<PAGE> 1
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FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1994
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 June 30, 1994
----- ----------------------------
Common Stock, without par value 244,697,930
As of June 30, 1994 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.
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TABLE OF CONTENTS
-----------------
-Page-
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Public Service Enterprise Group Incorporated (Enterprise):
Consolidated Statements of Income for the
Three, Six and Twelve Months Ended June 30,
1994 and 1993 .................................... 5
Consolidated Balance Sheets as of
June 30, 1994, 1993 and December 31, 1993 ........ 6
Consolidated Statements of Cash Flows for the
Six and Twelve Months Ended June 30,
1994 and 1993 .................................... 8
Consolidated Statements of Retained Earnings for the
Three, Six and Twelve Months Ended June 30,
1994 and 1993 .................................... 9
Public Service Electric and Gas Company (PSE&G):
Consolidated Statements of Income for the
Three, Six and Twelve Months Ended June 30,
1994 and 1993 .................................... 10
Consolidated Balance Sheets as of
June 30, 1994, 1993 and December 31, 1993 ........ 11
Consolidated Statements of Cash Flows for the
Six and Twelve Months Ended June 30,
1994 and 1993 .................................... 13
Consolidated Statements of Retained Earnings for the
Three, Six and Twelve Months Ended June 30,
1994 and 1993 .................................... 14
Notes to Consolidated Financial Statements
Enterprise ....................................... 15
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations
Enterprise ................................. 28
PSE&G ...................................... 49
PART II. OTHER INFORMATION
Item 5. Other Information ............................ 51
Item 6. Exhibits and Reports on Form 8-K ............. 57
Signatures - Enterprise ...................................... 58
Signatures - PSE&G ........................................... 58
<PAGE> 3
GLOSSARY OF TERMS
The following is a glossary of frequently used abbreviations or acronyms
that are found throughout this report:
Abbreviations
or Acronyms Term
- ----------------------- --------------------------------------------------
AE Act................. Atomic Energy Act of 1954, as amended
AFDC................... Allowance for Funds used During Construction
AIT.................... Nuclear Regulatory Commission Augmented
Inspection Team
Authority.............. Pollution Control Financing Authority of Salem
County
Mortgage Bonds......... First and Refunding Mortgage Bonds
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
DOE.................... United States Department of Energy
DRIP................... Enterprise's Dividend Reinvestment and Stock
Purchase Plan
EBIT................... Earnings before interest and taxes to interest
EDC.................... Energy Development Corporation
EDHI................... Enterprise Diversified Holdings Incorporated
EITF................... Financial Accounting Standards Board's
Emerging Issues Task Force
EGDC................... Enterprise Group Development Corporation
EMF.................... Electric and Magnetic Fields
Enterprise............. Public Service Enterprise Group Incorporated
EPA.................... United States Environmental Protection Agency
FASB................... Financial Accounting Standards Board
FERC................... Federal Energy Regulatory Commission
Fuelco................. PSE&G Fuel Corporation
Funding................ Enterprise Capital Funding Corporation
HSCA................... Commonwealth of Pennsylvania's Hazardous Sites
Cleanup Act
Hope Creek............. Hope Creek Nuclear Generating Station
IEPNJ.................. Independent Energy Producers of New Jersey
IRP.................... Integrated Electric Resource Plan
LEAC................... Electric Levelized Energy Adjustment Clause
LGAC................... Levelized Gas Adjustment Clause
LLRW................... Low Level Radioactive Waste
MW..................... Megawatts
MWH.................... Megawatthours
NEIL................... Nuclear Electric Insurance Limited
NEPA................... National (Federal) Energy Policy Act
NJDEP.................. New Jersey Department of Environmental Protection
NJEDA.................. New Jersey Economic Development Authority
NJGRT.................. New Jersey Gross Receipts and Franchise Tax
NJPDES................. New Jersey Pollution Discharge Elimination System
NRC.................... Nuclear Regulatory Commission
NUGS................... Nonutility generators
NWPA................... Nuclear Waste Policy Act of 1982, as amended
OPEB................... Other Postretirement Benefits
Peach Bottom........... Peach Bottom Atomic Power Station, Units 2 and 3
PECO................... PECO Energy Inc.
<PAGE> 4
GLOSSARY OF TERMS - (Concluded)
Abbreviations
or Acronyms Term
- ----------------------- ----------------------------------------------------
PJM.................... Pennsylvania--New Jersey--Maryland Interconnection
PSE&G.................. Public Service Electric and Gas Company
PSRC................... Public Service Resources Corporation
RAC ................... Remediation Adjustment Clause
Salem.................. Salem Nuclear Generating Station, Units 1 and 2
SALP................... Systemic Assessment of Licensee Performance
SEC.................... Securities and Exchange Commission
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,
"Disclosure about Fair Value of Financial Instru-
ments"
SFAS 115............... Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and
Equity Securities"
Standard............... The BPU's nuclear performance standard established
for nuclear generating stations owned by New
Jersey utilities
THI.................... Temperature Humidity Index
USEC................... United States Enrichment Corporation
<PAGE> 5
<TABLE>
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
The consolidated financial statements included herein as of June 30, 1994 and 1993 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.
CONSOLIDATED STATEMENTS OF INCOME
(Thousands of Dollars)
<CAPTION>
Three Months Ended Six Months Ended Twelve Months Ended
June 30, June 30, June 30,
----------------------- --------------------- ---------------------
1994 1993 1994 1993 1994 1993
----------- ---------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES
Electric .......................... $ 902,123 $ 889,772 $1,790,433 $1,761,940 $3,721,576 $3,525,584
Gas ............................... 279,532 258,129 1,081,189 888,208 1,787,322 1,593,860
Nonutility Activities ............. 96,708 98,436 201,166 190,897 428,404 375,134
---------- ---------- ---------- ---------- ---------- ----------
Total Operating Revenues ...... 1,278,363 1,246,337 3,072,788 2,841,045 5,937,302 5,494,578
---------- ---------- ---------- ---------- ---------- ----------
OPERATING EXPENSES
Operation
Fuel for Electric Generation and
Net Interchanged Power ......... 158,250 167,300 325,451 353,861 688,726 746,959
Gas Purchased and Materials
for Gas Produced ............. 163,986 158,626 624,542 487,598 1,034,829 883,546
Other ......................... 256,803 250,277 506,643 482,653 1,036,747 948,429
Maintenance ....................... 75,437 73,757 151,912 131,080 325,235 284,709
Depreciation and Amortization ..... 157,238 149,566 312,783 297,154 615,893 629,899
Property Impairment ............... - - - - 77,637 -
Taxes
Federal Income Taxes ........... 67,977 54,797 188,466 158,776 344,449 264,633
New Jersey Gross Receipts Taxes. 125,400 124,630 316,703 304,724 609,877 589,075
Other .......................... 20,547 18,726 44,615 40,036 80,552 72,038
---------- ---------- ---------- ---------- ---------- ----------
Total Operating Expenses ...... 1,025,638 997,679 2,471,115 2,255,882 4,813,945 4,419,288
---------- ---------- ---------- ---------- ---------- ----------
OPERATING INCOME ................... 252,725 248,658 601,673 585,163 1,123,357 1,075,290
---------- ---------- ---------- ---------- ---------- ----------
OTHER INCOME
Allowance for Funds Used During
Construction - Equity ........... 1,874 2,807 3,662 5,445 10,482 13,909
Peach Bottom Settlement - net of
Federal Income Taxes, $0, $0,
$0, $0, $0 and ($7,023),
respectively .................... - - - - - (13,632)
Miscellaneous - net .............. 1,348 1,621 2,503 3,796 (5,071) 16,759
---------- ---------- ---------- ---------- ---------- ----------
Total Other Income .......... 3,222 4,428 6,165 9,241 5,411 17,036
---------- ---------- ---------- ---------- ---------- ----------
INCOME BEFORE INTEREST CHARGES AND
DIVIDENDS ON PREFERRED STOCK ..... 255,947 253,086 607,838 594,404 1,128,768 1,092,326
---------- ---------- ---------- ---------- ---------- ----------
INTEREST CHARGES
Long-Term Debt ................... 115,947 120,260 228,059 238,984 458,195 475,930
Short-Term Debt .................. 6,086 3,430 9,920 5,834 17,946 11,171
Other ............................ 1,624 4,637 4,475 10,360 13,669 27,214
---------- ---------- ---------- ---------- ---------- ----------
Total Interest Charges ...... 123,657 128,327 242,454 255,178 489,810 514,315
Allowance for Funds Used During
Construction - Debt and
Capitalized Interest .............. (7,739) (4,780) (15,052) (9,139) (26,746) (18,072)
---------- ---------- ---------- ---------- ---------- ----------
Net Interest Charges ............... 115,918 123,547 227,402 246,039 463,064 496,243
---------- ---------- ---------- ---------- ---------- ----------
Preferred Stock Dividend Requirements
- PSE&G............................ 10,144 9,757 20,424 18,579 39,959 35,871
---------- ---------- ---------- ---------- ---------- ----------
Income before cumulative effect of
accounting change ................. 129,885 119,782 360,012 329,786 625,745 560,212
Cumulative effect of change in
accounting for income taxes ........ - - - 5,414 - 5,414
---------- ---------- ---------- ---------- ---------- ----------
NET INCOME ......................... $ 129,885 $ 119,782 $ 360,012 $ 335,200 $ 625,745 $ 565,626
========== ========== ========== ========== ========== ==========
SHARES OF COMMON STOCK OUTSTANDING
End of Period ..................... 244,697,930 241,737,468 244,697,930 241,737,468 244,697,930 241,737,468
Average for Period ................ 244,697,930 240,919,743 244,239,893 238,930,322 243,296,564 236,352,495
EARNINGS PER AVERAGE SHARE OF COMMON STOCK
Before cumulative effect of accounting
change ............................ $.53 $.49 $1.47 $1.38 $2.57 $2.37
Cumulative effect of change in accounting
for income taxes .................. - - - .02 - .02
---------- ---------- --------- ---------- ---------- ----------
Total earnings per average share of common
stock ............................. $.53 $.49 $1.47 $1.40 $2.57 $2.39
========== ========== ========= ========== ========== ==========
DIVIDENDS PAID PER SHARE OF
COMMON STOCK ...................... $.54 $.54 $1.08 $1.08 $2.16 $2.16
=========== ========== ========= ========== ========== ==========
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE> 6
<TABLE>
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
<CAPTION>
June 30, June 30, December 31,
ASSETS 1994 1993 1993
- ------ --------------- ------------- ---------------
<S> <C> <C> <C>
UTILITY PLANT - Original cost
Electric ............................................................ $ 12,193,592 $ 11,671,249 $ 11,920,894
Gas ................................................................. 2,227,899 2,091,472 2,177,841
Common .............................................................. 525,102 486,872 520,285
-------------- ------------- -------------
Total .......................................................... 14,946,593 14,249,593 14,619,020
Less Accumulated Depreciation and Amortization ........................ 4,980,410 4,595,962 4,772,942
-------------- ------------- -------------
Net ............................................................ 9,966,183 9,653,631 9,846,078
Nuclear Fuel in Service, net of accumulated amortization -
$270,360; $254,903 and $284,162, respectively ......................... 226,282 220,659 205,237
-------------- ------------- -------------
Net Utility Plant in Service ................................... 10,192,465 9,874,290 10,051,315
Construction Work in Progress, including Nuclear Fuel in Process -
$52,841; $85,745 and $98,780, respectively ........................... 680,640 590,562 735,356
Plant Held for Future Use ............................................. 17,913 22,949 17,709
-------------- ------------- -------------
Net Utility Plant .............................................. 10,891,018 10,487,801 10,804,380
-------------- ------------- -------------
INVESTMENTS AND OTHER PROPERTY
Long-Term Investments, net of valuation allowances - $15,892; $17,548
and $18,018, respectively ......................................... 1,657,420 1,712,218 1,613,823
Oil and Gas Property, Plant and Equipment, net of accumulated
depreciation and amortization - $736,059, $688,002 and $695,791,
respectively ...................................................... 556,387 505,720 506,047
Real Estate Property and Equipment, net of accumulated depreciation -
$12,525; $13,435 and $10,840, respectively and net of valuation
allowances - $22,514; $3,961 and $16,684, respectively ............ 104,920 224,288 110,661
Other Plant, net of accumulated depreciation
and amortization - $4,149; $3,373 and $3,735, respectively ........ 28,474 22,406 28,327
Nuclear Decommissioning and Other Special Funds ..................... 216,738 179,793 189,282
Other Investments - net ............................................. 91,374 76,056 120,711
-------------- ------------- -------------
Total Investments and Other Property ........................... 2,655,313 2,720,481 2,568,851
-------------- ------------- -------------
CURRENT ASSETS
Cash and Cash Equivalents ........................................... 156,643 185,882 46,880
Accounts Receivable:
Customer Accounts Receivable ...................................... 448,371 410,801 446,629
Other Accounts Receivable ......................................... 157,620 178,092 230,373
Less: Allowance for Doubtful Accounts ............................ 30,877 31,480 27,932
Unbilled Revenues ................................................... 129,973 169,478 244,497
Fuel, at average cost ............................................... 224,130 222,381 285,943
Materials and Supplies, at average cost ............................. 166,478 199,746 172,438
Prepaid Gross Receipts Taxes ........................................ 268,364 30,024 -
Miscellaneous Current Assets ........................................ 28,410 26,006 49,860
Deferred Income Taxes ............................................... 15,868 3,070 12,934
-------------- ------------- ------------
Total Current Assets ........................................... 1,564,980 1,394,000 1,461,622
-------------- ------------- ------------
DEFERRED DEBITS
Property Abandonments - net ......................................... 97,010 114,004 105,536
Oil and Gas Property Write-Down ..................................... 43,809 48,963 46,386
Unamortized Debt Expense ............................................ 126,571 76,417 121,278
Deferred OPEB Costs (note 6) ........................................ 133,334 46,473 58,593
Under(Over) Recovered Electric Energy and Gas Costs - net ........... 161,368 (56,450) 62,034
Unrecovered Environmental Costs (note 5) ............................ 133,328 104,566 138,531
Unrecovered Plant and Regulatory Study Costs ........................ 35,412 27,820 35,196
Deferred Decontamination and Decommissioning Costs (note 5) ......... 56,546 - 56,055
Unrecovered SFAS 109 Deferred Income Taxes .......................... 789,103 716,207 789,795
Preliminary Survey and Investigation Charges ........................ 29,156 21,670 26,292
Other ............................................................... 29,535 41,804 30,615
-------------- ------------- ------------
Total Deferred Debits .......................................... 1,635,172 1,141,474 1,470,311
-------------- ------------- ------------
