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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission Registrant, State of Incorporation, I.R.S. Employer
File Number Address, and Telephone Number Identification No.
- ------------ ---------------------------------------------- ------------------
1-9120 PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED 22-2625848
(A New Jersey Corporation)
80 Park Plaza
P.O. Box 1171
Newark, New Jersey 07101-1171
201 430-7000
1-973 PUBLIC SERVICE ELECTRIC AND GAS COMPANY 22-1212800
(A New Jersey Corporation)
80 Park Plaza
P.O. Box 570
Newark, New Jersey 07101-0570
201 430-7000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No
The number of shares outstanding of Public Service Enterprise Group
Incorporated's sole class of common stock, as of the latest practicable date,
was as follows:
Class: Common Stock, without par value
Outstanding at October 31, 1996: 238,441,989
As of October 31, 1996, Public Service Electric and Gas Company had issued and
outstanding 132,450,344 shares of common stock, without nominal or par value,
all of which were privately held, beneficially and of record by Public Service
Enterprise Group Incorporated.
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<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Public Service Enterprise Group Incorporated (Enterprise):
Consolidated Statements of Income for the Three, Nine and
Twelve Months Ended September 30, 1996 and 1995.................. 1
Consolidated Balance Sheets as of September 30, 1996, 1995
and December 31, 1995............................................ 2
Consolidated Statements of Cash Flows for the Nine and
Twelve Months Ended September 30, 1996 and 1995.................. 4
Consolidated Statements of Retained Earnings for the Three,
Nine and Twelve Months Ended September 30, 1996 and 1995......... 5
Public Service Electric and Gas Company (PSE&G):
Consolidated Statements of Income for the Three, Nine and
Twelve Months Ended September 30, 1996 and 1995.................. 6
Consolidated Balance Sheets as of September 30, 1996, 1995
and December 31, 1995............................................ 7
Consolidated Statements of Cash Flows for the Nine and
Twelve Months Ended September 30, 1996 and 1995.................. 9
Consolidated Statements of Retained Earnings for the Three,
Nine and Twelve Months Ended September 30, 1996 and 1995......... 10
Notes to Consolidated Financial Statements - Enterprise............ 11
Notes to Consolidated Financial Statements - PSE&G................. 17
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Enterprise...................................................... 18
PSE&G ......................................................... 25
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................ 26
Item 5. Other Information........................................ 27
Item 6. Exhibits and Reports on Form 8-K......................... 29
Signatures - Public Service Enterprise Group Incorporated......... 29
Signatures - Public Service Electric and Gas Company.............. 29
ii
<PAGE>
<TABLE>
<CAPTION>
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
(Thousands of Dollars)
Three Months Ended Nine Months Ended Twelve Months Ended
September 30, September 30, September 30,
----------------------------------------------------------------------------
1996 1995 1996 1995 1996 1995
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES:
Electric ..................................... $ 1,054,599 $ 1,179,373 $ 3,000,895 $ 3,090,656 $ 3,931,081 $ 3,961,985
Gas .......................................... 214,848 201,631 1,309,438 1,105,299 1,890,542 1,594,157
Nonutility Activities ........................ 64,510 51,844 156,761 141,095 202,083 200,912
----------- ----------- ----------- ----------- ----------- -----------
Total Operating Revenues ................ 1,333,957 1,432,848 4,467,094 4,337,050 6,023,706 5,757,054
OPERATING EXPENSES:
Operation:
Fuel for Electric Generation and
Interchanged Power ......................... 253,880 264,599 685,927 682,923 894,786 863,851
Gas Purchased and Materials for Gas
Produced ................................... 140,085 115,336 783,321 625,540 1,119,320 900,231
Other ........................................ 238,969 249,309 748,741 722,547 1,033,928 1,045,418
Maintenance .................................... 62,450 76,205 245,106 208,288 349,428 293,809
Depreciation and Amortization .................. 150,861 147,896 454,374 442,185 609,155 583,957
Taxes:
Federal Income Taxes ......................... 69,846 112,010 224,041 276,645 285,362 304,174
New Jersey Gross Receipts Taxes .............. 132,922 139,363 452,337 455,426 609,872 585,454
Other ........................................ 21,921 20,793 67,808 64,015 80,706 82,112
----------- ----------- ----------- ----------- ----------- -----------
Total Operating Expenses ................ 1,070,934 1,125,511 3,661,655 3,477,569 4,982,557 4,659,006
----------- ----------- ----------- ----------- ----------- -----------
OPERATING INCOME ............................... 263,023 307,337 805,439 859,481 1,041,149 1,098,048
OTHER INCOME:
Allowance for Funds Used During
Construction - Equity ...................... -- 1,329 -- 4,598 726 11,901
Miscellaneous - net .......................... (1,922) 3,047 570 6,603 2,007 8,356
----------- ----------- ----------- ----------- ----------- -----------
Total Other Income ...................... (1,922) 4,376 570 11,201 2,733 20,257
----------- ----------- ----------- ----------- ----------- -----------
INCOME BEFORE INTEREST CHARGES AND DIVIDENDS
ON PREFERRED SECURITIES ........................ 261,101 311,713 806,009 870,682 1,043,882 1,118,305
INTEREST CHARGES:
Long-Term Debt ............................... 95,653 98,610 288,180 304,229 386,165 410,552
Short-Term Debt .............................. 8,661 10,814 27,181 23,233 36,770 30,208
Other ........................................ 8,540 8,825 24,054 22,658 30,568 27,713
----------- ----------- ----------- ----------- ----------- -----------
Total Interest Charges .................. 112,854 118,249 339,415 350,120 453,503 468,473
Allowance for Funds Used During Construction -
Debt and Capitalized Interest .............. (4,331) (7,726) (12,799) (27,924) (17,715) (37,945)
----------- ----------- ----------- ----------- ----------- -----------
Net Interest Charges .................... 108,523 110,523 326,616 322,196 435,788 430,528
Preferred Securities Dividend Requirements ..... 13,229 12,233 37,649 36,627 50,448 48,206
Preferred Stock Redemption Premium ............. -- -- 18,493 -- 18,019 --
----------- ----------- ----------- ----------- ----------- -----------
INCOME FROM CONTINUING OPERATIONS .............. 139,349 188,957 460,237 511,859 575,665 639,571
Discontinued Operations: (See Note 2)
Income (Loss) From Operations - Net of
Taxes ...................................... 2,992 (2,175) 10,746 (1,818) 47,600 2,313
Gain on Disposal of EDC - Net of Taxes
(of $36,610) ............................... 13,492 -- 13,492 -- 13,492 --
----------- ----------- ----------- ----------- ----------- -----------
NET INCOME .............................. $ 155,833 $ 186,782 $ 484,475 $ 510,041 $ 636,757 $ 641,884
=========== =========== =========== =========== =========== ===========
SHARES OF COMMON STOCK OUTSTANDING:
End of Period ................................ 240,834,130 244,697,930 240,834,130 244,697,930 240,834,130 244,697,930
Average for Period ........................... 243,114,349 244,697,930 244,166,217 244,697,930 244,299,871 244,697,930
EARNINGS PER AVERAGE SHARE:
Income From Continuing Operations ............ $ 0.57 $ 0.77 $ 1.88 $ 2.09 $ 2.36 $ 2.61
Income (Loss) From Discontinued Operations ... 0.01 (0.01) 0.04 (0.01) 0.19 0.01
Gain on Disposal of Discontinued Operations .. 0.06 -- 0.06 -- 0.06 --
----------- ----------- ----------- ----------- ----------- -----------
NET INCOME .............................. $ 0.64 $ 0.76 $ 1.98 $ 2.08 $ 2.61 $ 2.62
=========== =========== =========== =========== =========== ===========
DIVIDENDS PAID PER SHARE OF COMMON STOCK ....... $ 0.54 $ 0.54 $ 1.62 $ 1.62 $ 2.16 $ 2.16
=========== =========== =========== =========== =========== ===========
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
September 30, September 30, December 31,
ASSETS 1996 1995 1995
---------------- ---------------- ----------------
<S> <C> <C> <C>
UTILITY PLANT - Original cost:
Electric ..................................................... $ 13,291,672 $ 12,983,167 $ 13,095,103
Gas .......................................................... 2,520,555 2,413,673 2,442,572
Common ....................................................... 532,763 531,024 517,104
---------------- ---------------- ----------------
Total ................................................... 16,344,990 15,927,864 16,054,779
Less: Accumulated Depreciation and Amortization .............. 5,823,881 5,324,903 5,440,414
---------------- ---------------- ----------------
Net ..................................................... 10,521,109 10,602,961 10,614,365
Nuclear Fuel in Service, net of accumulated amortization -
$289,198, $345,412 and $297,435, respectively .............. 189,735 162,776 180,018
---------------- ---------------- ----------------
Net Utility Plant in Service ............................ 10,710,844 10,765,737 10,794,383
Construction Work in Progress, including Nuclear Fuel in
Process - $85,290, $122,368 and $104,743, respectively ..... 433,133 367,566 369,082
Plant Held for Future Use .................................... 23,966 23,966 23,966
---------------- ---------------- ----------------
Net Utility Plant ....................................... 11,167,943 11,157,269 11,187,431
---------------- ---------------- ----------------
INVESTMENTS AND OTHER NONCURRENT ASSETS:
Long-Term Investments, net of accumulated amortization -
$11,275, $4,585 and $6,009, respectively ..................... 1,889,840 1,757,811 1,808,368
Real Estate Property and Equipment, net of accumulated
depreciation - $5,897, $5,151 and $6,267, respectively ....... 66,266 90,372 89,350
Other Plant, net of accumulated depreciation and amortization
- $7,348, $6,128 and $6,531, respectively .................... 39,086 28,202 27,997
Nuclear Decommissioning and Other Special Funds ............... 342,956 292,405 313,178
Other Assets - net ............................................ 7,501 8,777 3,241
---------------- ---------------- ----------------
Total Investments and Other Noncurrent Assets ........... 2,345,649 2,177,567 2,242,134
---------------- ---------------- ----------------
CURRENT ASSETS:
Cash and Cash Equivalents .................................... 454,216 64,821 61,964
Accounts Receivable:
Customer Accounts Receivable ............................... 437,187 405,555 525,404
Other Accounts Receivable .................................. 160,565 156,529 200,693
Less: Allowance for Doubtful Accounts 37,427 38,578 37,641
Unbilled Revenues ............................................ 159,871 127,590 246,876
Fuel, at average cost ........................................ 305,600 311,776 253,360
Materials and Supplies, net of inventory valuation reserves -
$17,761, $18,200 and $20,100, respectively ................. 148,245 143,689 143,741
Prepaid Gross Receipts Taxes - net ........................... 146,406 165,342 --
Deferred Income Taxes ........................................ 25,952 27,489 27,571
Miscellaneous Current Assets ................................. 48,036 46,800 40,464
Net Assets of Discontinued Operations ........................ -- 341,284 365,905
---------------- ---------------- ----------------
Total Current Assets .................................... 1,848,651 1,752,297 1,828,337
---------------- ---------------- ----------------
DEFERRED DEBITS:
Property Abandonments - net .................................. 56,279 74,742 70,120
Oil and Gas Property Write-Down .............................. 32,213 37,367 36,078
Unamortized Debt Expense ..................................... 141,893 126,275 123,833
Deferred OPEB Costs .......................................... 233,159 174,706 167,189
Underrecovered Electric Energy and Gas Costs - net ........... 203,306 173,270 170,565
Unrecovered Environmental Costs (Note 4) ..................... 122,358 132,634 130,070
Unrecovered Plant and Regulatory Study Costs ................. 34,357 35,285 35,150
Unrecovered SFAS 109 Deferred Income Taxes ................... 763,243 778,642 769,136
Deferred Decontamination and Decommissioning Costs ........... 46,554 49,742 49,872
Other ........................................................ 42,755 9,313 5,826
---------------- ---------------- ----------------
Total Deferred Debits ................................... 1,676,117 1,591,976 1,557,839
---------------- ---------------- ----------------
Total ........................... $ 17,038,360 $ 16,679,109 $ 16,815,741
================ ================ ================
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
September 30, September 30, December 31,
CAPITALIZATION AND LIABILITIES 1996 1995 1995
---------------- --------------- ---------------
<S> <C> <C> <C>
CAPITALIZATION:
Common Equity:
Common Stock ...................................................... $ 3,741,152 $ 3,801,157 $ 3,801,157
Retained Earnings ................................................. 1,674,690 1,616,077 1,636,222
---------------- --------------- ---------------
Total Common Equity ............................................ 5,415,842 5,417,234 5,437,379
Subsidiaries' Preferred Securities:
Preferred Stock Without Mandatory Redemption ...................... 113,392 384,994 324,994
Preferred Stock With Mandatory Redemption ......................... 150,000 150,000 150,000
Company-Obligated Mandatorily Redeemable Preferred Securities of
a Partnership holding solely PSE&G Debentures .................. 210,000 210,000 210,000
Company-Obligated Mandatorily Redeemable Preferred Securities of
of a Subsidiary Trust holding solely PSE&G Debentures (QUIPS) ... 208,000 -- --
Long-Term Debt ...................................................... 4,796,539 5,182,453 5,189,791
---------------- --------------- ---------------
Total Capitalization ........................................... 10,893,773 11,344,681 11,312,164
---------------- --------------- ---------------
OTHER LONG-TERM LIABILITIES:
Decontamination, Decommissioning, and Low Level Radwaste
Costs ............................................................. 46,631 55,630 50,449
Environmental Costs (Note 4)......................................... 87,269 103,412 96,272
Capital Lease Obligations ........................................... 52,564 53,283 53,111
---------------- --------------- ---------------
Total Other Long-Term Liabilities .............................. 186,464 212,325 199,832
---------------- --------------- ---------------
CURRENT LIABILITIES:
Long-Term Debt due within one year .................................. 389,475 2,000 61,060
Commercial Paper and Loans .......................................... 643,691 633,283 567,316
Book Overdrafts ..................................................... 135,445 61,655 70,014
Accounts Payable .................................................... 445,589 381,863 549,593
Other Taxes Accrued ................................................. 78,493 59,995 30,816
Interest Accrued .................................................... 104,012 119,736 108,245
Provision for Rate Refunds ..................................... 101,210 18,310 13,810
Estimated Liability for Vacation Pay ................................ 28,168 32,235 17,089
Customer Deposits ................................................... 32,276 32,810 32,785
Liability for Injuries and Damages .................................. 32,304 36,090 38,141
