplicable 21 Inapplicable 22 Inapplicable 23 Independent Auditors' Consent 24 Inapplicable 27 Financial Data Schedule 28 Inapplicable 99 Inapplicable
EX-99.(G)(2) 12 ================================================================================ EXHIBIT 99.(g)(2) FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1996 Commission file number 1-9120 Public Service Enterprise Group Incorporated ------------------------------------------------------ (Exact name of registrant as specified in its charter) New Jersey 22-2625848 - ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 80 Park Plaza, P. O. Box 1171, Newark, New Jersey 07101-1171 - ------------------------------------------------- ------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 201 430-7000 ------------ Commission file number 1-973 Public Service Electric and Gas Company ------------------------------------------------------ (Exact name of registrant as specified in its charter) New Jersey 22-1212800 - ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 80 Park Plaza, P. O. Box 570, Newark, New Jersey 07101-0570 - ------------------------------------------------ ------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 201 430-7000 ------------ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ---- ---- The number of shares outstanding of Public Service Enterprise Group Incorporated's sole class of common stock, as of the latest practicable date, was as follows: Class Outstanding at April 30, 1996 ----- ----------------------------- Common Stock, without par value 244,697,930 As of April 30, 1996, Public Service Electric and Gas Company had issued and outstanding 132,450,344 shares of Common Stock, without nominal or par value, all of which were privately held, beneficially and of record by Public Service Enterprise Group Incorporated. ================================================================================ TABLE OF CONTENTS ----------------- Page ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Public Service Enterprise Group Incorporated (Enterprise): Consolidated Statements of Income for the Three and Twelve Months Ended March 31, 1996 and 1995 ................. 1 Consolidated Balance Sheets as of March 31, 1996, 1995 and December 31, 1995 ....................................... 2 Consolidated Statements of Cash Flows for the Three and Twelve Months Ended March 31, 1996 and 1995 ................. 4 Consolidated Statements of Retained Earnings for the Three and Twelve Months Ended March 31, 1996 and 1995 ....... 5 Public Service Electric and Gas Company (PSE&G): Consolidated Statements of Income for the Three and Twelve Months Ended March 31, 1996 and 1995 ................. 6 Consolidated Balance Sheets as of March 31, 1996, 1995 and December 31, 1995 .................................. 7 Consolidated Statements of Cash Flows for the Three and Twelve Months Ended March 31, 1996 and 1995 ................. 9 Consolidated Statements of Retained Earnings for the Three and Twelve Months Ended March 31, 1996 and 1995 ....... 10 Notes to Consolidated Financial Statements - Enterprise......... 11 Notes to Consolidated Financial Statements - PSE&G.............. 21 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Enterprise ....................................... 22 PSE&G ............................................ 37 i TABLE OF CONTENTS ----------------- Page ---- PART II. OTHER INFORMATION Item 1. Legal Proceedings ................................... 38 Item 4. Submission of Matters to a Vote of Security Holders .................................... 40 Item 5. Other Information ................................... 41 Item 6. Exhibits and Reports on Form 8-K .................... 48 Signatures - Public Service Enterprise Group Incorporated ..... 50 Signatures - Public Service Electric and Gas Company .......... 50 ii GLOSSARY OF TERMS The following is a glossary of frequently used abbreviations or acronyms that are found in this report:
TERM MEANING ----------------------- ------------------------------------------- AFDC................... Allowance for Funds used During Construction Alternative Rate Plan.. New Jersey Partners in Power Plan BPU.................... New Jersey Board of Public Utilities Capital................ PSEG Capital Corporation CEA.................... Community Energy Alternatives Incorporated CERCLA................. Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 DSM.................... Demand Side Management DSM Plan............... DSM Incentive Resource Plan EBIT................... Earnings before interest and taxes EDC.................... Energy Development Corporation EDHI................... Enterprise Diversified Holdings Incorporated EGDC................... Enterprise Group Development Corporation Enterprise............. Public Service Enterprise Group Incorporated EPA.................... United States Environmental Protection Agency EPACT.................. National Energy Policy Act of 1992 Fault Act.............. New Jersey Public Utility Accident Fault Determination Act FERC................... Federal Energy Regulatory Commission Fuelco................. PSE&G Fuel Corporation Funding................ Enterprise Capital Funding Corporation IRP.................... Integrated Electric Resource Plan Hope Creek............. Hope Creek Nuclear Generating Station KKR.................... Kohlberg, Kravis, Roberts and Co. KWH.................... Kilowatthours LEAC................... Electric Levelized Energy Adjustment Clause LGAC................... Levelized Gas Adjustment Charge MD&A................... Management's Discussion and Analysis of Financial Condition and Results of Operations MIPS................... Monthly Income Preferred Securities Mortgage............... First and Refunding Mortgage of PSE&G MTNs................... Medium-Term Notes MW..................... Megawatts MWH.................... Megawatthours
iii
TERM MEANING ----------------------- ------------------------------------------- NBU.................... Nuclear Business Unit NEIL................... Nuclear Electric Insurance Limited NJDEP.................. New Jersey Department of Environmental Protection NJGRT.................. New Jersey Gross Receipts and Franchise Tax NJNAA.................. New Jersey Need Assessment Act NJPDES................. New Jersey Pollution Discharge Elimination System NML.................... Nuclear Mutual Limited NOPR................... Notice of Proposal Rulemaking NPS.................... The BPU's nuclear performance standard established for nuclear generating stations owned by New Jersey electric utilities NRC.................... Nuclear Regulatory Commission OAL.................... Office of Administrative Law Partnership............ Public Service Electric and Gas Capital, L.P. Peach Bottom........... Peach Bottom Atomic Power Station, Units 2 and 3 PECO................... PECO Energy, Inc. PJM.................... Pennsylvania -- New Jersey -- Maryland Interconnection Price Anderson......... Price-Anderson liability provisions of the Atomic Energy Act of 1954, as amended PSE&G.................. Public Service Electric and Gas Company PSCRC.................. Public Service Conservation Resources Corporation PSRC................... Public Service Resources Corporation RAC.................... Remediation Adjustment Charge Ratepayer Advocate..... New Jersey Division of Ratepayer Advocate Remediation Program.... PSE&G Gas Plant Remediation Program Salem.................. Salem Nuclear Generating Station, Units 1 and 2 SEC.................... Securities and Exchange Commission Ventures............... Enterprise Ventures and Service Corporation iv
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED The financial statements included herein as of March 31, 1996 and 1995 and for the periods then ended are unaudited but, in the opinion of Enterprise's management, reflect all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation. CONSOLIDATED STATEMENTS OF INCOME (Thousands of Dollars) Three Months Ended Twelve Months Ended March 31, March 31, --------------------------- --------------------------- 1996 1995 1996 1995 ------------- ------------ ------------ ------------ OPERATING REVENUES Electric ................................ $ 958,333 $ 945,038 $ 4,034,137 $ 3,795,409 Gas ..................................... 796,916 634,478 1,848,841 1,611,349 Nonutility Activities ................... 110,533 96,752 470,689 396,496 ------------- ------------ ------------ ------------ Total Operating Revenues ........... 1,865,782 1,676,268 6,353,667 5,803,254 ------------- ------------ ------------ ------------ OPERATING EXPENSES Operation Fuel for Electric Generation and Interchanged Power .................... 216,075 208,110 899,747 736,672 Gas Purchased and Materials for Gas Produced............................... 456,732 344,193 1,074,078 907,593 Other ................................... 284,274 253,906 1,149,126 1,122,251 Maintenance................................ 95,416 64,045 343,981 295,650 Depreciation and Amortization.............. 174,468 164,256 684,443 642,045 Taxes Federal Income Taxes .................... 101,426 106,789 348,729 298,866 New Jersey Gross Receipts Taxes ......... 188,436 176,789 624,608 568,653 Other ................................... 26,132 23,845 82,757 82,044 ------------- ------------ ------------ ------------ Total Operating Expenses ........... 1,542,959 1,341,933 5,207,469 4,653,774 ------------- ------------ ------------ ------------ OPERATING INCOME .......................... 322,823 334,335 1,146,198 1,149,480 ------------- ------------ ------------ ------------ OTHER INCOME Allowance for Funds Used During Construction - Equity ................. -- 1,482 3,842 12,483 Miscellaneous - net ..................... 1,278 2,002 7,317 7,277 ------------- ------------ ------------ ------------ Total Other Income ................. 1,278 3,484 11,159 19,760 ------------- ------------ ------------ ------------ INCOME BEFORE INTEREST CHARGES AND DIVIDENDS ON PREFERRED SECURITIES ....... 324,101 337,819 1,157,357 1,169,240 ------------- ------------ ------------ ------------ INTEREST CHARGES Long-Term Debt .......................... 109,141 111,604 431,603 458,650 Short-Term Debt ......................... 7,189 4,827 35,184 24,955 Other ................................... 6,883 6,705 29,350 16,659 ------------- ------------ ------------ ------------ Total Interest Charges ............. 123,213 123,136 496,137 500,264 Allowance for Funds Used During Construction - Debt and Capitalized Interest .............................. (5,457) (10,106) (32,559) (36,586) ------------- ------------ ------------ ------------ Net Interest Charges ............... 117,756 113,030 463,578 463,678 ------------- ------------ ------------ ------------ Preferred Securities Dividend Requirements........................... 12,241 12,197 49,470 44,064 Preferred Stock Redemption Premium....... -- -- 474 -- ------------- ------------ ------------ ------------ NET INCOME ......................... $ 194,104 $ 212,592 $ 643,835 $ 661,498 ============= ============ ============ ============ SHARES OF COMMON STOCK OUTSTANDING End of Period ........................... 244,697,930 244,697,930 244,697,930 244,697,930 Average for Period ...................... 244,697,930 244,697,930 244,697,930 244,697,930 EARNINGS PER AVERAGE SHARE OF COMMON STOCK. $0.79 $0.87 $2.63 $2.70 ============= ============ ============ ============ DIVIDENDS PAID PER SHARE OF COMMON STOCK .. $0.54 $0.54 $2.16 $2.16 ============= ============ ============ ============ See Notes to Consolidated Financial Statements.
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED CONSOLIDATED BALANCE SHEETS (Thousands of Dollars) March 31, March 31, December 31, ASSETS 1996 1995 1995 - ------ ------------ ------------ ------------ UTILITY PLANT - Original cost Electric ............................................. $ 13,189,429 $ 12,470,514 $ 13,095,103 Gas .................................................. 2,458,045 2,344,557 2,442,572 Common ............................................... 511,760 515,113 517,104 ------------ ------------ ------------ Total ........................................... 16,159,234 15,330,184 16,054,779 Less: accumulated depreciation and amortization...... 5,559,788 5,229,300 5,440,414 ------------ ------------ ------------ Net ............................................. 10,599,446 10,100,884 10,614,365 Nuclear Fuel in Service, net of accumulated amortization $255,283; $305,655; and $297,435, respectively ............................. 171,218 201,637 180,018 ------------ ------------ ------------ Net Utility Plant in Service .................... 10,770,664 10,302,521 10,794,383 Construction Work in Progress, including Nuclear Fuel in Process - $108,015; $53,396; and $104,743, respectively ............................ 352,452 753,774 369,082 Plant Held for Future Use ............................ 23,966 23,861 23,966 ------------ ------------ ------------ Net Utility Plant ............................... 11,147,082 11,080,156 11,187,431 ------------ ------------ ------------ INVESTMENTS AND OTHER NONCURRENT ASSETS Long-Term Investments, net of amortization - $7,320, $3,024, and $7,213, and net of valuation allowances - $21,392, $17,105 and $21,302 respectively 1,842,395 1,653,183 1,822,160 Oil and Gas Property, Plant and Equipment, net of accumulated depreciation and amortization - $808,183, $767,792 and $786,736, respectively ................ 615,654 580,765 608,015 Real Estate Property and Equipment, net of accumulated depreciation - $5,506; $15,200 and $5,063, and net of valuation allowance -- $8,227, $23,306 and $8,228, respectively ............................... 75,188 112,036 75,558 Other Plant, net of accumulated depreciation and amortization - $6,805; $4,888 and $6,531, respectively ....................................... 27,975 36,077 27,997 Nuclear Decommissioning and Other Special Funds ...... 286,795 242,330 276,348 Other Assets - net ................................... 53,865 85,502 55,974 ------------ ------------ ------------ Total Investments and Other Noncurrent Assets.... 2,901,872 2,709,893 2,866,052 ------------ ------------ ------------ CURRENT ASSETS Cash and Cash Equivalents ............................ 546,532 131,137 76,233 Accounts Receivable: Customer Accounts Receivable ....................... 623,926 490,106 525,404 Other Accounts Receivable .......................... 304,014 207,168 260,713 Less: allowance for doubtful accounts .............. 38,123 39,734 37,641 Unbilled Revenues .................................... 177,175 152,744 246,876 Fuel, at average cost ................................ 88,022 167,020 253,360 Materials and Supplies, net of inventory valuation reserves $18,200, $18,200 and $20,100, respectively. 148,033 150,640 144,970 Deferred Income Taxes ................................ 29,734 25,135 27,571 Miscellaneous Current Assets ......................... 51,751 26,891 62,631 ------------ ------------ ------------ Total Current Assets ............................ 1,931,064 1,311,107 1,560,117 ------------ ------------ ------------ DEFERRED DEBITS Property Abandonments - net .......................... 65,439 83,817 70,120 Oil and Gas Property Write-Down ...................... 34,790 39,944 36,078 Unamortized Debt Expense ............................. 148,767 131,300 123,833 Deferred OPEB Costs .................................. 250,544 192,727 167,189 Underrecovered Electric Energy and Gas Costs - net.... 207,843 171,238 170,565 Unrecovered Environmental Costs ...................... 127,368 136,151 130,070 Unrecovered Plant and Regulatory Study Costs ......... 34,856 35,661 35,150 Unrecovered SFAS 109 Deferred Income Taxes ........... 766,908 794,665 769,136 Deferred Decontamination and Decommissioning Costs ... 49,872 53,016 49,872 Other ................................................ 28,724 25,570 5,826 ------------ ------------ ------------ Total Deferred Debits ........................... 1,715,111 1,664,089 1,557,839 ------------ ------------ ------------ Total ........................................... $ 17,695,129 $ 16,765,245 $ 17,171,439 ============ ============ ============ See Notes to Consolidated Financial Statements.