Total .......................................................... $ 16,746,483 $ 15,743,756 $ 16,305,164
============== ============= ============
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE> 7
<TABLE>
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
<CAPTION>
June 30, June 30, December 31,
CAPITALIZATION AND LIABILITIES 1994 1993 1993
- ------------------------------ -------------- ------------ --------------
<S> <C> <C> <C>
CAPITALIZATION
Common Equity
Common Stock (note 3) ............................................... $ 3,801,157 $ 3,707,064 $ 3,772,662
Retained Earnings ................................................... 1,456,025 1,358,284 1,361,018
-------------- ------------ ------------
Total Common Equity ............................................... 5,257,182 5,065,348 5,133,680
Subsidiaries' Securities and Obligations
Preferred Stock
Without Mandatory Redemption ........................................ 459,994 429,994 429,994
With Mandatory Redemption (note 2) .................................. 150,000 150,000 150,000
Long-Term Debt (note 4) ............................................... 5,375,709 5,230,824 5,256,321
Capital Lease Obligations ............................................. 52,216 52,825 52,530
-------------- ------------ ------------
Total Capitalization .............................................. 11,295,101 10,928,991 11,022,525
-------------- ------------ ------------
OTHER LONG-TERM LIABILITIES
Decontamination and Decommissioning Costs (note 5) .................... 56,546 - 56,055
Unrecovered Environmental Costs (note 5) .............................. 108,039 87,373 111,000
-------------- ------------ ------------
Total Other Long-Term Liabilities ................................. 164,585 87,373 167,055
-------------- ------------ ------------
CURRENT LIABILITIES
Long-Term Debt and Capital Lease Obligations due within one year ...... 482,784 730,914 168,638
Commercial Paper and Loans ............................................ 703,223 218,106 577,636
Accounts Payable ...................................................... 381,886 398,177 557,761
New Jersey Gross Receipts Taxes Accrued ............................... - - 263,357
Other Taxes Accrued ................................................... 36,206 50,507 39,610
Interest Accrued ...................................................... 113,103 114,872 107,027
Other ................................................................. 141,608 141,214 157,751
-------------- ------------ ------------
Total Current Liabilities ......................................... 1,858,810 1,653,790 1,871,780
-------------- ------------ ------------
DEFERRED CREDITS
Accumulated Deferred Income Taxes ..................................... 2,821,054 2,508,626 2,702,386
Accumulated Deferred Investment Tax Credits ........................... 422,790 442,437 432,713
Deferred OPEB Costs (note 6) .......................................... 133,334 46,473 58,593
Materials and Supplies ................................................ 5,762 17,932 11,847
Other ................................................................. 45,047 58,134 38,265
-------------- ------------ ------------
Total Deferred Credits ............................................ 3,427,987 3,073,602 3,243,804
-------------- ------------ ------------
COMMITMENTS AND CONTINGENT LIABILITIES (note 5)
Total ............................................................. $ 16,746,483 $ 15,743,756 $ 16,305,164
============== ============ ============
</TABLE>
<PAGE> 8
<TABLE>
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
<CAPTION>
Six Months Ended Twelve Months Ended
June 30, June 30,
---------------------- ----------------------
1994 1993 1994 1993
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income ......................................... $ 360,012 $ 335,200 $ 625,745 $ 565,626
Adjustments to reconcile net income to net cash flows
from operating activities:
Depreciation and Amortization .................... 312,783 297,154 615,893 629,899
Amortization of Nuclear Fuel ..................... 44,827 52,590 94,955 99,912
Deferral of Electric Energy and Gas
Costs - net ..................................... (99,334) (66,286) (217,818) (8,435)
Loss from Property Impairments.................... 1,330 - 77,637 -
Cumulative Effect of Change in Accounting
for Income Taxes ............................... - (5,414) - (5,414)
Amortization of Discounts on Property
Abandonments and Disallowance .................. (3,481) (4,105) (7,177) (10,178)
Unrealized (Gains) Losses on Investments ......... (8,906) (3,882) (13,718) 5,875
Provision for Deferred Income Taxes - net ........ 98,964 72,059 195,311 90,971
Investment Tax Credits - net ..................... (9,923) (1,931) (19,647) (12,533)
Allowance for Funds Used During Construction -
Debt and Equity and Capitalized Interest ....... (18,714) (14,584) (37,228) (31,981)
Proceeds from Leasing Activities ................. 3,476 3,399 14,857 16,845
Changes in certain current assets and liabilities:
Net decrease in Accounts Receivable and
Unbilled Revenues ............................... 188,480 105,044 21,804 30,232
Net decrease (increase) in Inventory - Fuel and
Materials and Supplies ........................... 67,773 52,692 31,519 (17,224)
Net (decrease) increase in Accounts Payable ...... (175,875) (75,800) (16,291) 50,843
Net change in Prepaid/Accrued Taxes .............. (535,125) (576,403) (252,641) (261,259)
Net change in Other Current Assets and
Liabilities ..................................... 8,449 5,521 (16,577) (38,535)
Other ............................................ 35,189 (8,624) 13,007 (21,088)
---------- ---------- ---------- ----------
Net cash provided by operating
activities ................................. 268,595 166,630 1,109,631 1,083,556
---------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to Utility Plant, excluding AFDC ......... (360,415) (285,588) (938,121) (739,929)
Additions to Oil and Gas Property, Plant and
Equipment, excluding Capitalized Interest .......... (92,254) (42,193) (138,029) (63,221)
Net (increase) decrease in Long-Term Investments and
Real Estate ....................................... (12,790) (46,915) 100,784 (96,026)
Increase in Decommissioning and Other Special Funds,
excluding interest ................................ (20,567) (39,905) (26,170) (48,207)
Cost of Plant Removal - net ........................ (18,688) (17,933) (48,546) (41,016)
Other .............................................. (1,122) (5,457) (10,603) (11,186)
---------- ---------- ---------- ----------
Net cash used in investing activities .......... (505,836) (437,991) (1,060,685) (999,585)
---------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in Short-Term Debt ......... 125,587 (173,876) 485,117 (96,940)
Issuance of Long-Term Debt ......................... 664,365 1,234,000 1,642,065 1,264,000
Redemption of Long-Term Debt and Other Obligations . (231,145) (643,191) (1,745,919) (1,105,925)
Deferral of Debt Expense - net ..................... (5,293) (14,283) (50,154) (15,229)
Issuance of Preferred Stock ........................ 75,000 75,000 75,000 75,000
Redemption of Preferred Stock ...................... (45,000) (45,000)
Issuance of Common Stock ........................... 28,495 207,881 94,093 278,797
Cash Dividends Paid on Common Stock ............... (263,797) (259,741) (525,628) (512,401)
Other .............................................. (1,208) (221) (7,759) (462)
---------- ---------- ---------- ----------
Net cash provided by (used in) financing
activities ..................................... 347,004 425,569 (78,185) (113,160)
---------- ---------- ---------- ----------
Net increase (decrease) in Cash and Cash Equivalents . 109,763 154,208 (29,239) (29,189)
Cash and Cash Equivalents at Beginning of Period ..... 46,880 31,674 185,882 215,071
---------- ---------- ---------- ----------
Cash and Cash Equivalents at End of Period ........... $ 156,643 $ 185,882 $ 156,643 $ 185,882
========== ========== ========== ==========
Income Taxes Paid .................................... $ 94,629 $ 73,642 $ 161,159 $ 135,900
Interest Paid ........................................ $ 212,025 $ 232,525 $ 438,456 $ 472,679
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE> 9
<TABLE>
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(Thousands of Dollars)
<CAPTION>
Three Months Ended Six Months Ended Twelve Months Ended
June 30, June 30, June 30,
----------------------- ----------------------- ----------------------
1994 1993 1994 1993 1994 1993
---------- ---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at Beginning of Period ........... $1,458,357 $1,368,695 $1,361,018 $1,282,931 $1,358,284 $1,305,254
Add Net Income ........................... 129,885 119,782 360,012 335,200 625,745 565,626
---------- ---------- ---------- ---------- ---------- ----------
Total ............................... 1,588,242 1,488,477 1,721,030 1,618,131 1,984,029 1,870,880
---------- ---------- ---------- ---------- ---------- ----------
Deduct
Cash Dividends on Common Stock ......... 132,137 130,132 263,797 259,741 525,628 512,401
Capital Stock Expenses ................. 80 61 1,208 106 2,376 195
---------- ---------- ---------- ---------- ---------- ----------
Total Deductions .................... 132,217 130,193 265,005 259,847 528,004 512,596
---------- ---------- ---------- ---------- ---------- ----------
Balance at End of Period ................. $1,456,025 $1,358,284 $1,456,025 $1,358,284 $1,456,025 $1,358,284
========== ========== ========== ========== ========== ==========
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE> 10
<TABLE>
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
The consolidated financial statements included herein as of June 30, 1994 and 1993 and for the periods then ended are
unaudited but, in the opinion of Public Service Electric and Gas Company's management, reflect all adjustments, consisting
only of normal recurring accruals.
CONSOLIDATED STATEMENTS OF INCOME
(Thousands of Dollars)
<CAPTION>
Three Months Ended Six Months Ended Twelve Months Ended
June 30, June 30, June 30,
----------------------- ----------------------- -----------------------
1994 1993 1994 1993 1994 1993
----------- ---------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES
Electric .............................. $ 902,123 $ 889,772 $1,790,433 $1,761,940 $3,721,576 $3,525,584
Gas ................................... 279,532 258,129 1,081,189 888,208 1,787,322 1,593,860
---------- ---------- ---------- ----------- ---------- -----------
Total Operating Revenues ......... 1,181,655 1,147,901 2,871,622 2,650,148 5,508,898 5,119,444
---------- ---------- ---------- ----------- ---------- -----------
OPERATING EXPENSES
Operation
Fuel for Electric Generation
and Net Interchanged Power ....... 158,250 167,300 325,451 353,861 688,726 746,959
Gas Purchased and Materials for
Gas Produced ........................ 168,064 163,182 633,204 499,244 1,053,830 917,706
Other ............................... 217,686 219,001 432,666 421,489 892,120 828,028
Maintenance ........................... 75,437 73,757 151,912 131,080 325,235 284,709
Depreciation and Amortization ......... 136,351 125,394 270,662 249,600 530,268 532,559
Taxes
Federal Income Taxes ................ 63,879 51,574 177,308 152,228 333,870 247,147
New Jersey Gross Receipts Taxes ..... 125,400 124,630 316,703 304,724 609,877 589,075
Other ............................... 18,363 17,007 40,478 37,132 70,939 65,212
---------- ---------- ---------- ----------- ---------- -----------
Total Operating Expenses ......... 963,430 941,845 2,348,384 2,149,358 4,504,865 4,211,395
---------- ---------- ---------- ----------- ---------- -----------
OPERATING INCOME ........................ 218,225 206,056 523,238 500,790 1,004,033 908,049
---------- ---------- ---------- ----------- ---------- -----------
OTHER INCOME
Allowance for Funds Used During
Construction - Equity ................. 1,874 2,807 3,662 5,445 10,482 13,909
Peach Bottom Settlement - net of Federal
Income Taxes, $0, $0, $0, $0, $0
and ($7,023), respectively ........... - - - - - (13,632)
Miscellaneous - net ................... 1,343 1,691 2,496 3,915 (5,260) 16,613
---------- ---------- ---------- ----------- ---------- -----------
Total Other Income ................. 3,217 4,498 6,158 9,360 5,222 16,890
---------- ---------- ---------- ----------- ---------- -----------
INCOME BEFORE INTEREST CHARGES AND
DIVIDENDS ON PREFERRED STOCK .......... 221,442 210,554 529,396 510,150 1,009,255 924,939
---------- ---------- ---------- ----------- ---------- -----------
INTEREST CHARGES
Long-Term Debt ........................ 92,514 94,105 180,841 186,096 358,997 367,343
Short-Term Debt ....................... 4,954 1,249 7,213 1,777 11,850 3,516
Other ................................. 1,479 4,586 2,765 10,301 11,754 25,560
---------- ---------- ---------- ----------- ---------- -----------
Total Interest Charges ........... 98,947 99,940 190,819 198,174 382,601 396,419
Allowance for Funds Used During
Construction - Debt............ (5,618) (3,235) (10,975) (6,277) (19,513) (12,972)
---------- ---------- ---------- ----------- ---------- -----------
Net Interest Charges .................... 93,329 96,705 179,844 191,897 363,088 383,447
---------- ---------- ---------- ----------- ---------- -----------
NET INCOME .............................. 128,113 113,849 349,552 318,253 646,167 541,492
---------- ---------- ---------- ----------- ---------- -----------
Preferred Stock Dividend Requirements ... 10,144 9,757 20,424 18,579 39,959 35,871
---------- ---------- ---------- ----------- ---------- -----------
EARNINGS AVAILABLE TO PUBLIC SERVICE
ENTERPRISE GROUP INCORPORATED ......... $ 117,969 $ 104,092 $ 329,128 $ 299,674 $ 606,208 $ 505,621
========== ========== ========== =========== ========== ===========
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE> 11
<TABLE>
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
<CAPTION>
June 30, June 30, December 31,
ASSETS 1994 1993 1993
- ------ -------------- ------------- --------------
<S> <C> <C> <C>
UTILITY PLANT - Original cost
Electric ............................................................. $ 12,193,592 $ 11,671,249 $ 11,920,894
Gas .................................................................. 2,227,899 2,091,472 2,177,841
Common ............................................................... 525,102 486,872 520,285
------------ ------------ ------------
Total ........................................................... 14,946,593 14,249,593 14,619,020
Less Accumulated Depreciation and Amortization ......................... 4,980,410 4,595,962 4,772,942
------------ ------------ ------------
Net ............................................................. 9,966,183 9,653,631 9,846,078
Nuclear Fuel in Service, net of accumulated amortization - $270,360;
$254,903; $284,162, respectively ..................................... 226,282 220,659 205,237
------------ ------------ ------------
Net Utility Plant in Service .................................... 10,192,465 9,874,290 10,051,315
Construction Work in Progress, including Nuclear Fuel in Process -
$52,841; $85,745; $98,780, respectively .............................. 680,640 590,562 735,356
Plant Held for Future Use .............................................. 17,913 22,949 17,709
------------ ------------ ------------
Net Utility Plant ............................................... 10,891,018 10,487,801 10,804,380
------------ ------------ ------------
INVESTMENTS AND OTHER PROPERTY
Other Plant, net of accumulated depreciation and amortization - $1,012;
$670; $872, respectively ............................................ 26,299 20,382 26,369
Nuclear Decommissioning and Other Special Funds ...................... 216,738 179,793 189,282
Long-Term Investments - net .......................................... 139,100 95,431 116,554
------------ ------------ ------------
Total Investments and Other Property .............................. 382,137 295,606 332,205
------------ ------------ ------------
CURRENT ASSETS
Cash and Cash Equivalents ............................................ 121,523 147,914 17,673
Accounts Receivable:
Customer Accounts Receivable ....................................... 448,371 410,801 446,629
Other Accounts Receivable .......................................... 105,390 112,297 160,729
Less: Allowance for Doubtful Accounts ............................. 30,877 31,480 27,932
Unbilled Revenues .................................................... 129,973 169,478 244,497
Fuel, at average cost ................................................ 224,130 222,381 285,943
Materials and Supplies, at average cost .............................. 165,134 198,354 170,910
Prepaid Gross Receipts Taxes ......................................... 268,364 30,024 -
Miscellaneous Current Assets ......................................... 21,664 19,531 45,754
Deferred Income Taxes ................................................ 15,868 3,070 12,934
------------ ------------ ------------
Total Current Assets ............................................ 1,469,540 1,282,370 1,357,137
------------ ------------ ------------
DEFERRED DEBITS
Property Abandonments - net .......................................... 97,010 114,004 105,536
Oil and Gas Property Write-Down ...................................... 43,809 48,963 46,386
Unamortized Debt Expense ............................................. 123,351 73,798 117,057
Deferred OPEB Costs (note 5).......................................... 133,334 46,473 58,593
Under(Over)Recovered Electric Energy and Gas Costs - net ............. 161,368 (56,450) 62,034
Unrecovered Environmental Costs (note 5).............................. 133,328 104,566 138,531
Unrecovered Plant and Regulatory Study Costs ......................... 35,412 27,820 35,196
Deferred Decontamination and Decommissioning Costs (note 5) .......... 56,546 - 56,055
Unrecovered SFAS 109 Deferred Income Taxes ........................... 789,103 716,207 789,795
Preliminary Survey and Investigation Charges ......................... 29,156 21,670 26,292
Other ................................................................ 29,535 41,798 30,609
------------ ------------ ------------
Total Deferred Debits ........................................... 1,631,952 1,138,849 1,466,084
------------ ------------ ------------
Total ........................................................... $ 14,374,647 $ 13,204,626 $ 13,959,806
============ ============ ============
</TABLE>
<PAGE> 12
<TABLE>
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
<CAPTION>
June 30, June 30, December 31,
CAPITALIZATION AND LIABILITIES 1994 1993 1993
- ------------------------------ ------------- ------------- -------------
<S> <C> <C> <C>
CAPITALIZATION
Common Equity
Common Stock ........................................................ $ 2,563,003 $ 2,563,003 $ 2,563,003
Contributed Capital by Enterprise ................................... 534,395 534,395 534,395
Retained Earnings ................................................... 1,254,553 1,152,689 1,180,532
------------ ------------- ------------
Total Common Equity .............................................. 4,351,951 4,250,087 4,277,930
Preferred Stock Without Mandatory Redemption .......................... 459,994 429,994 429,994
Preferred Stock With Mandatory Redemption (note 2)..................... 150,000 150,000 150,000
Long-Term Debt (note 4)................................................ 4,544,509 4,196,929 4,364,437
Capital Lease Obligations ............................................. 52,216 52,825 52,530
------------ ------------- ------------
Total Capitalization ............................................. 9,558,670 9,079,835 9,274,891
------------ ------------- ------------
OTHER LONG-TERM LIABILITIES
Decontamination and Decommissioning Costs (note 5) .................. 56,546 - 56,055
Unrecovered Environmental Costs (note 5) ............................ 108,039 87,373 111,000
------------ ------------- ------------
Total Other Long-Term Liabilities 164,585 87,373 167,055
------------ ------------- ------------
CURRENT LIABILITIES
Long-Term Debt and Capital Lease Obligations due within one year .... 355,173 586,392 62,274
Commercial Paper and Loans .......................................... 671,995 107,643 532,728
Accounts Payable .................................................... 333,564 362,911 519,296
Accounts Payable-Associated Companies ............................... 16,583 12,916 5,674
New Jersey Gross Receipts Taxes Accrued ............................. - - 263,357
Other Taxes Accrued ................................................. 35,074 26,893 33,710
Interest Accrued .................................................... 100,462 104,689 96,257
Other ............................................................... 116,931 114,156 122,924
------------ ------------ ------------
Total Current Liabilities ......................................... 1,629,782 1,315,600 1,636,220
------------ ------------ ------------
DEFERRED CREDITS
Accumulated Deferred Income Taxes ................................... 2,442,652 2,193,153 2,368,778
Accumulated Deferred Investment Tax Credits ......................... 399,525 418,133 408,929
Deferred OPEB Costs (note 5)......................................... 133,334 46,473 58,593
Materials and Supplies .............................................. 5,762 17,932 11,847
Other ............................................................... 40,337 46,127 33,493
------------ ------------- ------------
Total Deferred Credits .......................................... 3,021,610 2,721 818 2,881,640
------------ ------------- ------------
COMMITMENTS AND CONTINGENT LIABILITIES (note 5)
Total ........................................................... $ 14,374,647 $ 13,204,626 $ 13,959,806
============ ============ ============
</TABLE>
<PAGE> 13
<TABLE>
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Thousands of Dollars)
<CAPTION>
Six Months Ended Twelve Months Ended
June 30, June 30,
------------------------- -----------------------
CASH FLOWS FROM OPERATING ACTIVITIES: 1994 1993 1994 1993
------------ ----------- ----------- ----------
<S> <C> <C> <C> <C>
Net Income ............................................................... $ 349,552 $ 318,253 $ 646,167 $ 541,492
Adjustments to reconcile net income to net cash flows from
operating activities:
Depreciation and Amortization ......................................... 270,662 249,600 530,268 532,559
Amortization of Nuclear Fuel .......................................... 44,827 52,590 94,955 99,912
Deferral of Electric Energy and Gas Costs - net ....................... (99,334) (66,286) (217,818) (8,435)
Amortization of Discounts on Property Abandonments and Disallowance ... (3,481) (4,105) (7,177) (10,178)
Provision for Deferred Income Taxes - net ............................. 74,566 73,831 176,603 75,598
Investment Tax Credits - net .......................................... (9,404) (9,204) (18,608) (19,089)
Allowance for Funds Used During Construction - Debt and Equity ........ (14,637) (11,722) (29,995) (26,881)
Changes in certain current assets and liabilities:
Net decrease in Accounts Receivable and Unbilled Revenues ............. 171,066 83,874 8,239 48,808
Net decrease (increase) in Inventory - Fuel and Materials and Supplies. 67,589 53,038 31,471 (17,004)
Net (decrease) increase in Accounts Payable ........................... (174,823) (77,269) (25,680) 63,879
Net change in Prepaid/Accrued Taxes ................................... (530,357) (586,317) (230,159) (274,066)
Net change in Other Current Assets and Liabilities .................... 19,368 7,961 (16,383) (56,211)
Other ................................................................. 442 (18,323) (18,677) (26,628)
----------- ----------- ----------- -----------
Net cash provided by operating activities ......................... 166,036 65,921 923,206 923,756
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to Utility Plant, excluding AFDC ............................. (360,415) (285,588) (938,121) (739,929)
Net increase in Long-Term Investments .................................. (22,546) (17,868) (43,669) (30,462)
Increase in Decommissioning and Other Special Funds, excluding
interest .............................................................. (20,567) (39,904) (26,171) (48,206)
Cost of Plant Removal - net ............................................ (18,688) (17,933) (48,546) (41,016)
Other .................................................................. (70) (4,337) (9,340) (8,909)
----------- ----------- ----------- -----------
Net cash used in investing activities ............................. (422,286) (365,630) (1,065,847) (868,522)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in Short-Term Debt ............................. 139,267 (149,893) 564,352 (15,660)
Issuance of Long-Term Debt ............................................. 664,365 1,164,000 1,537,065 1,164,000
Redemption of Long-Term Debt and Other Obligations ..................... (191,708) (551,308) (1,421,313) (1,013,372)
Deferral of Debt Expense - net ......................................... (6,294) (14,874) (49,553) (15,229)
Issuance of Preferred Stock ............................................ 75,000 75,000 75,000 75,000
Redemption of Preferred Stock .......................................... (45,000) - (45,000) -
Contributed Capital by Enterprise ...................................... - 174,670 244,870
Cash Dividends Paid .................................................... (274,324) (262,779) (542,859) (521,181)
Other .................................................................. (1,206) (519) (1,442) (1,444)
----------- ----------- ----------- -----------
Net cash provided by (used in) financing activities ............... 360,100 434,297 116,250 (83,016)
----------- ----------- ----------- -----------
Net increase (decrease) in Cash and Cash Equivalents ..................... 103,850 134,588 (26,391) (27,782)
Cash and Cash Equivalents at Beginning of Period ......................... 17,673 13,326 147,914 175,696
----------- ----------- ----------- -----------
Cash and Cash Equivalents at End of Period ............................... $ 121,523 $ 147,914 $ 121,523 $ 147,914
=========== =========== =========== ===========
Income Taxes Paid ........................................................ $ 106,450 $ 94,972 $ 184,347 $ 185,845
Interest Paid ............................................................ $ 167,350 $ 178,296 $ 345,674 $ 363,632
</TABLE>
<PAGE> 14
<TABLE>
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(Thousands of Dollars)
<CAPTION>
Three Months Ended Six Months Ended Twelve Months Ended
June 30, June 30, June 30,
----------------------- ------------------------ ---------------------
1994 1993 1994 1993 1994 1993
---------- ----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at Beginning of Period .. $1,261,863 $1,173,841 $1,180,532 $1,097,734 $1,152,689 $1,132,975
Add Net Income .................. 128,113 113,849 349,552 318,253 646,167 541,492
---------- ---------- ---------- ---------- ---------- ----------
Total ...................... 1,389,976 1,287,690 1,530,084 1,415,987 1,798,856 1,674,467
---------- ---------- ---------- ---------- ---------- ----------
Deduct:
Cash Dividends
Preferred Stock, at
required rates ............... 10,144 9,758 20,424 18,579 39,959 35,981
Common Stock .................. 125,200 125,200 253,900 244,200 502,900 485,200
Capital Stock Expenses ........ 79 43 1,207 519 1,444 597
---------- ----------- ---------- ---------- ---------- ----------
Total Deductions ........... 135,423 135,001 275,531 263,298 544,303 521,778
---------- ----------- ---------- ---------- ---------- ----------
Balance at End of Period ........ $1,254,553 $1,152,689 $1,254,553 $1,152,689 $1,254,553 $1,152,689
========== =========== ========== =========== ========== ==========
<PAGE> 15
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. RATE MATTERS
Effective July 1994, the Board of Regulatory Commissioners changed its
name to Board of Public Utilities (BPU).
REMEDIATION ADJUSTMENT CLAUSE
In accordance with the BPU Order dated September 15, 1993 and the BPU
approved Technical Conference Stipulation dated January 13, 1994, PSE&G
proposes to recover, effective October 1, 1994, $3.7 million from its gas
customers and $2.4 million from its electric customers for costs incurred
during the period October 1, 1992 through July 31, 1994 with respect to
PSE&G's Manufactured Gas Plant Remediation Program (Remediation Program).
Pursuant to the above referenced Board Order and Technical Conference
Stipulation costs are to be included in a Remedication Adjustment Clause
(RAC) and are amortized over a rolling 7 year period, 60 percent to be
recovered through the gas RAC and the remaining 40 percent to be recovered
through the electric RAC. This Remediation Program has been and continues to
be carried out under the direction and supervision of the New Jersey
Department of Environmental Protection (NJDEP). (See Note 5 - Commitments
and Contingent Liabilities of Notes to Consolidated Financial Statements).
The affected gas customers include firm, interruptible, transportation
and cogeneration contract customers. For firm gas rate schedules, the charge
will be included in PSE&G's Levelized Gas Adjustment Clause (LGAC) and
results in an approximate increase of 0.2 percent. The BPU-directed
allocations of the proposed increase to the non-firm customers have been
included in increased tariffs.
The affected electric customers rate schedules will increase by
approximately 0.1 percent for recovery of these RAC costs through the
Levelized Energy Adjustment Clause (LEAC).
LGAC
On April 25, 1994, the BPU approved a LGAC settlement which provided for
an increase of $75.3 million for the approximate ten-month period ending
September 30, 1994. This approval resolved the remaining issues in the LGAC
proceeding and the LGAC interim rate which went into effect December 8, 1993.
On July 1, 1994, PSE&G petitioned the BPU to increase its LGAC rates to
recover an additional $23.7 million, to be effective October 1, 1994. The
requested increase results primarily from an expected slight increase in the
cost of gas, together with an expected increase in Demand Side Management
costs incurred in accordance with the BPU's approved regulations. As part of
its LGAC filing, PSE&G has requested a decrease in its prices for off-peak
use for certain rate schedules of approximately five cents per therm.
<PAGE> 16
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
LEAC
On July 1, 1994, PSE&G petitioned the BPU to increase its LEAC rates,
effective October 1, 1994, to recover an additional $130 million of energy
costs. A significant part of the need for an increase is the larger
percentage of its power that PSE&G is obligated to purchase under prior BPU
approved contracts with non-regulated power producers.
On July 7, 1994, the BPU approved a Stipulation which made permanent the
LEAC rates that went into effect on January 1, 1993 on an interim basis and
closed out the previous LEAC for the period ending December 31, 1992. The
Stipulation also provides a credit of $2.5 million to the deferred fuel
balance for LEAC customers in resolution of all outstanding issues related to
the November 9, 1991 Salem 2 turbine generator outage and a credit of $1.3
million to reflect an adjustment of partially estimated New Jersey Gross
Receipts and Franchise Tax (NJGRT) unit tax rates to actual unit tax rates.
This adjustment affected the deferred fuel balance.
NOTE 2. PREFERRED STOCK
In February 1994, PSE&G issued and sold 600,000 shares of its 6.92%
Cumulative Preferred Stock ($100 Par) and 600,000 shares of its 6.75%
Cumulative Preferred Stock -$25 Par. The net proceeds from the sale of the
6.92% Cumulative Preferred Stock ($100 Par) were added to the general funds
of PSE&G and used to pay a portion of its then outstanding short-term debt
obligations, primarily incurred to fund a portion of its construction
expenditures. The net proceeds from the sale of the 6.75% Cumulative
Preferred Stock - $25 Par were used by PSE&G to redeem the 150,000 shares
outstanding of its 8.08% Cumulative Preferred Stock ($100 Par) on March 1,
1994. In addition, PSE&G redeemed on March 1, 1994 all of the 300,000 shares
outstanding of its 8.16% Cumulative Preferred Stock ($100 Par).