Miscellaneous Environmental Liabilities ............................. 17,602 16,652 16,954
Other ............................................................... 37,752 27,006 42,203
---------------- --------------- ---------------
Total Current Liabilities ...................................... 2,046,017 1,421,635 1,548,026
---------------- --------------- ---------------
DEFERRED CREDITS:
Accumulated Deferred Income Taxes ................................... 3,191,290 3,029,739 3,083,433
Accumulated Deferred Investment Tax Credits ......................... 377,315 397,429 392,317
Deferred OPEB Costs ................................................. 233,159 174,706 167,189
Other ............................................................... 110,342 98,594 112,780
---------------- --------------- ---------------
Total Deferred Credits ......................................... 3,912,106 3,700,468 3,755,719
---------------- --------------- ---------------
COMMITMENTS AND CONTINGENT LIABILITIES (Note 4) -- -- --
---------------- --------------- ---------------
Total .......................................................... $ 17,038,360 $ 16,679,109 $ 16,815,741
================ =============== ===============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
Nine Months Ended Twelve Months Ended
September 30, September 30,
-------------------------------------------------------------
1996 1995 1996 1995
-------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .................................................... $ 484,475 $ 510,041 $ 636,757 $ 641,884
Adjustments to reconcile net income to net cash flows from
operating activities:
Depreciation and Amortization ............................... 454,374 442,185 609,155 583,957
Amortization of Nuclear Fuel ................................ 42,821 62,878 54,971 86,159
(Deferral) Recovery of Electric Energy and Gas Costs - net .. (32,741) (707) (30,036) 38,513
Unrealized Gains on Investments - net ....................... (19,368) (32,117) (33,919) (46,958)
Provision for Deferred Income Taxes - net ................... 25,064 109,472 49,497 37,986
Investment Tax Credits - net ................................ (15,002) (15,037) (20,114) (20,198)
Allowance for Funds Used During Construction - Debt and
Equity and Capitalized Interest ........................... (12,799) (32,522) (18,441) (49,846)
Proceeds from Leasing Activities ............................ 57,916 9,859 85,709 28,177
Changes in certain current assets and liabilities:
Net decrease (increase) in Accounts Receivable and Unbilled
Revenues .................................................. 215,136 115,808 (69,849) (74,053)
Net (increase) decrease in Inventory - Fuel and Materials and
Supplies .................................................. (56,744) (39,775) 1,620 9,463
Net (decrease) increase in Accounts Payable ................. (104,004) (40,693) 63,726 57,207
Net change in Prepaid/Accrued Taxes ......................... (98,729) (145,847) 37,434 (18,228)
Net change in Other Current Assets and Liabilities .......... 78,144 41 70,786 53,016
Other ....................................................... (24,984) 88,151 (7,988) 137,919
Net cash provided by operating activities - Discontinued
Operations ................................................ 53,622 91,305 65,924 99,065
------------- ------------- ------------ -------------
Net Cash provided by operating activities ................ 1,047,181 1,123,042 1,495,232 1,564,063
------------- ------------- ------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to Utility Plant, excluding AFDC .................... (428,198) (475,088) (602,993) (773,545)
Net (increase) decrease in Long-Term Investments and Real
Estate ...................................................... (14,322) (51,105) (29,591) 34,421
Increase in Decommissioning Funds and Other Special Funds,
excluding interest (17,699) (50,604) (33,542) (57,992)
Cost of Plant Removal - net ................................... (19,840) (21,528) (27,986) (33,624)
Other ......................................................... (15,196) (32,787) (26,011) (21,184)
Change in Net Assets - Discontinued Operations .. (395,134) (116,801) (432,057) (137,010)
Net Proceeds from the Sale of Discontinued Operations 707,417 -- 707,417 --
------------- ------------- ------------ -------------
Net cash used in investing activities .................... (182,972) (747,913) (444,763) (988,934)
------------- ------------- ------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in Short-Term Debt ............................... 76,375 231,524 10,408 70,618
Increase (decrease) in Book Overdrafts ........................ 65,431 (24,921) 73,790 10,955
Issuance of Long-Term Debt .................................... 370,005 100,000 426,325 197,555
Redemption of Long-Term Debt .................................. (434,842) (335,769) (424,764) (426,002)
Long-Term Debt Issuance and Redemption Costs .................. (39,312) (8,406) (45,082) (24,012)
Redemption of Preferred Stock ................................. (211,602) -- (271,602) (75,000)
Issuance of Preferred Securities ............... 208,000 60,000 208,000 210,000
Retirement of Common Stock (104,536) -- (104,536) --
Cash Dividends Paid on Common Stock ........................... (394,944) (396,411) (527,081) (528,548)
Other ......................................................... (6,532) (1,814) (6,532) (7,564)
------------- ------------- ----------- -------------
Net cash used in financing activities .................... (471,957) (375,797) (661,074) (571,998)
------------- ------------- ----------- -------------
Net increase (decrease) in Cash and Cash Equivalents ........... 392,252 (668) 389,395 3,131
Cash and Cash Equivalents at Beginning of Period ................ 61,964 65,489 64,821 61,690
------------- ------------- ----------- -------------
Cash and Cash Equivalents at End of Period ...................... $ 454,216 $ 64,821 $ 454,216 $ 64,821
============= ============= =========== =============
Income Taxes Paid ............................................... $ 111,927 $ 154,228 $ 143,075 $ 182,963
Interest Paid ................................................... $ 353,368 $ 323,701 $ 510,931 $ 450,120
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(Thousands of Dollars)
Three Months Ended Nine Months Ended Twelve Months Ended
September 30, September 30, September 30,
-------------------------- ---------------------------- -------------------------
1996 1995 1996 1995 1996 1995
------------ ----------- ------------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at Beginning of Period ...... $ 1,694,058 $ 1,563,246 $ 1,636,222 $ 1,504,261 $ 1,616,077 $ 1,510,305
Add:
Net Income .......................... 155,833 186,782 484,475 510,041 636,757 641,884
----------- ------------ ------------ ------------ ------------ -----------
Total 1,849,891 1,750,028 2,120,697 2,014,302 2,252,834 2,152,189
----------- ------------ ------------ ------------ ------------ -----------
Deduct:
Cash Dividends on Common Stock .... 130,670 132,137 394,944 396,411 527,081 528,548
Retirement of Common Stock ........ 44,531 -- 44,531 -- 44,531 --
Capital Securities Expenses ....... -- 1,814 6,532 1,814 6,532 7,564
----------- ----------- ------------ ------------ ------------ -----------
Total Deductions ............. 175,201 133,951 446,007 398,225 578,144 536,112
----------- ------------ ------------ ------------ ------------ -----------
Balance at End of Period ............ $ 1,674,690 $ 1,616,077 $ 1,674,690 $ 1,616,077 $ 1,674,690 $ 1,616,077
=========== ============ ============ ============ ============ ===========
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Thousands of Dollars)
Three Months Ended Nine Months Ended Twelve Months Ended
September 30, September 30, September 30,
-------------------------------------------------------------------------------------------
1996 1995 1996 1995 1996 1995
----------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES:
Electric ............................ $ 1,054,599 $ 1,179,373 $ 3,000,895 $ 3,090,656 $ 3,931,081 $ 3,961,985
Gas ................................. 214,848 201,631 1,309,438 1,105,299 1,890,542 1,594,157
----------- ----------- ----------- ----------- ----------- -----------
Total Operating Revenues ....... 1,269,447 1,381,004 4,310,333 4,195,955 5,821,623 5,556,142
OPERATING EXPENSES:
Operation:
Fuel for Electric Generation and
Net Interchanged Power ............ 253,880 264,599 685,927 682,923 894,786 863,851
Gas Purchased and Materials for
Gas Produced ...................... 140,085 115,336 783,321 625,540 1,119,320 900,318
Other ............................... 221,453 232,051 702,442 678,652 973,190 982,347
Maintenance ........................... 62,450 76,205 245,106 208,288 349,428 293,809
Depreciation and Amortization ......... 150,180 146,019 452,094 437,887 605,321 578,593
Taxes:
Federal Income Taxes ................ 59,926 107,677 203,540 263,537 261,436 284,373
New Jersey Gross Receipts Taxes ..... 132,922 139,363 452,337 455,426 609,872 585,454
Other ............................... 20,586 19,229 63,404 60,139 74,170 77,184
----------- ----------- ----------- ----------- ----------- -----------
Total Operating Expenses ....... 1,041,482 1,100,479 3,588,171 3,412,392 4,887,523 4,565,929
----------- ----------- ----------- ----------- ----------- -----------
OPERATING INCOME ...................... 227,965 280,525 722,162 783,563 934,100 990,213
OTHER INCOME:
Allowance for Funds Used During
Construction - Equity ............. -- 1,329 -- 4,598 726 11,901
Miscellaneous - net ................. (1,928) 2,946 553 6,296 1,985 7,929
----------- ----------- ----------- ----------- ----------- ----------
Total Other Income ............. (1,928) 4,275 553 10,894 2,711 19,830
----------- ----------- ----------- ----------- ----------- ----------
INCOME BEFORE INTEREST CHARGES AND
DIVIDENDS ON PREFERRED SECURITIES ..... 226,037 284,800 722,715 794,457 936,811 1,010,043
INTEREST CHARGES:
Long-Term Debt ...................... 83,884 87,844 259,505 270,946 346,143 364,002
Short-Term Debt ..................... 7,433 7,600 19,799 14,383 26,156 19,716
Other ............................... 7,954 8,652 22,559 22,195 28,909 27,113
Total Interest Charges ......... 99,271 104,096 301,863 307,524 401,208 410,831
Allowance for Funds Used During
Construction - Debt ............... (4,117) (7,725) (11,879) (26,724) (16,099) (35,601)
----------- ----------- ----------- ----------- ----------- ----------
Net Interest Charges ........... 95,154 96,371 289,984 280,800 385,109 375,230
Preferred Securities Dividend
Requirement .................... 9,144 3,551 18,575 10,583 23,656 12,263
----------- ----------- ----------- ----------- ----------- ----------
NET INCOME ..................... 121,739 184,878 414,156 503,074 528,046 622,550
----------- ----------- ----------- ----------- ----------- ----------
Preferred Stock Dividend
Requirements .................... 4,085 8,682 19,074 26,044 26,792 35,943
Preferred Stock Redemption Premium .. -- -- 18,493 -- 18,019 --
----------- ----------- ----------- ----------- ----------- ----------
EARNINGS AVAILABLE TO PUBLIC SERVICE
ENTERPRISE GROUP INCORPORATED ......... $ 117,654 $ 176,196 $ 413,575 $ 477,030 $ 519,273 $ 586,607
=========== =========== =========== =========== =========== ===========
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
September 30, September 30, December 31,
ASSETS 1996 1995 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
UTILITY PLANT - Original cost:
Electric ..................................................... $ 13,291,672 $ 12,983,167 $ 13,095,103
Gas .......................................................... 2,520,555 2,413,673 2,442,572
Common ....................................................... 532,763 531,024 517,104
----------------- ----------------- -----------------
Total ................................................... 16,344,990 15,927,864 16,054,779
Less: Accumulated Depreciation and Amortization .............. 5,823,881 5,324,903 5,440,414
----------------- ----------------- -----------------
Net ..................................................... 10,521,109 10,602,961 10,614,365
Nuclear Fuel in Service, net of accumulated amortization -
$289,198, $345,412 and $297,435, respectively .............. 189,735 162,776 180,018
----------------- ----------------- -----------------
Net Utility Plant in Service ............................ 10,710,844 10,765,737 10,794,383
Construction Work in Progress, including Nuclear Fuel in
Process - $85,290, $122,368 and $104,743, respectively ..... 433,133 367,566 369,082
Plant Held for Future Use .................................... 23,966 23,966 23,966
----------------- ----------------- -----------------
Net Utility Plant ....................................... 11,167,943 11,157,269 11,187,431
----------------- ----------------- -----------------
INVESTMENTS AND OTHER NONCURRENT ASSETS:
Long-Term Investments, net of accumulated amortization -
$11,275, $4,585 and $6,009, respectively ................... 151,540 98,260 119,474
Nuclear Decommissioning and Other Special Funds .............. 342,956 292,405 313,178
Other Plant, net of accumulated depreciation and
amortization - $1,991, $1,882 and $1,905, respectively ..... 25,116 24,970 24,976
----------------- ----------------- -----------------
Total Investments and Other Noncurrent Assets ........... 519,612 415,635 457,628
----------------- ----------------- -----------------
CURRENT ASSETS:
Cash and Cash Equivalents .................................... 23,136 30,247 32,373
Accounts Receivable:
Customer Accounts Receivable ............................... 437,187 405,555 525,404
Other Accounts Receivable .................................. 108,763 118,198 156,413
Less: Allowance for Doubtful Accounts ...................... 37,427 38,578 37,641
Accounts Receivable - Associated Companies ................... -- 151 --
Unbilled Revenues ............................................ 159,871 127,590 246,876
Fuel, at average cost ........................................ 305,600 311,776 253,360
Materials and supplies, net of inventory valuation
reserves - $17,761, $18,200 and $20,100, respectively ...... 148,245 143,689 143,741
Prepaid Gross Receipts Taxes - net ........................... 146,406 165,342 --
Deferred Income Taxes ........................................ 25,952 27,489 27,571
Miscellaneous Current Assets ................................. 44,301 45,109 37,130
----------------- ----------------- -----------------
Total Current Assets .................................... 1,362,034 1,336,568 1,385,227
----------------- ----------------- -----------------
DEFERRED DEBITS:
Property Abandonments - net .................................. 56,279 74,742 70,120
Oil and Gas Property Write-Down .............................. 32,213 37,367 36,078
Unamortized Debt Expense ..................................... 140,307 124,308 122,049
Deferred OPEB Costs .......................................... 233,159 174,706 167,189
Underrecovered Electric Energy and Gas Costs - net ........... 203,306 173,270 170,565
Unrecovered Environmental Costs (Note 4)...................... 122,358 132,634 130,070
Unrecovered Plant and Regulatory Study Costs ................. 34,357 35,285 35,150
Deferred Decontamination and Decommissioning Costs............ 46,554 49,742 49,872
Unrecovered SFAS 109 Deferred Income Taxes ................... 763,243 778,642 769,136
Other ........................................................ 37,244 9,313 5,700
----------------- ----------------- -----------------
Total Deferred Debits ................................... 1,669,020 1,590,009 1,555,929
----------------- ----------------- -----------------