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED CONSOLIDATED BALANCE SHEETS (Thousands of Dollars)
March 31, March 31, December 31, CAPITALIZATION AND LIABILITIES 1996 1995 1995 - ------------------------------ ------------ ------------ -------------- CAPITALIZATION Common Equity Common Stock .................................... $ 3,801,157 $ 3,801,157 $ 3,801,157 Retained Earnings ............................... 1,705,753 1,590,464 1,643,785 ------------ ------------ ------------ Total Common Equity .......................... 5,506,910 5,391,621 5,444,942 Subsidiaries' Securities and Obligations Preferred Securities Preferred Stock Without Mandatory Redemption..... 324,994 384,994 324,994 Preferred Stock With Mandatory Redemption ....... 150,000 150,000 150,000 Monthly Income Preferred Securities ............. 210,000 150,000 210,000 Long-Term Debt .................................... 5,110,163 5,264,646 5,189,791 ------------ ------------ ------------ Total Capitalization ......................... 11,302,067 11,341,261 11,319,727 ------------ ------------ ------------ OTHER LONG-TERM LIABILITIES Decontamination, Decommissioning, and Low Level Radwaste Costs .................................. 49,890 57,664 50,449 Environmental Costs ............................... 96,302 108,576 96,272 Capital Lease Obligations ......................... 52,934 53,612 53,111 ------------ ------------ ------------ Total Other Long-Term Liabilities............. 199,126 219,852 199,832 ------------ ------------ ------------ CURRENT LIABILITIES Long-Term Debt due within one year ................ 92,639 364,773 90,630 Commercial Paper and Loans ........................ 1,022,318 238,223 849,567 Book Overdrafts ................................... 63,372 51,913 70,014 Accounts Payable .................................. 526,078 373,159 567,787 New Jersey Gross Receipts Taxes Accrued ........... 188,937 175,261 -- Other Taxes Accrued ............................... 90,189 142,238 34,678 Interest Accrued .................................. 108,556 120,540 108,245 Estimated Liability for Vacation Pay .............. 40,589 40,621 17,089 Customer Deposits ................................. 32,300 32,457 32,785 Liability for Injuries and Damages ................ 44,338 31,784 38,141 Miscellaneous Environmental Liabilities ........... 17,694 15,305 16,954 Other ............................................. 94,825 77,712 95,907 ------------ ------------ ------------ Total Current Liabilities .................... 2,321,835 1,663,986 1,921,797 ------------ ------------ ------------ DEFERRED CREDITS Accumulated Deferred Income Taxes ................. 3,144,616 2,912,922 3,094,620 Accumulated Deferred Investment Tax Credits ....... 387,320 407,494 392,324 Deferred OPEB Costs ............................... 250,544 192,727 167,189 Other ............................................. 89,621 27,003 75,950 ------------ ------------ ------------ Total Deferred Credits ....................... 3,872,101 3,540,146 3,730,083 ------------ ------------ ------------ COMMITMENTS AND CONTINGENCIES (note 2) Total ........................................ $ 17,695,129 $ 16,765,245 $ 17,171,439 ============ ============ ============
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS (Thousands of Dollars)
Three Months Ended Twelve Months Ended March 31, March 31, -------------------------- -------------------------- 1996 1995 1996 1995 ------------ ----------- ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income .............................. $ 194,104 $ 212,592 $ 643,835 $ 661,498 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and Amortization ........... 174,468 164,256 684,443 642,045 Amortization of Nuclear Fuel ............ 8,905 23,120 60,813 94,719 (Deferral) Recovery of Electric Energy and Gas Costs - net ................... (37,278) 1,325 (36,605) (51,034) Unrealized Gains on Investments - net...................... (10,103) (19,421) (37,350) (46,500) Provision for Deferred Income Taxes - net............................ 31,482 16,456 160,118 110,129 Investment Tax Credits - net ............ (5,004) (4,972) (20,174) (20,358) Allowance for Funds Used During Construction - Debt and Equity and Capitalized Interest................... (5,457) (11,588) (36,401) (49,069) Proceeds from Leasing Activities - net... 11,212 (14,487) 63,351 25,893 Changes in certain current assets and liabilities: Net (increase) decrease in Accounts Receivable and Unbilled Revenues..... (71,640) (1,157) (256,708) 83,450 Net decrease (increase) in Inventory - Fuel and Materials and Supplies...... 162,275 99,552 81,605 (34,999) Net (decrease) increase in Accounts Payable..................... (41,709) (60,312) 152,919 (13,289) Net change in Prepaid/Accrued Taxes................................ 252,256 273,350 (38,373) (267,678) Net change in Other Current Assets and liabilities...................... 30,090 27,661 (9,576) 20,200 Other ................................... 6,797 (7,275) 82,316 30,878 ------------ ----------- ----------- ------------ Net cash provided by operating activities ......................... 700,398 699,100 1,494,213 1,185,885 ------------ ----------- ----------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Additions to Utility Plant, excluding AFDC ........................ (96,349) (128,027) (618,205) (809,519) Additions to Oil and Gas Property, Plant and Equipment, excluding Capitalized Interest .................. (23,346) (21,304) (129,771) (133,763) Net (increase) decrease in Long-Term Investments and Real Estate ........... (7,361) (6,113) (82,512) 31,566 Increase in Decommissioning and Other Special Funds, excluding interest ..... (7,391) (7,390) (29,618) (36,976) Cost of Plant Removal - net ............. (11,101) (2,103) (38,672) (28,357) Other ................................... (2,586) 248 27,065 7,950 ------------ ----------- ----------- ------------ Net cash used in investing activities ......................... (148,134) (164,689) (871,713) (969,099) ------------ ----------- ----------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Net increase (decrease) in Short-Term Debt ....................... 172,751 (253,363) 784,095 119,721 (Decrease) increase in Book Overdrafts .. (6,642) (34,663) 11,459 13,286 Issuance of Long-Term Debt .............. 352,451 -- 508,771 449,800 Redemption of Long-Term Debt ............ (430,070) (50,976) (935,388) (547,422) Long-Term Debt Issuance and Redemption Costs ...................... (38,319) -- (47,496) (29,811) Redemption of Preferred Stock ........... -- -- (60,000) (75,000) Issuance of Monthly Income Preferred Securities .................. -- -- 60,000 150,000 Cash Dividends Paid on Common Stock ..... (132,138) (132,138) (528,548) (528,548) Other ................................... 2 -- 2 (843) ------------ ----------- ----------- ----------- Net cash used in financing activities ...................... (81,965) (471,140) (207,105) (448,817) ------------ ----------- ----------- ----------- Net increase (decrease) in Cash and Cash Equivalents ........................ 470,299 63,271 415,395 (232,031) Cash and Cash Equivalents at Beginning of Period ............................... 76,233 67,866 131,137 363,168 ------------ ----------- ----------- ----------- Cash and Cash Equivalents at End of Period........................... $ 546,532 $ 131,137 $ 546,532 $ 131,137 ============ =========== =========== =========== Income Taxes Paid ......................... $ 7,288 $ 15,136 $ 177,528 $ 166,910 Interest Paid ............................. $ 110,258 $ 94,409 $ 497,113 $ 437,932 See Notes to Consolidated Financial Statements.
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (Thousand of Dollars)
Three Months Ended Twelve Months Ended March 31, March 31, --------------------------- --------------------------- 1996 1995 1996 1995 ------------ ------------ ------------ ------------ Balance at Beginning of Period ............ $ 1,643,785 $ 1,510,010 $ 1,590,464 $ 1,458,357 Add Net Income ............................ 194,104 212,592 643,835 661,498 ------------ ------------ ------------ ------------ Total ................................ 1,837,889 1,722,602 2,234,299 2,119,855 ------------ ------------ ------------ ------------ Deduct: Cash Dividends on Common Stock .......... 132,138 132,138 528,548 528,548 Adjustment to Retained Earnings ......... (2) -- (2) 843 ------------ ------------ ------------ ------------ Total Deductions ..................... 132,136 132,138 528,546 529,391 ------------ ------------ ------------ ------------ Balance at End of Period .................. $ 1,705,753 $ 1,590,464 $ 1,705,753 $ 1,590,464 ============ ============ ============ ============ See Notes to Consolidated Financial Statements.
PUBLIC SERVICE ELECTRIC AND GAS COMPANY The financial statements included herein as of March 31, 1996 and 1995 and for the periods then ended are unaudited but, in the opinion of PSE&G's management, reflect all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation. CONSOLIDATED STATEMENTS OF INCOME (Thousands of Dollars)
Three Months Ended Twelve Months Ended March 31, March 31, --------------------------- --------------------------- 1996 1995 1996 1995 ------------- ------------ ------------ ------------ OPERATING REVENUES Electric ................................ $ 958,333 $ 945,038 $ 4,034,137 $ 3,795,409 Gas ..................................... 796,916 634,478 1,848,841 1,611,349 ------------- ------------ ------------ ------------ Total Operating Revenues ........... 1,755,249 1,579,516 5,882,978 5,406,758 ------------- ------------ ------------ ------------ OPERATING EXPENSES Operation Fuel for Electric Generation and Interchanged Power.................. 216,075 208,110 899,747 736,672 Gas Purchased and Materials for Gas Produced ........................ 456,732 344,193 1,074,078 915,754 Other ................................. 242,764 220,217 971,947 964,758 Maintenance ............................. 95,416 64,045 343,981 295,650 Depreciation and Amortization ........... 152,508 143,593 600,029 559,960 Taxes Federal Income Taxes .................. 94,629 102,284 313,873 283,384 New Jersey Gross Receipts Taxes ....... 188,436 176,789 624,608 568,653 Other ................................. 23,587 21,853 72,543 75,838 ------------- ------------ ------------ ------------ Total Operating Expenses ........... 1,470,147 1,281,084 4,900,806 4,400,669 ------------- ------------ ------------ ------------ OPERATING INCOME .......................... 285,102 298,432 982,172 1,006,089 ------------- ------------ ------------ ------------ OTHER INCOME Allowance for Funds Used During Construction - Equity ................ -- 1,482 3,842 12,483 Miscellaneous - net ..................... 1,273 1,851 7,150 6,931 ------------- ------------ ------------ ------------ Total Other Income ................. 1,273 3,333 10,992 19,414 ------------- ------------ ------------ ------------ INCOME BEFORE INTEREST CHARGES AND DIVIDENDS ON PREFERRED SECURITIES ....... 286,375 301,765 993,164 1,025,503 ------------- ------------ ------------ ------------ INTEREST CHARGES Long-Term Debt .......................... 91,512 91,492 357,604 370,059 Short-Term Debt ......................... 4,034 1,950 22,824 17,866 Other ................................... 6,755 6,531 28,769 16,101 ------------- ------------ ------------ ------------ Total Interest Charges ............. 102,301 99,973 409,197 404,026 Allowance for Funds Used During Construction - Debt ..................... (4,291) (8,619) (26,615) (28,581) ------------- ------------ ------------ ------------ Net Interest Charges ...................... 98,010 91,354 382,582 375,445 Monthly Income Preferred Securities Dividend Requirements ................... 4,715 3,515 16,864 5,195 ------------- ------------ ------------ ------------ NET INCOME ................................ 183,650 206,896 593,718 644,863 ------------- ------------ ------------ ------------ Preferred Stock Dividend Requirements ..... 7,526 8,682 32,606 38,869 Preferred Stock Redemption Premium.......... -- -- 474 -- ------------- ------------ ------------ ------------ EARNINGS AVAILABLE TO PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED............ $ 176,124 $ 198,214 $ 560,638 $ 605,994 ============= ============ ============ ============ See Notes to Consolidated Financial Statements.