<PAGE> 17
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 3. COMMON STOCK
As of June 30, 1994 and December 31, 1993, 244,697,930 shares and
243,688,256 shares, respectively, of Enterprise Common Stock (Common Stock)
were outstanding. This increase was due to the issuance of an aggregate
1,009,674 shares for approximately $28 million through Enterprise's Dividend
Reinvestment and Stock Purchase Plan (DRIP) and Employee Stock Purchase Plan.
All of such Common Stock was issued during the first quarter of 1994.
NOTE 4. LONG-TERM DEBT
Enterprise's long-term debt aggregated $5.376 billion as of June 30,
1994, of which $4.545 billion was attributable to PSE&G and $831 million to
Enterprise Diversified Holdings Incorporated (EDHI), the parent of
Enterprise's nonutility businesses.
On February 10, 1994, PSE&G issued $50 million of its 5.45% Pollution
Control Series O First and Refunding Mortgage Bonds (Mortgage Bonds) due 2032
to service and secure an equal principal amount of tax exempt revenue bonds
issued by the Pollution Control Financing Authority of Salem County
(Authority), issued for the purpose of financing certain pollution control
facilities at Hope Creek Generating Station.
On March 1, 1994, PSE&G redeemed $60 million outstanding principal
amount of its Mortgage Bonds 4-5/8% Series due 1994. On March 15, 1994,
PSE&G issued the following series of its Mortgage Bonds: $175 million
principal amount 7-3/8% Series TT due 2014 and $175 million principal amount
6-3/4% Series UU due 2006. The net proceeds from the sale of the Series TT
and UU Mortgage Bonds were used by PSE&G to finance a portion of its current
construction program and to reimburse PSE&G's treasury for funds expended to
refund and redeem certain debt obligations, including the payment of short-
term debt obligations incurred for such purposes.
On May 23, 1994, PSE&G issued the following Series of Medium-Term Notes,
Series A (MTN's): $43.5 million 8.10% due 2009 and $16.5 million 8.16% due
2009. The net proceeds from the sale of the MTN's were added to the general
funds of PSE&G and were used to finance a portion of its current construction
program and to reimburse the treasury for funds expended to refund and redeem
and/or defease certain debt obligations including the payment of short-term
debt obligations incurred for such purposes.
<PAGE> 18
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 4. LONG-TERM DEBT - (Concluded)
On May 25, 1994, PSE&G issued $100 million of its Mortgage Bonds 6.40%
Pollution Control Series P Mortgage Bonds due 2032 to service and secure an
equal principal amount of tax exempt revenue bonds issued by the New Jersey
Economic Development Authority (NJEDA), issued for the purpose of financing
certain pollution control facilities at Hope Creek Generating Station. Also,
on May 26, 1994, PSE&G entered into an escrow agreement to defease in
substance $122.5 million principal amount of its Mortgage Bonds, 9.75% Series
AA due 2020. In accordance with the escrow agreement, PSE&G deposited a
portfolio of United States treasury securities with a trustee sufficient to
service its obligations for the Series AA Mortgage Bonds, including
redemption on July 1, 1995 at 108.07% of principal amount. A portion of the
portfolio of securities was acquired with the funds borrowed from the NJEDA.
On June 28, 1994, PSE&G issued $104,365,000 of its 6.25% Pollution
Control Series Q Mortgage Bonds due 2031 to service and secure an equal
principal amount of tax exempt revenue bonds issued by the Authority, for the
purpose of redeeming the $104,365,000 outstanding aggregate principal amount
of the Authority's 10.5% Pollution Control Revenue Bonds, 1984 Series A
(Public Service Electric and Gas Company Project) (1984 Series A Bonds) at
the regular redemption price of 102.00% of principal amount. The 1984 Series
A Bonds were serviced and secured by an equal principal amount of PSE&G's
Mortgage Bonds, Pollution Control Series F with like maturity, terms and
rate, both of which were redeemed on July 1, 1994.
The Authority has announced its intention to redeem the outstanding
$87.9 million aggregate principal amount of its 10 3/8% Pollution Control
Revenue Bonds, 1984 Series B (Public Service Electric and Gas Company
Project) due 2014, ("1984 Series B Bonds"), on September 1, 1994 at a price
of 102.00% of principal. The 1984 Series B Bonds are serviced and secured by
PSE&G's Pollution Control Series G Bonds with like maturity, terms and rate
and which will be redeemed on the same date.
<PAGE> 19
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 5. COMMITMENTS AND CONTINGENT LIABILITIES
NUCLEAR PERFORMANCE STANDARD
The BPU has established a nuclear performance standard (Standard) for
nuclear generating stations owned by New Jersey electric utilities, including
the five nuclear units in which PSE&G has an ownership interest: Salem --
42.59%; Hope Creek -- 95%; and Peach Bottom -- 42.49%. PSE&G operates Salem
and Hope Creek, while Peach Bottom is operated by PECO Energy Inc., formerly
Philadelphia Electric Company, (PECO).
The penalty/reward under the Standard is a percentage of replacement
power costs. (See table below.) The Standard provides that the penalties will
be calculated to the edge of each capacity factor range. For example, a 30%
penalty applies to replacement power costs incurred in the 55% to 65% range
and a 40% penalty applies to replacement power costs in the 45% to 55% range.
</TABLE>
<TABLE>
<CAPTION>
CAPACITY FACTOR RANGE REWARD PENALTY
- ------------------------------------------------------ ------ -------
<S> <C> <C>
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
</TABLE>
Under the Standard, 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 Standard 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
Standard. During 1993, the five nuclear units in which PSE&G has an ownership
<PAGE> 20
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 5. COMMITMENTS AND CONTINGENT LIABILITIES (Continued)
NUCLEAR PERFORMANCE STANDARD (Concluded)
interest aggregated a 77% combined capacity factor. In accordance with the
Standard, PSE&G's combined capacity factor exceeded the 75% reward threshold,
entitling PSE&G to a reward of approximately $3.9 million. PSE&G has
petitioned the BPU to recover this reward through the LEAC commencing October
1, 1994. PSE&G expects that the 1994 capacity factor under the Standard will
exceed 65%, although no assurances can be given.
NUCLEAR INSURANCE COVERAGES AND ASSESSMENTS
PSE&G's insurance coverages and maximum retrospective assessments for
its nuclear operations are as follows:
<TABLE>
<CAPTION>
PSE&G
MAXIMUM
ASSESSMENTS
TOTAL FOR A
SITE SINGLE
TYPE AND SOURCE OF COVERAGES COVERAGES INCIDENT
- -------------------------------------------------- --------- ----------
(MILLIONS OF DOLLARS)
<S> <C> <C>
Public Liability:
American Nuclear Insurers........................ $ 200.0 $ --
Indemnity(A)..................................... 8,958.1 210.2
-------- --------
$9,158.1 (B) $210.2
-------- --------
Nuclear Worker Liability:
American Nuclear Insurers(C)..................... $ 200.0 $ 8.2
-------- --------
Property Damage:
Nuclear Mutual Limited(D)........................ $ 500.0 $ 14.9
American Nuclear Insurers........................ 765.0 (E) --
Nuclear Electric Insurance Ltd. (NEIL I)......... 85.0 (F) --
Nuclear Electric Insurance Ltd. (NEIL I).......... 1,400.0 (G) 10.9 (H)
-------- --------
$2,750.0 $ 25.8
-------- --------
Replacement Power:
Nuclear Electric Insurance Ltd................... $ 3.5 (I) $ 11.3
</TABLE> <PAGE> 21
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 5. COMMITMENTS AND CONTINGENT LIABILITIES (Continued)
NUCLEAR INSURANCE COVERAGES AND ASSESSMENTS (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) PSE&G has examined the Financial Accounting Standards Board's (FASB)
Emerging Issues Task Force's (EITF) Issue 93-14, "Accounting for
Multiple-Year Retrospectively Rated Insurance Contracts by Insurance
Enterprises and Other Enterprises", and has determined that the
potential insurance premium recovery is not material.
(E) Includes $100 million sublimit for premature decommissioning costs.
(F) New policy effective January 1, 1994.
(G) Includes up to $250 million for premature decommissioning costs.
(H) In the event of a second industry loss triggering NEIL coverage, the
maximum retrospective premium assessment can increase to $23.4 million.
(I) Weekly indemnity for 52 weeks which commences after the first 21 weeks
of an outage. Beyond the first 52 weeks of coverage indemnity of $2.3
million per week for 104 weeks is afforded. Total coverage amounts to
$425.9 million over three years.
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 $9.2 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
<PAGE> 22
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 5. COMMITMENTS AND CONTINGENT LIABILITIES (Continued)
NUCLEAR INSURANCE COVERAGES AND ASSESSMENTS (Concluded)
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.
PSE&G purchases all the property insurance available, including
decontamination expense coverage and premature decommissioning coverage, with
respect to loss or damage to its nuclear facilities. PECO has advised PSE&G
that it maintains similar insurance coverage with respect to Peach Bottom.
Under the terms of the various insurance agreements, PSE&G could be subject
to a maximum retrospective assessment for a single incident of up to $25.8
million. 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
Nuclear Regulatory Commission (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 shut down.
PSE&G is a member of an industry mutual insurance company, NEIL, which
provides replacement power cost coverage in the event of a major accidental
outage at a nuclear station. The policies provide for a weekly indemnity
payment of $3.5 million for 52 weeks, subject to a 21-week waiting period.
The policies provide for weekly indemnity payments of $2.3 million for a 104
week period beyond the first year's indemnity. The premium for this coverage
is subject to retrospective assessment for adverse loss experience. Under the
policies, PSE&G's present maximum share of any retrospective assessment in
any year is $11.3 million.
PSE&G URANIUM ENRICHMENT DECONTAMINATION AND DECOMMISSIONING FUND
In accordance with the National Energy Policy Act of 1992 (NEPA),
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 its interest in both PSE&G's operated facilities consisting of Salem and
Hope Creek, and PECO's operated facilities consisting of Peach Bottom, is
$65.2 million. To date PSE&G has paid $8.7 million, resulting in a balance
of $56.5 million. While PSE&G expects to recover its costs in the LEAC
commencing October 1, 1994, it cannot predict the outcome, amount or timing
of any recovery associated with this matter. <PAGE> 23
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 5. COMMITMENTS AND CONTINGENT LIABILITIES (Continued)
CONSTRUCTION AND FUEL SUPPLIES
PSE&G has substantial commitments as part of its ongoing construction
program which includes 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
plans, 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 Integrated Electric 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 cogeneration and other nonutility capacity projected to be
available.
Based on PSE&G's 1994-1998 construction program, construction
expenditures are expected to aggregate approximately $4.2 billion, which
includes $483 million for nuclear fuel and $133 million of AFDC and
capitalized interest during the years 1994 through 1998. The estimate of
construction requirements is based on expected project completion dates and
includes anticipated escalation due to inflation of approximately 4%,
annually. Therefore, construction delays or higher inflation levels could
cause significant increases in these amounts. PSE&G expects to generate
internally a majority of the funds necessary to satisfy its construction
expenditures over the next five years, assuming adequate and timely rate
relief, 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 1994
through 1998.
<PAGE> 24
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 5. COMMITMENTS AND CONTINGENT LIABILITIES (Continued)
SALEM STATION
The NJDEP draft permit issued October 3, 1990 pursuant to the Federal
Water Pollution Control Act with respect to Salem 1 and 2 which, if adopted
as proposed, would have required the immediate shutdown of both units pending
retrofit with cooling towers. On June 24, 1993, NJDEP issued a revised draft
permit that permitted Salem to continue to operate with once-through cooling
and require PSE&G to make certain plant modifications and to take certain
other actions to enhance the ecology of the affected water body. The final
five year permit, with essentially the same provisions as the revised draft
permit, was issued on July 20, 1994, effective September 1, 1994. The
revised draft permit had been opposed by various entities including
environmental groups and PSE&G cannot predict whether any appeals of the
final permit will be filed. The EPA has authority to review the issuance of
the final permit issued by the NJDEP. Additional permits from various
agencies will be required for implementation of certain of the measures
required under the permit, as to which no assurances can be given. Estimated
capital cost of compliance with the final permit is approximately $100
million, of which PSE&G's share would be 42.59% and is included in our
capital spending plans.
BERGEN STATION REPOWERING
PSE&G is presently engaged in Phase I of a construction project to
renovate (or "repower") the Bergen Station pursuant to an air pollution
control permit issued by the NJDEP on May 27, 1993. The current effort would
maintain the existing electric supply of the station (with a small increase
from 629 MW to 669 MW), improve operational reliability and efficiency and
significantly improve the environmental effects of operation of the facility.
Phase II of the project, if it is undertaken by PSE&G, would increase the
capacity of Bergen by an additional 650 MW.
On July 12, 1993, the Independent Energy Producers of New Jersey
(IEPNJ), an association of competitors of PSE&G appealed the NJDEP's issuance
of the air permit for Phase I of the project to the Appellate Division of the
New Jersey Superior Court, alleging that PSE&G is first required to obtain a
Certificate of Need (CON) under the New Jersey Need Assessment Act (Need
Assessment Act). The NJDEP determined that the Need Assessment Act was
inapplicable to this renovation project and as more fully described below
the Appellate Division affirmed this determination on July 8, 1994. Obtaining
a CON would be a complex procedure entailing proceedings of at least a two
year duration before the NJDEP, the outcome of which could not be assured. As
of June 30, 1994, Phase I of the renovation project was about 76% complete
and PSE&G had spent approximately $218 million on this effort. The final cost
is estimated to be approximately $400 million.
<PAGE> 25
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 5. COMMITMENTS AND CONTINGENT LIABILITIES (Continued)
BERGEN STATION REPOWERING (Concluded)
On July 8, 1994, the Appellate Division issued a decision affirming the
determination of the NJDEP that a CON was not required for Phase I of the
project. The Appellate Division, however, concluded that the NJDEP erred by
granting a conditional air pollution control permit for Phase II of the
project and accordingly, remanded this matter to NJDEP for modification of
the permit to indicate that it only applies to Phase I. By Notice of
Petition for Certification dated July 27, 1994, IEPNJ petitioned the Supreme
Court of New Jersey for review of the Appellate Division decision that a CON
was not required for Phase I of the project. PSE&G has opposed this appeal.
Review by the Supreme Court of New Jersey of this matter as discretionary.
PSE&G believes that a CON is not required for Phase I of the project.
However, if a CON were ultimately required by the courts after exhaustion of
all appeals, the permits needed to operate the plant could not be issued
until after a CON was obtained. PSE&G intends to continue this renovation
project and to vigorously defend its position through all available means.
ENVIRONMENT
GENERAL
Certain Federal and State laws authorize the United States Environmental
Protection Agency (EPA) and 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 be material.