Total .......................................................... $ 14,718,609 $ 14,499,481 $ 14,586,215
================= ================= =================
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
<CAPTION>
September 30, September 30, December 31,
CAPITALIZATION AND LIABILITIES 1996 1995 1995
--------------- --------------- --------------
<S> <C> <C> <C>
CAPITALIZATION
Common Equity:
Common Stock ...................................................... $ 2,563,003 $ 2,563,003 $ 2,563,003
Contributed Capital from Enterprise ............................... 594,395 534,395 594,395
Retained Earnings ................................................. 1,387,609 1,380,368 1,365,166
--------------- --------------- --------------
Total Common Equity ............................................ 4,545,007 4,477,766 4,522,564
Subsidiaries' Preferred Securities:
Preferred Stock without mandatory redemption ...................... 113,392 384,994 324,994
Preferred Stock with mandatory redemption ......................... 150,000 150,000 150,000
Company-Obligated Mandatorily Redeemable Preferred Securities of
a Partnership holding solely PSE&G Debentures .................. 210,000 210,000 210,000
Company-Obligated Mandatorily Redeemable Preferred Securities
of a Subsidiary Trust holding solely PSE&G Debentures (QUIPS) ... 208,000 -- --
Long-Term Debt ...................................................... 4,293,202 4,585,543 4,586,268
--------------- --------------- --------------
Total Capitalization ........................................... 9,519,601 9,808,303 9,793,826
--------------- --------------- --------------
OTHER LONG-TERM LIABILITIES:
Decontamination, Decommissioning, and Low Level Radwaste
Costs ............................................................. 46,631 55,630 50,449
Environmental Costs (Note 4)......................................... 87,269 103,412 96,272
Capital Lease Obligations ........................................... 52,564 53,283 53,111
--------------- -------------- --------------
Total Other Long-Term Liabilities .............................. 186,464 212,325 199,832
--------------- -------------- --------------
CURRENT LIABILITIES:
Long-Term Debt due within one year .................................. 250,000 2,000 --
Commercial Paper and Loans .......................................... 643,691 633,283 567,316
Book Overdrafts ..................................................... 135,445 61,655 70,014
Accounts Payable .................................................... 364,880 320,212 481,632
Accounts Payable - Associated Companies ............................. 22,662 -- 8,011
Other Taxes Accrued ................................................. 36,011 38,235 32,767
Interest Accrued .................................................... 84,073 93,709 95,811
Provision for Rate Refunds .......................................... 101,210 18,310 13,810
Estimated Liability for Vacation Pay ................................ 28,168 32,235 17,089
Customer Deposits ................................................... 32,276 32,810 32,785
Liability for Injuries and Damages .................................. 32,304 36,090 38,141
Miscellaneous Environmental Liabilities ............................. 17,602 16,652 16,954
Other ............................................................... 33,160 23,826 36,941
--------------- -------------- -------------
Total Current Liabilities ...................................... 1,781,482 1,309,017 1,411,271
--------------- -------------- -------------
DEFERRED CREDITS:
Accumulated Deferred Income Taxes ................................... 2,535,867 2,526,135 2,535,603
Accumulated Deferred Investment Tax Credits ......................... 356,381 375,458 370,610
Deferred OPEB Costs ................................................. 233,159 174,706 167,189
Other ............................................................... 105,655 93,537 107,884
--------------- -------------- -------------
Total Deferred Credits ......................................... 3,231,062 3,169,836 3,181,286
--------------- -------------- -------------
COMMITMENTS AND CONTINGENT LIABILITIES (Note 4) -- -- --
--------------- -------------- -------------
Total .......................................................... $ 14,718,609 $ 14,499,481 $ 14,586,215
=============== ============== =============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
Nine Months Ended Twelve Months Ended
September 30, September 30,
-----------------------------------------------------------
1996 1995 1996 1995
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income .................................................... $ 414,156 $ 503,074 $ 528,046 $ 622,550
Adjustments to reconcile net income to net cash flows from
operating activities:
Depreciation and Amortization ............................... 452,094 437,887 605,321 578,593
Amortization of Nuclear Fuel ................................ 42,821 62,878 54,971 86,159
(Deferral) Recovery of Electric Energy and Gas Costs - net .. (32,741) (707) (30,036) 38,513
Provision for Deferred Income Taxes - net ................... 6,157 60,347 25,131 49,310
Investment Tax Credits - net ................................ (14,229) (14,263) (19,077) (19,165)
Allowance for Funds Used During Construction - Debt and
Equity .................................................... (11,879) (31,322) (16,825) (47,502)
Changes in certain current assets and liabilities:
Net decrease (increase) in Accounts Receivable and Unbilled
Revenues .................................................. 222,659 136,116 (56,226) (62,348)
Net (increase) decrease in Inventory - Fuel and Materials
and Supplies .............................................. (56,744) (39,775) 1,620 9,463
Net (decrease) increase in Accounts Payable ................. (102,101) (66,470) 67,330 17,892
Net change in Prepaid/Accrued Taxes ......................... (143,162) (163,137) 8,904 (31,975)
Net change in Other Current Assets and Liabilities .......... 71,710 (15,704) 85,314 41,167
Other ......................................................... (19,964) 79,507 (5,482) 110,993
------------ ------------ ------------ -------------
Net cash provided by operating activities ................ 828,777 948,431 1,248,991 1,393,650
------------ ------------- ------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to Utility Plant, excluding AFDC .................... (428,198) (475,088) (602,993) (773,545)
Net (increase) decrease in Long-Term Investments .............. (36,719) (39,595) (62,313) 45,385
Increase in Nuclear Decommissioning and Other Special Funds,
excluding interest .......................................... (17,699) (50,604) (33,542) (57,992)
Cost of Plant Removal - net ................................... (19,840) (21,528) (27,986) (33,624)
Other ......................................................... (140) 865 (146) 2,647
------------ ------------- ------------ -------------
Net cash used in investing activities .................... (502,596) (585,950) (726,980) (817,129)
------------ ------------- ------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in Short-Term Debt ............................... 76,375 231,524 10,408 70,618
Increase (decrease) in Book Overdrafts ........................ 65,431 (24,921) 73,790 (1,132)
Issuance of Long-Term Debt .................................... 370,005 100,000 426,325 197,555
Redemption of Long-Term Debt .................................. (413,072) (309,444) (470,667) (406,583)
Long-Term Debt Issuance and Redemption Costs .................. (38,842) (7,733) (44,571) (22,364)
Redemption of Preferred Stock ................................. (211,602) -- (271,602) (75,000)
Net Gain on Preferred Stock Redemptions ....................... 18,493 -- 18,019 --
Issuance of Preferred Securities ............... 208,000 60,000 208,000 210,000
Contributed Capital -- -- 60,000 --
Cash Dividends Paid ........................................... (403,674) (407,344) (532,292) (543,943)
Other ......................................................... (6,532) (1,814) (6,532) (7,564)
------------ ------------- ------------ -------------
Net cash used in financing activities .................... (335,418) (359,732) (529,122) (578,413)
------------ ------------- ------------ -------------
Net (decrease) increase in Cash and Cash Equivalents .......... (9,237) 2,749 (7,111) (1,892)
Cash and Cash Equivalents at Beginning of Period .............. 32,373 27,498 30,247 32,139
------------ ------------- ------------ -------------
Cash and Cash Equivalents at End of Period .................... $ 23,136 $ 30,247 $ 23,136 $ 30,247
============ ============= ============ =============
Income Taxes Paid ............................................. $ 163,179 $ 242,365 $ 200,687 $ 272,977
Interest Paid ................................................. $ 295,207 $ 275,210 $ 419,507 $ 365,727
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(Thousands of Dollars)
Three Months Ended Nine Months Ended Twelve Months Ended
September 30, September 30, September 30,
------------------------- ----------------------------- --------------------------
1996 1995 1996 1995 1996 1995
----------- ----------- ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at Beginning of
Period ........................... $ 1,398,155 $ 1,331,535 $ 1,365,166 $ 1,286,452 $ 1,380,368 $ 1,309,325
Add:
Net Income ....................... 121,739 184,878 414,156 503,074 528,046 622,550
----------- ----------- ------------ ------------ ------------ -----------
Total ......................... 1,519,894 1,516,413 1,779,322 1,789,526 1,908,414 1,931,875
----------- ----------- ------------ ------------ ------------ -----------
Deduct Cash Dividends:
Preferred Stock, at
required rates ................... 4,085 8,682 19,074 26,044 26,792 35,943
Common Stock ..................... 128,200 125,549 384,600 381,300 505,500 508,000
Capital Securities Expenses ........ -- 1,814 6,532 1,814 6,532 7,564
----------- ----------- ------------ ------------ ------------ -----------
Total Deductions ....... 132,285 136,045 410,206 409,158 538,824 551,507
----------- ----------- ------------ ------------ ------------ -----------
Net Gain on Preferred Stock
Redemptions ....................... -- -- 18,493 -- 18,019 --
----------- ----------- ------------ ------------ ------------ -----------
Balance at End of Period ........... $ 1,387,609 $ 1,380,368 $ 1,387,609 $ 1,380,368 $ 1,387,609 $ 1,380,368
=========== =========== ============ ============ ============ ===========
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
The financial statements included herein have been prepared pursuant to
the rules and regulations of the Securities and Exchange Commission (SEC).
Certain information and note disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations. However,
in the opinion of management, the disclosures are adequate to make the
information presented not misleading. These financial statements and notes
thereto should be read in conjunction with the respective Registrant's Notes
contained in the Quarterly Reports on Form 10-Q for the quarters ended March 31,
1996 and June 30, 1996 and the 1995 Annual Report on Form 10-K. The Notes
contained herein update and supplement matters discussed in such Quarterly
Reports and the 1995 Annual Report on Form 10-K.
The unaudited financial information furnished herewith reflects all
adjustments which are, in the opinion of management, necessary to a fair
statement of the results for the interim periods presented.
Note 2. Discontinued Operations
On July 1, 1996, Enterprise Diversified Holdings Incorporated (EDHI), a
subsidiary of Public Service Enterprise Group Incorporated (Enterprise), entered
into a contract for the sale of Energy Development Corporation (EDC) to Samedan
Oil Corporation, a subsidiary of Noble Affiliates, Inc., for an aggregate
purchase price of $779 million subject to various purchase price adjustments. As
a result, certain financial information previously issued has been restated
herein to give effect to the classification of EDC as discontinued operations.
The sale, which was completed on July 31, 1996, resulted in an after-tax gain of
approximately $13.5 million.
Operating results of EDC for the three, nine and twelve months ended
September 30, 1996 and 1995 are summarized in the following table:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended Twelve Months Ended
September 30, September 30, September 30,
(Thousands) 1996 1995 1996 1995 1996 1995
---------- ---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues .................... $ -- $ 49,719 $ 126,259 $ 152,613 $ 221,647 $ 203,723
Operating income ............ -- (803) 22,457 10,519 70,591 18,176
Earnings (losses) before
income taxes ............ -- (2,438) 9,062 (3,401) 65,762 (834)
Income taxes ................ (2,992) (263) (1,684) (1,583) 18,162 (3,147)
Net income (loss) ........... 2,992 (2,175) 10,746 (1,818) 47,600 2,313
</TABLE>
The net assets of EDC included in Enterprise's Consolidated Balance
Sheets at September 30 and December 31, 1995 are summarized in the following
table:
September 30, December 31,
(Thousands) 1995 1995
--------------- --------------
Property ............................... $ 588,237 $ 608,015
Current assets, primarily receivables .. 49,464 90,986
Other assets ........................... 64,466 56,836
Current liabilities .................... 50,906 62,204
Debt ................................... 305,121 311,821
Deferred credits and other liabilities . 4,856 15,907
Net assets ............................. $ 341,284 $ 365,905
<PAGE>
Note 3. Rate Matters
Alternative Rate Plan
On August 26, 1996, in response to the important electric industry
restructuring issues and policy decisions currently being addressed within the
Phase II proceeding of the New Jersey Energy Master Plan (Master Plan)
proceedings, PSE&G petitioned the New Jersey Board of Public Utilities (BPU) to
place its "New Jersey Partners in Power" Plan (Plan) on inactive status pending
completion of the Phase II proceeding. The BPU is expected to issue a final
decision on Phase II of the Master Plan early in 1997. PSE&G recognized that
many of the issues being decided in the Master Plan parallel the issues that
have been raised in PSE&G's Plan, as well as the importance of having the
elements of the Plan in line with the direction of the Master Plan, which will
define the structure of New Jersey's energy marketplace. On September 5, 1996,
the BPU approved PSE&G's request and placed the Plan on inactive status for a
period of six months. PSE&G must advise the BPU of its intent to go forward,
withdraw, or modify the Plan on or before February 5, 1997.
Proposed Settlement of Certain Regulatory Issues
On October 23, 1996, PSE&G, the staff of the BPU (Staff) and the New
Jersey Division of Ratepayer Advocate (Ratepayer Advocate) agreed upon the
resolution of three regulatory issues which had been pending in proceedings
before the BPU, including the "used and usefulness" of Salem Nuclear Units 1 and
2. Under the proposed Settlement Agreements (Agreements), which require approval
of the BPU, PSE&G would provide electric customers with bill credits totaling
$83.9 million in January and February 1997 and would forego recovery of $12
million associated with energy costs that have been deferred. The Agreements
resulted in an earnings loss of $62.3 million or 26 cents per share of
Enterprise common stock. Of the total, $3.3 million or 1 cent per share had been
previously recorded, and the remaining $59.0 million or 25 cents per share was
recorded in the third quarter of 1996. The Agreements would be effective through
December 31, 1998. In addition to the settlement of the regulatory issues, PSE&G
agreed to create a $30 million economic development fund and support certain
customer assistance programs.