PUBLIC SERVICE ELECTRIC AND GAS COMPANY CONSOLIDATED BALANCE SHEETS (Thousands of Dollars)
March 31, March 31, December 31, ASSETS 1996 1995 1995 - ------ ------------ ------------ ------------- UTILITY PLANT - Original cost Electric ........................................... $ 13,189,429 $ 12,470,514 $ 13,095,103 Gas ................................................ 2,458,045 2,344,557 2,442,572 Common ............................................. 511,760 515,113 517,104 ------------ ------------ ------------ Total ............................................. 16,159,234 15,330,184 16,054,779 Less: accumulated depreciation and amortization...... 5,559,788 5,229,300 5,440,414 ------------ ------------ ------------ Net ............................................... 10,599,446 10,100,884 10,614,365 Nuclear Fuel in Service, net of accumulated amortization - $255,283; $305,655; and $297,435, respectively ............................. 171,218 201,637 180,018 ------------ ------------ ------------ Net Utility Plant in Service ...................... 10,770,664 10,302,521 10,794,383 Construction Work in Progress, including Nuclear Fuel in Process - $108,015; $53,396; and $104,743, respectively ....................................... 352,452 753,774 369,082 Plant Held for Future Use ............................ 23,966 23,861 23,966 ------------ ------------ ------------ Net Utility Plant ............................. 11,147,082 11,080,156 11,187,431 ------------ ------------ ------------ INVESTMENTS AND OTHER NONCURRENT ASSETS Long-Term Investments, net of amortization - $7,320; $3,024; and $6,009, respectively ................... 135,550 76,812 119,474 Nuclear Decommissioning and Other Special Funds ...... 286,795 242,330 276,348 Other Plant, net of accumulated depreciation and amortization - $1,936; $1,149; and $1,905, respectively................................ 24,990 32,886 24,976 ------------ ------------ ------------ Total Investments and Other Noncurrent Assets......... 447,335 352,028 420,798 ------------ ------------ ------------ CURRENT ASSETS Cash and Cash Equivalents .......................... 508,173 82,990 32,373 Accounts Receivable: Customer Accounts Receivable ...................... 623,926 490,106 525,404 Other Accounts Receivable ......................... 189,677 112,327 163,976 Less: allowance for doubtful accounts.............. 38,123 39,734 37,641 Unbilled Revenues .................................. 177,175 152,744 246,876 Fuel, at average cost .............................. 88,022 167,020 253,360 Materials and supplies, net of inventory valuation reserves - $18,200; $18,200; and $20,100, respectively ...................................... 146,772 149,193 143,741 Deferred Income Taxes .............................. 29,734 25,135 27,571 Miscellaneous Current Assets ....................... 25,124 19,706 37,130 ------------ ------------ ------------ Total Current Assets .......................... 1,750,480 1,159,487 1,392,790 ------------ ------------ ------------ DEFERRED DEBITS Property Abandonments - net ........................ 65,439 83,817 70,120 Oil and Gas Property Write-Down .................... 34,790 39,944 36,078 Unamortized Debt Expense ........................... 147,165 128,905 122,049 Deferred OPEB Costs ................................ 250,544 192,727 167,189 Underrecovered Electric Energy and Gas Costs - net.. 207,843 171,238 170,565 Unrecovered Environmental Costs .................... 127,368 136,151 130,070 Unrecovered Plant and Regulatory Study Costs ....... 34,856 35,661 35,150 Deferred Decontamination and Decommissioning Costs.. 49,872 53,016 49,872 Unrecovered SFAS 109 Deferred Income Taxes ......... 766,908 794,665 769,136 Other .............................................. 27,867 25,564 5,700 ------------ ------------ ------------ Total Deferred Debits ......................... 1,712,652 1,661,688 1,555,929 ------------ ------------ ------------ Total .......................................... $ 15,057,549 $ 14,253,359 $ 14,556,948 ============ ============ ============ See Notes to Consolidated Financial Statements.
PUBLIC SERVICE ELECTRIC AND GAS COMPANY CONSOLIDATED BALANCE SHEETS (Thousands of Dollars)
March 31, March 31, December 31, CAPITALIZATION AND LIABILITIES 1996 1995 1995 - ------------------------------ ------------ ------------ ------------ CAPITALIZATION Common Equity Common Stock ...................................... $ 2,563,003 $ 2,563,003 $ 2,563,003 Contributed Capital from Enterprise ............... 594,395 534,395 594,395 Retained Earnings ................................. 1,418,653 1,360,215 1,372,729 ------------ ------------ ------------ Total Common Equity ............................ 4,576,051 4,457,613 4,530,127 Preferred Stock without mandatory redemption .......... 324,994 384,994 324,994 Preferred Stock with mandatory redemption ............. 150,000 150,000 150,000 Monthly Income Preferred Securities of Subsidiary ..... 210,000 150,000 210,000 Long-Term Debt ........................................ 4,523,614 4,587,740 4,586,268 ------------ ------------ ------------ Total Capitalization ........................... 9,784,659 9,730,347 9,801,389 ------------ ------------ ------------ OTHER LONG-TERM LIABILITIES Decontamination, Decommissioning and Low Level Radwaste Costs ................................... 49,890 57,664 50,449 Environmental Costs ................................. 96,302 108,576 96,272 Capital Lease Obligations ........................... 52,934 53,612 53,111 ------------ ------------ ------------ Total Other Long-Term Liabilities .............. 199,126 219,852 199,832 ------------ ------------ ------------ CURRENT LIABILITIES Long-Term Debt due within one year .................. 2,000 210,200 -- Commercial Paper and Loans .......................... 736,281 94,200 567,316 Book Overdrafts ..................................... 63,372 51,913 70,014 Accounts Payable .................................... 435,457 287,958 481,632 Accounts Payable - Associated Companies ............. 70,613 81,783 8,011 New Jersey Gross Receipts Taxes Accrued ............. 188,937 175,261 -- Other Taxes Accrued ................................. 35,634 39,291 32,767 Interest Accrued .................................... 86,948 96,179 95,811 Estimated Liability for Vacation Pay ................ 40,589 40,621 17,089 Customer Deposits ................................... 32,300 32,457 32,785 Liability for Injuries and Damages .................. 44,338 31,784 38,141 Miscellaneous Environmental Liabilities ............. 17,694 15,305 16,954 Other ............................................... 62,543 48,132 50,751 ------------ ------------ ------------ Total Current Liabilities ...................... 1,816,706 1,205,084 1,411,271 ------------ ------------ ------------ DEFERRED CREDITS Accumulated Deferred Income Taxes ................... 2,555,817 2,497,959 2,535,603 Accumulated Deferred Investment Tax Credits ......... 365,867 385,010 370,610 Deferred OPEB Costs ................................. 250,544 192,727 167,189 Other ............................................... 84,830 22,380 71,054 ------------ ------------ ------------ Total Deferred Credits ......................... 3,257,058 3,098,076 3,144,456 ------------ ------------ ------------ COMMITMENTS AND CONTINGENCIES (note 2) Total ............................................ $ 15,057,549 $ 14,253,359 $ 14,556,948 ============ ============ ============
PUBLIC SERVICE ELECTRIC AND GAS COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (Thousands of Dollars)
Three Months Ended Twelve Months Ended March 31, March 31, --------------------------- --------------------------- 1996 1995 1996 1995 ------------ ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net Income ............................. $ 183,650 $ 206,896 $ 593,718 $ 644,863 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and Amortization ........ 152,508 143,593 600,029 559,960 Amortization of Nuclear Fuel ......... 8,905 23,120 60,813 94,719 (Deferral) Recovery of Electric Energy and Gas Costs - net ......... (37,278) 1,325 (36,605) (51,034) Provision for Deferred Income Taxes - net ........................ 22,442 16,148 85,615 87,838 Investment Tax Credits - net ......... (4,743) (4,711) (19,143) (19,317) Allowance for Funds Used During Construction - Debt and Equity ..... (4,291) (10,101) (30,457) (41,064) Changes in certain current assets and liabilities: Net decrease (increase) in Accounts Receivable and Unbilled Revenues . (54,040) 33,589 (237,212) 114,235 Net decrease (increase) in Inventory - Fuel and Materials and Supplies... 162,307 99,477 81,419 (34,873) Net increase (decrease) in Accounts Payable ................. 16,427 (16,941) 136,329 (73,877) Net change in Prepaid/Accrued Taxes ............................ 199,612 178,522 10,019 (276,606) Net change in Other Current Assets and Liabilities .................. 34,916 22,899 9,917 27,538 Other ................................ 3,386 (9,720) 70,264 9,762 ------------ ----------- ----------- ------------ Net cash provided by operating activities ....................... 683,801 684,096 1,324,706 1,042,144 ------------ ----------- ----------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Additions to Utility Plant, excluding AFDC ....................... (96,349) (128,027) (618,205) (809,519) Net (increase) decrease in Long-Term Investments ................ (18,770) (10,926) (73,033) 50,226 Increase in Decommissioning Funds and Other Special Funds, excluding interest ................... (7,391) (7,390) (29,618) (36,976) Cost of Plant Removal - net ............ (11,101) (2,103) (38,672) (28,357) Other .................................. (14) (7) 852 2,186 ------------ ----------- ----------- ------------ Net cash used in investing activities ....................... (133,625) (148,453) (758,676) (822,440) ------------ ----------- ----------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Net increase (decrease) in Short-Term Debt ...................... 168,965 (307,559) 642,081 (7,761) (Decrease) increase in Book Overdrafts ........................... (6,642) (34,663) 11,459 13,286 Issuance of Long-Term Debt ............. 352,451 -- 508,771 449,800 Redemption of Long-Term Debt............ (413,105) -- (781,097) (411,150) Long-Term Debt Issuance and Redemption Costs ..................... (38,319) -- (46,781) (29,731) Redemption of Preferred Stock .......... -- -- (60,000) (75,000) Issuance of Monthly Income Preferred Securities ................. -- -- 60,000 150,000 Contributed Capital..................... -- -- 60,000 -- Cash Dividends Paid .................... (137,726) (138,882) (534,806) (545,669) Other .................................. -- 953 (474) (842) ------------ ----------- ----------- ------------ Net cash used in financing activities ..................... (74,376) (480,151) (140,847) (457,067) ------------ ----------- ----------- ------------ Net increase (decrease) in Cash and Cash Equivalents ....................... 475,800 55,492 425,183 (237,363) Cash and Cash Equivalents at Beginning of Period .............................. 32,373 27,498 82,990 320,353 ------------ ----------- ----------- ------------ Cash and Cash Equivalents at End of Period .............................. $ 508,173 82,990 $ 508,173 $ 82,990 ============ =========== =========== ============ Income Taxes Paid ........................ $ 9,049 $ 27,005 $ 261,917 $ 235,615 Interest Paid ............................ $ 101,605 $ 85,972 $ 415,142 $ 350,566 See Notes to Consolidated Financial Statements.
PUBLIC SERVICE ELECTRIC AND GAS COMPANY CONSOLIDATED STATEMENT OF RETAINED EARNINGS (Thousands of Dollars)
Three Months Ended Twelve Months Ended March 31, March 31, --------------------------- --------------------------- 1996 1995 1996 1995 ------------ ------------ ------------ ------------ Balance at Beginning of Period ........... $ 1,372,729 $ 1,292,201 $ 1,360,215 $ 1,261,863 Add: Net Income ......................... 183,650 206,896 593,718 644,863 ------------ ------------ ------------ ------------ Total ............................... 1,556,379 1,499,097 1,953,933 1,906,726 ------------ ------------ ------------ ------------ Deduct: Cash Dividends Preferred Stock, at required rates ..... 7,526 8,682 32,606 38,869 Common Stock ........................... 130,200 130,200 502,200 506,800 Adjustment to Retained Earnings......... -- -- 474 842 ------------ ------------ ------------ ------------ Total Deductions .................... 137,726 138,882 535,280 546,511 ------------ ------------ ------------ ------------ Balance at End of Period ................. $ 1,418,653 $ 1,360,215 $ 1,418,653 $ 1,360,215 ============ ============ ============ ============ See Notes to Consolidated Financial Statements.