<PAGE> 26
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 5. COMMITMENTS AND CONTINGENT LIABILITIES (Concluded)
ENVIRONMENT (Concluded)
PSE&G MANUFACTURED GAS PLANT REMEDIATION PROGRAM (Concluded)
In March 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
its former gas plant 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.
Costs incurred through June 30, 1994 for the Remediation Program
amounted to $47.2 million, net of insurance recoveries. In addition, at June
30, 1994, PSE&G's liability for estimated remediation costs, net of insurance
recoveries, through March 31, 1996 aggregated $108.0 million. In accordance
with a Stipulation approved by the BPU on January 21, 1992, PSE&G is
recovering $32 million of its actual remediation costs to reflect costs
incurred through September 30, 1992, net of insurance recoveries, over a six-
year period. PSE&G will recover $5.3 million in each of its next three LGAC
periods ending in 1996, net of insurance recoveries. The regulatory treatment
of the remediation costs covered by this Stipulation was not changed in the
BPU's September 15, 1993 written order, allowing continued collection under
the terms of the January 21, 1992 Stipulation. The decision of September 15,
1993 concluded that PSE&G had met its burden of proof for establishing the
reasonableness and prudence of remediation costs incurred in operating and
decommissioning these facilities in the past. The remediation costs incurred
during the period July 1, 1992 through September 30, 1992 were subject to
audit and verification in PSE&G's 1992-93 LGAC. The audit has been completed
and resulted in no disallowance of any costs. The order also approved a
mechanism for costs incurred since October 1, 1992, allowing the recovery of
actual costs plus carrying charges, net of insurance recoveries, over a
seven-year period through PSE&G's LEAC and LGAC, with 60% charged to gas
customers and 40% charged to electric customers. (See Note 1 - Rate Matters
- - Remediation Adjustment Clause).
In November 1988, PSE&G filed suit against certain of its insurers to
recover the costs associated with addressing and resolving environmental
issues of the Remediation Program. PSE&G has settled its claim with one
insurer and there is a trial scheduled for January 1995 with the remaining
insurers. Pending full recovery of Remediation Program costs through rates
or under its insurance policies, neither of which can be assured, PSE&G will
be required to finance the unreimbursed costs of its Remediation Program.
<PAGE> 27
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Concluded)
NOTE 6. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
In accordance with SFAS 106 "Employers' Accounting for Postretirement
Benefits Other Than Pensions", the BPU's December 31, 1992 base rate order,
provided that (1) PSE&G's pay-as-you-go basis Other Postretirement Benefits
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 Postretirement
Benefits costs, that are accounted for on an accrual basis in accordance with
Statement of Financial Accounting Standards (SFAS) 106, will be recoverable
in future rates; and (3) PSE&G should account for the differences between its
Postretirement Benefits costs on an accrual basis and the pay-as-you-go basis
being recovered in rates as a regulatory asset. During January 1993 and
subsequent to the receipt of the Order, the Financial Accounting Standards
Board 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. PSE&G intends to request
the BPU for 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.
Accordingly, PSE&G is accounting for the differences between its SFAS 106
accruals cost and the cash cost currently recovered through rates as a
regulatory asset. PSE&G's accrued Postretirement Benefits costs which have
been deferred were $133.3 million at June 30, 1994.
<PAGE> 28
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Following are the significant changes in or additions to information
reported in Enterprise's Annual Report to the SEC on Form 10-K for 1993,
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 of Enterprise and should
be read in conjunction with such statements and notes.
As of June 30, 1994, PSE&G comprised 86% of Enterprise assets. For the
three, six and twelve month periods ended June 30, 1994, PSE&G's revenues
were 92%, 93% and 93%, respectively, of Enterprise's revenues and PSE&G's
earnings available to Enterprise for such periods were 91%, 91% and 97%,
respectively, of Enterprise's net income.
COMPETITION
Ongoing initiatives affecting PSE&G's electric and gas utility
businesses associated with the continuing transition to a competitive market
environment will have an increasingly significant impact on Enterprise and
PSE&G. Federal legislation, including the National Energy Policy Act (NEPA),
as well as regulatory initiatives at both the Federal and state levels that
are designed to promote competition and lessen regulation of the energy
supply industry can be expected to result in additional pressures on sales
retention due to energy prices, especially with respect to larger industrial
and commercial customers. Growth potential is limited in PSE&G's mature
service territory.
The shifting of rate regulation from traditional concepts based upon
rate base rate of return to concepts based upon market competition and
service appears to be accelerating. As a result, added emphasis will be
placed upon cost containment, and utilities and their regulators will need to
develop flexible ratemaking strategies to minimize adverse impacts which
might otherwise occur to revenues and earnings and maximize potential
opportunities presented by deregulation. The manner in which regulators
address evolving competitive issues will also affect utility credit quality.
This transition to a competitive market environment may also affect
utilities' asset values as a result of changes from traditional utility
ratemaking. A shift to a market-price determination of asset values could
result in transition costs and create "stranded assets". Such assets could
include electric generating units constituting excess capacity, less
efficient units whose cost may be too high to be fully supported by
competitively set rates, and certain regulatory assets whose costs may not be
fully recoverable in a deregulated environment. If changes in rate
regulation ultimately require a recognition of any such stranded assets,
write-downs for utilities, including PSE&G, may occur. At this time
management cannot predict the level of transition costs or stranded assets
resulting from industry deregulation, if any, or whether utility regulators
will allow recovery of any such transition costs from customers. However,
such amounts could be material.
<PAGE> 29
<TABLE>
<CAPTION>
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
ENTERPRISE EARNINGS
Earnings per share of Enterprise Common Stock were 53 cents, $1.47, and $2.57 for the three, six and twelve months ended June
30, 1994, an increase per share of 4 cents, 7 cents and 18 cents respectively from the comparable 1993 periods, after giving effect
to the issuance of additional shares of Common Stock. (See Liquidity and Capital Resources - External Financing.) The changes
are summarized as follows:
Increase or (Decrease)
---------------------------------------------------------------
Three Months Ended Six Months Ended Twelve Months Ended
June 30, June 30, June 30,
1994 vs. 1993 1994 vs. 1993 1994 vs. 1993
------------------- -------------------- -------------------
Per Per Per
Millions Share Millions Share Millions Share
-------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
PSE&G
Revenues (net of fuel costs
and gross receipts taxes) ...... $ 41 $0.17 $ 104 $ 0.44 $ 284 $ 1.20
Other operation expenses ........ 2 0.01 (11) (0.05) (64) (0.27)
Maintenance expenses ............ (2) (0.01) (21) (0.09) (41) (0.17)
Depreciation and
Amortization expenses (excluding
property losses and abandonments) (10) (0.04) (16) (0.06) (23) (0.10)
Federal income taxes ............ (16) (0.07) (25) (0.11) (86) (0.37)
Peach Bottom Settlement - net
of Federal income taxes of $0,
$0 million and ($7) million,
respectively .................. - - - - 14 0.06
Interest charges ................ 4 0.02 13 0.05 20 0.08
Other income .................... (4) (0.02) (7) (0.03) (3) (0.01)
Other ........................... - - (5) (0.02) 4 0.02
Preferred stock dividend require-
ments ......................... (1) - (2) (0.01) (4) (0.02)
---- ---- ----- ------ ----- ------
Earnings Available to
Enterprise .................. 14 0.06 30 0.12 101 0.42
---- ---- ----- ------ ----- -------
EDHI.......................... (4) (0.02) (5) (0.02) (41) (0.17)
---- ----- ----- ------ ----- ------
Net Income ...................... $ 10 0.04 $ 25 0.10 $ 60 0.25
==== ----- ===== ------ ===== ------
Effect of additional shares of
Enterprise Common Stock ....... - (0.03) (0.07)
----- ------ ------
Total ......................... $0.04 $ 0.07 $ 0.18
===== ====== ======
Average Shares of Common Stock
Outstanding 1993 .............. 240,919,743 238,930,322 236,352,495
Average Shares of Common Stock
Outstanding 1994 .............. 244,697,930 244,239,893 243,296,564
</TABLE> <PAGE> 30
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
ENTERPRISE EARNINGS - (Continued)
PSE&G
PSE&G's earnings available to Enterprise increased $14 million, or 13%,
for the quarter ended June 30, 1994 from the quarter ended June 30, 1993. The
increase was principally due to weather related electric and gas sales during
the second quarter of 1994. Also contributing to the increase in earnings
were lower interest charges resulting from refinancing of debt at lower
interest rates and lower other operation expenses (primarily lower property
insurance and distribution expenses). The increased earnings were partially
offset by increased federal income taxes resulting from higher pre-tax
income, higher depreciation and amortization expenses and higher maintenance
expenses at the Hope Creek nuclear station due to the spring 1994 refueling
outage.
PSE&G's earnings available to Enterprise increased $30 million, or 10%
for the six months ended June 30, 1994 from the comparable six month period
ended June 30, 1993. The increase was primarily due to weather-related
increases in residential and commercial sales. There were increases in
electric (kilowatthour) and gas (therm) sales of 2.6% and 8.5%, respectively.
In addition, lower interest charges resulting from refinancing debt at lower
interest rates contributed to the increase in earnings. The major factors
offsetting this increase were higher federal income taxes due to higher pre-
tax income, higher depreciation and amortization expenses and higher
maintenance expenses at the Hope Creek nuclear station due to the spring 1994
refueling outage.
Excluding the $14 million net effect of the 1992 settlement of
litigation against PECO in connection with the 1987 shutdown of Peach Bottom
by the NRC, PSE&G's earnings available to Enterprise increased $87 million
or 17%, for the twelve month period ended June 30, 1994 from the comparable
twelve month period of 1993. The principal factors contributing to the
increase were PSE&G's higher electric and gas base rates that became
effective January 1, 1993 and increased weather-related electric and gas
sales. In addition, lower interest charges resulting from refinancing of debt
at lower interest rates contributed to the increase in earnings. Partially
offsetting the increase in earnings were higher federal income taxes
resulting from higher pre-tax income, higher other operation expenses
(comprised primarily of labor, employee benefits costs, and miscellaneous
nuclear production costs) and increased maintenance expenses at the Hope
Creek nuclear station due to the spring 1994 refueling outage.
<PAGE> 31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
ENTERPRISE EARNINGS - (Concluded)
EDHI
EDHI's decrease in net income of $4 million, or 24%, for the quarter
ended June 30, 1994 compared to the quarter ended June 30, 1993 was primarily
due to lower gas volumes and oil prices for EDC. Partially offsetting the
decrease was higher income from PSRC's security investments.
EDHI's net income for the six month period ended June 30, 1994 decreased
$5 million, or 13%, from the comparable six month period ended June 30, 1993.
The primary factors contributing to the decrease were lower gas volumes and
oil prices. Partially offsetting the decrease was higher income from PSRC's
security investments.
Excluding the 1993 property impairment related to certain of EGDC's
properties, which reduced net income by $51 million, EDHI's net income for
the twelve month period ended June 30, 1994 increased by $10 million, or 17%,
compared to the twelve month period ended June 30, 1993. The increase was due
principally to PSRC's higher income from security investments and improved
capacity factors at certain CEA projects, partially offset by lower EDC gas
volumes and oil prices.
<PAGE> 32
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
DIVIDENDS
Dividends paid to holders of Enterprise Common Stock during the three,
six and twelve month periods ended June 30, 1994 increased $2 million, $4.1
million and $13.2 million, respectively, over the comparable 1993 periods.
The increase in dividend payments was due to the issuance of additional
shares of Enterprise Common Stock. (See Liquidity and Capital Resources.)
Dividends paid to holders of PSE&G's Preferred Stock, during the three,
six and twelve month periods ended June 30, 1994 increased $387 thousand,
$1.8 million and $4 million over the comparable 1993 periods. The increase
in such dividend payments was due to the issuance of additional shares of
PSE&G's Preferred Stock, partially offset by lower dividend payment rates on
certain preferred stock issues resulting from refundings. (See Liquidity and
Capital Resources.)
<PAGE> 33
<TABLE>
<CAPTION>
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
REVENUES
PSE&G ELECTRIC
Revenues increased $12 million, or 1%, during the three months ended June 30, 1994, $28 million, or 2%, during the first half
of 1994 and $196 million, or 6%, during the twelve months ended June 30, 1994 over the similar periods ended June 30, 1993. The
significant components of these changes follow:
Increase or (Decrease)
-----------------------------------------------------------
Three Months Ended Six Months Ended Twelve Months Ended
June 30, June 30, June 30,
1994 vs. 1993 1994 vs. 1993 1994 vs. 1993
------------------ ---------------- --------------------
(Millions)
<S> <C> <C> <C>
Kilowatthour sales ............. $ 22 $ 53 $ 108
Base rate increase effective
January 1, 1993 .............. - - 126
Recovery of energy costs ....... (10) (28) (52)
NJGRT .......................... 1 3 15
Other operating revenues ....... (1) - (1)
----- ----- -----
Total Electric Revenues ...... $ 12 $ 28 $ 196
===== ===== =====
Changes in kilowatthour sales by customer category are described below:
<CAPTION>
Increase or (Decrease)
-------------------------------------------------------------
Three Months Ended Six Months Ended Twelve Months Ended
June 30, June 30, June 30,
1994 vs. 1993 1994 vs. 1993 1994 vs. 1993
------------------ ---------------- --------------------
<S> <C> <C> <C>
Residential ................... 4.8% 3.4% 8.1%
Commercial .................... 1.4 2.9 3.2
Industrial .................... 2.1 1.1 0.3
Non-Jurisdictional ............ (43.2) (45.9) (24.8)
</TABLE>
<PAGE> 34
<TABLE>
<CAPTION>
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
REVENUES - (Continued)
PSE&G ELECTRIC - (Concluded)
The 1% and 2% increases in revenues during the three and six month periods ended June 30, 1994, respectively, were primarily
due to greater sales to residential, commercial and industrial customers resulting from favorable 1994 weather conditions and
continued improvement in New Jersey's economy. Contributing to the 6% increase in revenues for the twelve months ended June 30,
1994, were the base rate increase which became effective January 1, 1993 and greater sales to residential, commercial and industrial
customers due to 1994 weather and improvement in the New Jersey economy.