Under the first of the three Agreements, Salem Nuclear Units 1 and 2
would continue in base rates without being subject to further refund. In
addition, PSE&G would assume all nuclear and fossil generating fuel and
performance risks, including replacement power costs associated with the Salem,
Hope Creek and Peach Bottom Nuclear Stations from January 1, 1996 through
December 31, 1998. As a result of PSE&G's assumption of these risks, the BPU's
Nuclear Performance Standard (NPS) (see Note 4, Commitments and Contingent
Liabilities) would not apply during the period of January 1, 1996 through
December 31, 1998. In addition, the energy component of PSE&G's levelized energy
adjustment charge (LEAC) would be fixed at its existing level, assuring PSE&G's
customers of no increase in this rate until at least January 1999.
The Agreement resolving the "used and useful" issue has seven key
elements. First, during January and February 1997, PSE&G would provide bill
credits to electric customers of $77.5 million. Second, the energy component of
PSE&G's LEAC, which recovers all LEAC costs except gas plant remediation, demand
side management and nuclear decommissioning, would be fixed at its current
level. From January 1, 1997 through December 31, 1998, any revenue and costs
related to the energy component of the LEAC would be treated as revenue and
expense. In addition, from January 1, 1997 through December 31, 1998, PSE&G
would have the opportunity to reduce its deferred LEAC energy balance as of
December 31, 1996. Any underrecovered or overrecovered balance existing on
December 31, 1998 would not be considered in any LEAC review subsequent to that
date. Third, there would be no further regulatory action regarding the "used and
useful" issue through December 31, 1998. Fourth, the NPS would not apply to
PSE&G from January 1, 1996 through December 31, 1998. Fifth, PSE&G would be
permitted to defer costs associated with the buy-out or buy-down of cogeneration
contracts during the Agreement period which would be reviewed in a future BPU
proceeding. Sixth, the parties to the Agreement reserved the right to review, in
PSE&G's next base rate proceeding, Salem-related capitalized costs incurred
since base rates were last reviewed in 1992 as part of a rate case that was
effective January 1, 1993. Finally, a new LEAC rate would be established after
the settlement period, with PSE&G making a filing no later than November 1,
1998.
In addition to the resolution of the Salem "used and useful" issue, the
two other Agreements address separate long-standing issues that PSE&G has been
litigating before the BPU. The first pertains to the recovery of certain
replacement power costs associated with a 58-day outage at Salem Unit 1 in 1994.
Under that Agreement, PSE&G would reduce its underrecovered LEAC balance by $7
million. The second pertains to the recovery of capacity costs associated with
electric utility power purchases from cogeneration producers through December
31, 1998. Under that Agreement, PSE&G would provide bill credits to electric
customers totaling $6.4 million during January and February 1997. In addition,
it will reduce its underrecovered LEAC balance by $5 million.
In addition to the above-referenced Agreements, PSE&G and the Ratepayer
Advocate agreed on a commitment by PSE&G to provide financial assistance toward
economic growth and development in New Jersey. This commitment, which runs
through December 31, 1999, has four key elements. First, PSE&G will create a $30
million revolving economic development fund with emphasis on stimulating jobs
and developing high technology projects in urban areas. Second, PSE&G will
provide incentives to encourage local public housing authorities to replace up
to 4,000 refrigerators a year. Third, PSE&G will commit $1 million to develop a
fund to provide innovative assistance to low-income residents who are having
difficulty paying energy bills. Finally, PSE&G will develop a computer system to
assist low-income residents in identifying government and community programs for
which they would be eligible to receive benefits.
The "used and useful" Agreement will be the subject of a public hearing
before the BPU on November 25, 1996. The three Agreements require BPU approval,
as to which no assurance can be given.
Levelized Gas Adjustment Charge (LGAC)
On July 30, 1996, PSE&G filed its 1996/97 LGAC petition with the BPU
requesting that it be effective October 1, 1996 through December 31, 1997. PSE&G
has requested the LGAC be modified so as to more closely track the market price
of gas and avoid the distortions and dislocations resulting from the reflection
of over and underrecoveries. The 1996/97 LGAC proposal requests that residential
and certain other customer billings be converted from a levelized charge to one
derived on a monthly basis. The requested change in the LGAC pricing is the same
as the change in pricing for Large Volume Gas (LVG) and General Service Gas
(GSG) customers which was approved by the BPU in PSE&G's 1995/96 LGAC filing. In
addition, there would be a cap of five cents per therm in the month to month
change in the 1996/97 LGAC rate for all customer classes. PSE&G has also
requested that the 1996/97 LGAC reflect a refund of approximately $14 million to
LVG and GSG customers in the form of bill credits, stemming from over
collections which occurred during the 1995/96 LGAC.
On November 6, 1996, the BPU, in an oral decision, approved an
approximate $80 million increase based upon a modified Interim Stipulation in
the LGAC proceeding. The BPU did not approve PSE&G's 1996/1997 LGAC proposal
that residential and certain other customer billings be converted from an annual
levelized charge to one derived on a monthly basis. The monthly pricing
methodology for LVG and GSG customers, with minor modifications, will continue.
During the months of December 1996 and January 1997, approximately $14 million
will be refunded through a bill credit to customers that purchased LVG or GSG
service (excluding off-peak service) during the period January 1, 1996 through
October 31, 1996. The refund is based on an overcollection of gas costs from
those customer classes and will be apportioned based on those customers usage
during that period. PSE&G, Staff and the Ratepayer Advocate have the right to
revisit all issues in a Phase II proceeding. PSE&G cannot predict the outcome of
such proceedings.
Remediation Adjustment Clause (RAC)
On July 30, 1996, PSE&G petitioned the BPU for recovery of its
Manufactured Gas Plant Remediation Program (Remediation Program) costs during
the period August 1, 1995 through July 31, 1996. In 1993, the BPU approved a
mechanism for such costs incurred since October 1, 1992, allowing the recovery
of actual costs plus carrying charges, net of insurance recoveries over a seven
year period through PSE&G's LGAC and LEAC, with 60% charged to gas customers and
40% charged to electric customers. In accordance with the Interim LGAC
Stipulation dated October 11, 1996, PSE&G is expected to recover $2.7 million
from gas customers and $1.8 million from electric customers during the period
November 1, 1996 through October 31, 1997 (See Note 4, Commitments and
Contingent Liabilities).
Other Rate Matters
On February 16, 1996, PSE&G filed for approval of its first Off Tariff
Rate Agreement (OTRA). The OTRA is designed to consider prices, confidentially,
contract duration, regulatory filing requirements and other standards as may be
necessary for compliance with the law. On May 9, 1996, PSE&G filed a motion with
the BPU to resolve issues regarding the confidentiality of certain terms of the
OTRA. On June 19, 1996, the BPU issued an order denying PSE&G's request for
confidential treatment and directed PSE&G to file, and thus make public, the
information within five days. On June 21, 1996, PSE&G was granted a temporary
order from the Appellate Division of the New Jersey Superior Court staying the
June 19, 1996 BPU order requiring public disclosure of the information. On
September 6, 1996, the BPU issued an order allowing this OTRA to go into effect,
thus allowing the customer to receive the negotiated rate, pending the outcome
of the Court decision on the confidentiality issue. By Order dated October 31,
1996, the Court affirmed the BPU's decision. PSE&G cannot predict what impact,
if any, the OTRA may have on its financial position, results of operations, and
net cash flows.
<PAGE>
On August 1, 1996, the BPU issued an Order of Inquiry which initiated a
generic proceeding to resolve the regulatory and rate issues associated with
Statement of Financial Accounting Standards (SFAS) 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions". In this proceeding, the BPU
will determine the appropriate level of recovery, necessary rate changes and the
proper funding mechanism for these costs. On August 16, 1996, in accordance with
the BPU's Order in this matter, PSE&G filed testimony responding to questions
contained in the BPU's Generic Order. The Staff and the Ratepayer Advocate
issued requests for information and have held several group discovery and
settlement-type conferences with PSE&G and other affected utilities. In
accordance with the BPU's Generic Order, upon the completion of the initial
phase of this proceeding, the BPU will determine whether hearings in this matter
are necessary. PSE&G cannot predict what action, if any, may be taken by the BPU
on this matter or when final action may be completed.
On September 19, 1996, PSE&G filed a petition with the BPU to establish
an interim Competition Transition Charge (CTC). The CTC is designed to recover
stranded costs which may result from a customer leaving PSE&G's system as a full
requirements customer. If approved by the BPU as filed, this charge would apply
to customers who, after September 19, 1996, commit to an alternate source of
electric power while remaining physically located in PSE&G's electric franchise
area. Further, this interim charge would be limited to customers with present
billing demands in excess of 500KW. The proposed charge would be interim pending
BPU resolution of the Master Plan Phase II proceeding which will address the
stranded cost issue on a generic basis. PSE&G cannot predict what action the BPU
may take with respect to the CTC petition.
Note 4. Commitments and Contingent Liabilities
Nuclear Performance Standard
The BPU has established an NPS for nuclear generating units owned by
New Jersey electric utilities, including the five nuclear units in which PSE&G
has an ownership interest: Salem Units 1 and 2 - 42.59%; Hope Creek - 95%; and
Peach Bottom Units 2 and 3 - 42.49%. PSE&G operates Salem and Hope Creek, while
Peach Bottom is operated by PECO Energy, Inc. (PECO).
The penalty/reward under the NPS is a percentage of replacement power
costs (see table below).
Capacity Factor Range Reward Penalty
- ---------------------------------------------------- ------- -------
Equal to or greater than 75% ....................... 30% --
Equal to or greater than 65% and less than 75% ..... None None
Equal to or greater than 55% and less than 65% ..... -- 30%
Equal to or greater than 45% and less than 55% ..... -- 40%
Equal to or greater than 40% and less than 45% ..... -- 50%
Below 40% .......................................... BPU Intervenes
Under the NPS, the composite capacity factor is calculated annually
using maximum dependable capability of the five nuclear units in which PSE&G
owns an interest. This method takes into account actual operating conditions of
the units. While the NPS does not specifically have a gross negligence
provision, the BPU has indicated that it would consider allegations of gross
negligence brought upon a sufficient factual basis. A finding of gross
negligence could result in penalties other than those prescribed under the NPS.
Based upon current projections and assumptions regarding PSE&G's five nuclear
units during 1996, including the continued outage of Salem Unit 1 and 2 for the
remainder of the year, the 1996 aggregate capacity factor would be approximately
53%, which would result in a penalty of approximately $17 million. However, if
the October 23, 1996 Agreement resolving the "used and useful" issue related to
PSE&G's Salem Units is approved by the BPU, the NPS would not apply to PSE&G
during the period of January 1, 1996 through December 31, 1998 (see Note 3, Rate
Matters).
<PAGE>
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
Total Site Assessments For A
Type and Source of Coverages Coverages Single Incident
- --------------------------------------------------- -------------------- ----------------------
<S> <C> <C>
(Millions)
Public Liability:
American Nuclear Insurers $ 200.0 $ --
Indemnity(A)................................... 8,720.3 210.2
----------------- ----------------------
$ 8,920.3 (B) $ 210.2
----------------- ----------------------
Nuclear Worker Liability:
American Nuclear Insurers (C) ................. $ 200.0 $ 8.0
----------------- ----------------------
Property Damage:
Nuclear Mutual Limited ........................ $ 500.0 9.2
Nuclear Electric Insurance Ltd. (NEIL II) ..... 1,400.0 8.3 (D)
Nuclear Electric Insurance Ltd. (NEIL III) .... 850.0 9.2
----------------- ----------------------
$ 2,750.0 $ 26.7
----------------- ----------------------
Replacement Power:
Nuclear Electric Insurance Ltd. (NEIL I) ...... $ 3.5 (E) $ 11.4
</TABLE>
(A) Retrospective premium program under the Price-Anderson liability
provisions of the Atomic Energy Act of 1954, as amended
(Price-Anderson). Subject to retrospective assessment with respect to
loss from an incident at any licensed nuclear reactor in the United
States. Assessment adjusted for inflation effective August 20, 1993.
(B) Limit of liability for each nuclear incident under Price-Anderson.
(C) Industry aggregate limit representing the potential liability from
workers claiming exposure to the hazard of nuclear radiation. This
policy includes automatic reinstatements up to an aggregate of $200
million, thereby providing total coverage of $400 million. This policy
does not increase PSE&G's obligation under Price-Anderson.
(D) In the event of a second industry loss triggering NEIL II - coverage,
the maximum retrospective premium assessment can increase to $18.5
million.
(E) Represents limit of coverage available to co-owners of Salem and Hope
Creek, for each plant. Each co-owner purchases its own policy. PSE&G is
currently covered for its percent ownership interest in each plant for
this limit.
Price-Anderson sets the "limit of liability" for claims that could
arise from an incident involving any licensed nuclear facility in the nation.
The "limit of liability" is based on the number of licensed nuclear reactors and
is adjusted at least every five years based on the Consumer Price Index. The
current "limit of liability" is $8.9 billion. All utilities owning a nuclear
reactor, including PSE&G, have provided for this exposure through a combination
of private insurance and mandatory participation in a financial protection pool
as established by Price-Anderson. Under Price-Anderson, each party with an
ownership interest in a nuclear reactor can be assessed its share of $79.3
million per reactor per incident, payable at $10 million per reactor per
incident per year. If the damages exceed the "limit of liability," the President
is to submit to Congress a plan for providing additional compensation to the
injured parties. Congress could impose further revenue raising measures on the
nuclear industry to pay claims. PSE&G's maximum aggregate assessment per
incident is $210.2 million (based on PSE&G's ownership interests in Hope Creek,
Peach Bottom and Salem) and its maximum aggregate annual assessment per incident
is $26.5 million.