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. RATE MATTERS Alternative Rate Plan On January 16, 1996, PSE&G filed a proposal, the "New Jersey Partners in Power" Plan (Plan) with the New Jersey Board of Public Utilities (BPU) for major changes in utility regulation that include an immediate $50 million rate reduction for PSE&G's electric customers, various types of rate freezes, elimination of fuel adjustment mechanisms, assurances that future price increases related to controllable costs will be lower than the rate of inflation and funding of up to an aggregate of $55 million in two economic development initiatives. The seven-year Plan, if approved, would give PSE&G the mechanisms and incentives to compete more effectively on several fronts, including the ability to develop revenue from non-regulated products and services, accelerate or modify depreciation schedules to help mitigate any potential stranded asset issues and more aggressively manage the control of costs. In addition, the Plan would provide the foundation for ongoing price flexibility without the need for prolonged, adversarial regulatory proceedings. On April 24, 1996, the BPU orally approved intervenor status and participatory status for twenty-two entities in the proceeding in which it will consider the proposed Plan. A BPU determination on the process and procedures to be used to decide the case is being awaited. PSE&G cannot predict what other actions, if any, may be taken by the BPU with respect to the Plan or when final action on the proposal may be completed. Salem Investigation On March 14, 1996, the BPU issued an order regarding its investigation into the continuing outage of the Salem Nuclear Generating Station. The BPU's order: 1. declared PSE&G's rates related to Salem Unit 1 interim as of March 14, 1996, and subject to refund, pending further hearings referred to below; 2. required PSE&G to file briefs with regard to why the BPU should not declare rates related to Salem Unit 2 interim and subject to refund. Such briefs were filed by PSE&G on April 14, 1996 and supported PSE&G's position that Unit 2's rates should not be declared interim and subject to refund; NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 3. required PSE&G to furnish certain other financial information related to the rate treatment of each Salem unit as well as replacement power costs associated with the outage. In addition, PSE&G must provide updates of monthly actual replacement power data for each respective unit and updates on the status of the outage, including the anticipated return to service date for each unit. On April 4, 1996, PSE&G filed with the BPU the requested financial information related to actual net plant investment included in the last base rate case for each Salem unit, operation and maintenance expenses in current electric base rates for each Salem unit and replacement power costs associated with the outage of the Salem units to date. The filing supported a base revenue requirement of $205 million as well as replacement power costs and additional on-going costs of $214 million. This information was based upon facts and circumstances which existed at the date of filing and did not contain any adjustments necessary to reflect costs which would continue to safely maintain either or both units in a shutdown mode; and 4. required further proceedings to determine if each Salem unit remains "used and useful" for rate making purposes. In April and early May, the Board held evidentiary hearings for purposes of permitting the cross-examination of witnesses pertaining solely to the issue of whether rates related to Salem Unit 2 should be interim and subject to refund. During the hearings, PSE&G's witnesses testified as to the scheduled return date of Salem Unit 2 and stated that the Nuclear Regulatory Commission (NRC) has concluded that the overall restart plan, if implemented effectively, should adequately address the numerous Salem issues to support a safe plant restart. PSE&G's witnesses also stated that the remaining work activities to achieve a Salem Unit 2 restart are known and understood by PSE&G management, do not present any novel engineering issues and that such restart is achievable using standard outage processes and management techniques. An expedited briefing schedule, with briefs due in late May and reply briefs due in early June, has been established. PSE&G cannot predict the outcome of these hearings. The issue of whether or not Salem Unit 1, and possibly Salem Unit 2, are no longer used and useful will be addressed in a separate hearing before the BPU or the Office of Administrative Law (OAL). The date for such hearing has yet to be determined. Neither Enterprise nor PSE&G can predict the outcome of this proceeding. Removal of Salem Unit 1 and/or Salem Unit 2 from base rates could have a material adverse effect on PSE&G's financial position, results of operations and net cash flows. PSE&G will oppose the issuance of any order to remove either Salem unit from base rates and believes that in the event of a unit's removal from base rates, all of the replacement power costs attributable to such unit would be recoverable through its Electric Levelized Energy Adjustment Clause (LEAC) and that the estimated $12 million Nuclear Performance Standard (NPS) penalty for 1996 would be substantially reduced. (see Note 2, Commitments and Contingent Liabilities of Notes). NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Levelized Gas Adjustment Charge On April 24, 1996, the BPU orally approved PSE&G's 1995/96 Levelized Gas Adjustment Charge (LGAC), which would finalize the interim rates approved by the BPU on December 20, 1995. The approved LGAC rates are to remain in effect through December 31, 1996. Electric Levelized Energy Adjustment Clause By Order dated May 5, 1995, the BPU approved PSE&G's LEAC. Such Order also required that a hearing be convened regarding the April 1994 Salem 1 shutdown to determine whether PSE&G should be allowed to recover replacement power costs of approximately $8 million, which have been deferred. On October 18, 1995, this matter was ordered to be transferred to the OAL for a hearing which is scheduled for June 7, 1996. PSE&G cannot predict the outcome of this proceeding. Other Rate Matters On July 21, 1995, the BPU initiated a generic proceeding to expeditiously adopt specific standards to guide utility "off-tariff" negotiated rate agreement programs. Such proceeding would consider minimum prices, confidentiality, maximum contract duration, filing requirements and such other standards as may be necessary for compliance with the law. A Written Summary Decision and Order was issued on October 27, 1995, which required each New Jersey electric utility, including PSE&G, to file initial minimum tariffs, consistent with the terms of such Order, and further, indicated that such Order will be supplemented by a Final Decision and Order to fully discuss and explain the rationale for the BPU's overall decision. On November 13, 1995, PSE&G filed its compliance filing. PSE&G cannot predict what impact, if any, the generic tariff may have on its electric revenues and earnings. In September 1994, the BPU initiated a generic proceeding regarding overrecovery of capacity costs associated with electric utility power purchases from cogenerators and small power producers. The initial phase of the proceeding, which has been transferred to the OAL, seeks to determine whether there was any such overrecovery and, if so, the amount overrecovered. Hearings were initiated during the first quarter of 1996 and are currently in progress. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The New Jersey Division of Ratepayer Advocate has intervened in the proceeding and alleges, among other things, that PSE&G has overrecovered such costs in an amount ranging from $250 to $300 million during the period from August 1991 to December 1994. PSE&G denies such overrecovery because all relevant capacity cost recovery mechanisms have been previously reviewed and approved by the BPU. Additionally, PSE&G contends that a review of any individual cost item is inappropriate and is proscribed as retroactive ratemaking. While PSE&G cannot predict the outcome of this proceeding, the final resolution of this issue may impact the financial position, results of operations or net cash flows of Enterprise and PSE&G prospectively. NOTE 2. COMMITMENTS AND CONTINGENT LIABILITIES Nuclear Performance Standard The BPU has established a NPS for nuclear generating stations owned by New Jersey electric utilities, including the five nuclear units in which PSE&G has an ownership interest: Salem Units 1 and 2 -- 42.59%; Hope Creek -- 95%; and Peach Bottom Units 2 and 3 -- 42.49%. PSE&G operates Salem Units 1 and 2 and Hope Creek, while Peach Bottom is operated by PECO Energy, Inc. (PECO). The penalty/reward under the NPS is a percentage of replacement power costs. (See table below.)
CAPACITY FACTOR RANGE REWARD PENALTY - -------------------------------------------------- ------ ------- Equal to or greater than 75%......................... 30% -- Equal to or greater than 65% and less than 75%....... None None Equal to or greater than 55% and less than 65%....... -- 30% Equal to or greater than 45% and less than 55%....... -- 40% Equal to or greater than 40% and less than 45%....... -- 50% Below 40%............................................ BPU Intervenes
Under the NPS, the capacity factor is calculated annually using maximum dependable capability of the five nuclear units in which PSE&G owns an interest. This method takes into account actual operating conditions of the units. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) While the NPS does not specifically have a gross negligence provision, the BPU has indicated that it would consider allegations of gross negligence brought upon a sufficient factual basis. A finding of gross negligence could result in penalties other than those prescribed under the NPS. PSE&G's Alternative Rate Plan proposes the elimination of the NPS. (See Note 1 - Rate Matters of Notes). Based upon current projections and assumptions regarding PSE&G's five nuclear units during 1996, including the return of Salem 2 by the end of August and the continued outage of Salem 1 for the remainder of the year, the 1996 aggregate capacity factor would be approximately 57%, which would result in a penalty of approximately $12 million. Both of the Salem units are currently out of service and their return dates are subject to completion of testing, analysis, repair activity and NRC concurrence that they are prepared to restart. Nuclear Insurance Coverages and Assessments PSE&G's insurance coverages and maximum retrospective assessments for its nuclear operations are as follows:
PSE&G MAXIMUM TOTAL ASSESSMENTS SITE FOR A SINGLE TYPE AND SOURCE OF COVERAGES COVERAGES INCIDENT - ------------------------------------- --------- ------------- (MILLIONS OF DOLLARS) Public Liability: American Nuclear Insurers........... $ 200.0 $ -- Indemnity(A)........................ 8,720.3 210.2 -------- -------- $8,920.3 (B) $ 210.2 -------- -------- Nuclear Worker Liability: American Nuclear Insurers(C)........ $ 200.0 $ 8.0 -------- -------- Property Damage: Nuclear Mutual Limited.............. $ 500.0 $ 9.2 Nuclear Electric Insurance Ltd. (NEIL II)..................... 1,400.0 8.3(D) Nuclear Electric Insurance Ltd. (NEIL III).................... 850.0 9.2 -------- -------- $2,750.0 $ 26.7 -------- -------- Replacement Power: Nuclear Electric Insurance Ltd (NEIL I)....................... $ 3.5 (E) $ 11.4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (A) Retrospective premium program under the Price-Anderson liability provisions of the Atomic Energy Act of 1954, as amended (Price- Anderson). Subject to retrospective assessment with respect to loss from an incident at any licensed nuclear reactor in the United States. Assessment adjusted for inflation effective August 20, 1993. (B) Limit of liability for each nuclear incident under Price- Anderson. (C) Industry aggregate limit representing the potential liability from workers claiming exposure to the hazard of nuclear radiation. This policy includes automatic reinstatements up to an aggregate of $200 million, thereby providing total coverage of $400 million. This policy does not increase PSE&G's obligation under Price- Anderson. (D) In the event of a second industry loss triggering NEIL II - coverage, the maximum retrospective premium assessment can increase to $18.5 million. (E) Represents limit of coverage available to co-owners of Salem and Hope Creek, for each plant. Each co-owner purchases its own policy. PSE&G is currently covered for its percent ownership interest of this limit for each plant. Price-Anderson sets the "limit of liability" for claims that could arise from an incident involving any licensed nuclear facility in the nation. The "limit of liability" is based on the number of licensed nuclear reactors and is adjusted at least every five years based on the Consumer Price Index. The current "limit of liability" is $8.9 billion. All utilities owning a nuclear reactor, including PSE&G, have provided for this exposure through a combination of private insurance and mandatory participation in a financial protection pool as established by Price-Anderson. Under Price-Anderson, each party with an ownership interest in a nuclear reactor can be assessed its share of $79.3 million per reactor per incident, payable at $10 million per reactor per incident per year. If the damages exceed the "limit of liability," the President is to submit to Congress a plan for providing additional compensation to the injured parties. Congress could impose further revenue raising measures on the nuclear industry to pay claims. PSE&G's maximum aggregate assessment per incident is $210.2 million (based on PSE&G's ownership interests in Hope Creek, Peach Bottom and Salem) and its maximum aggregate annual assessment per incident is $26.5 million. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Further, a recent decision by the U.S. Supreme Court, not involving PSE&G, held that the Price Anderson Act did not preclude awards based on state law claims for punitive damages. PSE&G is a member of two industry mutual insurance companies: Nuclear Mutual Limited (NML), and Nuclear Electric Insurance Limited (NEIL). NML provides the primary property insurance at Salem and Hope Creek. NEIL provides excess property insurance through its NEIL II and NEIL III policies and replacement power coverage through its NEIL I policy. Both companies may make retrospective premium assessments in case of adverse loss experience. PSE&G's maximum potential liabilities under these assessments are included in the table and notes above. Certain of the policies also provide that the insurer may suspend coverage with respect to all nuclear units on a site without notice if the NRC suspends or revokes the operating license for any unit on a site, issues a shutdown order with respect to such unit or issues a confirmatory order keeping such unit down. Construction and Fuel Supplies PSE&G has substantial commitments as part of its ongoing construction program which include capital requirements for nuclear fuel. PSE&G's construction program is continuously reviewed and periodically revised as a result of changes in economic conditions, revised load forecasts, changes in the scheduled retirement dates of existing facilities, changes in business strategies, site changes, cost escalations under construction contracts, requirements of regulatory authorities and laws, the timing of and amount of electric and gas rate changes and the ability of PSE&G to raise necessary capital. Pursuant to its electric Integrated Resource Plan (IRP), PSE&G periodically reevaluates its forecasts of future customers, load and peak growth, sources of electric generating capacity and demand side management (DSM) to meet such projected growth, including the need to construct new electric generating capacity. The IRP takes into account assumptions concerning future demands of customers, effectiveness of conservation and load management activities, the long-term condition of PSE&G's plants, capacity available from electric utilities and other suppliers and the amounts of co-generation and other non-utility capacity projected to be available. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Based on PSE&G's construction program, construction expenditures are expected to aggregate approximately $2.8 billion, which includes $428 million for nuclear fuel and $84 million of Allowance for Funds used During Construction (AFDC) during the years 1996 through 2000. The estimate of construction requirements is based on expected project completion dates and includes anticipated escalation due to inflation of approximately 3%, annually. Therefore, construction delays or higher inflation levels could cause significant increases in these amounts. PSE&G expects to generate internally the funds necessary to satisfy its construction expenditures over the next five years, assuming adequate and timely recovery of costs, as to which no assurances can be given. In addition, PSE&G does not presently anticipate any difficulties in obtaining sufficient sources of fuel for electric generation or adequate gas supplies during the years 1996 through 2000. Hazardous Waste Certain Federal and State laws authorize the United States Environmental Protection Agency (EPA) and the New Jersey Department of Environmental Protection (NJDEP), among other agencies, to issue orders and bring enforcement actions to compel responsible parties to take investigative and remedial actions at any site that is determined to present an imminent and substantial danger to the public or the environment because of an actual or threatened release of one or more hazardous substances. Because of the nature of PSE&G's business, including the production of electricity, the distribution of gas and, formerly, the manufacture of gas, various by-products and substances are or were produced or handled which contain constituents classified as hazardous. PSE&G generally provides for the disposal or processing of such substances through licensed independent contractors. However, these statutory provisions impose joint and several responsibility without regard to fault on all responsible parties, including the generators of the hazardous substances, for certain investigative and remediation costs at sites where these substances were disposed of or processed. PSE&G has been notified with respect to a number of such sites and the remediation of these potentially hazardous sites is receiving greater attention from the government agencies involved. Generally, actions directed at funding such site investigations and remediation include all suspected or known responsible parties. PSE&G does not expect its expenditures for any such site to have a material adverse effect on its financial position, results of operations or net cash flows. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) PSE&G Manufactured Gas Plant Remediation Program In 1988, NJDEP notified PSE&G that it had identified the need for PSE&G, pursuant to a formal arrangement, to systematically investigate and, if necessary, resolve environmental concerns extant at PSE&G's former manufactured gas plant sites. To date, NJDEP and PSE&G have identified 38 former gas plant sites. PSE&G is currently working with NJDEP under a program to assess, investigate and, if necessary, remediate environmental concerns at these sites (Remediation Program). The Remediation Program is periodically reviewed and revised by PSE&G based on regulatory requirements, experience with the Remediation Program and available technologies. The overall cost of the Remediation Program cannot be reasonably estimated, but experience to date indicates that costs of at least $20 million per year could be incurred over a period of more than 30 years and that the overall cost could be material to PSE&G's financial position, results of operations or net cash flows. NOTE 3. LONG-TERM DEBT Enterprise's long-term debt aggregated $5.1 billion as of March 31, 1996, of which $4.5 billion was attributable to PSE&G and $600 million to Enterprise Diversified Holdings Incorporated (EDHI), the parent of Enterprise's nonutility businesses. On January 30, 1996, PSE&G issued the following series of its First and Refunding Mortgage Bonds (Bonds): $200 million principal amount of its 6-3/4% Series VV due 2016 and $150 million principal amount of its 6-1/4% WW due 2007. PSE&G applied the net proceeds from the sale of new Bonds, together with other funds, to defease in substance: $196.0 million aggregate principal amount of its 8-3/4% Series EE Bonds due 2021 and $148.5 million aggregate principal amount of its 8-3/4% Series HH Bonds due 2022. In addition, PSE&G retired $65 million of its 8-1/2% Series LL Bonds due 2022 and exercised a $2.5 million optional cash sinking fund. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 4. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT Natural Gas and Crude Oil Hedging Energy Development Corporation (EDC) sold natural gas futures contracts outstanding at March 31, 1996 and 1995 which hedged 12,630,000 mmbtu and 9,020,000 mmbtu, respectively. Such amounts represented approximately 18% of EDC's anticipated domestic natural gas production for the remainder of 1996 and 17% of EDC's production for 1995, respectively, at average sales prices of $1.83 per mmbtu and $1.95 per mmbtu, respectively. At March 31, 1996, EDC sold crude oil futures contracts outstanding which hedged 1.1 million barrels of oil representing approximately 39% of EDC's anticipated domestic oil production in 1996 at an average price of $17.81 per barrel. The deferred unrealized (losses) gains at March 31, 1996 and 1995 related to EDC's futures contracts were ($7.0) million and $1.7 million, respectively. Through March 31, 1996 and 1995, U.S. Energy Partners (USEP) entered into futures contracts and swaps to buy 2,440,000 mmbtu and 3,140,000 mmbtu of natural gas at average prices of $1.81 and $1.79 per mmbtu, respectively, related to fixed-price sales commitments. Such contracts, together with physical purchase contracts, hedged approximately 86% and 84% of fixed-price sales commitments at March 31, 1996 and 1995. USEP had deferred unrealized hedge gains of $2.1 million and $15 thousand at March 31, 1996 and 1995, respectively. PUBLIC SERVICE ELECTRIC AND GAS COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS PSE&G Except as modified below, the Notes to Consolidated Financial Statements of Enterprise are incorporated herein by reference insofar as they relate to PSE&G and its subsidiaries: Note 1. Rate Matters Note 2. Commitments and Contingencies Note 3. Long-Term Debt ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ENTERPRISE Following are the significant changes in or additions to information reported in Enterprise's Annual Report to the Securities and Exchange Commission (SEC) on Form 10-K for 1995, affecting the consolidated financial condition and the results of operations of Enterprise and its subsidiaries. This discussion refers to the Consolidated Financial Statements and related Notes to Consolidated Financial Statements (Notes) of Enterprise and should be read in conjunction with such statements and Notes. Overview As of March 31, 1996, PSE&G comprised 85% of Enterprise's assets. For the three months and twelve months ended March 31, 1996, PSE&G revenues were 95% and 92%, respectively, of Enterprise's revenues and PSE&G's earnings available to Enterprise for such periods were 91% and 87%, respectively, of Enterprise's net income. On December 6, 1995, Enterprise announced that it will pursue the divestiture of Energy Development Corporation (EDC) during 1996 through either a sale or spin-off. On March 13, 1996, Enterprise filed a Form S-1 Registration Statement with the SEC, which has not yet become effective, to position Enterprise to undertake an initial public offering of up to 20 percent of EDC and subsequently spin-off the remainder of EDC in a tax-free transaction to Enterprise shareholders. Enterprise continues to solicit offers from the private marketplace with the intention of further evaluating its alternatives. No determination has yet been made as to which path will be undertaken and a decision is anticipated over the next few months. Competition The regulatory structure which has historically embraced the electric and gas industry is in the process of transition. Legislative and regulatory initiatives, at both the federal and state levels, are designed to promote competition and will continue to impose additional pressures on PSE&G's ability to retain customers. In addition, new technology and interest in self generation and cogeneration have provided customers with alternative sources of energy. Over the last several years, the gas industry has been transformed. Today, commercial and industrial customers can negotiate their own gas purchases directly with producers or brokers, while PSE&G is required to provide intrastate transportation of such purchased gas to the customers' facilities. Although PSE&G is not providing gas sales service to certain commercial and industrial customers, to date there has been no negative impact on earnings since sales service and transportation service tariffs result in the same non-fuel revenue per therm. Additionally, as a result of this restructuring, PSE&G has been able to negotiate lower cost gas supplies for those customers who continue to be part of its bundled rate schedules. A potential significant competitive challenge could emerge if interstate pipeline companies are permitted to expand their facilities into PSE&G territory and provide intrastate transportation to customers. However, this type of expansion would require federal and state regulatory approvals not currently in existence. The restructuring of the electric industry is more complex and evolving at a slower pace than that of the gas industry. Federal legislation, such as the National Energy Policy Act of 1992 (EPAct) has eased restrictions on independent power producers (IPP) in an effort to increase competition in the wholesale electric generation market. As the barriers to entry in the power production business have been lowered, the construction of cogeneration facilities and independent power production facilities has been growing, with the result of creating lower cost alternatives for large commercial and industrial customers. Presently, PSE&G is in the process of assessing the potential for individual arrangements with commercial and industrial customers which have such competitive alternatives, but PSE&G believes that it does not currently have a material exposure with respect to such customers. Further, EPAct authorized the Federal Energy Regulatory Commission (FERC) to mandate utilities to transport and deliver or "wheel" energy for the supply of bulk power to wholesale customers. On April 24, 1996, the FERC issued final rules, to become effective on July 9, 1996, requiring all public utilities owning, controlling or operating transmission lines to file non-discriminatory open access tariffs that offer others the same transmission service they provide to themselves. Transmission services covered by the final rule include network and point-to-point services, as well as ancillary services. The final rules include a pro forma tariff setting minimum terms and conditions of service for non-discriminatory open access transmission service. Public utilities are required both to offer service to others under the pro forma tariff and to use the pro forma tariff for their own wholesale energy sales and purchases. No later than December 31, 1996, intra-pool transactions for power pools must be under a joint, pool-wide pro forma tariff. The final rules also provide public utilities with the opportunity to seek full recovery of prudently incurred, legitimate and verifiable wholesale stranded costs resulting from customer use of open access transmission service to move to another supplier. To be eligible for recovery, stranded costs must be associated with wholesale requirement contracts signed before July 11, 1994. After that date, recovery must be specifically provided for in the contract. The FERC ruled that stranded costs should be recovered from a utility's departing customers. The FERC also stated that if costs are stranded by retail wheeling, utilities should look to the states first to recover those costs. FERC will become involved only if state regulators lack authority under state law provide for stranded cost recovery. (See the discussion of Phase II of the New Jersey Energy Master Plan, below). There is opposition in Congress and among Northeastern governors to this FERC ruling due to environmental concerns. The assumption is that as deregulation occurs there will be a race to purchase the cheapest power available. That power will likely come from older, coal- burning generating facilities in the Midwest that are subject to very few pollution control requirements. To sell more of their cheap electricity, these facilities will have to increase their power production which will, in turn, increase the release of pollutants that eventually make their way to New Jersey and other Northeastern States due to the prevailing westerly winds and the jet stream. A New Jersey Congressman is currently gathering co-sponsors to a resolution to block the implementation of this rule and send it back to FERC to be rewritten in a way that will protect air quality in the Northeast. In the wholesale electric market, other competitive pressures, such as municipalization, may also have an impact on utilities in the evolving electric power industry. Municipalization involves the acquisition and operation of existing investor-owned facilities by a municipal utility (MUNI) through condemnation, purchase or lease or the construction and operation of duplicate, parallel facilities within a municipal boundary. As a result, utilities, such as PSE&G, could lose customers (residential, commercial and industrial) in the municipality that is served by the MUNI, as well as lose the municipal entity itself as a customer. EPAct granted the states sole authority to mandate retail wheeling. The