PSE&G GAS
Revenues increased $21 million, or 8% during the three months ended June 30, 1994, $193 million, or 22%, during the first half
of 1994 and $193 million or 12% during the twelve month period ended June 30, 1994 compared to the similar periods ended June 30,
1993. The significant components of these changes follow:
Increase or (Decrease)
-----------------------------------------------------------
Three Months Ended Six Months Ended Twelve Months Ended
June 30, June 30, June 30,
1994 vs. 1993 1994 vs. 1993 1994 vs. 1993
------------------ ---------------- -------------------
(Millions)
<S> <C> <C> <C>
Therm sales ................... $ 18 $ 49 $ 33
Base rate increase effective
January 1, 1993 .............. - - 26
Recovery of fuel related costs. 5 134 134
NJGRT ......................... - 9 6
Other operating revenues ...... (2) 1 (6)
---- ---- ----
Total Gas Revenues ......... $ 21 $193 $193
==== ==== ====
</TABLE>
<PAGE> 35
<TABLE>
<CAPTION>
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
REVENUES - (Continued)
PSE&G GAS - (Concluded)
Changes in gas sold or transported by customer category are described below:
Increase or (Decrease)
------------------------------------------------------------
Three Months Ended Six Months Ended Twelve Months Ended
June 30, June 30, June 30,
1994 vs. 1993 1994 vs. 1993 1994 vs. 1993
------------------- ---------------- -------------------
<S> <C> <C> <C>
Residential ............ 3.5% 10.3% 5.7%
Commercial ............. (6.0) 4.3 2.2
Industrial ............. 5.9 9.7 10.3
Transportation Service . 3.6 (8.0) (5.2)
The gas revenue increase of 8% for the quarter ended June 30, 1994 from the comparable quarter of 1993 is primarily due to
an increase in industrial cogeneration sales as a result of increased average customer usage, partially offset by a decrease in
firm sales.
The gas revenue increase of 22% and 12% for the six and twelve month period ended June 30, 1994, respectively, from the
comparable periods of 1993 is primarily attributable to an increase in the recovery of fuel costs principally due to higher fuel
rates and significantly lower customer refunds. Residential, commercial and industrial sales increased due to favorable weather
conditions and an improving economy. Sales to cogenerators was the largest contributor to the increase in industrial sales as
cogeneration average customer usage for electric generation continues to increase. Also contributing to the increase in revenues
for the twelve months ended June 30, 1994, was the base rate revenue increase which became effective January 1, 1993.
</TABLE>
<PAGE> 36
<TABLE>
<CAPTION>
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
Revenues - (Concluded)
EDHI
EDHI revenues decreased $2 million, or 2%, during the second quarter of 1994 from the second quarter of 1993, revenues
increased $7 million, or 4%, during the first half of 1994 over the first half of 1993, and revenues increased $36 million, or 9%,
during the twelve month period ended June 30, 1994 over the twelve month period ended June 30, 1993. The significant factors
contributing to such results are as follows:
Increase or (Decrease)
-----------------------------------------------------------
Three Months Ended Six Months Ended Twelve Months Ended
June 30, June 30, June 30,
1994 vs. 1993 1994 vs. 1993 1994 vs. 1993
------------------- ----------------- -------------------
(Millions)
<S> <C> <C> <C>
EDC .............. $(16) $(17) $(25)
PSRC ............. 11 18 42
CEA .............. 3 7 19
EGDC ............. - (1) -
----- ----- ----
$ (2) $ 7 $ 36
===== ===== ====
For the three month period, EDHI's revenues decreased as a result of lower EDC revenues due to lower gas volumes and oil
prices, partially offset by higher revenues related to PSRC's security investments. For the six and twelve month periods, revenues
increased principally due to higher revenues related to PSRC's security investments and improved capacity factors at certain CEA
projects, partially offset by lower EDC gas volumes and oil prices.
</TABLE>
<PAGE> 37
<TABLE>
<CAPTION>
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
PSE&G - ELECTRIC ENERGY COSTS
Electric energy costs decreased $9 million, or 5%, $28 million, or 8% and $58 million, or 8%, during the three, six and twelve
month periods ended June 30, 1994, respectively, from the comparable 1993 periods. The significant components of these changes
follow:
Increase or (Decrease)
-----------------------------------------------------------
Three Months Ended Six Months Ended Twelve Months Ended
June 30, June 30, June 30,
1994 vs. 1993 1994 vs. 1993 1994 vs. 1993
------------------ ---------------- -------------------
(Millions)
<S> <C> <C> <C>
Change in prices paid for
fuel and power purchases .......... $ 10 $ 41 $ 52
Kilowatthour generation ............ 5 11 32
Adjustment of actual costs to match
recoveries through revenues (A) ... (24) (80) (142)
---- ---- ----
Total Electric Energy Costs......... $ (9) $(28) $(58)
==== ==== ====
<FN>
(A) Reflects the change in deferred over(under) recovered energy costs.
The decrease in total costs during the second quarter of 1994 from the comparable 1993 quarter was principally due to the
underrecovery of energy costs, partially offset by an 11% increase in fuel burned costs, a 7% increase in purchased power costs,
principally from nonutility generators (NUGS), and a 3% increase in kilowatthour generation.
The decrease in total costs during the first half of 1994 from the comparable 1993 period was principally due to the
underrecovery of energy costs, partially offset by a 9% increase in fuel burned costs, a 20% increase in purchased power costs,
principally from NUGS and a 3% increase in kilowatthour generation.
The decrease in total costs for the twelve month period ended June 30, 1994 from the comparable 1993 period was principally
the result of an adjustment in the recovery of energy costs resulting from the BPU base rate case decision effective January 1,
1993, partially offset by a 3% increase in fuel burned costs, an 18% increase in purchased power costs, principally from NUGS and
a 4% increase in kilowatthour generation.
</TABLE> <PAGE> 38
<TABLE>
<CAPTION>
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
GAS SUPPLY COSTS
Gas supply costs increased $5 million, or 3%, $137 million, or 28% and $151 million, or 17% during the three, six and twelve
month periods ended June 30, 1994, respectively, from the comparable 1993 periods. The significant components of these changes
follow:
Increase or (Decrease)
-----------------------------------------------------------
Three Months Ended Six Months Ended Twelve Months Ended
June 30, June 30, June 30,
1994 vs. 1993 1994 vs. 1993 1994 vs. 1993
------------------- ----------------- -------------------
(Millions)
<S> <C> <C> <C>
Change in prices paid for
gas supplies ...................... $ 1 $ 44 $ 80
Therm sendout ...................... 4 48 62
Refunds from pipeline suppliers .... (1) (9) 21
Adjustment of actual costs to match
recoveries through revenues (A) .. 1 54 (12)
---- ---- ----
Total Gas Supply Costs ............. $ 5 $137 $151
==== ==== ====
<FN>
(A) Reflects the change in deferred over(under) recovered gas costs.
The increases in total costs for the three, six and twelve month periods ended June 30, 1994 compared to similar periods in
1993 were primarily attributable to increased sendout as a result of the colder winter, higher gas prices and increased sales to
NUGS.
</TABLE> <PAGE> 39
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
LIQUIDITY AND CAPITAL RESOURCES
Enterprise's liquidity is affected by maturing debt (see Note 4 - Long-
Term Debt of Notes to Consolidated Financial Statements), investment and
acquisition activities and the capital requirements of PSE&G's construction
program. (For additional information see Note 5 - Commitments and Contingent
Liabilities of Notes to Consolidated Financial Statements.)
PSE&G
For the six month period ended June 30, 1994, PSE&G had utility plant
additions, excluding AFDC, of $360 million, an increase of $75 million from
the corresponding period in 1993. For the twelve month period ended June 30,
1994, PSE&G had utility plant additions, excluding AFDC, of $938 million, an
increase of $198 million from the corresponding period in 1993. Construction
expenditures were related to improvements in PSE&G's existing power plants,
transmission and distribution system, gas system and common facilities.
PSE&G expects that it will be able to generate internally a majority of
its capital requirements including construction expenditures over the next
five years, assuming adequate and timely rate relief as to which no
assurances can be given. (See Note 1 - Rate Matters and Note 5 - Commitments
and Contingent Liabilities of Notes to Consolidated Financial Statements.)
Legislation effective January 1, 1992 phased in an acceleration of
payment of the New Jersey Gross Receipts and Franchise Tax (NJGRT) during
1992-94, so that for 1994 and for each year thereafter PSE&G will be paying
its estimated current year's NJGRT liability in April of each such year. In
April 1993, PSE&G paid $899 million (its 1992 NJGRT plus 50% of its estimated
1993 NJGRT). In April 1994, PSE&G paid $847 million (the remainder of its
1993 NJGRT plus its 1994 estimated NJGRT). Such prepayment has been funded by
PSE&G through the issuance of short-term debt. PSE&G has filed a petition
with the BPU seeking to replace a portion of such short-term funding with
$100 million of long-term debt.
<PAGE> 40
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
LIQUIDITY AND CAPITAL RESOURCES (Continued)
EDHI
During the next five years, a majority of EDHI's capital requirements
are expected to be provided from operational cash flows. EDHI intends to
focus its efforts on CEA and EDC, its energy-related core businesses. CEA is
expected to be the primary vehicle for its business growth and EDC is
projected to attain and maintain a reserve base at approximately 900 Billion
Cubic Feet Equivalent (BCFE), approximately 11% above the December 1993
level. During 1994, EDC has expended approximately $55 million to acquire
domestic and international reserves. At June 30, 1994, EDC had reserves of
825 BCFE. PSRC will make limited new investments related to the core
business, 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. Any inability to extend or replace maturing debt at current
levels and interest rates may affect future earnings and result in an
increase in EDHI's cost of capital.
A partnership in which EGDC is an 80% partner is currently negotiating
to extend or replace a mortgage financing of $40.2 million which is maturing
before December 31, 1994. No assurances can be given that EGDC or the
partnership will be able to extend this loan or obtain a replacement loan in
the amount of the existing loan. Failure to extend or replace the existing
loan at the current outstanding loan balance, or at current interest rates,
may result in an increase in the amount of equity capital which EGDC will
require.
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 June 30, 1994, $133.7 million remained as PSRC's
unfunded commitment subject to call.
<PAGE> 41
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
LIQUIDITY AND CAPITAL RESOURCES (Continued)
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 June 30, 1994 and 1993, EDHI had consolidated debt to equity ratios of
1.19:1 and 1.71:1 and, for the twelve months ended June 30, 1994 and 1993,
EBIT coverage ratios, as defined to exclude the effects of EGDC, of 2.22:1
and 1.84:1, respectively. Compliance with applicable financial covenants will
depend upon future levels of earnings, among other things, as to which no
assurance can be given. (See Note 4 - Long-Term Debt of Notes to
Consolidated Financial Statements.)
INTERNAL GENERATION OF CASH FROM OPERATIONS
Enterprise's cash provided by operating activities increased $102
million to $269 million for the six months ended June 30, 1994 compared to
the corresponding period in 1993. This increase was primarily due to a
decrease in accounts receivable, an increase in net income and deferred
income taxes and a decrease in NJGRT payments, partially offset by a decrease
in accounts payable. (For more information see Enterprise Earnings and
Revenues.)
Enterprise's cash provided by operating activities for the twelve months
ended June 30, 1994 increased $26 million to $1.110 billion when compared to
the corresponding period in 1993. This increase was primarily due to the
increase in net income, the loss from property impairment, increased deferred
income taxes and a decrease in inventories. Partially offsetting these cash
inflows were the lower recovery of electric energy and gas costs through
PSE&G's LEAC and LGAC and a decrease in accounts payable. (For additional
information see Enterprise Earnings and Revenues.)
<PAGE> 42
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
LIQUIDITY AND CAPITAL RESOURCES (Continued)
EXTERNAL FINANCINGS
Cash Flows from Financing Activities:
Six Months Ended Twelve Months Ended
June 30, June 30,
------------------ -------------------
1994 1993 1994 1993
------- -------- -------- ---------
(Millions)
Enterprise:
Issuance of Common Stock (A) $ 28 $ 208 $ 94 $ 279
------- -------- ------- -------
Cash Dividends Paid on
Common Stock (B) (264) (260) (526) (512)
------- -------- ------- -------
PSE&G: (C)
Net increase(decrease) in
Short-Term Debt (D) 139 (150) 564 (16)
Issuance of Long-Term Debt 664 (E) 1,164 1,537 1,164
Redemption of Long-Term Debt and
Other Obligations (192)(E) (551) (1,421) (1,013)
Deferral of Debt Expense - net (6) (15) (50) (15)
Issuance of Preferred Stock 75 (F) 75 75 75
Redemption of Preferred Stock (45)(F) - (45) -
Other (1) (1) (1) (2)
-------- -------- ------- -------
Total PSE&G 634 522 659 193
-------- -------- ------- -------
EDHI:
Net decrease in Short-Term
Debt (G) (14) (24) (79) (81)
Issuance of Long-Term Debt - 70 105 100
Redemption of Long-Term Debt and
Other Obligations (39) (92) (325) (93)
Other 2 2 (6) 1
-------- -------- ------- -------
Total EDHI (51) (44) (305) (73)
-------- -------- ------- -------
Net cash provided by (used in)
financing activities $ 347 $ 426 $ (78) $ (113)
======== ======== ======= =======
(A) During the first six months of 1994, Enterprise issued and sold
1,009,674 shares of Common Stock through its DRIP and Employee Stock Purchase
Plan. All such sales of Common Stock took place during the first quarter of
1994. The net proceeds from such sales, aggregated approximately $28 million
<PAGE> 43
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
LIQUIDITY AND CAPITAL RESOURCES - (Continued)
EXTERNAL FINANCINGS - (Continued)
and were used by Enterprise to make equity investments in EDHI. EDHI utilized
such funds to repay outstanding debt at maturity. Book value per share was
$21.48 at June 30, 1994, compared to $20.95 at June 30, 1993 and $21.07 at
December 31, 1993. (See Note 3 - Common Stock of Notes to Consolidated
Financial Statements.)
(B) See DIVIDENDS.
(C) Under the terms of PSE&G's Mortgage and Restated Certificate of
Incorporation at June 30, 1994, PSE&G would qualify to issue an additional
$4.016 billion of Mortgage Bonds at a rate of 8.5% or $3.234 billion of
Preferred Stock at a rate of 8.375%. PSE&G's Restated Certificate of
Incorporation limits the issuance of Preferred Stock to $1.0 billion, of
which $610 million is outstanding.
In addition, as a prerequisite to the issuance of additional Mortgage
Bonds, PSE&G's Mortgage requires a 2:1 ratio of earnings to fixed charges as
computed thereunder. For the twelve months ended June 30, 1994 such ratio
was 3.49:1.
Under authority granted by the BPU, expiring December 31, 1994, PSE&G is
authorized to issue an additional $381 million principal amount of Mortgage
Bonds/MTN's substantially all of which is authorized only for refunding
purposes. PSE&G presently expects to be able to obtain extension of this
authority for refunding. In addition, on August 8, 1994, PSE&G filed a
petition requesting authority from the BPU to issue an additional $100
million of its Mortgage Bonds/MTN's for general corporate purposes.