Further, a recent decision by the U.S. Supreme Court, not involving
PSE&G, held that the Price-Anderson Act did not preclude awards based on state
law claims for punitive damages.
<PAGE>
PSE&G is a member of two industry mutual insurance companies: Nuclear
Mutual Limited (NML) and Nuclear Electric Insurance Limited (NEIL). NML provides
the primary property insurance at Salem and Hope Creek. NEIL provides excess
property insurance through its NEIL II and NEIL III policies and replacement
power coverage through its NEIL I policy. Both companies may make retrospective
premium assessments in case of adverse loss experience. PSE&G's maximum
potential liabilities under these assessments are included in the table and
notes above. Certain of the policies also provide that the insurer may suspend
coverage with respect to all nuclear units on a site without notice if the NRC
suspends or revokes the operating license for any unit on a site, issues a
shutdown order with respect to such unit or issues a confirmatory order keeping
such unit down. While the NRC has issued confirmatory action letters with
respect to the Salem shutdown, PSE&G does not expect any action to be taken by
any insurer as a result of these NRC letters.
Construction and Fuel Supplies
PSE&G has substantial commitments as part of its ongoing construction
program, which include capital requirements for nuclear fuel. PSE&G's
construction program is continuously reviewed and periodically revised as a
result of changes in economic conditions, revised load forecasts, changes in the
scheduled retirement dates of existing facilities, changes in business
strategies, site changes, cost escalations under construction contracts,
requirements of regulatory authorities and laws, the timing of and amount of
electric and gas rate changes and the ability of PSE&G to raise necessary
capital. Pursuant to its electric Integrated Resource Plan (IRP), PSE&G
periodically reevaluates its forecasts of future customers, load and peak
growth, sources of electric generating capacity and demand side management (DSM)
to meet such projected growth, including the need to construct new electric
generating capacity. The IRP takes into account assumptions concerning future
demands of customers, effectiveness of conservation and load management
activities, the long-term condition of PSE&G's plants, capacity available from
electric utilities and other suppliers and the amounts of co-generation and
other non-utility capacity projected to be available.
Based on PSE&G's construction program, construction expenditures are
expected to aggregate approximately $2.8 billion during the years 1996 through
2000, which includes $428 million for nuclear fuel, $84 million of Allowance for
Funds used During Construction (AFDC) and the replacement steam generators at
Salem Unit 1. The estimate of construction requirements is based on expected
project completion dates and includes anticipated escalation due to inflation of
approximately 3% annually. Therefore, construction delays or higher inflation
levels could cause significant increases in these amounts. PSE&G expects to
internally generate the funds necessary to satisfy its construction expenditures
over this period, assuming adequate and timely recovery of costs, as to which no
assurances can be given. In addition, PSE&G does not presently anticipate any
difficulties in obtaining sufficient sources of fuel for electric generation or
adequate gas supplies during the years 1996 through 2000.
Hazardous Waste
Certain Federal and State laws authorize the United States
Environmental Protection Agency (EPA) and the New Jersey Department of
Environmental Protection (NJDEP), among other agencies, to issue orders and
bring enforcement actions to compel responsible parties to take investigative
and remedial actions at any site that is determined to present an imminent and
substantial danger to the public or the environment because of an actual or
threatened release of one or more hazardous substances. Because of the nature of
PSE&G's business, including the production of electricity, the distribution of
gas and, formerly, the manufacture of gas, various by-products and substances
are or were produced or handled which contain constituents classified as
hazardous. PSE&G generally provides for the disposal or processing of such
substances through licensed independent contractors. However, these statutory
provisions impose joint and several responsibility without regard to fault on
all responsible parties, including the generators of the hazardous substances,
for certain investigative and remediation costs at sites where these substances
were disposed of or processed. PSE&G has been notified with respect to a number
of such sites and the remediation of these potentially hazardous sites is
receiving greater attention from the government agencies involved. Generally,
actions directed at funding such site investigations and remediation include all
suspected or known responsible parties. PSE&G does not expect its expenditures
for any such site to have a material adverse effect on its financial position,
results of operations or net cash flows.
PSE&G Manufactured Gas Plant Remediation Program
In 1988, NJDEP notified PSE&G that it had identified the need for
PSE&G, pursuant to a formal arrangement, to systematically investigate and, if
necessary, resolve environmental concerns at PSE&G's former manufactured gas
plant sites. To date, NJDEP and PSE&G have identified 38 former gas plant sites.
PSE&G is currently working with NJDEP under its Remediation Program to assess,
investigate and, if necessary, remediate environmental conditions at these
sites.
<PAGE>
The Remediation Program is periodically reviewed and revised by PSE&G based on
regulatory requirements, experience with the Remediation Program and available
technologies. The overall cost of the Remediation Program cannot be reasonably
estimated, but experience to date indicates that costs of at least $20 million
per year could be incurred over a period of more than 30 years and that the
overall cost could be material to PSE&G's financial position, results of
operations or net cash flows (see Note 3, Rate Matters).
Note 5. Financial Instruments and Risk Management
Natural Gas Hedging
Through September 30, 1996 and 1995, U.S. Energy Partners (USEP), an
indirect gas marketing subsidiary of Enterprise, entered into futures contracts
and swaps to buy 8,360,000 mmbtu and 5,700,000 mmbtu of natural gas at average
prices of $2.09 per mmbtu and $1.81 per mmbtu, respectively, related to
fixed-price sales commitments. Such contracts, together with physical purchase
contracts, hedged approximately 86% and 91% of its fixed-price sales commitments
at September 30, 1996 and 1995, respectively. USEP had deferred unrealized hedge
gains of $337 thousand and $39 thousand at those respective dates.
Note 6. Federal Income Taxes
In August 1996, Enterprise reached an agreement with the Internal
Revenue Service (IRS) covering most of the disputed issues raised by the IRS in
its audit of PSE&G's tax return for 1985 and Enterprise's tax returns for 1986
and 1987. The partial agreement included resolution of all disputed issues
related to Hope Creek and did not have a material impact on the financial
position, results of operations and net cash flows of PSE&G or Enterprise. While
no assurances can be given regarding the outcome of the remaining unresolved
issues, an unfavorable resolution would not have a material adverse impact on
the financial position, results of operations and net cash flows of PSE&G or
Enterprise.
Public Service Electric and Gas Company
Notes To Consolidated Financial Statements
Except as modified below, the Notes to Consolidated Financial
Statements of Enterprise are incorporated herein by reference insofar as they
relate to PSE&G and its subsidiaries:
Note 1. Basis of Presentation
Note 3. Rate Matters
Note 4. Commitments and Contingent Liabilities
Note 6. Federal Income Taxes
<PAGE>
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Following are the significant changes in or additions to information
reported in the Public Service Enterprise Group Incorporated (Enterprise)
Quarterly Report on Form 10-Q for the quarters ending March 31, 1996 and June
30, 1996 and 1995 Annual Report on Form 10-K affecting the consolidated
financial condition and the results of operations of Enterprise and its
subsidiaries. This discussion refers to the Consolidated Financial Statements
(Statements) and related Notes of Enterprise and should be read in conjunction
with such Statements and Notes.
Recent Developments
On July 1, 1996, Enterprise Diversified Holdings Incorporated (EDHI), a
subsidiary of Enterprise, entered into a contract with Samedan Oil Corporation
(Samedan), a subsidiary of Noble Affiliates, Inc., for the sale of Energy
Development Corporation (EDC), a subsidiary of EDHI, to Samedan for an aggregate
purchase price of $779 million subject to various purchase price adjustments.
The sale was completed on July 31, 1996. Enterprise recorded an after-tax gain
of approximately $13.5 million, or 6 cents per share, in the third quarter.
The proceeds from the sale are being used to repay approximately $350
million of EDHI debt related to EDC and to fund an open market repurchase
program of up to $350 million of Enterprise common stock. As of October 31,
1996, 6.3 million shares of common stock had been repurchased for an aggregate
cost of $169 million.
On October 23, 1996, PSE&G, the staff of the New Jersey Board of Public
Utilities (BPU), and the New Jersey Division of Ratepayer Advocate (Ratepayer
Advocate) agreed upon the resolution of three regulatory issues, including the
"used and usefulness" of Salem Nuclear Units 1 and 2. Under the proposed
Settlement Agreements (Agreements), which require the approval of the BPU, PSE&G
would provide electric customers with bill credits totaling $83.9 million in
January and February 1997 and would forego recovery of another $12 million in
energy costs that have been deferred. The total benefit to PSE&G's customers
would amount to $95.9 million. The Agreements resulted in an earnings loss of
$62.3 million or 26 cents per share of Enterprise common stock. Of the total,
$3.3 million or 1 cent per share had been previously recorded, and the remaining
$59.0 million or 25 cents per share was recorded in the third quarter of 1996
(see Note 3, Rate Matters, of Notes).
Competition
The BPU is conducting a Phase II proceeding of the New Jersey Energy
Master Plan (Master Plan) to address wholesale and retail competition in New
Jersey. On May 23, 1996, the BPU voted to release the Phase II Proceeding Staff
Status Report: Restructuring the Electric Power Industry in New Jersey (Status
Report). The BPU also voted to adopt the recommended procedures cited in the
Status Report to reach a resolution and render its final decisions concerning
electric power industry restructuring by approximately year-end 1996. The BPU
also agreed to follow a concurrent, two pronged process to address the
outstanding issues and render final decisions. As a result, the BPU conducted
formal public and legislative-type hearings and received testimony on the
outstanding issues. The BPU also accepted advance written comments in order to
develop a formal record in this matter and established a negotiating group
comprised of representatives of the various interest groups in this proceeding.
The negotiating group discussions concluded on October 29, 1996 without
reaching consensus. In accordance with the BPU's established procedures in this
matter, since the negotiating group did not reach a consensus on issues, the BPU
Staff will advise the BPU on the proposed findings anticipated to be issued
before year end. Once the BPU issues its findings, it will conduct public
hearings and provide an opportunity for written comments prior to issuing a
final decision in 1997.
The recoverability of stranded costs, electric rate unbundling and
other issues related to restructuring will be largely dependent on the Master
Plan Phase II findings. Stranded costs that could result as the industry moves
to a more competitive environment may include investments in generating
facilities, regulatory assets, purchased power agreements where the price being
paid under such an agreement exceeds the market price for electricity and other
costs. At this time, management cannot predict the level of stranded costs for
PSE&G, if any, or the extent to which the BPU will allow recovery of such costs.
<PAGE>
A joint task force of the BPU and the New Jersey Treasury Department
has proposed replacing the current New Jersey Gross Receipts and Franchise Tax
(NJGRT) with a combination of existing corporate business tax, existing state
sales and use tax and a transitional tax which would be phased out over an
expected five or six year time frame. After the phase-out is completed, the
proposal is expected to improve the competitive position of New Jersey electric
and gas utilities vis-a-vis non-utility energy providers in New Jersey and
energy providers in other states. PSE&G cannot predict when or if this proposal
will be adopted.
On August 23, 1996, in accordance with the BPU's 1994 order approving
PSE&G's gas unbundling program, PSE&G filed its Gas Unbundling Status Report.
The filing also contained PSE&G's proposal for a residential gas unbundling
pilot program to be known as SelectGas. If approved, this pilot program will
allow certain residential natural gas customers to participate in a competitive
marketplace. The SelectGas pilot program would involve four municipalities
representing approximately 65,000 residential customers. The review of the pilot
program, including formal discovery, has been initiated. The review is expected
to be completed by year-end 1996. PSE&G cannot predict when or if this proposal
will be adopted.
Nuclear Operations
Both of PSE&G's Salem Nuclear Generating Units are currently out of
service and their return dates are subject to completion of the requirements of
their respective restart plans to the satisfaction of PSE&G and the NRC, which
encompasses a substantial review and improvement of personnel, process and
equipment issues. On May 23, 1996, PSE&G and the co-owners of Salem signed an
agreement to purchase the steam generators from the owner of the unfinished
Seabrook Nuclear Unit 2 for installation in Salem Unit 1. Transport of the steam
generators to Salem was completed on October 14, 1996. By using these
replacement steam generators, PSE&G expects to return Salem 1 to service in
mid-1997. The cost of replacement, including installation, will be approximately
$150 to $170 million (PSE&G's share would be $64 to $72 million). In addition,
the cost of disposal of the four old steam generators could be as much as $20
million (PSE&G's share would be $9 million). PSE&G has entered into a contract
with the facility operator to dispose of the four old steam generators at the
low level waste facility in Barnwell, South Carolina.
On July 22, 1996, PSE&G announced that although substantial progress
has been made in upgrading Salem Unit 2's major systems, some of the originally
scheduled work, along with additional work that had since been identified,
remained to be completed. Salem Unit 2 is currently expected to return to
service early in the first quarter of 1997 and is not expected to impact the
restart of Salem Unit 1. A meeting with the NRC to discuss restart of Salem Unit
2 is scheduled for November 18, 1996. The inability to successfully return these
units to continuous, safe operation could have a material adverse effect on the
financial position, results of operations and net cash flows of Enterprise and
PSE&G. Restart of the units requires NRC approval, which cannot be assured (see
Note 3, Rate Matters, of Notes).
Given the additional scope of work associated with the Salem Unit 2
restart effort, Unit 1 restart activities (excluding the steam generator
replacement) and various cost saving initiatives in progress, it is expected
that PSE&G's share of Salem operation and maintenance expenditures will increase
approximately $18 million from original plans developed in late 1995, to a total
of $136 million for 1996.
Results of Operations
Earnings per share of Enterprise common stock were $0.64 for the
three-month period ended September 30, 1996, a decrease of $0.12 per share of
common stock from the comparable 1995 period. Earnings per share of Enterprise
common stock were $1.98 for the nine-month period ended September 30, 1996, a
decrease of $0.10 per share of common stock from the comparable 1995 period.
Earnings per share of Enterprise common stock were $2.61 for the twelve-month
period ended September 30, 1996, a decrease of $0.01 per share of common stock
from the comparable 1995 period.