BPU has not yet authorized retail wheeling for the State of New Jersey. New Jersey regulators have been reviewing existing regulations in an effort to develop a revised regulatory structure that would afford public utilities, such as PSE&G, increased flexibility to meet the competitive challenges of the future. Phase I of the New Jersey Energy Master Plan (Phase I), a two-phase plan to better manage the future energy needs of the State, has been completed. Phase I called for legislation that would allow New Jersey utilities to propose, subject to BPU approval, alternatives to rate base/rate of return pricing, allow for pricing flexibility under certain standards for customers with competitive options and equalize the impact of tax policies, such as the New Jersey Gross Receipts and Franchise Tax (NJGRT) currently assessed on retail energy utility sales, upon all energy producers. On June 1, 1995, the BPU issued its Order initiating a formal Phase II proceeding of the Master Plan. The proceeding will address wholesale and retail competition in New Jersey. The Phase II draft report for the New Jersey Energy Master Plan proposing policy restructuring is expected by the end of May 1996 with a final report expected to be issued by the end of 1996. This report is expected to address the recovery of any stranded costs attributable to power wheeling. Recoverability of stranded costs for PSE&G will be largely dependent on the final Phase II report and on the rules to be established by the BPU. Stranded costs that could result as the industry moves to a more competitive environment include investments in generating facilities, transmission assets, purchase power agreements where the price being paid under such an agreement exceeds the market price for electricity and regulatory assets for which recovery is based solely on continued cost based regulation. At this time, management cannot predict the level of stranded costs, if any, or the extent to which the BPU will allow recovery of such costs. A joint task force of the BPU and the New Jersey Treasury Department has proposed replacing the current gross receipts and franchise tax on electric and gas utilities with a combination of New Jersey's existing corporate business tax, New Jersey's existing state sales and use tax and a transitional tax which will be phased out over a five or six year time frame. After the phase-out is completed, the proposal is expected to significantly reduce the tax burden on electric and gas utilities and improve their competitive position vis a vis non- utility energy providers and energy providers in other states. Increased competition and the shift of risks and opportunities between rate payers and PSE&G resulting from PSE&G's filing of its proposed Alternative Rate Plan (See Note 1, Rate Matters of Notes) will increase the emphasis upon electric operational reliability, efficiency and cost. While the incremental cost of nuclear production is less expensive than PSE&G's other sources of generation, comparatively high embedded costs for nuclear plants increase the need for PSE&G to optimize the utilization of its nuclear generating capacity in order to make its actual generation output cost competitive. Nuclear Operations Both of the Salem units are currently out of service and their return dates are subject to completion of testing, analysis, repair activity and NRC concurrence that they are prepared to restart. Restart of Salem 1 will be delayed as a result of the ongoing steam generator inspection and analysis. PSE&G is currently considering three repair and replacement options for the steam generators in Salem 1. The first option, repairing of degraded tubes by sleeving, has an estimated cost of $19 to $38 million (PSE&G's share would be $8 to $16 million) and would permit Salem 1 to operate for up to one cycle. This option would, however, require further repair expenditures to permit the unit to continue to operate after this 18 month period. The second option, replacing the steam generators with unused steam generators from a utility that had previously canceled a new plant, has an estimated cost of $150 to $170 million (PSE&G's share would be $64 to $72 million) and would permit the plant to operate for the remainder of its license term. The third option would combine the first option's repair with replacement by a newly constructed steam generator at the end of three years and would cost of $169 to $208 million (PSE&G's share would be $72 to $88 million). This option could involve additional inspections, repairs and/or mid-cycle outage costs. Implementation of one or more of these options may enable Salem 1 to return to service by mid-1997. Evaluations of the repair/replacement options and decisions by the Salem co-owners on the preferred course of action are expected to be completed by the end of the second quarter of 1996. Completion of the repair/replacement option selected is not expected to materially increase PSE&G's current construction program (See Construction and Fuel Supplies). Salem 2, which is also undergoing steam generator inspection and analysis is scheduled to return to service by the end of August 1996. The inability to successfully return these units to continuous, safe operation could have a material effect on the financial position, results of operation and net cash flows of Enterprise and PSE&G. Results of Operations Earnings per share of Enterprise Common Stock were $0.79 for the three months ended March 31, 1996, a decrease of $.08 per share of Common Stock from the comparable 1995 period. Earnings per share of Enterprise Common Stock were $2.63 for the twelve-month period ended March 31, 1996, a decrease of $.07 per share of Common Stock from the comparable 1995 period. The decrease in first quarter and twelve-month earnings was primarily due to higher maintenance expenses associated with the shutdown of Salem Nuclear Generating Station, the scheduled refueling outage of the Hope Creek Nuclear Generating Station, increased depreciation expense due to more plant in service and a decrease in the Allowance for Funds Used During Construction due to a decrease in construction work in progress. These negative variances were partially offset by increased off-system gas sales and increased residential sales during this winter season. PSE&G - Earnings Available to Enterprise Increase or (Decrease) ---------------------------------- Three Months Twelve Months Ended March 31, Ended March 31, 1996 vs. 1995 1996 vs. 1995 ---------------- --------------- Per Per Amount Share Amount Share ------ ------ ------ ------ (Millions, except Per Share Data) PSE&G Revenues (net of fuel costs and gross receipts taxes).............................. $ 43 $ .18 $ 99 $ .40 Other operation expenses....................... (23) (.09) (7) (.03) Maintenance expenses........................... (31) (.13) (48) (.20) Depreciation and amortization expenses......... (9) (.04) (40) (.16) Federal income taxes........................... 8 .03 (30) (.12) Interest charges............................... (2) (.01) (5) (.02) Allowance for Funds used During Construction (AFDC)......................................... (6) (.02) (11) (.04) Preferred Securities Dividend Requirements..... -- -- (5) (.02) Other income and expenses...................... (2) (.01) 2 .01 ----- ----- ----- ----- Earnings Available to Enterprise............... $ (22) $(.09) $(45) $ (.18) ===== ===== ===== ===== PSE&G - Revenues Electric Revenues increased $13 million, or 1%, and $239 million, or 6% for the three and twelve-month periods ended March 31, 1996 over the comparable periods of 1995 primarily due to a higher recovery of energy costs, increased residential and commercial sales due to colder weather during the current heating season and the continued moderate growth in the economy during the last few years. The significant components of these changes follow: Increase or (Decrease) ----------------------------------- Three Months Twelve Months Ended March 31, Ended March 31, 1996 vs. 1995 1996 vs. 1995 ---------------- - --------------- (Millions) Kilowatt hour sales............................ $ 4 $ 30 Recovery of energy costs....................... 8 156 NJGRT.......................................... 4 16 Other operating revenues....................... (3) 37 ----- ----- Total Electric Revenues........................ $ 13 $ 239 ===== ===== Gas Revenues increased $162 million, or 26%, and $237 million, or 15% for the three and twelve-month periods ended March 31, 1996 over the comparable periods of 1995 primarily due to a higher recovery of fuel costs, increased residential sales due to colder weather during the current heating season and increased cogeneration sales. Other operating revenues increased due to an increase in off-system sales. Off-system sales are sales of excess gas to brokers and other utilities which are not part of PSE&G's firm customer base. The significant components of these changes follow: Increase or (Decrease) ----------------------------------- Three Months Twelve Months Ended March 31, Ended March 31, 1996 vs. 1995 1996 vs. 1995 ---------------- - --------------- (Millions) Therm sales............................... $ 29 $ (9) Recovery of fuel costs.................... 120 163 NJGRT..................................... 8 42 Other operating revenues.................. 5 41 ----- ----- Total Gas Revenues............ $ 162 $ 237 ===== ===== PSE&G - Expense Fuel Expenses Variances in fuel expenses do not directly affect earnings because of fuel adjustment clauses which are part of PSE&G's rates (See Note 1 - Rate Matters of Notes). However, if the proposed Alternative Rate Plan is adopted as filed, future changes in electric fuel and replacement power costs could impact earnings. Other Operation Expenses During the first quarter of 1996, other operation expenses increased $23 million or 10% from the comparable 1995 period due to increased costs associated with the Hope Creek refueling outage, increased labor costs for electric distribution related to emergency work, increased labor expenses for the gas business as a result of colder weather conditions and higher uncollectibles and conservation costs. For the twelve months ended March 31, 1996, other operation expenses increased $7 million or 1% from the comparable 1995 period due to restart and outage costs at Salem, higher conservation costs for both the electric and gas business and higher administrative and general expenses for the Peach Bottom Station. Maintenance Expenses Maintenance expenses increased $31 million and $48 million for the three and twelve-month periods ended March 31, 1996 from the same periods ended March 31, 1995. The three and twelve-month increases are due to refueling outage expenses and increased labor expenses associated with the shutdown of the Salem Nuclear Generating Station and the refueling and maintenance outage of the Hope Creek Nuclear Generating Station. Depreciation and Amortization Expenses Depreciation and amortization expenses increased $9 million and $40 million for the three and twelve-month periods ended March 31, 1996 from the same periods ended March 31, 1995. The three and twelve-month increases are primarily due to the placement in service of the repowered Bergen Generating Station, completed in September 1995, and additions to plant in service. Federal Income Taxes Federal income taxes decreased $8 million and increased $31 million for the three and twelve-month periods ended March 31, 1996 from the same periods ended March 31, 1995. The three month decrease is primarily due to the decrease in 1996 pre-tax income and the twelve- month increase is principally due to the receipt of a non-taxable insurance benefit in 1994. Interest Charges Interest charges for the three and twelve-month period ended March 31, 1996 increased $2 million and $5 million compared to the same period ended March 31, 1995. The three and twelve-month increases are primarily due to a higher daily balance of short-term debt outstanding at higher interest rates. Allowance for Funds Used During Construction For the first quarter of 1996, there was a $6 million decrease in AFDC from the first quarter of 1995. This was principally due to a lower AFDC rate and a decrease in construction work in progress, due primarily to the completion of the repowering of Bergen Generating Station and its placement into service in September 1995. For the twelve months ended March 31, 1996, there was an $11 million decrease in AFDC from the twelve months ended March 31, 1995. This was principally due to a decrease in construction work in progress, due primarily to the completion of the repowering of Bergen Generating Station and its placement into service in September 1995. Preferred Securities Dividend requirements on preferred securities increased $5 million for the twelve month period ended March 31, 1996 over the comparable twelve month period of 1995. The increase is due to the issuance of higher rate Monthly Income Preferred Securities used to redeem certain issues of PSE&G Preferred Stock. EDHI - Earnings Available to Enterprise Increase or (Decrease) ----------------------------------- Three Months Twelve Months Ended March 31, Ended March 31, 1996 vs. 1995 1996 vs. 1995 ---------------- --------------- Per Per Amount Share Amount Share ------ ------ ------ ------ (Millions, except Per Share Data) [S] [C] [C] [C] [C] PSRC..................... (2) (.01) (7) (.03) CEA...................... (2) (.01) (4) (.02) EDC...................... 9 .03 40 .16 EGDC..................... (1) -- (1) -- ----- ----- ----- ----- Total............ 