The BPU has authorized PSE&G to issue not more than $800 million of its
short-term obligations at any one time outstanding, consisting of commercial
paper and other unsecured borrowings from banks and other lenders through
December 31, 1994. On June 30, 1994, PSE&G had $672 million of short-term
debt outstanding. PSE&G presently expects to be able to obtain extension of
this authority.
PSE&G expects to renew its $600 million revolving credit agreement with
a group of commercial banks which expires on September 17, 1994. On June 30,
1994, there was no short-term debt outstanding under this credit agreement.
(D) Includes commercial paper issued and/or redeemed by PSE&G Fuel
Corporation (Fuelco) and guaranteed by PSE&G pursuant to a commercial paper
program supported by a bank revolving credit facility to finance the
acquisition of a 42.49% undivided interest in the nuclear fuel for Peach
Bottom. Fuelco has a $150 million commercial paper program through June
1996. On June 30, 1994, Fuelco had $90.3 million of its commercial paper
outstanding.
<PAGE> 44
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
LIQUIDITY AND CAPITAL RESOURCES - (Continued)
(E) Enterprise's long-term debt aggregated $5.376 billion as of June 30,
1994, of which $4.545 billion was attributable to PSE&G and $831 million to
EDHI.
On February 10, 1994, PSE&G issued $50 million of its 5.45% Pollution
Control Series O First and Refunding Mortgage Bonds (Mortgage Bonds) due 2032
to service and secure an equal principal amount of tax exempt revenue bonds
issued by the Pollution Control Financing Authority of Salem County
(Authority), issued for the purpose of financing certain pollution control
facilities at Hope Creek Generating Station.
On March 1, 1994, PSE&G redeemed $60 million outstanding principal
amount of its Mortgage Bonds 4-5/8% Series due 1994. On March 15, 1994,
PSE&G issued the following series of its Mortgage Bonds: $175 million
principal amount 7-3/8% Series TT due 2014 and $175 million principal amount
6-3/4% Series UU due 2006. The net proceeds from the sale of the Series TT
and UU Mortgage Bonds were used by PSE&G to finance a portion of its current
construction program and to reimburse PSE&G's treasury for funds expended to
refund and redeem certain debt obligations, including the payment of short-
term debt obligations incurred for such purposes.
On May 23, 1994, PSE&G issued the following Series of Medium-Term Notes,
Series A (MTN's): $43.5 million 8.10% due 2009 and $16.5 million 8.16% due
2009. The net proceeds from the sale of the MTN's were added to the general
funds of PSE&G and were used to finance a portion of its current construction
program and to reimburse the treasury for funds expended to refund and redeem
and/or defease certain debt obligations including the payment of short-term
debt obligations incurred for such purposes.
<PAGE> 45
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
LIQUIDITY AND CAPITAL RESOURCES - (Continued)
On May 25, 1994, PSE&G issued $100 million of its Mortgage Bonds 6.40%
Pollution Control Series P Mortgage Bonds due 2032 to service and secure an
equal principal amount of tax exempt revenue bonds issued by the New Jersey
Economic Development Authority (NJEDA), issued for the purpose of financing
certain pollution control facilities at Hope Creek Generating Station. Also,
on May 26, 1994, PSE&G entered into an escrow agreement to defease in
substance $122.5 million principal amount of its Mortgage Bonds, 9.75% Series
AA due 2020. In accordance with the escrow agreement, PSE&G deposited a
portfolio of United States treasury securities with a trustee sufficient to
service its obligations for the Series AA Mortgage Bonds, including
redemption on July 1, 1995 at 108.07% of principal amount. A portion of the
portfolio of securities was acquired with the funds borrowed from the NJEDA.
On June 28, 1994, PSE&G issued $104,365,000 of its 6.25% Pollution
Control Series Q Mortgage Bonds due 2031 to service and secure an equal
principal amount of tax exempt revenue bonds issued by the Authority,
redeeming the $104,365,000 outstanding aggregate principal amount of the
Authority's 10.5% Pollution Control Revenue Bonds, 1984 Series A (Public
Service Electric and Gas Company Project) (1984 Series A Bonds) at the
regular redemption price of 102.00% of principal amount. The 1984 Series A
Bonds were serviced and secured by an equal principal amount of PSE&G's
Mortgage Bonds, Pollution Control Series F with like maturity, terms and
rate, both of which were redeemed on July 1, 1994.
The Authority has announced its intention to redeem the outstanding
$87.5 million aggregate principal amount of its 10 3/8% Pollution Control
Revenue Bonds, 1984 Series B (Public Service Electric and Gas Company
Project) due 2014 ("1984 Series B Bonds"), on September 1, 1994 at a price of
102% of principal. The 1984 Series B Bonds are serviced and secured by
PSE&G's Pollution Control Series G Bonds with like maturity, terms and rate
and which will be redeemed on the same date.
<PAGE> 46
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
LIQUIDITY AND CAPITAL RESOURCES - (Concluded)
EXTERNAL FINANCINGS - (Concluded)
(F) In February 1994, PSE&G issued and sold 600,000 shares of its 6.75%
Cumulative Preferred Stock -- $25 Par and 600,000 shares of its 6.92%
Cumulative Preferred Stock ($100 Par). The net proceeds of $15 million from
the sale of the Preferred Stock -- $25 Par were used by PSE&G to redeem all
of the 150,000 outstanding shares of PSE&G's 8.08% Cumulative Preferred Stock
($100 Par). The net proceeds of $60 million from the sale of the Cumulative
Preferred Stock ($100 Par) were added to the general funds of PSE&G and used
to pay a portion of its then outstanding short-term debt obligations, which
were principally incurred to fund a portion of its construction expenditures.
On March 1, 1994, PSE&G redeemed all of the 300,000 shares of its 8.16%
Cumulative Preferred Stock ($100 Par).
Under authority granted by the BPU, expiring December 31, 1994, PSE&G is
authorized to issue an additional $330 million of Preferred Stock after
giving effect to the 1994 issuances of Preferred Stock.
(G) Funding has a commercial paper program, supported by a commercial bank
letter of credit and credit facility, through November 18, 1995 in the amount
of $225 million. As of June 30, 1994, Funding had $31.3 million outstanding
under this program.
Funding has a $225 million revolving credit facility which terminates
on November 18, 1995. As of June 30, 1994, Funding had no borrowings on this
facility.
NUCLEAR OPERATIONS
Salem Nuclear Generating Station, Unit 1 (Salem 1) experienced an
automatic reactor shutdown which occurred on April 7, 1994 due to excessive
grass from the Delaware River clogging the station's water intake structure.
Subsequent to the shutdown a Precautionary Alert was declared at 1:16 p.m.
and this emergency classification was terminated at 8:20 p.m. No abnormal
releases of radiation to the environment occurred during the event and there
was no threat to the public health and safety. Salem 1 remained out of
service while PSE&G and the NRC investigated the event and PSE&G implemented
remedial actions. PSE&G agreed not to restart the unit until approval was
obtained from the NRC.
<PAGE> 47
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
NUCLEAR OPERATIONS - (Continued)
On April 7, 1994 the NRC sent an augmented inspection team (AIT) to
Salem to investigate the event. The AIT completed its on-site investigation
on April 15, 1994 and presented its preliminary findings at a public meeting
held at the station site on April 26, 1994. The AIT concluded that the event
had challenged the reactor coolant system pressure boundary, that operator
error had occurred which complicated the event, that management had allowed
equipment problems to exist which made operations difficult for plant
operators, and that some equipment was degraded by the event, but overall the
plant performed as designed. The AIT further concluded that operator use of
emergency operating procedures was good and that investigation and trouble-
shooting efforts were good. PSE&G's investigation of the event has resulted
in conclusions similar to those of the AIT.
On May 9, 1994, PSE&G and the NRC staff presented their findings to the
NRC Commissioners, and PSE&G described the actions it had taken to prepare
Salem 1 for restart. On May 11, 1994, Senator Joseph Biden, representing
Delaware, wrote to the NRC expressing his concerns regarding early restart of
the unit and requested assurances "that all outstanding mechanical and
management problems have been resolved and that a fine in the maximum amount
will be levied upon the licensees". Nevertheless, PSE&G believes that the
event has been thoroughly analyzed and that all necessary corrective actions
have been identified so as to permit the unit to return to service. PSE&G
received authorization to restart the unit on May 14, 1994.
<PAGE> 48
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
NUCLEAR OPERATIONS - (Concluded)
The unit returned to service on June 4, 1994. PSE&G is continuing to address
matters to improve Salem's operations identified by itself, the NRC and the
Institute of Nuclear Power Operations (INPO), an independent industry group
consisting of utilities, including PSE&G, that provides self critical
analysis of nuclear operations to member utilities. As has been previously
reported, actions are being taken to improve the plant's material condition,
to upgrade procedures and to enhance personnel performance, as well as other
efforts. However, satisfactory operating performance on Salem 1 has not yet
been achieved, and the April 7, 1994 event indicates that to date, the
corrective actions taken by PSE&G to address these long-standing problems
have not been fully effective, and that material condition deficiencies
continue to complicate plant recovery from transients which place reliance on
operator action to mitigate the consequences of the events. On July 6,
1994, the NRC notified PSE&G of six apparent violations associated with the
event which were being considered for escalated enforcement: control room
command function; failure to identify and correct pre-existing equipment
deficiencies; communication of specific information to the NRC at initial
declaration of the Precautionary Alert; sufficiency of procedural guidance
for coping with transients and abnormal plant conditions; adequate measures
for identification and control of parts and components; and technical
specification time requirements for cooldown. An enforcement conference to
discuss PSE&G's view of the apparent violations was held on July 28, 1994 at
NRC Region 1 headquarters, at which time the NRC staff expressed its view
that PSE&G had not made significant progress in correcting identified
deficiencies. The determination by the NRC of any penalties as a result of
the apparent violations is expected within two months. PSE&G cannot predict
what action, if any, will be taken by the NRC.
PSE&G's own assessments, as well as those by the NRC and INPO, indicate
that additional efforts are required to further improve operating
performance, and PSE&G is committed to taking the necessary actions to
address Salem's performance needs. However, no assurance can be given as to
what, if any, further or additional actions may be taken by PSE&G, or
required by the NRC, to improve Salem's performance.
<PAGE> 49
<TABLE>
<CAPTION>
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
Following are changes in or additions to the significant factors reported in PSE&G's Annual Report to the SEC on Form 10-K
for 1993, affecting the consolidated financial condition of PSE&G and its subsidiaries as reflected in their consolidated results
of operations. This discussion refers to the consolidated financial statements and related notes herein of PSE&G and should be
read in conjunction with such statements and notes.
Except as modified below, the information required by this item is incorporated herein by reference to the following portions
of Enterprise's MD&A, insofar as they relate to PSE&G and its subsidiaries: Net Income; Dividends; Revenues -- PSE&G Electric; PSE&G
Gas; PSE&G Electric Energy Costs; Liquidity and Capital Resources - PSE&G and External Financings.
GAS SUPPLY COSTS
Gas supply costs increased $5 million, or 3%, $134 million, or 27% and $136 million, or 15% during the three, six and twelve
month periods ended June 30, 1994, respectively, from the comparable 1993 periods. The significant components of these changes
follow:
Increase or (Decrease)
-------------------------------------------------------------
Three Months Ended Six Months Ended Twelve Months Ended
June 30, June 30, June 30,
1994 vs. 1993 1994 vs. 1993 1994 vs. 1993
------------------ ----------------- --------------------
(Millions)
<S> <C> <C> <C>
Change in prices paid for
gas supplies ...................... $ 1 $ 40 $ 63
Therm sendout ...................... 4 49 64
Refunds from pipeline suppliers .... (1) (9) 21
Adjustment of actual costs to match
recoveries through revenues (A) .. 1 54 (12)
---- ---- ----
Total Gas Supply Costs ........ $ 5 $134 $136
==== ==== ====
<FN>
(A) Reflects the change in deferred over(under) recovered gas costs.
The increases in total costs for the three, six and twelve month periods ended June 30, 1994 compared to similar periods in
1993 were primarily attributable to increased sendout as a result of the colder winter, higher gas prices and increased sales to
NUGS.
</TABLE> <PAGE> 50
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Concluded)
LIQUIDITY AND CAPITAL RESOURCES
INTERNAL GENERATION OF CASH FROM OPERATIONS
PSE&G's cash provided by operating activities increased $100 million to
$166 million for the six months ended June 30, 1994 compared to the
corresponding period in 1993. This increase was primarily due to an increase
in net income, a decrease in accounts receivable and a decrease in NJGRT
payments partially offset by a decrease in accounts payable. (For additional
information see PSE&G - Earnings and Revenues.)
PSE&G's net cash provided by operating activities for the twelve months
ended June 30, 1994 decreased by less than $1 million to $923 million when
compared to the corresponding period in 1993. This decrease was primarily
due to a lower recovery of electric energy and gas costs through PSE&G's LEAC
and LGAC, a smaller decrease in accounts receivable and a decrease in
accounts payable. Substantially offsetting these cash outflows were the
increase in net income, an increase in deferred income taxes, a decrease in
inventories, decreased NJGRT payments and the change in other current assets
and liabilities. (For additional information see PSE&G - Earnings and
Revenues.)
<PAGE> 51
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 1993 (Form 10-K) and Item 2 of Part II of Enterprise's and PSE&G's
Quarterly Reports to the SEC on Form 10-Q for the period ended March 31, 1994
(March 10-Q) are updated below. References are to the related pages and
paragraph(s) of the Form 10-K and March 10-Q.
Form 10-K, page 4, paragraph 2
------------------------------
On March 31, 1994, PSE&G filed proposed new rate schedules to implement
the BPU guidelines on unbundled gas services. This will enable PSE&G's
remaining industrial and commercial gas customers to participate in the
competitive market after regulatory approval is received. The proposed
transportation rate schedules produce the same non-fuel revenue per therm as
the customers existing sales service rate schedules. Thus, PSE&G's earnings
would be unaffected whether the customers remain on sales service or convert
to transportation. Because of the large number of customers likely to take
advantage of the new services, PSE&G has asked BPU approval for a phased
implementation plan. If approved by the BPU, service under the new rate
schedules is expected to begin in October 1994, with all industrial and
commercial customers eligible one year after approval is granted. (See Note
1 - Rate Matters of Notes to Consolidated Financial Statements)
Form 10-K, page 9, paragraph 5 and March 10-Q, page 46, paragraph 1
-------------------------------------------------------------------
For a discussion of the recent outage at the Salem Nuclear Generating
Station, Unit 1 see Management's Discussion and Analysis of Financial
Condition and Results of Operations - Nuclear Operations.