Earnings per share for the three, nine and twelve-month periods ended
September 30, 1996 decreased primarily due to the Agreements regarding the
resolution of three regulatory issues before the BPU, increased operation and
maintenance expenses related to the outages at Salem and Hope Creek, a decrease
in the Allowance for Funds Used During Construction (AFDC) that resulted from a
lower AFDC rate, increased depreciation expense due to more plant in service and
weak electric sales in the summer due to cooler than normal weather. The
earnings per share decrease was partially offset by higher electric and gas
sales by PSE&G in early 1996 due to favorable weather conditions, the gain on
the repurchase of certain of PSE&G's outstanding cumulative preferred stock at
discounts to par, increased investment income from Public Service Resources
Corporation (PSRC), relatively strong performance by Community Energy
Alternatives Incorporated (CEA) in the third quarter, increased income from
Discontinued Operations - EDC and a one-time gain on the July 31, 1996 sale of
EDC.
PSE&G
Earnings Available to Enterprise
<TABLE>
<CAPTION>
Increase or (Decrease)
-----------------------------------------------------------------------------
Three Months Ended Nine Months Ended Twelve Months Ended
September 30, September 30, September 30,
1996 vs. 1995 1996 vs. 1995 1996 vs. 1995
----------------------- ----------------------- -----------------------
Per Per Per
Amount Share Amount Share Amount Share
---------- --------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
(Millions, except Per Share Data)
PSE&G
Revenues (net of fuel costs and
gross receipt taxes) ............... $ (119) $ (.49) $ (43) $ (.18) $ (9) $ (.04)
Operation and maintenance
expenses ........................... 24 .10 (61) (.25) (46) (.19)
Depreciation and amortization
expenses ........................... (4) (.02) (14) (.06) (27) (.11)
Federal income taxes ................. 48 .20 60 .25 23 .10
Interest charges ..................... 5 .02 6 .02 10 .04
Allowance for Funds used During
Construction ....................... (5) (.02) (19) (.08) (31) (.13)
Preferred securities dividend
requirements ....................... (1) -- (1) -- (2) --
Other income and expenses ............ (6) (.03) 9 .04 15 .06
========== ========= ========== ========= ========== =========
Earnings Available to Enterprise .. $ (58) $ (.24) $ (63) $ (.26) $ (67) $ (.27)
========== ========= ========== ========= ========== =========
</TABLE>
Revenues
Electric
Revenues decreased $125 million or 11%, $90 million or 3% and $31
million or 1% for the three, nine and twelve-month periods ended September 30,
1996 from the comparable periods of 1995. Kilowatt-hour sales decreased
primarily due to the Agreements regarding the resolution of three regulatory
issues before the BPU, decreased industrial sales attributable to the general
declining trend in this sector, new cogeneration operations at the site of a
large customer, equipment outages experienced at the site of two other large
customers and strike related activity in the automotive sector. Decreased
industrial sales were slightly offset by higher residential and commercial sales
for the first six months of 1996 that resulted from favorable weather conditions
and continued moderate growth in the economy. The significant components of
these changes follow:
<TABLE>
<CAPTION>
Increase or (Decrease)
----------------------- -- ---------------------- -- ------------------------
Three Months Ended Nine Months Ended Twelve Months Ended
September 30, September 30, September 30,
1996 vs. 1995 1996 vs. 1995 1996 vs. 1995
----------------------- ---------------------- ------------------------
Amount Amount Amount
----------------------- ---------------------- ------------------------
<S> <C> <C> <C>
(Millions)
Kilowatt-hour sales ................. $ (114) $ (107) $ (97)
Recovery of energy costs ............ (9) 7 36
NJGRT ............................... (6) (2) 3
Other operating revenues ............ -- 4 16
PSCRC ............................... 4 8 11
----------------------- ---------------------- ------------------------
Total Electric Revenues ............. $ (125) $ (90) $ (31)
======================= ====================== ========================
</TABLE>
<PAGE>
Gas
Revenues increased $13 million or 7%, $204 million or 18% and $296
million or 19% for the three, nine and twelve-month periods ended September 30,
1996 over the comparable periods of 1995 primarily due to a higher recovery of
fuel costs and increased residential sales due to colder weather during the most
recent heating season. Other operating revenues reflect increases in off-system
sales, which are sales of excess gas to brokers and other utilities who are not
part of PSE&G's firm customer base. The effects of those gains on total revenues
for the nine and twelve-month periods were depressed by approximately $13
million due to a favorable special rate adjustment in 1995.
The significant components of these changes follow:
<TABLE>
<CAPTION>
Increase or (Decrease)
------------------------------------------------------------------------------
Three Months Ended Nine Months Ended Twelve Months Ended
September 30, September 30, September 30,
1996 vs. 1995 1996 vs. 1995 1996 vs. 1995
----------------------- ----------------------- ------------------------
Amount Amount Amount
----------------------- ----------------------- ------------------------
<S> <C> <C> <C>
(Millions)
Therm sales ......................... $ (8) $ 32 $ 37
Recovery of fuel costs .............. 25 166 225
NJGRT ............................... -- -- 22
Other operating revenues ............ (4) 6 12
----------------------- ----------------------- ------------------------
Total Gas Revenues .................. $ 13 $ 204 $ 296
======================= ======================= ========================
</TABLE>
Expense
Fuel Expenses
Variances in fuel expenses do not directly affect earnings because of
fuel adjustment clauses which are part of PSE&G's rates. However, if the
Agreement regarding the resolution of three regulatory issues is approved by the
BPU as filed, future changes in electric fuel and replacement power costs could
impact earnings (see Note 3, Rate Matters, of Notes).
Operation and Maintenance Expenses
Operation and maintenance expenses decreased $24 million or 8% for the
three-month period ended September 30, 1996 from the comparable 1995 period.
There was an increase of $61 million or 7% and $46 million or 4% for the nine
and twelve-month periods ended September 30, 1996 when compared to the same 1995
periods. The decrease during the three-month period was primarily due to lower
outside contractor usage for restart activities at Salem. The nine and
twelve-month increases were primarily due to overall higher refueling outage and
restart activity expenses at Salem and Hope Creek.
Depreciation and Amortization Expenses
Depreciation and amortization expenses increased $4 million or 3%, $14
million or 3% and $27 million or 5% for the three, nine and twelve-month periods
ended September 30, 1996 over the comparable 1995 periods. The increases were
due primarily to the completion of the repowering of the Bergen Generating
Station in September 1995.
Federal Income Taxes
Federal income taxes decreased $48 million or 44%, $60 million or 23%
and $23 million or 8% for the three, nine and twelve-month periods ended
September 30, 1996 from the comparable 1995 periods. The decreases were
primarily due to the decrease in 1996 pre-tax income. The twelve-month decrease
was not as significant as the other two periods due to the offset caused by the
receipt of a non-taxable insurance benefit in 1994.
Allowance for Funds Used During Construction
AFDC decreased $5 million or 55%, $19 million or 62% and $31 million or
65% during the three, nine and twelve-month periods ended September 30, 1996
from the comparable 1995 periods. The decreases were primarily the result of a
lower AFDC rate and the completion of the repowering of the Bergen Generating
Station in September 1995.
<PAGE>
Other Income
Other income decreased $6 million or 38% for the three-month period
ended September 30, 1996 from the comparable 1995 period. There was an increase
of $9 million or 18% and $15 million or 22% for the nine and twelve-month period
ended September 30, 1996 when compared to the same 1995 periods. The primary
reason for the nine and twelve-month period increases is the $18 million net
gain on the repurchase of certain of PSE&G's outstanding cumulative preferred
stock at discounts to par that occurred in the second quarter of 1996.
EDHI
Net Income
<TABLE>
<CAPTION>
Increase or (Decrease)
--------------------------------------------------------------------------------
Three Months Ended Nine Months Ended Twelve Months Ended
September 30, September 30, September 30,
1996 vs. 1995 1996 vs. 1995 1996 vs. 1995
----------------------- ----------------------- ---------------------------
Per Per Per
Amount Share Amount Share Amount Share
--------- --------- ---------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
(Millions, except Per Share Data)
PSRC ................................. $ 5 $ .02 $ 13 $ .05 $ 8 $ .03
CEA .................................. 3 .01 (1) -- (5) (.02)
EGDC ................................. 1 .01 -- -- -- --
--------- --------- ---------- --------- ---------- ------------
Continuing Operations ............... 9 .04 12 .05 3 .01
Discontinued Operations - EDC ....... 19 .07 26 .11 59 .24
========= ========= ========== ========= ========== ============
Total ............................... $ 28 $ .11 $ 38 $ .16 $ 62 $ .25
========= ========= ========== ========= ========== ============
</TABLE>
Continuing Operations
EDHI's income from continuing operations was $22 million for the
quarter ended September 30, 1996, a $9 million increase over the same period
ended September 30, 1995. EDHI's income from continuing operations was $47
million for the nine months ended September 30, 1996, a $12 million increase
over the same period ended September 30, 1995. EDHI's income from continuing
operations was $56 million for the twelve months ended September 30, 1996, a $3
million increase over the same period ended September 30, 1995.
Income from continuing operations for the three, nine and twelve-month
periods increased primarily due to PSRC's increased income from its Kohlberg,
Kravis, Roberts, and Co. LBO fund, decreased interest expense and CEA's
increased operating income from partnership investments for the three-month
period. The increase for the twelve month period was partially offset by CEA's
decreased income caused by start-up costs related to the commencement of two
projects as well as higher administrative and general expenses.
Discontinued Operations
EDHI's income from discontinued operations was $16 million, $24 million
and $61 million for the three, nine and twelve-month periods ended September 30,
1996, respectively. The income from discontinued operations includes a $13.5
million gain on the sale of EDC recorded in July 1996. EDC's income from
operations was $3 million, $11 million and $48 million for the aforementioned
periods which increased by $5 million, $13 million and $45 million over the same
periods ended September 30, 1995. Such increases were caused by higher gas
prices as well as higher oil prices and volumes in addition to the realization
of a settlement related to a take-or-pay sales contract in November 1995.
Liquidity and Capital Resources
Enterprise's liquidity is affected by maturing debt, investment and
acquisition activities, the capital requirements of PSE&G's and EDHI's
construction and investment programs, permitted and timely regulatory recovery
of PSE&G expenses and collection of revenues. Capital resources available to
meet such requirements depend upon general and regional economic conditions,
PSE&G's customer retention and growth, the ability of PSE&G and EDHI to meet
competitive pressures and to contain costs, the adequacy and timeliness of rate
relief, cost recovery and necessary regulatory approvals, the ability to
continue to operate and maintain its nuclear plants in accordance with NRC and
BPU requirements, the impact of environmental regulations, continued access to
the capital markets and continued favorable regulatory treatment of consolidated
tax benefits. For additional information, see the discussion of Competition
above and Note 4, Commitments and Contingent Liabilities, of Notes.
PSE&G
For the nine-month period ended September 30, 1996, PSE&G had utility
plant additions, including AFDC, of $440 million, a decrease of $66 million from
the corresponding 1995 period. For the twelve-month period ended September 30,
1996, PSE&G had utility plant additions, including AFDC, of $620 million, a
decrease of $201 million from the corresponding 1995 period. The nine and
twelve-month decreases were primarily due to the completion of the Bergen
Generating Station repowering project in September 1995.
PSE&G expects that it will be able to internally generate all of its
capital requirements, including construction expenditures, over the next five
years and reduce its debt outstanding by approximately $1 billion, assuming
adequate and timely recovery of costs, as to which no assurances can be given
(see Note 3, Rate Matters, and Note 4, Commitments and Contingent Liabilities,
of Notes).
EDHI
During the next five years, a majority of EDHI's capital requirements
are expected to be provided from additional debt financing and operational cash
flows. CEA is expected to be the primary vehicle for EDHI's business growth. A
significant portion of CEA's growth is expected to occur in the international
arena due to the current and anticipated growth in electric capacity required in
certain regions of the world. EDHI may pursue various other business growth
opportunities, including a domestic energy services corporation.
PSRC will continue to limit new investments to those related to energy
businesses, while Enterprise Group Development Corporation (EGDC) will continue
to exit the real estate business in a prudent manner. Over the next several
years, EDHI and its subsidiaries will be required to refinance a portion of
their maturing debt in order to meet their capital requirements. Any inability
to extend or replace maturing debt and/or existing agreements at current levels
and interest rates may affect future earnings. At September 30, 1996, EDHI had
approximately $170 million of cash and cash equivalents on hand.
PSRC is a limited partner in various limited partnerships and is
committed to make investments from time to time, upon the request of the
respective general partners. At September 30, 1996, $33 million remained as
PSRC's unfunded commitment related to these investments subject to call.
EDHI and each of its subsidiaries are subject to restrictive business
and financial covenants contained in existing debt agreements. EDHI is required
to maintain a debt to equity ratio of no more than 2.00:1 and a twelve-month
earnings before interest and taxes (EBIT) coverage ratio of at least 1.50:1. As
of September 30, 1996, EDHI had a consolidated debt to equity ratio of 1.13:1.
For the twelve months ended September 30, 1996, excluding the discontinued
operations of EDC, the EBIT coverage ratio, as defined to exclude the effects of
EGDC, was 2.73:1. Compliance with applicable financial covenants will depend
upon future financial position and levels of earnings, as to which no assurance
can be given.
Internal Generation of Cash From Continuing Operations
Enterprise
Enterprise's cash provided by operations for the nine months ended
September 30, 1996 decreased $38 million to $994 million from the corresponding
1995 period.
Enterprise's cash provided by operations for the twelve months ended
September 30, 1996 decreased $36 million to $1,429 million from the
corresponding 1995 period.
External Financings
Enterprise
Enterprise has a $25 million bank line of credit. At September 30,
1996, Enterprise had no borrowings under this line of credit.