4 .01 28 .11 ===== ===== ===== ===== The net income of EDHI was $18 million for the quarter ended March 31, 1996, a $4 million increase over the comparable 1995 quarter. The increase is primarily due to Energy Development Corporation (EDC), which saw its income increase $9 million due to higher oil and gas prices and volumes. Public Service Resources Corporation 's (PSRC) income decreased $2 million due to lower income from limited partnerships, partially offset by an increase in market values of securities. Community Energy Alternative Incorporated 's (CEA) income decreased $2 million due to higher development expenses. The net income of EDHI was $83 million for the twelve month period ended March 31, 1996, an increase of $28 million over the twelve month period ended March 31, 1995. This is primarily due to EDC, which saw its income increase $40 million, of which $23 million was due to the realization of a settlement related to a take-or-pay sales contract. The remaining increase was due to higher gas prices and higher oil prices and volumes. Dividends Dividends paid to holders of PSE&G's Preferred Stock during the three and twelve month periods ended March 31, 1996 decreased $1.2 million and $6.3 million, respectively, over the comparable 1995 periods. The three and twelve-month decreases are due to the redemption of certain series of preferred stock. (See Liquidity and Capital Resources.) Dividends payable to holders of Monthly Income Preferred Securities of Public Service Electric and Gas Capital, L.P. (Partnership), a limited partnership of which PSE&G is the general partner, increased $1.2 million and $11.7 million during the three and twelve month periods ended March 31, 1996 over the comparable 1995 periods. The three and twelve-month increases are due to the issuance of additional securities. Liquidity and Capital Resources Enterprise's liquidity is affected by maturing debt, investment and acquisition activities, the capital requirements of PSE&G's and EDHI's construction and investment programs, permitted regulatory recovery of expenses and collection of revenues. Capital resources available to meet such requirements depend upon general and regional economic conditions, PSE&G's customer retention and growth, the ability of PSE&G and EDHI to meet competitive pressures and to contain costs, the adequacy and timeliness of rate relief, cost recovery and necessary regulatory approvals, the ability to continue to operate and maintain nuclear plants in accordance with NRC and BPU requirements, the impact of environmental regulations, continued access to the capital markets and continued favorable regulatory treatment of consolidated tax benefits. (For additional information see the discussion of Competition above and Note 2, Commitments and Contingent Liabilities of the Notes.) PSE&G For the three-month period ended March 31, 1996, PSE&G had utility plant additions, including AFDC, of $101 million, a decrease of $37 million from the corresponding period in 1995. For the twelve-month period ended March 31, 1996, PSE&G had utility plant additions, including AFDC, of $649 million, a decrease of $202 million from the corresponding period in 1995. Construction expenditures were related to improvements in PSE&G's existing power plants, transmission and distribution system, gas system and common facilities. PSE&G also expended, for the cost of plant removal (net of salvage), $11 million and $39 million for the three-month and twelve-month periods ended March 31, 1996, respectively, compared to $2 million and $28 million for the corresponding periods in 1995. PSE&G expects that it will be able to internally generate all of its capital requirements, including construction expenditures, over the next five years and reduce its debt outstanding by approximately $1 billion, assuming adequate and timely recovery of costs, as to which no assurances can be given. (See Note 1 -- Rate Matters and Note 2 -- Commitments and Contingent Liabilities of Notes.) EDHI During the next five years, a majority of EDHI's capital requirements are expected to be provided from operational cash flows. CEA is expected to be the primary vehicle for EDHI's business growth. A significant portion of CEA's growth is expected to occur in the international arena due to the current and anticipated growth in electric capacity required in certain regions of the world. EDC will continue to pursue a program to grow its reserve base through a combination of strategic acquisitions, high potential exploration activities and exploitation of its acquired properties and new discoveries. For discussion regarding the potential divestiture of EDC, see Overview. PSRC will continue to limit new investments to those related to energy businesses, while Enterprise Group Development Corporation (EGDC) will continue to exit the real estate business in a prudent manner. Over the next several years, EDHI and its subsidiaries will also be required to refinance a portion of their maturing debt in order to meet their capital requirements. In addition, any divestiture of EDC will require the renegotiation of existing loan agreements of Enterprise Capital Funding Corporation (Funding). Any inability to extend or replace maturing debt and or existing agreements at current levels and interest rates may affect future earnings and result in an increase in EDHI's cost of capital. PSRC is a limited partner in various limited partnerships and is committed to make investments from time to time, upon the request of the respective general partners. At March 31, 1996, $58 million remained as PSRC's unfunded commitment subject to call. EDHI and each of its subsidiaries are subject to restrictive business and financial covenants contained in existing debt agreements and are required to not exceed various debt to equity ratios which vary from 3:1 to 1.75:1. EDHI is also required to maintain a twelve-months earnings before interest and taxes to interest (EBIT) coverage ratio of at least 1.35:1. As of March 31, 1996 and 1995, EDHI had a consolidated debt to equity ratio of 1.11:1 and 1.13:1, respectively, and for the twelve months ended March 31, 1996 and 1995, EBIT coverage ratios, as defined to exclude the effects of EGDC, of 2.60:1 and 1.87:1, respectively. Compliance with applicable financial covenants will depend upon future financial position and levels of earnings, as to which no assurance can be given. Long-Term Investments and Real Estate Long-Term investments and real estate increased $7 million for the three-month period ended March 31, 1996 primarily due to an increase in Public Service Conservation Resources Corporation 's (PSCRC) long- term investments. Long-Term investments and real estate increased $6 million for the three-month period ended March 31, 1995 due to PSRC and EGDC partnership investments, partially offset by CEA capital returns from partnerships. Long-Term investments and real estate increased $83 million for the twelve-month period ended March 31, 1996 primarily due to an increase in PSCRC's long-term investments. Long-Term investments and real estate decreased $32 million for the twelve-month period ended March 31, 1995 primarily due to a net decrease in PSE&G's investment in an insurance contract, partially offset by PSRC and CEA investments in partnerships. PSRC, through its Kohlberg, Kravis, Roberts and Co. (KKR) Leveraged Buy-Out Fund, was the beneficial owner of common stock in First Interstate Bank, which had a book value of $6.2 million. On April 1, 1996, First Interstate Bank was acquired by Wells Fargo Bank and, subsequent to that merger, the investment was sold by KKR resulting in a PSRC after-tax gain of approximately $11.8 million. PSRC, through its KKR Leveraged Buy-Out Fund, was also the beneficial owner of common stock in a company which has suffered earnings disappointments. In April 1996, PSRC recorded an after-tax valuation allowance of approximately $4.6 million against this investment. Continuing its program of prudently exiting the real estate business, EGDC signed an agreement in April 1996 to sell an office project located in Valley Forge, Pennsylvania for approximately the book value ($9.5 million) of the project. The sale is expected to close in July 1996. Internal Generation of Cash from Operations Enterprise's cash from operations is generated primarily from the operating activities of PSE&G. Enterprise's cash provided by operations for three months ended March 31, 1996 in the amount of $700 million was substantially the same as the corresponding period in 1995. The increase in PSE&G's revenues (partially offset by the increase in accounts receivable and unbilled revenues), was substantially offset by an increase in PSE&G's operation and maintenance expense (mainly gas purchased and the Salem outage and Hope Creek refueling, respectively). For additional information see Results of Operations. Enterprise's cash provided by operations for twelve months ended March 31, 1996 increased $308 million to $1.494 billion from the corresponding period in 1995. This increase is primarily due to the increase in PSE&G's revenues partially offset by an increase in accounts receivable and unbilled revenues and a decrease in PSE&G's gross receipts taxes. For additional information see Results of Operations. External Financings - PSE&G The BPU has authorized PSE&G to issue approximately $4.375 billion aggregate amount of additional Bonds/MTNs/Preferred Stock/Preferred Securities through 1997 for refunding purposes. Under its Mortgage, PSE&G may issue new Bonds against retired Bonds and, as of March 31, 1996, up to $2.840 billion aggregate amount of new Bonds against previous additions and improvements to utility plant, provided that the ratio of earnings to fixed charges is at least 2:1. At March 31, 1996 the ratio was 2.70:1. In January 1996, PSE&G issued $350 million of Bonds. The net proceeds from the sale were deposited in an escrow account for the purpose of refunding certain higher cost bonds at their respective first optional redemption dates in November 1996 and February 1997. On April 23, 1996, PSE&G filed a registration statement with the SEC relating to the sale of up to $350 million of Quarterly Income Preferred Securities. The proceeds from these securities will be used for general corporate purposes and to redeem outstanding preferred stock. The BPU has authorized PSE&G to issue and have outstanding at any one time through January 1, 1997 not more than $1 billion of its short- term obligations, consisting of commercial paper and other unsecured borrowings from banks and other lenders. On March 31, 1996, PSE&G had $632 million of short-term debt outstanding. To provide liquidity for its commercial paper program, PSE&G has a $500 million one year revolving credit agreement expiring in August 1996 and a $500 million five year revolving credit agreement expiring in August 2000 with a group of commercial banks, which provides for borrowing up to one year. On March 31, 1996, there were no borrowings outstanding under these credit agreements. PSE&G expects to be able to renew the credit agreement expiring in 1996. PSCRC has a $30 million revolving credit facility supported by a PSE&G subscription agreement in an aggregate amount of $30 million which terminates on March 6, 1997. As of March 31, 1996, PSCRC had $30 million outstanding under this facility. In March 1996, PSCRC entered into a secured term loan facility for loans maturing in three to five years up to $40 million. The agreement terminates in March 1998. As of March 31, 1996, there was $2 million outstanding under this facility. PSE&G Fuel Corporation (Fuelco) has a $150 million commercial paper program to finance a 42.49% share of Peach Bottom nuclear fuel, supported by a $150 million revolving credit facility with a group of banks. The credit facility expires on June 28, 1996, however, an extension is currently being negotiated. PSE&G has guaranteed repayment of Fuelco's respective obligations. As of March 31, 1996, Fuelco had commercial paper of $80 million outstanding under such program. External Financings - EDHI Funding has a commercial paper program, supported by a commercial bank letter of credit and credit facility, in the amount of $225 million expiring in March 1998. As of March 31, 1996, Funding had $186 million of borrowings outstanding under this commercial paper program. Additionally, Funding has a $225 million revolving credit facility expiring in March 1998. As of March 31, 1996, Funding had $100 million of borrowings outstanding under this facility. PSEG Capital Corporation's (Capital) MTN program provides for an aggregate principal amount of up to $650 million of MTNs so that its total debt outstanding at any time, including MTNs, would not exceed such amount. At March 31, 1996, Capital had total debt outstanding of $461 million, including $355 million of MTNs. PSE&G The information required by this item is incorporated herein by reference to the following portions of Enterprise's Management's Discussion and Analysis of Financial Condition and Results of Operations, insofar as they relate to PSE&G and its subsidiaries: Overview; Competition; Nuclear Operations; Results of Operations; Dividends; Liquidity and Capital Resources; Long-Term Investments and Real Estate; Internal Generation of Cash from Operations; and External Financings. PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED PART II. OTHER INFORMATION Item 1. Legal Proceedings - ------ ----------------- Certain information reported under Item 1 of Part I of Enterprise's and PSE&G's Annual Reports to the SEC on Form 10-K for 1995 (the "Form 10-K") is updated herein at the respective pages indicated. References are to the related pages and paragraph(s) of the Form 10-Q. As previously reported in a current report on Form 8-K filed on March 14, 1996, PSE&G and the three other co-owners of Salem filed suit in February 1996 in the United States District Court for the District of New Jersey against Westinghouse Electric Corporation (Westinghouse) seeking damages to recover the cost of replacing the steam generators at Salem Units 1 and 2. The suit alleges fraud and breach of contract by Westinghouse in the sale, installation and maintenance of the generators. Westinghouse filed an answer and $2.5 million counterclaim for unpaid work related to services at Salem on April 30, 1996. As also reported in the March 14th Form 8-K, the co-owners of Salem have filed lawsuits against Enterprise and PSE&G in the United States District Court for the Eastern District of Pennsylvania and in the New Jersey Superior Court alleging mismanagement by PSE&G in its operation of Salem and are seeking unspecified compensatory and punitive damages. PSE&G's answers regarding these matters are presently required to be filed in late May. While PSE&G cannot predict the outcome of these proceedings, PSE&G believes it has operated Salem in accordance with the requirements of the owners agreement and applicable law. PSE&G believes it has substantial and valid defenses and will vigorously oppose both of these actions. As reported in the Form 10-K at page 39 and in the March 14th Form 8-K, three shareholder derivative action civil complaints have been filed against Enterprise and certain of its directors and officers seeking to recover unspecified damages for alleged losses purportedly arising out of PSE&G's operations of Salem and Hope Creek. Enterprise's answers with respect to these actions are expected to be required to be filed in June 1996. In addition, see the following at the pages indicated: (1) Page 11. Proceedings before the BPU relating to PSE&G's proposed Alternative Rate Plan, Docket No. E096010028. Form 10-K, Page 73. PART II. OTHER INFORMATION - (Continued) Item 1. Legal Proceedings - (Concluded) - ------ ------------------------------- (2) Page 13. Proceedings before the BPU relating to PSE&G's LGAC filed October 2, 1995, Docket No. GR9510456. Form 10-K, Page 75. (3) Page 13. Proceedings before the BPU relating to recovery of replacement power costs in connection with the April 1994 Salem 1 shutdown, Docket No. ER94070293. Form 10-K, Page 75. (4) Page 13. Generic proceeding before the BPU relating to recovery of capacity costs associated with power purchases from cogenerators, Docket No. EX93060255. Form 10-K, Page 76. (5) Page 13. Generic proceedings before the BPU relating to standards for "off tariff" negotiated rate agreement programs, Docket No. EX95070320. Form 10-K, Page 76. Item 4. Submission of Matters to a Vote of Security Holders - ------ --------------------------------------------------- Enterprise's Annual Meeting of Stockholders was held on April 16, 1996. Proxies for the meeting were solicited pursuant to Regulation 14A under the Securities Exchange Act of 1934. There was no solicitation of proxies in opposition to management's nominees as listed in the proxy statement and all of management's nominees were elected to the board of directors. Details of the voting are provided below: Votes Votes For Withheld --------- -------- Proposal 1 - Election of Directors Class I - Term expiring 1997 Forrest J. Remick.............. 197,707,113 4,533,230 Class II- Term expiring 1999 T. J. Dermot Dunphy............ 197,876,136 4,364,207 Raymond V. Gilmartin........... 197,863,646 4,376,697 Josh S. Weston................. 197,806,930 4,433,413 Votes Votes Votes For Against Abstaining --------- --------- ---------- Proposal 2 - Appointment of Deloitte & Touche LLP as Independent Auditors for 1996........ 199,726,538 1,070,013 1,443,792 There were no broker non-votes with respect to either item. PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED PART II. OTHER INFORMATION - (Continued) Item 5. Other Information - ------ ----------------- Certain information reported under Item 1 of Part I of Enterprise's and PSE&G's Annual Reports to the Securities and Exchange Commission on Form 10-K for 1995 (the "Form 10-K") is updated below. References are to the related pages and paragraph(s) of the Form 10-K as printed and distributed. Credit Ratings Form 10-K, Page 5, Paragraph 6 ------------------------------ As a component of issuing ratings, each rating agency issues its opinion of the credit trend or outlook for the entity being rated. For PSE&G, each of the four rating agencies currently evaluate that trend or outlook as negative. PSE&G - Nuclear Operations Form 10-K, Page 10, Paragraph 4 ------------------------------- The scheduled 1996, 1997, and 1998 refueling outages, each estimated at eight to ten weeks duration, for PSE&G's five licensed nuclear units are expected to commence in the following months:
REFUELING OUTAGES -------------------------------------------- 1996 1997 1998 ------------- ------------- ------------- Salem 1.......... -- -- -- Salem 2.......... -- -- February Hope Creek....... -- September -- Peach Bottom 2... September -- September Peach Bottom 3... -- September --
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED PART II. OTHER INFORMATION - (Continued) Item 5. Other Information - (Continued) - ------ ------------------------------ Form 10-K, Page 10 thru Page 12 ------------------------------- With respect to Salem 1, the most recent inspection of the steam generators is not complete, but partial results from eddy current inspections in February 1996 show indications of degradation in a significant number of tubes. PSE&G has removed several tubes for laboratory examination to confirm the results of the inspections. PSE&G has been evaluating several options which include repair of degraded tubes by sleeving at locations found to contain crack-like indications, replacement of the steam generators with existing unused steam generators from a utility that had previously canceled a new plant, or repair for an interim period and then replacement of the steam generators with newly constructed steam generators. These evaluations are expected to be completed in the second quarter of 1996. Implementation of one or more of these options may enable the return to service of Salem unit 1 by mid-1997. The preliminary results of the Salem 2 inspections confirm that the condition of the Salem 2 steam generators is well within current repair limits. PSE&G had also removed several tubes from Salem 2 steam generators for laboratory analysis to confirm the results of testing. Repairs to Salem 2 steam generators will be completed in the Second Quarter of 1996 to support the scheduled return to service by the end of August 1996. PSE&G had planned to return Salem 1 to service in the second quarter of 1996 and Salem 2 in the third quarter of 1996. As a result of the extent of the previously discovered degradation in the Salem 1 steam generators, PSE&G is focusing its efforts on the return of Salem 2 to service by the end of August 1996. The conduct of the additional steam generator inspections and testing on Salem 2 is not expected to affect the timing of its restart. The timing of the restart is subject to completion of the requirements of the restart plan to the satisfaction of PSE&G and the NRC, which encompasses a review and improvement of personnel, process and equipment issues. PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED PART II. OTHER INFORMATION - (Continued) Item 5. Other Information - (Continued) - ------ ------------------------------- Form 10-K, Page 10 thru Page 12 - (Continued) --------------------------------------------- The restart plan status is as follows: Two of the five NRC Confirmatory Action Letter requirements were recognized as complete by the NRC on February 13, 1996. A third item has been addressed by PSE&G and approval by the NRC is pending; Comprehensive action plans concerning people and process issues are approximately 85% task complete; A detailed Salem 2 schedule integrating equipment maintenance, upgrades and testing has been developed and work is on schedule. Based on the above, PSE&G is not aware of any constraints which will prevent Salem 2 from returning to service by the end of August 1996. Based upon current projections and assumptions regarding PSE&G's five nuclear units during 1996, including the return of Hope Creek on March 25, 1996, the return of Salem 2 by the end of August 1996, and the continued outage of Salem 1 for the remainder of the year, the 1996 aggregate capacity factor would be approximately 57%, which would result in a penalty of approximately $12 million. PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED PART II. OTHER INFORMATION - (Continued) Item 5. Other Information - (Continued) - ------ ------------------------------- PSE&G - Nuclear Operations - Hope Creek Form 10-K, Page 12, Paragraph 7 ------------------------------- Hope Creek completed its sixth refueling and maintenance outage on March 25, 1996. PSE&G - Nuclear Operations - Hope Creek Form 10-K, Page 13, Paragraph 4 ------------------------------- By letter dated January 29, 1996, the NRC requested a meeting with PSE&G senior management to discuss its concerns regarding declining trends in performance at Hope Creek. Meetings were held with senior NRC officials on May 6th and 7th to discuss performance at both Hope Creek and Salem. The NRC acknowledged fundamental changes in PSE&G's nuclear business unit and that those changes provided an overall positive impression. The NRC said that PSE&G must demonstrate it has adequately maintained the design and licensing basis of both units, a generic issue presently being pursued by the NRC. The NRC staff indicated that it will continue to closely monitor performance at Salem and Hope Creek, including emergency preparedness performance and the effectiveness of PSE&G's corrective action program. PSE&G - Nuclear Operations - Other Nuclear Matters Form 10-K, Page 14, Paragraph 5 ------------------------------- In a separate matter, as a result of several Boiling Water Reactors (BWR) experiencing clogging of some emergency core cooling system suction strainers, which supply water from the suppression pool for emergency cooling of the core and related structures, the NRC issued a Bulletin dated May 6, 1996 to operators of BWRs requesting measures be taken to minimize the potential for clogging. The NRC has proposed three resolution options, with a request that actions be completed by the end of the unit's first refueling outage after January 1997. Alternative resolution options will be subject to NRC approval. PSE&G expects to submit its planned actions and schedules within 180 days. PSE&G cannot predict what other actions, if any, the NRC may take on this matter. PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED PART II. OTHER INFORMATION - (Continued) Item 5. Other Information - (Continued) - ------ ------------------------------- PSE&G - Nuclear Fuel Form 10-K, Page 16, Paragraph 2 ------------------------------- PECO has also advised PSE&G that it has contracted for the following segments of the nuclear fuel supply cycle for Peach Bottom 2 and 3 through the following years: Nuclear Unit Conversion Enrichment Fabrication Peach Bottom 2 (1) (2) 1999 Peach Bottom 3 (1) (2) 1998 (1) PECO has commitments for 100% of its conversion services for Peach Bottom through 1997. Approximately 40% of the conversion service requirements are covered through 2001. PECO does not anticipate any difficulties in obtaining necessary conversion services for Peach Bottom. (2) PECO has commitments for enrichment services for Peach Bottom under contract with the United States Enrichment Corporation. The commitments represent 100% of the enrichment requirements through 1998 and 70% through 1999. PECO does not anticipate any difficulties in obtaining necessary enrichment services for Peach Bottom. Environmental Controls Form 10-K, Page 22, Paragraph 1 ------------------------------- During 1995, PSE&G expended approximately $118 million for capital related expenditures to improve the environment and comply with changing regulations. It is estimated that PSE&G will expend approximately $50 million, $32 million, $27 million, $27 million and $13 million in the years 1996 through 2000, respectively, for such purposes. PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED PART II. OTHER INFORMATION - (Continued) Item 5. Other Information - (Continued) - ------ ------------------------------- FORM 10-K, Page, 26, Paragraph 6 -------------------------------- By letter dated April 30, 1996, EPA submitted a letter to PSE&G directing that PSE&G provide information concerning the nature and quantity of hazardous substances and/or wastes which may have been generated, treated, stored or disposed of at two PSE&G facilities formerly located adjacent to the Passaic River Site. The two facilities are PSE&G's former Harrison Gas Plant and Essex Generating Station. Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA) provides that EPA is authorized to direct any person to submit such information if there is a reasonable basis to believe that a release of a hazardous substance occurred at a subject facility. PSE&G is currently in the process of preparing to respond to the EPA's request for these facilities. NEW MATTERS ----------- During a recent NRC inspection, Hope Creek received four potential violations: two of the potential violations concerned failure to properly implement corrective actions, another concerned a safety evaluation for a service water system design change, and the last concerned a violation of Technical Specifications for control rod testing. An NRC enforcement conference has been scheduled for June 11, 1996. PSE&G cannot predict what actions, if any, the NRC may take on this matter. PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED PART II. OTHER INFORMATION - (Continued) Item 5. Other Information - (Continued) - ------ ------------------------------- New Information - ---------------- Employee Relations Form 10-K, Page 19 ------------------ PSE&G reached agreement for new contracts with its two largest unions, the International Brotherhood of Electrical Workers Local Union 94 (IBEW) and Local 855 of the Public Utility Construction and Gas Appliance Workers (Local 855). The six year agreements, which were effective May 1, 1996, provide for both incremental increases in base wages as well as a series of two percent lump-sum increases over the next five years. The agreements allow for some crossover work between the IBEW and Local 855. These crossover areas addressed in the agreements include meter installation/repair work, joint trenching and markouts. PSE&G also reached agreement for new contracts with the Office and Professional Employees International Union (OPEIU), Local 153 and the Consolidated Gas Workers Union. These agreements call for increases of 14% over the six years, annual two percent lump-sum payments over the first five years of the contract, improvements in shift premiums, travel and meal allowances and adjustments in medical coverages designed to provide employees with more options while increasing cost-efficiency. PSE&G has not yet reached an agreement with the Utility Co-workers Association (representing approximately 1,100 employees). Negotiations are still in progress. The negotiated agreements provide for the Pension Plan to be amended effective May 1, 1996 to allow employees the option to retire early upon attainment of age 55 and completion of 25 or more years of service. Also, between May 1, 1996 and April 30, 1997, early retirement without reduction will be available to employees who have attained age 50 and have completed 30 or more years of service. This change, coupled with other benefit modifications, will have a direct impact upon PSE&G's Pension and Postretirement Benefit Plans. Presently, the impact has not been quantified, however, it may have a material effect on results of operations for Enterprise and PSE&G. PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED PART II. Item 6. Exhibits and Reports on Form 8-K - ------ -------------------------------- (a) A listing of exhibits being filed with this document is as follows: Exhibit Number Document ------- ------------------------------------------------------ 4(A) Supplemental Indenture dated October 1, 1995 between PSE&G and First Fidelity Bank, National Association, New Jersey, as Trustee, providing for the issue of First and Refunding Mortgage Bonds, Pollution Control Series U. 4(B) Supplemental Indenture dated October 1, 1995 between PSE&G and First Fidelity Bank, National Association, New Jersey, as Trustee, providing for the issue of First and Refunding Mortgage Bonds, Pollution Control Series V. 12 Computation of Ratios of Earnings to Fixed Charges plus Preferred Securities Dividend Requirements (Enterprise). 12(A) Computation of Ratios of Earnings to Fixed Charges (PSE&G). 12(B) Computation of Ratios of Earnings to Fixed Charges plus Preferred Securities Dividend Requirements (PSE&G). 27(A) Financial Data Schedule (Enterprise) 27(B) Financial Data Schedule (PSE&G) PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED (b) Reports on Form 8-K. Registrant Date of Report Item Reported - ---------- -------------- ------------- Enterprise and PSE&G 1-19-96 Item 5. Other events (Rate Matters/ Regulation, PSE&G - Nuclear Operations/Salem and Hope Creek, Credit Ratings). Enterprise and PSE&G 3-14-96 Item 5. Other events (PSE&G - Nuclear and PSE&G Operations - Hope Creek/Nuclear Performance Standard, Rate Matters/ Regulation, and Legal Proceedings). PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused these reports to be signed on their respective behalf by the undersigned thereunto duly authorized. PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED PUBLIC SERVICE ELECTRIC AND GAS COMPANY -------------------------------------------- (Registrants) By: PATRICIA A. RADO -------------------------------------- Patricia A. Rado Vice President and Controller (Principal Accounting Officer) Date: May 15, 1996 -----END PRIVACY-ENHANCED MESSAGE-----