<PAGE> 52
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
PART II. OTHER INFORMATION - (Continued)
Item 5. Other Information.
- ------ ------------------
Form 10-K, page 10, paragraph 5
--------------------------------
PSE&G has been advised by PECO that on June 29, 1994, the NRC issued its
periodic Systematic Assessment of Licensee Performance (SALP) Report for
Peach Bottom for the period November 1, 1992 to April 30, 1994. The Report
was issued under the revised SALP process in which the number of assessment
areas has been reduced from seven to four: Operations, Engineering,
Maintenance, and Plant Support. The area of Plant Support includes:
radiological controls, security, emergency preparedness, fire protection,
chemistry, and housekeeping. PECO has advised PSE&G that: Peach Bottom
received a rating of "1," the highest of the three rating categories, in the
area of Plant Operations; the areas of Engineering, Maintenance, and Plant
Support received ratings of "2"; overall, the NRC found continued
improvement in performance during the period; the NRC stated that enhancement
in problem identification and resolution, good control of refuelings and
outages, and excellent oversight by plant management of day-to-day activities
in a manner that ensured safe operation of the units contributed to the
improvement; despite the overall improvement, the NRC noted that some areas
require continued management attention and that management needs to continue
to encourage plant personnel at all levels to identify existing, and
sometimes longstanding problems so that priorities can be established, and
effective corrective actions implemented; the NRC also noted instances of
personnel inattention to detail and failure to follow procedures which
warranted additional management attention. PECO has advised PSE&G that it
has taken and is taking actions to address the weaknesses discussed in the
SALP Report.
Form 10-K, page 11, paragraph 1
-------------------------------
As by-products of their operations, nuclear generating units, including
those in which PSE&G owns an interest, produce low level radioactive waste
(LLRW). Such wastes include paper, plastics, protective clothing, water
purification materials and other materials which must be properly disposed.
Prior to July 1, 1994 such materials were accumulated on site and disposed of
at a Federally licensed permanent disposal facility. However, in accordance
with the Low Level Radioactive Waste Policy Act, as amended, operating
disposal sites have exercised their authority to either cease operations or
deny access to states which are not members of their regional compact. For
PSE&G and all other New Jersey LLRW generators, this means that effective
July 1, 1994 wastes must be temporarily stored on site until New Jersey
provides for permanent disposal.
<PAGE> 53
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
PART II. OTHER INFORMATION - (Continued)
Item 5. Other Information.
- ------ ------------------
Form 10-K, page 11, paragraph 1 - (Concluded)
--------------------------------------------
In June 1991, New Jersey enacted legislation providing for funding of
the estimated $90 million cost of establishing a disposal facility. The
state recovers the costs through fees paid by LLRW generators. PSE&G's
overall share is expected to be about 40% of the total cost. New Jersey has
introduced a volunteer siting process as its plan for establishing a LLRW
disposal facility by the year 2000. Public meetings are currently being held
across the state in an effort to provide information to, and obtain feedback
from the public. The plan is to be approved by November 1994 and an official
invitation to municipalities will be announced sometime in 1995.
Until New Jersey provides for disposal, PSE&G will temporarily store
LLRW in a newly constructed facility at the plant site. This facility is
expected to be completed in late August 1994 at a total cost of $6.9 million.
It is expected to provide five years' storage for LLRW from Hope Creek and
Salem. PECO has advised PSE&G that: the Peach Bottom plants located in
Pennsylvania and operated by PECO are also providing temporary on-site
storage which began July 1, 1994; Pennsylvania is pursuing site development
via state selected candidate sites along with a volunteer plan option; PECO
has constructed an on-site storage facility at Peach Bottom; and adequate
space is available for its waste for at least five years. PSE&G will
continue to accrue its expense for storing LLRW from Salem, Hope Creek and
Peach Bottom with a concurrent liability for the amount to be paid at the
time of ultimate disposal when New Jersey and Pennsylvania provide storage
facilities.
Form 10-K, page 12, paragraph 4
-------------------------------
The PSE&G DSM Plan is designed to save over the next two years a total
of 344 megawatts of peak load capacity. The Plan consists of 110 megawatts
of passive DSM (previously reported as 150 megawatts) plus an additional 234
megawatts of active DSM.
<PAGE> 54
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
PART II. OTHER INFORMATION - (Continued)
Item 5. Other Information.
- ------ ------------------
Form 10-K, page 15, paragraph 5
-------------------------------
On May 25, 1994, the Department of Energy (DOE) published a Notice of
Inquiry indicating its preliminary view on waste acceptance. The DOE stated
that it has no statutory obligation to accept spent nuclear fuel beginning in
1998 in the absence of an operational repository or other facility
constructed under the Nuclear Waste Policy Act of 1982, as amended, although
the DOE in implementing the standard contract may have created an expectation
that it would begin accepting such spent nuclear fuel in 1998. The Notice of
Inquiry is intended to elicit the views of the affected parties on 1) The
Department's preliminary view on the 1998 obligation issue, 2) the need for
an interim, away-from-reactor storage facility prior to repository
operations, 3) options for offsetting, through the use of a nuclear waste
fund, a portion of the financial burden that may be incurred by utilities to
store spent fuel at reactor sites beyond 1998. Moreover, with respect to
safety, on October 18, 1990, the NRC determined that 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 operation (which
may include the term of a revised or renewed license).
In June 1994, two separate lawsuits were filed by a group of states and
a group of utilities, respectively, in the U. S. Court of Appeals for the D.
C. Circuit to compel DOE to accept spent fuel by 1998. On July 19, 1994, the
BPU voted to join the lawsuit brought by the group of states. PSE&G is not
a party to the lawsuit brought by the group of utilities.
Salem 1 and 2 have adequate on-site temporary storage capability through
March 1998 and March 2002, respectively, when operational full core discharge
capability requirements are considered. PSE&G has developed an integrated
strategy to meet the longer term Salem and Hope Creek spent fuel storage
needs. In May 1994, PSE&G received a license from the NRC to replace the
existing high density racks in the spent fuel pools of Salem 1 and 2 with
maximum density racks. The Salem re-racking project is ongoing and is
expected to extend the storage capability through March 2008 for Salem 1 and
March 2012 for Salem 2, considering operational full core discharge
requirements. The Hope Creek pool is fully racked and it has capacity to
hold spent fuel through September 2007, considering operational full core
discharge requirements. PECO has advised PSE&G that spent fuel racks at
Peach Bottom 2 have storage capacity until 2000 for Unit 2 and 1999 for Unit
3 prior to loss of full core reserve occurring, and that expansion of storage
capacity beyond such dates is being investigated.
<PAGE> 55
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
PART II. OTHER INFORMATION - (Continued)
Item 5. Other Information.
- ------ ------------------
Form 10-K, page 20, first paragraph 1 and March 10-Q, page 47,
---------------------------------------------------------------
paragraph 1
-----------
In response to a BPU directive, PSE&G surveyed EMF levels at 19 schools
located within 100 feet of its electric transmission lines. In April 1994,
the survey results were provided to the BPU and officials of such schools.
The survey has generated requests by five schools for additional information
and has resulted in a heightened concern about the emerging EMF issue. PSE&G
cannot predict what actions, if any, it may hereafter be required to take to
address such concerns, the costs of which could be material.
Form 10-K, page 23, Salem Station
---------------------------------
For additional information see Note 5 - Commitments and Contingent
Liabilities of Notes to Consolidated Financial Statements.
New Information
---------------
Boiling Water Reactor Owner Group
---------------------------------
In October 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) are participating 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. PSE&G is working
closely with GE and the BWR Owners Group on coordination of inspections,
evaluations and repair options, if required. PSE&G expects minimal impact
due to the age and materials of the Hope Creek shroud and the historical
maintenance of low conductivity water chemistry. For these reasons, Hope
Creek has been placed in the lowest susceptibility category by the BWR Owners
Group. PECO has advised PSE&G that Peach Bottom 3 was examined in October
1993 during the last refueling outage and crack indications were identified
at two locations. On November 3, 1993, PECO presented its findings to the
NRC and provided justification for continued operation of Unit No. 3 for
another two year cycle with crack indications. PECO has further advised
PSE&G that the initial examination for Peach Bottom 2 is planned for its next
scheduled refueling outage in October 1994.
<PAGE> 56
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
PART II. OTHER INFORMATION - (Continued)
Item 5. Other Information.
- ------ ------------------
Notice of Proposed Rulemaking - FERC
-----------------------------------
FERC has issued a Notice Of Proposed Rulemaking (NOPR) on June 29, 1994
to establish provisions concerning the recovery of wholesale and retail
stranded costs by public utilities. PSE&G is currently evaluating the NOPR
to determine what possible impact it may have.
<PAGE> 57
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
PART II. OTHER INFORMATION - (Concluded)
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
------- ----------------------------------------------------------
4a(87) Supplemental Indenture dated May 1, 1994 between PSE&G and
First Fidelity Bank, National Association, New Jersey,
as Trustee, providing for the issue of Mortgage Bonds,
Pollution Control Series P
4a(88) Supplemental Indenture dated June 1, 1994 between PSE&G
and First Fidelity Bank, National Association, New Jersey,
as Trustee, providing for the issue of Mortgage Bonds,
Pollution Control Series Q
12 Computation of Ratios of Earnings to Fixed Charges plus
Preferred Stock 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 Stock Dividend Requirements (PSE&G)
(b) The following report on Form 8-K was filed by Enterprise and
PSE&G during the second quarter of 1994 under Item 5:
Date of Report Item Reported
-------------- -------------
June 15, 1994 Outage of Salem Nuclear Generating Station,
Unit 1.
<PAGE> 58
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrants have duly caused these reports to be signed on their respective
behalf by the undersigned thereunto duly authorized.
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
--------------------------------------------
(Registrants)
By PATRICIA A. RADO
--------------------------------------
Patricia A. Rado
Vice President and Controller
(Principal Accounting Officer)
Date: August 12, 1994
<PAGE> 1
<TABLE>
<CAPTION>
EXHIBIT 12
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
PLUS PREFERRED STOCK DIVIDEND REQUIREMENTS
12 MONTHS
YEAR ENDED DECEMBER 31, ENDED
------------------------------------------------------------- JUNE 30,
1989 1990 1991 1992 1993 1994
--------- --------- --------- --------- --------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Net Income....................... $ 523,435 $ 403,662 $ 543,035 $ 504,117 $ 595,519(A) $ 625,745
Plus Income Taxes................ 207,644 144,652 274,146 253,276 316,010 351,291
--------- --------- --------- --------- --------- ---------
Net Income Before Income Taxes... 731,079 548,314 817,181 757,393 911,529 977,036
--------- --------- --------- --------- --------- ---------
Fixed Charges and Preferred Stock
Dividend Requirements:
Interest Charges............... 408,661 457,017 478,321 524,025 502,534 489,810
Interest Factor in Rentals..... 8,908 9,162 9,311 9,591 11,090 11,621
Preferred Stock Dividend
Requirements (Pre-tax)...... 39,729 38,544 42,676 46,748 58,112 62,150
--------- --------- --------- --------- --------- ---------
Total.................. 457,298 504,723 530,308 580,364 571,736 563,581
--------- --------- --------- --------- --------- ---------
Earnings Before Fixed Charges and
Preferred Stock Dividend
Requirements................... $1,188,377 $1,053,037 $1,347,489 $1,337,757 $1,483,265 $1,540,617
========== ========== ========== ========== ========== ==========
Ratio............................ 2.60 2.09 2.54 2.30 2.59 2.73
==== ==== ==== ==== ==== ====
</TABLE>
(A) Excludes cumulative effect of $5.4 million change in accounting for EDHI's
income taxes.
1
<PAGE> 1
<TABLE>
<CAPTION> EXHIBIT 12(A)
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
12 MONTHS
YEAR ENDED DECEMBER 31, ENDED
------------------------------------------------------------- JUNE 30,
1989 1990 1991 1992 1993 1994
--------- --------- --------- --------- --------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Net Income....................... $ 544,374 $ 537,619 $ 545,479 $ 475,936 $ 614,868 $ 646,167
Plus Income Taxes................ 214,299 209,360 261,912 223,782 307,414 335,047
---------- ---------- ---------- ---------- ---------- ----------
Net Income Before Income Taxes... 758,673 746,979 807,391 699,718 922,282 981,214
---------- ---------- ---------- ---------- ---------- ----------
Fixed Charges
Interest Charges............... 333,717 346,020 358,517 401,902 389,956 382,601
Interest Factor in Rentals..... 8,908 9,162 9,311 9,591 11,090 11,621
---------- ---------- ---------- ---------- ---------- ----------
Total.................. 342,625 355,182 367,828 411,493 401,046 394,222
---------- ---------- ---------- ---------- ---------- ----------
Earnings Before Fixed Charges.... $1,101,298 $1,102,161 $1,175,219 $1,111,211 $1,323,328 $1,375,436
========== ========== ========== ========== ========== ==========
Ratio............................ 3.21 3.10 3.20 2.70 3.30 3.49
==== ==== ==== ==== ==== ====
</TABLE>
2
<PAGE> 1
<TABLE>
<CAPTION> EXHIBIT 12(B)
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
PLUS PREFERRED STOCK DIVIDEND REQUIREMENTS
12 MONTHS
YEAR ENDED DECEMBER 31, ENDED
-------------------------------------------------------------- JUNE 30,
1989 1990 1991 1992 1993 1994
---------- ---------- ---------- ---------- ---------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Net Income........................... $ 544,374 $ 537,619 $ 545,479 $ 475,936 $ 614,868 $ 646,167
Plus Income Taxes.................... 214,299 209,361 261,912 223,782 307,414 335,047
---------- ---------- ---------- ---------- ---------- ----------
Net Income Before Income Taxes....... 758,673 746,980 807,391 699,718 922,282 981,214
---------- ---------- ---------- ---------- ---------- ----------
Fixed Charges and Preferred Stock
Dividend Requirements:
Interest Charges................... 333,717 346,020 358,517 401,902 389,956 382,601
Interest Factor in Rentals......... 8,908 9,162 9,311 9,591 11,090 11,621
Preferred Stock Dividend
Requirements (Pre-tax).......... 40,236 40,116 42,703 46,675 56,957 -
---------- ---------- ---------- ---------- ---------- ----------
Total...................... 382,861 395,298 410,531 458,168 458,003 394,222
---------- ---------- ---------- ---------- ---------- ----------
Earnings Before Fixed Charges and
Preferred Stock Dividends.......... $1,101,298 $1,102,162 $1,175,219 $1,111,211 $1,323,328 $1,375,436
========== ========== ========== ========== ========== ==========
Ratio................................ 2.88 2.79 2.86 2.43 2.89 3.03
==== ==== ==== ==== ==== ====
</TABLE>
3