<PAGE>
PSE&G
PSE&G has BPU authority to issue approximately $4.852 billion aggregate
amount of additional Bonds/MTNs/Preferred Stock/Preferred Securities through
2000 for refunding purposes. Under its Mortgage, PSE&G may issue new First and
Refunding Mortgage Bonds (Bonds) against previous additions and improvements
and/or retired Bonds provided that its ratio of earnings to fixed charges is at
least 2:1. As of September 30, 1996, the Mortgage would permit up to $2.92
billion aggregate principal amount of new bonds to be issued against previous
additions and improvements. At September 30, 1996, this Mortgage ratio was
3.26:1.
In January 1996, PSE&G issued $350 million of its Bonds. The net
proceeds from the sale were deposited in an escrow account for the purpose of
refunding the 8 3/4% Series EE due 2021 ("Series EE Bonds") and the 8 3/4%
Series HH due 2022 ("Series HH Bonds") Bonds at their respective first optional
redemption dates (November 1, 1996 for the Series EE Bonds and February 1, 1997
for the Series HH Bonds). On November 1, 1996, the Series EE Bonds were
redeemed.
The BPU has authorized PSE&G to issue and have outstanding at any one
time through January 1, 1997 not more than $1 billion of short-term obligations,
consisting of commercial paper and other borrowings from banks and other
lenders. PSE&G filed a petition with the BPU on October 24, 1996 that, if
approved, would increase this authorization amount to $1.3 billion and extend
the authorization period to January 2, 1999. On September 30, 1996, PSE&G had
$524 million of short-term debt outstanding.
To provide liquidity for its commercial paper program, PSE&G has a $500
million one-year revolving credit agreement expiring in August 1997 and a $500
million five-year revolving credit agreement expiring in August 2000 with a
group of commercial banks, which provide for borrowings of up to one year. On
September 30, 1996, there were no borrowings outstanding under either of these
credit agreements.
Public Service Conservation Resources Corporation (PSCRC) has a $30
million revolving credit facility supported by a PSE&G subscription agreement in
an aggregate amount of $30 million which terminates on March 6, 1997.
As of September 30, 1996, PSCRC had $30 million outstanding under this facility.
In March 1996, PSCRC entered into a $40 million secured term loan
facility for loans maturing in three to five years. The agreement terminates in
March 1998. As of September 30, 1996, there was $20 million outstanding under
this facility.
PSE&G Fuel Corporation (Fuelco) has a $125 million commercial paper
program to finance PSE&G's 42.49% share of Peach Bottom nuclear fuel, supported
by a $125 million revolving credit facility with a group of banks. The credit
facility expires in 2001. PSE&G has guaranteed repayment of Fuelco's respective
obligations. As of September 30, 1996, Fuelco had commercial paper of $90
million outstanding under the program and the facility.
EDHI
Through July 31, 1996, Enterprise Capital Funding Corporation (Funding)
had a commercial paper program, supported by a commercial bank letter of credit
and credit facility, in the amount of $225 million. Additionally, Funding had a
$225 million revolving credit facility. Both facilities were scheduled to expire
in March 1998. On July 31, 1996, Funding amended and restated its commercial
paper program and revolving credit facility in conjunction with the sale of EDC,
reducing the total amount from $450 million to $300 million and extending the
maturity from March 1998 to July 1999. The $225 million commercial paper program
was eliminated and the $225 million revolving credit facility was increased to
$300 million. As of September 30, 1996, Funding had no borrowings outstanding
under the amended and restated facility.
PSE&G Capital Corporation's (Capital) MTN program provides for an
aggregate principal amount of up to $650 million of MTNs so that its total debt
outstanding at any time, including MTNs, would not exceed such amount. At
September 30, 1996, Capital had total debt outstanding of $461 million, which
consisted primarily of MTNs.
<PAGE>
Public Service Electric and Gas Company
The information required by this item is incorporated herein by
reference to the following portions of Enterprise's Management's Discussion and
Analysis of Financial Condition and Results of Operations, insofar as they
relate to PSE&G and its subsidiaries: Recent Developments; Competition; Nuclear
Operations; Results of Operations; Liquidity and Capital Resources; Internal
Generation of Cash from Operations; and External Financings.
Information Regarding Forward Looking Statements
The Private Securities Litigation Reform Act of 1995 (the Act) provides
a new "safe harbor" for forward-looking statements to encourage such disclosures
without the threat of litigation providing those statements are identified as
forward-looking and are accompanied by meaningful, cautionary statements
identifying important factors that could cause the actual results to differ
materially from those projected in the statement. Forward-looking statements
have been and will be made in written documents and oral presentations of
Enterprise and PSE&G. Such statements are based on management's beliefs as well
as assumptions made by and information currently available to management. When
used in Enterprise and PSE&G's documents or oral presentations, the words
"anticipate", "estimate", "expect", "objective" and similar expressions are
intended to identify forward-looking statements. In addition to any assumptions
and other factors referred to specifically in connection with such
forward-looking statements, factors that could cause actual results to differ
materially from those contemplated in any forward-looking statements include,
among others, the following: deregulation and the unbundling of energy supplies
and services; an increasingly competitive energy marketplace; sales retention
and growth potential in a mature service territory and a need to contain costs;
ability to obtain adequate and timely rate relief, cost recovery, including the
potential impact of stranded costs, and other necessary regulatory approvals;
federal and state regulatory actions; costs of construction; operating
restrictions, increased cost and construction delays attributable to
environmental regulations; controversies regarding electric and magnetic fields;
nuclear decommissioning and the availability of reprocessing and storage
facilities for spent nuclear fuel; and credit market concerns with these issues.
Enterprise and PSE&G undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. The foregoing review of factors pursuant to the Act should
not be construed as exhaustive or as any admission regarding the adequacy of
disclosures made by Enterprise and PSE&G prior to the effective date of the Act.
<PAGE>
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Morton International, Inc. and the Velsicol Chemical Corporation
("Plaintiffs") have instituted separate suits (Morton International, Inc. v.
A.E. Staley Manufacturing Co., et al. Civil Action No. 96-3609 (NHP) and
Velsicol Chemical Corporation, et al. v. A.E. Staley Manufacturing Co., et al.
Civil Action No. 96-3610 (NHP)) in the United States District Court in Newark,
New Jersey against one hundred and seven (107) defendants, including PSE&G. The
suits are contribution actions pursuant to the Comprehensive Environmental
Response Compensation and Liability Act of 1980, as amended, and the New Jersey
Spill and Compensation Act seeking contribution for an equitable share of all
liability response costs and damages Plaintiffs anticipate they will incur in
connection with the investigation and remediation of a forty (40) acre parcel of
land in WoodRidge, New Jersey and adjoining water body known as Berry's Creek.
Plaintiffs have not initiated any remedial actions to date either at the site or
the adjacent Creek. While Plaintiffs anticipate that the investigation of the
site will cost approximately $4 million, they have no current estimate of the
costs for remediation of the site and/or the investigation and remediation of
the Creek. PSE&G's alleged nexus to the site is based on shipments of quantities
of mercury from its Kearny Generating Station and other unnamed facilities.
Since Plaintiffs have only provided PSE&G with representative nexus information,
PSE&G is not able at the current time to determine the precise nature and
significance of any nexus to the site.
As previously reported, PSE&G and the three other co-owners of Salem
filed suit in February 1996 in the United States District Court for the District
of New Jersey against Westinghouse Electric Corporation (Westinghouse) seeking
damages to recover the cost of replacing the steam generators at Salem Units 1
and 2. The suit alleges fraud and breach of contract by Westinghouse in the
sale, installation and maintenance of the generators. In April 1996,
Westinghouse filed an answer and $2.5 million counterclaim for unpaid work
related to services at Salem. PSE&G cannot predict the outcome of these
proceedings.
Also previously reported, the co-owners of Salem have filed lawsuits
against Enterprise and PSE&G in the United States District Court for the Eastern
District of Pennsylvania and in the New Jersey Superior Court alleging
mismanagement by PSE&G in its operation of Salem and are seeking unspecified
compensatory and punitive damages. PSE&G's answers in these matters have been
filed and discovery is proceeding. While PSE&G cannot predict the outcome of
these proceedings, PSE&G believes it has operated Salem in accordance with the
requirements of the owners agreement and applicable law and that it has
substantial and valid defenses to these claims. On July 30, 1996, the Court
issued an Order scheduling discovery and setting a trial for May 1997.
Certain information reported under Item 3 of Part I of Enterprise's and
PSE&G's Annual Report to the SEC on Form 10-K for 1995 (the "Form 10-K") is
updated herein at the respective pages indicated. References are to the related
pages and paragraph(s) of this report.
As previously reported in the Form 10-K at page 39 and in a prior Form
8-K, four shareholder derivative action civil complaints have been filed against
Enterprise and certain of its directors and officers seeking to recover
unspecified damages for alleged losses purportedly arising out of PSE&G's
operations of Salem and Hope Creek. These actions have been consolidated and a
case management order to deal with discovery and motions has been issued. The
defendants have filed motions to dismiss these proceedings, which motions are
presently pending.
In addition, see the following at the pages indicated:
(1) Page 12. Proceedings before the BPU relating to PSE&G's proposed
Alternative Rate Plan, Docket No. E096010028. Form 10-K, Page 73;
First Quarter Form 10-Q, Page 11; Second Quarter Form 10-Q, Page 12.
(2) Page 13. Proceedings before the BPU relating to PSE&G's LGAC filed
October 2, 1995, Docket No. GR9510456. Form 10-K, Page 75. First
Quarter Form 10-Q, Page 13; Second Quarter Form 10-Q, Page 15.
(3) Page 13. Proceedings before the BPU relating to recovery of
replacement power costs in connection with the April 1994 Salem 1
shutdown, Docket No. ER94070293. Form 10-K, Page 75; First Quarter
Form 10-Q, Page 13, Second Quarter Form 10-Q, Page 15.
(4) Page 12. Generic proceeding before the BPU relating to recovery of
capacity costs associated with power purchases from cogenerators,
Docket No. EX93060255. Form 10-K, Page 76; First Quarter Form 10-Q,
Page 13; Second Quarter Form 10-Q, Page 17.
(5) Page 14. Generic proceedings before the BPU relating to standards for
"off tariff" negotiated rate agreement programs, Docket No.
EX95070320. Form 10-K, Page 76. First Quarter Form 10-Q, Page 13;
Second Quarter Form 10-Q, Page 16.
(6) Page 13. Proceedings before the BPU relating to PSE&G's LGAC filed
July 30, 1996, Docket No. GR96070554. Second Quarter Form 10-Q, Page
15.
(7) Page 13. Proceedings before the BPU relating to PSE&G's RAC filed July
30, 1996, Docket No. GR96070555. Second Quarter Form 10-Q, Page 15.
(8) Page 14. Generic proceeding before the BPU relating to the matter of
an inquiry into methods of implementation of SFAS-106, Docket No.
AX96070530. Second Quarter Form 10-Q, Page 17; Second Quarter Form
10-Q, Page 17.
(9) Page 14. Proceedings before the BPU relating to PSE&G's proposed CTC
filed September 19, 1996, Docket No. ET96090669.
(10) Page 14. Proceedings before the BPU relating to PSE&G's first Off
Tariff Rate Agreement (OTRA), Docket No. OTRA-96-1.
Item 5. Other Information
Certain information reported under Enterprise's and PSE&G's 1995 Annual
and 1996 Quarterly Reports to the Securities and Exchange Commissions is updated
below. References are to the related pages of the Form 10-K and the first and
second quarter 10-Q's as printed and distributed.
Nuclear Operations
Second Quarter 10-Q, Page 44
On October 23, 1996, PSE&G received a $150,000 civil penalty from the
NRC for five violations identified during inspection activities earlier this
year and discussed at an enforcement conference on June 11, 1996. The first two
violations involved a failure to plan and perform appropriate surveillance
testing, and were assigned an aggregate severity level III violation. The second
two violations concerned failure to provide timely identification and correction
of problems involving safety related equipment, also assigned severity level
III. An additional severity level III violation was noted for incorrect service
water throttle valve settings. No civil penalty was assigned for this violation,
since the condition was self-identified and appropriate corrective actions were
taken. PSE&G will not dispute these violations.
Second Quarter 10-Q, Page 45
On July 5, 1996, the NRC notified PSE&G of the need for a predecisional
enforcement conference for apparent violations involving alleged discrimination
against two employees for their engagement in protected activities in accordance
with federal regulations. The enforcement conference was held on September 11,
1996. PSE&G cannot predict what actions the NRC may take in this matter.
First Quarter 10-Q, Page 44
In a separate matter, as a result of several Boiling Water Reactors
(BWR) experiencing clogging of some emergency core cooling system suction
strainers, which supply water from the suppression pool for emergency cooling of
the core and related structures, the NRC issued a Bulletin dated May 6, 1996 to
operators of BWRs requesting measures be taken to minimize the potential for
clogging. The NRC has proposed three resolution options, with a request that
actions be completed by the end of the unit's first refueling outage after
January 1997. Alternative resolution options will be subject to NRC approval.
PSE&G has responded to the NRC, indicating its intention to comply with the
Bulletin, and expects to submit its planned actions and schedules within 90 days
after the NRC approves a utility resolution guidance document. PSE&G cannot
predict what other actions, if any, the NRC may take in this matter.
Form 10-K, Page 7 and Second Quarter 10-Q, Page 42
In July, the member companies of Pennsylvania-New Jersey-Maryland
Interconnection (PJM), except PECO, filed a proposal to reorganize PJM into an
independent system operator (ISO) in response to FERC's open access proposed
rulemaking. PECO filed a separate proposal with FERC. On November 13, 1996,
FERC, at its public meeting, announced that it was rejecting the restructuring
proposals of both PECO and the other PJM companies due to concerns regarding the
independence of the proposed ISO, among other things. The text of FERC's order
has not been received as of the date of this filing. PSE&G cannot yet assess the
impact of FERC's order on the restructuring proposals.
Form 10-K, Page 14
PECO has advised PSE&G that Peach Bottom 3 was examined during its Fall
1995 refueling outage and the extent of cracking identified was determined to be
within industry-established guidelines. In a letter to the NRC dated November 3,
1995, PECO concluded that there is a substantial margin for each core shroud
weld to allow for continued operations of Unit 3. PECO has also advised that
Peach Bottom 2 was reinspected during its Fall 1996 refueling outage, and while
additional minor flaw indications were discovered, PECO concluded and the NRC
concurred that neither repair nor modification to the core shroud was necessary
prior to restarting the reactor.
New Matters
In August 1996, the NRC conducted an inspection of the Physical
Security Program for Salem and Hope Creek. Based on the results of that
inspection, six apparent violations have been identified and are being
considered for escalated enforcement. These apparent violations include the
failure to: 1) control photo badge key cards; 2) properly search an individual
prior to entrance to the protected area; 3) notify the nuclear shift supervisor
of a potential threat event; 4) deactivate photo badges for individuals who no
longer require site access; 5) complete training for security supervisors prior
to assignment of duties; and 6) test an intrusion detection system in accordance
with procedures. On September 3, 1996, PSE&G met with the NRC to discuss these
issues and provide specific corrective actions. An enforcement conference will
be held on November 14, 1996 to address these apparent violations. PSE&G cannot
predict what other actions the NRC may take on this matter.
In October 1996, PSE&G, along with other nuclear plant owners, received
a request for information regarding the adequacy and availability of each
plant's design bases data. The NRC is requiring that information be submitted
under oath and affirmation to provide it added confidence and assurance that all
nuclear units are operated and maintained within the design bases of the
facilities and that any deviations are reconciled in a timely manner. Although
PSE&G has yet to formulate a response to the NRC's request, it is anticipated
that design bases reviews, similar to the extensive efforts already performed
for Salem Unit 2, will be undertaken for Salem Unit 1 and Hope Creek. Since the
information to be submitted will be used by the NRC to determine follow-up
inspection activity or potential enforcement actions, PSE&G cannot predict at
this time what impact the NRC's request will have.
Item 6. Exhibits and Reports on Form 8-K
(a) A listing of exhibits being filed with this document is as follows:
Exhibit Number Document
12 Computation of Ratios of Earnings to Fixed Charges plus Preferred
Securities Dividend Requirements (Enterprise).
12(A) Computation of Ratios of Earnings to Fixed Charges (PSE&G).
12(B) Computation of Ratios of Earnings to Fixed Charges plus Preferred
Securities Dividend Requirements (PSE&G).
27(A) Financial Data Schedule (Enterprise)
27(B) Financial Data Schedule (PSE&G)
<PAGE>
(b) Reports on Form 8-K.
Registrant Date of Report Item Reported
Enterprise 7-2-96 Item 5, Item 7
Enterprise and PSE&G 7-22-96 Item 5, Item 7
Enterprise 10-23-96 Item 5, Item 7
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrants have duly caused these reports to be signed on their respective
behalf by the undersigned thereunto duly authorized.
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
(Registrants)
By: PATRICIA A. RADO
Patricia A. Rado
Vice President and Controller
(Principal Accounting Officer)
Date: November 14, 1996
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 12
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
PLUS PREFERRED SECURITIES DIVIDEND REQUIREMENTS
12 Months
Ended
YEARS ENDED DECEMBER 31, September 30,
------------ ------------ ------------ ------------- -------------
1991 (A) 1992 (A) 1993 (A) 1994 1995 1996
------------ ------------ ------------ ------------- ------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
(THOUSANDS)
Earnings as Defined in
Regulation S-K:
Net Income 543,035 504,117 595,519 679,033 662,323 636,757
Federal Income Taxes (B) 274,146 253,276 316,010 322,824 364,355 294,035
Fixed Charges 530,308 580,364 570,505 568,611 580,432 529,854
------------ ------------ ------------ ------------- ------------- -----------------
Earnings 1,347,489 1,337,757 1,482,034 1,570,468 1,607,110 1,460,646
============ ============ ============ ============= ============= =================
Fixed Charges as Defined in
Regulation S-K (C):
Total Interest Expense (D) 478,321 524,025 502,534 495,925 496,060 453,503
Interest Factor in Rentals 9,311 9,591 11,090 12,120 11,956 11,164
Subsidiaries' Preferred Stock
Dividend Requirements 29,012 31,907 38,114 42,163 49,426 50,448
Adjustment to preferred and
preference stock dividends
to state on a pre-income
tax basis 13,664 14,841 18,767 18,403 22,990 14,739
------------ ------------ ------------ ------------ ------------- -----------------
Total Fixed Charges 530,308 580,364 570,505 568,611 580,432 529,854
============ ============ ============ ============= ============= =================
Ratio of Earnings to Fixed
Charges 2.54 2.30 2.59 2.76 2.77 2.76
============ ============ ============ ============= ============= =================
</TABLE>
(A) Excludes cumulative effect of $5.4 million credit to income reflecting a
change in income taxes.
(B) Includes state income taxes and federal income taxes for other incomes
(C) Fixed Charges represent (a) interest, whether expensed or capitalized, (b)
amortization of debt discount, premium and expense, (c) an estimate of
interest implicit in rentals, and (d) Preferred Securities Dividend
Requirements of subsidiaries, increased to reflect the pre-tax earnings
requirement for Public Service Enterprise Group Incorporated.
(D) Excludes 1991 and 1992 interest expense on decommissioning costs of $6,956
and $5,208, respectively. Effective January 1, 1992, accounting was
changed to follow Federal Energy Regulatory Commission guidelines.
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 12 (A)
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
12 Months
Ended
YEARS ENDED DECEMBER 31, September 30,
------------ ------------- ------------- ------------- -------------
1991 1992 1993 1994 1995 1996
------------ ------------- ------------- ------------- ------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
(THOUSANDS)
Earnings as Defined in
Regulation S-K:
Net Income 545,479 475,936 614,868 659,406 616,964 528,046
Federal Income Taxes (A) 261,912 223,782 307,414 301,447 325,737 264,591
Fixed Charges 367,828 411,493 401,046 408,045 418,825 436,028
------------ ------------- ------------- ------------- ------------- ----------------
Earnings 1,175,219 1,111,211 1,323,328 1,368,898 1,361,526 1,228,665
============ ============= ============= ============= ============= ================
Fixed Charges as Defined in
Regulation S-K (B)
Total Interest Expense (C) 358,517 401,902 389,956 395,925 406,869 401,208
Interest Factor in Rentals 9,311 9,591 11,090 12,120 11,956 11,164
Subsidiaries' Preferred Stock
Dividend Requirements -- -- -- -- -- 23,656
------------ ------------- ------------- ------------- ------------- ----------------
Total Fixed Charges 367,828 411,493 401,046 408,045 418,825 436,028
============ ============= ============= ============= ============= ================
Ratio of Earnings to Fixed
Charges 3.20 2.70 3.30 3.35 3.25 2.82
============ ============= ============= ============= ============= ================
</TABLE>
(A) Includes state income taxes and federal income taxes for other income
(B) Fixed Charges represent (a) interest, whether expensed or capitalized, (b)
amortization of debt discount, premium and expense, (c) an estimate of
interest implicit in rentals, and (d) Preferred Securities Dividend
Requirements of subsidiaries
(C) Excludes 1991 and 1992 interest expense on decommissioning costs of $6,956
and $5,208, respectively. Effective January 1, 1992, accounting was
changed to follow Federal Energy Regulatory Commission guidelines
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 12 (B)
PUBLIC SERVICE ELECTRIC AND GAS COMPANY
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
PLUS PREFERRED SECURITIES DIVIDEND REQUIREMENTS
12 Months
Ended
YEARS ENDED DECEMBER 31, September 30,
------------ ------------- ------------- ------------- -------------
1991 1992 1993 1994 1995 1996
------------ ------------- ------------- ------------- ------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
(THOUSANDS)
Earnings as Defined in
Regulation S-K:
Net Income 545,479 475,936 614,868 659,406 616,964 528,046
Federal Income Taxes (A) 261,912 223,782 307,414 301,447 325,737 264,591
Fixed Charges 367,828 411,493 401,046 408,045 418,825 436,028
------------ ------------- ------------- ------------- ------------- -----------------
Earnings 1,175,219 1,111,211 1,323,328 1,368,898 1,361,526 1,228,665
============ ============= ============= ============= ============= =================
Fixed Charges as Defined in
Regulation S-K (B):
Total Interest Expense (C) 358,517 401,902 389,956 395,925 406,869 401,208
Interest Factor in Rentals 9,311 9,591 11,090 12,120 11,956 11,164
Subsidiaries' Preferred Stock
Dividend Requirements -- -- -- -- -- 23,656
Preferred Stock Dividends 29,012 31,907 38,114 42,147 49,426 26,792
Adjustment to preferred and
preference stock dividends
to state on a pre-income
tax basis 13,691 14,768 18,843 18,763 23,428 13,931
------------ ------------- ------------- ------------- ------------- -----------------
Total Fixed Charges 410,531 458,168 458,003 468,955 491,679 476,751
============ ============= ============= ============= ============= =================
Ratio of Earnings to Fixed
Charges 2.86 2.43 2.89 2.92 2.77 2.58
============ ============= ============= ============= ============= =================
</TABLE>
(A) Includes state income taxes and federal income taxes for other income
(B) Fixed Charges represent (a) interest, whether expensed or capitalized, (b)
amortization of debt discount, premium and expense, (c) an estimate of
interest implicit in rentals, and (d) preferred securities dividend
requirements of Subsidiaries, increased to reflect the pre-tax earnings
requirement for Public Service Electric and Gas Company
(C) Excludes 1991 and 1992 interest expense on decommissioning costs of $6,956
and $5,208, respectively. Effective January 1, 1992, accounting was changed
to follow Federal Energy Regulatory Commission guidelines.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from SEC Form
10-Q and is qualified in its entirety by reference to such financial
statements. The referenced financial statements are unaudited but, in the
opinion of Enterprise's management, reflect all adjustments, consisting only of
normal recurring accruals, necessary for a fair presentation.
</LEGEND>
<CIK> 0000788784
<NAME> PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 11,167,943
<OTHER-PROPERTY-AND-INVEST> 2,345,649
<TOTAL-CURRENT-ASSETS> 1,848,651
<TOTAL-DEFERRED-CHARGES> 1,676,117
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 17,038,360
<COMMON> 3,741,152
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 1,674,690
<TOTAL-COMMON-STOCKHOLDERS-EQ> 5,415,842
568,000
113,392
<LONG-TERM-DEBT-NET> 4,796,539
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 643,691
<LONG-TERM-DEBT-CURRENT-PORT> 389,475
0
<CAPITAL-LEASE-OBLIGATIONS> 52,564
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 5,058,857
<TOT-CAPITALIZATION-AND-LIAB> 17,038,360
<GROSS-OPERATING-REVENUE> 4,467,094
<INCOME-TAX-EXPENSE> 230,238 <F1>
<OTHER-OPERATING-EXPENSES> 3,432,657
<TOTAL-OPERATING-EXPENSES> 3,661,655
<OPERATING-INCOME-LOSS> 805,439
<OTHER-INCOME-NET> 570
<INCOME-BEFORE-INTEREST-EXPEN> 806,009
<TOTAL-INTEREST-EXPENSE> 339,415
<NET-INCOME> 484,475
37,649
<EARNINGS-AVAILABLE-FOR-COMM> 484,475
<COMMON-STOCK-DIVIDENDS> 394,944
<TOTAL-INTEREST-ON-BONDS> 288,180
<CASH-FLOW-OPERATIONS> 993,559
<EPS-PRIMARY> 1.98
<EPS-DILUTED> 1.98
<PAGE>
<FN>
<F1>State Income Taxes of $4,957 and Federal Income Taxes for Other Income of
$1,240 were incorporated into this line item for FDS purposes. In the referenced
financial statements, State Income Taxes are included in Taxes - Other and
Federal Income Taxes for Other Income are included in Other Income -
Miscellaneous.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from SEC form
10-Q and is qualified in its entirety by reference to such financial statements.
The financial statements are unaudited but, in the opinion of PSE&G's
management, reflect all adjustments, consisting only of normal recurring
accruals, necessary for a fair presentation.
</LEGEND>
<CIK> 0000081033
<NAME> PUBLIC SERVICE ELECTRIC AND GAS COMPANY
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 11,167,943
<OTHER-PROPERTY-AND-INVEST> 519,612
<TOTAL-CURRENT-ASSETS> 1,362,034
<TOTAL-DEFERRED-CHARGES> 1,669,020
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 14,718,609
<COMMON> 2,563,003
<CAPITAL-SURPLUS-PAID-IN> 594,395
<RETAINED-EARNINGS> 1,387,609
<TOTAL-COMMON-STOCKHOLDERS-EQ> 4,545,007
568,000
113,392
<LONG-TERM-DEBT-NET> 4,293,202
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 643,691
<LONG-TERM-DEBT-CURRENT-PORT> 250,000
0
<CAPITAL-LEASE-OBLIGATIONS> 52,564
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 4,252,753
<TOT-CAPITALIZATION-AND-LIAB> 14,718,609
<GROSS-OPERATING-REVENUE> 4,310,333
<INCOME-TAX-EXPENSE> 206,007 <F1>
<OTHER-OPERATING-EXPENSES> 3,383,404
<TOTAL-OPERATING-EXPENSES> 3,588,171
<OPERATING-INCOME-LOSS> 722,162
<OTHER-INCOME-NET> 553
<INCOME-BEFORE-INTEREST-EXPEN> 722,715
<TOTAL-INTEREST-EXPENSE> 320,438 <F2>
<NET-INCOME> 414,156
19,074
<EARNINGS-AVAILABLE-FOR-COMM> 413,575
<COMMON-STOCK-DIVIDENDS> 384,600
<TOTAL-INTEREST-ON-BONDS> 259,505
<CASH-FLOW-OPERATIONS> 828,777
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<PAGE>
<FN>
<F1>State Income Taxes of $1,227 and Federal Income Taxes for Other Income of
$1,240 were incorporated into this line item for FDS purposes. In the referenced
financial statements, State Income Taxes are included in Taxes - Other and
Federal Income Taxes for Other Income are included in Other Income -
Miscellaneous.
<F2>Total interest expense includes Preferred Securities Dividend Requirements.
</FN>
</TABLE>
